Real estate wholesaling is a way to buy and sell real estate. It’s a specialized form of investing that requires you to do more than just find good deals on homes and then flip them for profit. Instead, it’s about finding sellers who are motivated to sell and making them with an offer they can’t refuse. In this post, we’ll explore what exactly wholesaling real estate entails, how it works, its pros and cons, and whether or not it’s right for you.
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Real estate wholesaling is a method for flipping houses that involves finding and buying houses at a discounted price, then selling them to other investors at a profit. This can be done on your own or with the help of an investment group. Wholesalers will often use cash offers to buy properties to get them at a lower cost than the home’s actual value. Then, once they’ve purchased the home from you, they’ll market it to other investors who may wish to purchase it as well and make money by reselling it for more than what was originally paid for it.
Wholesaling can be tricky because you’re not taking title or possession of any property until after all negotiations are completed, and funds have exchanged hands between buyer and seller—and sometimes even then!
How do wholesalers make money on real estate? Real estate wholesalers buy homes at a discount from motivated sellers who are willing to sell at a deep discount. A real estate wholesaler is different from a real estate broker because the former does not take title to the property; they simply contract to purchase it for their own account and then sell it again.
There’s a lot of brokerages that will not allow you to wholesale and they don’t promote it, and that’s all right. They have different goals and different structures on how they operate their business, but it’s important to note that there’s nothing that makes wholesaling illegal.
A lot of brokerages will say that, unfortunately, they don’t understand. Maybe they’ve never done it, but there’s a way to do it correctly. I want to talk about the pros and cons of wholesaling. So the cons let’s start out with, there’s not many, in my opinion, it’s a tool that you have. Some property owners don’t want to list their property.
This is just an option if they don’t want to list. Maybe you wholesale it, or maybe you just buy it. There can be some things in there that can get you in trouble. That would be the biggest con, but to alleviate that disclosure, lay out everything about what you’re doing and about who you are.
You have the ability to assign the contract per the agreement. Directly after that you have the ability to assign the contract. Then what happens is you have a new contract with the end buyer that you have them sign.
The tricky thing is you have to match up all the timelines. Let’s say you have a 10 day due diligence period on your first contract. On the second one, you’ve got to have zero days or less than 10, because if it was more than 10 and they didn’t back out, then you’d be stuck on this first deal. So those are the biggest cons: not knowing what to do or doing it the correct way and getting stuck into a deal.
There can be some negativity on the way people view it. Unfortunately, I feel like that’s a lot of cases because they don’t understand it. We’ve wholesaled plenty of deals where sellers are happy. They knew what we were doing and everything worked out great. We got them exactly what they agreed to.
The other con I would say is sometimes you’re going to regret wholesaling the deal and wish you would’ve bought it. That’s about it. We’ve wholesale deals and we’ve made really good fees on them and looking back, we wish we still owned those properties. Ultimately, you’re making a quick fee, but you’re not getting all the benefits of real estate, such as the monthly income and the appreciation over the long run pros.
I would say there’s so many, you’re adding a new tool to be able to get deals done. You’re adding an option. Like I said earlier, to get a deal done. If somebody doesn’t want to list with you, you get to build a database of investors where you’re sending them off market deal. You can potentially partner with those guys.
Even if you wholesale it, you can wrap your wholesale fee into equity and you guys are buying that together. I say, don’t fall into the trap of not learning about wholesaling and thinking that it’s illegal. Even if you’re not going to wholesale yourself, you should get to know who the wholesalers are because they’re finding a lot of opportunities that most agents aren’t, because they’re doing things that most agents don’t want to do.
Which is ultimately in a lot of cases, the hard work. They’re door knocking, they’re cold calling, and they’re sending mailers. They’re drumming up off market opportunities. It’s extremely valuable to have it as a tool, to have connections, to find these off market deals and to be able to utilize it, to make money in the real estate business.
I would say if you are thinking about wholesaling, dive in and learn as much as you possibly can, talk to as many people as you can. There’s tons of education out there. There’s a lot of people doing it and any way we can help we’re here, we’re here to be a resource. But just understand the cons can be risky if you don’t play the deal, but that’s about it. So understand how to operate it, what the contracts are that you need to get in place. The second contract that I talked about sometimes people have their own attorney draw those contracts up. We have our own versions of these that we’re happy to share. Reach out anytime and go dig up some opportunities.
If you’re looking to make a lot of money with real estate but don’t have much cash on hand, wholesaling is a great way to do it. There are several reasons for this:
You don’t have to have a lot of money to start wholesaling. In fact, you can get started with just $2,000 or so in cash.
You can make money even if you don’t take title to the homes yourself. That means no more waiting on repairs or inspections—you’ll just be getting paid for finding great deals that others will fix up and sell on their own!
When you’re looking to make a profit, the most important factor is finding motivated sellers willing to sell for a price that allows you to make a profit. The more motivated they are to sell their property, the more money they can earn from that deal. If a seller has already done all of their homework and determined a fair price for their home, then it might not take much effort at all for them to accept your offer.
