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Wholesaling Real Estate Basics

by Joshua Dorkin on November 25, 2006 · 30 comments

  

Wholesaling real estate provides an opportunity for someone to build income with little capital or credit. All it requires is ambition and some specialized knowledge. The more ambition you have, the more money you will make. Wholesaling does not require a real estate license. A license is not required to buy or sell any property that you have an equitable interest in. That interest can be a contractual interest (you have the property under contract) or you actually own or have title to the property.

What is Wholesaling?

A wholesaler in a nut shell puts property (normally distressed property) under contract and assigns or resells the property to another investor. The investors a wholesaler sells to either use cash, lines of credit, or hard money loans. This allows quick closings on properties that sometimes need extensive repairs.

A wholesaler lives off of the idea that price overcomes all objections. If you can sell a property for a low enough price it doesn’t matter what’s wrong with it, somebody will buy it. A wholesaler focuses on developing two things. Finding deals and their network of investors to sell to.

Getting Started Wholesaling Real Estate

Getting started, a wholesaler should normally not ever buy a property. You put properties under contract with a contingency and focus on quickly selling the property for more money to other investors. If you end up not being able to sell the property before you are expected to close then you utilize your contingency and walk from the contract.

A wholesaler is a middle man, and a good wholesaler becomes a very well payed middleman that other investors love. The thing is that if you have a good enough deal under contract, there are other more established investors out there that will be glad to pay cash for it in a matter of days. If you have a house that will sell fixed up for $100,000, it needs $10,000 in remodeling, and you have a contract on it for $55,000, then with a developed investor network you could have an investor buyer for it for $60,000 in a matter of days. You sell it or assign the contract for 60K, you bought it for 55K so you just made $5,000 in a matter of days.

Wholesaling Resources:
Real Estate Wholesaling Forum
Buyer’s List How-To
Wholesaling Houses: Three Easy Steps to Determining Your Offer Amount
What Is Wholesaling Real Estate and How to Do It

Thanks to Ryan Webber for his insight! Photo: Danilo Rizzuti

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{ 27 comments… read them below or add one }

jf.sellsius November 27, 2006 at 6:49 pm

An excellent strategy. Just make sure the contract is freely assignable. Many contracts are not assignable without the consent of the seller –in nY at least.

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Virginia Beach Realtor December 7, 2006 at 8:34 pm

This is an excellent strategy, however most contracts used in Southeastern Virginia have clauses that restrict assignable contracts. Although, anything can be re-worded and agreed to by all parties (usually for a price), just make sure to watch your back as js.sellsius has illustrated.

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Jeff trower January 12, 2007 at 11:34 am

I love this strategy for getting started, I this is how I got started and I am writing extensively about this subject. Like the two previous commentors have said, always have an attorney review your contract or use a double-escrow closing.

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Scott Costello June 17, 2009 at 5:55 pm

Wholesaling is one of the best strategies to have in your toolbox. You won’t be able to handle every deal if you are say a rehabber, so being able to wholesale the property to another investor will allow you to make money on more properties. Good article!

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Jim Pitchford February 1, 2010 at 10:43 am

I have really decided to get involved in real estate wholesaling. I have experience in real estate retailing and flipping, and have invested in real estate and renovated. But, I really only flipped one house. I still own the ones I purchased. I want desparately now to wholesale, because of the need of cash and I have no job. I believe I know how to do it, but tell me if you were a beginner, doing your first house, where would you start?

1. Find a house to lock-up and contract?
2. Find a buyer and market? How would you maket?
3. No financing necessary if you lock-up a lease with option or assignment?

The 3-steps above are they essentially where you would start?

Thanks Jim Pitchford

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James Mehoffer February 12, 2010 at 6:12 pm

This idea has helped me make several hundreds of dollars in only a couple years.

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michael May 21, 2010 at 6:17 am

do I have to have money to get started in whole saling so what you are basicly saying is find and investor and make a deal with him and then turn around and sale to another investor and yu get whatever profit marjin you had in the deal.

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Anonymous June 14, 2010 at 3:48 pm

Thanks for the great info.

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Iman Yusef-Yahya January 18, 2011 at 9:31 am

Hey Jish,

Thanks for the post! This is a very clear and concise article on wholesaling real estate.

Iman

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Joshua Dorkin January 18, 2011 at 10:56 am

Sure thing Iman. We had someone asking about the basics of wholesaling this morning and I thought that sharing this one again would be beneficial to a lot of people.

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Iman Yusef-Yahya January 21, 2011 at 6:38 am

Straight, and to the point Josh – always:)

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Daniel Wiafe July 12, 2011 at 9:45 pm

I’m just getting into wholesaling… and am studying up a bit on it before I leap into it. The whole concept of it seems very simple & basic… with a lot of potential for huge money.

I know a good contract will have the contigencies in it that allows you to back out in case the deal sucks… but what are some of the risks of wholesaling?

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Jaxnlucy June 23, 2012 at 2:25 pm

I as well am just getting into wholesaling and am studing up on it. I have no experiance and which Someone could help and guyde me. I know the Realestate boom is comming back soon and strong. I am excited however if anyone know of a company whos willing teach please please help ;)

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Joshua Dorkin June 23, 2012 at 3:53 pm

Have you done a search on this, the BiggerPockets Blog, for wholesaling articles? We’ve got dozens of articles on the site covering the topic, and have over 20,000 posts on our wholesaling discussion forums for you to learn from. Start digging around and you’ll find the answers and potential partners you to help you become successful, right here on BiggerPockets.

