Envision the vast opportunities waiting for you in California's real estate market in 2023 and beyond. Home to over 39.1 million residents in May 2022, California is the most densely populated state in the U.S., boasting over 13.1 million households in 2020, according to the U.S. Census Bureau.
With the impending end to the state's COVID-19 pandemic eviction moratorium, the scope for real estate wholesalers is set to surge in the coming years.
Curious about how to tap into wholesaling real estate in California? Especially for those who are new to the investment scene, wholesaling presents an appealing advantage: it doesn't require a significant amount of capital or a real estate license to kick-start your wholesaling business in California.
This article will guide you through what wholesaling real estate is, and more importantly, how it functions within the context of California. By the time you finish reading, you'll have a solid grasp of the legality and advantages of operating a wholesale real estate business in the Golden State.
*Want to start investing in the California real estate market? Join Alex Martinez at his FREE training to learn how to get started with house flipping and wholesaling!
In a nutshell, wholesaling allows you to buy real property with the right to assign the contract to another buyer. You are selling the purchase contract to another buyer at a higher price than what you offered the property owner.
A simple example of wholesaling real estate involves finding a real property owner who needs to make a fast sale. Reasons for this predicament include defaulting on the mortgage and facing foreclosure or having other debts requiring fast cash.
Often the property needs repairs because the owner doesn’t have enough funds. Finding a homeowner desperate to sell to pay off debts while the property needs repairs gives you a chance to buy the home cheaply.
Your first step is to make an acceptable purchase offer to the homeowner. Then, you present a written contract to buy the home at a set price. However, your contract gives you the right to assign it to another buyer. After the contract is signed, you find a buyer for a higher price. You simply transfer the contract to the end buyer for a profit.
Potential buyers of wholesale properties are usually seeking investment property to purchase under market value. Depending on their investment strategy, these buyers may be flipping houses, buying rental properties, or scaling a multifamily portfolio.
The truth is that you can wholesale any type of property, including raw land and commercial real estate. Wholesaling properties is all about creating valuable opportunities and profitable real estate deals for the next buyer.
Wholesaling can be a thrilling avenue to pursue, especially for those eager to dip their toes in the property market without the heavy financial lift that often accompanies traditional investing. However, like any endeavor, it presents a unique set of challenges alongside its advantages.
Here's our simple step-by-step process for wholesaling real estate in California:
Like any new career or profession, it's smart to work with an experienced mentor. Even the highest achievers across many industries seek out expert mentorship and coaching. Especially for wholesaling beginners, having a wholesale mentor can literally save you years of time, let alone help you avoid potentially costly mistakes.
Read our informative article about wholesale real estate mentorship and how to make the most of your mentor-mentee relationship. You will learn how a real estate wholesale mentor gives you professional expert guidance and support. Our guide shows you what to look for in a mentor as well as how to find a mentor for wholesaling.
Before you begin working in a profession involving legal contracts you need to be familiar with the federal, state, and local laws. This knowledge will help keep you out of legal trouble. For example, new landlords must know the federal and state anti-discrimination housing laws or face heavy fines and lawsuits for violating them.
The same goes for wholesaling laws and contract laws.
Keep reading as we will describe these 3 Methods that real estate wholesalers can legally use in California:
No matter what you sell you must understand the buying and selling market. For new wholesalers, this requires knowing what buyers are willing to pay for certain types of real properties in a given location and time.
Fortunately, the California Association of Realtors (CAR) publishes regular real estate market data reports every week. Their monthly Latest Market Data shows what the market is doing along with what their Realtors are saying, and what they think will happen regarding sales, prices, and listings.
Local Multiple Listing Services (MLS) lists all active homes for sale listings and recent closed sales prices along with photos and detailed information about each property. The best way to access up-to-date local MLS data is to work with an agent.
The MLS system was created by real estate companies so they can list properties for sale for other agents to access to help find buyers for the listing agents. The commission is split between the listing and the buyer’s agent. If you don’t want to work with a local real estate agent you can access MLS data through private websites like Redfin, Zillow, or HomeFinder.
CAR also publishes a comprehensive list of Real Estate Terms. From A to W, all of the essential realty terms are explained to you. Also, the California Department of Real Estate provides an online 36-page Glossary of Real Estate Terms.
Sellers need buyers or they fail. We’ll give you some tips for building a buyers’ list:
Create a list of these buyers and do research on their business or home contact information online. Or, you can hire a private investigator or a skip tracer to find them.
*Check out our video below where Alex Martinez breaks down how to easily find cash buyers online!
This is the gravy train for wholesalers. Desperate sellers in need of fast cash. Public records will list foreclosures, real property auctions, and deaths. Here are a few ways to find motivated sellers and distressed properties:
Dive into real estate wholesaling with confidence. Download our FREE Wholesaling Cold Calling Script!
Before you decide to make an offer, you need to calculate your estimated profits. This requires you to calculate the following estimates:
ARV helps property investors to estimate what a property is worth after purchasing and renovating. The formula to calculate ARV is as follows:
ARV = Property’s Current Value + Value of Renovation
Knowing how much a home is worth after renovations help you to decide the price you offer the seller. For example, a home worth $200,000 with an estimation of $50,000 for renovations comes up with an ARV of $250,000.
Yet, there is more information you need to decide whether to make an offer to the seller and at what price.
First, you need to pay a good contractor to inspect the home from top to bottom. The inspection report should show what needs repairing with an estimated cost.
If you are in a hurry to quickly estimate repair and renovation costs, read our useful guide explaining how to estimate rehab costs.
Also, if you want to pay for a high-quality rehab costs estimator read our review of the Rehab Valuator. Its software analyzes potential deals including wholesale, flipping, rehab and hold. It can also help you market your deal to your buyers list.
