Wholesaling real estate can be a lucrative business model, offering high returns with minimal upfront capital. However, success in wholesaling depends on your ability to find deeply discounted properties that can be resold to investors at a profit. One of the most effective tools for sourcing these deals is the Multiple Listing Service (MLS).
While many wholesalers focus on off-market deals, the MLS remains a goldmine of opportunities, often overlooked by investors who don’t know how to leverage it. In this article, we’ll explore how to use the MLS to build a profitable wholesaling business.
What is Wholesaling Real Estate?
Wholesaling is the process of securing a property under contract and then selling that contract to another investor (typically a fix-and-flip investor) at a higher price. The wholesaler profits from the difference between the contract price and the resale price.
Wholesaling differs from traditional real estate investing in that wholesalers typically don’t take ownership of the property. Instead, they act as middlemen, facilitating deals between distressed property owners and investors who have the capital and expertise to fix and flip the properties.
Why Use the MLS for Wholesaling?
The MLS is the most comprehensive database for active property listings in most markets, making it an invaluable resource for wholesalers. Many wholesalers focus on off-market deals, but the MLS offers a wealth of properties that can be targeted for wholesaling, often with significant discounts.
Benefits of using the MLS for wholesaling:
- Access to a large volume of properties: The MLS provides real-time data on properties that are listed for sale, allowing wholesalers to find potential deals quickly.
- Transparent pricing information: With MLS listings, you have access to detailed pricing history, helping you identify properties that may be priced below market value or have significant room for negotiation.
- Seller motivation indicators: Many MLS listings include key information about the seller’s situation, such as “motivated seller” or “as-is” properties, which can signal opportunities for wholesaling.
- Direct access to listing agents: Through the MLS, you can contact the listing agent directly and inquire about the seller’s situation, which can provide insights into potential negotiations.
How to Identify Profitable Wholesale Deals on the MLS
To be successful at wholesaling, you need to know how to spot profitable properties on the MLS. Here are some of the best strategies to find these opportunities.
1. Focus on Motivated Sellers
Look for listings that suggest the seller is motivated to sell quickly. Motivated sellers are often willing to accept a lower price in exchange for a quick and hassle-free transaction. You can identify motivated sellers through:
- Keywords in the listing: Look for terms like “as-is,” “fixer-upper,” “investor special,” “needs TLC,” and “handyman special.” These phrases usually indicate a property that requires work and may be priced lower to account for the needed repairs.
- Days on Market (DOM): Properties that have been sitting on the market for a long time may have sellers who are eager to close quickly. Look for properties that have been listed for 30+ days, and especially for those that have experienced price reductions.
- Agent Remarks: Listing agents often include notes in the MLS about the seller’s situation or motivation. Phrases like “seller needs to relocate quickly” or “seller is looking for quick cash sale” are signs that the seller may be open to negotiating a deal.
2. Search for Properties with Price Reductions
When a property has been listed for an extended period, or the market conditions have changed, the seller may lower the asking price. Significant price reductions are a good indication that the seller may be willing to negotiate further, especially if they’re motivated.
You can filter MLS searches for price reductions over a certain period or by a specific percentage. Properties that have dropped in price multiple times are typically prime candidates for wholesaling.
3. Target “As-Is” Listings
“As-is” listings are another key indicator of a distressed property that might be a good wholesale opportunity. These properties are typically sold in their current condition, without any repairs made by the seller. As-is homes are often priced lower because buyers need to factor in the cost of repairs.
Look for “as-is” properties in the MLS and assess their potential based on repair costs and the after-repair value (ARV). If the numbers work, you can put the property under contract and resell it to an investor who can handle the repairs.
4. Look for Foreclosures and Short Sales
Foreclosures and short sales can be an excellent sources of wholesale properties. Foreclosure properties are typically sold at auction, but they may also be listed on the MLS after the foreclosure process is complete. Short sales occur when a seller owes more on the mortgage than the property is worth, and the lender agrees to accept a lower amount to release the lien.
To find these types of properties on the MLS, use keywords like “foreclosure,” “short sale,” or “pre-foreclosure.” You can also set up automated alerts for these types of listings in the MLS.
