How does wholesaling homes work?

Question

My husband and I currently have 11 rent homes and are looking to expand. However, we came across the “wholesale” homes in the bigger pockets podcast and are VERY interested in learning more about this process. Here’s some of my questions, but please feel free to share any knowledge or experience you may have!

1) What kind of loan do you need for something like this? Is there a “wholesale” loan? The bank has to be making their money somewhere.

2) How do you guarantee a buyer before you make the purchase. Or are you purchasing the home with faith that it’ll resale?

3) What’s the process of getting started with wholesaling? What do we need to have in place in order to get started?

Barry Pekin · Answer

@Caitlin Gatte, there are a lot of resources online that explain how to wholesale.  It's far too broad of a topic for a post on a discussion board.  I'll try to answer your questions, but pay the most attention to #3.

1) The only money you need is marketing money.  You do not purchase the house.  You put it under contract and then assign the contract (your equitable interest) to a new buyer.  You negotiate a price with the seller, get it under contract, negotiate a price with the buyer, and then you make the difference.  There generally is no bank involved and you are generally working with investors who have cash or cash alternatives.

2) Technically, you don't guarantee a buyer.  If you know what you're doing, however, you know that you have the right buyers lined up who will take the property.  I'm just getting started, and I have a few buyers with lots of cash who say they'll take anything I bring them as long as it's a good deal.  And, if I can't sell it, I'm going to exercise an escape clause in the contract.

3) Look for books, podcasts, blogs, etc.  I find that WholesalersInc.com has some great podcasts on the subject.  I purchased a class from a mentor, and I couldn't have been happier with it.  It gave me the blueprint I needed, complete with contracts, how to market, etc.  To do this right, simultaneously, you will be networking with potential buyers and marketing for motivated sellers.  By the time you have seller deals ready, you will have a network of buyers.

Honestly, I could go on and on and on about this, and I'm a novice.  The key is learning the process first.  You don't have to master it perfectly, but you need to understand the basics.  What makes a motivated seller, and how do you find them?  What does a buyer want to pay for a property (generally ARV * 70% minus repairs)?  How do you close (have the right contracts and a good title company on standby)?

Also, if you're wholesaling, your very likely to find properties that you want to keep to add to your portfolio.  Technically, wholesaling is step one for rehabbers and landlords.  You're just doing the work for them.

Best of luck!