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Become a Real Estate Wholesaler in El Paso
Many years ago when I became interested in real estate, I came across the term “wholesaling”. I heard that it was a profitable venture that could be done with little to no money. I was intrigued, so I did some research on what a real estate wholesaler is and how I could become a real estate wholesaler in El Paso.
Let me share with you the findings of my past and recent research which include: what a wholesaler is; the network that a wholesaler needs; and what kind of knowledge a real estate wholesaler needs to possess.
All which you will need in order to become a successful real estate wholesaler in El Paso.
What is a real estate wholesaler?
In simple words, a real estate wholesaler is a link between a person looking to sell their house and a cash home buyer.
Think of it as finding customers for a business and getting paid for it. For an up-and-coming business getting customers is difficult; and without customers they inevitably fail.
This is where you come in.
As a wholesaler, you’ll find yourself doing the following:
- You find someone who is looking to sell their house without using a real estate agent.
- You sign a purchase-and-sale contract with the seller or you buy the property.
- You assign the contract or sell the property to a cash home buyer.
The first step has you looking for properties that need to be sold fast (hence foregoing the use of a real estate agent). These can be properties which are withered and need repairs; properties that are facing foreclosure; or properties where the owner is looking to earn as much money from the sale.
The second step is where you make a deal with the homeowner. You can sign a purchase-and-sale contract with them or buy the property. This touches on some legal issues, which will be discussed later.
The third step is making a deal with the cash home buyer/real estate investor. In here you either sell them the property for a higher price than what you bought it for, or you charge them a fee for bringing them a contract on a property they can buy (i.e “finder’s fee”).
For example, you’ve done the math and calculated that you can offer the seller $80,000. Both of you sign a purchase-and-sale agreement which gives you one month to either find a seller for the property or you buy it yourself. You find a buyer before time is up and sell it to him/her for $90,000 and you keep $10,000 for yourself.
That’s the gist of the wholesaling business. This venture on which you’re about to embark in is a combination of sales, marketing, customer service, and some mathematics.
By the way, these are not “typical” numbers, they were used simply for the sake of illustrating how the wholesaling business can make you money.
Now let’s dive into some details.
Potential legal issues
If you’ve done some research on the topic, then you know that there is always discussion on whether wholesaling is legal or not.
The main takeaway from all those articles and discussion forums on the internet is that the main issue with wholesaling is whether the wholesaler is acting as a broker. [1]
A look at this definition of what a broker is tells us that what a wholesaler does, can indeed, be considered brokerage. Furthermore, being a broker requires a license.
So if you wholesale in Texas without a broker’s license, will you be breaking the law? The answer is: it depends on how you go about it.
Let me explain.
A recent amendment passed by the Texas senate implies that a person who clearly discloses the nature of the wholesale is steering clear of being labeled a broker. [2]
This means that when you sign a purchase-and-sale agreement with the seller, you must advertise the fact that you’re selling an assignment to that contract and not the property itself.
So instead of going on the internet and saying “Hey I’m selling a property on so-and-so street” you should say something along the lines of “I’m selling an assignment contract for a property on so-and-so street”.
There are also two other ways that can guarantee you don’t end up on the wrong side of the law: 1) Get your broker’s license or 2) buy the property. [1]
With your broker’s license no one can accuse you of breaking brokering laws, because . . . well, you’re a licensed broker.
When you buy the property, you’ll essentially put yourself in the ‘for sale by owner’ position; which is good news because, since you’re the owner, you can now advertise the property as you please.
Fair warning though, I write this only with the purpose of giving you information and not as legal advice. Always consult with an attorney if you have doubts regarding any legal matter.
Finding a cash home buyer
A cash home buyer is an individual or company that can purchase properties with cash (as the name implies). This is who you will be either assigning the sale-and-purchase contract or selling your properties to.
Cash home buyers (also known as real estate investors) will be the ones dealing with the repairs of the house and the ones who will pay your “finder’s fee”.
You can find buyers by using Craigslist, paying for an ad on the newspaper, asking real estate agents about cash sales within the vicinity of your property, utilizing flyers, among other ways. [1] [3] [4]
As a real estate wholesaler in El Paso, you can also try a quick Google search for ‘we buy houses El Paso’ or ‘cash home buyers in El Paso’. This ought to yield dozens of pertinent results.
And the good news for you? Cash home buyers are always looking for a great deal. If you have great properties that make financial sense for the investor, then you might just find yourself with multiple buyers competing for your contract/property (more money for you!).
It is important that you find investors quickly. If you purchased the house then everyday you own it is money down the drain; or you don’t want to get to close to the deadline if you have a contract with the seller.
While this should be the easiest step in the entire wholesaling process, you should still do some homework. Not all cash home buyers are the same and every business has someone who doesn’t play fair.
Read this article to learn how you can avoid scammers and find reputable cash home buyers.
Finding properties
As mentioned before, the type of properties you want to look for are those where the owner is looking to sell quickly.
