Before diving into the analysis, you first need to know what wholesaling is, and why it's so appealing to beginner investors.
- Hey, welcome back. This is the first real lecture for this course. So before we begin, what is wholesaling and why is it so appealing anyway? Well, in short, wholesaling is a way of investing that allows you, an investor, to put a property under contract and then go around and market it and resell it to another investor, hopefully for a profit, without really having to own the property or have to do any kind of work. That usually involves a property that is in distress with a seller that is motivated to sell. These deals are usually done with all cash, although some wholesalers will leverage lines of credit or hard money loans or even private investor funds to do the deals. A typical scenario will involve a wholesaler finding a motivated seller on a property that isn't listed on the market. Now, maybe the seller is behind on some mortgage payments, or maybe they just want to sell and move to another part of the country really quick. They don't want to go through a long drawn-out process and have to fix the house and get it market-ready. So the wholesaler will meet and visit the seller at the property, do a thorough assessment of all the work that's needed, sometimes a lot, and then make an all-cash offer. The wholesaler offers to buy the house all cash at a steep discount in exchange for a quick, hassle-free closing, pay for all the closing costs and any commission so it's easy for the seller. So let's say that a wholesaler and a seller agree to a $75,000 sale price for a property. The wholesaler has done their homework and know that it's going to take another 25,000 of rehab work to get it market-ready. And they think that the property can sell for 125,000 in the market based on all the research that they've done. Now, once under contract, the wholesaler pitches this property to other all cash investor buyers that they already got to know in the market. Maybe they find a buyer investor who's looking to flip this property, and this investor has done all the homework. They know that they can do what it needs, and so they offer to buy the property for 80,000 as-is. The wholesaler then contracts and closes what's known as a double closing and pockets 5,000 in profit without doing any rehab work. So at the end we have a potential win-win-win situation. The homeowner got quick cash that they needed without the hassles of a long and drawn-out sales process like finding an agent and cleaning and fixing the house and getting it ready. It was fast and was painless. The flip investor who is experienced and was able to get this property, do the rehab for 25,000, so 105,000 all in, and then turn around and sell the home for 125,000 a few months later, making them $20,000 in profit. And you can think of the wholesaler then as someone who is connecting the dots between the seller and the buyer and then getting paid sort of like a finder's fee, but not really since you need a license for that. So in the ideal case, everyone wins, right? Now, are these numbers achievable? Yes, but ultimately it's going to depend on the market that you're in and the size of the deals that you're working with. Some will average less and some will average more. So why is wholesaling so popular then? Well, when done legally it's a great way to get started in real estate. It can be done with little to no capital, which is a great thing for those that are just starting out in real estate investing. And it doesn't require any real estate license, and it's relatively easy to learn. Now although in some states where the laws are a little bit murkier, it is advised for those who are interested in wholesaling to get a license just to be on the safe side. The process of getting a license is usually pretty straightforward and not very costly. So the lesson here is understand the laws in your state about wholesaling. So practically anyone with no money and experience can get started in wholesaling. But that doesn't mean that it's easy. It's hard work. Just join any local wholesaling meetup or a Facebook group and talk to people who are either just starting out or even if they've been doing it for a few years. Ask them what it's like. They're going to tell you it takes commitment and requires that you really understand the markets that you're in. It takes time to learn and to perfect the process for finding deals and finding cash buyers. It takes time to develop and nurture your relationships that's going to help you succeed. It takes networking. And to do it to any meaningful level it's going to take some hustling. So don't let any internet real estate guru taking your hard-earned money tell you otherwise. But if you're watching this, you probably already know that. Next up we're going to look at some of the important terms that all wholesalers should understand when it comes to analyzing their deals.
- Name the formula used to calculate the MAO from the AVR.
- Summarize the 70% rule.
- Differentiate between the rehab estimator, ARV, and MAO calculator worksheets.
- Describe the factors in an AVR estimate.
- Cite the formulas that are helpful when pitching to a flip investor buyer.
- Explain the difference between recently sold comps and rental comps.