How To Flip Real Estate Contracts

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Most people understand the concept of flipping houses. But you may be surprised to learn that you can also flip real estate contracts and make money without ever actually purchasing a property or doing any repairs. Also known as wholesaling – this strategy is a great way for beginners to get started investing because it doesn’t require good credit or upfront capital. Here is a look at flipping real estate contracts and how you can get started today.

Key Points

What Does it Mean to Flip Real Estate Contracts?

Flipping a real estate contract entails locating a property that is being offered at a discounted price, getting it under contract, and then selling that contract to a buyer at a higher price. Although it takes careful planning and working knowledge of your local real estate market, if done correctly you can earn a decent profit without ever purchasing the property. Therefore, you do not need good credit or money saved for a down payment in order to flip a real estate contract – all you have to do is locate the property and find a willing buyer.

The end buyer will most likely be another real estate investor who is going to put the work into rehabbing it, then sell it at market value. So, in essence, you are getting paid a finder’s fee for locating an investment property and convincing the current owner to sell. There is no ceiling to how much you can make flipping real estate contracts. But in order to make a profit, you have to find a property that is being offered at a rock-bottom price, so both you and the buyer can make a profit on the deal. This typically means that the home is either distressed or the buyer is motivated to sell because of a major life event or financial problem.

How to Flip Real Estate Contracts

Steps For Flipping Real Estate Contracts

Flipping real estate contracts doesn’t require cash investment or good credit, but it does require hard work and patience. Here are the basic steps you must go through to successfully flip a real estate contract.

Step 1 - Identify a Property

The first step is to find a property that is being offered by a motivated seller. Motivated sellers are homeowners who are looking to sell quickly because of a major life event such as a divorce or a death in the family, or financial difficulties, such as a foreclosure. The property may also be in disrepair and the owner does not have the time or the funds available to fix it. To find motivated sellers, you can drive around your neighborhood and look for distressed buildings, visit the local courthouse or look online on sites like Craigslist or HomesByOwner. How you locate properties is how you will earn your money as a wholesaler, so you should develop a strategy that works for you. 

Step 2 - Contact the Owner

Once you’ve located a potential property, it’s time to contact the owner. You can usually find their information through county court records or any listings online. It’s important to be upfront with the owner about your intentions. Don’t try to disguise yourself as an average homeowner, because it will only backfire when you try to get them to sign an assignment contract. Some sellers may not be interested in working with wholesalers or investors and it’s better to establish that from the beginning than waste your time if they back out at the last minute.  

Step 3 - Estimate the Property Value and ARV

Before you sign any contracts, it’s important to crunch the numbers and make sure it’s a profitable deal. In order to do so, you’ll have to estimate the market value of the property and the after-repair value (ARV). Investors will pay somewhere around 65% – 70% of the ARV for an investment property. This means you will need to locate a property being sold for even less than that to make a profit. Say a home is worth $400,000 in good condition. An investor would likely pay somewhere between $250,000 to $280,00, depending on the condition and how much work needs to be done. If you can get a buyer to agree to sell a property to you for less than that, you can pocket the difference. 

Step 4 - Get the Property Under Contract

Once you’ve landed on a number that makes sense and gotten the buyer to agree to sell, it’s time to get it under contract. Keep in mind that you will not be purchasing the property- you will have the buyer sign an assignment contract, which gives you  – the wholesaler – the right to sell the contract to an end buyer. Once you are assigned that right, you will sign a separate purchase agreement with the buyer.

Step 5 - Find a Buyer

Once you’ve landed on a number that makes sense and gotten the buyer to agree to sell, it’s time to get it under contract. Keep in mind that you will not be purchasing the property- you will have the buyer sign an assignment contract, which gives you  – the wholesaler – the right to sell the contract to an end buyer. Once you are assigned that right, you will sign a separate purchase agreement with the buyer.

How Much Money Can You Make Flipping Real Estate Contracts?

It all depends on your goals and work ethic. Some wholesalers make over 6 figures, working less than 40 hours per week, while others struggle to close a single deal. The better the discount you can secure on a property, the more money you’ll be able to pocket.

Experienced wholesalers can make between $5,000 to $10,000 per deal. If you find a diamond in the rough, you can potentially make more. But it takes patience and dedication to wait for that big deal. The more you understand the market you’re working in and the larger your network of investors and property owners becomes, the more money you will eventually earn.

Flipping Real Estate Contracts vs Flipping Houses vs Micro Flipping

The difference between flipping a contract and flipping a home is that you’re not actually purchasing the property and you’re not doing any of the renovations yourself. There is less risk involved in wholesaling, but the profit margins are also lower as well. Flipping a home requires good credit or a cash investment because you are actually purchasing a property for a period of time, whereas a wholesaler is just securing the right to sell to someone who is willing to do the heavy listing.

There is also another type of wholesaling called micro-flipping that is becoming popular. Micro flipping involves using technology to identify undervalued properties and then flipping the contracts digitally. The difference between regular wholesaling and micro flipping is that you’re utilizing datasets and other digital tools to locate properties that aren’t necessarily distressed, they’re simply undervalued. This involves even less risk than traditional wholesaling and transactions typically happen much more quickly. But, micro-flippers typically only make a few thousand dollars per deal and have to compete with large companies like Zillow and Redin who are doing the same thing.

Flipping real estate contracts is a good way to learn the basics of  real estate investing and pocket some extra cash. But you have to do your due diligence and build a solid network – otherwise, you could end up wasting your time.