When I first began investing in real estate I had no idea of the broad range of possibilities for making money. One of the more surprising ways was the concept of wholesaling. Being from New York, I heard the line, “I can get it for you wholesale” a million times but never even considered houses ad something you could wholesale.
Wholesaling houses is simply the idea of buy low, sell low. We find a bargain and then sell it to a bargain hunter. How do you do it? The same way as every other aspect of our industry, locate suspects, prescreen for motivation and sort the prospects from the suspects, create and present your offer(s), follow up, control the property and close quickly.
While wholesaling isn’t my core business I do wholesale a few properties a year either because they are out of my farm area or I have enough projects going on that holding a vacant house until I can get a crew on it isn’t as valuable as the quick cash that a wholesale deal can provide. Besides if I provide good deals to other investors, they are likely to return the favor sometime in the future.
In order to be successful at wholesaling you need to buy very low and the only way to do that is to find properties that people absolutely, positively don’t want and that the average homebuyer won’t touch either because no bank will finance it or it has something that frightens the average buyer (structural issues, infestations, major repairs, etc.).
A good wholesaler can see past the problems all the way to the profit! They know that there aren’t many problems with a house that cannot be fixed for a price and that the market for these properties is much smaller than the standard retail properties on the MLS. A smaller market creates the opportunity to purchase these properties cheap so they can sell them cheap and still make a profit while leaving profit in the deal for their buyer! Many new investors are frightened by these scary looking properties and tend to walk away because they can’t see the profit potential.
One such property was recently uncovered by one of my students. When we went to look at it I was blown away. Most wholesale properties I have seen have been vacant, this one happened to be occupied up until two days before we inspected it. After having viewed thousands of houses over my investing career I thought I was beyond shock. I was wrong. Take a look at the video. What do you think?
As tempted as I might be, I’m going to avoid social commentary here and stick to the subject of wholesaling. With wholesaling the “good” actually comes from the “bad” and the “ugly.” With trash, debris and vermin piled wall to wall up to the windowsills and only very narrow paths through the garbage, these was the worst living conditions I have ever seen. I lived in a college dorm, rented a house with fraternity brothers and have rented to some pretty lame tenants and this exceeded anything I have ever witnessed by an order of magnitude.
The good news is that we can see past what is and on to the possibilities. This little 3-bedroom 2-bath block home had a good roof and looked fine from the outside. It sits in a decent working class nice neighborhood with well-maintained homes along the street. While the place needed to be gutted to the studs, fumigated, the HVAC replaced, new baths, new kitchen, flooring and paint there is a profit to be made by the right buyer because there is nothing wrong with the house that cannot be fixed by a check to the proper tradesperson. The key to success is in buying it right.
The end of the story is the property was put under contract and wholesaled to someone who is ready to do everything that needs to be done and sell for a profit or hold is as a long-term rental. But their exit strategy is their business and a topic for another day!
What would you do?