How To Start A Wholesale Real Estate Business

Real estate wholesaling has become a hot investment strategy of late, although experienced investors will tell you that real estate wholesaling is not a new-fangled short-term investment technique or idea.

Buying properties priced at a deep discount - with an intention to sell or to assign the contracted property to another buyer has been a profitable venture for real estate investors for many years. Wholesaling’s growth in popularity is likely attributed to a digital landscape that offers instant informational access at any time from anywhere and a market that supports the investment technique.

Wholesale real estate investing differs a bit from its sister strategy, the fix and flippers investment model. This is because wholesalers prefer to sell or assign their discounted investment without the fuss, risk, and work required to renovate or rehab.

To successfully start a wholesale real estate business, you need to know how to determine if a potential investment property is a dealmaker or a dud. The narrative that follows is a comprehensive guide that shows you how to learn real estate wholesaling.  

• How Much Money Can You Make From Wholesale Real Estate?
• How Long Does It Take To Start Wholesaling Real Estate?
• Is Wholesaling Real Estate A Good Business?
• How Wholesaling Real Estate Is Profitable?
• Steps To Starting A Wholesaling Real Estate Business
• Closing Thoughts On Starting A Wholesale Real Estate Business

How Much Money Can You Make From Wholesale Real Estate?

Real estate wholesaling is the type of business that offers unlimited earnings potential, although there are variables and market factors that may possibly impact potential profitability. If you plan to learn to become a real estate wholesaler, note that it offers unlimited earnings but has no set or guaranteed salary.

Real Estate Wholesalers are middlemen, which is the reason they call themselves wholesalers – connecting homeowners selling hard-to-sell distressed properties— with other interested home buyers or investors. The amount of profit one can generate from wholesale real estate deals vary - depending on –

• The ability to negotiate the lowest purchase price with the homeowner.
• The wholesaler’s network of lenders and title companies.
• The quality of the wholesaler’s buyer’s list.
• The strength of market metrics and.
• The competition, to name a few.

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.

For example, a wholesaler contracts a home priced at $200,000, which has an after repair value (ARV) of $400,000.

Assigning or selling this property at a price above the $200,000 purchase price should be doable because house flipping experts (potential buyers) look for distressed properties priced around 70% of the ARV.

In this case, a desirable price (@70% of ARV) would be $280,000. So, a wholesaler could assign the contract to another alternative buyer well below the investor’s maximum allowable offer (MAO).

The trick to maintaining a consistent income is to maintain a multiple property pipeline – at varying stages within the buying process. The number of wholesale deals one can manage simultaneously depends on -

• The wholesaler’s level of knowledge and experience.
• The capital (or access to financing) a wholesaler has available.
• The amount of time a wholesaler can dedicate to the business of wholesaling.

Whether you plan to do it full-time or as a profitable side business, wholesaling can be a suitable fit for a variety of lifestyles.

How Long Does It Take To Start Wholesaling Real Estate?

The actual wholesale transaction process – from purchase to assignment or sale is designed to happen quickly. In fact, for a real estate investment, wholesaling offers when of the quickest routes from start to finish. This is one of the primary reasons it is so popular – its limited time generally translates to limited investment risk.

The time it takes to start a successful real estate business has more to do with how quickly you can learn the basics and develop a trustworthy wholesale real estate business model.

Wholesalers often find a skilled mentor who has the time and motivation to share their wholesale expertise. Others choose to enroll in an online program designed to enter the market quickly. 

The initial learning curve for each wholesaler varies but will include knowledge of -

• Where to find potential investments and leads.
• Evaluating the potential of an investment using due diligence.
  • Calculating current, as-is value.
  • Calculating the ARV.

• Developing and curating a cash buyers list of other investors.
• Establish rapport with motivated sellers to see if they will accept less money.
• Establish working relationships with professionals related to the wholesale real estate market – realtors, appraisers (to help find comps), title companies, lenders, etc.

Through experience, wholesalers learn things they never knew they didn’t know. Rookie errors are remarkably effective learning tools but can be avoided by choosing to attend a wholesale real estate class or online program.

Is Wholesaling Real Estate A Good Business?

Wholesaling real estate is a great business, especially for entrepreneurs, those with a real estate interest, or someone who simply wants control of their time and career.

Like any investment strategy, the technique usually has pros and cons. But to accurately answer this question, one must have the personal insight to determine if their objectives, work style, and family obligations even fit with the amount of time required to start and maintain a real estate wholesale business. 

Pros Of Real Estate Wholesaling

Both beginners and seasoned veterans will find real estate wholesaling provides:

• A quick entrance ramp to your first deal.
• Minimal capital to begin.
• A learning experience while working.
• Additional control over the direction of your career.

Real estate wholesaling can be done virtually – offering access to more affordable markets once considered untouchable from a distance. 

