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A Wholesaling Example: What Is Wholesaling and How Does it Work

By: Darius M. Barazandeh, Attorney at Law / M.B.A.

Let’s assume that John is interested in getting involved with real estate but does not have very much money or experience.  John joins a local real estate club that meets every month in his city.  He learns that one investor, named Kathy, will pay him a ‘finders fee’ if he lets them know of any properties that are available that appear to be ‘distressed’ and have owners who want to sell their property.  John thinks this is great because he drives all over town at his current job and does drive through neighborhoods many times during the week.  While driving to see a client, John spots a house on 1234 Oak Trail.  The house looks like it has not been maintained, although he sees a car in the driveway.  He tells Kathy about the property.  

 

Kathy decides to check on the property and do some research.  She drives to 1234 Oak Trail and finds that the owners are still living in the house.  She knocks on the door and chats with them briefly.  Kathy finds out that the owners have been trying to sell the house for quite a while due to the wife’s job transfer.  The man in the house is the husband, who has been staying at the house, while his wife and kids moved to the city where the new job is located.  He wants to sell the house immediately, but because of the time of the year, some minor repairs, and other factors, the house has not sold.  Kathy runs the numbers and sees that it is a good deal.  She knows that if she can get the right terms, this is a property that one of her investor friends, Tom, would certainly be interested in.  Kathy inspects the property and negotiates a purchase agreement with the sellers 3 days later when the wife is home visiting.  Kathy uses the right contract and puts down $50 of earnest or ‘good faith’ money to secure the contract.  She also has the right conditions clauses associated with the purchase agreement, and because of this she carries very little risk.

 

Tom is a real estate entrepreneur who buys properties and fixes them up.  He then puts them in the retail market by listing them with a real estate agent.  He enjoys working with his crew (on occasion) for the re-hab of the properties.  More often than not, however, he lets his crews handle the rough and technical aspects of repairing properties.  He also appreciates Kathy’s work, because she always seems to find good properties that fit his criteria.  Of course, she meets with Tom regularly and knows what he is looking for.  Tom decides to buy the contract from Kathy.  

 

Kathy is paid $4,500 for her time and effort putting the property under contract and working with the sellers.  Kathy takes $500 of the money received from Tom and gives this to John for his work finding the property.  Tom takes the property through a full re-hab after closing with the sellers.  He ran all the numbers and even inspected the property before ‘buying’ the contract.  He knows that with $15,000 of repairs the property will be worth $150,000.  He will earn the most money, but he also will put in the most time, have the most expense and carries the most risk.

 

What you have just walked through is the anatomy of a short term real estate flip.  In this example there were 3 different people involved in the transaction.  In case you missed it, John was the match-maker or scout, Kathy was the wholesaler, and Tom was the retailer.  Each of them played an important part in the process and each of them required different levels of knowledge and carried different levels of risk.  Yet, each of them was equally important.  

For example, Kathy had to know and understand what type of properties and what type of profit margin Tom needed on his real estate transactions.  She also had to inspect the property and get a good sense of its value.  For her to put the property ‘under contract’ she has to understand how to complete the contract.  She also needed to be very familiar with the required protections needed in the contract to reduce her liability.  

Tom in this situation carries the most risk and will have the most time and money involved.  Consequently, he also stands to earn the most in additional income.  He does not mind paying Kathy her ‘finder’s fee’ because she provides him with a valuable source of inventory that he can fix, update and then later re-sell to retail buyers.  Sometimes Tom finds these properties himself and puts them under contract.  Depending on the property he may handle the complete process of fixing it up and bringing it into retail sale condition and then list it with a real estate agent.  In other situations, he will simply put the property ‘under contract’ and then sell or ‘assign’ the contract to another investor.  He will do this if he needs some quick cash or if he does not have time, money or personnel to re-hab another property.  

Since he knows what constitutes a good deal, he can negotiate with the motivated sellers, put the property under contract and then sell the contract to one of his friends who also re-furbish and re-hab properties.  He knows that the most important thing is ‘buying correctly’ and at the right price.  By simply selling off these contracts, Tom has a quick and easy source of cash to keep the cash flow high.  With this cash flow he will borrow less on his re-hab deals, or he can keep the cash for emergencies or unexpected cost ‘overruns’ on his fix up deals.  

In the next chapter we are going to cover more details on each of the players in the short term buying and selling of real estate.  

To learn more about how you can start wholesaling properties with very little cash (as little as $35 per property) please see 'Attorneys Secrets to Quick Cash Wholesaling and Flipping Properties'.

 

You can also email me if you have any questions: taxenterprises@yahoo.com

 

To learn which mistakes to avoid, how to create, run, and maintain an ‘iron clad’ LLC or

corporation please see Mr. Barazandeh’s, Wealth Building LLC and Incorporate for 

Wealth™ courses.

 

To learn more about business entities, tax choices and charging order discussion, please

 listen to our free AUDIO SEMINAR! (no downloads required!)

I want to wish you the best of luck in your endeavors and email me if you ever need help!

If you plan to invest in Texas please see: Texas Houses for Pennies

 If you plan to invest in tax lien certificates states, please see: The Attorney's Step-by-Step Guide to Investing in Tax Lien Certificates 

                 ______________________________________

Information contained within this article was not intended to be, nor should it be taken by the reader as legal, financial or tax advice. The above article was written for educational purposes only.  If the services of a Texas attorney are desired please contact Mr. Barazandeh or seek the services of another attorney.

 

 

EVERY EFFORT HAS BEEN MADE TO ACCURATELY REPRESENT OUR TRAINING SERVICE AND ITS POTENTIAL. HOWEVER, THERE IS NO GUARANTEE THAT YOU WILL EARN ANY MONEY USING THE TECHNIQUES AND IDEAS OF OUR MATERIALS. TESTIMONIALS ON THIS WEBSITE ARE NOT TO BE INTERPRETED AS A PROMISE OR GUARANTEE OF EARNINGS. EARNING POTENTIAL IS DEPENDENT ON THE PERSON USING OUR TRAINING, IDEAS AND TECHNIQUES.

ALL TESTIMONIALS ON THIS WEBSITE ARE REAL. HOWEVER, YOUR LEVEL OF SUCCESS IN ATTAINING ANY RESULTS DEPENDS ON THE TIME YOU DEVOTE TO THE PROGRAM, YOUR SKILL LEVEL, YOUR FINANCES, AND OTHER FACTORS OUTSIDE OF OUR CONTROL. SINCE THESE FACTORS DIFFER ACCORDING TO INDIVIDUALS, WE CANNOT GUARANTEE YOUR SUCCESS OR INCOME LEVEL. NOR ARE WE RESPONSIBLE FOR ANY OF YOUR ACTIONS.

 

Questions? Email our Super Hero Support Team and Darius

at:  wealthtraininghelp@gmail.com