Wholesaling Made Simple

Knowledgeable Wholesalers do not buy a property outright.  They sign a 'purchase agreement' and then sell that contract to another Buyer who buys it outright.

Wholesaling Made Simple
By Pierre Mouchette | Bits-n-Pieces

Rather than signing a 'purchase agreement' and buying every property outright, there is an ingenious way to wholesale real estate by signing a Purchase Agreement and then selling that contract to another Buyer so that they can buy it outright.
 
Due Diligence & Property Prospectus Report
To wholesale any property correctly, you must be aware of all relevant details about the property.  This should be part of your due diligence before contacting the property owner (Seller).  In doing your due diligence, you will understand the property and formulate what is wrong, what needs repairing, and what needs to be accomplished to bring the property to its highest and best value.  Additionally, you will know what to offer the Seller as a purchase price and justify the owner's inquiries about how you conjectured that price.

Information uncovered can be used to create the Property Prospectus Report.  This report is essential to your prospective buyers since it serves as a basis for marketing the property and getting them excited about the property.
 
Finding a Motivated Seller
Some specific techniques can be used to find motivated sellers.  These details are thoroughly detailed in 'How to Become a Real Estate Investor, (ISBN-13: 9781544128993).'  To help open the door so that you do not go in cold turkey, you should explain to the potential Seller through email or a letter your intentions and that you would like to go over the details in person at their convenience.

When you make your offer in person to a motivated seller, your offer needs to be accompanied by a thorough explanation of your intention.  Explain to the Seller:

• If you cannot find a buyer, the contract will expire, and the transaction will not happen.
• That you are not planning to buy their property yourself.
• That you are planning to sell the contract to someone else and that they will purchase it outright.
• That you will communicate with them throughout the process.
• You need the purchase agreement (contract for sale) to be signed by all parties.

 
How Is This Accomplished?
This is accomplished by having a signed purchase agreement between yourself and the Seller, which gives you an equitable interest in the property.  This contract is a paper asset that you can sell to a third party and get paid an assignment fee without ever owning the property.  Benefits of the purchase agreement are:

• You do not have to use your own money to purchase the property.
• You do not have the responsibilities or liabilities of a property owner.
• You do not need to purchase but can walk away from the deal once the assigned purchase date has expired.

 
The Who and How of Contract Assignment
When an investor (Buyer A) finds a great real estate deal and signs a Purchase Agreement with the Seller, they have the option (if their Purchase Agreement contains the proper language) to assign (aka sell) this assignment to another investor (Buyer B).

When Buyer A sells/assigns the Purchase Agreement to Buyer B, they do it with a simple, 1-page document called an Assignment Agreement.  This document legally transfers all of Buyer A's rights to Buyer B.  It also releases Buyer A (Assignor) from any liability or obligation and substitutes Buyer B (Assignee) in their place.

Essentially, Buyer B can then purchase the property directly from the Seller, at the same price, at the same terms, with the same deadlines.  Everything stated in the original Purchase Agreement now applies to Buyer B instead of Buyer A.
 
Parties to the Assignment

• Buyer A or A/Assignor, Wholesaler
• Seller(s)
• Buyer B or Outside Investor

 
How It is Done - Flow

• Step 1:  Contract Signed between Buyer A and Seller.
• Step 2:  Buyer A finds Buyer B/Assignee.
• Step 3:  Buyer A assigns the contract to Buyer B and receives a non-refundable deposit (percentage of assignment fee).
• Step 4:  Buyer B purchases and closes on the property with the Seller and, Buyer A receives the balance of the assignment fee.

 
Due Diligence & Property Prospectus Report
To correctly assign the contract to a new Buyer, you must be aware of the relevant details of the subject property.  This should have been a part of your due diligence before you purchased the property (lets you know how to price), and you need to market the property to Buyer B (from your Buyers' List) and any other potential cash buyer.  Make a Property Prospectus Report.   Your Property Prospectus Report should contain at a minimum:

• Listing Price
• Parcel Number
• Property Address
• Legal Description
• Property Size
• Terrain and Surroundings
• Road and Utility Access
• Parcel Map
• Comparable Listings and Digital Photos
• Comparable Listing Descriptions
• Digital Site Photos
• Digital Property Photos
• Repair/Renovation Costs

A statement clarifies that you are selling a CONTRACT to purchase the property, not itself.  This can be declared in a statement in the Property Prospectus Report as follows: "This property is available via our Assignment Program.  We have entered into a purchase contract with the current owner to buy the property for $________ (this price includes the payment to the owner and all associated fees and estimated closing costs) and for an assignment fee of $_______, we will sell our rights in this contract to a third party.  A reputable title company or attorney will be enlisted to handle the closing and transfer of title."
 
Find the Buyer, Assign the Contract, Collect the Deposit
When you work with a Prospective Buyer, let them know that you are in charge by thanking them for their interest in the property and telling them if they wish to move forward with the purchase, you will need:

• A signed Assignment Agreement can be faxed or emailed to you.
• A $___________ deposit via wire transfer.

The property will not be reserved until both items are received.

Once both items are received, the property will be reserved in their name, and we will contact (Attorney/Title Company Name & Location) to begin the closing process.  They will contact you (Buyer) in the next few days and send you the closing documents and preliminary title report for your review and approval.  Our tentative goal is to close this transaction within (30 days).  This means you will need to submit your funds and all the required paperwork to (Attorney / Title Company Name) by (or before) that time.

When asking for a deposit, obtain ten percent of the purchase price.  Deposit and do not spend the deposit until the transaction is closed and the property has been transferred from the Seller to your Buyer.  All kinds of obstacles can get in the way of closing (title issues, funding issues, inspection issues, etc.).  You should NEVER touch this deposit until the deal is done.  The following caveat is in your contract "Assignee has the right to a full refund of the Down Payment, upon demand, if any action or inaction of either Buyer/Assignor or Seller prevents the closing of the sale of Property according to the terms of the Purchase Agreement."
 
Deliver Documentation to Title Company, Close, Get Paid

• Once you have both the Assignment Agreement and the funds required for your deposit, you will need to deliver the following documentation to your Closing Agent (i.e., Title Company or Closing Attorney):
• Copy of the fully executed Purchase Agreement.
• Copy of the fully executed Assignment Agreement.

​Proof Of The Funds That You Have Received For The Deposit.
This should be everything they need to order title insurance, prepare the necessary paperwork for all parties to sign, and then move forward with closing the transaction.  Given that this is a cash deal (with no mortgages or outside financing involved), this should not be a complicated transaction for your closing agent to pull off.