How To Wholesale Real Estate: Guide for Beginners
If you’re looking to start investing in real estate, wholesaling offers a low-risk entry point with limited upfront costs. When you wholesale real estate, you connect sellers with buyers in exchange for a fee. Below, we’ll cover the steps to getting started as a real estate wholesaler.
- Wholesaling is a way to earn money from real estate without buying or selling property yourself.
- You can get started without a large, upfront investment.
- Wholesaling laws and regulations vary by state.
- A real estate license is required to wholesale in some states.
What is wholesale real estate?
Wholesaling real estate is an investment strategy that allows you to make money without having to buy or renovate a home yourself. Instead, you connect sellers with buyers, acting as a “middleman,” and receive a cut of the sale.
The process typically involves finding a distressed or off-market home, signing a purchase contract with the seller, finding a buyer and then transferring the contract to the buyer. The buyer can be anyone but is typically a real estate investor or house flipper. Since wholesaling requires minimal upfront investment, it’s often seen as a beginner-friendly strategy.
Wholesaling and house-flipping are two different investment strategies. Wholesaling involves acting as a middleman in a real estate transaction — you connect a seller with a buyer in exchange for a fee. House-flipping is more hands-on and involves buying a property, fixing it up and reselling it — hopefully for a profit.
Wholesale real estate example
Let’s say you find a homeowner who wants to sell their house for $90,000. You’ll enter into a purchase agreement with the seller, but you won’t buy the property outright. The signed contract gives you the right to buy the home, but instead of buying it yourself, you’ll turn to your network to find a buyer willing to pay more than $90,000 for the property.
Now, let’s assume you find a buyer who agrees to pay $100,000 for the home. You’ll sell the contract to them, essentially assigning the right to buy the property over to them. The home is bought for $90,000 and sold for $100,000 — the difference is your fee. You will earn $10,000 ($100,000 – $90,000) on the deal.
If you have to put down earnest money when you sign the purchase agreement, you can lose the money if you can’t successfully transfer the title to a buyer.
How to wholesale real estate
1. Research local real estate laws
Laws around wholesaling can be relatively complex and vary by state. Your state may require you to disclose that you are a wholesaler, and what your intentions are with the property. Some states may require you to have a broker’s license. It’s essential to research your local real estate laws before starting to wholesale. You can get started by seeing what information your state’s realtors association has publicly available about wholesaling.
2. Find a seller
Home sellers generally want to get as much money as possible for their homes, even if that means the sale will take some extra time. However, as a wholesaler, you want to target a slightly different demographic: sellers who are motivated to sell their homes quickly and with as little hassle as possible, even if it means lowering the price. This discounted price gives you the room to set a higher price when you approach buyers later.
Here are some ways to find motivated sellers:
- Search for homes that have been on the market for a long time or have been taken off the market.
- Look for homes that are vacant or neglected.
- Search public records to find homeowners who are in default and facing foreclosure or have liens or judgments against their homes.
- Use advertising methods like direct mail, TV and radio spots or Facebook ads to find homeowners who want to sell a home quickly.
3. Negotiate a contract with the seller
When you and the seller come to an agreement, both parties will sign a purchase agreement — a contract that gives you the right to purchase the property at the agreed-upon price. A typical wholesale real estate contract permits you to assign the contract to a third-party buyer.
4. Find a buyer
Once you have a contract with a seller, you can now find a buyer to take over the contract. Many successful wholesalers have a list of potential buyers ready to go before they sign a contract with a seller.
You can build a contact list of potential buyers through sources like:
- Attending local real estate meetups
- Visiting online forums
- Asking title companies about investors
- Calling landlords in your area who are advertising rentals
- Visiting property auctions to meet investors
5. Transfer the contract to the buyer
Once you find an interested buyer, it’s time to close the deal. This involves transferring the contract you signed with the seller to the buyer. Once the sale finalizes, you should receive your fee.
Pros and cons of wholesale real estate
Pros
- You can get started with fairly little upfront capital
- You can potentially earn thousands of dollars per deal
- You can find properties and close deals virtually
Cons
- It can be challenging to build a network of buyers and sellers
- The income you earn can be inconsistent
- It can take time to learn local real estate laws
Is wholesale real estate worth it?
Wholesaling can be worth it if you’re looking for a relatively easy entry into real estate investing. However, just because it’s easy to start, doesn’t mean it’s easy to succeed. Becoming a successful wholesaler involves investing time and effort into understanding local real estate regulations, building a network of motivated sellers and buyers and developing strong negotiation skills.
Frequently asked questions
Wholesaling real estate is a legitimate investment strategy. However, it’s important to watch out for scams and be sure to understand the fine print of any contract you sign.
It depends on the laws in your state. It’s crucial to research local regulations before wholesaling, especially since states have passed new legislation around wholesaling in the last few years. If the rules are unclear, speaking with a real estate attorney in your area might be helpful.
Virtual wholesaling involves connecting sellers and buyers and closing deals without seeing the property in person. The main benefit of this strategy is scalability — you can hunt for deals everywhere, not just where you live.
You can start wholesaling real estate with little to no money down. However, to set yourself up for the best chance of success, you may need to invest some money into marketing, advertising and legal consultation fees. Additionally, you may be asked to pay earnest money when you sign the contract with the seller. If you can’t find a buyer, you might lose the earnest money in some cases, depending on the contract.
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