If you're just finding this blog, my name is Lili and this is where I document my real estate investing journey and bring you along with me.
Today, I really want to talk about some of the questions that I get a lot that I also had when I first started wholesaling, and that I don't hear a lot of the big wholesalers answering.
Something that I learned and that I want to share with you guys is there was a lot of trial and error in the process of getting my first wholesale deal.
Although I knew a lot of the big things to do from watching Youtube and reading books, there were a lot of the small but still very important details I had to learn by messing up and going through the process.
Me saying that the big wholesalers don't answer those questions is not throwing shade at them.
I just think that sometimes they are so big and they've been in the game for so long that they forget to answer those questions that come naturally to them.
But they're super important questions to a new investor. It's like when you have that teacher who is obviously very smart and knows what they're talking about, but they're just talking on such a high level that it's like "What?"
But don't worry, that's what I'm here for. That's why I'm documenting my journey as I go so that I can answer questions as they come up for you and as I discover the answers.
So today we're gonna go through some of the questions that you've asked me most often. Some of the ones that I found were really important and mistakes that I made when I was first getting off the ground.
I'm gonna begin with some of the initial questions about starting wholesaling in the beginning of the process, like finding deals and making offers. Then we're gonna move all the way through the process to when you're actually trying to collect your assignment fee from the title company.
First up, I think this question is a good place to start.
This is a great question. There's almost so much information overload out there that you might know step seven and you might know step seventeen, but what is step one?
In my opinion, step one is getting a good understanding of two things: first how real estate works and second how wholesaling fits into all of that.
So if we think about just real estate in general, we know the houses are assets and they go up in value over time. Especially if they're in poor condition and someone fixes it up and puts it in nice condition, well it's going to be worth more.
So, while there are a lot of different ways that you can invest in real estate it all comes back to this same key principle.
So wholesaling fits into that because wholesaling is finding that property that's in poor condition and then taking it to someone, an investor who wants to increase it in value in order for them to then recoup their investment and make a profit.
The wholesaler is just the person that finds those distressed properties for those investors.
A good example of wholesaling that I like to use is about Home Depot.
So if you think about when you want a new refrigerator or a new lawnmower or something, you go to Home Depot or Lowe's to get it. But you understand that they're not building those lawn mowers or those refrigerators in the back of the store.
They bought them from somewhere else and they bought it for a cheaper price. You can just imagine that Home Depot went to go get a refrigerator from some refrigerator factory and they paid 100 bucks for it.
But we don't expect them to then put it on their shelf for sale at 100 bucks. We know that they're going to charge more and we're okay with that, because they brought it to us.
We didn't have to go find the refrigerator factory and ask them what models they have and coordinate delivery. Home Depot did all of that work, put it right in front of us, and so we're willing to pay them a little bit more. You can think about that being your cash buyer.
Your investors are willing to pay you a wholesale fee because you did all the work of finding the distressed property and bringing it to their lap.
And then if we're really trying to get an overview of wholesaling, we can also think about it from the other side.
You've got this refrigerator factory. They don't have to sell to Home Depot, they could come and cold call us, or come knock on our front door and ask us if we wanted to buy a refrigerator from them.
They could probably sell it directly to us for more than they could sell it to Home Depot for, but they don't want to. Their deal is running this factory and making refrigerators.
They're happy to sell them to Home Depot at a little bit less of a price because it's convenient, it's quick, it's easy for them.
And that's how a lot of distressed property owners feel when they're motivated because there's a hole in the roof that they don't want to deal with, or they live out of state and they just want to get this property off their hands.
You're serving as Home Depot. They're very willing to sell the property to you for a little bit cheaper because then they can be done with it.
As the wholesaler, you can then take it to the investor who's willing to purchase it from you for a little bit more expensive because they didn't have to go do all the work to find it.
So if I truly want to start investing in real estate and I want to start wholesaling, I've got to understand those two things because then the entire process is going to be easier and everything is going to make a little bit more sense.
When I look on Redfin or Zillow, there's a couple of things that I'm looking for that will tell me a if property is in distressed condition and might be good for a wholesale.
One of them is obviously a low cost. If it says "selling as is" or "investor special," there's a lot of things that kind of trigger you to think, "Hey ,this might be a good deal for an investor."
So once I find one of those properties, I'm going to scroll down the page and I'm looking for the listing agent's cell phone number.
