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Welcome to the fifth and final part of our in-depth “Ultimate Guide to Wholesaling Real Estate” blog series!
In part three we covered Acquisitions, the department responsible for the process of acquiring inventory, and in part four, we covered Dispositions, the department responsible the process of “Selling” or disposing of inventory.
The last major component of a successful house wholesaling business is the closing process (and paperwork). We call this the Transactions department.
Overview of the Transactions Department
The Transactions department is responsible for closing each deal successfully and on time.
A “closing” is the meeting where both the seller and buyer sign their side of the paperwork that legally transfers ownership.
Closings typically happen at a pre-determined date, and in many cases, all parties to the transaction (the buyer, the seller, and the wholesaler) will meet on the same day, in-person, to sign documents. Sometimes, if one party to the transaction can’t meet at the title office in-person (say, if they live in another state), it's also possible to get their signatures via a service like DocuSign or through a mobile notary that meets with them where they're located (for an additional fee, of course).
Simply put, the transaction period is the span of time when:
- The closing date is coordinated and scheduled with all parties.
- All relevant information, documents, and paperwork are gathered.
- All the paperwork is signed (and notarized, if necessary).
- Funds for the purchase are transferred, held in escrow, and disbursed accordingly.
This process can happen in two ways:
- Using a third-party title company or closing attorney.
- Between the wholesaler and the other parties directly.
Closing With a Closing Agent
In most states, the typical real estate transaction is handled by a title company (i.e. – escrow office). However, there are some states (mostly on the eastern side of the U.S.) that legally require a licensed attorney to be involved with every real estate transaction.
What's required in the state you're working in? Check out this blog post for a detailed map on how this works throughout the country…
If you're working in a state that uses title companies, the process is pretty simple.
When you have a signed purchase agreement in hand, you'll email it to the title company (while copying all related parties on the email), and then the title company will coordinate the closing process from there.
Your designated closing agent (your main point of contact at the title company) will ask each party for the information they need to provide ahead of time, and once it's been collected, they will schedule the closing date between all involved parties. They will also handle the title search, provide a title commitment, gather and disburse funds and record the paperwork at the county level so that the sale is publicly recognized and documented.
As for attorney states, the process is usually quite similar. However, since an attorney is involved in the transaction, the closing costs are more expensive.
Doing a self-closing involves significantly more time, legwork and sophistication on behalf of the wholesaler.
Closing a deal in-house is also something that can only take place in certain markets, where a real estate transaction isn’t required to go through an attorney or a title company, so make sure you know the laws of your market before you start investing there.
With that said, let’s say you have a property that is in really bad shape and you can only sell it for $5,000 at the most (I know, this sounds unrealistically low for most houses, but transactions this small happen all the time with vacant land properties).
You’re able to buy it from a motivated seller for $1,000, leaving you $4,000 in profit, minus any closing costs you have to cover along the way.
Herein lies the problem with title companies and attorneys. If you're closing with an expensive closing agent, you could easily lose $1,000 of that profit margin just to get the deal purchased… and then AGAIN when you get the deal sold.
With tiny deals like this, closing costs can take a massive bite into your profits, and maybe kill the deal altogether. When these situations come up, it’s nice to have the ability to close the deal yourself, because if you understand the basic process and paperwork involved, you won’t have to throw away your money on those closing costs.
There are, however, some general risks inherent in closing your own deals, and you should be aware of these before you try to pull this off.
- If any errors are made in the paperwork (deeds and other related documents), the liability will fall on you (not the attorney or title company) – because you prepared them yourself.
- If you don't conduct a proper title search and verify that a clear title is being transferred, you could be overlooking some major title issues that can jeopardize your (and your future buyer's) ownership of the property.
It's also worth noting – closing a real estate transaction involves a fair amount of work. From the title search to the documentation, this isn't something you can do an adequate job of in 5 minutes… it takes significant time and energy to pull this off. If you don't pay a professional closing agent to do this, you'll still have to pay the price, it will just be paid by your time, rather than your money.
Note: It is possible to buy title insurance even when you choose not to have a title company or attorney handle the entire closing for you. You can usually shave at least a few hundred dollars off of your closing costs, while still having the benefit of title insurance. If you choose to go this route, be sure to see this blog post for more details.
