Ok, first things first… Hello to all. This is my very first post as a member here in REI Club and i’m a true beginner in the world of real estate! (So… take it easy on me, eh?)
Now to my question… From all the research i’ve done so far it looks as if wholesaling is the best way for me to get my foot in the door to becoming a RE investor. I’m looking to learn as much as I can, build my team (and confidence) up, and then start actually investing by the end of the year. I must say I’m excited about the opportunies with wholesaling but i’m very curious to hear some of the risks associated with this investing strategy. I hear plenty of inspirational stories, but very few “nightmares” or horror stories…
What if i am not able to assign the contract to an investor on my buyers list? I’d imagine I’ll be stuck with property right?
What if my calculations for repair are significantly higher/lower than that a potential buyer?
Tx in advance…
The beauty of wholesaling is that you can limit risk.
If you really want to keep it to a minimum simply wholesale the contract, rather than the property.
This way, you never actually have to purchase the home, so you are only out you earnest money.
ON your contract, you should have an option period which allows you to iinspect the house and firm up your numbers. This should be your legal “OUT” just in case. Use it to the full and get as much time on this ‘option/inspection’ period as possible.
I’ve not yet done a deal but I do know one thing about estimating construction which I was taught by a prominent wholesaling outfit in PA. They said if your construction numbers are off, the buyer will know because they know their market really well. for example, at least the one he gave me was “I don’t care what someone thinks the construction costs are, the fact is that every single row home in the philly area needs 25k in construction. If you say it needs less, the buyer will call you out on it and you’ll look like a novice.”
#1. If you stick to dealing with private sellers where you can keep your earnest money checks down to less than $100, you’ll be fine. Just make sure to add one or more of the following terms to the special stipulations or conditions section of the contract (or just write it in):
Contract contingent on appraisal or inspection acceptable to buyer
Buyer has a 15 day inspection period
contract contingent on buyer securing a 30 year bankloan at a 5% interest rate
If you can’t find a buyer, you’re not stuck with the property and no you can’t be forced to buy it. You’ll just tick off the seller and learn a lesson.
#2, dont worry about. Let your buyers know that repairs are just an estimate based on what you would do with it. their costs may be higher or lower and they need to confirm the costs on their own. After you have seen about 10 houses you’lll be able to est repairs better
Actually, SLIGHTLY off topic of the OP but I thought about something Michael Quarles says about wholesaling that this thread made me think of. he calls wholesaling “the most expensive form of investing” because you’re only taking roughly 10% of the profit that you COULD be taking if you just did the deal yourself.
To that which I may agree but, the fear of owning a property, coming up with the money to rehab it, THEN coming up with the money to carry it for how ever long it takes to sell (god forbid it didn’t happen immediately but even if it did, you’d carry it until rehab was complete). ugh… now that to ME, is risk. but ofcourse, I am certainly no authority on any of this so as of now, that’s just my opinion. I thought of that because with wholesaling, the above risk is non-existent.
Couldn’t agree with you more, moveright… I enjoy reading Mike Q’s post, in fact I feel that I have learned quite a bit by doing so. However, if you are just starting out as an investor, I would not be comfortable risking that much without the benefit of a personal mentor, capital to fall back on, etc. BTW, good luck on getting your first deal… I’ll race you!
hassansr - I like the advice on #2… I never really looked at it that way. It’s true that everyone has their own taste and style, so with that said repair and improvement costs may and WILL vary. I was thinking of bringing along a general contractor for the first few jobs to help with estimates. I know a guy that does home remodeling for a living, and I know does good work. I’d pay him a small fee for his expertise and time. Then like you said, after a few deals, I should be able to estimate on my own.
ReCoachDennis - Sorry for delayed response. My goal in regards to the “option/inspection” period will be highly dependent on my buyers list. If I have buyers ready to sign within 7-14 days, then I’ll shoot for that with the seller. On the other hand, if majority of my buyers typically prefer a 30-60 day closing, than I’d definitely consider that.
Question for you? “What if” you don’t? What if you allow the what ifs to keep you from ever doing a deal? what if by actually taking a risk, where failure were an option, that possible failure made you a better investor. Ask yourself this… What if you succeed? What if failure weren’t an option? Now to your question…
Include this into your contract and now the what ifs are gone…
VIII. INSPECTION OF PROPERTY: Buyer shall have until the close of escrow to complete all Buyer investigations of the property, approve all disclosures, and other applicable information, which buyer receives from seller and/or persons hired to inspect property on behalf of Buyer; and approve all maters affecting the property, including but not limited to, the marketability of the property in order to determine the usability and profitability of the Property. Buyer may in Buyers sole and absolute discretion, give notice of termination of this Agreement at any time prior to the expiration of the inspection period, and upon such termination, all deposits held in escrow shall be returned to Buyer.
but I do know one thing about estimating construction which I was taught by a prominent wholesaling outfit in PA. They said if your construction numbers are off, the buyer will know because they know their market really well. for example, at least the one he gave me was “I don’t care what someone thinks the construction costs are, the fact is that every single row home in the philly area needs 25k in construction. If you say it needs less, the buyer will call you out on it and you’ll look like a novice.”