Wholesaling real estate is when a real estate wholesaler puts a distressed home under contract with the intent to assign that contract to another buyer. The wholesaler doesn’t plan on fixing up or selling the property. Instead, they market the home to potential buyers for a higher price than they have the property under contract for.
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How to Wholesale Real Estate in 7 Steps
Wholesaling real estate is a very short term investing strategy. Some people confuse it with fixing and flipping, but there are key differences. Wholesaling real estate is beneficial if you want to get into real estate but don’t have a lot of cash, but downfalls can include confusion on its legality and complicated contracts.
Here are the 7 steps of how to wholesale real estate:
1. Find a Distressed Property to Wholesale
Distressed properties are typically best for wholesaling because they can be purchased under market value. Distressed properties are those in disrepair or those with owners who are motivated to sell quickly. Finding a distressed property will enable you to sell the property for more than what you put it under contract for.
Since part of the appeal of wholesaling real estate is the low capital requirements, those new to wholesaling real estate will typically look for free or inexpensive ways to locate distressed properties. Seasoned investors will have other means to locate distressed properties, which we discuss below. Three of these sources for finding distressed properties are real estate wholesale and real estate investment groups, online real estate sites, and using the services of an assistant.
Real Estate Wholesale Groups & Real Estate Investment Groups
Real estate wholesale and real estate investment groups are organized meetings between local real estate professionals and investors. They’re a great opportunity for new wholesalers to network with real estate agents, title companies, contractors, and appraisers. You may meet lead sources, partners and even mentors.
These clubs send out weekly emails with available properties for sale. This information can help you understand what is being bought and sold, how much they’re selling for, and what neighborhoods have inventory. This insight will be valuable later on when you apply it to your own wholesaling business. The properties in the email occasionally come from real estate agents, but most are properties that distressed sellers have turned over to wholesalers to quickly sell.
You can find local real estate groups by doing a quick google search, joining a Meetup group in your city or joining a Facebook or LinkedIn group. Contact your local Chamber of Commerce and ask them if they have any upcoming real estate investor meetings. There are also online directories that list local real estate investor groups which you can reach out to directly.
Real Estate Sites for Wholesalers
Real estate sites are are a great place to find distressed properties but you need to know which ones to look at. You want to utilize sites where motivated sellers are able to post their own properties.
You can find these motivated sellers and their distressed properties by looking on craigslist, FSBO and HomesByOwner.com. When using these sites, type in the city or location you are looking for and consider using keywords in your searches, when available. Keywords will narrow down your search so you are finding the most motivated sellers, thus the best deals. Some popular keywords include:
- Motivated seller
- Distressed property
- Fixer upper
- Sold as is
- Must sell
- Estate sale
Hire a Property Finder
Another popular and affordable way to find distressed properties is by using an assistant to help you find these properties. This property finder will locate properties that you can potentially wholesale. They will identify these deals by scouring neighborhoods, knocking on doors and cold calling home owners
This assistant won’t be an hourly employee and won’t be paid upfront. Instead, they will only be paid when you purchase one of the properties that they found and it goes to settlement. The real estate industry term for this type of assistant is a bird dog. The name is derived from the dog that hunts for birds; just as the assistant hunts for property deals.
A bird dog can be found in college students looking to make part-time money, and job board advertising sites. They play an integral role in wholesaling because they will save the wholesaler so much time in finding properties. This time saved can be put into other areas of the business such as finding buyers and connecting with other investors.
“In a low inventory high demand market like New York City, wholesaling is incredibly difficult, and as a result avoided by most agents. That said, I have heard of intrepid souls venturing deep into Brooklyn and working as “bird dogs” for investors. The ones that I knew of that saw success went from door to door with a solid door knocking script. The selling point here is obvious; it’s a low-risk way of feeding around the edges of real estate investing. It can also be a good way to hone your pitching skills. That said, the odds of finding a deal are not great especially in a low inventory market like we’re in now.”
— Emile L’Eplattenier, Real Estate Sales and Marketing Analyst/Editor for Fit Small Business.