Cons Of Real Estate Wholesaling

Although a great type of investment vehicle for novice wholesalers and worth the effort, wholesaling real estate can be challenging to:

• Generate consistent income if that is necessary.
• Find buyers in a timely manner, depending on the neighborhood or market.
• Find potential investments due to increased competition.

In addition, a real estate license is required to wholesale houses or real estate in certain areas and under specific conditions.

How Wholesaling Real Estate Is Profitable?

If you have a strong interest in real estate investing but would like to enter the fascinating world of real estate without oodles of capital, real estate wholesaling is a smart, viable path to a career as a real estate investor.

Wholesaling requires little in the way of money (usually just a small earnest deposit held in escrow in good faith) when compared with other real estate investment strategies. Real estate wholesalers search and contract for a property usually being sold due to its distressed condition or a highly motivated homeowner or seller.

Wholesaling real estate generates income or profits in several fundamentally different ways. However, if a steady income or a guaranteed wholesale real estate salary is a must-have, you may want to start wholesaling as a side business until you have the wholesaling process defined and humming along.

#1 Scenario

• Locate an investment property that meets your investment criteria
• Enter into a contract with the seller.
• Find (or have) another investor or buyer.
• Using the Equitable Interest awarded with a fully-executed contract, a wholesaler can assign their legal right to purchase the subject property to a new buyer – at a sales price that exceeds the original purchase price. This is done with the use of a legal instrument known as An Assignment of Contract. The sale price differential between the first and second contracts represents a real estate wholesaler’s gross profit or assignment fee.

#2 Scenario

• Locate an investment property that meets your investment criteria
• Enter into a contract with the seller.
• Find (or have) another investor or buyer.
• For an agreed-upon fee, a wholesaler can use an Assignment of Contract to assign their right to purchase the subject property to a new buyer – at the same price. The wholesaler’s fee can be a flat fee or a percentage of the sales price.

#3 Scenario

• Locate an investment property that meets your investment criteria
• Enter into a purchase contract with the seller.
• Simultaneously enter a wholesale contract with a cash buyer at a higher price, with the wholesaler being the seller on the second contract.
• Perform a back to back closing, or a double closing, with the difference in price becoming the wholesaler’s profit

Related: Download FREE Wholesale Real Estate Contracts (PDF)

Steps To Starting A Wholesaling Real Estate Business

Starting a wholesale real estate business is like launching any other service-oriented business. It begins by understanding the way in which the business and markets work.

Step 1 - Have A Wholesale Real Estate Mindset

An investor interested in the real estate wholesaling business must first operate with a mentality or attitude that aligns with the nature of the real estate wholesale business.

• Wholesalers offer a service that helps many homeowners who need to sell their properties quickly, whether it is due to the property’s condition or financial distress. An experienced wholesaler can help reduce the homeowner’s stress.
• Wholesaling is not a passive career. It requires creativity and dedication to successfully find and assign properties for a profit.
• Those adept at networking (someone driven and outgoing) will find it quite helpful as a real estate wholesaler, especially at the start of a new business venture. 

Step 2 - Setup The Wholesaling Business

Choose A Business Structure

The next step for most new businesses, including real estate wholesaling, is to determine which of several business entities would best protect you as the owner and minimize tax obligations. The following section answers the question – Do you need an LLC to wholesale real estate?

The most common business structures, which offer different benefits that would be applicable in this instance, include –

• Sole Proprietorship or Partnerships – the simplest of entities that offer no division (or protection) of personal and business assets/liabilities.
• Corporation – the most complex and generally more costly to create and maintain.
• Limited Liability Company (LLC) – relatively simple to create and maintain and incorporates the best available entities. It limits liability exposure and has reduced maintenance costs and requirements.

Create A Website

Most businesses, even Mom and Pop operations, create a website and maintain it to scale their business because it is relatively cost-effective and –

• It provides credibility to a new business.
• It provides important data information about you, your business, and available opportunities for future investors or sellers.

Pro-Tip – Check early and at no cost (even before you are ready to launch your new wholesale) to see if the name of the business has an available web domain or URL.

Step 3 - Understand & Verify The Legal Requirements For Your State

Each state’s real estate regulations and legislation vary; however, most states require a real estate sales license to sell real estate. It is essential to verify your jurisdiction’s legal requirements to keep a business operating in the black (or being financially solvent) in order to avoid fines levied by the local or state government.

Wholesaling real estate in California (and in most other states) remains within legal boundaries if you remember that, as a wholesaler, the asset you are marketing or selling is the ‘right to purchase’ the property – and NOT the real property.

To sell or even market properties – one needs to be a licensed real estate agent or a REALTOR. Several jurisdictions have enacted laws defining those who work as a wholesale real estate agent, including Illinois, Philadelphia, and the latest – Oklahoma, which became effective November 1, 2021.

Michigan’s Occupational Code 339.22319 notes that selling more than five properties (within a consecutive 12-month period) is the definition of a real estate practice -requiring a license. 

