A Complete Guide to Real Estate Wholesaling

By: ROS Team September 21, 2021

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One of the most profitable ways to get into real estate investing is by way of wholesale real estate. Real estate wholesaling minimizes the level of risk involved while allowing buyers an opportunity to excel in wholesale real estate work while building a solid understanding of the process. Here is a complete guide to real estate wholesaling that will help you determine whether or not becoming a wholesale real estate investor is your cup of tea.

What is Real Estate Wholesaling?

Real estate wholesaling is a real estate development and investment strategy. It involves:

  • Buying a distressed or undervalued property that requires significant improvements and renovations before it can be listed on the real estate market;
  • Negotiating a contract with the seller by offering cash to close a real estate purchase quickly; and
  • Finding a new buyer for the newly renovated Buyers are usually also real estate investors who are looking for properties that they can flip. Flipping is the process of renovating a distressed property and reselling it for profit.

 

When you find a buyer, you will likely sell the property at a wholesale price, which has to be less than the market value. These properties are not generally listed publicly, allowing buyers to purchase these properties without much competition from other buyers.

The ideal wholesale property is the one that you buy at a price well below market value. The price should be low enough that you will have made a reasonable profit after the cost of renovating it. After all, is said and done, it should also still be attractive enough that a buyer will want to buy and flip it to go back on the market for a higher price.

How to Wholesale Real Estate

You will need to research to locate suitable properties that don’t require a lot of capital upfront. However, it may still require a small investment to attract the right type of buyers. It takes time to create a successful network of potential buyers who are interested in buying property wholesale. You’ll also need to follow these essential steps:

1. Search for Off Market Properties

You will need to search for properties that are not included in the public MLS database. Off Market Properties may Consist of:

  • Abandoned properties;
  • Distressed or dilapidated houses;
  • Properties of the recently deceased; and
  • Pre-foreclosures.

off market properties

Since they aren’t listed in the MLS, finding an off-market property generally takes research and networking.

2. Negotiate a Sale Price

Once you find an available property, you’ll need to negotiate a purchase price from the seller. This is where you will need good negotiation skills. Do some homework and prepare a compelling argument for offering you a low sale price.

negotiate a sale

It’s worth reiterating that you should keep the purchase price low enough that you earn some profit after accounting for all expenses.

3. Sign an Agreement

Once you make an offer and the seller accepts, you should immediately put the property under contract. Time is most critical in wholesale deals, so move quickly so that you have the exclusive right to purchase the property. One way to do this is to follow a verbal deal up with a formal, written agreement within 24 hours.

4. List the Property

Now that you’re under contract,  you’ll need to find a buyer. For that purpose, you can take several steps, such as:

  • Create a list of potential investors;
  • Network with investors;
  • Circulate the property listing among other wholesalers or real estate agents; and
  • Advertise and market the property to real estate investors.

You can choose any one of these strategies or use a combination of all of them. Your primary goal is to find a buyer who is ready and willing to purchase your property.

5. Set a Sale Price

Once you have a potential buyer, you will need to set a price that’s attractive and that they’ll agree to pay. One common mistake wholesale real estate investors make is greed and set their desired sale price too high. As a result, they struggle to find a buyer who would want to buy the property at that price. Set a reasonable price on the onset so you can attract prospective buyers.

6. Sell the Property

This is the last step — the one in which you’ll sell the property. Ideally, you’ll pocket anywhere from $5,000 to $10,000 in profit from the deal.

Pros of Wholesaling Real Estate

  • Insight into the Real Estate Market

Dealing with a wholesale real estate investor will give you much insight into the real estate market. You will learn to find leads, do your due diligence on the property, create a network of potential sellers and buyers. You’ll also learn how to build relationships with real estate brokerage firms.

  • Major Capital Isn’t Required

Wholesaling can push you to become more creative with how you budget and spend available funds. Even if you don’t have a lot of cash or the best credit, you can still score major deals just by having discipline, guidance, and putting in a little extra effort.

  • Earning Potential

Once you build a network of potential buyers, you can earn big money in a short time as you will be the go-to for property sales.

Cons of  Wholesaling Real Estate

  • Lack of Buyers

You need buyers who can purchase the property that you have under contract. The issue is that the contract is usually time-bound; you only have exclusive purchase rights for so many days before the property opens up to others. Failure to find a buyer during the contract term can mean you lose the property. You might also incur a financial loss due to penalties.

  • Unpredictable Income

Real estate wholesaling is not a 9-to-5 salaried job. On the contrary, real estate wholesaling may mean there will be times when you have no income coming in one month but will see a windfall in another.

  • Stigma from Bad People

There is a negative stigma attached to wholesaling. What happens is that some people enter into a business without first getting to know it, or they look for shortcuts to make money and end up doing unethical things that discredit all the genuine people doing wholesaling. For example, they advertise that they have a property for sale instead of advertising that they are selling their interest. It makes a difference between an illegal transaction and a legal business deal which brings a bad name to the whole community.

Some Important Things to Know About Wholesaling

  • The perception that you don’t need money to become a wholesaler is false. There are certain marketing materials and programs that you will need to start finding potential sellers and other leads. Once you can do that, you can get to know the owner’s contact information after paying for their services. You will also need to spend some money on a mentor to help guide you through your first deal. While you may get your first wholesale deal with no money at all but the truth is it is highly unlikely.
  • Another wrong perception about wholesaling is that you must be a real estate agent, or you must have a real estate license to wholesale houses. Well, the good news is that it’s not true. There is no legal requirement for you to have any kind of license to start wholesaling distressed property. You need a buyer looking for an investment property, an assignment contract, a motivated seller, a motivated seller that can close the deal professionally.


Note: It is illegal to wholesale in Virginia, Oklahoma, and Illinois.

  • It is a wrong perception that wholesalers only mean business, and they take advantage of all people. While you cannot rule out its possibility because there are bad people in all industries, it is also true that there are many cases where a wholesaler is helping a family avoid lousy credit and foreclosure by opening up a way out of a bad situation for a seller as well as an opportunity to have a couple of thousand dollars to move to a new house.

Conclusion

As a real estate wholesaler, a purchase agreement or a contract is the most essential thing to have. This is what can bring you a profit if you can strike a deal in time. Explore letting a real estate attorney draft a purchase agreement when you find a property.  The agreement will give you exclusive rights over the property’s purchase, so no one else can purchase the home directly from the seller.