With its affordable housing and ample inventory, Tennessee offers real estate investors plenty of opportunity to build a successful real estate wholesaling business.
One of the cornerstones of establishing a successful wholesaling business in any state is to develop relationships within the local real estate community.
While locals will argue over which city has the most active housing market, some of the most popular metros for real estate investment include the state capital Nashville, as well as Chattanooga, Knoxville, and Memphis.
According to the 2021 U.S. Census, there were nearly 7 million people calling Tennessee home and the state boasts about 3.1 million housing units. Zillow estimates the median home value in Tennessee (Jan 2023) to be $311,333, climbing 16% in price from the previous year.
With this ultimate guide, we’ll help you learn how to wholesale real estate in Tennessee, using our proven step-by-step wholesaling process. Let’s begin!
The main thing to remember about wholesaling real estate is that this investment strategy allows you to enter into a contract to purchase a property with the right to assign the contract to another buyer. Your goal is to sell the rights to purchase the property at a higher price than your original purchase offer. The difference is your profit. Here’s how it works:
As a wholesaler, you identify a homeowner who needs to sell a home quickly. Often, this situation comes about because the homeowner has defaulted on the mortgage, which puts the home in danger of foreclosure. Sometimes the homeowner is looking for a quick sale because of other financial constraints or due to life events. Regardless of the reason, these homeowners want to sell quickly and without having to make costly repairs, enabling you to buy the home at a below-market price.
You’ll begin by getting a purchase offer accepted by the homeowner that also gives you the right to assign the contract to a third party. As soon as you go under contract, you will identify an end buyer willing to pay a higher price. Then, you transfer the contract, and all its rights and obligations, and collect your fee.
As you build your network of investors for potential end buyers, pay close attention to what type of investment they are focusing on. These end buyers are likely flipping homes or purchasing homes to hold as rental properties.
Keep in mind that any type of real property can be wholesaled, from bare land to homes to commercial property. Now that you understand the basics, let’s take a closer look at the steps involved in real estate wholesaling.
Understanding the basic process for real estate wholesaling and then tweaking it to make it your own can help accelerate your success. Be sure to check out our in-depth video showing you how to wholesale real estate step by step here:
With that in mind, here's our simple step by step process for wholesaling real estate in Tennessee:
If you’re new to real estate investing, or even new to wholesaling, it pays to partner with a wholesale real estate mentor for advice and coaching. Relying on an experienced expert, particularly if you are a wholesaling beginner, can avoid mistakes that are not only costly but slow down the growth of your business.
Just as with any profession where legal contracts are involved, you will want to familiarize yourself with any federal, state or local laws that could apply to a real estate wholesaling business in Tennessee. In addition, if you are going to operate in the real estate sector, it’s a good idea to understand fair housing laws.
Understanding laws that could impact your wholesaling business in Tennessee will help you avoid legal issues. Tennessee Code Title 62 - Professions, Businesses, and Trades - Chapter 13, which is also known as the Tennessee Real Estate Broker License Act of 1973, includes the rule that oversees the activities of real estate licensees in Tennessee.
To avoid running afoul of Tennessee law, ensure you aren’t playing the role of a real estate broker unless you are licensed. That means when you seek out a buyer after going under contract, you will be clear about selling your rights and obligations under that contract and not the property itself. As you’ll see as we delve a bit deeper, there are three ways you can legally wholesale real estate in Tennessee: assign rights to the contract to an end buyer, hold a double closing so that both the original purchase contract and your contract with the new buyer close simultaneously, and of course, traditional buying and selling, where you close on a purchase, then sell to another buyer.
If you’re going to be successful in real estate, you need to learn about housing trends in the local market you’re targeting. That goes for wholesalers as much as it does for agents. When you understand the market, you know the type of properties available, sales history, inventory, and other trends applicable to the location.
Tennessee’s real estate network is anchored by the state’s REALTOR association, Tennessee REALTORS, which serves as the umbrella organization for 20 local boards, including Greater Nashville REALTORS, Memphis Area Association of REALTORS, and Knoxville Area Association of REALTORS.
