Wholesaling Real Estate For Beginners: How To Get Started In 8 StepsJan 23, 2024
In this comprehensive guide, we cover everything you need to know to learn how to start wholesaling real estate for beginners.
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Starting a career in real estate investing can be a transformative step towards achieving financial freedom, more family time, or recovering from a career setback.
Wholesaling real estate offers a gateway into this lucrative venture, providing a beginner-friendly strategy for those new to the industry. Whether you're aiming to supplement your income, reduce your hours at a 9-5 job, or find a new path after a job loss, wholesaling could be your first step toward achieving these goals.
At Real Estate Skills, we've witnessed countless students, many in situations similar to those mentioned above, take their first steps into real estate through wholesaling.
This strategy offers a unique blend of accessibility and opportunity, making it an ideal starting point for those new to the world of real estate investing. It's a path that requires minimal upfront investment compared to other real estate practices, yet offers substantial learning and earning potential.
In this beginner’s guide, we'll provide our proven step-by-step strategy on how to start wholesaling real estate. Our focus is to equip you with the knowledge and tools to confidently navigate this avenue, even if you're starting from scratch.
We understand the challenges faced by beginners in real estate, from finding the right properties to connecting with the right buyers. We aim to clarify these processes, making them approachable and actionable.
*Before we begin our beginner's guide to wholesaling real estate, we invite you to view our video on How To Wholesale Real Estate Step by Step (IN 21 DAYS OR LESS)!
Host and CEO of Real Estate Skills, Alex Martinez, provides a comprehensive, step-by-step guide for beginners to start wholesaling real estate!
What Is Wholesaling Real Estate?
Serving as an intermediary, or middleman, motivated sellers allow wholesalers the right to conduct a sales transaction with end buyers. Before closing, the wholesaler assigns the purchase contract between motivated sellers and end buyers for the rights to purchase the property.
In many ways, wholesaling real estate is like flipping houses. Both acquire property for the sole purpose of earning a profit. Still, to understand more about wholesaling real estate for beginners, there are a few nuances to consider.
Instead of buying and holding property to turn into a rental property or selling it as an investment property, wholesaling real estate is a short-term strategy that allows one to accumulate capital.
Often, no money exchanges hands between the wholesaler and seller as the wholesaler does not actually purchase the property. The professional effort of connecting seller with end buyer affords the wholesaler a portion of the sale proceeds as their profit, also known as the assignment fee.
For those who understand people, are passionate about marketing, and possess a bit of patience, wholesaling houses is a brilliant way to enter the world of real estate without the substantial risk associated with a traditional real estate investing strategy.
How To Start Wholesaling Real Estate For Beginners (8 Steps)
While wholesaling strategies can differ due to a number of factors, it’s good to keep things simple by looking at some of the common steps needed to succeed in wholesaling real estate for beginners.
Read Also: 18 Best States To Wholesale Real Estate
1. Find A Wholesaling Mentor
The first step beginners should take to start wholesaling is all about guidance and education.
Wholesaling real estate for beginners can be significantly enhanced by the guidance of a knowledgeable wholesale mentor. The journey into real estate is rich with complexities and opportunities, and while there is a wealth of information available to you at Real Estate Skills, the personalized advice and experience of a mentor are incomparable.
In the historical context of learning trades, apprenticeships and mentorship have always been key to mastering skills, and the same holds true for real estate wholesaling. A mentor in wholesaling not only fills the gaps in your knowledge but also equips you with strategies to avoid common mistakes that could lead to financial loss. They bring invaluable insights, a robust network, and practical experience to the table, transforming uncertainties and challenges into profitable opportunities.
More than anything, a mentor can provide you with the confidence to make well-informed decisions, especially in situations where intuition plays a significant role alongside analytical thinking. Remember, every seasoned expert in wholesaling started as a beginner, and many attribute their success to the mentor who guided them along the way.
As you begin to unravel how to get started in wholesaling, consider mentorship as a pivotal tool in your arsenal, turning each challenge into a stepping stone on your path to a successful real estate investing career.
