What to Look for in Properties When Wholesaling Houses
Imagine watching your bank account grow to new levels by the end of the year. Your vision can indeed become a reality with the right business opportunity. And, according to current trends, real estate wholesaling isn’t a bad option to explore.
Wholesaling houses, which is increasing in popularity, involves locating a stellar real estate deal that is under market value, then quickly selling the home to an investor for a profit. As a wholesaler, you can get property under contract without having to buy houses. This makes it a viable option for aspiring real estate investors who don’t have much upfront capital.
When done correctly, wholesaling houses can be a highly effective wealth-building tool. In fact, if you can find the right properties to wholesale, you can easily earn between around $5,000 and $10,000 per wholesaling deal. The question is, how exactly do you know which properties are the right ones to purchase and sell?
Here’s a rundown on what to look for in properties when wholesaling houses.
A Motivated Seller
An early sign of an excellent wholesale investment property deal is a motivated seller. That’s because, once you locate a below-market-value property, you’ll need to make the seller an offer and get them to sign a purchase agreement featuring an assignment clause. Then, on closing day, you’ll need to assign the property contract to a buyer. In the end, you should make a profit.
Here are a few questions you should ask a seller to determine how motivated the seller is:
- What plans do you have if your property does not sell?
- What’s your ideal date for closing?
- How quickly would you like to sell your property?
- Why are you interested in selling your property right now?
If your seller is not motivated to sell, this will hinder just about any wholesaling investment property deal—even the most potentially profitable ones.
Relatively High After Repair Value (ARV)
The higher the ARV of a potential real estate deal, the better.
As a wholesaler, you’re ultimately attempting to figure out how much the home’s value will be once it’s fixed up. This is paramount because, to get real estate investors to purchase it, you need to be able to show them that they can generate a profit simply by sprucing it up and adding value before selling it.
The ability to determine the ARV of real estate with accuracy is a critical part of achieving success when wholesaling houses, so let’s take a look at how to go about it.
Determining the ARV
When you’re eyeing a distressed property to wholesale, you’ll first need to do some research into recent sales of properties similar to the one you’d like to wholesale. You’ll then need to compare these other properties with your potential property’s expected sale price.
This sales comparison strategy is essentially a litmus test for determining if a wholesaling investment property deal has great potential. It’s generally a good idea to use the 70%-of-ARV-rule for measuring your profit margin when you’re purchasing a distressed property. This will help you to calculate the largest amount you should spend on the deal.
To acquire information about comparable properties, you can visit the Multiple Listing Service. You can also talk to a real estate expert or agent who can provide guidance with determining a fairly accurate ARV in your situation.
A Large Amount of Equity
This is one of the most important things to look for when you’re thinking about wholesaling houses. After all, a deal is only good if there’s enough equity for you to nab the home at your chosen price point and also get a buyer to recognize its value.
If a potential wholesale property has no or little equity, and if the seller happens to be current on his or her mortgage, you won’t be able to do much with the deal. However, if sellers in this situation are falling behind in their payments, you may be able to create equity by negotiating short sales with the banks that own the properties.
Questions to Ask
The sooner you find out the equity of a potential wholesaling investment property deal, the easier it will be for you to determine if making the seller an offer would be a good idea.
Here are some questions you should ask to find out critical information about the equity of a possible wholesale real estate deal:
- How much does the person selling the home owe against his or her property?
- Does this include all mortgages and liens?
- How far behind is the seller on his or her payments? Or is he or she current?
Property Information from the Seller That Matches the Home’s Property Card Information
The city where the property is located should have a record of the property’s information, known as a property card. This information includes any improvements made to the property and who owns it. Be sure to examine this card and make sure that there are no discrepancies between it and what the seller has relayed to you. If there are, it may not be in your best interest to proceed with the deal.
Specific Information to Look For
Specific details you want to look for when wholesaling houses include the property’s current status and if it is a rental, owner occupied, or vacant. The great thing about these details is that they can give you invaluable insight into how motivated the seller is to unload the property.
With a rental, you’ll want to find out the number of tenants, these individuals’ rents, and the terms of their leases. This is important because the person buying the property will end up inheriting these tenants, which may not necessarily be appealing to a buyer who prefers flipping and selling.
With an owner-occupied home, you face a couple of other challenges. First, the seller might be more strongly connected the property compared with someone who doesn’t currently live there. Second, arranging showings for potential buyers might be more challenging.
Wholesaling houses that are vacant is the most ideal situation for a couple of reasons. First, since nobody is living in a vacant home, scheduling showings won’t be as complicated. Second, if the property is vacant, this might be an indicator that the seller is desperate to sell, which is good news for you.
Start Wholesaling with Confidence Today!
The more prepared you are going into a wholesale property deal, the more likely you are to achieve the financial results you want. Get in touch with me, Joe Fairless, today to learn more about how to build a successful real estate strategy that may or may not include wholesale investment property.