The popularity of real estate wholesaling is a tribute to its viability and potential profitability as a real estate investment strategy. And while it is essential to understand how to complete a wholesale real estate deal, your knowledge of this investment technique remains theoretical until you have a property to wholesale.
In this guide, you'll learn exactly what wholesale properties are and how to find wholesale properties - whether you're a retail buyer, seasoned investor, or new wholesaler. Let's dive right in.
Wholesale properties share several common elements. They are often distressed properties –
A property that is “listed” has been added to a database of available properties. This database is more commonly known as a Multiple Listing Service. The MLS is a database that can only be accessed by licensed real estate professionals as it requires membership and fees.
However, the MLS, as you would expect, will get the most exposure. As a result, you are likely to buck some stiff (and experienced) competition. Working with a real estate agent or licensee may provide a smart path and opportunity to pool talents.
Read Also: How To Get MLS Access: The (Ultimate) Guide
Unlisted wholesale real estate is the opposite of a listed property. Unlisted wholesale real estate could not be found on an MLS database. When identified, an unlisted property has the potential for the biggest payoff, but not without some extra legwork and effort. Unlisted properties will tend to have less competition for obvious reasons.
When a wholesaler finds a property that meets their wholesale investment criteria, they enter a contract with the seller for an agreed-upon price. A small earnest money deposit is typically provided in good faith.
However, before the “purchase and sale” deal closes, the wholesaler locates another buyer and assigns their equitable interest (their right to purchase awarded under the Principle of Equitable Conversion) to the property to another end-buyer – at a higher price.
It all begins with finding a property to wholesale. Consider these tips for finding wholesale properties and their motivated sellers -
A foreclosed property is the result of a borrower’s failure to keep up with their mortgage obligations. Each state’s foreclosure laws may differ, but most will commence a foreclosure filing when a mortgage goes 90 days delinquent.
There are free websites dedicated to listings of foreclosures and properties in various states of ownership. Consider these options –
Read Also: Foreclosure.com Review
A real estate auction is the way in which a seller (homeowner, lender, government agency, homebuilder, etc.) can sell their property in a public forum. Auctions represent great opportunities for real estate wholesalers because the investment property is generally distressed, well-priced, and in disrepair.
Auctions prices typically start at a price that covers the remaining balance on the defaulted loan, but very often, the final sale price exceeds an opening bid.
Be prepared, as this will help you to avoid jumping into a wholesale deal that you might have the smarter judgment to have passed on. And most winning auction bids require a cash payment! The Treasury Department’s website is a great place to get acquainted with auctions and check out some available wholesale investment properties.
Other federal and quasi-federal agencies offer these auctions –
A local marketing effort can often be a great way to start and develop a database of properties to utilize for current or future wholesale real estate market deals. There are affordable marketing options to catch the attention of homeowners or sellers who are looking to unload a property off-market properties.
Marketing can take on many forms – from local T.V. advertising to simple bandit signs; there are many cost-effective ways to attract potential new business. Bulk order bandit signs of getting the best price per sign.
Note: however, the key to a successful bandit sign is the placement or positioning of the message.
The reality is that a sign placed at the right intersection may be more effective than some of the more traditional ways to find wholesale properties. Other options include a magnetic car sign or door hangers, to name a few.
Visiting local attorneys who specialize in family or probate law is a smart way to find wholesale properties because these legal professionals are often facilitating the sale of a property that is due to a death, divorce, or separation. These property sales are often last minute and defined by a sense of urgency. There are online opportunities as follows –
Direct mail – through the U.S. Post Office has been a real estate marketing staple for decades because it offers the recipient a higher trust factor. Many people dismiss direct mail as a marketing technique of a bygone era; however, recently, a research survey revealed that direct mail had a higher Return-on-Investment (ROI) than both online display ads and paid research.
Sending direct mail, sometimes known as admail, requires creativity but often has less competition than digital alternatives. Fortunately, the modern marketplace offers many choices (postcards or brochures, etc.) of eye-catching ways of delivering your message. Consider offering a promotion, and always include a memorable call-to-action (CTA).
The cost of direct mail is contingent on the type, size, and amount of direct mail included in the campaign. Be sure to define a target market accurately and do a few test runs before committing to a larger investment.
Some companies specialize in compiling and customizing lead generation lists. These lists can be used to locate a motivated owner who wants to sell their wholesale investment or rental property. Examples of these paid data resources include –
A pre-foreclosure home is one in which the final foreclosure proceeding is in a pending status. It is a time that begins when the lender files a lis pendens (for a judicial foreclosure) or notice-of-default (for a nonjudicial foreclosure).
