Flipping real estate contracts is a lucrative strategy that allows beginners to enter the industry and start making money without the need to own a property. This article will provide you with all the information you need to know about flipping contracts in real estate, including the benefits, drawbacks, and a step-by-step guide to maximize your efficiency and profit.
What Does Flipping Real Estate Contracts Mean?
Flipping real estate contracts involves acting as an intermediary between a property seller and a buyer, assigning contracts to transfer ownership. This strategy allows you to make money quickly without the hassle of buying, owning, and managing an investment property. Unlike flipping houses, you don't have to buy, repair, or sell the property.
How Much Money Can You Make?
The money you make from flipping contracts depends on your negotiation skills and the difference between the contract price and the final sale price. Closing more deals and minimizing expenses are key to boosting your profit. Working with real estate investors, who are often less picky and faster with their decisions, can help increase your success rate.
Why Is Flipping Real Estate Contracts a Good Investment Strategy?
Flipping real estate contracts offers several advantages for investors, especially beginners:
Pros
- No initial investment needed: Flipping contracts requires no down payment, making it ideal for those without initial capital.
- No credit score or history required: Unlike traditional investment property loans, flipping contracts doesn't rely on a good credit score.
- Low level of risk: Since you don't own the property, the risk is minimal, and you can back out if you can't find a buyer.
- Quick money potential: You can start generating income as soon as the deal closes.
- No active work: You don't have to repair or improve the property; you sell it as is.
- No long-term commitment: Flipping contracts allows you to exit the market once you sell the property.
- Easy learning: No specific education or background is required; focus on negotiation and building a network.
- Available tools: Utilize tools like Mashvisor to streamline your property search and analysis.
Cons
- Large number of contracts required: To make significant profits, you need to close multiple contracts.
- Top negotiation skills required: Maximizing income requires strong negotiation skills with both sellers and buyers.
- No passive income: Flipping contracts requires consistently closing deals to generate income.
- No long-term profit: Flipping contracts only provides short-term gains without long-term appreciation.
- License sometimes needed: Some states may require a license, so be aware of your state's requirements.
What Does Flipping Real Estate Contracts Involve?
To successfully flip real estate contracts, follow these steps:
1. Find a Property to Put Under Contract
Locate motivated sellers through various methods such as courthouse visits, online real estate auctions, networking, and more. Focus on distressed properties and motivated sellers to secure properties below market value.
How Mashvisor Can Help With Finding a Property
Utilize the Mashvisor Property Finder tool to identify suitable properties for this strategy. Enter your criteria and access a list of available properties that match your needs. The tool also provides detailed investment property analysis, helping you determine the profitability of each property.
2. Get in Touch With the Property Owner
Contact the property owner and explain your intention to assign the contract. Alternatively, you can sign a contract without explicitly mentioning wholesaling, but ensure you comply with local laws and regulations.
3. Establish the Property Value
Determine the market value of the property by analyzing real estate comps. Mashvisor's investment property search engine can help you find similar properties and their listing prices, providing a good estimate of current market value.
4. Estimate Repairs
Factor in the cost of repairs by bringing a home inspector to assess the property's condition. Use this estimate to justify your offer to the seller.
5. Negotiate the Price
Negotiate the lowest possible price with the seller, considering repair costs and projected resale value. Use formulas like computing 70% of the property's after-repair value (ARV) and deducting repair costs and your profit to determine your offer.
6. Sign a Contract
Draft a contract with the seller that allows a minimum of 30 days to close the deal with the final buyer. Enlist the help of a real estate attorney experienced in flipping contracts to ensure clarity and legal compliance.
7. Find a Buyer
Move quickly to find a cash buyer before the contract with the owner expires. Leverage networking, online listing platforms, and existing buyer lists to connect with potential buyers.
8. Close on the Property
Select a title company well-versed in flipping contracts to handle the closing process. The title company will conduct a title search, coordinate the sale, and facilitate payment transfer upon the signing of the wholesale real estate contract.
Getting Started
Flipping real estate contracts requires a specific set of skills and resources. Before diving into this strategy, ask yourself if you possess the necessary qualities such as locating distressed properties, strong research and negotiation skills, and the ability to work within tight deadlines. If you decide to pursue this approach, follow the step-by-step guide outlined above to gain a competitive edge in the real estate market.
To explore how Mashvisor can assist you in finding the best properties for contracts or other investment opportunities, sign up for a demo with our team.
