The 3 Ways to Wholesale Real Estate (& Why I Prefer One Over the Others)

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When you hear the term “real estate wholesaling,” what automatically comes to mind?

Yep. You’ve guessed it — assigning contracts.

Assigning contracts is the most popular method in real estate wholesaling, and some even think it’s the only form of wholesaling. But did you know that’s only one of the many real estate wholesaling strategies out there?

Today, I wanted to take the opportunity in this post to dive into all that real estate wholesaling is and what different types are available. So let’s jump into it!

What is Real Estate Wholesaling?

Wholesalers are essentially “match-makers” in real estate. They are the middleman between a motivated seller and an investor-buyer.

Here’s how it works.

Wholesalers find a cheap property and sell it to real estate investors at a steep discount.  

The most important aspect in this is finding an “off-market” property, which is a property not listed on the MLS. Then once you’ve found a property, you sell it at a discount to an investor, leaving enough margin for the investor to make a nice return.

So, guys, your ultimate job is to serve others!

You serve motivated sellers by helping them sell their property during a catastrophic event that has taken place in their life, and you serve investor-buyers by feeding them off-market deals.  

It’s that simple!

Now let’s discuss the different types of real estate wholesaling methods out there.

honest-wholesale

Related: How I Made $5,000 on My First Wholesaling Deal — & Why You Should Consider This Strategy

The 3 Ways to Wholesale Real Estate

Assignments

There’s a reason why assigning contracts are the first thing that comes to mind when you think of real estate wholesaling. It’s the most common practice, it’s the easiest way to break into wholesaling, and it doesn’t cost you a penny!

This method is quite simple — you get the property under contract with the motivated seller and then sell “rights” of the contract to an investor.

Take a look at this scenario:

You find a motivated seller who’s desperate and willing to sell their home for $20,000. After analyzing the deal and running the comps in the area, you determine the property will need $20,000 in rehab costs and has the potential to sell for $90,000 at retail price, leaving the investor with a $50,000 profit margin.

So, you draft a purchase agreement with the seller for $20,000, once you find a buyer, you offer the buyer rights to your contract for a fee of $5,000.

In return, you pocket the $5,000 earned from the contract fee and that’s it!

Sounds pretty simple, doesn’t it?

Now, although this method sounds easy, affordable, and simple, I personally dislike using this method for these reasons:

1. You’re on thin ice legally!

There’s been a lot of debate on whether assigning contracts is illegal or not. The debate stems from the fact that you are marketing a property you don’t technically own, and you’re acting like a real estate agent by overseeing a transaction between the seller and the investor, which could potentially lead you into some legal trouble.

2. There’s too much room for dishonesty.

Guys, let’s be honest — when assigning contracts, some wholesalers are not fully honest about who’s really purchasing the property. If you enter into a purchase agreement under the impression that you’re buying the property but the contract is actually for someone else to purchase it, that sounds a bit dishonest to me.

I would highly recommend seeking legal advice to ensure you’re going about assigning contracts the right way.

Double Closings

The double close method is used when you purchase a property and then sell it to an investor immediately — within minutes!

So at closing, you first sign the documents with the motivated seller, and then a few minutes later, you meet with the buyer and then sign the closing documents with them.

In terms of funding, you can use your own funds to first buy the property, or you could use a transactional lender who provides a one-day-only loan, just to cover the purchase. Another way is to have the end buyer pay for the closing with the motivated seller, as well as include an extra “fee” for you.

The success of double closing ultimately depends on timing! The biggest risk using this method is that you have no control of the transaction.

So if either the motivated seller or the buyer pulls a no show, then things could get hectic and your reputation could suffer.

first-down-payment

Related: How to Stand Out From Other Wholesalers by Developing a 5-Star Reputation

Buying and Then Selling

This is the method used by my company. In my opinion, it’s legally the most safe and the easiest way to wholesale real estate!

You don’t have to worry about breaking any laws, you fully own the property so you can market it however you want, and you have full control of the transaction so the fate of the deal doesn’t depend on anyone else.

In this method, all I am doing is simply selling a property I own, and everything just runs a lot more smoothly because of it.

Now, on the downside, buying and selling requires a lot of working capital, which can become quite expensive if you’re looking to wholesale full-time.

For instance, my company buys roughly 12 to 15 properties a month at $15,000-$30,000 per property. As you can see, this can be quite expensive!

Conclusion

These are the basics of real estate of wholesaling!

I hope this blog post encourages and provides some insight on the ins and outs of real estate wholesaling.

Which method do you use to wholesale properties? Why do you prefer this strategy?

Let me know your thoughts with a comment.

About Author

Brett Snodgrass

Brett Snodgrass is a licensed real estate broker and wholesaler who hails from the Indianapolis metro. His mission in life is to glorify God by serving as many people as he can through his real estate business. He has a pretty active community growing on Facebook and is also the founder of SimpleWholesaling.com Come check it out now and connect!

10 Comments

  1. Lisa Bryant

    Hi, Brett- I think that the purchase agreement should state that it will be assigned to an end buyer. And that the wholesaler should explain to the homeowner what that actually, means. The seller should know what type of transaction they are involved with. At the end of the day; full disclosure.

    Thanks, for sharing.

    Learn, Apply, Produce!

  2. Sean Casey

    Brett- I’ve read that you can close the deal with the end buyer first and then go into another room and close with the seller. That way you’re using the end buyer’s money instead of yours or hard money. Is this untrue on double closings?

  3. vernon miller

    Brett,
    I very much agree on your way of wholesaling.
    Buy it right ,own it ,then sell it and make your margin/ profit.
    Not a big fan of assignments, too risky and possible illegal in some states.
    That said , great article on the right way to wholesale.
    Brett, any advice on the lenders or source of working capital that your company uses?

    Any solid advice would be greatly appreciated.
    Best,

  4. Dennis Anderson

    Hey Brett. Great Article!. I normally do assignments and double closings, but have been looking to actually close on the property and then market it. Seems like a better way to do this business if you can. Are you using transactional funding to do those deals?

  5. Alex Saleeby

    Thanks for the nice article. I agree with your preferred method of buying and reselling the property wholeheartedly so long as the capital is available as you noted and where local laws don’t require a minimum holding period. In certain hot markets there are laws that require a home buyer to hold on to the property of six months or longer before re-selling.

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