Is Wholesaling the Best Way to Get Started in Real Estate? An Investor’s Analysis

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So you have been absorbing everything you can find about real estate investing. Learning about how to fix and flip a property the right way. Trying to figure out and understand all the formulas to see if a property cash flows. Then you find out about this thing called Wholesaling.

What isn’t there to like about wholesaling? It’s a quick way to make some money, and you don’t need a lot to get started. In other words, the barrier to entry is very low. Heck… this is what initially attracted me to the wholesaling as well.

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Why I Started With Wholesaling

There was no doubt that I had a case of analysis paralysis when I got started on my quest to becoming a real estate investor. I am shy, quiet and a straight up introvert. Wholesaling is about dealing with PEOPLE — suffice it to say, I was going to have to fight a lot of mental roadblocks. It took me a long time to get over my personal hurdles.

What I figured out after doing all my “research” is that with wholesaling, I could take my time. I could overcome one fear at a time and slowly learn the business.

This is how I broke it down in my head:

  • Pick a lead source (probate, absentee, forecloser, etc.)
  • Send out direct mail (create the letter, buy supplies, figure out mail merge)
  • Talk with sellers (learn how to build rapport, figure out their motivation)
  • Figure out repair costs (learn what rehabbers and landlords are looking for)
  • Make offers (negotiating tactics)
  • Sign contracts (escape clauses, assignment verbiage, etc.)
  • Find title company (learn about investor friendly title companies, title insurance, liens)
  • Advertise my deal (marketing)
  • Find buyer(s) (relationship building, selling, negotiating)
  • Assign contract
  • Collect money

Having this road map to get to my first deal helped me focus on one aspect at a time. I wouldn’t have gotten over the dreaded analysis paralysis without this step-to-step guide. This could be another article in itself.

Related: I Used to Write Off Wholesaling: Here’s What Changed My Mind

Other Great Reasons I Figured Out Along the Way

Now that I’ve been a wholesaler for 5+ years, I can give you a few more reasons why wholesaling is a great way to get started.

You Get an Understanding of Real Estate Investing

Being a wholesaler is akin to being a jack of all trades. You will learn what it takes to find good deals, negotiate contracts, find buyers and learn how to close deals. Throughout the wholesaling process, you will come into contact with every piece of the puzzle that goes into acquiring an investment property.

You Learn Repair Costs

Think about it… your buyers are rehabbers and landlords. This requires you to learn the types of properties they are looking for and how much they will pay. A major factor in figuring out what they will pay is rehab costs.

After bringing some of these buyers through your properties, you WILL have a very good understanding of rehab costs. One of the natural roadblocks for getting into rehabbing houses has now been taken down.

You Build Relationships with Other Investors & Real Estate Professionals

There is no bigger advantage to starting out as a wholesaler than this! As a wholesaler, you need to know every investor, title company, realtor and lender out there in your target market. You can’t help but build relationships.

Wholesaling is all about who you know and how you can help each other — at least the successful wholesalers feel this way. There are plenty of deals out there for everyone to make some money.

The relationships you make while wholesaling will benefit you in all your future real estate dealings. Think about it…

  • A wholesaler you met could sell you the perfect rehab project.
  • The rehabber you sold your last property to can recommend a great contractor.
  • The landlord you help find a rental could help you find great tenants for the new rental you bought.

I could go on and on and on about the benefits, but I think you get the idea.

You Learn How to Be Creative

As a wholesaler, you’ll quickly learn that every deal will present its own unique challenges that will threaten the deal. What I eventually learned is that you’ll need to be creative to work past some of these “deal killers.”

Here are some examples of what I’ve run into…

  • Buyer backs out at the last minute.
  • Seller drags out signing the papers because he is shopping your offer.
  • One of your buyers discovers a huge repair that you missed. Now you are paying too much for the house.
  • Your title agency goes out of business 2 weeks before closing.

The issues you run into will never cease to amaze you! In the end it all comes down to: People have their own agendas and those agendas will get in your way.

Bad Reasons to Start Out Wholesaling

Now, I wouldn’t be doing you justice if I only told you about reasons why you should start your investing career as a wholesaler. It’s not the right decision for everyone. Wholesaling really is hard work, and to be honest, it’s not really “investing” if you think about it.