However, things get trickier if the seller isn’t ready to move on from their current property or doesn’t know how much it’s worth in today’s market! You’ll likely have a lot more work ahead of you if this is the case—but don’t worry—if you’re willing enough (and willing to put in some legwork), there’s no reason why big profits can’t be had when selling real estate through wholesaling!
Wholesalers typically buy homes at a discount, which means they don’t take title to the property. As a wholesaler, you’ll contract with the homeowner or the bank to purchase their home for a small percentage of its market value. You won’t be a home builder, nor will you be in any way responsible for building or remodeling the property.
Additionally, wholesalers are not real estate agents or property managers—they do not represent either party in the transaction and do not manage homes after investors purchase them. Wholesaling is also distinct from development because it does not involve purchasing raw land and building new houses on that land. All the extra difficult parts of flipping real estate, from repairs to upgrades? They are not your problem. The wholesalers are just there to facilitate the transfer.
Wholesaling is a risky business. It’s not uncommon for wholesalers to lose money on deals or have to wait months, even years before they see an acceptable profit on the investment. However, it is possible to make money with this strategy if you are successful—the key is being disciplined and patient enough to wait for the right deal.
For wholesaling real estate to be profitable, you need motivated sellers who will accept low offers or have a high enough cash flow to take advantage of reduced interest rates by paying off their existing mortgage early.
Motivated sellers typically fall into two groups:
You also need buyers who are willing and able to purchase properties at discounted prices without financing them first (or having another form of credit available). Additionally, as a wholesaler, you’ll want to understand how financing works so that when you find a buyer with good credit but little cash on hand, you can help them obtain funding from lenders who aren’t as strict about asking questions!
To get started wholesaling real estate, just follow these five simple steps:
Even motivated sellers have an understanding of the value of their property. Therefore, when you contact a motivated seller to attempt a deal, you must go into the negotiations with a keen understanding of the neighborhood, market conditions, and comparative market value of the property in question.
Who are the cash buyers in your area? Are they house flippers? What about companies that specialize in distressed homes or tear-downs? Networking with local real estate professionals can help you start building a robust list of cash buyers.
You don’t need much money to begin a career in wholesaling real estate, but it helps to have some operational cash to start with. Establish a relationship with a local hard money lender to ensure that you have access to the liquid capital that you need to make the next deal.
Get to know local house flippers and real estate investors. Sometimes these businesses over-extend, and it’s necessary to off-load a property or two to free up some cash.
Before purchasing your first property, take the time to evaluate what makes a good opportunity and what type of property you would like to specialize in if any. Then, sign up for any auction notification lists available and keep an eye on social media for mentions of good deals.
You will find that you are devoting a lot of time to building your buyer and seller lists in the first year of your wholesaling business. Since wholesaling relies on an entirely different business model based on quick cash sales, it won’t be enough to merely put out a few ads and wait for people to contact you. Instead, you will build your lists through hard work and marketing directly to the cash buyers and motivated sellers in your area.
Once you have a list, things will get much easier for you, and you can quickly scale and grow your business. Here are some ways for you to build your list:
Networking is one of the best ways to make the kind of relationships that generate leads. As a new entrepreneur, you want to get out there and get to know local business leaders, realtors, investors, and lenders.
Distressed and foreclosed properties can often get picked up for much less at auction. Check out local auctions at courthouses and online to see what is available in your area. Introduce yourself to the companies that handle these auctions, so they know to reach out when suitable properties are coming on the market.
Hard money lenders play an important role in wholesaling real estate since these are the businesses that focus on higher-risk investments with quick pay-offs. Having a connection in hard money lending can also help you sell your investments since you can direct buyers to an established lender.
Property owners sometimes try to sell their own properties by listing them for sale on social media and online marketplaces. Craigslist, Facebook Marketplace, and even Instagram can be good places to look for properties for sale with motivated sellers.
Real estate wholesaling has its benefits and downsides. While it can be a profitable way of investing in real estate if done correctly, it is also one of the riskier strategies out there. If you decide to go with this option, then make sure that you have a solid plan before starting any deals because getting into them blindly will only lead to trouble down the road.
In addition to the traditional route of selling your home through a real estate broker, Realtor, or agent, working with a real estate wholesaler is becoming a popular method sell your house fast (and often for cash). But is selling your home to a wholesaler a good idea for you?
What is wholesaling real estate?
Let’s start with the basics.
Wholesaling is where one person (the wholesaler) develops and signs a contract with someone who wants to sell a property they own (the seller). Then, the wholesaler can sell that contract to another person (the buyer). The wholesaler essentially is the go-between - he or she negotiates the terms of a deal with the seller, and then finds a buyer willing to purchase the house under those terms.
How do I sell my house to a real estate wholesaler?
Working with a real estate wholesaler to sell your home is, at its core, about the contract you agree upon. The contract states how much you are willing to sell your property for and when you want to close (as well as other conditions if necessary), and it also gives the other signer permission to sell that contract to another buyer – which they typically do at a higher price (that’s where they make their own profits).
