How to Wholesale Real Estate: Example Deal
In this guide I’m going to share a wholesaling real estate example deal to illustrate the steps you would take when using the wholesale real estate strategy to buy property with $0 or little money down and flip it for a profit.
Finally you come across a property for sale at a steep discount to market value and you decide to contact the seller to learn more about the property and their reasoning behind selling. Good start!
After eliciting information from the seller you discovered they are moving out of state and are greatly motivated to sell their home so that they don’t have to deal with the costs of two homes.
After a showing with the seller, it’s obvious the home needs some repairs, such as carpet, paint, roof, and landscaping, but is structurally sound. It appears to be a good candidate as a wholesale real estate deal.
Step 1: Determine the After Repair Value (ARV)
First, you need to find out what the property could resell for after renovations and in great condition (almost good as new). This end value will help you work backwords to determine a purchase price to offer the seller so you can build in profit on top of the cost of repairs and the cost of selling the property (known as closing costs).
To determine the after repair value, you can use a few different resources:
- Analyze real estate sold data on Zillow
- Use a real estate agent to gather market data from the MLS
Using Your Realtor
You should have a real estate team set up to assist your wholesaling business so first you’ll want to contact your realtor who is a vital member of your team as outline in our 15 Members You Need on Your Real Estate Team.
Your realtor will be able to analyze the sales comps in the area to see what prices similar houses in good condition sold for.
They’ll be able to tell you the comparable price per square foot of similar houses as well as the low and high comps. When you go to make an offer to the seller you will want to use the lowest comp in the neighborhood.
Zillow can be a free tool you can use to gather sold data in your market to help you determine the property value of a wholesale deal you are working.
Here is a quick tutorial on how to use Zillow:
Step 2: Calculate the repair costs
Drive by the property and give it a quick glance for any major concerns like an old roof, rotting windows, etc. If you schedule a showing of the house, then you can roughly estimate the repairs needed on the interior as well.
Look at the ceilings for water damage and in the bathrooms for water damage. Roofs are expensive to repair so make sure to ask how old the current roof is and analyze its condition.
Your investor buyer will do the thorough inspection and decide on repair costs but by calculating up estimates ahead of time you will be more likely to get a buyer to take the deal from you since you’ve saved them some time on work.
Step 3: Make an offer to the seller
You want to make an offer that will help out your wholesaling business in making profit. Your asking price should be lower than what the seller probably expects to get for the house.
It’s your call how much lower to go than what your gut is telling you the house is worth or what your realtor advises. But ultimately expect to get declined the majority of the time by the seller. Offer rejections by the seller is normal in investment real estate.
Some sellers will counter offer you and some will accept your first offer you send them depending on how motivated they are. Construct your purchase offer so that you can profit and your end buyer can profit.
Work backwards figuring out how much profit your end buyer will want in order to accept the deal and then add in your fee. Without an end buyer you have no wholesale business so consider their needs.
Construct your wholesale real estate offer so that it considers:
- Repair costs
- Holding costs for 6 months (general time required to rehab)
- Closing costs
- End buyer profit
- Your wholesale profit
The following is how I construct an offer:
* Know the conservative ARV: $150,000
* Determine Repair Costs: $25,000
* Fixer’s profit: $25,000
* Est holding costs: $8,000 (loan fees, utilities, taxes, etc)
* Est closing costs: $12,000
* Total Costs ($70,000)
* My PROFIT or assignment fee: $5,000
* Maximum Asking price $75,000
The asking price of $75,000 in this example would be 50% ARV but again your numbers may turn out 50-65%.
Should you offer the $75,000 in this example?
No. I would offer the seller between 40-50% ARV and see what happens considering they’ll most likely counter offer up to 50-60%. Starting with your maximum asking price will not leave yourself with any negotiating room. For the sake of this example, let’s say the eventual purchase price is $70,000.
Step 4: Find a Buyer to Wholesale Your Deal To
Ideally you want to have a list of buyers ready to go that you have met and networked with and have agreed to work with you as a wholesaler.
You’ll contact your investor buyers and let them know about the property, hoping that one will spark interest in purchasing it and reach out to you to construct a deal.
Then you would add $5,000 to the $70,000 and request a purchase price of $75,000 from them.
Have a stipulation in your contract that states the buyer will need to buy with cash within 5 days. After the fixer agrees to purchase, then you go to the final and most important step.
Step 5: Collect Your $5,000 Wholesale Fee!
How many homes do you think you can sell for $.50 on the dollar?
No matter what market or economic condition, if you purchase at the right price and sell at the right price, you will find buyers! Buyer’s don’t shy away from greatly discounted prices, especially in the real estate world.
Once you get that first wholesaling real estate deal completed you’ll have confidence and experience to pull from in future deals. Overtime your business will improve and you just may become a wholesaling king doing 5-10 deals per month.
Not a bad income to live off of.
Learn more of our real estate investing strategies, tips, financing methods, and more in our in-depth trainings over on my community membership site AskNickFoy.Teachable.com
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