Real estate wholesaling is a cost-effective way to start investing if you have limited funds and want fast returns without dealing with costly renovations or tenants. It’s perfect for beginners, but learning how to wholesale real estate can get tricky with state legal regulations and complex contracts that demand careful consideration. In this guide, I’ll cover how it works, how to find wholesale properties, and tips to succeed in your wholesale venture. Let’s get started!

What Is Real Estate Wholesaling?

Wholesaling is a real estate investment strategy where an individual (the wholesaler) finds and contracts a property, typically at a significant discount, and then assigns or sells the contract to another buyer (typically an investor) for a profit. Wholesalers act as intermediaries, facilitating transactions between sellers and buyers without owning or renovating the property.

Real estate wholesaler signing a contract
Instead of managing properties, wholesalers assign contracts.

Although sometimes confused with a fix-and-flip, the wholesaler’s intention isn’t to repair or sell the property themselves. Instead, they market the property and prospect for buyers. The buyers are not always investors. Sometimes, they’re homeowners or other wholesalers. In most cases, however, the buyer is a buy-and-hold or fix-and-flip investor.

Who Real Estate Wholesaling Is Best For

Wholesaling is a good option for beginner investors who want to invest in real estate but don’t have access to much capital. It is also suitable for contractors and investors with an eye for distressed properties and those with solid negotiation skills. Wholesaling takes time to learn, but it can reap significant rewards if done correctly.

There are many gray areas to consider, and finding the properties and buyers and bringing them together requires time, so knowing how to do research will be critical to your success. Having the right people in your network, such as real estate professionals, contractors, lenders, appraisers, and other investors who buy investment properties from real estate wholesalers, is also essential.

Wholesaling is not for investors who don’t want to do the upfront work of building their network and understanding the real estate market. Also, while there can be a low financial barrier to entry in this type of real estate investment, it will require some upfront cash for an earnest money or “good faith” deposit, appraisal and inspection fees, office expenses and supplies, and monies paid to your lawyer and accountant. 

Legal Considerations of Wholesaling

Real estate wholesaling is legal in the United States. However, its legal requirements and regulations can vary from state to state and even within local jurisdictions. It’s essential for individuals involved in property wholesaling to be knowledgeable about the real estate laws and regulations in their area and to conduct their activities in compliance with those laws.

Engaging in wholesaling without understanding and adhering to the legal requirements can lead to legal issues, financial loss, and potential penalties. It’s advisable to seek legal counsel and consult with local real estate authorities beforehand to ensure full compliance with your area’s law.

Pro Tip: Before wholesaling real estate, meet with an experienced real estate attorney to discuss the risks and laws and have them create or review contracts. Also, establish a relationship with a real estate accountant or CPA to ensure your venture will be profitable and avoid overpaying taxes. These meetings help prevent costly mistakes and possible litigation.

How Does Wholesale Real Estate Work?

To succeed as a real estate wholesaler requires a solid network, strong negotiation skills, and speed. The wholesaler needs time to assign the contract to a new owner, but sellers don’t want their property tied up indefinitely. Wholesalers typically want to resell the contract within 30 days. It’s ideal for owners of distressed properties because they can sometimes get their home under contract with a qualified buyer faster than listing it with a realtor. However, they may not get the total market value for their home. 

Here’s how real estate wholesaling typically works:

  • Property identification: The wholesaler identifies wholesale homes that are potential deals, often distressed or in need of repairs, which investors can purchase below market value.
  • Contract negotiation: The wholesaler negotiates a purchase contract with the property owner, usually with favorable terms, such as a low purchase price and flexible closing timelines.
  • Assignment: Instead of closing on the property, the wholesaler assigns the contract to an end buyer willing to purchase the property. This assignment is typically for a fee, which is the wholesaler’s profit.
  • End buyer purchase: The end buyer completes the property purchase according to the contract terms.

Back-to-Back Closing

Another way real estate wholesalers invest is by purchasing the property. Instead of assigning a contract to the buyer, the wholesaler sells the property with back-to-back closings, also known as a “double closing” or “simultaneous closing.”

A double closing can yield greater profit since the wholesaler purchases the property well below market value and sells it for a profit. The wholesaler keeps all the net proceeds from the sale instead of just collecting a fee to facilitate the transaction. This type of transaction requires a large amount of capital for a down payment and closing costs. It also requires excellent credit and is best for investors with experience since the risk is greater.

Pros & Cons of Real Estate Wholesaling

There are some excellent benefits to wholesaling real estate, including the low financial barrier to entry and not having to own, manage, maintain, or renovate the property like other investment properties. However, there are also negatives, like finding properties and qualified buyers. Let’s glance at the top five pros and cons you need to know when learning how to wholesale houses.

