Tips On Buying Wholesale Property

Tips On Buying Wholesale Property

Author: Marcus P. Hairston

When undertaking any venture or opportunity it’s always good to do your research and have a plan of action. Purchasing wholesale real estate is an excellent way to make money in the real estate business. However one might ask the question. What exactly is wholesaling? Wholesaling is buying property from an individual who has control over the property via a contract. Like any other industry that involves the buying and selling of a specific product, at a price is well below the market or retail value. In real estate price is determined by demand. Therefore when demand is high the prices will increase and when demand is low the prices will fall. Most wholesale real estate opportunities are the result of a family situation such as divorce, death, medical, etc… In addition to distress properties which have been neglected for one reason or another and in most cases the owner does not have the financial capacity or desire to renovate the property.

In today’s market the demand is low do to economic factors especially with banks changing their lending criteria. Since the demand for real estate is low this has driven wholesale prices down and increased inventory. Now is an excellent time to purchase properties especially from wholesalers.

So here are a few tips on buying wholesale properties:

Strategy
Identify the strategy that best suits your situation or expertise. When looking for wholesale properties to purchase always keep the end in mind. So, what is your goal? Are you looking to buy and hold for long term wealth or are you looking to buy renovate and resell for quick cash? Answering these questions will help you to identify what to look for and how to plan your exit strategy. Always try to have more than one exit strategy in the event things don’t go as planned. So, when evaluating a deal always look at what options you have if you have to sell or if you have to hold the property.

Evaluation
Evaluating the property is critical to being successful with the purchase of any real estate especially a wholesale property. You want to identify the criteria for establishing the market value of the property. Value is determined by identifying a similar property in a defined distance from the subject property. This distance will vary from town to town. Ideally you want the comparable property to be as close to the subject property as possible. Typically you are looking at a .33 mile radius, however, in places like Baltimore it can be block to block. In other more rural areas you might have to use a mile or more to compare. You must compare like properties, which includes similar square footage, number of bedrooms, number of bathroom, style of structure, lot size, etc…Once you have found the correct radius and a similar style home, you must look at what sold and when it sold. Did it sell yesterday, last week, last month or last year? How long did it take the property to sell? Was it a retail sale or was it being offered as a short sale or bank owned property? Was it renovated or was it dated? Was there seller help or did the buyer pay full price with no help? These questions will help you to establish the value. Please be careful when using various web sites that provide this information, because typically they are not accurate. These sites are good to use as a reference, but they should not replace you doing your own do diligence. The best sources for establishing value the MRIS system and Haines Criss Cross Directory.

Financing
Financing is a critical piece to the real estate purchasing equation. The more creative financing options you have the more deals you will be able to do. Understanding and identifying multiple resources for financing will give you options on the types of deals you are able to do and determine your return on investment. It’s worth the extra time to research and understand this aspect of the business. Start by looking at traditional sources like your local banks they tend to be more flexible then the larger institutions. In addition seek out credit unions, hard money lenders and private funding sources. Find out the terms for their loans and ask if they provide financing for renovations.

Partners
I’m using the term partner in reference to identifying the key people on your real estate team. Real estate is a team sport and requires that you work with several different people to complete a transaction. On any given deal you are working with five to ten people to complete a single transaction. When closing on a deal there is typically a seller, lender, title company/attorney, appraiser, inspector, contractor, property management etc… Start identifying key people to work with or work with a wholesaler who can help you build your team. Building a solid team is important to your success.

Time
Sometimes we tend to over look time as a key factor to success in business. However, time is everything in real estate. Time is equal or greater than money. Remember this important element as it applies to real estate and your ability to leverage others time and resources will directly impact your bottom line. When purchasing a wholesale property it’s important to establish your timeline, because this will impact the return on your investment. Once you have identified your strategy and financing, establish how long it will take to complete your project. Then review a few different timelines to establish the best and worst case scenarios. You will notice that the quicker you get the work done you will be able rent or sell property. The means your pay day will come quicker. So use your time wisely.

Today I have outlined some important tips on buying wholesale properties. Each of these tips will contribute in your success. So determine your strategy, evaluate your deals, get your financing options in place, select your team and do it quickly. Remember working with the right people can help you reach your goals in less time and with less money. Buying and selling real estate can be exciting so good luck and have lots of fun in building your real estate business.

Marcus P. Hairston
www.cashflowdealmakers.com
mphairston@cashflowdealmakers.com