A good source of market data for local real estate markets is Tennessee REALTORS, the state’s REALTOR membership organization which publishes a monthly real estate market report with sales volume, median sales prices, the median price per square foot, and other valuable housing data for the area.
For additional insight, local Multiple Listing Services (MLS) provide active home listings as well as recently closed home purchases. It’s also a great place to see photos of available properties. If you’re unfamiliar with the MLS, it is a system developed by Realtor associations at the local level to enable Realtors belonging to the association to list properties for sale. The MLS is also usually a good source of localized housing market data and if you spend some time reading some of the listings, you should get a good feel for the local real estate lingo. Unless you are a licensed real estate agent, you can partner with an agent to gain access to the data.
If you need to brush up on some of the basic real estate vocabularies for doing business in Tennessee, check out some blogs by local brokerages and agent teams, such as this one by Living TN|Exp Realty or Ashton Real Estate Group|ReMax. You can even pick up some real estate lingo on local community sites like FranklinIs.
Building a solid list of willing potential cash buyers is key to your wholesaling business's success. With that in mind, here are some ways to build your list of end buyers:
You can also check out this video on how to find cash buyers!
A bit of research will help you identify homeowners who are facing difficulties such as foreclosure, auction, death or divorce. Motivated sellers in these situations will be less concerned that you are making money off the sale of their property. Instead, they will be focused on the prospect of a fast cash sale that helps them solve whatever problem they’re facing.
Position yourself as a problem solver. Homeowners who are dealing with some sort of financial or personal distress are going to be most motivated to sell their property. Here are some sources for finding motivated seller leads, particularly those with off-market properties:
Read Also: 25 Questions To Ask Motivated Sellers
Before you extend an offer to purchase an investment property, you need to do some homework to make sure the numbers work. To do so, you’ll want to calculate the following:
The After-Repair Value, or ARV, is a calculation that investors use to estimate a property’s value after it has been purchased and renovated. To calculate the ARV, add the property’s current value to the value of renovating it:
ARV = Property’s Current Value + Value of Renovation
Armed with this knowledge, you’ll begin to hone in on an appropriate offer price. But, you aren’t finished yet.
Before going forward with an offer to purchase, it’s best to invest in a general contractor to inspect the potential wholesale property to provide you with a list of repairs and estimated costs. If you feel qualified, you can instead go through the house and estimate rehab costs yourself.
Your next step is to calculate the Maximum Allowable Offer (MAO) or also known as the MAO Formula. This equation will help determine the offer price for the property under consideration. If you aren’t mindful of the maximum price to offer, you could end up with no profit or, even worse, unable to find an investor to act as an end buyer. In such a scenario, you would likely end up needing to close on the property yourself.
The MAO Formula is:
After Repair Value (ARV) – Fixed Costs – Rehab Costs – Desired Profit or Equity = MAO
Once you have calculated the ARV, subtract the fixed costs necessary to purchase and hold the home. Then, subtract the renovation costs, and finally, subtract your desired profit. The end result is the MAO or maximum amount you should offer on the given property.
Once you have calculated the MAO and determined you want to move forward, it’s time to write up the purchase contract. A wholesale real estate contract is a legally binding document between a wholesaler and a homeowner.
Be cautious about using simple, online real estate contracts. They are almost always too basic and could cause problems when they fail to adequately spell out the unique terms of a wholesale real estate agreement.
Once you are under contract, it’s time to find a cash buyer. You will then enter into an assignment agreement with them. By doing so, the rights and obligations for the purchase contract will be transferred to the end buyer.
Just as with the offer to purchase, it’s vitally important that the assignment contract spells out all the terms.
After you’ve got the property under contract and executed an assignment agreement with the end buyer, it’s time to close and collect your assignment fee. There are three options for closing the deal: assignment of contract, double closing, and buying and selling.
If you have signed an assignment contract with another investor, you will collect an assignment fee from them.
There are likely to be times when the homeowner won’t agree to assign the purchase contract to a third party. The seller may not feel comfortable dealing with a third party for something as important as the sale of their home.
