How to flip real estate contracts for profit

Flipping real estate contracts, AKA: real estate wholesaling, is a profitable strategy in the real estate industry that can also be turned into a thriving business.

Wholesaling real estate (aka: flipping the contract), is a growing strategy that many turn into a business (with sales teams, marketing teams, and disposition teams – well go over that in a bit).

But this won’t be an article on how to build a wholesaling business, this will be one explaining how to flip contracts for profit.

Whether you’re brand new to the real estate industry, or you’re in contract to purchase a property RIGHT NOW, and want some options into assigning it (flipping it).

Let’s get started…

Table of Contents

 

What is Flipping Real Estate Contracts?

Flipping real estate contracts, also known as real estate wholesaling, is a strategy where an investor contracts a property with the intent to sell the contract to another buyer at a higher price. Essentially, you’re acting as a middleman between the property seller and the end buyer. This approach allows you to make a profit without having to actually purchase the property. You find a property at a low price, get it under contract, and then assign that contract to an end buyer who pays a higher price. The difference between the contract price and the higher sale price is your profit. It’s a low-risk, high-reward way to get started in real estate investing, particularly for those with limited capital.

Here’s a quick video from the founder of Ballpoint Marketing, showing you how to wholesale (flip contracts) with $0 money:

Other Names for Flipping Contracts

– Real Estate Wholesaling
– Contract Assignment
– Contract Flipping
– Real Estate Assignments
– Property Wholesaling
Wholesale Real Estate Investing
– Contract Sales
– Assignment of Contract
– Real Estate Arbitrage

How Much Can You Make Flipping Real Estate Contracts?

Flipping real estate contracts can be incredibly lucrative, especially when you get the hang of finding great deals and building a network of eager buyers. The amount you can make depends on several factors, including the property’s value, the market conditions, and your negotiation skills.

On average, wholesalers might make anywhere from $5,000 to $10,000 per deal. However, in more competitive markets or with higher-value properties, profits can easily reach $20,000 or more per transaction. Some experienced wholesalers report making six figures annually, even hitting seven figures with well-oiled operations and a steady flow of deals.

It’s essential to understand that your earnings can vary based on your deal volume and the quality of your contracts. Consistently finding undervalued properties and having a solid list of cash buyers ready to purchase will significantly boost your income potential.

For those serious about scaling their wholesaling business, investing in direct mail marketing, like the services offered by Ballpoint Marketing, can be a game-changer. Targeted campaigns help you reach motivated sellers, ensuring a steady stream of profitable deals.

Here’s one of our top producing mailers for real estate wholesalers:

Yes and no….  flipping real estate contracts, or assigning contracts, has been legal and has been a legitimate practice for many years. It’s based on the fundamental principles of contract law, where you, as the original contract holder, have the right to transfer your interest in the contract to another party. This process is straightforward and perfectly lawful, as long as all parties involved are fully informed and agree to the terms.

However, the legal landscape is changing in some areas.

Many states have started to regulate wholesaling more strictly, particularly when it’s done as a business practice. In some states, you now need a real estate license to wholesale properties. This regulation aims to protect consumers and ensure that all transactions are handled professionally and ethically.

Before diving into wholesaling, it’s crucial to research the specific laws and regulations in your state. Consulting with a real estate attorney or a knowledgeable mentor can also provide valuable guidance and help you stay compliant.

When Do You Flip a Contract?

Flipping a real estate contract is a strategic move, and there are specific scenarios when it makes the most sense. Here are a few concise situations where you’d flip a contract:

1. Quick Profit Opportunity: When you’ve secured a property significantly below market value and have an end buyer ready to purchase at a higher price, flipping the contract allows you to make a quick profit without the hassle of renovations.

2. Lack of Funds: If you don’t have the capital to close on the property yourself, flipping the contract to a cash buyer can be an effective way to monetize your finder’s fee.

3. Risk Management: If the property has potential issues (like extensive repairs or legal complications) that you’re not equipped to handle, assigning the contract to a more experienced investor can mitigate your risk.

4. Market Timing: When the market conditions are favorable for sellers and there’s high demand for properties, flipping the contract quickly can capitalize on the market momentum.

