Real Estate Wholesaling: Here's How To Start Today

In short, real estate wholesaling involves buying from motivated sellers and selling those deals to other real estate investors. It’s a popular short-term investment strategy for savvy real estate entrepreneurs as it allows them to buy properties at discounts and then quickly resell the property at a higher price. 

It’s an ideal strategy for many that are looking to get their foot in the door of real estate investing because it requires little to no capital to get started, meaning investors can capitalize on opportunities quickly while keeping their investment risk in check.

But remember - it’s not a magic, get-rich-quick scheme. Real estate wholesaling involves deep market research, lots of consistent follow up, negotiations, and people skills to make deals happen.

How Real Estate Wholesaling Works & What Real Estate Wholesalers Do

1. A real estate wholesaler locates motivated sellers using one or more methods like  skiptracing or a real estate lead generator

2. Wholesalers realistically calculate property repairs that need to be made

3. Wholesalers put in an offer on the property that accounts for several things including;

1. Market of local area in which property is located

2. Comparable properties

3. Estimate on property repairs needed

4. Seller’s financial needs and velocity at which they need to sell

4. The wholesale buyer then puts the property under contract and into escrow

5. The Wholesaler then finds buyers for the property (they commonly work with realtors to accelerate this process) and negotiate the sale price with the contract buyer

6. Once the wholesaler finds a buyer they can either buy and quickly resell the property or  transfer the contract to that buyer , they receive their payment (check out the details on how real estate wholesalers make money).

   
   

8 Steps To Wholesale Real Estate

1. Locate A Motivated Seller

Motivated sellers are simply property owners that, for one reason or another, are motivated to sell their property quickly and, therefore, likely at a discount. Finding motivated sellers is one of the fundamental skills to not only property wholesaling, but real estate investing in general.

If you’re an aspiring real estate professional, remember that the real gold lies in finding off-market properties. There are people that don’t even think about selling their property as an option, and yet once you present them with the option and a clear map to selling, they see it as a lifeboat. 

This is the essence of a motivated seller.

Types Of Motivated Sellers

1. Distressed Sellers

Distressed sellers are the gold standard lead type when you’re wholesaling real estate, as they’re sellers who are experiencing some form of financial distress related to their property. 

These include properties that are:

• Tax Delinquent

• Late Mortgage Payments

• Houses In Pre-Foreclosure

• Vacant Properties

• Upside Down

Wholesalers look for these leads because they are often looking to sell quickly, which helps the property owners out of their financial jam and leaves room for meaty margins on the wholesaler’s end. 

2. Absentee Owners

Absentee property owners are people who own, but don’t live at, your target property. Their property may be a second house or an old investment. 

3. Inherited Properties & Probate Sellers

These motivated sellers are people who have inherited houses via will, or who are set to inherit a home via the legal process as a result of a relative’s death.

Dealing with the paperwork, property taxes, and lawyer fees that go into inherited homes is a massive headache, which makes these leads great targets for real estate wholesalers.

4. High-Equity Sellers

These sellers have paid off most of, if not all of, their home mortgages. They may have raised a family in their house and, now that the kids have moved out, they may be interested in selling in order to downsize and start saving money.

2. Reach Out To The Seller & Establish Shared Goals

Once a wholesaler has identified a motivated seller, it’s time to establish contact. This is one of the most important stages in the real estate process and, if fumbled, is almost impossible to recover from.

Some methods for initial reachout include handwritten letters or postcards detailing the offer, SMS outreach, or even a personal phone call or knock on the door. 

Remember, a good wholesaler has already done their homework to make sure these are motivated sellers, so they’re likely to show interest in an offer. Consistent follow up in your marketing is crucial.

3. Calculate Repair Costs & Property Market Value

Determine After Repair Value (ARV) Of Property

To determine the property’s market value after repairs, you can manually generate a comparables report on your own (which is very labor-intensive) or use a software that can handle all the data gathering and number crunching for you

This gives you a solid idea of what other similar properties are selling for, and therefore what your target property should sell for after repairs.

Estimate Cost Of Repairs

One of the most important skills a real estate investor has to master is the ability to accurately estimate the cost of repairs necessary to make a property attractive and ready to sell at full market value.

Real estate wholesalers must be very good at this. Since they’re not the ones making the repairs, they rely on their reputation for creating accurate estimates that wholesale contract buyers can trust.

To get you started check out this free, detailed home repair estimate template.

4. Negotiate The Sale

The negotiating process is where real estate wholesalers really cut their teeth and where they make their money. This goes for negotiating with both the property seller and contract buyer.

This is also why wholesalers want to target distressed sellers as their primary motivated leads. Wholesaling in real estate is largely about making deals quickly, and distressed sellers are willing to do just that.

A couple tips to keep in mind when negotiating with sellers…

1. The most important rule about negotiations is always be willing to walk away if the seller won’t offer you a suitable deal.
2. Try to handle all negotiations in person
3. Do your best to understand where the seller is coming from, and show respect throughout the negotiations, regardless of the result.
4. Offer to pay the seller’s expenses like lawyer fees and closing costs
5. ALWAYS make sure your contract is contingent on a home inspection

5. Sign A Contract For The Property

This involves signing an “purchase and sales agreement” contract between you and the seller with the title company. It doesn’t put the title in your name, but it gives the wholesaler control of the property while they find a buyer.

