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Residential & Commercial Real Estate Investments
Buy & Hold, Fix & Flip, Wholesaling, SFR's, Multi-Family, Commercial
For those who are new to real estate investing, "wholesaling" is a process whereby a property is tied up under contract and sold to another investor at a higher price than the contracted price. In the wholesaling process, you are not selling the property itself but rather you are selling the contract. The "wholesaler" gets paid what is known as the "spread" (the difference between the price negotiated under contract with the property seller and the price the buyer is willing to pay for that contract - so the paper is the product being sold). No license is required as you are not representing anyone else in the transaction but yourself.
In the wholesaling process the contract is transferred to the buyer at what is known as "closing" using a neutral third party such as an escrow company, a title company or a closing attorney to keep everything moving along smoothly and within the aspects of the law. There are basically two methods used to close a transaction. Typically a process known as a "simultaneous closing" or an "assignment" are the most popular methods however a third way can be used which is slightly more protective to all parties involved and is a chosen method when dealing with REO assignments as it is a legal way to accomplish this since everyone knows the banks will not allow any assignment verbiage in their contract(s) for sale on REO's (as such everyone uses the simultaneous closing method when working with bank REO's).
In a simultaneous closing there are two separate closings taking place at the same time. It is important for the closing agent to get a signed statement from the buyer stating that the buyer is fully aware that their funds are being used to fund and close the simultaneous closing.
The "assignment method" is simply a one page document/contract which "assigns" your interest in the property (the contract you currently have with the property seller) over to your buyer. It is important to provide this document along with closing instructions to the neutral third party closing agent as soon as you have received your fee or prior to closing if you are to receive your fee through closing.
The above methods are the traditional means most practiced today by wholesalers. There is also a method known as co-wholesaling which simplifies the wholesaling process because you typically are only involved in one "leg" of the transaction; those being:
1.) You contract property and another investor brings a buyer to the table or
2.) An investor has the property under contract and you bring the buyer.
This JV or "joint venture" co-wholesaling technique is basically a marketing agreement in some form stating each individual's responsibilities, whether finding property to place under contract or finding buyers for the properties which are under contract but not both (placing properties under contract AND finding buyers - just one or the other as stated above). The co-wholesaling method is typically a 50 - 50 profit split.
There is a new technique emerging in wholesaling whereby you function as a middleman, marketing other people's inventory (properties under contract) to a list of buyers you develop and maintain. There are many, both wholesalers and investor buyers who do NOT like this arrangement however there are benefits to be had by both parties. For the wholesaler, they benefit by having an additional person marketing their property for them thus freeing up time to do what they do best which is hunt for deals and get them under contract. This also helps reduce through-put time necessary for a transaction to take place as it frees up time for the wholesaler from having to look for or market to a buyer enabling them to move onto or have more deals in their pipeline at once. Additionally, if you can "go to" a single source who has numerous buyer leads, it helps to move your inventory faster.
Some of the benefits for the investor buyer is getting a good source of properties to look at on a continual regular basis. Also it gives the investor buyer another "set of eyes" in the field which can help get deals before they evaporate which happens quite frequently if you are last to the table so to speak. Also the investor buyer can now do more deals at once since he has a source of properties readily available to analyze instead of having to continually "swim like a shark" looking for the next deal.
It is hard to tell if this "middleman" method of wholesaling will test out to be successful however, "nothing ventured, nothing gained" applies here and it will also depend on how successful you are at developing relationships with individuals.
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