You want to make sure you call the person who has the contract directly with the homeowner. So don't call a buyer's agent, you call what's called the listing agent or the seller's agent.
This is a great question, and this is something that I actually disagree with a lot of the big wholesalers about.
I think if you were to ask this question to some other folks they might tell you to pull a list of probate leads, or pre-foreclosures, or vacant out-of-state homeowners.
They would tell you to pull a list of homeowners that you think was motivated and to cold call it, or send a Batch text message blast, or to send postcards to them.
I actually disagree because as a beginner: 1) I don't want you to go out and spend a bunch of money before you know what you're doing, and 2) even if you get some responses from motivated sellers who want to sell you their house, you actually don't have the systems in place or the resources in place yet to deal with those leads.
So rather than kind of just hustling and spending as much money as you can afford to get those leads, and then if you get a motivated seller figuring it out as you go, I say that you should save your money for marketing and actually figure out the process.
Get comfortable answering all those small, minute questions so that when you do get motivated sellers coming into your business, you're able to quickly move them from a motivated seller to a contract, assign it to a cash buyer, and pick up a check without messing up that process and losing out on that deal just because you didn't know what you were doing.
So to answer the question, if I had a thousand dollars I wouldn't spend it on marketing. Instead, I would probably take a free trial at PropStream and then maybe pay $97 for a month of that so that I can have information about properties.
But then, I would target on-market deals and those are basically free leads. I'm gonna find distressed properties on-market, and then I'm gonna practice the system of running my numbers and negotiating a price point, so that when I do get an offer accepted I'm ready to market it to cash buyers and get it to the title company of my choice.
But I just have all those things in place and I can practice with free on-market distressed leads.
I would also keep some of that thousand dollars for an earnest money deposit. If a thousand dollars is all I have, I don't want to spend it all on marketing.
Because then I might get a seller who wants to accept my offer but they want $500 of earnest money from me and I don't have it because I spent it on postcards.
So I would pay for a couple of resources, whether it be some mentorship or a service like PropStream so I can have some really good data to run my numbers with. Then I would save the rest for my earnest money deposits.
Cold calling is something I personally don't like, and I'm not going to tell you guys not to cold call because I don't like it. You might like it and you might be better at it than me, so go forth and prosper.
But I will say think about how you can not cold call, but warm call. This is a concept that I have in my head.
If I'm gonna call a vacant property owner or the owner of a house I found driving for dollars, they are cold.
They don't know who I am, they don't know what I want, and they're not actively trying to sell their house, and so that's going to be a very tough conversation for some people to manage in terms of getting them to warm up to you and be willing to sell you their property.
Or at least even willing to have a phone conversation with you.
But if instead of going to that end of the spectrum where people are super cold, I find property owners that are a little bit more warm, which means they're more warmed up to the idea of selling their house, well then that's an easier deal to manage.
Especially for a beginner.
If you can imagine someone that is actively trying to sell their house, whether they've hired a real estate agent or it's just a for sale by owner lead, they’re going to be much more willing to have a conversation with you about buying their house than someone who just sees a random number calling them on a random day.
So I would say as a beginner think about ways that you can warm call rather than just completely cold calling. That way, you're not just getting hung up on all day, but you're actually getting some practice talking to agents or property owners and running your numbers and figuring out what makes a good deal and what doesn't.
Getting that practice is going to be vital if you want to continuously do deals and not just get hung up on all day.
This takes us into the next two questions which I'm actually gonna put together.
The second person said “Why don't you do FSBO which stands for “for sale by owner” instead of dealing just with agents?”
Both of these are great questions and i'll kind of answer the second one first.
For sale by owner leads in my opinion are on-market meaning this is a person that is actively trying to sell their house. That's all on-market means to me.
It could be a “for sale by owner” lead, it could be someone who's selling their house represented by a real estate agent, but the idea is they want to sell.
And that is different than off-market, or someone who is not actively trying to sell now.
The off-market person could still be motivated, but they're just not actively looking for someone to sell to.
So if we decide that we do want to look on-market for our deals because those sellers are a little bit warmer, we can look at the for sale by owner listings on Zillow, we can set up automatic alerts either from a realtor or just by ourselves on the Redfin or the Zillow website, and we can look for things like lower priced properties in our area.
We can look for keywords like “as is” or “distressed” or “needs updates” or “cash only” all those types of things tell us where the distressed properties are on-market.
