Blog | Real Estate

Wholesale Real Estate: Everything You Need to Know

How to find, negotiate, and profit from the right wholesale real estate deals

Summary

• Wholesale real estate is a different, less risky way of investing

• Though it may seem similar, wholesale real estate is different that “fix and flip” real estate

• The process of wholesale real estate can be very quick, but requires some legwork

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“I’d love to invest in real estate, but I just don’t have the money.”

“Sure, you can make money investing in real estate, but it’s too slow and too risky.”

“I like the idea of real estate, but I don’t want to be a landlord.”

If you’ve ever thought, said, or heard words like the ones above, then this Rich Dad’s Guide on How to Wholesale Real Estate is for you. When it comes to real estate investing, there’s more than one way to skin a cat, and wholesaling allows you to put the leveraging power of a good deal to work for you to make money with little-to-nothing in a deal, no financing, and no repair work or landlord duties—all within weeks, not months. Sounds too good to be true? It’s not. Read on.

What is wholesale real estate?

Wholesale real estate involves finding a great real estate deal and then selling it to another party interested in the deal.

This means that you do the hard work of finding a great deal, get that deal under contract with the seller, and then you sell the contract to someone else that would like to have those terms with the seller.

You are not selling the property; you are the middle-person selling them your position in the contract. You are not looking to make money off the property itself, but rather on the contract by collecting a fee from another interested investor.

Wholesale real estate is different than flipping homes

Many people often confuse wholesale real estate with the popular practice of flipping a home. The reality is they are two very different business models.

The advantages of wholesaling real estate

There are many advantages to wholesaling real estate.

First, you can have little-to-no money in the deal. Usually the only money you put into a wholesale is your earnest money. Thankfully, this is completely negotiable with the seller, and it can be as little as a few hundred dollars. Almost anyone can afford that. And if you negotiate your contract correctly, which we’ll talk about later in this guide, you have almost no risk of losing that money should the deal go south.

Second, you don’t have to worry about securing financing for the deal. In a traditional real estate transaction, you have to go through the stressful and lengthy process of working with lenders to get the loan you need to close. Because you don’t actually try to close the property in wholesaling, but rather try and sell the contract to another buyer, there is no need for a loan. In fact, there’s also no need for equity, so you don’t have to try and find the money for the down payment. Again, it’s just the escrow fee you put up.

Finally, you don’t have to worry about being a landlord and doing repairs on the property or maintenance. Because you’re never technically the owner of the property, but rather the owner of a great deal in the form of a contract, you don’t have to spend any time or money doing the normal upkeep and repairs that a landlord would have to. It’s as clean as a deal can get.

FAQs on how to wholesale real estate

How do you succeed in wholesale real estate?

Ok, now that we’ve established what wholesale real estate is and why it is beneficial, let’s dig into how to be successful.

Find the property

First things first, you have to find the right property. The best properties for wholesale deals usually are distressed properties of some kind. Distressed properties can come in a few forms.

They can be abandoned houses that need a lot of repairs, perhaps owned by a bank and up for foreclosure. There are many foreclosure auctions you can attend in your city. Do a simple internet search to find them.

There’s another kind of distressed property that can net even better terms, those that have been on the market for a long time. Owners get more desperate as time goes on, paying a mortgage for a house they don’t live in. You can use this to your advantage. Use sites like Zillow or Redfin to look for deals in your area that have been on the market for many months and prepare a list for evaluating them as potential deals.

Additionally, you can go to sites like Craigslist, FSBO, or HomesByOwner.com to find properties offered up directly by sellers. You can utilize keywords like “motivated,” “must sell,” “fixer upper,” “as is,” and more to find the right kinds of deals that would work in wholesaling.

Additionally, you can try and hire someone to help you find your deals, but it’s probably best that you spend some time sourcing your own deals at the beginning. This will give you the foundational knowledge you need to properly evaluate the output of a hired hand later on.

Run the numbers

Once you establish a list of potential properties, you need to make sure to run your numbers. Remember, your aim is to sell a contract, not a property, so you want to take different costs into account to make sure your fee is solid for your work.

Costs to consider include, title fees, any fees you might put out to have a contractor do an evaluation of needed repairs (you’ll use those findings to help negotiate the deal and to entice a buyer), and the services of an appraiser. Again, you don’t always have to hire these services and pay for them. Often you can simply have the escrow fee in the deal through your title company, but if you do, it’s best to factor them in.

Based on the findings, the goal is to simply know how much you need to put up for the deal and what you think you can sell the contract for. The difference between the two is your net fee. Typically, you’ll want your fee to be $2,000 or more, depending on how great the deal is. If you’re not going to make that much on the deal, then it’s not worth doing.

Find the owner

Depending on where you find a deal, you might have to do some sleuthing to find an owner and a way to contact them. If the contact details for the owner aren’t in the listings you’re looking at, here’s a few ways to go about finding them.

