Of all the ways to make money investing in real estate – Wholesale and quite honestly is one of my favorites, personally. This is the strategy we used to avoid financial disaster in 2001 when the events of 9/11 caused the collapse of my aviation business.
Wholesaling is when you take control of a property and sell your interest to another investor at a premium price. And if it appears that I chose my words very carefully, you are right!
Two things you MUST know before going any further:
1 – It is a well-established principle of contract law that ANY party may assign a contract, unless the contract itself provides otherwise. There is a lot of confusion in the market about this – often the source of the confusion is well-intentioned, but misinformed real estate agents and brokers. Again – YOU CAN assign any contract (assuming you are a valid party to the contract) unless the contract states otherwise;
2 – Anyone can sell their own property without a real estate license. Ok, so what is ownership? Property is anything tangible in which you have a proprietary interest, including a fully ratified contract of sale.
Ok so before I get in trouble for practicing law understand this what I just said and I will continue to emphasize is that this is business advice especially in the field of real estate investment. NO legal advice. If there is anything I have written that is confusing, or that you are not entirely sure about, you should speak with YOUR lawyer and get his or her blessing before continuing.
And since everyone has a “prepaid” legal department, or a lawyer at their disposal, this won’t be a problem. Dudes, Dudettes, if you’re investing in anything, or for that matter living in the United States, you need a lawyer. Someone to look over your shoulder. If you refuse to have a team of advisers, including a lawyer, you really need to turn off the computer right now and start watching Gilligan’s Island reruns again because you’ll never get rich on a DIY (do it yourself same) mentality.
We are going forward…
Wholesaling therefore consists of obtaining a property under contract (contract, letter of intent, memorandum of understanding) and then selling your interest to another investor. That’s the theory, for the actual mechanics of how it works, you’re going to invest a little more time than just reading a blog post. Something for you to ask now when you attend the next REIA meeting or National Real Estate Investor Conference.
Wholesale is great because it works in ANY market.
When you have low interest rates, as we’ve seen over the past three years, and most “end buyers” are rehabs and first-time homeowners, you can wholesale to them . And when you enter a higher interest rate environment (like now) and buy/hold investors start to come back into the market, you can wholesale sell your trades to this group.
However, what I love most about wholesale is that it GIVES YOU AN EXCUSE! It’s an excuse to get to know more experienced investors. How? By accepting wholesale deals with them and in exchange for that, you learn what they know.
Unfortunately, there isn’t enough room here to go into all the details of advanced wholesale strategies, but I’ll get to that in future articles. What I want to address now is the need to stop confusing wholesaling with “Flipping” – they are not the same. Or, more accurately, they don’t mean the same thing in all circles.
The term “Flipping” comes from the world of commercial real estate, where big deals happen ALL THE TIME.
Every day, in Washington, D.C., or Baltimore, or any major city in America, smart, savvy investors are putting small properties up for grabs (and making millions) with no interest in closing the deals themselves. same. These savvy investors have every intention of taking their contracts and handing them over to investment groups with much wealthier pockets who are in the process of “upping” a city block to build a huge office building.
Larger investors often encourage smaller investors to do so, because if the owner really knew that XYZ Corp wanted his property, the price would quadruple. A few years ago, the term “return” crept into the language of people doing single-family businesses. “Flip” originally meant “turn over” his contract.
However today “Flipping” means many things, including “going to jail”. EH???
Yes, in 2003 the federal government (HUD) issued a ruling that widely ruled “flipping” illegal. This decision has to do with collusion and other bad things that caused a number of mortgages (which were government insured) to default. This HUD decision has absolutely NOTHING to do with wholesale, but most people don’t care about the details. They hear the words “illegal” and “return” in the same sentence and won’t go any further.
In addition to the HUD ruling, HGTV began producing a television show called “…Flipping…”. Again, this show has nothing to do with wholesale. In the HGTV show (which is a knockoff of a UK show called Property Ladder), participants buy, rehabilitate and then sell houses. If you’ve ever watched this show, you know that’s probably something you’ll never want to do, unless you want to empty your savings account and end up in divorce court.
Unfortunately, whether it’s a federal ruling or a TV show, the term “Flipping” has come to mean different things to different people. Therefore, it’s probably best not to even use the term.
Wholesale will make you money. Flipping may or may not get you in trouble – depending on the type of flipping you do.
Again, in a future article (after reviewing the other strategies) we will come back and discuss the different ways to make big money. For now, understand this: wholesale works in ALL real estate markets, regardless of interest rates or the economy.
