Wholesaling real estate differs from other types of real estate investment in that the wholesaler doesn’t actually take possession of the property. Unlike the upfront capital needed by flippers or to buy and hold, it requires very little capital to get started with wholesaling.
For that reason, it’s thought to be an excellent way to get started in real estate investing and is considered one of the best short-term investment strategies around.
So what does it take to be a real estate wholesaler in Texas? Read on to find out how to get off to a successful start.
In general, wholesaling real estate works like this: the wholesaler and seller enter into a contract for sale of the property. However, rather than closing on the property and taking possession, the wholesaler enters into an agreement to assign his or her rights under the sale contract to a third-party buyer. Unlike the wholesaler, this buyer actually takes possession of the property.
Rather than actually purchasing the property and taking possession, the wholesaler has entered into what is actually a temporary contract with the owner. The contract terms differ from the typical real estate contract in that it gives the wholesaler the right to sell the property to the ultimate buyer on the owner’s behalf, keeping whatever profit they can turn for themselves.
You might wonder why a homeowner would agree to let someone else receive profits off the sale of their home. The answer is, that every situation is different. Whether it is due to death, divorce, financial restraints, or some other reason, there are times when an owner wants or needs to dispose of a property quickly. Or, they simply do not want to do the work required to get the property ready to go on the market.
Many of the homes that end up wholesaled are distressed properties, such as homes that are about to go into foreclosure. So, instead, these homeowners contract with a wholesaler to take the problem off their hands.
Having a system to launch and operate your real estate investing business is integral to your success in wholesaling. Following a step-by-step plan as you build your wholesaling business gives you a greater chance for success.
Here are nine steps to consider as you plan to launch your Texas real estate wholesaling business:
One of the best ways to accelerate the success of your wholesaling business is to partner with someone who has already been there—and found success. It is well worth the money to engage an experienced wholesaler who is willing to guide you through your first couple of closings. It will be less nerve-racking and you will be able to concentrate more on identifying properties and finding motivated sellers, and worrying less over procedures.
Read Also: Wholesale Real Estate Mentor: (ULTIMATE) Guide
One of the biggest problems that can arise when operating a real estate wholesaling business is for an unlicensed, inexperienced wholesaler to act like a licensed real estate agent. Before you begin wholesaling, you need to have a thorough understanding of Texas real estate wholesaling laws so you don’t take a misstep before you even get started.
To ensure you operate legally, familiarize yourself with Texas laws and regulations pertaining to real estate wholesaling. Seek legal advice if you feel you need it. Texas tightened the laws pertaining to wholesaling without a license in 2017 with the passage of Senate Bill 2212. This bill amended the Texas Occupations Code by adding Section 1101.0045. In addition, Section 5.086 was added to the Texas Property Code.
Section 1101.0045 allows you to assign a real estate contract without holding a license, as long as you do not use your option or the purchase contract to engage in real estate brokerage and as long as you disclose the nature of your equitable interest to any potential buyer. In other words, you disclose all terms of the purchase contract you have with the seller. Failing to make such disclosures is considered to be engaging in real estate brokerage.
Further, Section 5.086 of the Texas Property Code spells out that before assigning an interest in a real estate contract, a wholesaler must disclose to any potential buyer that they are selling an option or assigning an interest in a contract, making it clear that as a wholesaler, they do not have legal title to the real property.
Failure to adhere to the law by acting as a real estate brokerage without being licensed can result in a Class A misdemeanor. Multiple offenses can result in a felony.
If you are not familiar with the Texas real estate market, do some research. Spend some time with an agent willing to help you get familiar with the market. Read whatever you can about the real estate industry in your area. Understand not just the current market status, but historic trends as well.
To be successful in wholesaling, you need to have a pool of cash buyers you can go to once you have a contract. You have just a small window of time to get that contract assigned and that window doesn’t provide enough time to start trying to find cash buyers and build relationships with them. Do this homework ahead of time.
Let these cash buyers know you are going into the business before you get that first contract. This is also an opportunity to expand upon the research you did on the market and learn what cash buyers are looking for in a property.
You can also check out this quick video below that talks about how to find cash buyers online for free!
Once you’ve identified a pool of cash buyers, you can get serious about identifying distressed properties and motivated sellers. Use the knowledge you gained in your outreach to cash buyers to find distressed properties that supply what cash buyers are seeking.
