The art of wholesaling - or how to make far more than a 6% commission on a transaction - Part 1

By
Real Estate Agent with Sand Dollar Realty Group, Inc. BK627826

Whether you have a real estate license or not, you can profit big from wholesaling property.  Wholesaling in its simplest definition (at least my definition of it) is buying something at a cheap price and then marking it up slightly and re-selling it at a cheap price.  Other terminology for this transaction is contract assignment, property flipping, and buy low sell low.

            

This can be accomplished in a number of different ways.  The preferred and simplest method is to put a property under contract and then assign the contract to another person and get paid an "assignment fee" at closing for the difference in markup.  Under common law nearly all contracts are assignable unless the contract specifically restricts or prohibits an assignment.  Most real estate contracts either have some restriction on assigning or have check-boxes (see paragraph X (ten) of the FAR/BAR contract) to allow a choice of assignable or not assignable.  So if you want to assign the contract, you need to make sure that the contract does not restrict or prohibit an assignment. 

Smart listing agents, will not allow a contract to be assignable because if they do the original buyer might just disappear and a new buyer show up in their place (and then not close).  You might be surprised at how often this happens in the junker and foreclosure property market.  Bank REO departments have gotten so used to it that they have attorneys write up a 2-3 paragraphs into their addendum specifically stating about non-assignability.  Even so, there are ways to get around this.

The way to get around non-assignability is (1) to take title in the name of an entity (like a corporation, LLC, partnership, land trust, etc.) as opposed to an individual and then sell the interest in the entity, or (2) to close on the property (yes it has to be a real closing with real money changing hands) and then shortly or even immediately thereafter having a second closing with the end buyer.

Typically the more markup involved in the assignment, the more a second closing (or double closing) is the preferable method.  The seller and end buyer may not grumble too much when they see you making $6 or 7,000 in profit, but they might get very upset and even refuse to close and even try to go around you if they see a $20,000 or 50,000 profit.  (I've had it happen believe me. Renegotiating at the last minute is no fun.)

The other great thing is that to wholesale you DO NOT need a real estate license in most states (and definitely not in Florida).  You do however need to be a PRINCIPAL in the transaction. Meaning that you are signing your name as a buyer on the contract.  Principals are exempt under most license laws.  Read Florida Statute 475.011 (2) regarding this exemption. However paying referral fees, consulting fees, bird dog fees, etc. to unlicensed people who are not principals to a transaction is generally a criminal (yes criminal) license law violation.  (Disclaimer: I am not a lawyer, so get your own legal advice.)

How much money can be made on a wholesale transaction? My average wholesale profit is around $7,000 per transaction but in some instances (especially lately with the market as slow as it is) I have taken as low as $3,000 to make a deal close.  My best wholesale deal to date was in 2005 at the top of the market.  I put a property under contract for $35,000 and closed on it.  30 days after I bought it, I sold it to another investor for $110,000 and did absolutely no work to it. (Yes over $70,000 in profit in 30 days with no repairs on my part.)  That was absolutely thrilling and incredible.  The seller was represented by an attorney, so I don't feel I took advantage of them.  The seller just didn't know what he had and was a definite don't wanter.

In my next article(s) on this subject, I will share the details of how to actually structure a wholesale transaction.

(Disclaimer: All commission amounts in this post and comments are for example discussion only.  Commissions are freely negotiable and not set by law.)

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(Copyright © 2008. Sand Dollar Realty Group, Inc. All rights reserved.)

Rob Arnold, ABR, CPL, CRB, GRI, Managing real estate broker, Licensed mortgage broker, Notary Public

407-389-7318 / 1-877-389-7318    www.SDRhouses.com/   www.WeBuyHousesFlorida.com/

Your full service and investor friendly Realtor in Orlando. Learn to invest in Central Florida real estate and Orlando real estate. Investor mentoring and counseling available. I also provide flat fee MLS listings, For Sale By Owner, and menu-based services in most parts of Central & South Florida, the Space Coast, and the Treasure Coast including Orlando, Winter Park, Maitland, Ocoee, Winter Garden, Apopka, Altamonte Springs, Casselberry, Longwood, Winter Springs, Oviedo, Lake Mary, Sanford, Deltona, Debary, Deland, Mount Dora, Eustis, Clermont, Kissimmee, Winter Haven, Lakeland, Tampa, Sarasota, Bradenton, Miami-Dade, Fort Lauderdale, West Palm Beach, Port Saint Lucie, Melbourne, Daytona Beach, Ocala, Gainesville, Volusia, Brevard, and more.

We buy houses cash, sell properties, and list properties throughout Central Florida and the metro Orlando area.

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Tags:
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Rainer
350,460
* Rate A Home
Rate A Home - Saugatuck, MI
Rob, wow great return for your 2005 transaction, would be nice to get a few of those each year. :-)
Apr 12, 2008 05:05 AM #1
Rainmaker
913,876
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F
Duane - It's not that hard to get a few of the 5 and 10 thousand ones each year.  I am in the process of closing my 3rd wholesale transaction for 2008.
Apr 12, 2008 05:18 AM #2
Rainer
68,647
Lisa Spalding
Casa Latino Four Corners, REALTOR, CDPE - Longwood, FL
REALTOR, CDPE

Rob-

When you tie up a property by getting it under contract, WHERE do you find the actual Buyers or Investors to buy it/assign it to?  Are they typically investors or just first-time Buyers?  And, at what point do they find out what you are paying/making on a transaction?  I've only done a few assignable contracts (usually, I am the listing agent) and don't have much knowledge about them.  Thanks for the informative post!

Apr 12, 2008 05:59 AM #3
Rainmaker
913,876
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F
Lisa - I find my buyers in a couple of places.  First I usually just make some phone calls.  I have several sales associates that are investors and about a dozen regular investor customers.  I call them all first.  If that doesn't work, then I start emailing.  I have an email list of about 600 investors, Realtors, and builders that I blast out too.  I also subscribe to several Yahoo groups for real estate and email to those.  Lastly, I know a few other wholesalers and ask them to shop it around. 
Apr 12, 2008 08:29 AM #4
Rainmaker
1,135,756
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time
Very good info Rob. I need to do me some of these this year. I have done some same day closings in the past but my last one was in 2005. My market is probably ripe for wholesaling right now.
Apr 12, 2008 10:50 AM #5
Rainmaker
913,876
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F
BB - You know the numbers better than me, but I bet if you could find something for sale under 100K in Poiniciana that you could find somebody else to buy it from you pretty easily.
Apr 12, 2008 12:23 PM #6
Anonymous
PGM
Thanks for the great information. I have heard a radio program that offers a "free workshop" in my area that will teach you how to become a wholesaler. They often refer to a "Program" or "class" which I assume costs money. I assume that the paid class will provide access to a network which may make things easier. Is it possible to become a wholesaler without a "class"? 
Apr 14, 2008 10:53 AM #7
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Rob Arnold

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