No Risk Real Estate – Wholesaling Strategies

Wholesaling is simply the process of buying or putting under contract for one price and reselling or assigning for a profit. This is also the true definition of flipping before real estate shows on cable television used the term in place of rehabbing.

The assignment is a variation of wholesaling by which the investor “locks up” the property under contract and “assigns” the contract to another buyer before the closing of the sale, therefore never needing to actually purchase the property. The assignment method is common among sellers that are not banks that have repossessed the property. Banks will generally not allow assignments and is almost always explicitly defined in their Purchase Agreement. There are a couple of alternatives to assignments when dealing with REOs.

The first two methods involve the wholesaler, buyer and seller all at the closing. The simultaneous closing does not require the wholesaler to bring funds to the closing. The title company will take the money from the buyer and close both transactions (wholesaler-seller, wholesaler-buyer) at the same time. The markup on the property for the wholesaler’s profit is collected from the buyer at this time as well.

The double closing differs from the simultaneous closing in two ways. One, there are two separate closings that involve different parties. The first closing happens exactly the same as if the wholesaler were buying the property to live in or rent for themself. After the first closing takes place, the wholesaler owns the property. This means that the wholesaler must bring the purchase funds plus closing costs. The second closing happens as a separate transaction between the wholesaler and the back end buyer, except now the property has been marked up in order that the wholesaler will see a profit.

The third method takes the best of the three previous methods. The offer is made in the name of an entity, most commonly a Limited Liability Company (LLC). Once the offer is accepted, the wholesaler finds the buyer. Once a buyer is found a contract is drawn up between the two of them as if an assignment were taking place. Through a meeting of the LLC and documents to record it, the buyer is made to be the managing member (or principal) of the LLC. When the closing takes place, the new buyer who is the person in control of the LLC, is now in de facto possession of the property.

Wholesaling allows the rehabber or home buyer to purchase the expertise and services of the wholesaler. The buyer need not know everything about cash flow analysis, estimating repairs and hunting for valuable properties if they have a wholesaler they trust to make informed and profitable decisions.

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