So, even though it's possible (in most states) to close a deal yourself, there's still something to be said for having a professional closing agent (one who does this kind of work every single day and has mastered their craft) handle this process for you.
An experienced title professional is going to know and see things you won’t. It’s just that simple.
Two Sides of the Transactions Department
Every house wholesaler knows that, in a sense, they run two separate businesses.
- The Acquisitions department, which exists to find and acquire properties from motivated sellers.
- The Dispositions department, which exists to get properties sold to other investors and buyers.
In many cases, this means they even have two separate websites, two separate brands, and two separate DBAs.
The Transactions department is the only real aspect of the business that touches both sides.
When you buy a property from a motivated seller, you have to get the paperwork signed and the closing accomplished successfully — and it’s the same thing when you sell a property to an investor.
Back in part two of this series, we discussed how there are essentially three ways to wholesale real estate:
- Through an assignment
- Through a double close
- Through a traditional close
The Transactions department functions a little differently under each method, but no matter what, you’ll always have some kind of transaction work happening on both the Acquisition side and Disposition side.
When wholesaling through assignments, the process may vary slightly depending on the legalities of your specific market, but generally speaking, it works like this:
- You find a motivated seller and sign a purchase agreement with them.
- You then find a buyer and sign an assignment contract.
- You pass along both the purchase agreement and assignment contract to the title company (or closing attorney) and they coordinate the rest of the process.
It’s important that you work with closing professionals who are investor-friendly, meaning, they’re experienced in handling assignments and double closings. Otherwise, you may find yourself wasting a lot of time trying to convince your closing agent that what you're doing is legal and ethical.
Save yourself the trouble, and simply work with people who are already familiar with the process.
Double Close Transactions
When it comes to selling a property through a double close, the process generally looks like this:
- You find a motivated seller and sign a purchase agreement with them at a very low price (A-B transaction).
- You then find a buyer and sign a new, separate purchase agreement with them for a significantly higher price (B-C transaction).
- You pass along both sets of purchase agreements to the title company (or closing attorney), and they use the end buyer's funds to pay for BOTH the A-B and the B-C transactions.
Traditional Close Transactions
When doing a traditional close, the paperwork and process is similar to a double close, with the main difference being that you don’t close with both the motivated seller and the investor buyer on the same day.
In a traditional close, you buy the property from the seller, close on it, market it for sale, then when you have a buyer, close on it again, with them.
Final Thoughts About House Wholesaling
Overall, wholesaling houses is one of the best real estate businesses in the world. With a very reasonable amount of effort and resources, you can get started and begin making great money relatively quickly.
But here’s the honest truth:
Even though house wholesaling is a great business strategy… it’s not for everyone.
It may be ideal for many investors out there, but there is one real estate business model that, in my opinion, is much better:
The land-flipping business.
I actually left house wholesaling to transition into the land business, because it shares a lot of parallels with house wholesaling, but it's A LOT simpler.
You find a motivated seller, buy a property for pennies on the dollar, and then sell it for a discount to an end-buyer.
But there are some MAJOR differences worth noting (and this is why land investing wins over house wholesaling by a long shot).
5 Reasons to Become a Land Investor Instead
I've said it before and I'll say it again, vacant land is one of the most overlooked and misunderstood real estate investments in the world.
If you've never seriously considered the land flipping business model, here are just a few reasons worth thinking about…
1. Marketing Costs are WAY Cheaper
Wholesaling houses is becoming more and more popular as a business model (and with all the advantages it brings to the table, it's no surprise).
Unfortunately, this means more competition, increased marketing costs, and a sizable amount of direct mail you have to send out. It’s typical for wholesalers to spend upwards of $5,000 – $15,000 in direct mail costs just to do a handful of deals!
With land, this isn’t the case — in fact, if you began your land business through using a delinquent tax list, your marketing costs could be a little as a few hundred dollars.
2. Way Less Competition
Most people who hear about flipping land either find it too good to be true or just plain boring. Because of this, most investors bypass land and choose one of the more popular strategies like wholesaling houses, buying small apartments or flipping houses.
