Wholesale Real Estate: The (ULTIMATE) Guide

Real estate opportunities have always provided smart investments – offering consistent appreciation and profit for decades to those who understand how the real estate market works.

The median home price in Q3 2022 in the United States was $454,900 - nearly four times as much as the median value 30 years earlier –

In the past, many investors were sidelined because a fair amount of capital was required to begin investing - even if the investor had a viable, below-market-priced property and a conclusive investment analysis.

Until recently, wholesale real estate was a little-known investment strategy, although a few real estate professionals or lawyers always understood how to turn a profit by flipping paper. Since then, wholesale real estate has quickly turned into a booming investment strategy.

The digital real estate market likely sparked the wholesale revolution. This momentum was galvanized by unprecedented demand and low inventory created by a global pandemic - plus historically low-interest rates.

However, it is easy to see how the stars aligned for those who own, invest, or work in real estate.

• What Is Wholesale Real Estate?
• What Does Wholesale Mean In Real Estate?
• What Is A Wholesaler In Real Estate?
• How Does Wholesale Real Estate Work?
• How To Wholesale Real Estate? (7 Steps)
• Where To Get A Wholesale Real Estate Contract?
• What Is The Difference Between Wholesaling And Flipping?
• Can You Wholesale Real Estate With No Money?
• How Much Money Can You Make Wholesaling Houses?
• Pros And Cons Of Wholesaling Real Estate
• How Hard Is It To Wholesale Real Estate?
• Becoming A Successful Real Estate Wholesaler (5 Tips)
• Is Real Estate Wholesaling Worth It?
• Final Thoughts

What Is Wholesale Real Estate?

Wholesale real estate is a short-term investment strategy. Depending on where you work, it may also be called -

• Flipping Paper
• Contract Flipping
• Contract Assignments
• Flipping Real Estate Contracts

But any way you slice wholesale real estate, the goal is the same - find a property priced below current market value – because it is in disrepair, or the owner is highly motivated to sell, etc. Then while under contract to buy the subject property, find another buyer before the closing deadline in the contract with the original homeowner arrives.

So how does a real estate wholesaler generate income? By finding an end buyer with an interest in the property at a higher price than stipulated in the initial real estate contract. Similar to a food wholesaler wholesaling from farm to retail, wholesale real estate investors are wholesaling real estate from a seller to flipper.

The difference in price —between the original price and the price paid by the new buyer—is the wholesaler's gross profit.

Check out this video below to further understand the wholesale real estate process!

What Does Wholesale Mean In Real Estate?

From a business perspective, real estate wholesalers perform like any other middlemen – buying widgets or houses at a discounted price to resell at a higher price for a profit.

However, real estate wholesaling is nuanced. It doesn't involve buying bulk properties at reduced prices, but usually one property at a time at a discounted price. Real estate wholesalers generally sell these well-priced properties to other real estate professionals (like fix and flippers), who then add value (and optimize profit) to the property by rehabbing it and making it move-in ready. This final value is sometimes called the repair value of the home. Real estate agents and flippers can take care of the more complex estate logistics.

Ultimately, the flipper is looking to resell the updated property to a retail (non-wholesale) buyer – someone who plans to live in the property.

As a wholesale real estate investor, the marketing channel is:

•  Initial seller > Wholesale Real Estate Business > Flipper > Local Real Estate Market.

The wholesale marketing channel is two-tiered and is similar to the marketing channel of:

•  Farmer > Wholesaler > Retailer > Customer.

What Is A Wholesaler In Real Estate?

Real estate provides excellent opportunities for investors who think outside the box. A real estate wholesaler is an entrepreneurial investor looking for a bargain property to purchase, ideally without ever taking title to the property.

Real estate wholesalers are uniquely positioned to generate profit by meeting an unmet need within a small slice of the real estate market - extremely motivated sellers who have been left with no viable way to sell. Real estate wholesalers offer sales-driven homeowners an expedited exit ramp, which is not available when working with a more classic type of buyer.

On paper, real estate wholesaling is a simple investment process consisting of a few steps. However, real estate wholesalers, especially in some markets, navigate a tightrope with regard to legal boundaries. As a result, real estate wholesalers must operate with professionalism, transparency, and integrity to stay on the right side of the law.