“In a low inventory high demand market like New York City, wholesaling is incredibly difficult, and as a result avoided by most agents. That said, I have heard of intrepid souls venturing deep into Brooklyn and working as “bird dogs” for investors. The ones that I knew of that saw success went from door to door with a solid Other Methods of Identifying Distressed Properties
After you have completed a few real estate wholesale deals, it is fine to try out other methods of identifying distressed properties. Three common methods include putting up bandit signs, mailing flyers and working with a real estate agent who specializes in investment properties.
These methods take time and require upfront capital. You will need to delegate several thousand dollars to get bandit signs made and put up. These signs are designed to attract home sellers who need to sell their home for whatever reason and opt to not go the traditional route of using a real estate agent.
Creating and mailing out marketing flyers, letters, and postcards are another way to encourage distressed sellers to contact you. In order for this to be an effective strategy, you need to know who to send them to. You can buy online mailing lists, or use direct mailing services which do the work for you.
Another often overlooked way to find distressed properties it by searching probate court documents for recently inherited properties. You can look at divorce court records and public tax records to identify past due homeowners too. Once you compile a recent list you can send them flyers or letters including your contact information and mention that you buy properties in any condition. It is also important to mention you pay cash.
The last resource for identifying distressed properties is the help of a real estate agent. A real estate agent can assist you in finding a property, but keep in mind, most real estate agents are not comfortable with the wholesale process. It is best to use a real estate agent who is also a wholesaler or get a referral from another real estate wholesaler or from one of the other real estate investment group members. The real estate agent’s commission will need to be factored into the purchase price of the home too.
real estate agents tend to steer clear of wholesalers because they prefer to use their own contracts, and real estate agents feel more comfortable with the standard contract they are already familiar with. real estate agents want to present a good faith deposit when making an offer on a house and since wholesalers don’t want to put up their own money, they often skip this step.
real estate agents also don’t feel comfortable with assigning contracts because the property is essentially being sold twice and the homeowner is unaware of this. In general, real estate agents feel like the wholesaling industry is scrupulous and their reputation will be tainted if they are associated with it. Real estate agents are licensed and insured and want to uphold the code of ethics they undertook.
2. Make an Offer & Convince the Owner to Sell
Once you’ve identified a property that is a good deal and it is time to convince the property owner to sell the property to you and sign your contract. This step is important because it will be how you secure properties to wholesale and make a profit.
Approach the Owner
When approaching a homeowner, it is important to go about it in a delicate way. SInce a wholesaler is not a conventional real estate professional they will need to gain the homeowner’s trust before moving forward. This can be done by being professional, courteous and on-time when meeting the homeowner.
Make an Offer & Get a Low Price
Once the homeowner has agreed to meet with you, you’ll want to discuss the benefits of selling the home to you. Most wholesalers focus on how selling to them will alleviate whatever pain points are motivating the seller in the first place. An example might be helping someone avoid defaulting on a mortgage they can no longer afford.
Wholesalers will typically also emphasize how they will handle the contract, a property inspection, the appraisal and the closing process. This won’t put any additional stress on the homeowner since these things are being taken care of. Many wholesalers will highlight the fact that the homeowner won’t have any upfront costs.
It is also important to tell the homeowner about the property repairs that need to be done in order to fix up and rent or resell the house. This is important because the money spent on repairs will justify the offer you make to the homeowner.
Signing
The homeowner will need to sign your contract. You can use the help of a local attorney or real estate agent but most wholesalers write their own contract, alter a generic real estate purchase contract, or use a wholesaling agreement template. They do this so they can add their own clauses and do not have to adhere to all of the clauses in a standard Agreement of Sale. This will be discussed more later in the article.
Most wholesalers tell the property owner that the buyer is, in fact, their partner. They do this so the owner doesn’t know that they’re assigning the contract and making a profit. Although this is legal, from what our legal experts have told us, it’s not recommended because it’s deceitful. They tell the seller about a partner, who is actually the assignor. This person is who they sell the deal to. That way they can show the site to them and tell them not to talk business according to Sherman Toppin, PA Attorney, and Real Estate Broker
3. Find a Title Company, Contractor, & Appraiser
A real estate wholesaler needs a title company, a contractor and an appraiser on their team. These professionals add a level of professionalism to your team and help your entire wholesale transaction run more smoothly. Each professional will save you time and money in the long run.