2. Market Research & Legal Knowledge
As a beginner in real estate wholesaling, it's crucial to balance your excitement about income potential with a deep dive into research and legal understanding.
Here's how you can equip yourself with the necessary knowledge:
Thorough Market Research
Before diving into transactions, a comprehensive understanding of local market conditions is essential. Failing to conduct adequate research can lead to costly miscalculations. It's not just about recognizing potential revenue but also understanding the nuances of the market you're entering. You need to be well-versed in aspects like comparable property prices (comps), repair value, and potential costs that the end buyer might incur.
By accurately assessing these factors, you'll be able to estimate the after-repair-value (ARV) of properties more effectively and stay ahead of the competition.
Estimating the rehab costs is key to avoiding mistakes and ensuring deals are advantageous for all parties involved - sellers, wholesalers, and end buyers. The goal is to strike a balance in your deals - buying low enough to profit, yet ensuring the end buyer sees value and room for contingencies.
*Before we continue our guide, be sure to watch our video on the 10 BEST States To Wholesale Real Estate!
Covering the entire span of the country, we delve into what sets each of these states apart, creating a perfect environment for both wholesalers and real estate investors.
Want more real estate videos? Be sure to visit our YouTube channel, here!
Understanding Laws, Regulations, & Agreements
Wholesaling is not just about striking deals; it's about navigating the legal intricacies that govern this field. Just as a sailor needs to understand currents to navigate seas, a wholesaler must comprehend the legal frameworks that shape this domain. This means understanding that wholesaling is about acquiring the contractual rights to buy properties, not the properties themselves.
Laws and regulations in real estate vary from state to state, making it imperative to delve into the specific legalities of your area. Non-compliance risks legal issues and eroding trust within the real estate community.
Utilize resources such as the U.S. Department of Housing & Urban Development (HUD), the National Association of Realtors (NAR), and respective State Real Estate Commission websites for up-to-date information on laws and practices in wholesaling.
Additionally, consulting with a real estate attorney who specializes in wholesaling is invaluable. They can help interpret and navigate the complex legal landscape, ensuring your contracts are not only profitable but also legally sound.
3. Build Your Cash Buyers List
The next step is to build a list of cash buyers. Without a list of potential buyers, the wholesaler swims upstream. A strong list of cash buyers is the key to quickly connecting the properties you find with investors ready to purchase.
The easiest and most reliable way to find cash buyers is by building a strong relationship with a local real estate agent or broker. Beyond identifying and selling properties, they can offer invaluable insights derived from the Multiple Listing Service (MLS).
The MLS can act as a fruitful initiation point for identifying sellers with no mortgage on their listings or transactions completed with cash.
Once you've gathered this data, establish contact with these individuals to understand the kind of properties and deals they're interested in. Once you've contacted a few investors, this data should be added to a database where you can store email addresses and other contact details. Finally, inquire whether they would be interested in receiving alerts for future deals that align with their preferences.
Now, you've just created your first cash buyers list!
It's important to note that the MLS isn't the only way to find cash buyers. Here is a quick overview of other strategies we use to build and maintain this essential list:
- Email Marketing: Start with targeted email campaigns to reach potential buyers who match your property types. This approach can quickly spread the word about your deals.
- Networking: Don't underestimate the power of in-person connections. Attend industry events, exchange business cards, and openly discuss your wholesaling business. This personal approach can lead to valuable buyer contacts.
- Digital Presence: Create an engaging website as your online business hub. Make it easy for interested buyers to find and contact you.
- Traditional Marketing Tactics: Use proven methods like cold-calling and bandit signs. These old-school strategies can still effectively attract cash buyers.
- Social Media Engagement: Utilize platforms like Facebook, LinkedIn, and Instagram to find and connect with potential investors interested in real estate deals.
- Direct Mail Campaigns: Sending personalized mail to potential buyers can be an effective way to grab their attention and demonstrate your commitment to finding great deals.
By combining these strategies, you can build a robust cash buyers list, enhancing your ability to execute successful wholesaling deals swiftly.
To get ahead of the competition, view our video below on how to find cash buyers online for free!