How Does Wholesale Real Estate Work?

Real estate wholesaling is a combination of two essential principles –

• The Wholesaling Principle - a business paradigm in which a professional buys low with an intent to resell at a higher price for a profit.
• The Principle of Equitable Conversion – the governing legal principle that transfers certain rights (known as “equitable interest or equitable title”) to a buyer after a legally enforceable real estate contract has been fully executed.

When a wholesaler finds a piece of property for sale that is priced below current market value, for whatever reason, they enter into a real estate purchase agreement that details the terms of the purchase. Before the first purchase contract closes, the wholesaler finds another buyer – willing to pay more for the property. This is a crucial step for the real estate wholesaling business. Finding another buyer decreases the risk in this real estate investing strategy.

There are two primary exit strategies for real estate wholesalers -

The Assignment Of Contract Exit Strategy

An Assignment of Contract is a legal instrument a buyer can use to assign their equitable rights to a new end buyer. This legal document references three parties –

• The Assignor – the buyer (a.k.a., the wholesaler) assigning equitable interest to the new buyer.
• The Assignee – the new buyer receiving the original borrower's contractual right to purchase the property.
• The Seller – the property owner or property owners who is expecting to close.

• Contract assignments are great legal tools when a party to a contract wants to transfer their rights/commitments to someone else. Real estate contract language is, by default, typically assignable. However, during negotiations, a contract's details may be modified to require the seller's consent or prohibit assignments entirely.

The Double Closing Exit Strategy

A Double Closing is another exit strategy a wholesaler can use to conclude a transaction, requiring two closings.

The first closing in the double close meets the conditions of the initial purchase agreement in which the wholesaler is the buyer. A subsequent closing follows – immediately, or a day or so later, in which the wholesaler is now the seller.

And while the wholesaler's ownership is temporary (sometimes lasting only minutes!), the money, as a tool, must be available to close the first contract, which can be sourced from the wholesaler's savings or a loan from hard money or traditional lenders.

The double close differs from the assignment strategy but offers confidentiality in disclosing the wholesaler's profit. And a double closing will cost more to close. However, this additional expense offers extra legal protection as there is no question that the wholesaler is clearly the buyer in one transaction and the principal owner/seller in the second closing.

Although not mandatory in every market, working with an experienced real estate lawyer or real estate attorney is the best way to ensure you obtain accurate legal advice to stay protected under the law.

Wholesale Real Estate Example

Wholesalers, flippers, and real estate investors, especially those new to real estate, should begin the investment process using industry-standard criteria, better known as the 70% Rule. With some experience, more seasoned real estate wholesalers may wish to tweak this criterion to suit their investment goals better.

The real estate wholesaler's objective is to find another buyer who recognizes the property's potential value and is willing to pay more than the contracted price of $250,000. Real estate wholesalers typically market their “equitable interest or estate” to other real estate professionals, who repair and resell it to a retail buyer.

House flippers, who are the typical buyer of wholesale property, will likely search for properties in disrepair but max out their offer at 70% of the After Repair Value after accounting for potential expenses.

But…

The above analysis for the wholesaler's buyer must also include what is known as a Maximum Allowable Offer (MAO). This analysis further considers the costs involved in making the property move-in ready. This includes –

•  The anticipated renovation or repair costs for the wholesaler's end buyer.
•  The carrying and closing costs (like real estate property taxes and insurance) until the transaction concludes, among others.

In the above example, if the wholesaler's end or cash buyer estimates the cost to repair and carry the property to be $60,000, what would the end buyer's Maximum Allowable Offer be?

The end buyer's MAO would be $290,000, calculated using this equation: (ARV x 70%) – Expenses = MAO, or,

The wholesaler's gross profit in the above example would be $40,000. This is calculated as follows –

$290,000 (the buyer's MAO) - $250,000 (the original contract price).

Do You Need A License To Wholesale Real Estate?

No, in most real estate markets around the United States, you do not need a license to wholesale real properties.

Most states accept the distinction between real estate wholesaling and the role of the real estate agent (or Realtor) acting as a fiduciary when representing a client as a buyer or seller. That is, except for Illinois, Philadelphia, and Oklahoma, where wholesalers will need to meet licensing requirements to wholesale legally and at scale.

