Wholesaling

A wholesaler finds a property, usually one that isn't listed on the MLS, and signs a purchase contract with the seller. Instead of buying the property, the wholesaler sells their place in that contract to an investor, who closes on the deal. The wholesaler earns the difference as a fee.

The work is mostly marketing and negotiating: finding motivated sellers, agreeing on a price, and lining up a cash buyer before the contract's closing date. It takes little of your own money, but it takes time, and many new wholesalers go months before their first deal.

How to tell if a wholesale deal is a good one

Buyers judge a wholesale deal by its numbers, not the wholesaler's pitch. Start from the after-repair value (ARV), what the home will be worth once it's fixed up. A common rule of thumb is that an investor pays no more than 70% of the ARV minus the repair costs. The wholesaler's contract price plus their fee has to fit under that number, or no investor will buy it.

• ARV: what similar renovated homes nearby have sold for
• Repair costs: a realistic rehab budget, not the low end
• Maximum offer: 70% of ARV, minus repairs
• Wholesale fee: what's left between the contract price and the maximum offer

• Wholesaling Calculator: work out your maximum offer and your fee from the ARV and repair costs
• 70% Rule Calculator: check whether a deal fits the 70% rule
• Rehab Estimator: build a repair budget line by line

A wholesaler can get paid in three main ways.

• Assignment: the wholesaler assigns their purchase contract to the buyer, who pays an assignment fee and closes with the seller directly. The contract has to allow assignment.
• Double closing: the wholesaler buys the property and resells it to the buyer, usually the same day. It costs two sets of closing costs, but the buyer and seller don't see each other's price.
• Novation: the seller agrees to let the wholesaler market and sell the property, often listed on the MLS, and the wholesaler is paid from the sale.

Is wholesaling legal?

Wholesaling is legal in every state, but a growing number of states regulate it. Some require a real estate license to market a contract you don't own, and some require written disclosures to the seller and buyer. Check your state's rules before you sign a contract. See Is wholesaling legal? for the rules by state.

• Land wholesaling: the same contract-and-assign model with vacant lots and acreage, where there's less competition and no rehab to estimate.
• Virtual wholesaling: wholesaling in a market you don't live in, with local help for walkthroughs and photos.
• Wholetailing: buying the property, cleaning it up lightly, and reselling it to a retail buyer instead of assigning the contract.

Most wholesalers run their business on a CRM to track sellers and buyers, a dialer or texting tool for outreach, and a deal calculator. A mentor or a local investor who already buys wholesale deals is often the fastest way to learn what buyers in your market will pay.