An appraiser that you work with can come out on short notice and give you an appraisal for the property you intend to wholesale. This will ensure you are paying the right price for the property and have room in the price to resell the contract and make a profit. An experienced buyer will also want to see an appraisal before purchasing the property.
A title company ensures the buyer is buying a legitimate piece of real estate. They run a title search on the property to see if there are any liens on it. The title company will be used at settlement and they will need to be investor-friendly. This means that they are comfortable dealing with assigned contracts, which we will get into in a later section. Make sure to ask them this upfront and be honest about your intentions with the property.
Finding a reliable, reasonable contractor or knowledgeable handyman goes a long way in this business. The contractor can come with you to look at the potential property and can draw up an estimate of repairs. You may not think this matters since you aren’t fixing up the property and are selling it in ‘as is’ condition but it is helpful when you find a buyer.
All three of these professionals can be found through referrals, online searches and from recommendations from a real estate wholesaling group. Another real estate wholesaler will be able to tell you who he recommends using in your area too.
4. Assess Property’s Renovation Needs
By assessing what renovations a property needs, you know the costs and ensure they fit with your plan to profit off the deal. A distressed property that needs renovations means a higher margin for the investor that you sell the property to. This higher margin will allow you to make money off the deal as well.
You can give the estimate of repairs, that your contractor drew up, to the buyer so they know what to expect. They won’t be able to make you too low an offer based on overpriced repairs because you already know what repairs need to be made and how much they will cost. Having this estimate of repairs is a valuable negotiating tool and will increase your overall profit.
Knowing what renovations the property needs and how much they cost will also give you an idea of how much the ARV of the property will be. This is particularly important to show investors so they can see the value and potential profit that your particular property will bring them.
5. Find a Buyer
You found a property to wholesale, have the necessary professionals in place and know what repairs the property needs. It is now time to find a buyer. This won’t be a first time home buyer or a family, but instead, it will be an investor or a contractor who will be buying and repairing the property.
Finding a buyer is important and needs to be done quickly since there will be a settlement date on the contract which needs to be adhered to. When you are first starting out wholesaling, you may not have a list of buyers but you can find them in a variety of ways. Some of the most cost-effective places to find buyers include:
- Advertising the property on free websites such as Craigslist and Zillow.
- Distribute flyers with the property information on it throughout the neighborhood
- Email investors that you have met at investor meetup networking events with the property info
Once buyers start calling about the property, save their name and contact info, even if they aren’t interested in this property. You can create a quick spreadsheet or use a customer relationship management(CRM) software to save all of this info and this will be your buyer’s list. Every time you have a new property to wholesale, you can send it out to your buyer list. This will decrease your advertising costs, in turn increasing your potential profit.
6. Negotiate a Deal with the Buyer
Once you have found an interested buyer, it is time to negotiate a deal with the buyer. This negotiation is critical because it will determine how much money you make off the deal. Your profit will be the difference between what you purchased the property for and what you’re wholesaling the property for.
When negotiating with the buyer, use the contractor’s estimate to your advantage. Let the buyer know that you have other buyers interested and if they want to get this great property, time is of the essence. The buyer will need to leave a good faith deposit, which can be made out to the wholesaler, or the title company and held in escrow until the property goes to settlement.
When you are negotiating with the buyer, make sure all of your costs are covered
- Appraiser fee
- Contractor walk through fee
- Title fees, if you paid them, to get a head start on the title search
- Any marketing fees including what you will owe your birddog
Ensure that after your costs are covered, you will make enough profit to make the process worth your time, effort and gas money. In general, most wholesalers aim to make at least $2000 profit off of each wholesale deal. If you aren’t making that amount, the deal isn’t worth doing. Most wholesalers calculate a flat fee but ARV is still important for the investor, as is discussed in the Numbers section later in the article.
7. Closing on the Wholesale Property
The closing, or settlement as it is also known, will take place at the title company’s office and will last about 90 minutes. All parties will come together and the deed will be transferred to the new owner. Once this is done, it will be the completion of a wholesale deal.
The closing date will be mentioned in the contract you signed with the property owner and the contract you signed with the new buyer. All closing costs will be paid by the buyer and the seller unless otherwise agreed and the new buyer will receive keys to the property.
