Wholesaling is a great way to get started in a real estate business. Wholesaling is also a great way to make money fast.
With wholesaling, you don’t need much cash to get started, you don’t need to buy houses or get loans, you don’t need to do any repairs yet you usually get paid a few weeks after you get a contract on a property you can wholesale.
The basics of a wholesaling are:
1. Build a buyer’s list – you can do this by calling the ‘We Buy Houses’ signs and meeting people are real estate investor club meetings who rehab houses.
2. Find old, run down properties then get them under contract way below market. (by book Flip Deals has more details about this)
3. Either sell/assign your contract to a rehabber or do a simultaneous closing which means that you write a new sales contract with your buyer. With a simultaneous close, your “buy”contract and “sale” contract are both turned in to the title company. Your profit in a simultaneous close is the difference between the two contracts.
One of the easiest ways to find those old, run down houses is to get a list of properties with Code Violations. A Code Violation is anything that is in violation of the City Property Code.
Each city Code Enforcement office will provide a list of properties with code violation. In Dallas County Texas, you can buy a $50 CD with 8500 code violation properties. Some of the suburb Cities charged 10 cents a page for their list.
The Code Violation list will only have the address with a code next to it. There will be no owner information on the list. The code is a 2-3 digit letter which indicates what the violation is. Ask Code Enforcement for their code key. Some properties have Code Violations for a leaning fence or tall grass – pass on those. Other properties have been condemned because it is not safe for anyone to live in the house – this is where the opportunities are!
When I lived in Texas, the code for a condemned property in Dallas county was RT (red tagged). When you drive up to these properties, there is a RED TAG on the front door (if there is a door). All fire damaged properties will be on the RT Code Violation list.
A Code Violation RT is a GREAT list to market to for wholesale flips. You can usually get a contract to buy these properties at 80-90% below market because you are dealing with a very motivated seller.
If a landlord owns a condemned property, they can’t rent it until all the repairs are done and a certificate of occupancy is issued. Permits and inspections will be needed for any repairs. There could be city liens for boarding up the property or mowing the grass. A title company can do a preliminary title search to determine what liens are against the property. Taxes are due at the end of January so this is a good month to market to owners with Code Violations. These owners are extremely motivated to SELL FAST and for a deep deep discount.
Once you get the Code Violation list, there are three ways to find out who owns the property:
1. You can look up the property address in the County Tax Appraisal website. There, you will find the owners name and address. You will also see the deed date, or when they bought the property, which is an indication of who much equity there is. Also note what the property is worth because this information will come in handy when you are talking to the owner.
2. Once you identify which properties you are interested in that are on the Code Violation list, you can go to Code Enforcement and request to see the file on each property. The file will have the owners contact information plus you’ll see a list of what needs to be done to get a certificate of occupancy. You may need to fill out a Freedom of Information Act form to see the file.
3. Talk to the neighbors. They usually know how to get in touch with the owners.
A cost-effective way to market to all the RT Code Violations is to send a postcard to the owner. Just say something like “I Solve Real Estate Problems” or “I Buy Houses” and add the statement that you’ll buy in any condition and with no closing costs. Be sure to include your phone number and email on the postcard so the seller can get in touch with you.
Your phone should start ringing within a few days.
Instead of jumping in the car to go meet with the seller, I like to get some preliminary information over the phone. Find out what repairs are needed and what the seller is willing to sell for. Ask, “if you could get paid cash in less than 30 days, what’s the least you’d take for your house?” If their price is about 50% of the after repaired value, then you should request a meeting at the house. Take a contract with you. The contract should have everything filled in except for the price. Be sure to include a contingency clause (see Flip Deals for a contract and more details) to give you time to find a buyer and perhaps see the Code Violation file to determine what the City wants done to the property before they will let anyone live in it again.
At the property, you can do additional negotiations with the seller to get the price down even more. Here’s an example:
The first wholesale deal my daughter did was a property on the Code Violation RT list. The house was worth about $90,000 fixed up. On the phone, the seller said they would take $25,000. We made an appointment to meet the seller at the property that day. There was a 6 foot hole in the roof, all windows were broken out, no front door, there were foundation problems, the house was filthy and big rats were running around. To make matters worse, there were 40 old rusted out refrigerators in the back yard.
So, we told the seller that we just could not pay $25,000. And asked if that was the best he could do. He said if we could close in one week, he’d take $8,000. We got the contract signed on the hood of my truck!
On the way home, my daughter called some of the rehabbers on my buyer’s list telling them we wanted $20,000 for the house. By the time we got home, we had a contract faxed to her $20,000.
A few days later she closed on her first wholesale flip and made just shy of $12,000!
When you are wholesaling a Code Violation property, you need to DISCLOSE that it the house has Code Violations and that the buyer will need to get with Code Enforcement to see what needs to be done to the house to get a Certificate of Occupancy. If you have already seen the file, you can include this information with the contract.
The Code Violation list can be a gold mine! It is a fast and easy way to find wholesale flip opportunities.
IMPORTANT: If the owner of a property with a Code Violation is a landlord, they may have several other properties. Always ask if they have any other properties to sell. If they can’t afford to take care of one property, they probably cannot afford to take care of any of the other properties. It could be an opportunity for you to pick up 2, 5, 10 or more wholesale flips deals from one seller!