Here’s an example:
A wholesale real estate investor signs a written contract stating they will buy a seller’s house for $100,000 in 14 days. During those two weeks, the wholesaler finds another person who agrees to buy the house under the terms of that contract for $100,000 and to pay a wholesale fee of $5,000 on top. After the sale closes, the seller gets the $100,000. The wholesaler gets the $5,000 fee. The buyer gets the house.
What’s the difference between a wholesaler and a flipper?
There are several different ways to make money as a real estate investor. Wholesaling real estate and flipping properties have some similarities – in both cases, the buyer isn’t looking for a home for themselves and plans to resell – but they are very different methods.
Someone who wants to flip houses purchases a property with the intention of increasing its value. A flipper will invest the money, complete repairs and updates to improve the house, then sell the property at a higher price than they paid for it.
A wholesaler, on the other hand, doesn’t buy the property or do any work on it. Real estate wholesalers specialize in finding undervalued properties in the area (or ones that need to sell quickly), negotiating an agreeable contract with the homeowner to sell it, then selling that contract to another investor for a fee.
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Often, flippers are the ones buying properties from wholesalers. Wholesalers complete all of their work before the deal officially closes.
Pros of selling your home to a wholesaler
Selling to a real estate wholesaler might be appealing in a variety of situations. Here are a few advantages to selling a property through a real estate wholesaler:
Speed: Wholesalers can often sell your house in as little as a week because they have access to a network of cash buyers. This is great if you need to close quickly for any reason.
Sell in “as-is” condition: Generally, wholesalers will sell your house in the exact condition it’s currently in. Whether the repairs it needs are great or small, you don’t have to worry about the time and expense of fixing the property up before selling.
No (or less) contingencies and inspections: Most of the time, wholesaling real estate contracts state there will not be any inspections or contingencies that may affect the sale of your house.
Commissions: Wholesalers typically cut the real estate agent out of the process, so none of your profit is docked by commissions.
Cons of selling your home to a wholesaler
There are some potential disadvantages to selling your home via a real estate wholesaler as well, such as:
Discounted sale price: Wholesale contracts typically prioritize quick closing and minimum contingencies over maximum profit. Generally, wholesalers work with sellers who are willing to sell their homes below market value so that wholesalers can make some profit when they resell it.
Fiduciary relationship: In most states, a wholesaler does not have to act in a fiduciary capacity as an agent would. This means they are not legally bound to act in your best interests as a seller. While most professional wholesalers care about their relationships and reputation and will therefore serve you as well as they can, you should take care to review the reputation of whomever you’re working with.
Risk of the contract falling through: Just like any other real estate contract, there’s always a risk that the parties involved may not come through. If the wholesaler can’t find a buyer or the new buyer has financial issues, you may need to start the process over again.
Limited exposure: Real estate wholesalers typically work with a small group of cash buyers – and of course, not all buyers can pay cash for a home. Thus, this can limit how many buyers will consider purchasing your property.
When deciding what the best course is for selling your home, you should read over the pros and cons of selling through a wholesaler carefully to decide if working with a real estate wholesaler or agent is a better choice for you.
Still not sure if selling your house to a wholesaler is the best option for you? Book a strategy meeting with a real estate consultant who can help you weigh all considerations.
Why should I consider selling my house to a wholesaler?
While it’s not the most traditional route, there are several reasons you may prefer to work with a real estate wholesaler to sell your home.
Here are some situations where selling your house to a wholesaler may be the best choice:
You want to sell your house quickly: Some property owners need to sell their property quickly for various reasons, such as financial difficulties, divorce, or job relocation.
You inherited property: Inherited properties can often take significant time, energy, and money to get them ready to list on the open market. A quick cash offer from a wholesaler could save you a lot of headache in this case.
You are facing financial hardship: Wholesalers can often get you a cash deal quickly, which could be just want you need if you are in financial difficulty.
You want to avoid foreclosure: If your home is at risk of being foreclosed on, you may have an opportunity to sell it to a wholesaler for quick cash to avoid the negative impact of foreclosure on your credit score.
Your house is in poor condition: If you aren’t interested or able to spend the time and money to alter the condition of your house, a real estate wholesaler can help you find someone interested in purchasing it “as-is.”
Why wouldn’t I sell to a wholesaler?
Deciding whether to work with a real estate wholesaler vs. a real estate agent depends significantly on your goals for selling your house. If your home is in good condition, you aren’t in a rush to close, and you want top dollar for your house, you might not choose to sell to a wholesaler. Working with a traditional agent or Realtor may be the right path for you.
Take note: As with any real estate transaction, sellers should always be certain they understand the terms of the contract – including any contingencies and deadlines – and have the contract reviewed by a lawyer before signing it.
THE BOTTOM LINE
Sellers who really want to sell their home fast or for cash might consider contracting with a trusted real estate wholesaler a great option. Make sure you understand the process, pros, and cons of working with a wholesaler before diving in.
Need some expert advice on which route is best for your individual situation? Reach out to our team – which includes licensed agents, brokers, wholesalers, and real estate consultants – so that you can invest confidently.
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