Pros
Cons
  • Low upfront capital: Real estate wholesaling typically requires minimal upfront capital since you're not purchasing or renovating properties.
  • Legal complexity: Wholesaling may involve legal challenges, including compliance with local real estate laws and regulations.
  • Quick profit: Wholesaling can lead to faster profits than traditional real estate investment strategies.
  • Limited control: Wholesalers have limited control over the final property transaction since it depends on the buyer's decision.
  • No property ownership: Wholesalers don't have to deal with property management, repairs, or long-term ownership responsibilities.
  • Inconsistent income: Income in wholesaling can be inconsistent, and deals aren't guaranteed.
  • Flexibility: You can do wholesaling part-time or full-time, offering flexibility in your real estate investment activities.
  • Lower profits: Wholesaler fees are typically lower than profits from a fix-and-flip or long-term investment property.
  • Networking opportunities: Wholesalers often build a network of real estate professionals, including investors, agents, and contractors, to help them grow their businesses.
  • Competition: The real estate wholesaling market can be competitive, making it challenging to find good deals. Building a solid network is critical.

How to Wholesale Real Estate

There are several steps to learn how to wholesale real estate. The skills needed include research, negotiation, project management, a solid network, and moving quickly from a contract with the seller to assignment to a buyer, then closing. Preparation is crucial. The more prepared you are, the less time and money is wasted. Here’s how to start wholesaling real estate step by step:

Step 1: Find Distressed Properties

Start by finding distressed properties when learning how to get into wholesale real estate. These property types offer potential profit. Distressed properties, often in poor condition or owned by motivated sellers, can be bought below market value. They may be in foreclosure or bank-owned. New investors often use free or low-cost methods like real estate groups, online sites, and assistants to find these properties. Experienced investors have additional resources and a larger network.

REDX preforeclosure leads database
REDX preforeclosure leads database (Source: REDX)

Unlike any other sales scenario, working with homes in preforeclosure provides a unique opportunity to support and assist distressed homeowners during a challenging transition. With accurate contact information, a mailing address, and a phone number to establish a viable lead, REDX compiles this data, saving you the effort of doing so yourself.

Visit REDX

Step 2: Negotiate an Offer With the Seller

Negotiating a deal and convincing property owners to sell is crucial. Building trust with the owner is the initial step. A wholesaler should be professional and punctual when approaching homeowners. Emphasize the benefits of selling, like relieving financial stress or deferred maintenance. 

Let the seller know you will handle the contract, inspections, appraisals, and closing, alleviating the homeowner’s burdens. Mention the necessary repairs you will need to make to improve the property’s condition and value to justify your offer. If they agree, the homeowner signs the contract that you have provided. Remember to have your contracts reviewed by a real estate attorney beforehand to ensure they comply with federal, state, and local laws.

Step 3: Secure a Title Company, Appraiser & General Contractor

You will need a title company, appraiser, and contractor on your team. It’s best to establish these relationships beforehand since time is of the essence. A real estate appraiser provides property valuation to ensure profitable deals. A title company conducts title searches to ensure that there are no liens on the property and that the owner is entitled to sell.

If you plan to flip properties, a reliable contractor estimates repair costs, helping with buyer confidence. Assessing property renovation needs determines costs and potential profits. A distressed property needing renovations offers a higher margin for the investor. Providing the repair estimate to the buyer ensures transparency in negotiations. It’s a valuable tool to secure better offers. Knowing renovation costs helps estimate the property’s after-repair value (ARV), demonstrating its value to potential investors and profit potential.

Step 4: Find a Qualified Buyer, Negotiate & Assign a Contract

Now, it’s time to find a buyer for your wholesale property if you don’t have one in mind already. Your target buyers are typically investors or contractors looking to buy and renovate but could be potential homeowners looking for a renovation project. Quickly finding a buyer is crucial due to the closing date on the contract. As a newbie wholesaler, consider cost-effective methods to locate buyers:

  • Advertise on free platforms like Craigslist and Zillow.
  • Distribute property flyers in the neighborhood.
  • Email property details to investors you met at networking events.
  • Contact other real estate professionals in your network, such as lawyers, agents, and contractors.

Once you find an interested buyer, negotiate the deal and assign the contract. Use the contractor’s estimate to your advantage and stress the urgency. The buyer should provide a good faith deposit, payable to you or the title company in escrow. Ensure your costs, including appraiser and contractor fees, title, and marketing expenses, are covered. Make sure the profit justifies your time and expenses. Discuss the after-repair value (ARV) to encourage the buyer to proceed with the transaction.

Screenshot of Zillow website where users can post an FSBO listing
Post your wholesale property on Zillow for free (Source: Zillow)

As a real estate wholesaler, your goal is to assign the contract. So, use free sites like Zillow to attract prospective buyers or assignees. Ensure the homeowner is on board with your posting and upload photos and property details. You can leave out the address to stay discreet. Create a listing for free on Zillow today.

