3 Feasible Ways to Start in Real Estate Wholesaling as a Complete Newbie

by | BiggerPockets.com

My goal with this post is to help any newbies out there interested in real estate wholesaling who simply don’t know where to begin.

For the entire month of October, each week, I’m going to provide you with actionable steps that will help you close your first deal!

Before we move on, I first want to share my story and how wholesaling has completely changed my life.

My Story

For those of you who don’t know me, my name is Brett Snodgrass, and I’ve been a real estate investor for over 10 years. When I first jumped into real estate, I had just graduated college with an early childhood education degree and was a substitute teacher. In my first year of substituting, I had only made $10,000.

I hated my job!

I refused to take the career route again, so I began exploring ways to become entrepreneur. I started flipping everything I could get my hands on, from cars to stereo systems on eBay. You name it!

I eventually stumbled upon something called real estate investing and boy, did it change my life forever!

I found my first property on eBay in the heart of the ghetto in Youngstown, Ohio for $9,000. I only had $5,000, but my father graciously matched me, so we moved forward and bought it together for $10,000, including closing costs.

My father and I didn’t have any money left to renovate the property, so we were stuck with no idea of what to do next.

I thought to myself, “What if try I to sell it for a little bit more than what we bought it for?”

So we did just that and listed the property for $15,000 and made a $5,000 profit.

Then I was hooked! I had just made half of my yearly salary in less than one week! The moment that happened, I remember sitting back and saying, “If I could do this with one house, what could I do with 100 houses?”

That’s where it all started.

Wholesaling real estate has literally been my ticket to creating the life of my dreams. I’m now able to go on vacation whenever I want. I have complete control over my schedule and my life, and it’s really incredible!

Today, I want encourage you all to use real estate wholesaling to do the same thing in your life. So, without further ado, let’s get into it!

what-is-wholesaling

3 Ways to Wholesale Real Estate

A wholesaler in any industry is defined as “a person or company that sells things to businesses and not to individuals,” according to the Merriam-Webster dictionary.

So, when you are a person who sells products to businesses and not individuals, you are selling them products they can turn around and use to make money, right?

Correct!

Wholesalers buy extremely cheap property and then sell the property for a slightly highly cost, leaving room for buy-and-hold or rehab investors to turn a profit as well.

We are the matchmakers or the “middle-men” between the property and the investor buyer.

Pretty freakin’ sweet, huh? Just buy a cheap property and sell it for a quick profit. It’s that simple!

Now that you understand what wholesaling is, let’s dive into the three most common strategies used to wholesale real estate.

1. Assignments

This method is probably the most popular wholesaling strategy because it’s the easiest method of entry, it doesn’t cost money to get started, and there’s little to no risk involved.

This strategy consists of getting a property under a purchase agreement between you and a motivated seller, and before you close, you find an investor buyer to sell the contractual rights to. You then profit via the “assignment” fee of giving the rights of the contract to the investor buyer.

Here’s an example: The motivated seller wants $15,000 for their property. You write a purchase agreement with the seller for $15,000. During your “due diligence” period, you turn to your buyer’s list and offer to assign that contract for a fee of $5,000.

The investor-buyer purchases the property for $20,000, and boom, you just made $5,000 on a wholesale deal!

There are so many amazing benefits when taking advantage of the assignment strategy; however, I personally do not like this type of wholesaling for a couple of reasons.

Legal Gray Areas

Many argue that you’re essentially acting like you’re a licensed agent even though you’re not, because you’re overseeing a transaction between a buyer and a seller for a profit. If you’re marketing a house for sale that isn’t yours, technically, you could run into being accused of fraud. If you have your license, then it’s cleaner to do assignments, but you still could run into some trouble depending on the laws and customs of your state.

If you’re going to assign contracts, then I highly recommend sitting down with a legal professional and have them write up the contract for you.

It’s Too Complicated!

Assigning contracts involves multiple people and multiple prices, and it so easy to lose control of the deal.

Have you ever heard of the daisy chain?

If not, here’s an example of a daisy chain: I get a property under contract. I assign it to Joe, then Joe assigns it to Tom, and then Tom assigns the contract to Harry.

It’s called a daisy chain because it’s a big chain that can get very messy, very fast! If something falls through, it breaks the entire chain, and everyone involved gets frustrated and upset—and your reputation is on the line.

2. Double Close

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

Sounds pretty crazy, right?

Here’s how it works. At closing, you first sign the documents with the motivated seller, and then a few minutes later, you meet with the investor buyer and sign the closing documents with them.

Timing is key!

The success of double closing ultimately depends on timing, and if the motivated seller or buyer pulls a no-show at closing, you’re stuck!

