Nine Steps to Quick Cash: The Anatomy of a Wholesale Flip
By Steve Cook

$53,849 is what I made on one house in July 2005 for 3 hours worth of my time. It’s a real estate investment property that I found through an advertisement, called the seller, signed the contract and sold within 20 minutes of taking possession. I did absolutely nothing to this home, and only visited it twice (when I bought it and when I sold it).

If you've never heard of the term Wholesaling, let me explain. It's when you buy a home well below market value, and when you quickly resell it, still below market value.

The advantages of this over other types of real estate investing are that it generates quick cash, requires little to none of your own money, has little to no risk and does not require any experience.

How does it work? Well here are the nine basic steps for doing your own wholesale deal:

Step 1 - Make Your Offer

Whether you pursue FSBO’s (For Sale By Owner’s) or properties listed on the MLS (Multiple Listing Service), you’re never going to be able to flip a property unless you first make an offer.

In making your offer, you need to keep your customer, the rehabber, in mind. It should be based upon a conservative estimate of the market value of the property after repairs less a profit margin for the rehabber, money for closing costs (both for buying the property and for reselling it to the retail buyer), money for holding costs, money for repairs and, last but not least, a profit margin for you, the wholesaler.

Typically, I deduct the greater of 30% or $25,000 for profit, then closing and holding costs, then money for repairs and then about $5,000 for my wholesale profit.

So my formula would look something like this:

Max Offer = ARV - 30% (or 25k) - repairs - 5k

Step 2 - Once Offer is Accepted, Sign the Contract to Purchase the Property

Once your offer is accepted, you will meet with the seller (if it’s a FSBO) or your real estate agent to sign the contract and give them an earnest money deposit.

Step 3 - Start Title Work

After signing the contract, contact your settlement attorney (title company, escrow company, etc.) to start the title work on the property. They will order a title search and schedule a settlement date.

There are two reasons to start the title work ASAP.

1. First, you want to be ready to settle when you are supposed to settle.
   
2. Second, in the event that you find a buyer who claims to be ready to buy, you want them to be able to settle right away.

Step 4 - Begin Marketing to Find a Buyer

There are two main avenues that I use to market my properties.

1. First, I’ll call the people on my buyer’s list to see who might be interested.
   
2. As I’m doing this, I will place an ad in the Investment Properties section of the Sunday paper for the upcoming weekend. Here’s an example of an ad that I’ve used in the past:
   
   Fixer Upper*123 Main St., $80K comps, only $40K (xxx) xxx-xxxx

Step 5 - Come to an Agreement with a Prospective Buyer

At some point, someone will show interest in your property. Whether you have one potential buyer or multiple potential buyers will depend upon the deal. Each one is different. The more buyers you have, the less flexible you need to be in reaching a final sales price.

Step 6 - Qualify the Prospective Buyer

Make sure the prospective buyer either has the cash or a line of credit (ask for proof of funds if they say they do) or will be able to borrow the money from a private (hard money) lender to purchase your property.

Step 7 - Sign a Contract with Your Buyer and Collect a Deposit

After verifying your buyer’s source of funds, meet with them, execute a sales contract or an assignment agreement with them, and collect a deposit. The sales contract serves as the receipt for their deposit.

Be sure you either handwrite or include typewritten verbiage somewhere on your contract a statement such as the following:

“Received $(insert dollar amount) as an earnest money deposit on (insert date)”

...and initial it once you receive their deposit. You might also include their check number or write “CASH” if they give you cash.

Step 8 - Submit Executed Documents to the Title Company

Submit both items – the executed contract with the original seller and the executed sales contract/assignment agreement with your buyer – to your attorney (title company, escrow company, closing agent, etc.) and schedule a settlement date.

Step 9 - Go to Settlement

Go to settlement, pick up your check, and celebrate!

Additional Tip Based on My Real Life Experience

When I first started in the business, I believed everyone who signed a contract to buy a home from me. I believed everything they told me and took their word. Often, I got burned.

However, it didn’t take too many slaps in the face before I realized that I needed to take control of the entire process.

At that point, I decided to control every deal by lining up contractors, lining up the lenders, starting the title work myself through my attorney, and mandating that my buyers use my attorney.

Before taking control, I estimate that about 25% of my deals didn’t settle with my first buyer. Since taking control, that percentage has been reduced to about 5% of my deals.

Blessings,
Steve Cook
www.FlippingHomes.com

Proverbs 3:5:6 Trust in the Lord with all your heart, and lean not on your own understanding. In all of your ways acknowledge Him, and he will make your paths straight.