Wholesaling in real estate is one of the more accessible strategies you can try if you’re just starting out as a real estate investor. If you know how to wholesale real estate, you can potentially earn profits quickly, without spending a lot of your own money or time. If that sounds like an attractive proposition to you, read on. We’ll define what wholesale real estate is about and how it works below. We’ll also look at what a home wholesaler is, and the key things one needs to be successful in that role.
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What is Wholesale Real Estate?
Wholesale real estate is a property buying strategy where you try to buy a house directly from a homeowner at a “wholesale” price. You then sell this property off to another interested party —an investor — at a higher selling price. The difference between the selling price and wholesale price is your net profit.
Wholesale homes are typically distressed houses that are almost always not listed publicly for sale. The homeowner is willing to sell but might not be willing or doesn’t have the funds to renovate the house to raise its value.
In this scenario, selling that house is a win for both the seller and the buyer. The homeowner gets to sell at a fair price, while the buyer gets a property for a bargain, which they may renovate and sell for a more significant profit later.
Benefits and Considerations of Wholesaling Houses
Wholesale real estate allows individuals to get into real estate without potentially spending their own money. That’s because the wholesaler will sell the wholesale real estate contract to the investor before the current homeowner contract expires. The transaction takes place between the homeowner and investor, but the wholesaler still gets a share of the profits.
You may also get significant profits faster with wholesale real estate, assuming you have a ready buyer. It is not unusual for investors to earn a profit soon after they sell.
Wholesaling real estate is subject to specific rules, which may vary by jurisdiction. For instance, property data aggregator Propwire states that if you plan on assigning 8 or more contracts per year in California and wholesaling is a full-time venture, you may be required to acquire a professional license. Additionally, in Texas, wholesalers must disclose their activities to all interested parties.
Wholesaling property may be a good way for beginners to get their feet wet in real estate with minimal financial involvement. A lot of the techniques and processes in wholesaling — from marketing to negotiating — are the same ones you’ll take on as a realtor.
How to Wholesale Real Estate?
So how does wholesale real estate work in practice? It starts with finding a seller for the house. Once you negotiate a deal with them to sell, you then have two options on how to proceed.
One option is to produce a contract stating your exclusive rights to buy that property. It’s important to note that as the wholesaler, you never actually own the underlying property. You gain the right to sell the property on behalf of the owner by assigning the contract to an interested buyer, giving them the right to buy the property. Once they close the deal and buy the property, you get your share.
The second option is to do a double escrow. Here, the property is transferred to your name for a short period. You, as the new owner, will then need to find a buyer who will buy it from you for a higher price than you paid as your profit.
Where to Find Cash Buyers
The key to success in wholesale real estate is finding the right buyers and sellers, which takes solid networking and marketing. Finding cash buyers, however, doesn’t have to be hard. You just need to know where to look for them.
Networking is the quickest way to meet a lot of them. Joining real estate organizations can help you meet plenty of potential buyers all in one place. You can also try going to courthouse auctions not only to scout properties but also to meet other local real estate investors.
But if you want an easier time, try real estate sites like Auction.com.
Tips of Success for a Real Estate Wholesaler
Put yourself in the homeowner’s shoes. You must know why they’re selling, and the mindset behind that decision. By doing this, you can offer a better deal that’s beneficial for both of you.
Be sure to be transparent with everyone involved. Wholesale real estate is a business based on trust. Clearly explain the process and your intentions on why you want to buy or sell. Keep everyone in the loop, even after you’ve successfully transferred the contract to a seller. You may also consider consulting with an experienced real estate attorney to go over specific rules that may apply to wholesaling real estate in your jurisdiction.
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