Property deals that fall within this status are also considered a potential short-sale. Note, though, that this phase does not offer a lot of time for property owners who want to save whatever equity may be left. This is the reason sellers facing a pending foreclosure are highly motivated, with plans and hopes to sell quickly before the foreclosure is finalized. Pre-foreclosures are available across many websites that include –
The digital landscape offers many resources that can be used to access potential wholesale properties –
Most wholesalers begin their careers with properties in local neighborhoods, mostly because of the property’s proximity and the familiarity these neighborhoods offer. Consider these options that can be used to find wholesale houses in your preferred neighborhood -
Consider developing a workshop that offers actionable and valuable advice to FSBOs. This workshop can be held in a hotel, local public facility, or even a restaurant. Advertise locally or target homeowners who might benefit from participating in the workshop. The next deal may be sitting in your next seminar.
Although somewhat counterintuitive in the modern digital age, the age-old driving for dollars technique has been used by many successful real estate wholesalers and investors. It simply involves driving around a defined area, noting those properties in disrepair.
The fundamental principle in this regard is to find those homes that are unkept, which are indicative of overburdened homeowners who may be interested in selling at a price below market value.
These are classic signs of distress -
Plus, any other signs that reveal a purposefully neglected property. Chat with the neighbors who may have a personal interest in making sure the distressed property is sold to another owner – someone who will take care of the current eyesore.
It is important to keep data organized and current. Organizing potential properties can be done in a simple spreadsheet or with software like PropStream – which offers a free trial period. The costs associated with Propstream depend on the size of the wholesaler’s operation and intended objectives.
Read Also: PropStream Review | Real Estate Skills
Part of finding a local wholesale property means becoming a part of the fabric of the community and this gives you an advantage if you manage to build up your real estate network. In addition to meeting potential wholesalers and real estate professionals, there is a lot to learn from other more experienced wholesalers attending these events.
Check out local real estate meetups, social media events, local networking events, or investment clubs, among others. Proactively engage real estate licensees who may become future colleagues.
A smaller lender may be willing to share their foreclosure lists with trusted professionals. These properties offer great opportunities to grab a wholesale property before they hit the real estate market and strong competition from other investors.
Although not a technique for everyone, if you have an affable nature, try cold calling a private money lender or potential seller. The thing about wholesaling houses is that a potentially profitable deal can show up at any point in time!
To maintain a consistent flow of wholesale property opportunities, a real estate wholesaler should have several deals working at various stages – from lead generation to assignment to closing. There are two primary ways to ensure a steady stream of leads –
The internet has various free marketing channels, like Craigslist, that may offer a golden opportunity for a wholesaler.
If you are creative and have the skills, put together a short video (there are free services like Animoto) explaining how you can help a seller with an urgent need to sell.
You can also check out this quick video below on how to find cash buyers online for free!
Real estate wholesaling is a low-risk strategy compared to other real estate investment techniques. This does not mean that wholesaling houses is a slam-dunk and done without effort. On the contrary, wholesalers with the ability to appropriately evaluate potential wholesale properties are the ones that tend to be most successful.
Before a wholesaler makes an offer, they must first understand the laws and regulations that govern the area in which they work. Then, a wholesaler must “crunch the numbers” to calculate potential profits and return on investment.
The profit a wholesale deal generates equals the difference between the original purchase price and the price of the home denoted in an assignment of contract - or the price delineated in a completely new real estate contract.
Wholesalers and flippers tend to follow industry-standard investment criteria – known as the 70% Rule.
For example, a wholesaler contracts a home priced at $300,000 with an After Repair Value (ARV) (future market value) of $600,000.
Assigning or selling this rental investment property at a price above the $300,000 contracted purchase price would fall within the established investment criteria. House flipping experts look for distressed properties priced with a price tag that is no more than 70% of the ARV. So, in this example, the maximum price (@70% of ARV) would be $420,000.
As a result, a wholesaler would likely have the opportunity to assign their equitable interest to an alternative buyer at any price above the contracted $300,000 but below $420,000 – which provides impressive profit wiggle-room.
The above analysis is critical to understanding the maximum allowable offer (MAO) for any particular property. This analysis is not as simple as it sounds. While it is imperative to check similar properties in the neighborhood (called real estate comps), this is not the only applicable factor because specific properties –
Finding suitable properties is a critical part of closing a successful real estate wholesale deal. Once you find a property that meets your investment criteria, you must be ready to move quickly to avoid losing the deal to another wholesaler waiting in the wings.
Wholesaling offers these benefits –
Real estate wholesaling requires transparency, which builds professional trust.
Every month will be different. Some months may provide a viable investment with ten leads; other months may require twice the amount. But note, once a wholesale deal is located, the effort becomes completely worthwhile.
Before taking a leap of faith, new investors should take some time to learn about how to wholesale and flip houses from the MLS. By staying on top of market metrics and developing a strong potential buyers list, you can begin to generate a steady stream of profit-making wholesale deals.
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