4. Find Distressed Properties
Wholesalers typically look for distressed properties because they can be purchased under market value as the homeowner is often motivated for a quick sale.
To find these gems, consider real estate networking groups, craigslist, FSBO, HomesByOwner.com, social media, or even hiring an assistant to serve as your bird dog that will ultimately save you time, money, and many sleepless nights.
When considering how to find distressed properties, you may want to consider personal stories you’ve witnessed in your own life.
Did someone recently die?
Was there a divorce in the home?
Was there a financial emergency that left homeowners unable to complete their fixer-upper?
Did a military family suddenly need to PCS to another state or country?
Searching probate court documents and public tax records may be helpful for discovering potential properties. Realtors who specialize in investment properties can also help you find the beauty in a distressed property.
With a little brainstorming, you can find distressed properties and reach out to let the homeowner know how you may be able to help get them out of their tough spot through a cash transaction.
For an in-depth explanation, read our guide on How To Find Distressed Properties: 10 Best Strategies
5. Convince The Owner To Sell
Approaching the property owner with dignity and respect goes a long way in building trust. Remember, many distressed properties are owned by people facing a financial crisis.
Because you are not a traditional real estate agent, it’s crucial to extend professionalism, respect, and kindness to each new contact.
After a combination of direct mail, cold calling, social media, email, and door knocking, once connecting with your target market and sharing accurate contact information, your next step is to encourage distressed sellers to sign your contract.
As you meet with the property owner, highlight the benefits of working with you. Because you did your research, you know how to solve their problem by addressing the pain points of each seller.
While the seller is not likely to get the amount of money they hoped for, focus on assuring the seller that you are not there to take advantage of their unfortunate circumstances.
Answer their questions, alleviate their concerns, and remain honest in all interactions.
Disclose any issues you’ve identified that justify price discrepancies. This is a great time to stress how quick the process will be as you will bring cash buyers to the table for a quick close.
6. Find A Buyer
Remember that list of cash buyers we built? Now is the time to put it to work!
Wholesaling revolves around people skills associated with marketing. Share who you are and what you do with interested parties that you’ve added to your professional network. These aren’t typically your friends and family and are also not likely first-time homebuyers.
Instead, interested buyers in your network are likely real estate investors who are cash buyers.
As you let potential investors know you’ve found a property that aligns with their criteria, you can move forward in the process.
Even if they don’t end up being a great match for one deal, be sure to keep them in your network as you’re building your customer relationship management (CRM) database for future opportunities. This will save time and energy in future deals.
7. Negotiate A Deal With The Buyer
When drafting an offer, it's essential to create a proposal that not only suggests a fair price but also encapsulates all the crucial details of the deal.
First, calculate your offer. Consider the Maximum Allowable Offer (MAO) to ensure it matches your investment criteria. Your offer should reflect both the property's value and your investment strategy.
Show Commitment with Earnest Money: Including a small Earnest Money Deposit (EMD) with your offer can build trust, showing your serious commitment to the deal.
A hurdle beginner wholesalers usually come across is how to talk and negotiate deals with veteran investors. But with our video below, you'll be able to negotiate deals like a true professional!
Understanding The Key Components Of Wholesale Contracts
Securing a deal goes beyond just having your offer accepted; it's about cementing the agreement with a solid contract. In wholesaling, the contract is more than a simple purchase agreement. It gives you the exclusive right to buy the property but without the obligation to purchase it yourself.
A wholesale contract typically includes two main parts: the assignment contract and the purchase agreement.
Wholesale Assignment Contract: This part of the contract allows you to transfer your right to purchase the property to another buyer. It's like saying, "I've secured this deal, and now I'm passing the buying opportunity to you." This contract will include the terms of your agreement with the seller and detail your profit, which is partly paid upon signing the assignment and the rest at closing.
Wholesale Purchase Agreement: This is the core of your deal. It outlines everything from the property specifics and purchase price to financing terms and closing date. It’s crucial to include contingencies for financing and inspections, providing a safety net and ensuring that both parties have a fair exit strategy if certain conditions aren’t met.