Visit Zillow

Pro Tip: Start a prospective buyer’s database and collect their information, entering it into client relationship management (CRM) software. When you have a new property to wholesale, share it with your buyer list to reduce advertising costs and increase potential profit.

Step 5: Schedule & Close the Deal

Your contract must specify a closing date based on your timeline, with the settlement happening at a title company or lawyer’s office. Deed transfer concludes the wholesale deal, and buyers typically cover closing costs unless the seller agrees otherwise. You’ll collect your contract assignment and facilitation fee or net proceeds at the closing if you go the double closing route.

Assignment clauses in the contracts mean the wholesaler typically doesn’t take ownership but transfers to the investor/buyer, often in the investor’s or their company’s name, avoiding double transfer taxes. Double transfer taxes can occur if an investor buys the property in their name and later transfers it to a real estate holding company.

Where to Find Wholesale Properties

Real estate wholesalers can employ various strategies to find properties to wholesale. Each has advantages and may be more or less effective depending on your specific market. Combining these approaches can enhance your chances of finding suitable properties to wholesale. Here are some methods to consider:

  • Direct mail campaigns: Use direct mail campaigns by sending targeted snail mail to property owners, including those facing foreclosure or distressed situations, to scout out potential properties.
  • Networking: Grow a solid network to build relationships with great realtors, investors, and professionals who can refer potential leads. You can tap into your existing network or join groups through trade organizations, social media groups, and sites like Meetup.com.
  • Online listings: Use websites like Zillow, Realtor.com, and Craigslist to identify properties for sale. These sites include FSBO, distressed properties, preforeclosures, and foreclosure homes.
  • Real estate auctions: Attend auctions, both online and in-person, to discover distressed properties. Find public notices for auctions in local newspapers by subscribing to websites like Foreclosure.com, Zillow, and Auction.com. Before the auction, you must complete due diligence (e.g., a title search for liens, inspections, and environmental hazards) and tour the property.
  • Driving for dollars: Physically scout neighborhoods to identify vacant or distressed properties. Drive through neighborhoods where you want to search for potential deals to gather information.
  • Probate and estate sales: Target properties involved in probate or estate sales which may have motivated sellers. You can buy probate leads, attend estate sales, check public notices and records, and talk with real estate professionals.
  • FSBO (For Sale by Owner) properties: These can be found on FSBO websites and other online listings. Since they’re not paying a commission, they may have some flexibility in their pricing.
  • Bandit signs: You’re probably familiar with bandit signs for investors seeking investment properties. Place the signs in target neighborhoods to attract sellers looking for quick property sales. Ensure you have permission from the city to place signs.
  • Social media and online marketing: Marketing can be an effective way to find potential properties to wholesale. Display ads on online platforms, like social media, and create real estate websites to advertise your services and available properties and attract potential sellers.
  • Bird dogs: For a fee, these individuals assist real estate wholesalers in finding potential properties to wholesale. This saves you time and money since they may already have a database of prospective sellers and buyers. You may find bird dogs through referrals or online searches.

How to Succeed at Real Estate Wholesaling

Starting a real estate wholesaling business requires careful planning and execution. Remember that wholesaling, like any business, involves risks. It’s important to approach it with professionalism, ethics, and a focus on long-term success. Don’t be discouraged by initial challenges. Success in wholesaling often comes with experience and perseverance. Here are additional tips to help you get started:

  1. Invest in learning about real estate laws, regulations, and wholesaling strategies. Consider taking online real estate investing courses or attending workshops to build your knowledge.
  2. Understanding your market will help you source and evaluate properties effectively.
  3. Develop a comprehensive real estate investment business plan outlining your goals, strategies, marketing plans, and financial projections.
  4. Define your target markets, such as focusing on specific neighborhoods or property types. 
  5. Ensure you understand and comply with local real estate laws and regulations. Consult with legal and tax professionals if needed.
  6. Implement marketing strategies to generate or buy real estate leads. 
  7. Keep accurate financial records and manage your finances wisely. Record-keeping includes your marketing, legal, and operational expenses. 
  8. Conduct thorough due diligence on properties, including inspections and property evaluations. Ensure you’re aware of any potential issues before committing to a deal. 
  9. Keep up with industry trends and market changes. Staying informed can help you make informed decisions.
  10. Consider finding a mentor or coach in the real estate industry who can provide guidance and share their experiences.

Frequently Asked Questions (FAQs)

Bringing It All Together

Real estate wholesaling is a short-term investment method distinct from property flipping. It’s cost-effective for those with limited funds but can involve legal complexities and intricate contracts. While accessible for beginners, legal considerations should not be overlooked when learning how to wholesale real estate. Consult a real estate attorney to understand laws and craft or review contracts. Build a relationship with a tax expert to ensure profitability and compliance, avoiding costly errors and potential legal issues.

Do you have any questions about how to get into wholesale real estate? Let us know in the comments!