No Money? Poor Credit?

Learn the Power of Wholesale Real Estate Investing

By Jordan Taylor

In business, wholesale is defined as the sale of merchandise to retailers rather than directly to the public (The New Dictionary of Cultural Literacy, Third Edition). In real estate investing, the term means to buy property below market value then use one of several possible exit strategies to make your profit.

“Wholesaling is one of the most powerful strategies in real estate investing, and it really is something you can do with no money and poor credit,” says Russ Whitney, founder and CEO of Whitney Information Network, Inc.

Whitney, the bestselling author of Building Wealth (Simon & Schuster), Real Estate Millionaire Mentor (Dearborn), and The Real Estate Millionaire Mindset (Doubleday), notes that wholesale investors have traditionally targeted distressed properties in less-than-desirable neighborhoods. “The problem with that approach is that new investors might not feel comfortable spending a lot of time in low- and moderate-income areas,” Whitney says. “It's important to know that wholesaling works in nice neighborhoods every bit as well—and often even more profitably—as it works in not-so-nice neighborhoods.”

Typically wholesale properties are owned by strongly motivated sellers who are eager to get rid of what has become a problem for them. The property may be in poor condition and require repairs the owner can't or won't do before it would appeal to an average home buyer. You can buy these properties at a discount, do the necessary fix-up, and either hold the unit in your own portfolio as a rental or sell it.

Of course, that strategy usually takes access to some cash and financing. Whitney says another way to make money on a wholesale deal is not to buy it. Instead, he says, get the property under contract then assign that contract to another investor for a fee.

In addition to requiring virtually no cash beyond the nominal deposit (usually $100 or so) that you will put up with your contract, this technique makes everybody involved a winner: The property owner is getting rid of a problem; the investor you're assigning the contract to is getting a good deal without having to do any work to find it; and you're making some cash that you can use to further your investing business.

The key to successful wholesale investing is finding motivated sellers. “The question you need answered is, ‘Do they want to sell or do they have to sell?' To find out, all you have to do is ask why they're selling,” Whitney says. “Most people will tell you enough to let you know whether or not they're motivated.”

An owner who simply wants to sell but is not under any pressure may not be willing to accept the discounted price you need to do a profitable wholesale deal. If that's the case, move on to the next deal. Give the seller your name and contact information so he can call you if he changes his mind. You might also keep the details of the property in a database and check back every six months or so to see if circumstances have changed. But don't spend a lot of time trying to do a deal with a seller who isn't motivated.

Finding wholesale deals

So how do you find the motivated sellers with great wholesale deals? Some of the traditional ways include working with real estate agents, checking classified ads, and looking for properties that have been on the market a while. More effective ways include marketing, networking, and tracking vacant houses.

When you market effectively, you will find out about properties before other investors do because people will call you when they are ready to sell. [See “Marketing Your Wholesale Real Estate Business: It Takes More Than a Better Mousetrap,” Wealth Intelligence Network®, March 2007.] Networking is closely related to marketing because it establishes you as the go-to person for anyone who has a piece of problem real estate.

One way to find vacant houses that might be good wholesale candidates is to regularly drive through neighborhoods where you want to invest and look for indications that a house is vacant. When you find a vacant house, track down the owner and ask if he's interested in selling. In most cases, you can find the owner by a simple check of the public property records. Send a postcard or letter, or you might even want to make a phone call. If the owner isn't interested, continue to monitor the property and follow up in a few months.

“Wholesaling is a great strategy for both new and established investors,” says Whitney. “It allows you to make quick cash when you don't have any. When you've accumulated some cash, continue using this strategy to build your portfolio.”

---

Jordan Taylor is the editor of Cash Flow Generator® newsletter.