As I’ve mentioned before, we buy many of our projects from wholesalers. Wholesaling is essentially a three-step process:
- Sign a contract to buy a house with a motivated seller.
- Market that contract (not the house) to the investors you know who might be looking for a deal.
- Collect your assignment fee (definitely not a commission) when you assign the contract to the end buyer.
But why would you want to assign the contract instead of renovating the house yourself?
- Risk mitigation
Of these reasons, risk mitigation is the biggest. You can make money without tying up any more of your own capital than you invest in the option fee. We’ve purchased properties with as little as $10 on the option. Would you risk $10 for the opportunity to collect a $5,000 assignment fee? Seems like a no-brainer to me.
The other reasons to wholesale a deal are the ability to generate a quick cash infusion (often within days) or because you don’t want to renovate the project yourself. Cash flow problems are one of the most common issues investors face. It’s not that you aren’t worth a lot of money; it’s that you sometimes don’t have enough cash on hand to start the next project. You may also not have the time or contractors available for a given deal.
We wholesale deals when they are out of our markets or we have too many projects going at a time. When we were starting Hermit Haus, we also wholesaled deals to keep the company going until we could complete some of our renovation projects.
Wholesaling doesn’t generate wealth, but it does generate cash flow. It’s a job, but it’s a job that pays well enough I know several full-time wholesalers. It’s also hard work that requires constant marketing.