It’s when a wholesaler puts a property, normally distressed, under contract and assigns or resells the property to another investor for a profit. The end buyer investor uses cash, lines of credit or hard money loans to close on the transaction, which allows for quick closing on properties that sometimes need repair.
Here’s what’s really great about wholesaling. You as the wholesaler get paid at closing. So that $5,000 or $10,000 check, whatever you’ve deemed to be an appropriate sum, comes to you right at closing and you’re out of the deal.
There are some investors who use more advanced strategies where they will take a portion on of the wholesale assignment fee at closing but then they will stay involved in the transaction by getting what’s called the slice of the equity. So, if the upside of the deal is going to be, say $40,000, they might say to you “I want $5,000 now and I want 10% of the profit.” It’s something that we call an Equity Rider, which can be a great strategy.
Here’s a simple wholesale example. You find a house and put under contract for $55,000. It needs $10,000 in remodeling and it will sell for $100,000. You contract it for $55,000 and then assign the contract for $60,000. You just made $5,000 in a matter of days.
How many of these could you do in any given period of time? You are never buying the property, so you’re never on the hook to take it from start to finish. You just identify it, get it under contract, and wholesale it. Quick and Simple! I have met some very competent wholesalers who never take down a property, if they can’t sell within three to seven days, they just back out of the deal. These guys are able to turn four to five deals a month. If you look at an average payout of $5,000 or more per transaction and times it by four or five, you’re making $20,000 to $25,000 a month without actually ever having to buy or own real estate. People love this for that very reason. It’s just nice cash flow and income without the liability of owning the property.
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