5. Specialized Buyers: If you come across a property that fits the niche criteria of certain buyers (like developers or landlords looking for specific types of properties), flipping the contract can provide a tailored solution for them while earning you a profit.

Flipping contracts in these scenarios helps streamline your real estate investment process and maximizes your returns with minimal risk. Remember, having a robust marketing strategy, like direct mail campaigns from Ballpoint Marketing, can consistently bring you these lucrative opportunities by connecting you with motivated sellers.

Key Components to Making It Profitable

Flipping real estate contracts can be highly profitable if you understand and execute a few key components effectively. The cornerstone of this strategy is acquiring the property at a significant discount. Here’s how to ensure you make a profit:

1. Get It Under Contract at a Discount: The foundation of a profitable flip is securing the property at a price lower than its market value. This usually means finding motivated sellers who are willing to sell quickly, often below market price.

2. Accurate ARV (After Repair Value): ARV is the estimated value of the property after all necessary repairs and renovations are completed. Accurately calculating ARV is crucial because it helps you determine how much you can sell the property for once it’s in top condition. Conduct thorough market research and compare similar properties in the area to get a reliable ARV.

3. Precise Repair Estimates: Knowing how much it will cost to repair and renovate the property is essential. Overestimating repair costs can eat into your profits, while underestimating can leave you with unexpected expenses. Work with reliable contractors or use detailed repair cost guides to get accurate estimates.

4. Maintain a Healthy Margin: The difference between your purchase price (plus repair costs) and the ARV should leave you with a healthy profit margin. A good rule of thumb is the 70% rule: aim to pay no more than 70% of the ARV minus repair costs. This margin accounts for your profit and any unexpected costs that may arise.

5. Market Knowledge and Timing: Being aware of the market conditions and timing your sales strategically can also impact profitability. Understanding when to hold and when to flip can make a significant difference in your returns.

By focusing on these key components, you can ensure that each deal you undertake has the potential to be profitable. For those looking to streamline the process, direct mail marketing can be an invaluable tool. At Ballpoint Marketing, we specialize in helping real estate wholesalers find motivated sellers through targeted direct mail campaigns, giving you a steady pipeline of potential deals to work with.

What is the 70% Rule in Flipping Contracts?

The 70% rule is a crucial guideline in real estate investing, particularly for those flipping contracts. It helps investors determine the maximum price they should pay for a property to ensure a profitable deal. Here’s how it works:

The 70% rule states that you should pay no more than 70% of the After Repair Value (ARV) of a property, minus the estimated repair costs. The ARV is the value of the property after all necessary repairs and renovations have been completed.

Formula:

Maximum Purchase Price=(0.70×ARV)Repair Costs

Example:
1. ARV of the property: $200,000
2. Estimated repair costs: $30,000

Applying the 70% rule:

Maximum Purchase Price=140,000−30,000\Maximum Purchase Price} = 140,000 – 30,000

\{Maximum Purchase Price} = $110,000

In this example, you should not pay more than $110,000 for the property to ensure there’s enough margin to cover your costs and make a profit.

Using the 70% rule helps safeguard your investment by providing a buffer for unexpected expenses and ensuring a decent profit margin. It’s a simple yet effective way to evaluate potential deals and make informed decisions.

For those looking to find great deals consistently, direct mail marketing can be a game-changer. At Ballpoint Marketing, we specialize in creating targeted direct mail campaigns to help real estate wholesalers connect with motivated sellers, ensuring you have a steady pipeline of opportunities to apply the 70% rule effectively.

Here’s a video of when to BREAK your rule:

How Risky Is It?

Flipping real estate contracts, or wholesaling, is often touted as a low-risk entry into real estate investing. While it’s true that the act of assigning a contract carries minimal financial risk, the reality of building a successful wholesaling business is more complex and challenging.

Minimal Financial Risk
The primary advantage of wholesaling is that it doesn’t require significant upfront capital. You’re not purchasing the property, so your financial exposure is limited. As long as you operate legally and ethically, the act of assigning a contract itself carries little risk. Ensure your contracts have clauses that allow you to walk away if you cannot assign the contract, effectively making your financial risk almost negligible.

Time and Effort Investment
However, wholesaling isn’t without its challenges. The real risk lies in the time and effort required to learn and master the business. Despite what some gurus might say, wholesaling is not a get-rich-quick scheme. It requires dedication, persistence, and a willingness to navigate a steep learning curve.

