by: Stephen Cook
This article is excerpted
in part from Stephen Cook's course, "Wholesaling for
Quick Cash: A Real Life Guide to Flipping Homes."
for quick cash is something that anyone can do, even the beginning
investor. In this article, I would like to give a brief introduction
to the world of wholesaling, going over the nine basic steps
that are involved in flipping a property.
Step 1) Make your offer.
Whether you pursue FSBO’s
(For Sale By Owner’s) or properties listed on the MLS (Multiple
Listing Service), you’re never going to be able to flip a
property unless you first make an offer. In making your offer,
you need to keep your customer, the rehabber, in mind. It
should be based upon a conservative estimate of the market
value of the property after repairs less a profit margin for
the rehabber, money for closing costs (both for buying the
property and for reselling it to the retail buyer), money
for holding costs, money for repairs and last but not least,
a profit margin for you, the wholesaler. Typically, I deduct
the greater of 30% or $25,000 for profit, closing and holding
costs, money for repairs and about $5,000 for my wholesale
Step 2) Once offer is accepted, sign
contract to purchase property.
Once your offer is accepted,
you will meet with the seller (if it’s a FSBO) or your real
estate agent to sign the contract and give them an earnest
Step 3) Start title work.
After signing the contract,
contact your settlement attorney (title company, escrow company,
etc.) to start the title work on the property. They will order
a title search and schedule a settlement date. There are two
reasons to start the title work ASAP. First, you want to be
ready to settle when you are supposed to settle. Second, in
the event that you find a buyer who claims to be ready to
buy, you want them to be able to settle right away.
Step 4) Begin marketing
to find a buyer.
There are two main avenues
that I use to market my properties. First, I’ll call the people
on my buyer’s list to see who might be interested. As I’m
doing this, I will place an ad in the Investment Properties
section of the Sunday paper for the upcoming weekend. Here’s
an example of an ad that I’ve used in the past:
Fixer Upper*123 Main
St., $80k comps, only $40k (xxx)xxx-xxxx
Step 5) Come to an
agreement with a prospective buyer.
At some point, someone
will show interest in your property. Whether you have one
potential buyer or multiple potential buyers will depend upon
the deal. Each one is different. The more buyers you have,
the less flexible you need to be in reaching a final sales
Step 6) Qualify the prospective buyer.
Make sure the prospective
buyer either has the cash or a line of credit (ask for proof
of funds if they say they do) or will be able to borrow the
money from a private (hard money) lender to purchase your
Step 7) Sign a contract with your
buyer and collect a deposit.
After verifying your
buyer’s source of funds, meet with them, execute a sales contract
or an assignment agreement with them, and collect a deposit.
The sales contract serves as the receipt for their deposit.
Either handwrite or include typewritten verbiage somewhere
on your contract a statement such as the following, "Received
$(insert dollar amount) as an earnest money deposit on (insert
date)" and initial it once you receive their deposit.
You might also include their check number or write "CASH"
if they give you cash.
Step 8) Submit executed documents
to the title company
Submit both items–the
executed contract with the original seller and the executed
sales contract/assignment agreement with your buyer–to your
attorney (title company, escrow company, closing agent, etc.)
and schedule a settlement date.
Step 9) Go to settlement.
Go to settlement, pick up your check, and celebrate!
Real Life Experience
When I first started
in the business, I believed everyone who signed a contract
to buy a home from me. I believed everything they told me
and took their word. Often, I got burned; however, it didn’t
take too many slaps in the face before I realized that I needed
to take control of the entire process. At that point, I decided
to control every deal by lining up contractors, lining up
the lenders, starting the title work myself through my attorney,
and mandating that my buyers use my attorney. Before taking
control, I estimate that about 25% of my deals didn’t settle
with my first buyer. Since taking control, that percentage
has been reduced to about 5% of my deals.
Stephen Cook is an author and
active investor in Baltimore, MD. He has bought and sold
over 170 properties in the last three and a half years,
including 27 in the first two months of 2001 alone. Steve
pursues many avenues of investing and specializes in the
wholesaling and rehabbing of properties for profit. His
Web Site is: www.flippinghomes.com