Once you’ve identified distressed properties, you will want to do your due diligence before making an offer. Figure out the property’s after-repair value or ARV so you can determine what to offer. You don’t want to go in too high and then have problems finding a cash buyer.
The maximum allowable offer (MAO) is a proven calculation real estate investors use to decide what to offer for a particular investment property. Understanding this equation ensures a desired profit given the property’s expected fixed and rehab costs.
You can calculate the MAO for a potential property by beginning with the ARV, then subtracting the fixed costs, costs of rehab, and your desired profit. This number represents the MAO, which will tell you the top dollar you should offer for the property.
Once you know the MAO, you know what the final buyer will likely pay, which will help you determine what to offer.
Read Also: Estimating Rehab Costs: (Ultimate) Investor's Guide
Once you are under contract with the seller, it’s time to assign the contract to one of the cash buyers out of your pool of potential buyers. Be sure to include your fee in the assignment contract.
Once you’ve identified a cash buyer and have entered into an assignment contract with the ultimate buyer of the property, it’s time to close the deal and collect your assignment fee.
Double closing is a type of real estate investment strategy when two real estate transactions take place simultaneously. This strategy typically involves three parties: the seller, the wholesaler, and the end buyer. This strategy conceals the amount you make on the deal from both seller and end buyer. Here’s how it works:
The wholesaler purchases a distressed property at a discount from the seller, then immediately sells the property to the end-user. The funding is set up so that the cash proceeds from the sale of the property to the end buyer can fund the purchase from the original seller through escrow.
This strategy involves the title company receiving the end buyer funds, then closing out the original transaction so that the wholesaler can immediately close the second transaction. Those proceeds are what the wholesaler makes on the deal
One caveat, however. In Texas, it is not legal to use proceeds from the second portion of the deal to fund the first purchase. Instead, you’ll have to use hard money, sometimes called same-day funds or one-day bridge funding, to make the original purchase. You can then sell immediately to the end buyer. The goal of concealing what you make is still realized, despite the separate requirements under Texas law.
If you don't line up a buyer in time for a double closing, then consider wholetailing the property.
Wholetailing is a strategy that entails purchasing the wholesale deal, cleaning up and making very minor improvements to the property, then listing it on the multiple listing service (MLS) to sell to an investor buyer. It doesn't entail completing a full rehab, however, the minor upgrades often result in amplified profits for the wholesaler.
Read Also: Hard Money Lenders 101: What Are They & How To Find Them
The short answer is yes, wholesaling houses is legal in Texas, whether you are in Houston or Austin or Dallas—or wherever you plan to operate in the state of Texas. However, you have to understand real estate law that applies and ensure you follow all state laws and regulations that apply to operating a wholesaling real estate business in Texas.
The Texas Real Estate Commission (TREC) set forth the rules governing all real estate transactions in the state, including wholesaling houses.
The most common reason for problems to arise is for a wholesaler to cross the line and start acting like a real estate agent or broker despite not being licensed.
To avoid this, keep in mind you aren’t marketing the home to the masses, as a real estate agent would. Instead, your goal is to identify properties and match them up with cash buyers, either by contract assignment or facilitation of a short-term sale.
Because Wholesalers are self-employed, there is really no limit to what they can potentially make at wholesaling. You just need to have the ability to develop a proven method for finding quality real estate deals and connecting those homeowners with qualified, potential buyers.
But, if you’re wondering what you are likely to make, don’t expect a six-figure income right out of the gate. It takes time to build your real estate investing business, just like any endeavor. If you’re willing to put in the time and effort, however, you can expect a decent return.
There are plenty of examples of wholesalers earning from $250,000 all the way to $700,000 and more. They’ve found success by creating a system that works. And, while they may tweak it here and there, it’s a process they continue to follow, again and again, to identify and close wholesale deals.
Assuming you don’t already have your real estate license in Texas, you will need to familiarize yourself primarily with two documents important to your wholesale real estate business before you start looking for that first deal.
The first is the primary purchase agreement used for residential real estate in Texas. Here’s the first page of the resale purchase agreement form available through the Texas Real Estate Commission:
Using this contract, you will input the property address and selling price, as well as the seller and buyer (your) information. You will also answer a number of questions regarding the property itself.