To me, in the truest sense of the word, the only people investing in real estate are landlords. Wholesaling and rehabbing are basically just a full time job. In any event they are lumped into the investing world, so let’s continue with that in mind.

Related: The 5 Steps To Becoming A Pro At Wholesaling!

You Dream of a Quick Payday

Let me tell you how long it took from the time I sent out my first letters (to a surefire pre-foreclosure list) to my first deal — 36 months! You read that right, 3 years! It’s a good thing I didn’t give up. Many people get deals much, much quicker, but the possibility is there that it will take a LONG TIME to see that first check.

You Want Passive Income

Simply put, look someplace else. Wholesaling is all about the hustle and the hard work. Sure, some deals put money in your bank account in only a few days. But don’t forget about all the time, sweat and money you sunk into building up your lead pipeline to get that phone call that lead to that deal.

Wholesaling is all about keeping the momentum going. Going on vacation for 2 weeks could set you back 6 months! You basically have to eat, breath and live wholesaling.

You Think You Can Wholesale With Little or No Money

Yes, it’s possible to wholesale with no money, but it’s very very hard. Trust me, I try to spend as little money as possible because my wife only remembers the money I spend, not the money I make.

Sending out 500 letters per month (which is paltry) costs me roughly $3,600 per year. Most of the high volume wholesalers send out 10 times that per month… bringing costs to $36,000 per year!?!

Even bandit signs cost a lot of money if you do it right. If it’s approximately $2.50 per sign, and you order a couple hundred signs because you have to keep putting them out, it adds up fast. Order 1,000 signs in a year, and that’s $2,500.

I don’t know about you, but to me that’s a lot of money! There really is just no way around not spending cash. The cheapest thing for me so far has been creating a website.

Is Wholesaling Right for You?

In my opinion it is a GREAT way to get into the real estate investing industry. You can take your time and get your feet wet, all without risking your family’s livelihood. If you wholesale for a couple years first, you’ll definitely have developed many of the skills you’ll need to do a rehab project or even buy your first rental.

Why Did You Start Out With Wholesaling?

Tell me why you chose wholesaling as your investing strategy. I’d love to hear your story and your reasons. At the end of the day, it truly is a great starting off point. I don’t regret my decision at all, and I’m so grateful for all the relationships that I’ve built in the past 5+ years.

What about you? How did you start out in real estate? Do you think wholesaling is a good way to learn the industry?

Leave me a comment below, and let’s discuss!

About Author

Scott Costello

Scott is a part time wholesaler of probate and absentee owner properties from New Jersey. He loves his family, creating software, operating his real estate investing blog and pretty much anything sports related. Go Knicks!

51 Comments

  1. You article makes lots of sense. However, I generally don’t work with “wholesalers” and have found more than a few that I feel are unethical to say the least. Signing a contract and giving a homeowner a false hope that their home is sold…and then walking away when you cannot assign the contract really REALLY bothers me. These are people LIVES you are playing with. I just talked to a “wholesaler” not 3 days ago that has a property under contract. He stated he doesn’t have the money to close the deal. Either he gets it assigned or walks away and leaves the homeowner with nothing but broken promises and dashed hopes. I fully understand escape clauses and there are very legitimate reasons for them such as an inspections clause. However, there are a lot of less than honorable people playing the “wholesaler” game that use an bulloney excuse to break their word. In my opinion, a “wholesaler” actually OWNS the product and then resells it. The tie up a property and then attempt to sell the contract or simply walk away people are unethical and NOT the kind of people I want to work with. Some people will play games with words all day long but in the
    end, their actions define their character…NOT some nice sounding phrase like “wholesaler”.

    • Scott Costello

      John,

      There are bad people in all walks of life. Wholesaling is definitely no different. I refuse to deal with people who just throw “Shit against the wall” and hope a deal comes out of it. That is wrong on so many levels because like you said, the sellers are depending on you to come through. I’ve only once had to even renegotiate a deal. The end result was a house being sold and I only made $350 off of it.