The biggest risk using this method is that you have no control of the transaction because you’re very dependent on the motivated seller and the buyer.

But don’t get me wrong. If done correctly, this can be an incredible way to wholesale real estate as well.

home appraisal

3. The Simple Close

The final way to wholesale real estate, is something we like to call the “simple close.”

In a simple close, you simply buy the property from the motivated seller with your own funds, close on it, then once you fully own the property, you market it and sell it to an investor buyer.

This is the method we use in my company, and it’s my favorite strategy because, in my opinion, it is legally the safest and easiest way to wholesale real estate!

I never have to worry about deals falling through, my reputation is still intact, I own the properties free and clear prior to marketing them for sale, and everything runs a lot more smoothly.

Obviously, the main drawback is that you need a lot of working capital in order to conduct your business at scale, and in markets where purchase prices exceed $150,000+ for a distressed property, this becomes increasingly difficult.

But don’t let this discourage you! I started with only $5,000, and within a year, I was operating as a full-time wholesaler, so it is definitely possible!

Conclusion

Each type of wholesaling has its pros and cons, and ultimately, you’ll need to decide which path is right for you.

Decide now because next week I’m going to dive into the how real estate wholesaling companies operate and the three components within a wholesaling business.

Question: Which method of real estate wholesaling do you use and why?

Comment below!

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!

8 Comments

  1. Frank Curtis

    Great advice. I’ve been actively building my credit this year, but I don’t have much personal capitol. In Oklahoma, contract assignments are pretty commonplace… But assuming that I wanted to use strategies 2 or 3, would it just be a matter of finding a private lender who would fund me for the brief time it would take to resell? Thanks for the great article!

  2. karen rittenhouse

    Hi Brett:

    There’s a little bit of confusion in your post. Assigning is not a type of wholesaling. They are 2 different ways to purchase a property. As you discussed, with assignments you get a property under contract and assign the contract, not the property.
    With wholesaling, you actually purchase, close on and own the property, then resell – usually to a rehabber.
    2 different selling techniques.

    Assignments are not legal in every state because not every state allows contracts to be assigned, so buyers should check their state laws before attempting these.

    Double close and simple close are 2 ways to close when selling these deals, they are not wholesaling techniques.

    I see many investors get confused about these techniques and I think it’s because the terminology is lumped together as one when it shouldn’t be.

    But thanks for all your information!

    • Shawn Clark

      If you make a profit without rehabbing…it’s wholesaling. If you are selling to an investor – someone who will in turn sell to an end user (retail) for a further profit…then you are wholesaling. He defined it perfectly. What differentiates wholesale from retail is who you are selling to. Are you selling to an end user on the open market (retail) or are you selling a partial product to a business (wholesale) who then completes or adds to the product (rehab) and will make a profit later by selling to an end user (retail).

      My comment about the article was that I wished there was more to the “HOW” that was in the title. How do you find the deals, for instance. That, to me, is the toughest part of wholesaling in the beginning. Do you spend money or drive for dollars? Do you direct mail or drive ads to a website?

      • karen rittenhouse

        Nope. You can wholesale, wholetail, assign, or retail without rehabbing.

        We wholesaled (purchased, marked up and resold without any rehab) to an end user just last week. They plan to do the $60,000 rehab themselves and live in it to be close to their parents. It was a wholesale because it was not rehabbed and sold at ARV. It was, however, sold to an end user.

        Who you sell to does not define the strategy. How you sell does.

      • Brett Snodgrass

        Hey Shawn, the how is always the toughest part when it comes to finding deals. If you have money, we use direct mail, facebook ads, and pay per click ads (ppc). Without money and starting out I recommend driving for dollars, using the yearly tax sale sheet put out on the county auditors page, and just networking at local REIAs to get your name out there. A future blog will cover a little more of the how. This was more of the three ways to wholesale. Thanks!

      • Again, a mix up in terms.

        Wholesaling and assigning are 2 totally different sales techniques.

        Wholesaling is always legal because you close and take possession of the property before reselling.

        Assigning is assigning the contract only and you never take possession. You assign the contract, not the property.

      • Michael dede

        Hey Brett I’m pretty eager to begin to start door knocking and assisting homeowners in New york to save there homes by negotiating with their lenders.my problem is….how do I find cash investors hml etc;also is this legal in NY?this will be the first time that I have ever done anything with realestate and I’m pretty nervous and excited at the same time.do I have to have an llc yet?I also know that I need to sign a disclaimer with the homeowner about not promising them that I will buy their home but I must do my due diligence.should I also put the deal under contract after our first initial meeting? I’m just.trying to find my way in the industry….please help thanks….have a great day

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