Considering real estate investing but not sure, exactly, where to start? Dig into WHOLESALING. Done right, wholesaling is the simplest and fastest way to generate four- and five-figure paydays without laying down a dime. As a wholesaler, your role is simple:
- Find the deal
- Run the numbers and assess the deal
- Get the deal under contract
- Assign that contract to a cash buyer—usually a rehabber or fellow investor
Because you never personally close on the property, you won’t have to worry about a down payment or about securing funding for the deal. All you’ll have to do is lock it down for a good price—a price that still leaves a healthy profit margin for the “real” buyer.
Understanding Contract Assignments
That last piece—assigning the contract to a rehabber, real estate investor or retail buyer—is often misunderstood and, often, what keeps high-potential wholesalers out of the game. The good news, though? Once you understand the assignment process, it’s very simple and straightforward. As you build your business and your cash buyer lead list, the assignment process gets even easier. After a while, you’ll know exactly who you can assign this deal or that deal to and, with a quick email or two, can assign virtually any property you get under contract.
Sounds pretty good, doesn’t it?
But, first, back to the real question: what IS a contract assignment? It’s actually exactly what it sounds like. You get a property under contract and you ASSIGN that contract to the rehabber or other end buyer. For your powerhouse negotiation skills and ability to lock down a great deal, you get an assignment feed—think of it as a finder’s fee. That fee is baked into the price you present the buyer.
So let’s back up and use a real-world example—this is a recent wholesale deal we got into contract:
- ARV (After Repair Value): $225,000
- Estimated Repairs: $28,950
- Contract Price: $110,800
We got this particular property under contract for $110,800, estimating the ARV at $225,000 based on the comps and $28,950 in repairs. We then flipped the contract to a rehabber for $120,050, including our $8,550 assignment fee. For us, it was a great deal—we made $8,550 with just about two hours worth of work. And the rehabber was more than happy to pay. Even paying a five-figure assignment fee left him with a 30% profit margin—less his 5% to 10% closing costs, he’s still looking at a solid profit once the work is done.
What Assigning MEANS—and What it Doesn’t
The good thing about assignments is that they don’t require much. Once you have a cash buyer on the hook, you simply assign the contract to them as is. In other words, they’re assuming everything you and the seller agreed to—the price, the terms, the contingencies, the close dates and anything else layered into your contract. They’re also accepting your assignment fee, which you dictate.
For some wholesalers, that’s the challenge. They might have good cash buyers standing by, but the terms they’ve negotiated with the seller don’t sync with the buyer’s expectations. Maybe the repairs are more extensive than the wholesalers budgeted for or the deal they negotiated doesn’t leave enough wiggle room for the end buyer. Whatever the situation is, it ultimately leaves the wholesaler holding the contract—and that can be a real challenge.
However, if you’re smart, strategic and think like a rehabber or cash buyer, you WILL find someone to assign your contract to. In virtually every market, there are real estate investors hunting for great deals. If you have one—or, better yet, lots—you’ll be in high demand.
The Simple Steps to Assigning a Contract
With all of that info under your belt, the next step is to wholesale a property—and that means assigning a contract. Here’s what the process looks like:
STEP 1: FIND A SELLER
As always, focus on MOTIVATED sellers. These sellers have a property and want—or, often, NEED—to sell. This puts you in a good position to lock down a great deal with very few contingencies. If you can show a motivated seller the value you bring to the table—you’ll buy as-is, you’ll paying closing costs, you’ll move FAST—then, often, they’re more than willing to play ball.
Motivated sellers are out there—you just need to find them. Work with your real estate agent, scour Craigslist, post bandit signs and NETWORK, all with an eye on finding motivated sellers. When you find them, ACT FAST. If you’ve engaged them, chances are other wholesalers and rehabbers aren’t far behind.
STEP 2: GET IT UNDER CONTRACT
This is the most important part. When you find a good deal—confirmed by your comps and your calculations, of course—get into contract. And do it NOW.
There are plenty of simple contract templates floating around online. Download one and bring it with you for your walk-throughs. Once you’ve agreed on a price, SIGN then start searching for a cash buyer. One final note: be sure your agreement has a clear “and/or assigns” mention in it. This will give you the power to assign that contract to a new buyer before close.
STEP 3: SUBMIT TO THE TITLE COMPANY
Depending on your market, a closing attorney or title company will conduct a title search at this stage. This search will confirm this person CAN sell the property, and that there are no outstanding liens tied to it. You want a CLEAR title before moving forward. If there are issues, consult with your attorney—it may not be worth pushing ahead.
STEP 4: FIND A CASH BUYER
Again, you’ll need to find a cash buyer to jump in and take over the contract. This is the person you’re assigning the contract to and the person whose name you’ll include on the “and/or assigns” line of the agreement.
Like motivated sellers, cash buyers are EVERYWHERE. Your real estate agent, closing attorney, title company and other industry contacts will, no doubt, know plenty of rehabbers and investors looking for deals. You can also strike out on your own and put up bandit signs, check Craigslist and scope out local events like REIA meetings and industry workshops. Here, you’ll find fellow real estate investors looking for a deal—and looking for a great wholesaler like you.
As you meet more and more buyers, be sure to get a sense of what they’re looking for and what they invest in. In the future, you’ll be able to better connect the dots and simply reach out to a targeted buyer when you have a relevant deal on the books.
In this case, once you have a cash buyer, assign the contract. We often tell the seller that we’re working with an “associate” to close the deal and that they, technically, will be buying the property. It’s important to be transparent but also to assure the seller that nothing has changed. They’re still getting the cash you agreed to with the same terms and closing schedule.
STEP 5: CLOSE—AND GET PAID!
At close, you, the seller and the end buyer will sign on the line and close the deal. Typically, the wholesaler gets their assignment fee at close.
In most cases, you’ll simply assign the contract and the end buyer will deal with the nitty-gritty of close, but there are instances where “double closes” are required. In these, you WILL close on the deal and then flip the property to the end buyer. Be careful with these double closes. Some may allow the end buyer to fund the deal. Others, though, require a gap between the closings which could leave you, the wholesaler, on the hook for the full payment amount. Granted, there are “gap loans” that cover these kinds of transactions for a short period of time—usually 24 to 48 hours. But if you don’t have to go down that road, don’t. It’s easier, cleaner and less stressful.
Ultimately, though, that’s it. That’s what it takes to assign a contract and flip a wholesale deal. Sounds pretty simple, right? Exactly.