We just have to go look for them.
In my market, there are fewer for sale by owner leads than there are straight Zillow or Redfin listings, and that means most times you're going to be working with real estate agents.
So this next question is actually a text message from a real estate agent to one of you guys and this person sent me the screenshot of it.
She asked this agent about a property and they responded “I will reach out to the seller's agent and double check. Are you looking to be represented or do you already have an agent?”
The person who sent me this message...
This is something that I think is super important for beginners to understand. Each party, the buyer and the seller, can have an agent represent them.
So the seller has a seller's agent represent them and the buyer can have a buyer's agent represent them.
Since you as the buyer are an investor, you don't want a buyer's agent. You don't need to talk to the buyer's agent who then will talk to the seller's agent who then will talk to the homeowner.
No we want to cut out the buyer's agent. We want to go directly to the seller's agent because they have direct information about the property, they have direct information about the motivation of the owner, all of those things.
So this person accidentally reached out to a buyer's agent and that's why they were asking “Are you looking to be represented?”
They were asking “Can I represent you as the buyer on this deal?”
So my advice for you guys is don't reach out to buyer's agents.
If you look on listings, you're going to see the words "listed by" or “listing agent” or “seller’s agent” and that's what you want. You don't want “buyer's agent” or “buyer's representative” or anything like that.
You want the listing agent or the seller's agent, those two terms mean the same thing. Next.
This points back to knowing the difference between an on-market deal and an off-market deal.
If it's on-market and there's a real estate agent involved, they will send you your state approved contract for you to sign.
You have to tell them the things that are in that offer sheet, what you want that contract to say, the price, the closing date, your due diligence period, all of that stuff.
But once you send them that offer sheet, which you can just type it up in a word document, they'll send you back the state approved contract for you to DocuSign from your phone or your laptop.
So you don't have to have the purchase and sale agreement in that case.
If you're going off-market, you will have to have the purchase and sale agreement because the homeowner is going to be looking at you like “Yeah, you want to buy my house give me a contract.”
So in that case, if you're off market you will have to have your own contract.
In both cases, on-market and off-market, you'll have to have an assignment contract because you're going to want to go to your cash buyer and assign them your deal and have that be a legally binding contract that you can then send in to the title company.
So this is kind of a two-fold answer, but if you're on-market they'll send you the purchase contract. If you're off-market, you need to have your own purchase contract.
Either way, you need to have your own assignment contracts.
One of you asked about title companies, which are the same thing as closing companies...
Great question. Title companies and closing companies. If you're in a state that doesn't use one of those two, you might use a lawyer to close your real estate deals.
You can just find out which one your state uses by Googling it real quick, but either way this is the company that's going to take care of making sure the transfer of ownership of the property is legal and recorded. Everybody gets their money and everything is good to go.
You are going to want to use a title company or a lawyer of your choice with the reason being most real estate contracts are assignable unless they explicitly say otherwise.
But, and this is a big but, if you get to the closing table and the title company says we don't like doing assignments, they don't have to do it.
It might still be a legal contract. Different title companies do assignments, some title companies only do double closings and some title companies do neither.
So you're going to want to know that going in so that you don't get to closing day and have the title company not want to finish your deal.
So definitely look up some local title companies in your area, give them a call, and ask them right out, “Do you handle assignments of contracts?”
If so, you also want to know if they require any specific language to be used in their contracts.
You can also search in your local Facebook group, or on the Bigger Pockets forums “Which title companies are people using in my city and state?”
That'll give you some information, but you want to make sure that the title company handles all of the things that you need before you actually send them your contract and have them represent you on the closing.
Ideally, you want to find three or four different title companies that you can work with so that you have the option of picking and choosing in case one of them is really busy and can't do a quick closing or if there's another one that a lot of your cash buyers like to work with.
When it comes to wholesaling on-market properties, people often get stuck at providing the proof of funds letter.
But the real problem is actually not about the letter. It's about you.
It's really not that hard to get your hands on a proof of funds letter by searching on Google.
But once you've got your letter, you can't forget about a key component called CREDIBILITY.
No matter how legit your proof of funds letter is, if you haven't practiced all the skills needed to be a real estate investor like analyzing deals and speaking to people with confidence, it doesn't matter.
It's going to get rejected because you're lacking credibility.
Need help with building up those skills? Continue reading below.
So, now that you've gotten an intro to wholesaling, are you ready to start?
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