WHOLESALING - pushed by many of the late night infomercial "gurus" as a simple method for making fast cash in real estate. Technically called assigning, wholesaling is relatively simple, and it certainly can produce quick profits with little risk. Bear in mind, however, the "gurus" are only telling you the good points about a strategy and fail to point out the cons. After all, their job is to get your money, and telling potential customers about the down side would be counter productive.
But what if there
were another way to wholesale, without the cost or the risk? A much
simpler way, developed by Bill Vaughn, author of "The Simple Man's Guide
to Real Estate". A successful investor who started investing in 1969,
Bill has developed several of the methods now being promoted by "the
gurus", and soon they will likely be promoting this one, too, once they
learn of it. But for now you will not find this powerful, risk-free
method taught by Than Merrill (FortuneBuilders), Armando Montelongo, Ron Legrand or any other "guru". (It is a shame that strategies cannot be
patented.)
In this post I will fill you in on the "down side" of typical wholesaling, and will also show you an even simpler method of accomplishing the same thing without the problems and risks normally associated with wholesaling. In fact, the method I am about to show you is simpler and 100% risk free. So simple, in fact, that an 8 year old could do it. But first, here are the issues surrounding the method taught by the 2:00am "gurus".
First and foremost among the issues of "wholesaling" as taught by the gurus: to lure you into paying way too much for their course they often promise to make their "pool" of investors available for you to sell to, literally overnight. But here is the problem - you cannot legally assign a real estate contract to any investor who is in a "pool" of investors lined up in advance and already waiting to buy them UNLESS you have a real estate license, because every state has laws that require a license to act as a "middleman" in a real estate transaction. Only real estate brokers and agents may do so. This is the reason why those gurus include some qualifier in their disclaimer about buying your notes such as "upon approval of the contract". I doubt they approve very many. ("The Simple Man's Guide to Real Estate" is the only program that teaches how to wholesale without acting as an agent for other investors)
The second major issue for many novices: Not many sellers are going to agree to sell to you without 1) checking your credit (pre-approval), and 2), getting a substantial earnest money deposit. This is a roadblock for many would-be investors. (We remove that roadblock with our new method, below.)
Assuming, however, you are able to overcome those things, once you have a contract you can end up locked in if you are not really careful - if you cannot sell the contract to an end buyer in the time available, you could get stuck having to buy, and that is a serious risk. The contract will, by law have a closing date, usually no more than 45 days out. If you do not find someone to sell the contract to in that short time, it's over. You lose. More important - if you do find a buyyer in time the person you sell to will also have to close by that date, and unless he is paying all cash, he will require at least 30 days to close (banks drag their feet), leaving you with perhaps 2 weeks to find a buyer.
The simple strategy I will divulge here, developed by me, my group of investors and a real estate attorney eliminates those issues altogether. It does not require ever going to a bank for pre-approval and does not require a substantial deposit - all that is legally required is $1.00. And as for having time to find a buyer, this strategy provides plenty of time. And finally, you do not need a ready pool of buyers.
Simply put, everything is the same as wholesaling a purchase contract except that the investor would be wholesaling an option agreement instead of a purchase agreement. You see, with an option there is a right to buy during a specified time frame, but in contrast to a purchase agreement there is no obligation to do so. Because you are not actually buying at this time, there need not be any credit check UNTIL the option is exercised, at which time it would be your end buyer getting a credit check done, not you. And because you are not yet buying, there is no need to put up a substantial earnest money deposit - in most instances a small payment for the option is all that is necessary - rarely more than $100, sometimes as little as $1.00 to bind the deal, which you get back from your end buyer. The option agreement could stipulate a more substantial earnest money payment to be made upon exercising the option - a payment your end buyer would make, not you.
What if the seller objects because he does not want to tie up his property if another buyer should come along? Simply offer to put a "kick out" clause in the agreement - if another buyer comes along, seller would give you, say, 30-45 days to exercise the option to buy, and if you cannot, he can cancel the option and sell to his other buyer. He has nothing to lose. So, in addition to the time you had during the option period to find a buyer, you can STILL get the typical 45 days allowed in the original method of wholesaling.
SUMMARY: You offer an "option to buy" to the seller. He has nothing to lose if there is a kick-out clause. The option period can be for as long as you want, as long as seller agrees (and why wouldn't he?). You then sell (assign) your option to a new buyer, and you take your wholesaling fee (usually $2,000-$20,000 depending on the deal) to the bank.
Using the option method simplifies wholesaling and eliminates all risk. An investor could not ask for more - no cash outlay, no credit check, no income qualification, no risk.
It is important to note, however, that any form of wholesaling real estate does require a complete understanding of the process, in detail, and being aware of any caveats and how to avoid them. And that's where "The Simple Man's Guide to Real Estate" becomes your most valuable resource, not only because it provides all that, but because it also comes with contract software and free mentoring if you need help - all for under $100.
If you have ever considered becoming a real estate investor, you owe it to yourself to check it out. It costs nothing to look, but can cost you a fortune if you do not.
Brought to you ny IntelliBiz
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