5. Find Properties with Expired or Withdrawn Listings
Sometimes properties are taken off the market or their listings expire without being sold. This often happens when the property is overpriced, or the seller becomes discouraged. These listings can be a goldmine for wholesalers because the seller may be open to negotiating at a lower price after their initial listing period ends.
You can search for expired or withdrawn listings in the MLS and reach out to the sellers or listing agents to inquire about potential deals. Keep in mind that these sellers may have already been frustrated with the process, so a soft approach may be necessary.
How to Analyze and Evaluate Potential Wholesale Deals
Once you’ve found a promising property on the MLS, the next step is to analyze it to ensure it’s a good wholesale deal. Here’s how you can evaluate the potential of a distressed property.
1. Run a Comparative Market Analysis (CMA)
Use the MLS to run a CMA for the property. This will help you determine the property’s current market value by comparing it to similar properties in the area that have sold recently.
Key metrics to consider include:
- Sold price: Look at recent sales of similar properties to determine the current market value.
- Price per square foot: This can give you an indication of the value of the property about its size.
- Condition: Compare the subject property to others that have been fully renovated to gauge the after-repair value (ARV).
2. Estimate Repair Costs
Once you have a rough idea of the ARV, the next step is to estimate the cost of repairs. Evaluate the property’s condition and make note of any major issues such as foundation problems, plumbing, electrical issues, or outdated roofing.
If possible, bring in a contractor to provide an estimate of the repair costs. This will help you determine if the property is worth pursuing as a wholesale deal.
3. Calculate Your Maximum Allowable Offer (MAO)
To ensure a profitable wholesale deal, you need to calculate the Maximum Allowable Offer (MAO). The formula for calculating MAO is:
MAO = ARV x 70% – Repair Costs
This formula takes into account the ARV, repair costs, and a 30% margin for the investor who will purchase the property from you. If the seller’s asking price is higher than your MAO, it’s likely not a good deal for wholesaling.
How to Secure the Deal
Once you’ve identified a profitable deal on the MLS and calculated the numbers, the next step is to secure the property.
1. Contact the Listing Agent
The MLS provides direct access to the listing agent, which allows you to initiate contact with the seller or their agent. Be professional and polite when reaching out, and present yourself as a serious investor. Ask about the seller’s motivation and whether they are open to offers below the asking price.
2. Submit an Offer
Once you’ve gathered all the necessary information, submit your offer. Make sure your offer is based on the numbers you’ve calculated and is fair to both you and the seller. If possible, submit your offer in writing and include proof of funds or a pre-approval letter from a hard money lender to show that you are a serious buyer.
3. Negotiate the Terms
Be prepared to negotiate. In many cases, sellers will counter your offer, so be flexible and willing to adjust. Be polite but firm in your negotiations and aim to get the property under contract at the price that works for you.
4. Assign the Contract
Once you’ve secured the property under contract, you can assign the contract to another investor for a fee. The investor will then take ownership of the property and complete the transaction.
Conclusion
Leveraging the MLS to find distressed properties is a powerful strategy for building a profitable wholesaling business. By knowing where to look, how to analyze deals, and how to negotiate with sellers, you can secure properties at significant discounts and resell them to other investors at a profit.
The MLS provides a wealth of data and transparency that many wholesalers overlook, making it an invaluable tool for anyone looking to succeed in real estate wholesaling.
FAQs
1. Can I wholesale MLS listings?
Yes, MLS listings can be wholesale properties as long as you have an assignable contract. Ensure you follow all local laws related to wholesaling.
2. Is MLS access free?
MLS access is typically provided through licensed real estate agents. You can partner with an agent to access listings or use online platforms that aggregate MLS data.
3. What is the best strategy for finding wholesale deals on the MLS?
Focus on properties with keywords like “as-is,” “needs TLC,” and “motivated seller,” and filter by price reductions and high DOM to find distressed properties.
4. How do I know if I’m offering a fair price for a wholesale deal?
Use a CMA to compare the property’s value with similar properties that have recently sold. Also, factor in repair costs and your desired profit margin when calculating the offer.
5. Can MLS properties be sold quickly for a profit?
Yes, if you target the right properties, such as those with motivated sellers or significant price reductions, and negotiate effectively, you can sell them to investors for a quick profit.
