| By: Stephen
$53,849 is what I made on one house in July 2005 for 3 hours worth of my time.
It’s a real estate investment property that I found through an advertisement,
called the seller, signed the contract and sold within 20 minutes of taking
possession. I did absolutely nothing to this home, and only visited it twice
(when I bought it and when I sold it).
If you've never heard of the term Wholesaling, let me explain. It's when you
buy a home well below market value, and when you quickly resell it, still below
The advantages of this over other types of real estate investing are that it
generates quick cash, requires little to none of your own money, has little
to no risk and does not require any experience. How does it work? Well here
are the nine basic steps for doing your own wholesale deal:
Step 1 - Make Your Offer
Whether you pursue FSBO’s (For Sale By Owner’s) or properties listed on the
MLS (Multiple Listing Service), you’re never going to be able to flip a property
unless you first make an offer.
In making your offer, you need to keep your customer, the rehabber, in mind.
It should be based upon a conservative estimate of the market value of the property
after repairs less a profit margin for the rehabber, money for closing costs
(both for buying the property and for reselling it to the retail buyer), money
for holding costs, money for repairs and, last but not least, a profit margin
for you, the wholesaler.
Typically, I deduct the greater of 30% or $25,000 for profit, then closing
and holding costs, then money for repairs and then about $5,000 for my wholesale
So my formula would look something like this:
Max Offer = ARV - 30% (or 25k) - repairs - 5k
Step 2 - Once Offer is Accepted, Sign the Contract to Purchase the Property
Once your offer is accepted, you will meet with the seller (if it’s a FSBO)
or your real estate agent to sign the contract and give them an earnest money
Step 3 - Start Title Work
After signing the contract, contact your settlement attorney (title company,
escrow company, etc.) to start the title work on the property. They will order
a title search and schedule a settlement date. There are two reasons to start
the title work ASAP.
- First, you want to be ready to settle when you are supposed to settle.
- Second, in the event that you find a buyer who claims to be ready to buy,
you want them to be able to settle right away.
Step 4 - Begin Marketing to Find a Buyer
There are two main avenues that I use to market my properties.
- First, I’ll call the people on my buyer’s list to see who might be interested.
- As I’m doing this, I will place an ad in the Investment Properties section
of the Sunday paper for the upcoming weekend. Here’s an example of an ad that
I’ve used in the past:
Fixer Upper*123 Main St., $80K comps, only $40K (xxx) xxx-xxxx
Step 5 - Come to an Agreement with a Prospective Buyer
At some point, someone will show interest in your property. Whether you have
one potential buyer or multiple potential buyers will depend upon the deal.
Each one is different. The more buyers you have, the less flexible you need
to be in reaching a final sales price.
Step 6 - Qualify the Prospective Buyer
Make sure the prospective buyer either has the cash or a line of credit (ask
for proof of funds if they say they do) or will be able to borrow the money
from a private (hard money) lender to purchase your property.
Step 7 - Sign a Contract with Your Buyer and Collect a Deposit
After verifying your buyer’s source of funds, meet with them, execute a sales
contract or an assignment agreement with them, and collect a deposit. The sales
contract serves as the receipt for their deposit.
Be sure you either handwrite or include typewritten verbiage somewhere on your
contract a statement such as the following:
“Received $(insert dollar amount) as an earnest money deposit on (insert
...and initial it once you receive their deposit. You might also include their
check number or write “CASH” if they give you cash.
Step 8 - Submit Executed Documents to the Title Company
Submit both items – the executed contract with the original seller and the
executed sales contract/assignment agreement with your buyer – to your attorney
(title company, escrow company, closing agent, etc.) and schedule a settlement
Step 9 - Go to Settlement
Go to settlement, pick up your check, and celebrate!
Additional Tip Based on My Real Life Experience
When I first started in the business, I believed everyone who signed a contract
to buy a home from me. I believed everything they told me and took their word.
Often, I got burned.
However, it didn’t take too many slaps in the face before I realized that I
needed to take control of the entire process.
At that point, I decided to control every deal by lining up contractors, lining
up the lenders, starting the title work myself through my attorney, and mandating
that my buyers use my attorney.
Before taking control, I estimate that about 25% of my deals didn’t settle
with my first buyer. Since taking control, that percentage has been reduced
to about 5% of my deals.
Proverbs 3:5:6 Trust in the Lord with all your heart, and lean not on your
own understanding. In all of your ways acknowledge Him,
and he will make your paths straight.
About the Author: Steve Cook
Since 1998 Steve Cook has flipped hundreds of
houses as an active Baltimore-area real estate
investor. Steve’s unique specialty is the “flipping
homes 1-2 punch”, a proven system of real estate
investing that powerfully combines wholesaling
houses. Also the founder of www.FlippingHomes.com,
Steve is dedicated to helping others in this thriving
online community succeed through understanding
and aggressively applying his time-tested, step-by-step
approach to flipping
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