How to Wholesale Real Estate: The Ultimate Guide

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.

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.

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.

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.

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:

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.

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

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:

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!