6. Find Buyers For The Contract

Finding a buyer for a wholesale real estate contract can be tricky, but it's not impossible. There are a few things you can do to increase your chances of finding the right buyer for your property. 

First, make sure you have a good marketing strategy in place. You'll want to advertise your contract widely and attract as many potential buyers as possible. Finding groups that may be interested in your property can help. 

You’ll want to connect with groups and individuals such as:

• Local real estate investing group
• Facebook real estate investing group
• A local real estate agent who specializes in wholesale deals
• Local mortgage brokers to see if they have potential buyers
• Use Realeflow’s Power Matching to easily message local buyers

Second, be prepared to negotiate with potential buyers. Not everyone will be able to afford your asking price, so you'll need to be willing to work out a deal that works for both parties involved. Finally, stay patient and keep looking until you find the right buyer for your deal. It may take some time, but eventually you'll find someone who is interested in purchasing your contract.

Remember - it’s always a good idea to continually build your buyers list in your CRM so you’re not waiting until you find a deal to start building this list.

7. Negotiate The Contract With The Buyer

Assuming you negotiated well with the seller, it’s time to negotiate the contract sale with the buyer. This is where you establish your “wholeseller” fee, which is where you get paid for finding the property, negotiating the sale and doing all the legwork on the property that you’ve done.

How Much Do Real Estate Wholesalers Make?

There are a couple ways wholesalers make money.

1. Negotiating a price/rate with the buyer

A Fixed Price

• Example: $5,000
  

A Percentage Of The Sale Price

• This is usually in the range of 5 - 10% of the total deal price. Remember, the wholesaler has already established the sale price in the contract, so this is effectively a fixed price as well.
  

2. Taking the difference in the sale price the wholesaler negotiated with the seller and the sale price negotiated with the buyer.

The best wholesalers can combine both #1 and #2 to maximize their take.

8. Transfer The Title & Contract To The Buyer

Once you’ve found an end buyer for the property, it’s time to transfer them the contract.

For this, you’ll do an “assignment of contract”. The buyer will wire the agreed-upon sum of money to the title company, and this will be held in escrow. The contract will be transferred to the buyer’s name or company name. Then the buyer will close on the purchase as per the terms of the assigned contract.

1 Quick Wholesaling Tip Before Getting Started

Before your first real estate wholesale deal, find a title company that will close “assignment deals”. You need to let them know you’ll be wholesaling, as some title companies won’t work with these types of real estate deals.

Questions About Real Estate Wholesaling

1. What are real estate wholesaling contracts?

There are 2 types of real estate wholesaling contracts;

Assignment Deal Contracts

This is the contract between the seller and the wholesaler, that gives the wholesaler a legal interest in the property while they find a buyer.

Assignment of Real Estate Purchase and Sale Agreement

This is the contract between the wholesaler and the buyer, which puts the title and property contract in the name of the buyer.

2. Is Wholesaling Properties Legal?

Wholesaling is absolutely not illegal under federal law - but it’s important that everyone investigate and follow their local property and real estate laws and regulations.

3. Do you need a license to wholesale real estate?

No - there are no specific licenses one needs to become a real estate wholesaler. It’s important to note, however, that this means the barrier to entry is rather low, which means it’s important to master the basic skills.

4. What is virtual wholesaling?

Virtual wholesaling involves all the same steps as traditional real estate wholesaling (finding & contacting motivated sellers, negotiating & finding contract buyer), all done virtually.

5. What are the pros & cons of wholesaling real estate?

Pros

• Low barrier to entry

• Wholesalers don’t need significant capital to start

• Virtual wholesaling allows investors to tap any market, regardless of geography

• Wholesaling is scalable, especially once wholesalers get their team (lawyers, title company, accountants, etc) established

Cons

• It’s not risk-free - if wholesalers can’t find buyers for their contracts, they will have to come up with the necessary funds to buy the house.

• Just like traditional real estate investing, the profitability of wholesaling real estate varies due to larger market trends.

• It takes time to establish trust and credibility among investors in the field

• Because there is little to no capital investment, the returns on real estate wholesaling aren’t as lucrative as traditional real estate investing.

6. How do real estate wholesalers make money?

Wholesalers make money in 2 ways;

1. Real estate wholesalers take home the difference between the price they negotiate with the seller and the price they negotiate with the buyer. For example;

1. 1. Greg finds a motivated seller and negotiates to purchase the property for $100,000

   2. Greg then finds a real estate investor willing to buy the property and contract for $130,000. 

   3. Greg takes home that additional $30,000

2. Real estate wholesalers take a percentage of the total price the buyer pays for the property. For example;

1. 1. In his negotiation with the contract buyer, Greg secures a 7% commission of the total property sale price.

   2. The buyer pays $200,000 for the property, so Greg’s takehome is $14,000

   3. Remember - the wholesaler has leverage here because they have already gained temporary control of the property.

7. What’s the difference between wholesaling and flipping?

Unlike wholesaling, flipping properties involves putting in the resources to improve the property, and then turning around and selling that property for profit.

While real estate wholesalers estimate the total cost of home repairs, they do not actually execute those repairs on their own. It’s also important to note that with flipping, you’re selling an actual physical property but with wholesaling, you can be either buying and quickly reselling the house OR just selling the contract to buy the property.