In these instances, you can do a double closing. The seller signs the escrow closing documents and gets paid. Then, your buyer signs the second set of closing documents to purchase the 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.
Wholetailing is also another wholesaling method which is a combination of a fix and flip and a standard wholesale deal. In wholetailing, you’ll take ownership of the property, do some renovations, and then re-list the property shortly thereafter on the market.
Wholetailing is often a desirable exit strategy because you can access a larger pool of buyers when you re-list the property on the MLS. These buyers typically use financing and are generally less sensitive to pricing as compared to cash buyers.
Yes, wholesaling real estate is legal in Tennessee. Real estate wholesaling in Tennessee must be conducted in a way that doesn’t require a real estate license. That means any marketing to third parties must be strictly limited to marketing the rights and obligations of the contract and not the property itself.
Tennessee REALTORS, the state’s REALTOR association, confirms that any offer to purchase agreement, whether residential or commercial, is assignable unless the contract states otherwise.
As with most means of self-employment, it’s difficult to say exactly how much you can make as a Tennessee real estate wholesaler since wholesalers don’t earn a set salary or hourly wage. Instead, real estate wholesalers make a living from closing deals, whether, from assignment fees, net profits from double closings, or profits realized from other agreements forged with partners through other types of real estate deals.
While it may be difficult to point to average annual earnings, the good news is, you have the potential to earn a significant income. It all comes down to how many deals you can turn in a year and the size of the fees you are able to negotiate with your third-party investors. Real estate wholesalers can make anywhere from $0 to over $1 million—and more!
Both the median sales price and price per square foot increased year over year in 2022 to date, signaling the opportunity for wholesalers to command higher fees from wholesale real estate transactions.
If you’re looking for a benchmark, take a look at what happens if a wholesaler in Tennessee earns $10,000 per deal, a likely average. Under this scenario, it would take:
The sky’s the limit when it comes to a wholesaler's earning potential and growth.
No, you do not need a real estate license in the state of Tennessee to engage in wholesaling as a part of your real estate investment strategy. That’s because you are assigning your rights and obligations under a purchase agreement, not selling a property.
It can, however, work to your advantage to become licensed and many wholesalers do. As a licensee, you have ready access to the local MLS and would earn commissions in place of fees. If you are licensed, you will need to disclose that to the homeowner. Failure to be upfront about your license status could cause legal issues down the road. Full disclosure is the best course of action.
An alternative to being licensed yourself is to form strong working relationships with real estate agents in the markets you target. These local experts will not only have access to the MLS but can be a wealth of information about local market trends and offer access to local investors to expand your network.
While wholesaling real estate in Tennessee isn’t easy, there are resources that can help you find success. After doing your homework on the legalities and familiarizing yourself with contracts and assignment agreements, you can move on to reading informative articles and taking courses that can help you establish a process for the growth and success of your wholesale real estate business.
Another step you can take is investing in the assistance of a coach or mentor. These experienced wholesalers can be invaluable in helping you with the day-to-day process of wholesaling, from start to close. You’ll also gain some practical tips that will help augment what you’ve learned through articles and courses.
If you’re serious about establishing a real estate wholesaling business, you’ll want to sign up for our Pro Wholesaler VIP Program. This program will help you take your business to the next level by showing you how to:
The Pro Wholesaler VIP Program is designed for the modern entrepreneur to learn the basics and how to help new real estate wholesalers avoid the pitfalls typically found by beginners. It is 100% online and is used for local and virtual real estate wholesaling.
Real estate wholesaling in Tennessee can provide substantial earnings—and you don’t need a real estate license to launch and operate your business. Depending on how many deals you’re able to close in a year, you could earn a six-figure income—and more.
It’s important when launching a new real estate wholesaling business to have a clear understanding of state and local laws that impact real estate. Avoid any actions that must legally be conducted by a licensed real estate broker, such as marketing a property you do not own.
Establishing a process for wholesaling will be key to your success and the nine steps outlined here are a great place to start. To really get your business off the ground and on the road to success, join a network of seasoned wholesalers and seize opportunities like our free training to fine-tune your skills and build your business.
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