You chose an investor-friendly title company that will conduct the closing to keep all parties satisfied. Since there were assignment clauses in both contracts, the wholesaler will generally not transfer the property into his name. This person, usually an investor, will put the property in his name, or more likely his company’s name. This is a way to avoid paying transfer taxes on two separate transactions.
The Philadelphia Department of Revenue and most Pennsylvania municipalities have been alerted to double transactions. They consider each transaction, even an assignment, a property transfer that needs to be taxed. The City of Philadelphia has been cracking down on wholesalers according to Sherman Toppin, PA Attorney, and Real Estate Broker
Who Wholesaling Properties is Right For
Wholesaling is right for people who want to get into real estate but don’t have the financial means to do so. It is also good for people with an eye for distressed properties and strong negotiation skills. Wholesaling will take a lot of time but it can reap significant rewards if done correctly.
In order to get started in the real estate wholesaling business, you need to perform some research. You will need to locate real estate investor groups where you can gain advice. You will also need to invest time in finding distressed properties and motivated sellers. Lastly, you will need to get familiar with the wholesaling contracts.
If you like to meet new people, have a passion for real estate and have strong communication skills you may consider getting into real estate wholesaling. For most people, it is their first foray into real estate. This is the case because it does not require a real estate license or any educational requirements. Compared to other real estate fields, it also requires less of an initial financial investment.
As you learn to wholesale real estate, you will begin to realize if you’re cut out for it or not. There are a lot of gray areas and it requires a large time commitment in order to find the properties and find buyers to purchase them. Once you do a few deals, you will be more familiar with the contracts, the marketing process and how to find distressed properties. Having this knowledge will give you the confidence you need to succeed in the competitive business.
Is Wholesaling Real Estate Legal?
Wholesaling real estate, in general, is legal. Wholesaling real estate involves finding a distressed property and then making an offer on it. The offer will be contingent on you selling it to another investor. Once the investor purchases the property, a wholesale deal will be complete.
There are many components to be aware of. Rules and regulations vary by state so it is helpful to turn to a local real estate investment group for advice. It is also advisable to spend a couple of hundred dollars and consult with a real estate attorney in your area since there are so many grey areas.
Controversy surrounds the assignment part of wholesaling. This is where a wholesaler gets a property under contract and sells it to another investor for an assignment fee. There are many people that think it’s illegal because it’s brokering real estate without a license. However, it’s legal in MD and DC according to Brian Pendergraft an attorney at The Pendergraft Firm. What is legal for wholesalers to do in one jurisdiction may vary from one to the next.
Wholesalers often target people in foreclosure with direct mail. The Maryland Protection for Homeowners in Foreclosure Act (PHIFA) prevents people from representing that they’re “assisting the homeowner in preventing a foreclosure if the result of the transaction is that the homeowner will no longer own the property.”
The ‘stop foreclosure’ direct mail pieces that wholesalers send out in DC and Maryland may need to be modified to be in compliance with Maryland law according to Brian Pendergraft an attorney at The Pendergraft Firm.
What You Need to Know About Wholesaling Real Estate
You need to know as much as possible about wholesaling real estate. You will need to know where to find buyers and how to calculate the numbers so you make money. You will also need to know how the assigning process works and what to include in a contract.
Where to Find Buyers
Knowing where to find buyers is important because they are the people who will be purchasing the property and making you money. These buyers will be found from real estate sites, marketing flyers, and signs and from real estate investor groups.
Most wholesalers, start out with the free sites such as Zillow and Craigslist, which we mentioned in Step 5.The next progression is going to investor groups and seminars to get guidance on where to look for buyers and to also see if any of these investors are interested in purchasing your property.
Then you will use marketing materials that list these properties for sale. They can be posted in public places that see a lot of traffic and mailed to neighborhoods that you are targeting. These materials will let the readers know what a good deal your property is and that you have many others in different areas for sale too.
Eventually, you will have completed a few wholesale real estate projects and will have a handful of buyers that you consistently work with. You will get to know them and their preferences. You can look for properties that they want to buy based on what they tell you about their neighborhood preferences, style of home and investing strategy. This is also a great way to learn more about the industry by working with seasoned investors. It is less risky than hoping for a buyer to show up too.
