Co-wholesaling is a relatively new strategy in the real estate industry, yet it has been quietly gaining increased attention.
This strategy may seem like the perfect and ultimate model for hitting your financial goals all while enjoying the investment journey.
You already know that wholesaling is a great way to venture into real estate as an investor without a lot of cash in your hands.
This emerging co-wholesaling strategy provides a way to make this path even easier and more attainable than venturing out and doing it on your own.
Though, just like most other strategies in real estate, there are things you need to know beneath the surface about this attractive business model.
To understand this concept, you need to first understand what wholesaling is.
Real estate wholesalers look for discounted or undervalued properties and flip them for a profit without doing any renovations.
Essentially, wholesalers sell a property in “as-is” condition. The buyer of a wholesale property is often a real estate investor or rehabber that polishes the property to resell or lease.
The goal of wholesaling real estate is different from that of traditional house flipping. That's because a real estate wholesaler does not make improvements to or remodel a property.
In real estate, co-wholesaling can be defined as, "A partnership or collaboration of two investors that work on a wholesale deal together."
The partnership can be a one-time arrangement or even an ongoing relationship.
Essentially, the investors collaborate on finding and reselling wholesale properties together as a joint venture. Often, one partner has a property under contract and another partner brings a cash buyer to close on the property.
The co-wholesaling partners each earn a profit when they sell the property and share the negotiated wholesale fee.
Yes. But, just like traditional real estate wholesaling, real estate brokerage, seller financing deals, or flipping houses, the legality of this practice depends on how one executes the deal.
While it’s certainly possible to break the law attempting to co-wholesale distressed properties, there are legal ways to properly do business as a co-wholesaler.
It’s legal to purchase and sell a property.
It’s also legal to partner with another person or entity to do it.
Wholesaling is generally legal when done the right way.
Assigning contracts and engaging in back to back closings, also known as double closing and simultaneous closings, are the most frequent methods used by successful real estate wholesalers.
However, it’s important to exercise caution whenever you engage in an activity that requires licensing, especially if you don’t have a license. Most countries consider this as playing the role of a real estate agent, since co-wholesalers are marketing properties that belong to other people.
There are steps you can take to mitigate your risk as a co-wholesaler, even before putting a property under contract.
- Know your local real estate laws
- Use a Joint Venture Agreement
- Use Disclosure Agreements
The most important thing is to know your local real estate laws and to keep your activities clean by using a joint venture agreement to protect you.
Make sure that the agreement is written before doing a wholesale deal and if you’re uncertain of anything, have it reviewed by a real estate attorney.
It's recommended to have your J.V. Agreement in PDF format to make it easier to store, share, and access when you need it.
Wholesaler Disclosure Agreements can be used to establish a non-fiduciary responsibility with your cash buyers. Only sign your agreement when you have the green light from your attorney, as it’s a legally binding contract.
This real estate strategy makes closing deals easier.
You don’t have to wait to find the perfect house or find ideal cash buyers to make the deal happen.
The cash buyers’ list of one wholesaler becomes open to the other wholesaler. You also get a chance to connect with other wholesalers and this increases your database.
Co-wholesaling exposes you to a large network of available distressed properties and motivated sellers outside of your own pipeline.
Here are the major benefits of co-wholesaling when it’s done right:
“Teamwork makes the dream work.” - John Maxwell, Author on Leadership
Successful real estate investing entails involving the local community.
When you work with like-minded real estate entrepreneurs and catalyze property investment, you stimulate the local economy. Your investment business partnership may also lead to neighborhood improvements and increased property values.
The positive ripple effects of this practice is felt by many, while real estate wholesalers can still make healthy profits.
If a property needs renovations or improvements, your buyers will employ contractors who hire craftsmen and skilled laborers.
You may hire an attorney to draw up and interpret you purchase contract, assignment contract, joint venture documents and other wholesale agreements.
You may employ a title company to facilitate transactions and double close your deals.
Local banks also play a role in sustaining this practice since they benefit from lending to owner-occupants once the property is rehabbed and sold.
Essentially, both veteran and new real estate wholesalers can reap significant benefits. For new investors, wholesaling is a great way to meet new colleagues, network with experienced real estate investors, and establish a cash buyers' list.
Once you have a property under contract you may consider co-wholesaling it with a partner. You will need an assignment contract with a predetermined wholesale fee, so talk to your partner on how you will share the profit.
In most cases, partners split the profit on a 50/50 basis. However, it all depends on your agreement when forming the partnership - everything is negotiable.
It’s crucial to ensure that the co-wholesaling agreement specifies the compensation that each partner will receive and the terms for every transaction.
Make sure that the agreement also includes a non-compete or non-circumvention clause. This ensures the protection of the interest of every party in the property.
