A few years ago I read an ebook on flipping a house with no money. Obviously, the topic piqued my interest. The biggest hurdle (and biggest risk) in flipping houses is laying down the money, but I had seen multiple sources that said money was not a necessity. How could that be?
As it turns out, the ebook was absolutely terrible and answered none of the questions I had, but it did set me in the right direction. That direction lead me to an investor underworld known as “wholesale real estate.” Before I go any further, let me be clear that wholesale real estate isn’t technically flipping a house, at least not in the HGTV sense of the term. Wholesaling, as they call it, is actually flipping a real estate contract.
Here is a very basic flyover of how it works:
- Find a home that has a motivated seller willing to sell the home below market value (i.e., with substantial equity).
- Get the home under contract, ensuring that your contract is made out for “[Your name] and/or his/her assigns.” The ability to assign the contract is crucial.
- Prior to closing, find a buyer who will purchase the home for more than your contract agreement and get that person under contract using a separate agreement between you and the buyer. This is ideally a cash buyer.
- At closing, your contract with the seller is assigned to the true buyer, who brings the money and purchases the home, and you do nothing other than net the difference between the two contracts (which is called an “assignment fee”).
As an example: If you find a seller who is about to foreclose on his home and needs to sell it quickly, he might agree to sell it to you for well below market value (let’s say $100,000) if you can buy it within two weeks. You then find a real buyer who will purchase it for $110,000. You never actually pay a dime, but at closing, the buyer pays $110,000, $100k of which goes to the seller and $10k of which goes to you, the wholesaler.
Sound too good to be true? It’s not. After I did a bunch of research on wholesaling, I went out and did multiple of these deals. I should clarify, however, that even though the concept of wholesaling is very simple, execution is not easy. A lot has to work out (good property with lots of equity, a motivated seller, a cash buyer, etc.) for one of these deals to happen.
We’ll go into more detail about the execution of wholesale real estate in another post, but if you’re curious how to get started, you can start off by just paying attention to abandoned houses. If you find a house that looks abandoned, you may have a lead on a property that could be wholesaled! If it’s in Greenville, Greer, or TR, send me the address, and if I end up purchasing it or wholesaling it, I will give you $100. No joke!
Now let’s go out and find some houses.