Investing in real estate is a fantastic way to build wealth, but it can seem daunting, especially for a teenager. However, wholesaling real estate is a great entry point that requires time and effort instead of money. This guide breaks down the steps to help you teach your teenager how to wholesale real estate successfully.
Driving For Dollars
What is Driving for Dollars?
“Driving for dollars” is a term used in real estate investing where you drive around neighborhoods looking for distressed properties. These are homes that appear to have been neglected and may be ripe for a wholesaling deal.
What to Look For
When driving for dollars, look for signs of a distressed property:
- Overgrown Landscaping: Tall grass and untrimmed bushes are good indicators.
- Broken Windows/Doors: Visible damage often signals neglect.
- Dilapidated Exterior: Peeling paint and broken gutters are signs of distress.
- Vacant/Abandoned: Piled-up newspapers, flyers on the door, and unkempt yards suggest the property might be vacant.
Documenting and Tracking
While driving, write down the addresses of distressed properties. Use a notebook or a digital note app on your phone. Take pictures of each property to help jog your memory later. This makes it easier to reference when contacting the owner.
Keep track of the areas you’ve covered to avoid duplicating your efforts. Mark streets on a map or use a spreadsheet to maintain a record.
Finding Property Owners
Once you have a list of potential properties, the next step is to find out who owns them.
Using County Appraisal District Website
Most counties have property appraisal district websites where you can look up property details:
- Search by Address: Enter the property address to find the owner’s name and mailing address.
- Owner Information: The site usually provides the owner’s name, tax details, and possibly a different mailing address if they don’t live at the property.
Using Free People Search Sites
Websites like FastPeopleSearch.com offer free searches to find phone numbers and email addresses of property owners. Plug in the owner’s name and address to get contact information. Be diligent—some numbers or emails may be outdated, but it’s a good start.
Calling
Start by calling the listed phone numbers. Prepare a brief, respectful message explaining your interest in buying their property.
Emailing
Send emails to any addresses you find. Mention specific details that show you’ve done your homework, like describing the property’s condition.
Leaving Notes
If you can’t reach the owner via phone or email, leave a note on the door. Write something like, “I’m interested in buying your house. Please call me at [your phone number].” It can grab their attention and show your seriousness.
Persistence Pays Off
Don’t be discouraged if you don’t get a response right away. Follow up after a week or two. Consistent, polite persistence can make the difference.
Preparing for Appointments
Download your state’s real estate contract forms from the official website. Read through them and familiarize yourself with the terms. Practicing with a parent or friend can also help.
Determining After Repair Value (ARV)
Knowing the ARV is crucial for setting a realistic purchase price. Use real estate websites or apps like Propelio to find comparable sales (“comps”).
Criteria for Good Comps
- Similar Bedrooms/Bathrooms: The property should have the same number of bedrooms and bathrooms.
- Square Footage: Keep the comparison within 20% of the property’s size.
- Age: Compare homes built around the same time.
- Location: Stay within the same neighborhood without crossing major roads.
Estimating Repair Costs
A general rule of thumb is $30 per square foot for repairs, though this varies by location and property condition. If the house requires significant work, this estimation helps when negotiating the purchase price.
The Appointment
Touring the Property
When you tour the house, take note of all visible issues. This will help you justify your offer during negotiation.
Negotiating the Purchase Price
Use the formula: [ ARV \times 70% – Repair Costs = Maximum Offer Price ]
Explain the necessary repairs and why your offer is fair. Be prepared to negotiate, but don’t go beyond your calculated maximum offer.
Contract Terms
Be sure to pre-fill as much of the contract as possible:
- Purchase Price: Leave this open until you finalize negotiations.
- Option Period and Fee: Ask for a longer option period (up to 30 days) for inspections. A $10 option fee is standard.
Finding An End Buyer
Create professional social media accounts dedicated to your wholesaling business. Share property details in real estate investor groups on platforms like Facebook and Instagram.
Include:
- Property description (no address)
- City and state
- Asking price
- Basic details (bedrooms, bathrooms, etc.)
Engage with potential buyers and collect their contact details for future deals. Keep a spreadsheet with names, emails, and what types of properties they’re interested in.
Closing the Deal
One-Page Assignment
For deals where your assignment fee is under $10,000, a one-page assignment contract is sufficient.
Double Closing
For larger fees, a double closing might be necessary. This can shield your profits from the seller and buyer.
Working with Title Companies
An investor-friendly title company is essential. They can help facilitate a smooth closing, especially if you need to double close without bringing money to the table.
Final Thoughts
Teaching your teenager how to wholesale real estate can be an invaluable lesson in entrepreneurship, negotiation, and financial literacy. By following the steps outlined in this guide, they can learn how to identify distressed properties, contact owners, negotiate deals, and find end buyers. Wholesaling real estate offers a practical, hands-on approach to understanding the real estate market without requiring significant capital. Encourage your teen to be persistent, stay organized, and continuously learn. With time and effort, they can successfully navigate the world of real estate wholesaling and begin building a foundation for future financial success.
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