On average, the co-wholesale fee profit made on each real estate deal is typically $5,000. That’s because an average wholesale amount is often reported at $10,000.
The basic premise of this co-wholesaling partnership is building a strong, effective partnership that enables you to find properties and close deals faster.
However, some wholesalers may favor a short term partnership when starting out. After some initial success, they may not want to depend on the inventory of the other wholesaler anymore, or on the flip side, depend on their buyers list.
After they start closing deals and get enough capital, they may end the partnership and work on their own ventures.
These wholesalers continue by marketing their own distressed property deals to their personal buyers’ list, thereby minimizing their dependence on joint ventures that require them to split profits.
This real estate concept is basically where two investors work on a joint venture wholesale deal. As such, any property that can be wholesaled can also be co-wholesaled.
Here are examples of properties that you can co-wholesale:
Townhomes and Condos
Townhomes and condos are attached, individual title units. It can be easier to flip or wholesale them since it's usually easier to find comparable sales.
It’s important to note that homeowners associations (HOAs) governing these properties can have property transfer rules that may determine who can purchase them. Therefore, check such rules and factors because they can affect your resale attempts.
Single Family Homes
Single family homes are the most frequently co-wholesaled properties. That’s because single-family homes have a large market and are very easy to flip.
Many people know the dynamics of these properties. As such, they make high business volumes. Wholesaling them can be a very straightforward process.
A new real estate investor can easily be discouraged from investing in apartment buildings by their dollar amounts, size, and number of units.
However, the process of wholesaling these properties are similar to those of single-family homes. Since apartments are a different asset class than single family homes, buyers, sellers, and financing can be a little different.
Many people overlook mobile homes when venturing into real estate investing. However, you can co-wholesale these properties and make significant profits.
You can co-wholesale new and used mobile homes, even entire mobile home parks. Affordability of mobile homes causes these properties to have a broader resale market.
Commercial Real Estate
You can also co-wholesale retail malls, office buildings, and warehouses. Even mixed-use properties can be co-wholesaled.
You simply contract these properties at discounted prices before flipping them to investors that want to operate them to ensure continuous cash flow.
Other commercial investors may want to rehab and reposition these properties to sell or refinance.
Lands and lots, as well as property rights, can also be co-wholesaled.
The most important thing is to come up with a strategy for finding properties that will earn you high profits.
The essential component is to look for distressed properties or motivated sellers willing to give up a portion of their equity for the convenience and speed of selling property to an investor.
Many properties out there can be co-wholesaled. However, you need to establish a broad network in your local real estate industry to find and vet the best opportunities to co-wholesale.
Have an open mind, be creative, and look out for co-wholesaling opportunities continuously.
You find co-wholesaling deals just the way you find wholesale deals.
Perhaps, you’re already doing well in wholesaling properties and have a solid database or network of qualified cash buyers. Well, partnering with another wholesaler with flowing deals and an abundance of inventory will make your business more profitable.
A great co-wholesaler may have mastered the art of marketing to motivated sellers and built great referral sources for discounted properties. They may be actively looking for cash buyers that are ready and willing to close on their inventory.
You, on the other hand, could solve this part of the equation for them. When this happens, it’s clear that partnering with such a wholesaler is a win-win for both of you.
Each partner compliments each other’s strengths and keeps growing.
When you become a co-wholesaler you capitalize on the solid plexus of other industry professionals.
There are times when your buyers’ list will grow much faster than your inventory. Get to know their criteria so you can find properties for them and put together deals.
When you link up with another wholesaler or professional in the industry, you may get viable buyers leads. In this case, you can find specific properties for the buyers your partner has.
Your partner can provide buyers for the properties you are struggling to sell.
When it comes to finding properties that you can co-wholesale, there are different strategies that you can use.
This approach entails pulling a motivated sellers’ list based on specific information, including zip code, income level, and age. Hire a firm to send postcards or letters to your list. When done properly, direct mail marketing gets co-wholesale real estate deals flowing quickly.
This entails connecting with other industry players or investors. You can join a local real estate club or use online forums. When you network with other investors, they may pass deals to you when they have more than they can handle.
If you have MLS access, this can also be a great place to find properties that you can co-wholesale. Sites like Zillow.com, Realtor.com, LoopNet.com, and Redfin.com pull properties from various Multiple Listing Services.
Craigslist has an FSBO section that you can practically call the off-market MLS. However, it’s important to note that much of what you find here are junk leads.
This is when you simply drive around areas that most buyers desire to invest in looking for bandit signs. Things like broken property parts, boarded up windows, tall grass and junk in property yards are common distress signs to look for.
In most co-wholesaling ventures, one partner brings a cash buyer while the other brings a property to sell. This speeds up the wholesaling process while minimizing risks.
