Real Estate Wholesale Contract Step-by-Step Walkthrough
A breakdown of every clause in a wholesale contract and what it means.
Austin Beverigde
Tennessee
, Goliath Teammate
Are you feeling overwhelmed by the idea of drafting a real estate wholesale contract? You're not alone. Many aspiring wholesalers struggle with understanding the nuances of these contracts, which can be crucial for securing profitable deals. In this guide, we’ll simplify the process and provide you with a step-by-step walkthrough to help you navigate this essential document.
Quick Answer: A real estate wholesale contract is a legal agreement between a seller and a buyer (wholesaler) that allows the wholesaler to purchase a property and then assign the contract to an end buyer. To create one, clearly outline the property details, purchase price, and any contingencies. Ensure both parties sign the contract and keep copies for your records.
Understanding the Basics of a Wholesale Contract
A wholesale contract is a tool that allows you to secure a property under contract without having to purchase it outright. Instead, you typically find a motivated seller, negotiate a purchase price, and then assign that contract to an end buyer for a profit. This method requires a solid understanding of the contract’s components.
Step-by-Step Walkthrough
Step 1: Find a Property
Before drafting a contract, you need to find a property that meets your investment criteria. Look for distressed properties, motivated sellers, or properties that are listed below market value.
Step 2: Negotiate the Purchase Price
Once you identify a potential property, negotiate a purchase price with the seller. Be sure to consider repair costs and the potential resale value when determining your offer.
Step 3: Draft the Wholesale Contract
Now it's time to draft the contract. Include the following key elements:
Property address and legal description
Purchase price
Closing date
Contingencies (e.g., inspection, financing)
Assignment clause (allowing you to assign the contract)
Step 4: Get Signatures
Once the contract is drafted, both you and the seller need to sign it. Ensure that all parties have copies for their records.
Step 5: Find an End Buyer
After securing the contract, your next step is to find an end buyer. This can be done through networking, online marketing, or real estate investment groups.
Step 6: Assign the Contract
Once you find an end buyer, you can assign the contract to them for a fee. Make sure to follow any legal requirements for assignment in your area.
Costs Involved
When engaging in wholesale real estate, there are several costs to consider:
Earnest money deposit (typically 1-2% of the purchase price)
Closing costs (varies based on location and property)
Marketing expenses to find buyers
Legal fees if you hire an attorney to draft the contract
Tools You Might Need
To streamline the process, consider using the following tools:
Real estate software for managing leads and contracts
Document templates for wholesale contracts
Marketing platforms for advertising your properties
Timelines for Closing a Wholesale Deal
The timeline for closing a wholesale deal can vary, but here’s a general breakdown:
Finding a property: 1-4 weeks
Negotiating and signing the contract: 1-2 weeks
Finding an end buyer: 1-4 weeks
Closing the deal: 1-2 weeks
Common Mistakes to Avoid
Here are some pitfalls to watch out for:
Not including an assignment clause, which can prevent you from selling the contract.
Underestimating repair costs, leading to a loss on the deal.
Failing to do due diligence on the property and seller.
Not having a clear exit strategy for your end buyer.
Checklist for Creating a Wholesale Contract
Identify a motivated seller
Negotiate a fair purchase price
Draft a clear and detailed contract
Include an assignment clause
Get all necessary signatures
Market the property to find an end buyer
Complete the assignment and close the deal
FAQs
What is a real estate wholesale contract?
A real estate wholesale contract is a legal agreement that allows a wholesaler to purchase a property with the intention of assigning that contract to another buyer for a profit.
How do I find motivated sellers?
Motivated sellers can be found through various methods, including direct mail campaigns, online advertisements, networking with real estate agents, and attending local real estate investment meetings.
Can I use a template for the wholesale contract?
Yes, using a template can save time, but ensure it includes all necessary elements and complies with local laws. It’s often advisable to have a legal professional review it.
What if the seller changes their mind after signing?
If the seller changes their mind after signing, you may have legal grounds to enforce the contract, but this can vary by jurisdiction. Always consult with a legal professional for advice.
How much profit can I make from wholesaling?
Profit margins in wholesaling can vary widely, but many wholesalers aim for a profit of $5,000 to $20,000 per deal, depending on the property and market conditions.
