Wholesale Real Estate Investing 101: Getting Started

Eager to get started in the real estate industry but don't have piles of cash? Wholesaling offers the perfect solution: make money flipping property contracts without ever owning property. Learn how to profit in the real estate market by tapping into discounted gems.

By
Nichole Stohler
|
Last Updated
February 16, 2024
Wholesale Real Estate Investing 101: Getting Started

Wholesaling can be an ideal solution for investors seeking to make money in real estate without taking on the responsibilities of renovations or tenants. Real estate wholesaling provides a way to get into the world of investing without needing to purchase properties or become a landlord. With lower barriers to entry than other strategies, wholesaling can offer beginners the chance to profit from real estate deals without excessive risk or upfront costs.

The concept behind wholesaling is straightforward: you find discounted and distressed properties, put them under contract, and then assign those purchase contracts to end cash buyers for a wholesale fee. By leveraging your marketing and negotiation abilities, you act as a matchmaker between sellers and buyers and collect an "assignment fee" in the middle.

While it involves effort and savvy negotiation skills, this hands-on approach allows wholesalers to build practical real estate experience and generate cash flow quickly. Let's cover what you need to know to get started with real estate wholesaling.

What is real estate wholesaling?

Real estate wholesaling is a way for investors to make money in real estate without having a ton of capital upfront. A wholesaler will get a property under contract from a motivated seller for a discounted price. These are usually distressed properties that need a good amount of work, and the sellers just want to offload them quickly.

The wholesaler puts the property under contract and then flips that same contract to an end-buyer investor for a higher price. The wholesaler earns a wholesaling fee, which is usually 5-10% of the total property price. It's a win-win-win situation — the original seller is relieved to have the property sold, the wholesaler makes a quick profit, and the end buyer investor gets a quality discounted property to fix up and flip or rent out.

The great thing about wholesaling is you don't actually need to purchase the property yourself or get financing; you're just assigning your contractual right to purchase the property to the end buyer.

How does wholesaling work?

As a real estate wholesaler, you can make profits by finding discounted properties and flipping the contracts. There are five key steps involved in the wholesaling process:

1. Find a discounted property

Wholesalers need to identify motivated sellers who are willing to sell their property below market value. This requires networking with real estate agents, lenders, attorneys, and others to find leads on distressed properties. Good sources for discounted properties can include pre-foreclosures, probates, inherited properties, abandoned homes, expired listings, divorcées, and homeowners facing financial difficulties.

2. Put the property under contract

After finding a discounted property, the wholesaler negotiates the lowest possible purchase price and best contract terms with the seller. This typically involves making a cash offer with flexible closing terms and including an assignment clause to allow assigning the contract to another buyer. The wholesaler often puts down a small deposit to secure the property.

3. Find a buyer

The wholesaler markets the property to their network of cash real estate investors who buy properties to fix and flip or to use as rental properties. They market through email, bandit signs, social media, direct mail, and virtual property tours. The goal is to find a real estate investor willing to pay more than the wholesale price.

4. Assign the contract or double closing

Once you have a property under contract and have found a potential buyer, you have two main strategies to choose from to transfer the deal to the end buyer: assigning a contract or double closing.

Each method has its own set of benefits and challenges, and understanding these can help you choose the most suitable approach for your deal:

  • Assigning a contract: In this method you simply assign your rights to purchase the property to the end buyer for an assignment fee. This process is straightforward and involves less transactional costs, as there is only one closing between the seller and the end buyer.
    A drawback is that the assignment of contract is transparent to all parties involved, which means the seller and end buyer will see the amount of profit you're making from the deal. It's a quick and cost-effective method but requires clear communication and trust among all parties to ensure the deal proceeds smoothly.
  • Double closing: Double closing involves two separate transactions. First, you close the deal with the seller, where you temporarily take title of the property. Shortly afterward, you close the deal with the buyer, selling the property to them.
    This method requires more capital or the use of transactional funding and has double the closing costs, but it keeps the profit you're making from the deal private. Double closing is beneficial in situations where you need the details to be private or when the seller's contract doesn't allow you to assign the contract.

