The goal of the wholesale strategy is to generate cash quickly by finding and vetting properties that can be quickly sold to other investors. Those investors may be looking to build rental portfolios, or even fix and flip. This strategy is sometimes called birddogging, since like a bird dog, you bring the prey (a property worth investing in) to the hunter (investor).
Although existing foreclosure investors know how to find properties themselves, and do so on a regular basis, with the volume of distressed properties on the market or coming to it soon, it’s difficult for any single investor to find all the deals. You bring value to the table by locating a deal and verifying the upsides and downsides of the opportunity.
Wholesaling is a quick flip in which you may never take possession of the title and may not even put any cash or credit into the deal. The buyer you find pays the seller the purchase price and pays you a finder’s fee, assignment fee or option fee, plus reimbursing you for the cash you were out on the deal, if any. For that to work, the timeframe must be short because the seller can’t wait for months to get paid.
Never taking title
One of the more popular ways to wholesale deals is to lock the property up with a contract or an option to buy and then have the real buyer step in to complete the deal. The agreement with the seller will show the buyer as you “and/or assigns,” meaning that either you will buy the property, or you will assign the contract to another buyer, who can assume the buyer’s responsibilities as outlined in the contract. When you prepare an agreement with a buyer, include a non-disclosure and non-circumvention clause to prevent the buyer from going directly to the seller and cutting you out.
No Money Down Deals
While it is prudent to be skeptical of some of the claims of the infomercials and seminars, it is possible to do a wholesale deal without putting out any cash or borrowing money. In addition to the simple contract assignments described above, this technique often involves purchasing the property subject to the existing loans on the property. See Negotiate the Deal in the Acquisition Strategies section for more information on subject-to deals. This avoids the need to come up with any cash to finance the deal, and depending on how much equity the owner has, potentially no cash at all. In addition to potentially not needing cash, the buyer does not have to qualify for the loan, so good credit isn’t required either.
Even if you follow a fix-and-hold or a fix-and-flip strategy, there may be times when you can benefit from a wholesale strategy.
Perhaps a great opportunity arises and you’re a buy-and-hold investor just starting out and are cash poor. Or you are a veteran buy-and-hold investor with your cash or credit tied up in properties or repairs. Temporarily switching to a fix-and-flip or quick-flip strategy can provide the infusion of cash you need.
Or you may be a buy-and-hold investor in a market that has hit the peak of inflation and is turning to compression. Then it might be a time to change strategies and begin selling instead of holding.
Whatever the situation, there’s no need to feel constrained to a single strategy. Employ the strategy that addresses your circumstances. Just be sure you understand how the strategy affects your tactics at each stage of the process.