Wholesale real estate is probably the simplest yet least understood method of generating cash flow. The general challenge of understanding it has to do with definition.
I like to think of wholesale as an umbrella organization that covers multiple methods of real estate acquisition. Well, purists might disagree with me on this, but here’s why I say it. Wholesale means the same in real estate as in any other market, you buy well below market value and often get bigger discounts if you buy in bulk or in bulk. When you think of retail it’s a little easier to see – your favorite gift shop buys their goods from a wholesaler who opensource real estate buys cheap from the manufacturer because they also supply your gift shop and 10 other shops – the wholesaler gets a good discount but he does tag it to sell to the shopkeeper who will tag it to sell to you. Now think about your Costco and Sam’s Club stores – they go there to take advantage of BULK purchase discounts – you might not need 75 rolls of paper towels in one big packet, but the unit price is so much better than the regular grocery store, you just can’t help it!
That’s how it is with wholesale properties – they are simply bought below market value at lower unit prices and then upgraded for sale to a retailer or end user.
So how can you acquire wholesale real estate?
- Bank REOs listed by real estate agents
- Properties listed by real estate agents prior to foreclosure/short sale
- Direct from distressed property owners: homeowners, landlords, rehabbers
- Large REO purchases by banks or other institutions themselves
- From a wholesaler who has already done the work for you using one or more of the above methods and can now sell you for a small premium but still well below market value.
Now let’s look at the cash flow. The phrase “cash is king” couldn’t be more true than it is today – everyone, and I mean EVERYONE, is looking for cash. Here are some of the ways cash rules in real estate today:
- Institutional credit, especially for investors, is almost non-existent
- Coin lenders are always looking for more skin and interest rates are higher, sometimes up to 20%
- Many investors sell inventory just to raise money
- Other investors pool cash to buy inventory
- Banks and private sellers like to see all cash offers
- Foreclosures are forcing homeowners to become renters, increasing both the number of discount homes for sale and the number of people paying rent to investors who can buy, hold and rent for income
- New cashless investors need ways to generate cash flow but can’t yet buy rental properties themselves
- MORAL – IF YOU HAVE CASH, YOU WIN!
Quick note here
I am talking about residential real estate here, but many of the same concepts can be applied to commercial investments as well.
So… what are the SECRETS of cash flow in wholesale real estate?
1. Start with the end in mind
Know your exit strategy – before you go looking for a great deal – what can you do with it when you find it? Can you buy it yourself If you can buy it, will you be able to do rehab that needs it? If you can do the rehab, you can rent it out and if so, do you get landlords or property management companies – do you even know property management companies? If you want to sell it, who will buy it? How are you going to sell it? Do you need an agent? Do you know agents who work with investors? How much can you mark it? What will you do if you cannot or cannot sell it? These are just some of the questions you’ll want answered before you travel. The answers you receive will help you decide which acquisition and disposition strategies to use.
2. Find buyers FIRST
No matter what strategy you use when buying a property or what you think you are doing with a property, you need to know if you can sell your property – a good deal is only great when someone else is doing it want to buy it! Find out where and what the other investors in your market are buying, how much they are paying and what kind of rebates they want – this way you don’t waste your own time, money and effort negotiating deals that nobody else wants !
3. Negotiate with knowledge
Know your market – this goes hand in hand with number two above, but goes a little deeper. If you’re investing locally or in other states, you still need to know where the deals are being bought up, but you should also try to get information about the market itself. Which zip codes are desirable and which are not. What is the current market average? How many foreclosures and vacancies are there in the area, what’s the economy like – are people working or losing their jobs? Also, find out the current value of the property and be ready to bargain for the lowest bargain you can get.
4. Let the next guy do the rehab
TV shows like Flip This House have made the idea of rehab seem like the right thing to do — even with all the challenges these guys have in every episode, I never cease to be amazed at how many brands In this market, too, new investors want to restructure and sell at a profit. Unless you have very deep pockets, can act as your own general contractor, enjoy MASSIVE amounts of stress – my advice is let the next guy into rehab – you tear it up a bit, sell it to him, let him Die Enjoy the reward of a bigger payday while taking on all the risk. Just find him 10 more deals like this one!
5. Use your connections
You might be surprised who you already know or who you know. 90 percent of success in real estate investing comes from your connections, and cash flow surely depends on those connections. Stand in a crowd long enough and someone will say, “Man! If I had the money, I would buy as many properties as I can right now” – if you are that person or know that person then use your connections to do this to solve dilemma. Raising money is no easy task, and most of us fret over how we can even bring up the topic because we don’t want to sound like we need money. But if you go in with those thoughts, this is what you’ll sound like. However, if you approach it with a strategy where you’ll be an expert at finding and selling great deals at a profit, and you’ll get the job done when a few people can come up with money… well, there you have it it done, a value proposition that many people are looking for right now. NOTE: Setting up such a private money program requires due diligence on your part, including but not limited to professional guidance from attorneys and accountants.
6. CONTROL vs. BUY
This is perhaps the most important point to understand when it comes to real estate cash flow. The absolute KEY to creating cash without using cash is CONTROL. Did you know that a contract for a property gives you what is called “fair interest” and that you can actually (with the owner’s consent) SELL or ASSIGN that interest to another party who can then complete the deal? And that you do this for a fee? AND that you can do this without a real estate license (subject to your state and local laws of course). This is the essence of wholesale trading here – control the property long enough to find a buyer willing to pay more than you agreed for it. Now, these aren’t generally huge spreads ($2,000-$25,000 on average), but we’re talking about a quick, straightforward, highly repeatable event – and once you’ve completed one or two you’ll be hooked.
So let’s check.
Wholesale means buying below market price, knocking something down and selling at a profit. You can purchase products in a variety of ways, such as: B. via bank-owned real estate, short sales, large reos, distressed owners or via wholesalers themselves.
Cash is king and today everyone, I mean everyone, wants and needs cash. Credit is almost unattainable, hard money is more expensive and requires more “background” than it used to, some investors are selling to raise money, other fundraisingscript investors are pooling cash to buy properties, foreclosures are forcing homeowners to become tenants and the number of properties is increasing Discount real estate available to cash investors and new cashless investors must be able to start from scratch. The 6 Secrets to Wholesale Cash Flow are: Start with the end in mind – know your exit strategy, find buyers first, negotiate with knowledge – know your market and product, leverage your relationships – everyone wants to invest in real estate , being a problem solver , and finally, but most importantly, CONTROL vs. BUY – even if you have SOME cash, don’t tie it into a deal, just take control and sell your fair share to someone with deeper pockets than You – Generate capital from it and then you can generate income from real estate that you can own.