5. Close the deal

Wrapping up the deal brings everything to a close — that's when you officially seal the deal.

If you've gone the route of assigning the contract, the closing is straightforward, happening directly between the original seller and your end buyer at the agreed-upon price, and you get paid the assignment fee.

In the case of a double closing, you'll take a brief ownership of the property before passing it on to your buyer. Either way, this is where you make your profit and the buyer gets the keys.

The pros of wholesaling real estate

Now that we've covered how wholesaling works, let's dive into some of the biggest advantages for newer investors.

Make money quickly

The rapid pace of wholesaling deals provides a faster path to making money in real estate than other strategies. Wholesalers can find a discounted property, get it under contract, and assign it to a buyer in a matter of weeks or months.

The quick turnaround allows savvy wholesalers to complete multiple profitable deals quickly and start earning income. Rather than waiting months or years to profit from buy-and-hold rentals or flips, wholesaling provides a way to gain experience and build capital more quickly early on.

Learn the intricacies of real estate

Wholesaling is an excellent education in the practical aspects of real estate investing. Wholesalers gain first-hand experience with sourcing leads, evaluating properties, running comps, networking with cash buyers, negotiating with sellers, creating marketing materials, analyzing deals, and understanding contracts.

Getting this hands-on experience helps newer investors learn core real estate skills faster and builds knowledge to apply to future deals. Wholesaling serves as an invaluable training ground.

Low barriers to entry

A major advantage of wholesaling is getting started without perfect credit, financing, or large capital reserves. Wholesalers do not own properties, so there is little financial risk. Some money is required upfront for marketing, mailing lists, signs, and other startup costs, but overall, the barriers to entry are relatively low.

The cons of wholesaling real estate

While this area of real estate investments is a great initial path for beginners, there are some potential downsides to consider with wholesaling:

Income may be inconsistent initially

When first starting out, income earned from wholesaling deals can be inconsistent as you build your business. Unlike a 9 to 5 job with a fixed salary, deals can take time to find and close. Patience is required as you work to establish steady properties and buyers.

Wholesalers need determination and financial reserves to push through the early inconsistent cash flow until the business gains momentum. Expecting guaranteed income immediately is unrealistic.

Finding motivated sellers and discounted properties can be difficult

The lifeblood of a wholesaling business is accessing discounted properties with motivated sellers. This requires relentless networking, marketing, door-knocking, cold calling, and various lead-generation efforts.

Tracking down true wholesale deals willing to sell under market value requires persistence and strong negotiation skills. Lacking inventory is a roadblock to being successful.

Maintaining an updated cash buyers list is challenging

As you build a cash buyers list, contacts will change, go inactive, sell properties, or lose interest over time. Keeping this list organized, current, and robust enough to support deals requires strong systems.

If the buyer's list grows stale or inaccurate, it severely impacts success. Networking and building relationships regularly to update the contacts demands a lot of organization and administration. Maintaining an up-to-date list through continual relationship-building, though key, is an intensive, ongoing task.

Wholesaling real estate vs. flipping houses

Many often compare wholesaling real estate to house flipping. While there are some similarities, there are important differences:

