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Last Updated: May 14th, 2012 - 22:24:01 |
One of the best ways for people to begin in real estate and to make money without using their own money is wholesaling properties, or flipping them.
Why wholesale? You could get into rehabbing, rentals, buying and holding property, but all of these have drawbacks. If you¡¯re rehabbing properties you never have enough money to buy the property, hold it, fix it and wait to sell it. If you have rental property you have to buy it, fix it, manage it, put up with the tenants, and you won¡¯t have cash until you sell it or refinance it. Buying and holding requires borrowing money. The only time you make any serious money in real estate is when you sell or refinance. Why not skip the borrowing, fixing, and managing by wholesaling it? Get in and get out; flip them and make cash. Do that for six months or a year until you have a bunch of cash in our bank account. Then you can think about buying, holding, fixing and renting.
Basically, wholesaling means getting paid for finding a good deal. Not owning it, not buying it, not taking title to it, not borrowing money, not dealing with contractors, not having really any liability if you structure your contracts right. You strictly get paid for finding good deals. How can you sell something or get paid for something you don¡¯t own? Well, just about everything in the world is flipped, or wholesaled.
For example, you go to a car dealership to buy a brand-new car. The salesperson conveniently offers you financing for that car, even though the dealership doesn¡¯t own it. It has a contract or an option with the car¡¯s manufacturer. If the dealership sells it to you for $40,000 and had a floor-plan agreement to pay the manufacturer $34,000, the dealership makes $6,000 (plus a potential bonus for selling several cars). The car dealership just ¡°flipped¡± you a car.
The chair you¡¯re sitting on, the desk you work at, the couch you sit on at home, the television set you watch ¨C just about everything you buy is wholesaled, or flipped.
A friend of mine locates vacant lots for large retailers. He might, for example, visit a farmer who owns property on the edge of town and ask to put the land under contract for $100,000 with a contingency. His contingency clause usually says that the contract or option to buy is contingent on his partners¡¯ approval, his partners being the company to whom he is going to ¡°wholesale¡± the property. Then he meets with the retail people and asks, ¡°What would you pay for this land to put one of your big stores on?¡± they may be willing to pay $200,0000, so he takes the company¡¯s $200,000 and gives the farmer (or the commercial broker who represents the farmer) $100,000. They close the deal and my friend, in effect, gets paid for finding the deal.
The farmer in this case was happy to receive $100,000. The company wanted the land to build a superstore, factory, or office and was happy to pay $200,000. My friend made $100,000 for finding the deal. He used a contract to buy it for $100,000. He had another contract to sell it to the company for $200,000. The attorney or title company took both contracts, closed the deal, and paid my friend $100,000 for putting a willing buyer and able seller together. He didn¡¯t spend or use his own money or credit.
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