      In my book it has to be a Win Win for all parties involved. My reputation is the most important thing for me. I want to teach my son that you treat people like you’d want to be treated yourself. Live by that one simple rule and you will be respected.

      Thanks so much for commenting John.

  2. Pyrrha Rivers

    Scott,
    First of all I want to thank for the informative, well written and in my case timely post.
    I am looking for most effective (lucrative ways) to acquire buy and hold properties to build up my portfolio of 1.
    I purchased my first home retail, conventionally from the MLS through a realtor. I want to do better this time.
    I am now investing time trying to learn how to work with wholesalers as I have no idea of how to go about it.
    Like I have what I think is a healthy dose of skepticism and know that as JOHN THEDFORD wrote, there are unethical people calling themselves wholesalers and hurting not only owners but buyers alike because they’re only out for a quick buck.
    Here are the things I have thought about but with no experience, I just don’t know what I don’t know.
    As you wrote. “People have their own agendas and those agendas will get in your way”.
    My thoughts:
    How to vet the wholesaler?
    Many people are new, like I am and that doesn’t mean they’re not going to do their best and be good business people. But what makes for a good wholesaler? This newbie is most likely like me, just trying to figure it out.
    The experienced wholesaler?
    Probably the best one for a newbie to do business with because of being able to leverage their knowledge. However…How do I vet an experienced wholesaler? What should an experienced and good wholesaler offer a prospective buyer? What red flags should I look for?
    The slick and unethical wholesaler: How to spot him?
    The one I want to avoid like the plague.
    In every segment of business, and in fact life, there are the slick ones that ruin it for everyone else. This wholesaler will ruin the experience for a buyer as they work hard not to bring them a good deal but to scam and deceive them. This ruins it for the other wholesalers because buyers will assume the worst based on their bad experience.
    What pointers can you give those of us in my position?
    Fellow buyers…What questions do you have or advice can you offer to help improve my odds when looking for a wholesaler to add to my team?

    • Evaluate the deal. I have had lots of people contact me with “deals” that weren’t. Lots of them blowing smoke like snake oil salesmen. In a very competitive environment like where I live there are very few true deals. You have to buy right…that is my number 1 rule. In a very competitive market you have to find the deals yourself. The wholesaler I mentioned in my post above has a house advertised for sale he claims is 30K under market. I did some quick research and he is probably close. However, the houses are bringing about 240K and he is advertising one he doesn’t own for 210K. That is less than a 15% discount and not enough margin in my opinion. This business is probably like lots of other businesses where you need to verify what the seller claims. I can go on craigslist as soon as I hit post and find a dozen properties posted for sale with bogus claims. This my me .02 and I am sure some will agree and other disagree.

    • Scott Costello

      Excellent question and a valid concern!

      My first line of defense to vet someone out is to see if they follow through with what they say. Even so little as calling you back at the time they said they would. People who are unethical, usually only think of themselves and thus will think their time is more important then yours. They will blow up phone calls or appointments with no prior warning.

      I also fully agree with what John said as well. You have to know your numbers and not rely on the wholesaler to tell you its a deal. You ALWAYS go by your numbers.

      In the end many times it’s just a gut feeling to tell if the person you are dealing with is honest and a Win/Win type of person.

      An example i just thought of is a buyer that might have a problem with how much you are making on your end of the deal. Why should they care? Their numbers say they can pay you so X amount and make money. I don’t deal with this type of buyer because they are greedy and are one of those unethical people in my book.

      Hope that helps PYRRHA

  3. Omid A.

    I liked your article and agree that wholesaling for a beginner is a great strategy to start with as long as they have an adequate budget and plan for marketing. You must have a good marketing plan and be CONSISTENT with it.

    I’m curious as to what you think was the reason you didn’t get your first deal for 36 months? Why did it take so long? What kind of marketing were you doing during that period?

    Best,
    Omid

    • Scott Costello

      Hi Omid,

      A lot of the reason was overcoming some of my fears and also learning the correct way to market. I was terrified of the phone in the beginning. I actually wouldn’t call some people back.

      Also my direct mail campaigns where not really campaigns, I would send out 1 letter to 1 list. I then would stop mailing because I thought it was a waste of money. There was no consistency and I built up ZERO momentum.