  • Purchase: The main difference is ownership. Wholesalers put a property under a wholesale real estate contract through an option or double close but never take ownership. Flippers purchase the full title and ownership of the property upfront to resell later after repairs.
  • Repairs: Since they own the property, flippers invest significant time and capital into renovations and repairs to increase the home's value before reselling. Wholesalers do not take ownership or make any physical improvements or fixes to the property.
  • Timeframe: Wholesale deals can close very quickly, sometimes in weeks or months, since the wholesaler requires no rehab work. Flip projects often take 4-6 months for the investor to buy, repair, and resell the property. Wholesaling has a much faster turnaround.
  • Costs: Wholesalers have extremely low holding and operational costs, because they do not own or rehab the property. Flippers take on more substantial costs like acquisition, financing fees, taxes, repairs, utilities, and insurance.
  • Profits: Experienced flippers willing to take bigger risks may earn larger profits per deal but have more capital tied up long-term. Wholesalers have smaller profit margins but dramatically less risk.
  • Skills: Flipping requires knowledge in construction, rehabbing, interior design, and selling houses. Wholesaling involves evaluating deals, marketing, finding buyers, negotiating, and closing transactions.
  • Investment: Flipping requires substantially more upfront capital and financing. Wholesalers can start the business with very little personal investment.

Be a successful wholesale real estate investor

Many new investors enter wholesaling with stars in their eyes, hoping to make quick cash, but the reality is that only a small percentage find sustainable success. Why is that?

Turns out, there are essential skills and knowledge required to be a real estate wholesaler beyond just the basic mechanics of sourcing and flipping deals. So, if you're serious about stepping into the arena and joining the ranks of profitable pros, here are some strategies to help you.

Cultivate a strategic investor mindset

The top wholesalers train themselves to act strategically and think on their feet. They quickly spot discounted properties, analyze deals, calculate numbers, assess risks, creatively finance, negotiate terms, and provide solutions. Developing this strategic investor mindset through education, experience, and mindfulness helps you achieve success.

Leverage technology to scale your business

Utilizing technology tools and software to automate marketing outreach, analyze deals, manage contractors, organize leads and contacts, streamline paperwork, and automate operations is necessary. Platforms like CRMs, analytics programs, project management systems, email services, accounting software, virtual tour tools, and more help scale up your wholesaling efficiently.

Build a strong personal brand

Having a professional-looking website that establishes your credibility while providing free, helpful resources to attract motivated sellers and cash buyers is invaluable. Regularly creating content and optimizing with SEO will increase your site's visibility and funnel more leads over time.

Access to property information

Having quick and reliable access to recent neighborhood and property comps helps wholesalers accurately evaluate potential deals and structure competitive offers. Subscription-based real estate data services provide instant access to up-to-date sales comps.

Outsource non-core tasks

Successful wholesalers know their personal strengths and weaknesses. Strategically outsourcing duties like marketing, lead generation, contracts, accounting, analytics, and more to skilled professionals maximizes efficiency so you can focus on your core wholesaling strengths.

Create your real estate wholesaling business plan

You'll also have greater success if you develop a wholesale real estate strategy that includes the following elements:

  • Lead generation plan: Map out your lead generation strategy and marketing plan to consistently generate a pipeline of motivated seller leads. This may involve direct mail campaigns, digital ads, bandit signs, networking events, driving for dollars, mining expired listings, creating referral programs, and more.
  • Financial analysis: Develop a rock-solid understanding of how to accurately analyze potential deals, construct competitive offers, evaluate after-repair value (ARV), calculate required repairs, determine allowable discounts, assess holding costs, research comps, and determine maximum allowable offers. Master your local market's numbers.
  • Build your buyers list: Actively network and nurture an extensive list of cash buyers through hosting meetups, attending REIAs and BiggerPockets events, sending mailers, social media outreach, requesting referrals, and consistently providing high-quality deal flow. Listen closely to each buyer's criteria.
  • Operations and systems: Create efficient systems and processes to streamline your operations for evaluating deals, tracking leads, automating marketing, performing title searches, managing contracts, project management, and closing transactions smoothly. Clear systems dramatically boost productivity.
  • Leverage other wholesalers: Subscribe to established wholesalers' cash buyers lists for a monthly fee to gain instant access to their network of vetted rehabbers and investors. This can fast-track the building of your cash buyer pipeline.
  • Market online: Post deals on Craigslist, Facebook groups, LinkedIn, and your own email newsletter to attract individual investors actively searching for fix and flip or rental properties in your area. Cast a wide net.
  • Attend networking events: Regularly attend local real estate meetups, events, and seminars to connect face-to-face with rehabbers, landlords, flippers, and other cash buyers. Exchanging business cards builds relationships.
  • Capture web leads: Add lead capture and deal notification forms to your website so visitors can sign up to receive alerts on your latest discounted deals sent directly to their inbox.
  • Mine courthouse auctions: Chat with regular bidders at courthouse auctions, foreclosures, and estate sales. Network with probate attorneys and divorce attorneys. These contacts know motivated sellers.
  • Cultivate lender relationships: Get to know local hard money and private lenders, as they often have ties to cash buyers needing inventory. Request referrals to build your buyers list.