Wholesaling real estate is legal if the wholesaler's actions do not violate real estate laws and licenses.

Remember, a real estate wholesaler has the legal right to market or to sell their ‘right to purchase' the property. This legally transferrable asset is completely different from selling real estate.

A real estate professional selling real estate is required to hold a real estate license, whereas wholesaling, for the most part, does not.

Is Wholesaling Real Estate Legal?

Yes, wholesaling real estate in most locations is a legal and often profitable investment strategy. The key to staying legal is to avoid actions that would rise to the level requiring a state-issued real estate license.

If a real estate wholesaler markets or sells an asset they possess – the ‘equitable interest' in the property, it is a legitimate real estate investment maneuver.

Real estate and license laws vary widely from state to state, so research and understand relevant laws and the customary procedures in your marketplace.

Read Also: Is Wholesaling Real Estate Legal?

How To Wholesale Real Estate? (7 Steps)

While there are many variations in wholesaling strategies, successful contract flippers start by understanding the fundamentals. Follow this step-by-step wholesaling process to successfully wholesale real estate in 21 days or less:

Step 1: Find A Wholesale Mentor Or Coach

Having a wholesale mentor can definitely give you a deeper understanding of how the process and the industry work. Mentorship is considered formalized guidance. Before organized education, mentoring or apprenticeship was the classic way to master the art of most trades. Even in the modern business world, coaching and mentoring are still prevalent.

Remember that real estate wholesaling has the potential to be lucrative. Still, inexperience and poor decisions from a lack of experience could result in a missed investment opportunity or, worse, a financial loss. Wholesaling properties is a learned skill. Every beginner needs to receive some real estate education. Due diligence can be more instinct or financial sense than anything eventually.

Step 2: Learn Your Real Estate Market

In-depth local market knowledge is vital to assessing the quality of an investment opportunity, especially when comparing against other real estate investments. Successful real estate wholesaling begins with the due diligence required to understand the marketplace in which you plan to work. Stay current concerning neighborhood demographics, license law, market statistics, investment criteria, after-value estimates, and local customs.

The Bureau of Economic Analysis (BEA), the local NAR association, and other real estate industry experts offer massive amounts of statistical insights and real-time data, usually online, at no cost.

Read Also: 7 Best Markets To Wholesale Real Estate

Step 3: Build A Cash Buyers List

A wholesale deal is only as good as its chances of closing. As such, having access to a pool of available investors (a.k.a. – cash buyers) is important for a successful wholesale career. The goal is to connect with as many potential cash buyers as possible. Wholesalers constantly refine their curated home buyers list to keep it updated with other interested buyer options.

Before agreeing to issue and assign a purchase contract, be sure that –

•  You vet potential buyers.
  •  How fast can this alternate buyer close?
  •  Have they purchased a property from a wholesaler before?
  •  What are the buyers' intentions for the property – fix and flip? Hold to rent?
  •  Do they have written verification of assets or financing to cover the purchase?
•  You have an alternate (i.e., Double Close) exit strategy and the available funds to proceed.

Step 4: Find Distressed Properties And Motivated Seller Leads

There are a variety of techniques to find wholesale properties in the real estate industry with motivated sellers. Many wholesale rental properties are available online (on social media or Craigslist) but require no fees. Other opportunities include off-market properties. However, there are also many foreclosure and auction websites to find potential wholesale properties that charge a fee. A good distressed property to buy will sell below fair market value of similar properties in the area that is fully repaired.

One of the best, most consistent sources of wholesale investment opportunities is the Multiple Listing Service (MLS). Check out our free training on how we help students across the country find and flip deals profitably using the MLS.

Additionally, there are online options with wholesale opportunities for those ready to act – from expired listings to government agencies, that offer potential wholesale investment opportunities.

Real Estate Skills Tip: Age-old techniques, like Driving for Dollars, or direct mail, have been used by real estate investors for decades. Driving for Dollars involves driving around a neighborhood to take note of homes that may look unkempt and need repair. A home not cared for could indicate a financially-strapped homeowner motivated to sell!

