What Is Wholesaling Homes - And How Does A Title Company Fit in With That? - Northern Title Blog
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What Is Wholesaling Homes — And How Does A Title Company Fit in With That?

What Is Wholesaling Homes — And How Does A Title Company Fit in With That?

What Is Wholesaling Homes — And How Does A Title Company Fit in With That? 

One of the great benefits of real estate investment is the many ways to generate revenue and realize a profit — as long as you know your market, do your research and cover all your legal bases.

Although a common route toward building a real estate empire is buying and selling property and/or becoming a landlord, there is another option that requires no down payment, no financing, and no tangling with tenants: wholesaling.

Here, we’ll discuss how wholesaling works and how the right title company can be your best friend and protector during the wholesaling process.

What is wholesaling? 

Wholesaling is a strategy used by real estate investors to sell houses without buying them. In fact, wholesalers act as “middle-men” (or women, of course!), connecting home sellers with interested buyers.

In essence, the wholesaler is not actually buying the house; they are executing a contract to sell the house for the owner. A wholesaler will put the home under a sale contact, and then go out and find a buyer for it.

Once this process is completed, the wholesaler hopes to make a profit from the transaction. How? The wholesaler will charge the buyer a higher price for the property (an offer price) than the seller’s asking price.

The  difference between the buyer’s offer price and the seller’s asking price will go in the wholesaler’s pocket. This will be considered the wholesaler’s fee.

Here’s an example of a wholesale transaction using very simple math.

  • A wholesaler contracts with a buyer to sell her home by a certain date.
  • The seller’s asking price is $100,000, and she’ll expect that amount when the wholesaler sells her home, according to the contract.
  • The wholesaler then finds a buyer who agrees to buy the house for $110,000.
  • The wholesaler then makes a profit of $10,000.

Benefits of wholesaling: 

  • No initial investment is needed by the wholesaler — you are not spending your own money.
  • It’s legal in most states.
  • A real estate license is not required.
  • You can work with real estate agents, who know many buyers.
  • Good credit is not necessary.
  • It’s basically a simple process, including basic math.
  • The process is short-term, perhaps a few months at the very longest.
  • Low overhead: all you need is a laptop and a phone.
  • No cap on how much to mark up the property.
  • A wholesaler can add a contingency to the purchase contact allowing it to expire if a buyer is not found by a certain date. This reduces the wholesaler’s risk.
  • No hassle that often comes with owning property: maintenance, upkeep, or dealing with tenants.
  • Wholesalers can earn thousands of dollars in a short period of time.

Of course, no investing strategy is too good to be true.

Cons of wholesaling: 

  • It’s a hustle. Wholesalers have to remain constantly proactive and put in a lot of effort and networking.
  • Unlike other real estate investments, there is no passive or regular income here; once the property is sold, that’s it.
  • A wholesaler can be sued by both the buyer and the seller, especially if there are undetected liens on the property and other issues. 

How wholesaling differs from flipping

Some people confuse wholesaling with flipping, but the two are not the same.

A wholesaler does not perform any renovations to the property, and carries no costs. In fact, the wholesaler’s true interest is in the property’s contract, and not the physical property itself.

A flipper, on the other hand, actually buys and owns the property with the goal of improving it and then selling it for a profit. This strategy usually includes a mortgage, home insurance and property taxes.

What is needed to create a successful, consistently profitable wholesaling business: 

  • A network of buyers and sellers, and a title company familiar with the wholesaling game.  

The magic words of a wholesale transaction: “double-close” 

Unlike most real estate agents who most often represent either the buyer or the seller, a wholesaler signs a contract with the seller pledging to sell the property to a buyer within a specific time (usually no more than a few months). Then the wholesaler has to work hard to find a buyer under that tight deadline. When a buyer is found and the house is sold, the process is called a “double close,” because the wholesaler is working with both the seller and the buyer.

The drama surrounding a wholesale closing

For wholesalers, the name of the game is speed, volume — and accuracy. All the while, the exposure to legal risk must be discovered, reduced and/or eliminated. That’s why a wholesaler must work with a title company that knows its way around the wholesaling process and can handle short timeframes and tight deadlines.

The wholesaler will be busy trying to find an end buyer who can purchase the property. The end goal: the wholesaler walks away with a profit for the transaction. This can’t be possible unless the property is free and clear of liens, judgements, and any unanswered deed questions. 

A reputable title company familiar with wholesaling will:

  • Accurately present and complete all relevant paperwork.
  • Closely examine the property in question.
  • Draft an effective title insurance policy.
  • Proactively assist on all questions and concerns during the double closing or assignment.

The nature of wholesaling

Wholesale investing is growing in popularity, and no two wholesale transactions are ever exactly alike. This is especially true when it comes to title searches. The need for clear title often brings unique issues and applies to all types of properties, from condos to single-family split levels.

The importance of working with a title company that works with wholesalers

Not all title companies are completely familiar with — or specialize in wholesale-related closings. For this reason especially, you must find a title company that includes wholesaling as one of its services or specialities. And you should do this before you sign your wholesaling contract.

Ways to find a good title company that works with wholesalers: 

  • Ask for recommendations from other wholesalers.
  • Ask for recommendations from traditional lenders.
  • Try local referrals from local Meetup.com or Facebook groups, or local investment clubs.
  • Contact your local Real Estate Investment Association.

When shopping for a title company, keep this checklist handy: 

  • Does the company have a history of (and good reputation for) working with wholesalers?
  • Who are their main wholesaling clients?
  • Are they deadline-oriented? Can they work within tight deadlines?
  • Do they have a working knowledge of terms specific to wholesaling, such as “double close?”
  • Do they come highly recommended?
  • Are they listed with the Better Business Bureau?
  • Would the title company consider a volume discount, or waive the fee if you are able to bring them more business?

The bottom line: 

Real estate wholesalers need a title company that can help them provide a safe, accurate, efficient transaction in a timely manner.

If you are a wholesaler and have more questions or want more information, contact us!