Can someone explain wholesaling?

Question

Hey there everyone! I just recently got interested in getting into real estate, and I was advised that wholesaling would be a good route to begin on. Could someone please explain the basics of what wholesaling is? Thanks in advance!

Jeffrey Donis · Answer

@Jack Michael Ineson wholesaling is when you get a property under contract from a seller (under market value), sell the contract (or rights to buy the property) to an end buyer for a fee.

Here's a good resource:

https://www.millionacres.com/r...

Josh Caldwell · Answer

Getting a property under contract means that you and the owner have come to an agreement and you have each signed a contract expressing that agreement

@Josh Caldwell thank you for the explanation! I really appreciate it, would you.mijd explaining to me what getting a property under contract means? Would I have to spend money to do so? I am extremely new to all this so please excuse my lack of knowledge

Yoann Dorat · Answer

@Jack Michael Ineson, There is a lot of free education out there, type Wholesaling 101 on YouTube and you will get a basic understanding of this industry. I would also recommend reading "flip by Nick Ruiz" it's a good book for beginners.

But if I had to simplify the concept of wholesaling in 5 steps

1/ Network with investors and build your buyer list

2/ Advertise to distressed sellers and build rapport

3/ Lock the deal with a Purchase Agreement

4/ Assign your contract to an End-buyer

5/ Coordinate with the title company the Seller and the Buyer and get paid

You get paid the difference between what the buyer is willing to pay for and what the seller agreed to sell for.

Hope that'll help, good luck!

David M. · Answer

@Jack Michael Ineson

I think the important point to start with when explaining wholesaling is your 'selling the right to purchase' a property.  The important aspect is you, as the wholesaler, is selling the "Right to Purchase" a property, not selling the actual property.  If you are doing much of anything else you are effectively brokering the sale of real property which is regulated in the US, i.e. you need a real estate license.

As far as a real estate transaction goes, in brief:  get an offer accepted, enter and finish attorney review, now the property is "under contract" to sell, complete any due diligenence (e.g. inspections), get to closing...

Since you are selling the Right to Purchase, you need to have a contract first.  Your contract effectively gives you the Right to Purchase the subject property.  You are going to just sell that right so that there is a different buyer.  You generally need to be upfront about it because usually the sellers get upset when there is a different buyer out of nowhere.

To get a property "under contract," you need to make an offer.  Normally, you need to have Proof of Funds which means showing that you have the cash to purchase (e.g. a bank statement and/or brokerage statement OR a mortgage pre-approval).  Yes, lots of new investors think wholesaling is a way to make some money without having any money.  However, you need to consider what happens if you can't find somebody to wholesale to...  First off, when you entered into the contract you are now legally bound to purchase that property.  So, I believe technically you should have the full intent to purchase the property --- although your intent is actually not to purchase but sell off your right to purchase.  If you can't wholesale it, then legally you are supposed to close on the property.  Yes, the Earnest Money Deposit that you should be putting up front normally will be forfeit since you most likely weren't able to close.  THink about that...  While I don't wholesale, you are probably going to need to put up some sort of EMD.  If not, then you are a real smooth talker...

I hope that helps.  Search around BP.  There is plenty of discussion on this topic as it comes up frequently.  Good luck.

Jack Michael Ineson · Answer

@Josh Caldwell thank you for the explanation! I really appreciate it, would you.mijd explaining to me what getting a property under contract means? Would I have to spend money to do so? I am extremely new to all this so please excuse my lack of knowledge

Bob Okenwa · Answer

A Google or YouTube search would provide simple answers for this, but the basics of wholesaling are to get a property under contract with a seller at one price, then assigns the contract to a buyer (agrees with the buyer to purchase said property) at a higher price than that. You as a wholesaler keep the difference in the two prices as profit.

Josh Caldwell · Answer

Yes, at it's very core, wholesaling is simply the act of buying something at price A and selling at price B with the understanding that B is a bigger number. There are a ton of permutations on that theme and techniques, but that is the core.

I like to think of wholesaling as the act of getting paid for property that my marketing turned up, and I don't want.  There are a number of reasons that I might not want a perfectly good property. It might be too far away or it might be a rental when I am looking for a flip.  The point is that just because I dont want it doesnt mean that someone else wont pay more than me to get it.

You NEED to get the property under contract before you even attempt o wholesale it. I also suggest that you be 100% honest with your sellers and tell them if you wont be the one to close on the deal. A simple version of that speech is "this one isn't for me, but let me ask you a question. If I can get you your price, do you care if it is me who closes on the property?  I expect to get paid, but not by you. I will charge the buyer as much money as I can, is that fair? do we have a deal? "

At the advanced ends, you can offer funding to your buyers to make it easier for them to buy.

that should help you get started, as long as you keep learning here on BP you will be fine.

To your success

Josh