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Buyincomeproperties.com Real Estate Wholesale Property
Most people are familiar with what is known as retail real estate. Retail real estate usually involves a realtor, being approved for a mortgage, and an appraisal. Retail real estate is conducted at retail prices which is a fair market value of the property as indicated by an appraisal. That is the real estate that most of us are familiar with. Wholesale real estate is completely different to retail real estate. Wholesale real estate usually does not involve a realtor, and a mortgage and an appraisal are not required. The only thing required to buy real estate wholesale is cash. Cash buyers can buy properties without requiring a mortgage or an appraisal and because they are cash buyers they can buy properties at deep discounts. A typical discount for a cash buyer at wholesale prices would be to purchase a property at 65% of its fair market value. A retail buyer would purchase real estate at 100% of the fair market value. That is the main difference between wholesale and retail. The obvious question that most beginning investors ask is why anyone would sell their property for less than what it is worth. Or in real estate lingo, why would the owner not sell their property at a retail price? The answer is because usually they dont have a choice. People sell at wholesale prices because they have to sell not because they want to sell. The first lesson that I learned in real estate was dont buy from sellers that want to sell. Buy from sellers that have to sell. People that have to sell are desperate. They will take whatever offer they can get as long as it is cash. Desperate sellers have to sell and they have to sell immediately. They dont have the luxury of listing their property with a realtor and waiting for a full price retail offer. What scenarios would cause someone to be so desperate as to want to sell their house for less than what it is worth? Look at the list below for some of the reasons: Death Foreclosure Disability Divorce Failed real estate investor Job relocation Disgruntled landlord Probate Bankruptcy Loss of a job Making payment on more than one house Damage to the house from a fire, or hurricane making it uninhabitable Children selling deceased parents home Out of state owner Owner not aware of current market values Mold, water damage, toxic Chinese drywall The above is just a short list of reason why someone would sell a house for less than what it is worth. If a homeowner facing foreclosure is in complete denial and then waits until two weeks before the scheduled court date to sell their property to a cash investor then they are a desperate seller. They do not have the luxury of time. If they dont sell their house to a cash investor they will probably get nothing from the sale at the foreclosure auction and will have to move out of home immediately. They will also have permanently damaged their credit. If a cash investor were to offer them a moving truck, a little moving expense money and 30 days to find a new place to rent they would be in a much better situation and their credit would not be ruined by a foreclosure. This si an example fo a desperate seller that has to sell. Rule #1 In Wholesale Real Estate Only buy from a desperate seller that has to sell and that has to sell right now! Do not waste your time with people that want to sell. Only deal with people that have to sell if you want to find wholesale deals. You have probably noticed yard signs in your neighborhood that say something like the following: WE BUY HOUSES FOR CASH ANY PRICE, ANY CONDITION, CALL 800-123-1234 These yard signs or bandit signs are a great way of finding desperate sellers. A desperate seller that is facing foreclosure will try to do anything to save their situation and they will do anything (including calling a number on a bandit sign) to try and resolve their situation. Rule #2 In Wholesale Real Estate You must advertise to find desperate sellers. You will only find wholesale deals if you can find desperate sellers There are many ways to find desperate sellers. Here are some of them: Bandit signs Car magnets Classified ads Craigslist Online Social networking Networking events Display advertising Door hangers Abandoned properties Postcards Letters Foreclosure filings Public notices in the newspaper Bankruptcy filings Divorce filings Probate notices Evictions Wholesalers Bank owned properties The above list is by no means all inclusive. You could go to your city fire department and ask for a list of fire damaged properties. Many of these homeowners would rather take the insurance money and walk than deal with the property. That is an example of a desperate seller. To them, the property is worth less than land value since they would have to pay to demolish the house. However to you, if you can rebuild the house using the existing structure you might be able to create tremendous value. Another good idea is to contact the code enforcement department and find out who is the landlord in town that is always getting fined by code enforcement. That landlord is probably pretty burned out and might entertain selling their rental portfolio as is with code enforcement violations etc. that is another example of a desperate seller. There are too many examples to list but the general idea is that there are desperate sellers everywhere. In Florida, the most common example is hurricane damaged houses that are uninhabitable. The homeowner is staying at the best western at $69 per night but they are still responsible for making the mortgage payment even though they cannot live in the house. This is a classic example of a desperate seller that will take their insurance money and move on rather than deal with repairing the house. Most beginning real estate investors want to learn as much as they can about wholesale real estate. However many beginners lack the cash or the knowledge to be able to begin investing in wholesale real estate without some direction from someone. It is easiest to learn when you have a mentor who has done what you are attempting to do. It is easy to read a few books or even spend thousands of dollars on real estate courses but without any direction from a mentor you might find it difficult to pull the trigger. Most individuals are afraid to commit to signing a purchase contract to buy a house. The primary reason for this is fear. Fear is what holds you back. Overcoming your fear through education is what will det you free. The following are the primary fear issues that most beginners have: Fear of failure Fear of making a mistake Fear of losing money Fear of ruining credit Fear of their spouse or partner Fear of looking like an idiot Fear of picking the wrong house Fear of not being able to estimate the value Fear of not being able to find a contractor Fear of not being able to find a tenant Fear of the unknown Fear of being sued Fear of doing something different Feat that is created through skepticism The above list is just a short list of a few reasons why fear prevents us from achieving what we want out of life. But being skeptical and having the above fears is healthy. Fear can be overcome through education and training. Each fear can be analyzed until you can make up your own mind about whether or not their fear is well founded. Skepticism for some people is the hardest fear to overcome. If you dont believe deep down that it is really possible to buy wholesale real estate then you will not succeed. However, if you educate yourself and do some of your own research you will find that there are thousands of individuals that have created extreme success in wholesale real estate. EDUCATE YOURSELF TO OVERCOME YOUR FEARS AND SKEPTICISM AND THEN BE READY TO TAKE ACTION Once you have overcome your fear and skepticism you should be ready to take action. It is easier to learn by watching someone and then doing rather than by reading the information from a book. Houses are a physical thing. You can touch them and feel the walls and the floors. You can inspect the structure, the foundation, the interior and the general curb appeal. You cannot learn this in a book. You need to feel it for yourself. Many blue collar professions like electricians, plumbers and carpenters require both learning from a book as well as completing an apprenticeship. I view wholesaling real estate as no different. Once you have learned what you need to know from reading countless books and courses and attending many seminars you are ready to begin your apprenticeship. ARV (after repair value) The value of the house after it has been repaired. Please note that this number may be approximately the same as the fair market value of the house as would be indicated by an appraisal. Please also note that before the house has been repaired it will not be worth the value of the ARV. Prior to being repaired the house is worth the ARV less the repair estimate. Please also note that we do not use the value of an appraisal to determine ARV. Repair Estimate We use repair estimate and rehab estimate interchangeably. They are the same thing although repairs are typically minor cosmetics such as paint and carpet and rehab usually means more extensive repairs like roofs and walls etc. Maximum Offer Price (MOP) This is the maximum amount that you would be willing to offer to purchase a house. In order to determine this number you would need to have the ARV and the repair estimate. Calculation of MOP
ARV x 65% Less Repair Estimate = MOP
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