I don't understand wholesaling

7 Replies

I've read quite a bit on wholesaling but I still don't understand it. Can someone break it down for me a little bit and tel me how income is made?  Thanks

In a basic nutshell you find a property that the owner is willing to give up equity in and you market it to other investors. When you find the investor for the property you then take the difference between your asking price and the home owners asking price. 

Let's say you're a motivated seller and I'm a wholesaler.

Your house is worth 100k (after repair value or ARV), but it needs $25k in repairs, making the current value $75k.

I offer to buy the house from you for $50k. You're in a bind and you need to sell fast, so you accept my offer.

I now have your house under contract (you can't sell it to anyone else), so I have an equitable interest in the property.

I now turn around and find Buyer B who wants your house. He's willing to take my place with regards to the contract and buy your house at those exact terms (called an assignment of contract), and agrees to pay me a $2,000 assignment fee.

At closing:

  • Buyer B pays $52k
  • You get your $50k
  • I get my $2k

Thereafter, the seller and wholesaler are done. 

Buyer B will most likely pay for the $25k in repairs, so he's how into the house for the $52k he paid, plus the $25k in repairs, so a total of $77k. He then sells the house for the $100k it's worth, and makes a profit of $23k.

All of the above is an oversimplification for illustrative purposes. It ignores closing costs, commissions, and holding costs, etc., and the numbers are all made up.

Hope that helps!

Jeff Copeland, Broker in FL (#BK3326487)

Thanks guys, I did some more reading and realized at the core its simple to understand.

@DeMarrius Payne The concept of wholesaling property is fairly easy to understand and it looks like you got great answers to your questions.  Setting up a wholesale business is a bit more involved than many real estate investior entrepreneurs realize at the beginning of their investment career. 

Building a business is a wonderful way to earn your financial freedom.  A wholesale business is great for people interested in acquiring real estate as part of their investment portfolio or as a means to generate cash to acquire property. You can learn as you earn by study and application of newly acquired knowledge. I highly recommend getting a mentor or coach to speed up the process of building a business. This can definitely save time and money.  Every one makes mistakes along the way, however many can be minimized by following instructions of someone whose has travelled the road ahead of you.

Build a solid foundation and learn to work on your business versus in your business.  Working in your business is the same thing as owning a job.  It is very difficult to take vacations and time off if you own a job. Employees get time off but job owners have a different responsibility.  

Please tell us what you are doing in the investment world. The BP community is very helpful and you have chosen an excellent place to gather information.  What you do with the information is of keen interest to everyone. After all, we are a group of investors looking for deals too.

"I've read quite a bit on wholesaling but I still don't understand it."

Lots of people in that boat.

James Wise, Real Estate Agent in OH (#2015001161)

@James Wise Hi James. What specific questions do you have about wholesaling?  The concept is easy to explain but the practice is more involved. Maybe I can answer your questions. 

Victoria Winters thank you so much. I think that was the advice I was looking for. Right now my mind is jumping all over the place with everything I'm learning. So now I think the next step will be to get a mentor and channel the newly acquired knowledge into a plan.

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