The Maximum Allowable Offer (MAO) Formula is an equation that determines the price you should offer for a specific real property.
The importance of running your MAO Formula before making an offer boils down to the importance of having profit in your real estate deal. Are you fine with zero or negative profit? Probably not.
Therefore, in order to ensure a profit on any wholesale deal or flip, you must run these numbers.
The MAO Formula is:
After Repair Value (ARV) – Fixed Costs – Rehab Costs – Desired Profit or Equity = MAO
Simply take the ARV minus the fixed costs to buy and hold the home minus the renovation costs minus your equity or desired profit equals the MAO.
If this confuses you, our article explains every step in detail.
A wholesale real estate contract is a legal document creating a binding agreement between you as the wholesaler and the homeowner.
Unless you are an experienced real estate attorney, don’t rely on cheap online real property contracts. They are too basic and may not be legal in your state.
Check out our informative article explaining wholesale real estate contracts. We cover many of the important terms and conditions in a standard wholesale contract to buy properties and sell the contract to a buyer.
After you get the seller to sign your purchase agreement you need to find a cash buyer for that contract. When you do, you need to get the buyer to sign an assignment of contract agreement. This allows you to transfer your purchase contract to the buyer.
As mentioned above, you have 3 options for closing a deal:
Your assignment contract makes the buyer pay you an assignment fee. Usually, this occurs when you and the buyer sign the assignment contract.
However, the other two options require waiting to collect your fee. As we will explain below, you can have a double closing where the closing with your seller occurs at the same time as your closing with your buyer occurs.
Or, you can buy the home and close on it and then sell the house to your buyer.
Sometimes, the seller might not agree to an assignment of the purchase contract to a stranger. It’s like when you agree to buy a person’s car or furniture and you ask for an assignment to another person. The seller may feel uncomfortable when a stranger shows up with your assignment contract to take the car or furniture.
This is where a double closing becomes necessary. The seller signs the escrow closing documents and gets paid. Then, your buyer signs different closing documents to purchase your new home and you get paid.
Double closing requires your taking title to the home before you sell it to your buyer, which may require two sets of closing costs.
Ready to start wholesaling real estate? Join Alex Martinez at his FREE training to learn how to get started with house flipping and wholesaling!
The short answer is “Yes”.
For more about California wholesaling laws, see our article about the legality of wholesaling in California.
It explains why wholesaling is legal in California and cites specific California laws like their Business and Professions Code which oversees the state’s real estate laws such as:
Another benefit a California real estate wholesaler has is the potential to earn a significant income. Real estate prices in California are soaring, and therefore wholesalers are able to demand large wholesale fees. Wholesalers can make as much money as they want depending on how many deals they can do and the size of their fees.
How much a real estate wholesaler makes can range from $0 to $1,000,000 or more per year!
However, wholesalers don’t traditionally earn salaries or paychecks. They most typically receive earnings from closing deals in the form of assignment fees, net profits from double closings, and sometimes even profit-sharing in creative types of deals.
For example, if a wholesaler in California earns $20,000 per deal, then it would take:
With a proven wholesaling process, the sky is the limit with how much you can make as a real estate wholesaler in California.
Our short answer is “No.” California does not require wholesalers to become licensed.
That’s because wholesalers do not sell real estate. They only sell a purchase contract to a buyer who enforces the contract so the property seller transfers the title to the new buyer.
If you are licensed to sell real properties in California (as a broker or an agent) you are required to disclose that to your sellers when you make an offer and enter into a contract. The Section 10139 penalties will apply to a broker or agent who fails to disclose.
Also, licensed agents and brokers may get sued by the sellers for failing to disclose their license status. This could lead to civil penalties and large damage awards too.
Real estate prices is cities such as San Francisco and Los Angeles are some of the highest in the country. Therefore, as a licensed salesperson, the commission you earn per real estate transaction is likely MUCH higher than in most other states.
Yes, as long as the proper disclosure is made to the sellers. There are numerous advantages to wholesaling as a licensed real estate broker or a sales agent.
Licensed brokers and agents have access to all of the Realtor contracts available through the California Association of Realtors, including proper disclosures and forms. Since they are licensed, there is less worry about the potential marketing property restrictions that unlicensed wholesalers may face. Also, agents can earn real estate sales commissions when they buy and sell properties for themselves, as well as, for others.
Wholesaling, as an acquired skill set, allows Realtors to help homeowners in more ways than the typical real estate agent or broker is capable of. This is mostly because real estate licensure training does not include any practical aspects of real estate investing. Very few agents are able to offer to purchase real estate directly from the sellers that they aim to serve, therefore, wholesaling agents are able to create a competitive advantage for their businesses.
No, it's not easy because wholesalers need to understand the state and local contracts and real estate laws.
However, reading our informative articles here and taking courses will teach you everything you need to know about the wholesaling profession.
In addition, undergoing mentoring with an experienced wholesaler who can teach you the practical side of wholesaling beyond taking courses and reading articles. Coaches are available to teach you the finer points of the wholesaling profession.
After reading our articles and viewing our instructive videos we strongly suggest signing up for our Pro Wholesaler VIP program. We will teach you how to:
Breaking it down, there's real potential for you to do well in wholesaling real estate right here in California. You don't need a license or heaps of money to get started. In fact, you could even make up to $1 million per year or more as a wholesaler in the Golden State.
Following these nine steps can give you an edge in the market. But this guide is just the beginning. There's a lot more to learn about becoming a successful wholesaler in California.
At Real Estate Skills, we're all about helping you get to where you want to be. We understand everyone has different schedules and financial goals. That's why we've set up our free training program. It's a step-by-step guide that's been put together by expert wholesalers and investors.
So, why wait any longer? Join us at Real Estate Skills and start learning how to flip and wholesale houses today!
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