Crafting your offer and understanding the nuances of these contracts are vital steps in the wholesaling process, ensuring that each transaction is clear, legally sound, and beneficial for all parties involved.
Learn everything you need to know about wholesale contracts, here: Wholesale Real Estate Contracts: Download FREE PDF Templates
8. Close The Deal & Get Paid
All parties come together in the office of the title company at the end of the deal for closing. At this point, the property deed will be transferred to the new property owner, the wholesale deal will be completed, and the wholesaler will receive payment for services known as the assignment fee.
Congratulations! You are now officially a real estate wholesaler.
Example Of Wholesaling Properties For Beginners
To understand the steps of wholesaling properties a little more, let’s look at an example:
Beginner wholesaler, Tyler, found a property that he estimates the ARV to be $585,000.
To make a decent profit and allow his end buyer to do the same, he needs to purchase the property at a substantially reduced price, typically below market value. This means looking for distressed properties, motivated sellers, or MLS listings that have hidden value.
When property owners find themselves in difficult financial situations, like foreclosure, they often don’t see a way to resolve their challenges. Often, they continue to stay in the home or hold onto the vacant lot while their situation continues to decline. In these situations, homeowners are more likely to be open to wholesalers and cash investors who can help them find a solution to their problems.
Tyler approached these homeowners with an offer of $400,000 and they agreed to put the house under contract.
Tyler simultaneously scoured his network of new real estate investors to assign the purchase contract to someone willing to absorb the expected budget of $80,000 needed to rehab this massive fixer-upper.
Upon solidifying the real estate contract, Tyler offers the end buyer to pay $400,000 to the homeowner at closing.
Without ever owning the house, Tyler received his $6,500 assignment fee and the end buyer was free to fix and flip to earn their expected profit of $40,000.
How Much Do Beginner Wholesalers Make?
Some wholesalers start their businesses as side hustles before they can break away from the daily grind and jump into full-time wholesaling. This can have a tremendous impact on the earning potential in the real estate industry.
Consider that the typical assignment fee falls between $5,000 - $10,000 per transaction.
If you hope to earn $100,000/year, the math simply states you will need to close 20 deals per year. Not bad for part-time work, eh?
But there’s more to learn about wholesaling real estate for beginners. Most often, your fees are likely to increase as you strengthen your negotiating, networking, and marketing skills.
Since it is not unusual to earn a $30,000-$40,000 assignment fee through one wholesale deal, with the ability to increase your time, commitment, and patience, your potential to earn is virtually limitless. Take the following examples into consideration:
According to Ryan Zomorodi, Real Estate Investor & Chief Operating Officer at Real Estate Skills:
“You can quickly wholesale a house below market value to someone who actually wants to renovate it and live in the property at about 85-95% of the market value. This alone can give you a wholesale profit margin of anywhere between 5-10% ($15,000 to $40,000) on a home priced in the range of $300k to $400k.”
Wholesaling Pros & Cons For Beginners
As a beginner investor doing your due diligence on the industry, you'll want to understand the benefits and pitfalls of wholesaling real estate.
With all the real estate investment strategies available today, you want to make sure you're choosing the right place to start your career.
Pros Of Wholesaling Real Estate
Easy To Start: As you begin to understand wholesaling real estate, you’ll learn that anyone can win with the right strategy. Unlike other business models within real estate, starting your wholesaling business is very straightforward and does not require much overhead like an office, employees, or lots of wholesaling software.
Best Way To Start Investing: By starting in wholesaling, you'll learn many of the necessary skills needed to be successful with other strategies, such as networking, deal analysis, negotiation, real estate contracts, and more. The key to success as a beginner wholesaler is having a step-by-step process to follow, an experienced mentor to shadow, and a community of like-minded professionals to hold you accountable.
No Money Required: One of the most appealing aspects of wholesaling real estate for beginners is the fact that you can wholesale real estate without any of your own money! While this concept absolutely true and indeed can skyrocket your investment returns, it does not come without challenges. You need to know what you're doing and have a solid plan in place. It's always better to have reserves or access to capital in case you need to show proof of funds to a seller or real estate broker.