How to Calculate Wholesale Profit
Calculating the numbers on a wholesale real estate deal is important because it will determine how much profit you will make. The profit is the whole point of the wholesale business. To get to the profit you will also need to know some other important numbers including ARV and renovation costs.
The deal needs to make sense for the real estate wholesaler and still leave room for the investor, also known as the buyer, to make a profit too. Here’s a simple equation to use so you make at least $2000 as a wholesale fee off of each deal. The Contract + Estimated Rehab Costs + $2k Wholesale Fee should be < ARV. The buyer needs to have room to make at least 15% off the deal.
Determining how you will make money is the basis of your wholesaling business. You will make money by purchasing distressed properties at below market values. You will then sell them to investors for more than you paid. The investor will buy from you because they still have room to make a profit on the property if they choose to fix and flip the home.
Assigning a Real Estate Wholesale Contract
Assigning a real estate wholesale contract is the process of purchasing a property from a homeowner and assigning it to an investor before you actually buy the property. This is done to reduce the upfront costs that wholesalers need to put out in order to buy a property.
Wholesalers will use their own contract so they can include certain language and clauses which are to their benefit. The first clause will give the wholesaler an out if they can’t sell the property. It says that if you haven’t found a buyer or a ‘partner’ as the contract words it, you are not obligated to purchase the property. This eliminates the risk of coming up with the money for the property if you can’t find an investor.
The second clause that wholesalers include is about assigning the property. They include a clause that states that they can wholesale the property to anyone or any business and that the seller does not have to be aware of this. This allows the wholesaler to essentially sell the contract and not have to put out the money to first purchase the house.
When assigning a contract, it is recommended to be as straightforward as possible. If you aren’t a licensed attorney don’t offer the seller or the buyer legal advice about the contract. Also, stay away from representing yourself as a brokerage if you are not licensed as one. This means that you do not represent one side more than the other. Stay neutral, and consult an attorney if any questions arise.
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Bottom Line on Wholesaling Real Estate
You have read about the pros and cons of wholesaling real estate, what it entails and how to best execute the process. We hope this article helped you determine if wholesaling properties is right for you and if it is, how to get started making money.
For those considering tapping into their property’s equity, take a look at LendingTree. Its online marketplace has a large number of lenders allowing you to compare rates, offers, and find a good fit. Seeing your options takes just a few minutes.
webuy houses
Excellent, informative, all that, and a bag of chips!
She could have easily charged a fee for the info in this piece.
Good work!
Thank you.
Amanda Norman
Glad you found the post informative. Thanks for reading!
Mandy, Moderator
Joshua Porter
Great Article, thank you for all this insightful information. I am stuck on one part of this process. Before purchasing the contract form the seller of the property, should you already have a buyer in place for the property? I know time is of the essence, so not sure if you need to purchase the contract from the seller, then find a buyer? Or already have a buyer in mind? I have been researching Wholesale real estate for a few months now, and almost ready to start heavily looking into properties. Any advice would be greatly appreciated.
Thanks,
Josh
Melanie Patterson
Hi Joshua!
Thanks for your question. It would be ideal if you had buyers lined up in advance if at all possible, because it would save time and make the process faster. It also would make you a more competitive wholesaler if you had buyers looking for properties! Best wishes and let us know over in our forum how it turns out!
https://fitsmallbusiness.com/forums/ask-a-question/
Brent DeWire
This was very inspiring, got me going to find property and Titel co. also wright contract so i can get to work. “THANK YOU GREAT INFO”
Allison Bethell
Hi Brent:
I’m so glad you enjoyed the article. Congrats on your first property. Keep checking out our site for fresh content and let us know how your wholesaling business goes.