Maximize your profits in real estate wholesaling

Wholesale profits are made by buying low and selling high. Follow these tips to maximize your profits on each deal:

  • Empathize with the seller: Put yourself in the seller's shoes, understand their motivations, and craft deals that provide them with a quick, smooth transaction. This thoughtful approach builds goodwill and referrals.
  • Perform due diligence: Thoroughly vet each property and deal. Identify any issues upfront through inspections and research to accurately assess risk and repairs needed. This prevents costly surprises later.
  • Calculate profits conservatively: Use conservative assumptions when running numbers. Underestimate ARV and overestimate repairs. This guarantees you have adequate room to assign the contract profitably. Know your maximum allowable offer.
  • Maintain open communication: Communicate regularly with sellers and buyers throughout the wholesale real estate transaction to ensure it stays on track. Set proper expectations upfront and avoid misunderstandings.
  • Build strong relationships: Following up with sellers and buyers after closing helps maintain those key relationships for future deals and referrals. Provide excellent service.
  • Negotiate win-win deals: Approach negotiations with flexibility and aim for deals that satisfy both parties. This establishes a strong wholesaling reputation and repeat business.
  • Post-closing follow up: Following up with sellers and buyers after closing helps maintain those key relationships for future deals.

Real estate wholesaling

Wholesaling real estate can be a great path for new real estate investors. It provides an accessible entry point to learn the ropes without requiring huge capital reserves or extensive property management skills. By networking continuously to find discounted properties, analyzing deals meticulously, marketing creatively, and assigning contracts for a fee, savvy wholesalers can start generating profits relatively quickly.

You'll need patience and dedication, as success does not happen overnight. Building reliable deals and cultivating an extensive cash buyers list takes time. With a systematic and organized approach, you can scale up real estate wholesaling into a highly profitable full-time business.

While wholesaling certainly has its challenges and drawbacks, the flexibility, low barriers to entry, and rapid returns make it a great way to break into real estate investing and start building income. With the right vision, skills, and commitment, wholesaling can generate life-changing wealth over time.

Wholesaling in real estate FAQs

Are wholesale properties a good investment?

Wholesaling properties can be a good investment for beginners looking to enter real estate without large capital reserves or extensive experience. Wholesalers make money by finding discounted properties, putting them under contract, and assigning the contracts to buyers for a wholesale fee.

Can you become a millionaire from wholesaling?

Yes, it's possible to become a millionaire from wholesaling real estate, but it requires dedication, strategic planning, and consistent effort over time. Successful wholesalers often execute multiple deals, scale their operations, and reinvest their profits to build significant wealth.

What is the difference between a real estate wholesaler and a real estate agent?

The main difference is that real estate agents represent buyers or sellers, while wholesalers contract directly with sellers and buyers to profit from bringing them together. Agents earn commissions, while wholesalers earn an assignment fee and don't need a real estate license.

Nichole Stohler

Nichole co-founded Gateway Private Equity Group, with a history of investments in single-family and multi-family properties, and now a specialization in hotel real estate investments. She is also the creator of NicsGuide.com, a blog dedicated to real estate investing.

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