Pro-Tip - Check with your local and state government for legal requirements. Enlist the help of a legal professional if the scope of the work falls outside of your wheelhouse.

Step 4 - Learn The Process That Goes Into Wholesaling Real Estate

The wholesale process is not complicated. However, a wholesaler must adhere to a well-thought-out real estate wholesaling business plan to avoid violating real estate law. There are several ways to learn the wholesaling business - mentorships, real estate wholesale companies, and some nifty online programs designed for a quick entrance into the market.

Learning how to start a wholesale real estate business includes these relevant aspects -

• Knowing how to make the right offer to avoid scaring the seller or overpaying.
• Getting familiar with real estate terms and real estate nuances of the local market.
• Understanding how a contract and addendums work or choosing to consult with an attorney if needed or required by law.
• Learning how and when to use an Assignment of Contract – a legal instrument that can be used to sell/market/transfer equitable rights to a new buyer.
• Understanding the available exit strategies for the local real estate market, including an assignment or double closing.

Step 5 - Start Wholesaling

It shouldn’t come as a shock to anyone that the key to starting a wholesale real estate business is to understand how to find – and evaluate potential investment properties. But it is only a portion of the steps to wholesaling real estate successfully.

Create A Cash Buyers List

A wholesaler typically creates (and consistently updates) a buyers list of available or interested buyers or other investors who may be in the market for a discounted property. Creating a cash buyer’s list is an important part of a wholesaler’s networking tasks.

The reality is that in a perfect wholesaling world (which is unlikely to occur when you are just learning how to start a wholesale real estate business), the professional wholesaler would have one or more interested buyers before signing the legally binding contract.

Step 6 - Finding A Deal

Although the popularity of the wholesaling real estate business has created more competition than ever, there are still many viable opportunities (like foreclosure listings) – especially with the always accessible super information highway. Training programs and direct mail options support some of the best apps for real estate wholesalers.

Primary considerations when evaluating potential wholesale properties should include –

• The seller’s asking price.
• Required repairs, including deferred maintenance.
• The property’s taxes & utilities.
• The property’s (FMV) and (ARV).

Before you make an offer and execute a legally binding contract, you'll want to evaluate the property based on investment criteria that you have established as worthy of your time and effort.

Don’t dismiss some old-fashioned techniques that have nothing to do with Craigslist, Zillow, or social media. For a limited amount of money, a wholesaler can set up bandit signs in the market they wish to work.

Pro-Tip – To help maintain an optimal pipeline of properties (and a steady income stream), wholesalers should shoot to have 20 or more leads of potential investments to review each week.

Step 7 - Funding Your Purchase Contract

As noted above, wholesaling offers an entrance into the investment field with relatively little needed in terms of liquid cash. Deals closing through an assignment would only need funds to cover an earnest money deposit. Double closings would require a bit more funds due to closing costs.

Remember, though; there are niche lenders specializing in non-traditional lending (provided by hard money lenders and transactional lenders). And, wholesalers should not forget to include the cost of the financing/interest when evaluating the investment. 

Step 8 - Connecting With Cash Buyers

To find a cash buyer, it is vital that you can show the property’s true value.

As a middleman, a real estate wholesale agent is the professional tasked with connecting cash buyers (or other interested parties) with a seller willing to sell their home at a price that is typically significantly below market value. 

Finding a ready, willing, and able buyer is more complicated than it sounds. Most people have real estate dreams of grandeur, but only a few are serious investors with the capacity to pull off the deal.

Watch this video for a free technique to find cash buyers online in less than 10 minutes!

Step 9 - Building Up Your Network

Even the most appealing properties with discounted price tags need the right buyer at the right time. Networking helps solve the need for a buyer when you establish a reputation of dealing honestly and with integrity. The quicker you can develop a comprehensive network of trusted professionals and buyers, the faster you will begin to close a steady stream of properties as a wholesaler.

Step 10 - Reviewing And Adjusting Your Strategy As Needed

Real estate wholesaling, from a theoretical perspective, is quite simple. However, after you learn how to start real estate wholesaling, you will also need to continuously modify your objectives and investment criteria.

Even with training, wholesalers can potentially face hard lessons and situations.

As you grow as a professional wholesaler and the market shifts, it is imperative to review your current investment strategies to ensure it aligns with current metrics.

Closing Thoughts On Starting A Wholesale Real Estate Business

From helping a homeowner sell hard-to-market owner-occupied or rental properties to providing another end buyer an opportunity to rehab a potentially profitable property — wholesalers, as a facet of the real estate industry, facilitate a process that offers maximum benefits for all parties.

Is wholesaling real estate easy? That depends on who you ask. To avoid avoidable rookie mistakes, many new real estate investors enroll in wholesale real estate classes to learn how to get into wholesale real estate stat!

When you have created a viable wholesale system, the ability to find and assign properties can be done in less time, which means profits can be generated faster as well.