The Ultimate Guide to Real Estate Wholesaling

You know real estate investing can help diversify your portfolio, but you might be sitting on the sidelines because of the upfront cost or high interest rates.

If you haven’t heard of real estate wholesaling, this is your chance to learn about an alternative investment that could help you ease into real estate investing on a small budget.

What Is Real Estate Wholesaling?

Real estate wholesaling is a simple way to invest in real estate with the least barriers to entry. You can become a wholesaler with just a few thousand dollars.

Real estate wholesalers make money by acting as intermediaries between homeowners who have an urgency to sell and investors looking to buy undervalued properties that are typically distressed. 

Wholesalers locate a home in disrepair, in foreclosure or with a lien and enter a contract to purchase the home. Then, they find a buyer and transfer the contract to the buyer, who completes the home purchase.

The key is the wholesaler getting a seller to accept a low offer because of the property’s condition or the need to sell and the investor agreeing to buy the home for a higher price. The wholesaler’s profit is the difference between the contract price with the seller and what the buyer agreed to pay.

Finding the right properties requires market knowledge, and wholesalers must have good negotiation skills to be successful.

An Example of Real Estate Wholesaling

This is what a real estate wholesaling deal might look like:

A wholesaler finds an eager seller who wants $100,000. The wholesaler enters into a purchase contract with the homeowner. The contract gives the wholesaler the right to buy the property, but the wholesaler sorts through a list of potential buyers to find one willing to pay a purchase price of $110,000 for the home. The wholesaler then sells the contract to the investor and pockets the $10,000 difference.

How Does Real Estate Wholesaling Work?

Wholesaling real estate requires time and energy, attention to detail and a good set of soft skills. Here’s how all that gets put to use:

1. Research

Looking for key indicators, such as property values and local demographics, wholesalers search public records, real estate listings and online platforms in the real estate market. You also must consider supply-demand dynamics, rental trends and local employment to get a property under contract you believe will be attractive to a buyer.

2. Identify a Distressed Property

Start by searching online platforms for real estate like the Multiple Listing Service (MLS), networking with real estate professionals, conducting title chain research, attending property auctions and searching local government websites to identify distressed properties.

3. Do the Due Diligence

Your due diligence is vital. To find the fair market value, analyze comparable properties, local occupancy rates and cash-on-cash returns for properties in the area. You also want to consider repair costs, closing costs, the buyer’s end profit and your fee to determine the offer you make a seller.

4. Reach Out to the Seller

Talking to the seller is an important step for a wholesaler. Transparency is a key element in helping you earn a contract with a seller. Be upfront about wholesaling. The contact information for potential sellers can be found in public records of the local property appraiser, tax collector and other online sources.

5. Sign a Contract

Have a real estate attorney develop a contract of the terms and conditions. The purchase agreement is binding, and failing to sell the property on time or trying to get out of the contract could result in you losing the earnest money deposit you make to an escrow account to show the seller you’re serious about buying the home.

6. Locate a Buyer

Most wholesalers maintain a list of potential real estate investors. You can develop your list through your network, local real estate meetups and social media. This is where your marketing dollars are put to good use to help you target cash buyers.

7. Reassign the Contract

Once you and a buyer agree on terms and conditions, you can reassign the contract to the investor through Docusign Inc. to facilitate the signing. Then, your part is done, and the buyer moves on to closing the deal with the seller.

Pros of Real Estate Wholesaling

Real estate wholesaling has several positives that make it attractive to real estate investors:

• Quick payments from cash deals
• Low entry costs
• Can have a low credit score
• Can create a steady cash flow

Most wholesale deals are done with cash buyers, which can get you around some of the barriers — down payments and good credit — that might keep you out of traditional real estate investing.

Cons of Real Estate Wholesaling

Like any investment, wholesaling real estate also has its share of negative attributes:

• Potential loss of earnest money
• Lost time and energy spent finding properties
• Need to comply with state laws and regulations
• Lower earnings than other real estate transactions
• Income instability

Legal limitations, competitive markets and a lower risk-reward ratio underlie these negatives of real estate wholesaling.

Do You Need a License for Real Estate Wholesaling?

While real estate wholesaling is legal in all 50 U.S. states, the practice isn’t without detractors. Real estate agents and government officials have raised concerns about wholesalers misrepresenting themselves and preying on elderly homeowners.

Different states have different requirements, so you must check local laws. Most states have no licensing requirements. Just two, Illinois and Oklahoma, require a real estate license.

Florida and Ohio have regulations, government officials in Colorado and Utah are keeping an eye on wholesalers, and Atlanta and Philadelphia have adopted laws but no licensing requirements.

Tips for Real Estate Wholesaling

Wholesaling might be the easiest way to get into investing in real estate, but it also requires a lot of time and soft skills — networking, communicating and negotiating.

Here are some tips for wholesaling:

• Network with other wholesalers and real estate professionals
• Develop an efficient process for finding and following up on leads
• Budget for marketing your contracts
• Sharpen your communication and negotiation skills
• Manage your data
• Understand the rules and regulations of your state and city

Following these tips will get you investing and keep you investing.

What Is Better: Real Estate Wholesaling or Flipping Houses?

Real estate wholesaling and house flipping are two different ways of investing in real estate. The process, investment requirements and potential profits are vastly different. More often than not, the investors buying homes from wholesalers are house flippers.

Both may operate off the same market conditions — distressed homes in a neighborhood with potential — but wholesalers are putting houses under contract and turning around and transferring that contract to a buyer.

See Whether Real Estate Wholesaling Fits You

Wholesaling can start you investing in real estate without laying out a lot of money or owning property. You aren’t risking much of an investment to see whether real estate wholesaling fits you.

Frequently Asked Questions