Step 5: Submit Offers And Put Properties Under Contract

When a wholesaler finds a property that meets the established investment criteria, they submit an offer to the seller, including the offered price and other pertinent details. A wholesaler's offer should consider that a future buyer will also need to be able to turn a profit (rehabbing, etc.).

This will require reviewing comparable properties soldand determining the after repair value (ARV) of the subject property, in addition to your maximum allowable offer (MAO). It is generally expected to include a small earnest money deposit (EMD) with your offer.

When an offer is accepted, the seller and buyer sign a legally enforceable contract of sale at the agreed-upon terms.

Step 6: Secure An End Buyer From Your Buyers List

A wholesaler seeks to assign the right to purchase the property to another buyer, usually a real estate professional ready to rehab the property to a retail buyer. A real estate agent might take the property from there. The relationships you built in Step 3 with your cash buyers will help make this step go much faster and smoother.

Step 7: Double Close or Collect Your Assignment Fee

A successful wholesale real estate deal typically follows one of two exit strategies, both of which offer the opportunity to generate a profit.

Ideally, wholesalers prefer the “Assignment of Contract” technique because, when earning an assignment fee -

•  They do not have to take title to the property.
•  They minimize time, expense, and, therefore, risk.
•  There is minimal (if any) capital required to complete the wholesale deal.

When assigning is not an exit option, wholesalers can also complete the transaction using the Double Close exit strategy. While the double close requires two closings and two sets of closing fees, it does offer a bit of legal protection and the funds to close the first contract, even if it is only for an hour or so.

Where To Get A Wholesale Real Estate Contract?

A wholesale real estate contract is the instrument that defines the legally-enforceable terms of the sale between the seller and the buyer (aka – wholesaler). Each state sets forth acceptable standards for its legal contracts, with investment-quality contracts also available online for no fee.

A real estate contract includes a tremendous amount of information that typically includes -

•  The property's legal description and mailing address.
•  The is given in good faith.
•  The seller's item, if applicable.
•  The financing terms and other contingencies, to name a few.

Download Free Wholesale Real Estate Contracts Here (PDF)

When the real estate contract has been fully executed, the wholesaler, who has found an alternate end buyer, can assign their “equitable interest/title” to the new buyer for a fee agreed to by the wholesaler and the end buyer. The legal instrument is known as an Assignment of Contract.

Wholesale real estate assignment contract example.

Source

What Is The Difference Between Wholesaling And Flipping?

Real estate wholesaling and flipping are short-term investment strategies, although flipping requires more time and effort.

Wholesaling's goal is to find a property and then a willing buyer ready to purchase the same property for a higher purchase price – before the first purchase contract closes.

Flipping houses requires the investor to take the title because rehabbing a property is always fraught with risk (by unexpected problems and costs) and the need for capital to fund the renovation.

The Flipper's additional risk is not without its potential reward, as flippers tend to have a higher profit margin than wholesalers.

Read Also: Wholesaling Vs Flipping Houses

Can You Wholesale Real Estate With No Money?

Yes, technically, you can wholesale real estate with no money of your own. Both wholesaling strategies detailed earlier are typically completed without any funds invested into the deal by the wholesaler.

First, if you find a wholesale deal with a motivated seller, they may agree to a contract with little or no escrow. In this context, if you assign the contract and collect an assignment fee, the real estate wholesaler would need no money to complete the deal.

However, should you close the deal using the Double Close exit strategy, funds will be required to transfer the title, even if the wholesaler's ownership is for a few minutes. However, a well-connected wholesaler may be able to orchestrate the real estate transaction using capital from private money or hard money lenders. Creative types have used the end buyer's assets to fund the first transaction!

Consider additional strategies such as wholesaling lease options and taking over properties subject to existing financing, which both present no money down options when structured correctly.

How Much Money Can You Make Wholesaling Houses?

Wholesaling houses, like most real estate investment options, can provide unlimited income potential to wholesalers – especially those who develop a knack for locating wholesale deals that meet their established investment criteria.

The amount of income a wholesaler makes is proportionate to two factors:

1. The average wholesale fee per deal.
2. The volume of wholesale deals closed.

For example, our newer Pro Wholesaler VIP students make an average of $10,000+ per deal. When a student closes just one deal per month, that translates to about $120,000 in wholesale profits per year.

