Wholesaling Land: How Does It Work—And How Can You Start?

People think you need a lot of money to start real estate investing. The fact of the matter is you don’t need a large cash reserve to start. You can actually do a number of 8%–10% return on investment (ROI) deals with very little startup capital—and you can do it easily by wholesaling land.

Doing this is an excellent way for new real estate investors to raise money for even bigger deals, namely because you can pad your resume with many deals—and with substantial return metrics to boot.

Wholesaling land allows you to gain 8%–10% ROI without taking too big a risk. Before we get into how to wholesale, let’s define it.

What is wholesaling?

Wholesaling is when someone—the wholesaler—gets into a contract to close with a property seller at a low price. The wholesaler then finds a buyer to purchase the sale agreement from them at a higher price and takes the difference as profit. This can also be called “assignment.”

Wholesaling land can be a great short-term investment when you know what you’re doing. Research and education on the wholesaling process are important to succeed in this real estate industry. Some wholesalers are skipping properties, such as single-family homes and multifamily dwellings, to wholesale land instead.

Why should you buy land?

Many big markets around the country have vacant, raw land sold by the local cities—for next to nothing. But when used correctly, the value of land can be tremendous. By working with parcels of land, real estate wholesalers can start working in the industry without paying thousands of dollars upfront.

As an example, Philadelphia has auctions where they sell off land for dirt cheap. For instance, the average price can be $5,000! Best of all? They only require 10% down. Yes, that’s $500. Then, you still have 30 days to figure out if you want to keep it or not. Think about it. Put $500 down on 10 deals, you’re in $5,000—but you’re controlling $50,000 worth of real estate with a potential resale value of $75,000.

Pros and cons of land investing

With all things, there are good and bad aspects of wholesaling land. Let’s start with the pros.

There’s little financial risk involved.
A simple landscaping change could completely transform the property and its resell price.
There is potential to gain over 10% return on your investment.

And now for the cons:

The amount of profit-per-deal is smaller than wholesaling houses.
There are fewer buyers for vacant lots compared to prospective home buyers. However, lower competition could be advantageous as you score amazing deals and use your knowledge to gain a return on your investments.

Now that we’ve defined wholesaling and gone over the good and bad, let’s explore three simple strategies for this incredible business model to prepare you to receive 10%+ ROI!

Flip it while you wait

Say there was a 1,128-square-foot lot listed for $8,999. The seller most likely bought this property for $6,000 and put down 10%, or $600. As mentioned, once he puts down his deposit, he has 30 days to decide whether he wants to buy it. This means he can flip it during those 30 days if he so chooses. This is where Craigslist and other similar sites come in.

If the flipper finds a buyer within 30 days, he sells it for a healthy profit. Let’s say, for the sake of argument, he gets $9,000 on a $6,000 investment—that’s a 50% markup. If he has no takers, the flipper can either keep the lot for himself or get his money back. No harm, no foul. It’s a risk-free game. However, this isn’t the recommended strategy.

Offer seller financing

Sometimes going to the auctions isn’t exactly super-efficient. So let’s say you buy from one of the auction flippers. She makes her money, and you still have a piece of land for $9,000. Guess what you can do with that land? You can hold onto it and start making cash flow! Many people want to get into real estate but can’t get a loan—and they can be your buyers if you offer seller financing. Seller financing is where you act as the bank.

Take this $9,000 piece of land. Mark it up to $12,000. Then sell it seller-financed, with a $500 down—no credit check, no nothing. You allow them to pay off the balance, plus interest, which will be high in percentage (8%–10%) but relatively low in dollars and cents.

Because you don’t require credit, you take the $500. That’s your collateral. And if they don’t pay? Simply “foreclose,” take the property back, and list it again. They pay on time, and you just made a 10%+ return. While 8%–10% on a $12,000 deal isn’t much, your portfolio now looks really solid with multiple deals with 10% returns.

Build a track record

Building an immediate track record of returns in wholesaling land can help people in the real estate industry approach you.

Let’s say you buy a property for $5,000. You sell it to one buyer, seller-financed at 10% over three years and no money down.

If you mark it up 25%, or $1,250, the total price for the buyer becomes $6,250.

Principal: $173/month
Interest: $52.03/month
Total: $225/month

$225 a month might not seem like a lot of money, but you can show a record of the payments you’re receiving, which can help boost your credibility as a wholesaler.

In addition, you now have these spectacular 10%, 15%, 25%+ returns included in your portfolio. Investors don’t want to see hustles and occasional big scores. They know you can’t shortcut real estate. Instead, investors want to see proven models that showcase your discipline to execute them. The good news here is that it doesn’t take that long to prove—you only need a few.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.