Executing this contract is the step you will need to take with a seller and property before you can wholesale it. Wholesaling involves assigning your rights and obligations of a contract over to the ultimate buyer. If you have no contract, you have nothing to assign.
Keep in mind that a seller may not have experience with wholesaling and may not even realize it is a legal real estate investment strategy. But even sellers who have never heard of wholesaling in the past will likely not object as long as they are (1) guaranteed to receive the sales amount stipulated by the contract; and (2) can close on the property on time, as called for in the contract. Be sure to have this conversation early so you don’t surprise a seller after they are under contract.
The second document to familiarize yourself with is the assignment contract itself. You can create this contract yourself, as long as you include all the terms of the assignment. Here is one example of an assignment contract:
In addition to the terms outlined in the above example, it’s also important to include the fee that will be received by the assignor as well as the date(s) it will be received. In addition to providing all terms, the assignment contract will need to be signed by the assignor and assignee.
A signed assignment contract is absolutely necessary to legally wholesale the property in Texas.
No, just as with other types of real estate investment, you do not need a real estate license to wholesale real estate in Texas. As discussed earlier, however, you need to ensure you do not act as a real estate brokerage in operating your real estate investment business.
There are advantages to having a real estate license and engaging in wholesaling, however. If licensed, you are not limited by laws that apply to non-licensed wholesalers regarding assignment contracts and marketing of properties.
Yes, a realtor can absolutely wholesale property in Texas. In fact, if you have your real estate license, you actually have some advantages over a non-licensed individual. If licensed you will earn a commission instead of, or in addition to, a wholesale fee.
A licensed agent does not need to be as concerned over the laws that apply to non-licensed wholesalers regarding the ability to market a property and to execute an assignment contract. There are fewer legal worries when you’re a licensed agent.
A real estate license also gives you more credibility with a seller in most cases. This can be important if you’re competing with non-licensed wholesale operators for a property. You can assure the potential seller that you will do everything according to the standards you’re held against as a realtor. Be sure to disclose your status as a licensee in all of your wholesale real estate contracts and purchase agreements.
The beauty of doing wholesale real estate is that—unlike other types of real estate investment—you can get started with very little capital. That’s because you don’t have to purchase the property, so you aren’t putting large amounts of money at risk like you are with a different type of investing, like flipping houses.
That’s not to say you can just dive in without a penny in your pocket and no game plan or mentor, yet expect to be successful. But, because you serve as the middleman, your financial risk is very low as long as you have a strategy that helps you connect the right buyer with the right property.
Following a step-by-step process will allow you to grow your business over time, making money from selling property you never owned. You’ll find the rather than 30 to 45 days or more to wait for a closing, as with many real estate transactions, you’ve got deals that close within days—even hours—of going under contract.
Your risk is also further reduced because you will be dealing with cash buyers. One of the biggest risks in more traditional real estate transactions is that the buyer’s financing falls through and the deal doesn’t close.
Despite not needing a great deal of money upfront, there are still some costs to consider:
Yes, a beginner in wholesaling can certainly do wholesaling real estate in Texas. However, it’s advisable to engage an experienced, successful wholesaler to guide you through your first few transactions.
It’s also advisable you do your homework ahead of time. Be sure you understand the market and have a ready list of cash buyers.
No, but it can be easier with a coach, a mentor, and extensive training like we offer at Real Estate Skills in the Pro Wholesaler VIP Program. With a little preparation and perseverance, you can build a successful business in real estate wholesaling!
If you want to shortcut your path to success, join a community of expert wholesalers, and receive step-by-step wholesaling instruction from highly accomplished investors, then check out our free training and get started with Real Estate Skills today!
Real estate wholesaling is a popular investment strategy because it doesn’t require a lot of capital to get started. While it is certainly possible to make a good living with wholesaling real estate as your primary source of income, you should arm yourself with knowledge of the market before getting started to improve your opportunities for success.
You will also want to engage a mentor—someone who has experience in wholesaling and has found success. Be sure you understand the laws that apply to wholesalers in Texas. If you have concerns, seek legal advice.
If you can put all of these pieces together, you should be able to carve out a nice income for yourself in real estate wholesaling in Texas.
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