Wholesaling is the process of finding a property at a significant discount below market value and reselling it on to another investor without ever actually purchasing it yourself. Sounds odd right? The way it works is that our investor will find a property that the owner is willing to sell quickly for below market value and he will sign a contract offering to purchase this property at this price. Believe it or not, this happens all the time; perhaps the owner may be going through divorce, moving town for work, or a myriad of other reasons. Now our investor will find a buyer, or hopefully already have one lined up. When he finds a buyer for the property he completes what is called an “assignment of contract” where the end buyer will pay our investor a fee to take over the contract for the right to purchase the house and will also pay the original seller the negotiated price for the house. To protect against being unable to find an end buyer, our investor will put a clause in the contract that states that the purchase is contingent upon finding a buyer.
Let’s look at a quick example:
Three children have just been left a property as inheritance. The house is in disrepair and currently unliveable, they want to sell it for cash as quickly as possible. The property is worth $100,000USD (even in its current state) but our investor offers them $80,000USD cash within the next 60 days. They agree and a contract is signed. Our investor markets this property for $90,000 and finds another investor who is interested in renovating the property and reselling it. This second investor pays our investor $10,000 for the contract to purchase the house, and then pays the three sellers the $80,000. The second investor has bought a house for $10,000 below market value, our investor has pocketed $10,000USD for assigning the purchase contract, and the three inheritors have gotten quick cash for a their inheritance.