Wholesale real estate is when a real estate investor enters a contract with a seller and then assigns the contract to a buyer at a higher price. The investor is then able to keep the difference as profit.
Wholesaling real estate can only occur when property is being sold under its market value. This is typically the case with foreclosures, but not always.
The key is to find a seller that is motivated to sell their property quickly. The main causes of a property going into foreclosure are normally financial hardships or excessive repairs the owner is not willing to deal with anymore. Once the property ends up in foreclosure, the price drops substantially making it incredibly appealing for a wholesaler that knows the specific market and also knows that they can turn a quick profit.
It is important to know that real estate investors may also work as a wholesaler and tend to find these opportunities through advertisements, contractors, and networking.
Once they find a desirable property, they make contact with the motivated seller and enter into a contract as the buyer. If they can get the property before it is foreclosed on they can guarantee it is in their hands and the home owner gets to leave with money in their pocket so it is a much better situation than a bidding war and the home owner leaving with nothing.
When the wholesaler cuts the deal with the seller, the next step is to line up an investor or DIYer that doesn’t mind some extra work. Unlike a traditional fix and flip or sale, the wholesaler’s goal is to never actual have to take the title and purchase the property. Their goal is to get a new buyer to purchase the property quickly and ideally before the contract closes.
When the deal closes, the initial investor (the real estate wholesler) collects the difference between the agreed prices as profit. Other times they may sit on the property and take it as a net loss for their taxes because they know the property value is going to increase.
One major difference between being a real estate wholesaler and an investor is that a wholesaler rarely actually sells the home. Instead, they are trying to sell the rights to purchase the property and broker a deal.
Wholesaling real estate should not be confused as a form of flipping. Although it is similar, the wholesaler doesn’t invest any money into the property. Typically, the money invested (if any) is into earnest money payments on the property. Wholesale transactions also happen more quickly than flipping. On the slower side a wholesaler will need a week or more to locate a buyer, but in many cases, it can happen in a day or two. The reason is they are professionals at identifying flip worthy homes and likely have a database of investors looking for deals.
The amount of money wholesalers can make will depend on the difference in agreed prices. It may only be a few thousand dollars, but it can be much more. Experience is key here!
If you have never wholesaled a property, it is highly recommended that you find a mentor and learn the process. If you can’t move the property quickly enough, you may end up having to buy it which can eat your capital quickly.
How do I start wholesaling real estate?
There are a few steps to getting involved with wholesaling. First, an investor needs to study a neighborhood or region and understand the property values in the area. They should also learn the ins and outs of the local marketplace so they know where to look when properties go on sale and where to find investors or buyers.
Networking is also vital. Before investing, one should have connections to other investors who are interested in purchasing properties. Before beginning, a strategy for each property type should be established in order to ensure they can find buyers to assign contracts to as quickly as possible.
How much money do you need to start wholesaling real estate?
To begin wholesaling, you do not need any money. You enter into a contract with no intention actually to purchase the property. The goal is to assign the contract to a buyer before the closing process. Instead of financial resources, a wholesaler needs to have excellent networking and marketing skills.
Do you need a license to do wholesale real estate?
No license is required to wholesale real estate. Though, if a licensed real estate professional enters into a contract, most state laws require them to disclose this information with the buyer or seller.
How do I buy wholesale property?
The key to purchasing wholesale is networking. You must establish yourself among fellow investors and actively seek any opportunities. Various web platforms exist that specifically connect investors and sellers by region or area. In the DMV we have great DC deals as well as other local sites. You can also look nationally on foreclosure and property auction websites. The counties you invest in also likely list foreclosure auctions.
Wholesale property listings may also exist on various classified websites such as craigslist. Keep in mind that these properties move fast, and you’ll need to have the financial means or reputation to build a network where others send you deals first.