      In the end it was a whole mess of reasons.

      • Adam Paxton

        good to know. Although I’m sure even spending a ton on every type of marketing may not net you very many leads that often, to know why you most likely didn’t hit that deal until the 36 month mark is an important part of knowing the bigger picture of your article.

        Good article though. I enjoyed it as I’m trying to get started in wholesaling but am still in the education phase. I wouldn’t even know what to do next if someone offered me to buy their house for a good deal.

    • Scott Costello

      Quick recap of my answer above…

      1) they follow through with what they say right from the start
      2) my gut tells me they are legit
      3) they will work with you and not try a squeeze every penny out of you
      4) watch out for someone who attempts to pull out at closing or lower his offer at the closing table.
      5) Ask around. The investing community is quite small and people get reputations very quickly.

  4. Christopher Todd Stephens

    I got started wholesaling back in August of 2014 , I must have read 50 books on how to get started in real estate wholesaling, learning as much as i can before diving into the buisness after weeks of researching and building my confidence i landed my first deal on sept 6 and closed sept 24th. I put in a ad on http://www.lsn.com a local classified ad site, “we buy homes” with in a week i got a hit from a married couple in algood tn who wanted to sell their mobile home and 2 acres of land for 15,000 assigning the deal to my end buyer for $2,000, I know i could have made more but i didnt want to get too greedy on my first deal. Now i am hook in the business and lovin every minute of it.

  5. Great to hear your story Scott! It’s interesting to hear about others and their journey into wholesaling. It could be different for everyone!

    I started out as a means to an end — to build up enough cash in order to start buying homes to buy and hold for passive income. It was definitely a roller coaster but nothing I regretted. The fun thing about it was being able to meet different people and helping them get to their goals. It’s almost as if we are in a “dealmaker” type of role.

    All in all, wholesaling is definitely not easy. But, seriously – what is? Success takes work. And, I think it’s those folks who understand this concept who stick with it and eventually find their niche.

    I enjoyed the article. Thanks for sharing! 🙂

  6. David Semer

    @Scott Costello Nice article in giving people a long term perspective on how to do the business. It is not quick and easy even as a wholesaler there is money to be spent to get the phone to ring with off market type properties. Just calling yourself a wholesaler doesn’t get people calling you. Sounds like you been very creative to get some deals done. Thanks for sharing.

  7. As a flipper, even getting one property is a tough job, let alone wholesaling and making less per property, while still doing similar work. A huge advantage to a wholesaler is that they can work a greater area at any given time, where a flipper is more limited to their immediate area/construction crew. Great article, great way to understand the business, but definitely a tough business.

  8. Heather Matthias on

    Great article, Scott. As someone new to investing and just getting started wholesaling, it’s great to hear from someone who’s been there and still likes it. Thanks for the great info!

  9. John Chapman

    Great article. I think I’m in the analysis paralysis stage now. I’ve been listening to BP podcast, reading books, forums, and blogs. One day I want to wholesale, the next I want to be a landlord, the next day I want to be a flipper. I think ultimately I’d like to get into flipping but I need enough cash first. Most of my learning has been around wholesaling and I like the way you break it down. It shows me to go step by step and take it slow. One question I have is do you or any BP people know of the wholesaling laws in Texas?

  10. Beth Martinez

    Great article, motivating for a newbie, however there seemingly is a “fire hose” of information to review so as others have said, we can actually be credible and do a good job. Taking action is the next hurdle! One can read and review forever..

  11. Jesse MacNeill

    Great post Scott! I know many people struggle with analysis paralysis at the start. I’m at that stage now too, and working through my own personal hurdles to get my business moving forward. I enjoyed your step-by-step guide of the process involved in getting a deal done. Although a landlord for close to 3 years, I’m new to REI. I’m trying to find my own niche, with the goal of acquiring more rentals. This information was helpful!

  12. Matthew Jones

    Fantastic article Scott, thank you for breaking this down you did an amazing job. I am still in the process of due diligence on choosing an investment strategy and the information you provided has helped me tremendously to that end. Thank you again.