Good luck to you!

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Jaxnlucy June 26, 2012 at 8:51 pm

Thanks Joshua Will Do. Ill Keep you posted :)

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Arthur Zaragoza September 23, 2012 at 8:58 am

It is a great strategy for a quick profit. However, to create long term wealth, I recommend the ‘buy and hold’ strategy for cash-flow and equity growth.

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clint October 27, 2012 at 12:44 am

wholesaling is basically a middle-man job with room for much profit. if you do it correctly. and you dont need your own money to start. find investors. show them your business model. and let the logic do the talking. say i have ted. and ted wants to sell a rehab home for 100,000 dollars. whether hes upside down in his payments or hes like a lot of people and bought a property without the knowledge of how the process works. so ted has the property for 100,000. wants to sell it. i ask him a series of questions like “how much work needs to be done” and “when is the last time this room has been updated?” etc. from that and having knowledge of construction and the price of labor and material i can find out repair costs. it also helps to have a friend in construction that can estimate these costs for you. okay so say ted has it for 100,000. the repairs will cost around 10,000. so the total cost will be 110,000 dollars. then after you get this figure, you do the comps. where do you find comps? the MLS. it helps to have a friend who is a licensed agent to help you with this. running comps takes no longer than 30 minutes. so say the comps come back and that neighborhood looks to be around 150,000 for an average home with the appropriate updates. so what you do next is you go to your investor and you say hey ive got this great rehab home for sale for 110,000. you show him the ARV(after repaired value) of 150,000 and show him that he can make 30,000 from this deal. he buys it from you for 110,000 he puts 10,000 into it for a total of 120,000 and then sells it for 30,000 profit. and you, in turn have made 10,000 in a matter of what? a week? 2 days? ive seen as little as 5,400 dollars in 45 minutes. its all how you strategize and use your knowledge.

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James Tankersley Jr January 12, 2013 at 8:42 am

Excellent information, thanks for being smarter than me which is a good thing.

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Fred January 28, 2013 at 3:56 pm

Wholesaling is an excellent way to make money in real estate.. Even if the contracts are not assignable, there are ways to legally circumvent this.

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george May 12, 2013 at 10:15 am

Fred,

How do you wholesale nonassignable contracts?

George

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Mike October 6, 2013 at 3:49 pm

Great info…Didn’t believe it until I actually started making money!

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Keith January 29, 2014 at 7:38 am

I am a licensed realtor, rehabber, and licensed contractor here in Maryland. The market is great for investing here. One of the issues that wholesalers are having here is that they are trying to make to much profit off their deals. Even though the end buyer (a rehabber paying cash) has the numbers to make a decent profit, when he discovers that the wholesaler is going to make close to or more than him on the deal, they back out sometime. In most cases $2,000-$8,000 is a good margin on a deal. It depends on how good of oa deal. Could be more. In this case , the property was under contract for $92,000. Offered to rehabber for $115,000. Needed $25,000 in renovations. ARV was $195,000. Wholesaler $23,000. Rehabber $20,000-$25,000. To much.

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Renee March 10, 2014 at 1:59 pm

Thanks for this info. I’m new to investing and want to wholesale. This will help me take the first step. I also enjoy reading the comments….they are just as informative as the article.

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Earl June 8, 2014 at 4:35 pm

I have heard a lot about wholesaling. How do you find sample contingency contracts. I have spoken with a lawyer that deals with real estate but he says I need to have a real estate license. What paperwork is necessary to make this transaction happen.

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H June 17, 2014 at 11:56 am

Earl,

Each state has their own laws. I recommend you go to your local REIA meeting, if you don’t have time for that go on craigslist and find a wholesaler, they should be able to point you in the right direction.
H

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Chris June 25, 2014 at 1:52 am

What’s to keep an investor from waiting until your contingency contract is up and purchasing the house for the same price you had it at? Or for that matter why don’t investors find the houses themselves?

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Lucas Peczek August 5, 2014 at 8:20 pm

This is a great intro article to wholesaling, and I’ve enjoyed reading some of the comments. I wanted to reply to yours Chris seeing as it’s been left unanswered.

An investor can absolutely take the chance and wait till the contract you have is up. The risks are that the deal is snapped up by another investor at the last second before it’s up. Or the house seller gets another offer from another investor before you can get yours in, I mean, how do you know when the wholesalers contract is up or how long its been extended? Or maybe the wholesaler just decided to do the rehab themselves.

All these are possibilities and in the time I’ve been investing in Phoenix, I’ve seen each of these scenarios play out. My partners and I have lost count to the amount of times new or starting out investors miss out on deals because they think they could do it better themselves, or do a backdoor deal with the seller, only to have the experienced investors snap it up from under them. All they have left are the average deals that make a minimal profit.

It’s not that new or novice investors can’t find the deals themselves, but sometimes it takes time, money and experience. Three things that most new investors don’t have. For example, we spend many thousands of dollars every month on different advertising to target those looking to sell their homes BEFORE they hit the MLS, just as many other serious investors do. Our wholesale fee of $3k-$5k offsets some of these costs and if we have a good month with great response, we get several deals for our pool of investors which nets us a nice profit.

The profitable deals have the happy investors coming back which gives us an ample supply of buyers waiting for the next deal.

That’s just my experience and I agree with Keith a few posts up. Most wholesalers get greedy and buffer in way too much of a fee, making their deals average and in the end, not very profitable for the investor. It’s a business plan that’s set up to fail.

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