Simply go to the neighbors, knock on the door, and ask if they know the owner. Oftentimes they can give you a phone number or email to connect with. Or you can go to the local county assessor website, type in the address, and find the name of the owners. This won’t give you the contact details, but it will help you know who to search for and often a simple Google search can reveal an email or phone number.

Finally, if you’re really having a hard time, you can hire a skip tracer, a person whose job is to find people, to hunt down the owner for you.

Negotiate the contract

The key to success in wholesaling is to negotiate a great deal. The better the deal the easier it is to find an investor and make a great fee.

The name of the game in wholesale real estate investing is margin. The larger the potential profit margin for your eventual buyer, the better your fee will be. So, you’ll want to negotiate an amazing price for the property with the seller with significant upside for a potential buyer. This is where it can help to hire an appraiser and contractor. By knowing the value of the home as is and the potential value relative to repair and construction costs, you can demonstrate the value opportunity to a buyer and create a lot of motivation.

Ways to entice a seller to go lower on pricing include highlighting that there will be no upfront fees because there are no realtors involved, that all closing and escrow fees will be covered, and that you’ll handle all the details of the purchase. For a distressed seller, these can be emotionally valuable triggers that will motivate them to go lower on price than they ever thought they would.

You’ll also want to mitigate your risk in the deal. This means it’s essential that you give yourself an out, or what is commonly called an escape clause.

Why do you need an escape clause? In a wholesale deal, any number of problems can arise such as the property not passing an inspection, the property does not appraise for high enough of a value, or title issues. You want to write the contract in a way that provides exit opportunities for these situations. However, you can’t get carried away with escape clauses. Use as few escape clauses as possible, but have at least one clause to get out of the deal.

Finally, give yourself the gift of time. You’ll need enough time to do inspections, appraisals, and find a buyer. Make sure the negotiated closing date gives you ample time to do these things.

Find your buyer

Once you have your contract negotiated and signed you’ll be on the clock to find the right buyer for the deal. Typically want to sell to an investor because they are always in the market for a great deal. Here’s a few ways to do that:

• “We buy houses” signs you see on the side of the road

• Real estate investing clubs in your area

• Networking at foreclosure actions

• Advertising with Craigslist, Postlets, Flyers, Newspapers, Bandit Signs and Car Magnets

If you want to be successful in wholesale real estate, the money as they say is in the list. This means you want to continually be building your database of interested real estate investors. Using all the means above and more, always look for names to add to your database so that when the time comes where you have a great deal, all you have to do is blast your list to find a buyer quickly—and maybe even start a bidding war.

When you find investors, give them a call. Your whole objective during this call is to introduce yourself and find out what they are looking for in a deal. Every investor is different. Some of them have certain areas that they like to invest in. Some of them have specific types of properties that they look for. Some of them have to have a certain amount of profit or else they will not be interested in the deal. When you take the time to find out what they are looking for before you have a contract in place, wholesaling becomes so much easier. By adding the information you find out about these investors into your database, you can segment your list based on preference and only send certain deals to those who would be most interested.

Close the deal

Once you find the right buyer for the contract, you will both drive to your title company’s office to complete the deal. It will take about 60-90 minutes, and the contract will be assigned to the buyer, the deal completed, and the title transferred to the investor.

It’s helpful to find a title company that caters to investors and understands how real estate wholesaling works. This will ensure the closing will go smoothly and every party will be put at ease and taken care of.

Drive to the bank

This is the fun part. You’ve brokered the deal and collected your fee. Now it’s off to the bank to deposit what is hopefully a sizable check.

As you can see, wholesale real estate can be a fun and exciting way to invest in real estate with very little money in the deal. All it takes is the knowledge needed to find and negotiate a great deal, tenacity to build your list and market your deals, and the courage to simply start.

Can you wholesale real estate without a real estate license?

Generally, the answer is no, you do not need to be a licensed real estate agent to wholesale real estate. As always, you should check with your legal advisor because local laws are always changing. For instance, in the state of Illinois, you need to be licensed if you do more than one wholesale real estate deal per year.

The decision to get a real estate license should be influenced by your own needs and wants as a real estate wholesaler. You should weigh the costs in time and educational expenses with the benefits. Some like the idea of having access to various databases, contracts, and community, but it’s not necessary to be successful. You should also be aware that you will need to disclose you’re a real estate agent should you have a license.

How much money can you make wholesaling real estate?

The short answer is a good amount. If you search the internet, you can find various ranges for assignment fees (the fee you make for selling the rights to a contract). These fees can vary from $2,000 to $40,000 or more. The size of the fee is dependent on the purchase price of the property, supply and demand, the market, deal dynamics, and more.

How much you ultimately make is up to you and your ability to find great deals and good buyers. The sky's the limit!