Wholesale Real Estate is probably the easiest yet least understanding method of generating cash flow. The general challenge with understanding it has to do with with definition.
I like to think of Wholesaling as an Umbrella which covers several methods of property acquisition. Now, purists may disagree with me but this time here is why I say it. Wholesale, in real estate, means the same thing as it does not in any other market, you buy well under market value buy volume or bulk. If you think about about retail industry it & # 39; sa bit easier to see - your favorite gift shop buys it & # 39; s wares from a wholesaler who buy from the manufacturer for a low-price because it's a good news for the shop and 10 other shops too - the wholesaler gets a good reduction but he marks it up to sell to the proprietor of the shop, Now marks it up to sell it to you. You are not need 75 rolls of paper towels in one big package but the you are to take advantage of BULK buying discounts unit pricing is so much better than at the regular grocery store, you just can not help yourse lf!
So it is with wholesale real estate - it & # 39; s simply buying below market at lower per / unit pricing and then marking up to sell to either a retailer or an end - user.
So what ways can you acquire wholesale real estate?
· Bank REOs listed by real estate agents
· Pre-foreclosure / Short Sale properties listed by real estate agents
· Directly from troubled property owners: Homeowners, landlords, rehabbers
· Bulk REO purchases from Banks or other institutions themselves
· From a Wholesaler who has already done the work for you in the above methods and is now able to sell to you a small mark up but still well under market value.
Here let's cash flow. The phrase "Cash is King" could not be truer than in today 's environment - everyone, and I mean EVERYONE, is looking for cash. Here are some of the ways cash rules in real estate today:
· Institutional loans, especially for investors, are all but non-existent
· Hard Money lenders more and more "skin in the game" and rates are higher, sometimes up to 20%
· Many investors are selling off inventory just to raise cash
· Other investors are pooling cash to buy inventory
· Banks and private sellers alike love to see all cash offers
· Foreclosures force homeowners to become renters ___ ___ 0 ___ ___ 0 ___ ___ 0
· New investors, without cash, need ways to create cash flow but can not yet buy rental properties themselves
· MORAL - HE WHO HAS CASH WINS!
** Quick note here - I am speaking about residential properties here are many of the same concepts can be ported over to commercial investing as well.
So ... what are the SECRETS to Cash Flow in Wholesale Real Estate?
1. Can you buy it yourself? If you can buy it, will you will not buy it, will you try to exit strategy - before you strike out to find a fantastic deal If you are do rehab that you needs? If you are the rehab, can you rent it out and if you do, will you landlord or get a property management company - do you even know any property management companies? How will you sell it? How will you sell it? Do you know an agent? How much you can you mark it up? What will you do? Not sell it? These are just some of the questions you would like to be able to answer before you set it.
2. Find Buyers FIRST - no matter what strategy you use purchase a property or even what you think you can do with a property, you need to know if you can get rid of your property - a great deal is only great if someone else I will not waste your own time, money and effort in negotiating deals that wants to buy it! no-one else wants!
3. Negotiate with knowledge - this your hand hand in hand with number going a bit more in-depth. If you are investing locally or in other states, you still need to know where the deals get bought up How many foreclosures and vacancies are in the area, what is the economic climate - are people working or losing jobs? Also, know what the property value is in it & # 39; s current state of repair and be prepared to negotiate for the very low bargain you can make.
4. Let the next guy do the rehab - tv show like Flip This House has made the idea of rehabbing seem like the thing to do - even with all the challenges those guys have every episode, it never fails to surprise me how many brand new investors want to rehab and sell for a profit, even in this market. You just go a bit, sell it to him, let him enjoy the reward of a bigger pay day you just go find the 10!
5. Leverage your relationships - you may be surprised at who you are already in real estate investing coming from your set of contacts and cash flow is dependent on that set of connections to be sure. Stand in Assembling money "If I had the funds, I would buy as much real estate as possible right now" - if you are the person or know that person then use your relationships to solve that dilemma. is no easy task and most of us are apprehensive about how to even though need to sound like we need money. we if you go into it go into it thinking that, that is what you & # 39; ll sound like. , if you are going into it with a strategy where you are going to be expert on finding and selling great deals for a profit and you & # 39; ll do the work if a couple of people can put up funds ... well, then you have a value proposition that many people are searching for right now. NOTE: Setting u p a private money program like this need due diligence on your part as well as but not limited to professional guidance from attorneys and CPAs.
6. CONTROL vs. BUY - this one thing is perhaps the single largest point to comprehend when it comes to cash flow in real estate. The absolute KEY to creating cash without USING cash is CONTROL. you something called "equitable interest" and that you can actually SELL or ASSIGN that interest (with the owner 's permission) to another party who can then close on the deal? This is the core of wholesaling right here - control the property long enough to find a buyer willing to pay more for it than you have it under contract for. Now, these are not generally huge spreads ($ 2K to $ 25K on average) but we are talking about a fast, straightforward, highly repeatable event here - and once you complete one or two, you 'll be hooked .
So let & # 39; s review.
Wholesaling means buying under market, marking up a product of a number of ways such as bank owned properties, short sales, bulk reos, distracted owners, or through wholesalers themselves.
Cash is King and today, everyone and needs cash. Loans are near unattainable to find, hard money is more expensive and need more "skin in the game" than it used, some investors are selling to raise money , other investors are pooling cash to buy properties, foreclosures force homeowners to become renters and increase number of discount properties available for cash investors, and new investors without cash need to be able to start from zero.
The 6 secrets to cash flow through wholesaling are: Start with then end in mind - know your exit strategy, Find buyers first, Negotiate with knowledge - know your market and know your product, Leverage your relationships - everyone wants to invest in real estate, CONTROL vs. BUY - even if you have SOME cash, do not tie it up in a deal, just get control and sell your equitable interest to someone with deer pockets than yours - generate capital from this and then you & # 39; ll be able to generate income from properties you can own.