Here’s how to co-wholesale real estate:
Step 1: Find a Wholesaler You Can Potentially Work With
Using the internet you can locate a wholesaler that you can enter a joint venture with. You do this by searching “wholesaler + your city” on Google.
You can also check bandit signs, blind ads, and Craigslist. Optimizing your attendance at REIAs and networking in the real estate industry are great ways to locate a wholesaler to partner with.
Step 2: Qualify the Wholesaler
You should vet the individual you co-wholesale with very carefully. Ideally, enter a joint venture with a trustworthy and reputable person.
Do some background research to make sure your potential new business partner is an honest and ethical individual. Ask for multiple references and follow up with them until you are certain in your decision.
Step 3: Set Up a Co-Wholesaling Agreement
Decide how you’re splitting the co-wholesaling profits with your joint venture partner. Co-wholesalers often agree to a 50/50 split of their deal profits. You may also ask each other:
What are the terms of our co-wholesaling agreement?
Who is focused on finding properties?
Who’s going to sell the property to our cash buyers list?
Write down your agreement, save as PDF, and have all parties sign.
Step 4: Fulfill Your Duties
If your role is to find deals, negotiate with motivated sellers, and put properties under contract, then that’s exactly what you should go out and do.
On the flip side, if your role is to find the buyer, go out and build your cash buyers list.
When your co-wholesaler partner brings a deal to the table, it’s on you to sell the property to a reliable cash buyer who can close promptly.
Step 5: Wholesale the Deal
At this point you have a discounted property under contract and investors who want to purchase the property from you.
Now you wholesale the deal by assigning the contract to the rehabber who will ultimately close on the property.
You may also close on the property, then sell it to your cash buyer the same day or within a few days. This is called a double closing, back-to-back closing or simultaneous closing.
Step 6: Collect Your Check
Once the deal closes, you’ll receive a check from the title company in the amount of your pre-negotiated wholesale fee.
Per the terms of your co-wholesaling contract, you’ll split this fee with your business partner.
Now you get to reap the rewards and benefits of co-wholesaling.
Co-wholesaling in real estate is working on a joint-venture wholesale deal with another investor.
This approach works best for an investor without all the resources necessary for wholesaling on their own.
We know that it’s a great way to venture into real estate investing.
For instance, if you don’t have any capital, yet you have time, you can spend this time looking for great real estate deals. The other wholesaler can provide the financial partner required to seal the deal.
Similarly, you may have already established a list of cash buyers, but lack the time to locate distressed properties or find deals. The other investor could provide deals while you provide a reliable buyers’ list.
Daisy-chaining, on the other hand, is an attempt to wholesale a wholesale deal of another person without their permission.
It’s trying to wholesale somebody else’s wholesale deal behind their back. This is not what co-wholesaling is about.
As hinted, the reason for co-wholesaling is to work together on wholesale deals.
Partners in a co-wholesale deal should be on the same page and give their consent on every deal.
It’s important to get a co-wholesaling agreement and contract in PDF for future reference and easy access.
This documentation is very important because it specifies the roles of each member of the partnership.
It also protects your interests as a co-wholesaler or real estate investor.
For instance, the agreement and contract can state that wholesaler A shall get a property under contract and get help finding the buyer from wholesaler B.
Wholesaler A will enter into a joint venture contract with wholesaler B.
The role of wholesaler B is to market the property and get a buyer for the wholesaler A.
After that, wholesaler A will assign contract to a Rehabber C.
Rehabber C will pay wholesaler A upfront and wholesaler A will write a check to wholesaler B for their share.
Alternatively, a title company can split the assignment upon closing as per the joint venture agreement giving each wholesaler their share.
It’s important to talk to a title attorney or title company beforehand to ensure that they are okay with this arrangement.
A co-wholesaling agreement and contract should include:
When you start co-wholesaling houses depends on your decision and situation.
Essentially, you can start anytime as long as you’ve decided and are committed to venture into the real estate investing industry.
For instance, if you don’t have money, you can use your time and hustle to find wholesale deals and an investor partner to finance those deals.
If you have money and don’t have time, you can find a partner to find wholesale deals then you finance those deals.
Starting is not complicated especially for investors with successful wholesale history. You will co-wholesale houses with ease if you are an experienced real estate wholesaler because you will have a partner to help you.
To excel as a co-wholesaler, you need tips to guide you along the way. Here are useful tips from a pro wholesaler to guide you:
It’s important to make sure that every important aspect of your partnership is written down. Make the agreement concise and clear.
It should spell out what exactly you will and what you won’t do. It should also explain how and the amount you expect to be paid.
In a nutshell, co-wholesaling is a great way to invest in real estate.
It’s an easy and legal way to earn money by wholesaling properties when done the right way. However, it’s important to familiarize with this trade before you venture into it.
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