    Cheers!

  13. Evaristo Urbaez

    Phenomenal article Scott. I appreciate the time that you invested into writing this and I, too, operate every facet of my life by the golden rule. And even though I’m a complete newbie to the Wholesaling game, I will never do a deal no matter what the payday might be unless it is a complete win/win for all parties involved. Thanks again bud and keep up the great work!

  14. I am very new but I am learning that Cash Buyers is the most important thing as far as wholesaling is concerned. What’s your opinion. Any ideas on how to find them. Thanks in advance.

  15. Robert Burke

    Great article, Scott!
    I’m relatively new to REI and have been told by many that wholesaling is the way to start if I have limited time and financial resources.
    Since I work nights in my job, I don’t have the time to rehab houses but I can certainly find them for those who do.
    My local REIA has been helpful as well.
    Now I gotta get my first property.

    • Scott Costello

      Hey Chris,

      The only way to really expedite the process is to just jump right in and start talking with sellers. To do that you need to market to them somehow though. The quickest way in my opinion is to send out direct mail. Yellow Letters have worked best for me.

  16. ron woods

    This is the kind of write up people need to read. Written by a person who has been there for 5+ years and stuck it out. I know you spoke about how the 1st 3 years you didn’t do a deal and some of the reasons why it didn’t go so well. I appreciate that. Would you mind letting us know what you currently do now, such as how many mailers you send out currently and how often you hit each list? Whats been a successful formula for you? Thanks for any feedback Scott.

  17. Tristan Cottarel

    Currently reading a book about wholesaling that advises to establish a list of buyers before finding properties. Then once you find a good deal, you don’t have any problems finding someone to buy it. In your step-by-step breakdown, you do the opposite. Could you comment on why you do it that way? Any thoughts/opinions about finding buyers before finding properties, as this book advises? How do you find your buyers? Thanks for the article, nice to see your perspective broken down like this.

    • Scott Costello

      Tristan,

      I’ve never had a problem with finding a buyer when I have a good deal. It’s the law of attraction, you have something someone else wants they will come to you. Talking to buyers before you have a deal to offer them is a waste. They don’t really take you seriously.

      When I first got started I built a buyers list. Then the list went stale because it took me so long to find my first deal. Many of the buyers I put on the list were failed investors or not buyer anymore.

      What I do recommend is figuring out how to find buyers (where to advertise me deals) before I get a deal. It’s all about networking and building relationships. I may not know a guy interested in my property, but someone I know may know someone. Nothing wrong with splitting the profits in the beginning.

      Once you sell a property to a buyer, THAT BUYER should go on your list. You know they perform, you trust them, they trust you and they are gold. You do that for your first couple of deals and you have built a perfect buyers list. You really don’t need more then a handful of buyers.

      So that is why I wouldn’t wast my time creating a buyers list before hand. It’s one of those tasks that a newbie investor does to keep them from actually investing. Instead, network and build relationships so when the time comes you have people to help you sell your property.

  18. Everlena Jackson

    @Scott Costello great article and way to hang in there 3 years is a long time and most would have given up and said this is not for me. I have decided to begin with wholesaling not because it’s easy but because I have a little bit of an advantage since I’m a Realtor I have access to comps, cash buyers list, niche list, and a ton of other professionals in the industry. I am looking forward to doing my first deal and getting the satisfaction of helping a seller solve a problem and getting the check won’t be so bad either 🙂

    Much success
    Everlena

  19. Hi Scott…really appreciate the info. Have read quite a few of the previous comments, but not all so please forgive me if I am bringing up a topic already discussed. I am somewhat new to real estate in Virginia, transitioning my sales management career. I have been fortunate to have had 4 closings in my first 5 months, but my main reason for getting into this field was to be in the investment side. I am doing my homework on wholesaling but seem to run into a wall when it comes to this end of the business. My realtor is pretty old school and really not interested and any local people don’t seem to want to share their strategies. Am going to my first REIA meeting this week. My biggest hold back at this point is just laying the foundation to get up and running. For instance, LLC?, initial marketing strategies. Any other suggestions would be greatly appreciated.

    Thanks,
    Bobby K

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