Several cases where the owner of a home might seek a quick sell include:
- Property requires way too many repairs.
- Unwanted house that was inherited.
- Houses where the owners are going through divorce.
- Houses under the threat of foreclosure.
- Owner is looking to get rid of a rental property.
- Owner is going through relocation.
All these so-called “distressed properties” are ideal for wholesale because, due to their situation, they can be purchased for under market value. [3] [4]
How can you find these properties? There are several ways:
- “Driving for dollars”: This is where you get in your car and drive around to find properties. You are usually on the lookout for properties that need maintenance (paint, roof replacement, mowing of the lawn etc.). [1] [4] You may want to try this by being on the lookout whenever you’re out and about.
- Using a property finder: This one is pretty self explanatory. You hire someone who will find leads through researching neighborhoods, calling people, among other things. [3] [4]
- Online marketing: You can find sellers in a similar manner in which you found buyers. Putting ads on Craigslist; Facebook and other social media platforms; acquiring a wholesaler website and ranking it on Google through “search engine optimization“. [4]
- Direct mail: Sending letters to potential sellers. You can purchase lists of names and addresses from companies online. [1] [4]
- Networking: Your family, friends, and acquaintances could also be an asset to find properties. Let them know of your wholesaling business and even offer a little cash award if they point you towards a good property.
Finding these properties is where you prove your value as a wholesaler. If buyers can find great properties all the time without much trouble, then wholesalers would be obsolete.
The numbers
Now let’s talk some math.
There is no good deal without numbers, especially numbers that make sense.
For real estate wholesalers, it is imperative to know what is called the “after repair value” (ARV). This is the value of the property after the cash home buyer repairs it. [1] [2]
As a cash home buyer, I do the following when evaluating a property:
- Hire a contractor that can give me an a good estimate of the repairs the property needs. [2]
- I use sites like Zillow, Trulia, Redfin, and the MLS to get loads of information on a house and the neighborhood it’s located in.
Having a contractor in your wholesaling network is a good idea. This person can evaluate the repairs the property needs, therefore giving you an accurate number for the ARV (assuming they are good at their job of course).
All of the websites I mentioned have loads of data on houses and neighborhoods. You’ll want to check the prices at which neighboring houses are being sold for; because consumers, especially in a buyer’s market, will not buy your pricey house if similar houses within the neighborhood are cheaper.
Emphasis here on neighboring and similar houses. Don’t gather and analyze data for houses being sold miles away or with great differences in the number of bedrooms, bathrooms, square footage etc.
As explained in BiggerPockets (linked at the bottom of the post), you take the ARV and subtract the cash home buyer’s profit, repairs cost, fixed costs, and your wholesale fee to find what they call the “maximum allowable offer” (MAO). [1]
This number is what you can offer to pay the seller for their property. Remember, if you decide to go with a purchase-and-sale contract, then you either sell the property in a certain amount of time or buy it yourself. So it is important to have a an accurate number for the MAO.
A lot of real estate wholesalers I’ve interacted with over the years use this formula (albeit using different terminology), and use it to identify whether a property is good for wholesaling.
The way they do this is by checking the ARV. If this number is higher than what similar and neighboring houses are selling for, then chances are it is not a good deal. This is because a cash home buyer will have to spend a lot of money repairing the house, and then have to sell the house at a lower price because it just won’t sell.
You won’t find many (if any) buyers who will be willing to purchase that property/contract if that’s the case.
You should also be aware that this is not the only formula used by wholesalers. You can conduct some online research and find other formulas that are also used; whichever you decide to follow is at your own discretion.
Now for some hard-hitting truth about being a real estate wholesaler in El Paso.
Is it easy to be a real estate wholesaler in El Paso?
No, it is not easy.
Yeah, I am not going to sugar coat it. Being a wholesaler requires a lot of hard work and dedication.
When you’re a wholesaler you’re: finding distressed properties; talking to the owner/s of these properties; convincing them to sell; doing the math; marketing the property; finding contractors; maybe talking to attorneys. Furthermore, if you want your wholesaling income to be consistent, you will have to do this for multiple properties simultaneously.
Needless to say, it is all hard work and it takes effort.
But you should look at it this way – In life, if a venture can make you great money, if it is actually worth it, then it is going to be hard – plain and simple. There is no such thing as making great money by doing something easy. Whoever tells you that is selling you a pipe dream.
Do not get discouraged by this fact though, El Paso is a great city for the house flipping business. This means that being a real estate wholesaler in El Paso can and will pay off if you’re willing to put in the effort.
Conclusion
In conclusion, a real estate wholesaler helps home sellers connect with cash home buyers.
They do so by finding distressed properties, buying or getting a contract on these properties, and either selling the property or assigning the contract to a buyer.
This action of bringing together a business and customer gets a wholesaler handsomely paid.
Go out there and become a real estate wholesaler in El Paso!
The information presented in this article is for educational purposes only and should not be considered legal, financial, or as any other type of advice.
Sources:
[1] BiggerPockets
[3] FitSmallBusiness