All the best,
Allison
Jeremiah
Hi Allison. My name is Jeremiah. I am new in real estate and the concept of wholesaling has caught my interest immensely. Your article here is very informative and helpful. My concern is the potential problem that can arise from telling the seller that my buyer is actually my partner. When I take the buyer to look at the property, I imagine that the likelihood of the seller realizing that my “partner” is actually another buyer would rise, creating a risky situation that could jeopardize the whole deal. This same problem could also arise at closing, when all parties are together at the title company. Do you have any tips on how to overcome this obstacle? Thank you! 🙂
Allison Bethell
Hi Jeremiah:
I’m glad you enjoyed the article. How to handle this situation really depends on the seller. Some sellers don’t care and just want to get rid of the property, but others can be resentful knowing you’re quickly turning a profit. Fell out the seller and try to get a read on their expectations and then go from there. There’s no one way to handle it since different sellers react differently. Some wholesalers are upfront with the seller and say I have a wholesaling business, you will get paid and just so you know my business also spends money finding deals, clients and on paperwork so I will get paid too. Others prefer to go with the motto less is more and don’t tell the seller anything except that they’re an investor. The buyer can be introduced as another investor or a partner, whatever you feel comfortable with and I would recommend working with a title company that has experience with double closings and working with wholesalers so they can present the paperwork and the situation in the most diplomatic way.
All the best,
Allison
Savannah King
Great article. Im still learning this business, before I reach out to anyone for my first deal, I’m still kind of stuck on the real estate agent portion of it. I understand why you need one on your team, however it seems as though some don’t like the idea of working w/ wholesalers as you mentioned above and also speaking w/ some agents Ive learned that. So my question is how do you approach an agent so that it makes sense as to why they should be on your team? Also when you’re trying to determine how much you can sell the property for you need a list of comps for that property, how do I ask a real estate agent for the comps for property I found, but not through them? Would they be willing to help me? Do I need to offer money for their assistance w/ property I find myself?
Allison Bethell
Hi Savannah:
I’m so glad you enjoyed the article. You’re absolutely right, some real estate agents don’t like the concept of wholesaling because they assume the wholesalers are conducting real estate transactions without the assistance of a professional, like an agent. Wholesaling properties often has a bad reputation but if done correctly, wholesalers and real estate agents can work together and both make money and contribute to improving neighborhoods and increasing homeownership. I would ask an agent about their background and if they’re an investor or if they work with investors. You want to work with an investor-friendly agent who knows what investors look for and the agent should be comfortable submitting low offers and negotiating on multiple properties at once. Ask other wholesalers or investors which agents they have worked well with too and see if you can get a referral. Also, see who is listing investment properties in your neighborhood and call them and feel them out on an initial phone call. I would pitch yourself as an investor and give them some information on your background, your goals and what’s in it for them. Many investors offer realtors bonuses for working on deals that may offer little or no commission from the seller. If you work with an agent and close at least 1 deal with them, in my experience they’re often fine with providing comps on another property for you. You could also offer them compensation or ask for the comps and list another property with them etc. You just need to find a realtor that you work well with. Let me know how it works out and best of luck in wholesaling!
Allison
Donna Lindsay
I really enjoyed reading this article as well as all the comments and questions. I’m a real estate agent in the Dallas-Fort worth, TX market and I just want everyone to know that not all real estate agents are nervous Nelly’s with no sense of adventure! Lol!
I’m all for property wholesaling! I think it’s a fantastic idea and win-win for all. I am considering focus in this area, in addition to my mainstream real estate sales, because it’s just differentl and sounds exciting and the quick commission turnaround.m is very appealing. I love the required research and qualifying part!
I would use an attorney to create an addendum to the contract (this is where having attorney friends comes in handy!) stating I’m not obligated to purchase if I can’t find a buyer and any other Texas laws that would need to be satisfied.
In my opinion, an up front and honest approach with the buyer would be the best, without getting into too many details of the process With him. I would focus on what I could do and how it would help and benefit him in this very stressful situation… how I could help ease his pain.
At the first meeting with the seller, I would introduce myself as a real estate agent who works closely with real estate investors and What I have to offer is a speedy transaction and cash in hand at closing.
There’s no need in getting into my commission until we review closing documents. If he asks, I openly and with confidence, discuss how I don’t work for free… “I am a real estate agent and I’m here to ease your pain. I offer a speedy closing with cash in hand at closing. Is this something that would benefit you?” If not, I’ve got plenty other prospects who are in pain.
Thanks for all the knowledge!
Donna Lindsay
RockinRealEstateDFW.com