More experienced members make over $20,000 per deal while working the same amount of hours. At a volume of one deal per month, this translates into $240,000 per year in income!

Compared to the cash-on-cash returns of house flipping or investing in rental properties, the ROI on your time and money is astronomical with wholesaling. This is largely because wholesaling real estate requires no money out of pocket when done favorably.

Pros And Cons Of Wholesaling Real Estate

Investing is the act of buying an asset with the expectation it will generate an income or appreciate in value over time.

Inherent in real estate and all investment is the concept of investment risk

Investment risk is the degree of uncertainty regarding a potential loss. It can manifest by changes to markets, inflation, interest rates, bad decisions, etc. Successful wholesalers recognize deals where the calculated rewards sufficiently outweigh the transaction's risks.

Pros Of Real Estate Wholesaling

Real estate wholesaling, as a strategy, offers one of the fastest entrance ramps for investors, plus these benefits -

•  Minimal upfront capital requirements that require less money.
•  Unlimited earnings potential.
•  Works with owner-occupied or investment properties.
•  Reduced investment risk as the wholesale real estate strategy is short-term and less likely to be influenced by outside factors.
•  Learn the real estate business while working without a significant investment.
•  Take control of your career.
•  Develop a list of potential investors.

Cons Of Real Estate Wholesaling

•  Like real estate, most wholesale positions are commission based, so there is typically no guaranteed income.
•  Wholesaling has a bit of a learning curve; it takes time to build a reliable buyers list.
•  Wholesaling real estate has become quite popular, increasing competition for wholesale-quality real estate transactions.

How Hard Is It To Wholesale Real Estate?

Wholesaling offers great opportunities to investors in the real estate arena, especially for those who apply an entrepreneurial spirit to the market and a willingness to learn but stay in the legal lanes.

However, in terms of real estate, wholesaling's short-term timeline, minimal capital, and no requirement to renovate simplify what can often become a complicated, protracted real estate process.

If you're looking for a step-by-step process to help you start and grow your wholesaling business without spending a dollar in marketing, check out our brand-new free training and start scaling your real estate business today!

Becoming A Successful Real Estate Wholesaler (5 Tips)

The difference between a dream and a career goal is a well-thought-out plan. Consider these suggestions as you find your niche in the world of real estate wholesaling -

Work With A Real Estate Wholesale Coach Or Mentor

A mentor or wholesale coach is a great way to begin a wholesale career in real estate as they can provide valuable insight regarding the wholesale process. Select one cautiously because the most effective relationship will be built on trust.

Have A Wholesale Real Estate Website

In addition to traditional business cards, most businesses maintain a website for credibility, information for potential customers, lead generation, and a point of contact for the company.

Take A Long-Term Mindset

Successful wholesalers understand that their actions in one deal create a reputation influencing potential future wholesale business. A wholesaler, therefore, should operate with integrity and manage the expectations of relevant parties.

Exercise Transparency

A wholesaler's intentions should be transparent – those with nothing to hide, hide nothing.

DO NOT Sell Or Market Real Property

Selling real estate requires a license unless you are a disclosed principal owner. DO market and sell your equitable right to purchase real property, instead of marketing the property itself.

Is Real Estate Wholesaling Worth It?

Wholesaling offers investment opportunities to many real estate investors who may have previously been priced out of the real estate investment marketplace. In addition, real estate wholesaling requires the investor to learn how to analyze and acquire a potential property, a skill other real estate investment strategies require for success!

As a wholesaler gains experience and builds capital, they can continue to search for wholesaling opportunities or move on to other investments of interest. Especially if you plan on fixing and flipping real estate or building a rental property portfolio, real estate wholesaling is certainly worth adding to your skills as a real estate entrepreneur.

Final Thoughts

Real estate wholesaling is a viable investment strategy for beginners and seasoned investors. With a bit of guidance and tremendous online training and education opportunities with a proven process that works, those new to wholesaling can begin without risking large amounts of money.

Wholesaling can be profitable if the wholesaler understands (and avoids violating) the rules and regulations that govern real estate.