Faster Closing: Compared with a fix-and-flip, or buy-and-hold strategy, a wholesaler may actually profit before a deal is closed! Typically wholesalers are paid at closing when the end buyer funds the deal. However, we teach our students methods on how to get paid regardless of the deal closing. Wholesaling is hands down the fastest way to make money in real estate.
Risk-Free: Wholesaling is considered one of the most risk-averse monetization strategies available in real estate. Since you, as a wholesaler, do not fund the purchase of the real estate, you won't have any downside exposure to the deal. Unlike renting out properties or buying and selling, wholesaling does not require you to invest in the properties that you are working on.
Cons Of Wholesaling Real Estate
Finding Profitable Properties: In the current market climate, finding properties that offer great bargains can be quite a challenge. This is largely due to a shift in the balance between demand and supply.
Requires Time & Effort: As shown in previous examples, the key to successful wholesaling lies in understanding local market conditions and having in-depth knowledge of your numbers. Excellent interpersonal skills also play a crucial role in bridging the gap between buyers and sellers. These skills can make all the difference in your wholesaling journey.
Unrealistic Expectations: Wholesaling real estate for beginners opens the door for fantasies related to expected profit margins. With flashy images of checks, Lamborghinis, and luxury lifestyles all over social media, it's easy to forget about the hard work involved to become successful in wholesaling real estate. New real estate investors who anticipate earning $100,000 or more on their first deal may need a reality check. Have a long-term outlook on your development as a real estate professional and you'll be in a better mindset to crush it.
Keys To Achieving Success As A Beginner Wholesaler
In our video below, we cover the 8 do’s and don’ts of wholesaling real estate for beginners! After helping thousands of people to wholesale & flip houses consistently, it’s become apparent that knowing what not to do is just as important as knowing what to do when it comes to wholesaling houses.
Wholesaling houses isn't a one-size-fits-all venture. It demands immense dedication, time, effort, and patience, not to mention excellent communication and marketing capabilities.
It's crucial to develop a network of investors who might be interested in purchasing the properties you discover.
Identifying the right type of property is a cornerstone of successful wholesaling. Properties in distress owned by homeowners keen to sell are ideal candidates.
Such properties are likely to draw potential investors. Before you extend an offer to the seller, it's advisable to evaluate the types of renovations or enhancements the home might require.
Here are some personal qualities that can aid someone in becoming a prosperous real estate wholesaler:
A goal-oriented mindset coupled with a commitment to realize those objectives
An ability to organize and handle tasks effectively
A knack for delegating tasks when appropriate
An acknowledgment of the importance of collaborations, for instance with those having access to potential leads like the Multiple Listing Service (MLS)
A propensity for technology, such as customer relationship management software and mobile applications, which can streamline the entire wholesale real estate workflow and make it more efficient
An understanding of the significance and potential of a professionally built website to promote your services and provide essential information to prospective sellers and investors
A passion for continuous learning from each wholesaling experience and a commitment to ensure satisfaction for both the seller and the buyer in the wholesale real estate transaction.
Wholesaling Real Estate For Beginners: FAQs
As you embark on your journey into real estate wholesaling, it's only natural to have a multitude of questions. Understanding the ins and outs of this exciting field will seem daunting at first, but Real Estate Skills has all the knowledge and proven methods for you to begin your real estate career!
Here, let’s help to clarify common queries and provide straightforward answers to frequently asked questions about wholesaling. So, whether you're unsure about where to start, the legality of wholesaling, or how to secure your first deal, you're in the right place to find the answers you need.
What Is A Wholesale Real Estate Contract?
A wholesale real estate contract is a legal agreement between a property wholesaler and a seller. As a wholesaler, you'll find a deal, secure rights like a real estate agent would, and assign this contract to an investor.
What Is A Purchase & Sale Agreement?
A purchase and sale agreement is a real estate contract that is written up and signed after a buyer and seller mutually agree on the price and terms of a real estate transaction. Depending on each state's laws and regulations, a real estate agent or a real estate attorney will prepare the PSA.
What Is An Assignment Contract?