Business Challenges
Building a wholesaling business involves:

– Competition: The market can be highly competitive, especially in desirable areas. You’ll need to be proactive and innovative in finding and securing deals.
– Negotiations: Successful wholesaling hinges on your ability to negotiate favorable terms with both sellers and buyers.
– Marketing: Effective marketing strategies are essential to finding motivated sellers. This can involve direct mail campaigns, online marketing, and networking.
– Ethical Considerations: There are ethical boundaries to be mindful of. For example, walking away from a contract if you can’t assign it can damage your reputation. Always operate with integrity and transparency.

How to Find Good Deals for Contracts

Finding good deals is the lifeblood of successful real estate wholesaling. To consistently flip contracts for profit, you need a steady stream of undervalued properties. Here are some effective marketing strategies to help you uncover these opportunities:

Direct Mail Campaigns
One of the most reliable methods for finding motivated sellers is through direct mail campaigns. Sending personalized, handwritten letters can make a significant impact. At Ballpoint Marketing, we specialize in crafting high-conversion direct mail pieces that grab attention and elicit responses. These personalized touches can help you connect with property owners looking to sell quickly, giving you a competitive edge in the market.

Get calls guaranteed! Contact us today for our LEAD ENGINE PROGRAM!

 

Online Marketing

1. Social Media Advertising: Platforms like Facebook and Instagram allow you to target specific demographics, reaching potential sellers who might not be actively looking to sell but would consider the right offer.
2. Pay-Per-Click (PPC) Advertising: Google Ads can place your marketing messages in front of people searching for terms like “sell my house fast” or “cash home buyers.”
3. Website and SEO: Create a website that provides valuable information and capture leads. Optimize it for search engines to attract organic traffic from people searching for real estate solutions.

Networking

Building a strong network can open doors to exclusive deals:
1. Real Estate Meetups: Attend local real estate investor meetups and networking events to connect with other professionals in the industry.
2. Realtors and Agents: Establish relationships with real estate agents who can alert you to off-market deals.
3. Other Wholesalers: Partner with other wholesalers to share deals and leads.

 Low Cost Marketing

1. For Sale By Owner (FSBO): Reach out directly to property owners who are selling their homes without an agent. These sellers are often motivated and willing to negotiate.
2. Bandit Signs: Placing signs in strategic locations with messages like “We Buy Houses for Cash” can attract motivated sellers.
3. Door Knocking: While time-intensive, knocking on doors in targeted neighborhoods can yield valuable leads, especially in areas with distressed properties.

Public Records and Auctions

1. Pre-Foreclosures and Foreclosures: Monitor public records for properties in pre-foreclosure or foreclosure status. These homeowners are often highly motivated to sell quickly.
2. Property Auctions: Attend local property auctions to find potential deals on distressed properties.

Driving for Dollars

Physically driving through neighborhoods to identify distressed properties can be a goldmine for deals. Look for signs of neglect like overgrown lawns, boarded-up windows, and deferred maintenance.

By employing a combination of these marketing strategies, you can build a robust pipeline of potential deals. Remember, the key to successful wholesaling is consistency and persistence. Utilizing targeted direct mail campaigns from Ballpoint Marketing can give you a significant advantage in reaching motivated sellers and securing profitable contracts.

Conclusion

Flipping real estate contracts, or wholesaling, offers a unique and profitable entry point into the real estate industry. By understanding the key components of this strategy—securing properties at a discount, accurately estimating repair costs, and applying the 70% rule—you can ensure each deal has the potential to be lucrative.

However, it’s important to remember that while the financial risk of assigning contracts is minimal, the path to building a successful wholesaling business requires dedication, learning, and strategic marketing efforts. Effective marketing, including personalized direct mail campaigns from Ballpoint Marketing, can help you consistently find motivated sellers and streamline your deal flow.

By leveraging a mix of traditional and guerrilla marketing tactics, networking, and staying informed about market conditions and legal requirements, you can navigate the challenges and capitalize on the opportunities in the wholesaling business. Stay persistent, operate ethically, and continually refine your approach to grow your real estate investing endeavors into a thriving business.

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