Since land is usually not the first thing on every new investor's mind, it’s not uncommon for YOUR mail piece to be the first one these motivated sellers ever see.
When sending out direct mail for the purpose of wholesaling houses, it’s very common to find sellers who are already in contact with several other interest parties, which means they won't be nearly as willing to take the first low-ball offer they receive from you.
When I first got into the land business, I was amazed at how much more opportunity there was.
After spending $1,000 on direct mail (a very small amount in the house wholesaling business), I got more deals than I could handle. It was incredible!
3. Higher Profits Per Deal
When I worked for Simple Wholesaling, the average profit per deal (in the Indianapolis market) was around $6,500.
Within my first three land deals, I took home a $40,000 net profit in one deal!
That was a definitely a slam-dunk of a deal (the numbers aren't always this amazing), but on average, my profit margin is consistently around $15,000 per property (I typically split this with a financial partner, but that’s still the net profit per deal, all the same).
In our Facebook Community, we hear from a lot of land investors won't even look at a deal unless they’re making 100% – 200% ROI.
In all of my years of real estate, I’ve never found another strategy where the returns are consistently so high.
4. Lower Acquisition Cost
Another major reason why land flipping is superior to wholesaling houses is that, frankly, it's waaaaay less expensive to buy a vacant lot.
In many markets around the United States, you can consistently buy vacant land properties (and nice ones, at that) for less than $1,000 per property.
With houses (even the most disgusting and dilapidated properties), it's not impossible to find deals in this price range, but it is very rare to come by.
I recently bought a property for just $267 in the northern tip of Indiana – and these kinds of deals aren't unusual at all!
5. Fewer Hassles
One of the worst things about dealing with houses is the fact that houses fall apart.
Not to mention, when you're buying houses on the cheap, they're already in total disarray on the day you acquire them.
Vacant land is a completely different story because it's just dirt.
Have you had enough of dealing with tenants, toilets, bugs, mold, lawn care, leaking roofs, bursting pipes, broken furnaces, and the hundreds of other issues that come with owning buildings? Vacant land doesn't involve ANY of those things. Once you buy it… it sits there, it behaves itself, and nothing happens.
So… What’s The Catch?
Even with all the advantages that land brings to the table, I won't sit here and tell you it's the perfect type of real estate. Even vacant lots have their own set of issues.
Probably the biggest drawback I've seen is that, when compared to wholesaling houses, vacant land properties typically take longer to sell.
For me, the typical turnaround time in the land business is about ninety days.
Granted, sometimes properties will sell in a month, sometimes they'll sell in just a few days, but sometimes they can take several months to sell, and you shouldn't be caught off guard by that.
Of course, there are plenty of levers you can pull to make properties sell faster, but by default, I've found that houses tend to move faster than land does.
In the house wholesaling business, the bulk of your activity is spent on trying to find deals, and getting them sold is relatively easy. It still takes work, but if you really have a solid deal, it’s not that hard to find an investor who will buy it.
With vacant land, it’s the exact opposite. Finding deals is almost push-button easy, but selling them takes consistent effort.
It's probably the biggest trade-off in the land business, but because of it's numerous other advantages, I think it's very much worth it.
Personally, I’ve made more money in my land business, part-time, than a lot of wholesalers make full-time.
Consider What Works Best for You
Of course, house wholesaling is a proven business model. There are a lot of extremely successful and wealthy house wholesalers out there.
I just know that in everything I’ve been too exposed to in real estate, from working at BiggerPockets to interviewing hundreds of investors on the Simple Wholesaling Podcast, I haven't found anything that compares to the opportunity in flipping land.
Want to Learn More About Land Investing?
The truth about land investing is that most people have no idea how powerful it really is.
Land is a massive opportunity that most investors aren't paying attention to – and for the few land investors who know how to pursue this business with the right acquisition strategy, it's an extremely lucrative way to build wealth and financial freedom with real estate.
If you want to get the inside scoop on how to start and run your own land investing business, come and check out the REtipster Club – where we have a full 12-module course, dozens of videos, bonuses, downloads, group coaching sessions and a members-only forum (where we spend time answering questions every week). There is no better place to learn this business from the inside out!