An assignment of contract creates a clause in one contract where the seller can transact with the end buyer. This allows the wholesaler to serve as a middleman and purchase property without the risks and upfront costs. The contract should contain a clause for the wholesaler to exit the deal if they are unable to find a buyer for the property.
What Is An Assignment Fee?
The assignment fee is the fee paid by the end buyer to the real estate wholesaler. This fee is for the wholesaler’s professional service of finding a property. The wholesaler then transfers the completion of the intended purchase to the end buyer as outlined in the contractual obligation.
What Is The Difference Between Wholesaling Vs. House Flipping?
In a wholesale real estate transaction, your role is to find a great deal, typically on a distressed property. Determine the best offer that will meet the needs of the seller while acting as a middleman in connecting the seller with an ideal end buyer.
Because the wholesaler is not holding the property for repairs or renovations, the level of risk associated with wholesaling is greatly reduced. Also, wholesalers don’t have the costs traditionally associated with a flip (such as mortgage, property taxes, insurance, repairs, etc.)
Is Wholesaling Real Estate Legal?
Wholesaling real estate is perfectly legal. You can learn more about the nuances of taking part in this investment strategy regardless of where you live and plan to transact your wholesaling business.
Because the seller is typically in a difficult situation, it’s very important to make sure to avoid any language that may be misconstrued verbally and in writing.
For this reason, it’s smart to consult a real estate attorney to ensure you are acting within the rule of law and avoiding any of the missteps commonly made in this industry.
Do I Need A License To Wholesale Real Estate?
No license is required to wholesale real estate.
Because there is no standard federal regulation to require wholesalers to maintain a real estate license, it’s important to understand individual state requirements. While not required in most states, many new wholesalers consider the possibility of getting a real estate license when building their wholesaling business.
When deciding whether to pursue your real estate license, keep in mind that wholesalers aren’t selling property. Instead, they are marketing the “rights to buy a property” which amounts to the “contractual interest” in a purchase and sale agreement.
Still, some wonder if they can gain access to professional networks, contractual documents, databases, or other programs that Realtors may be able to access easier than laypersons.
At a minimum, you’ll want to build excellent relationships with real estate agents in the area(s) you plan to conduct business with. You can learn more about how to capitalize on those relationships through wholesaling coaching programs like the Pro Wholesaler VIP Program we offer here at Real Estate Skills.
How Much Money Do You Need To Start Wholesaling Real Estate?
As mentioned earlier, it’s possible to begin wholesaling without any hard money. In some cases, you can do this with no money at all.
While some plan to funnel funds into marketing strategies, others align with pros who can teach you how to make use of the MLS and other existing networks.
Most of the time, wholesalers seek cash buyers as investors. Because wholesalers aren’t spending time securing financing on the sale, you won’t have to find lenders or scrounge up funds for a down payment.
Most often, a wholesaler doesn’t bring a lot of money to the table aside from earnest money. And that can be negotiated with the seller to amount to virtually nothing.
Even if you have a larger amount of earnest money involved in the deal, as you learn the strategies of effective negotiation, you’ll decrease your risk of losing earnest money if the deal doesn’t close.
Read Also: How To Wholesale Real Estate With No Money
Final Thoughts On Wholesaling Real Estate For Beginners
Navigating the complexities of real estate wholesaling can seem daunting, especially if you're just getting started. However, as we've explored throughout this article, the process is entirely manageable and holds a great deal of potential for those willing to learn and put in the effort.
From understanding the basic concepts and contracts involved, to the concrete steps necessary to start, through to potential earnings and ways to get started without any initial capital, we've covered the full spectrum of how to start wholesaling real estate for beginners.
In the ever-evolving real estate industry, knowledge is power, and having the right tools at your disposal can set you apart from the crowd. If you're serious about kickstarting your wholesaling journey, we invite you to join our FREE wholesaling training course. This comprehensive program is designed to equip you with practical strategies, in-depth insights, and the confidence to take your first steps into the world of real estate wholesaling.
It's your time to carve out your niche in the real estate market, and we're here to guide you every step of the way!