When it comes to real estate investing, one of the most common queries we get is, “How can I get started?” Real estate investing is a complex business, so it’s crucial that you don’t let yourself get overwhelmed when you’re just starting out.

In this article, we’ll be focusing on a real estate investing approach called “wholesaling” which is perfect for newcomers nowadays. Wholesale real estate demands a unique set of abilities and a strong commitment on the part of the investor. What is it about, and how does it work? Is it worth taking a risk? Let’s find out. 

We’ve divided this article into sections to ensure that you have all of the information you need before beginning your wholesale real estate investment:

• What is Wholesale Real Estate?
  • What Is The Goal of Wholesale Real Estate?
• How Does It Work?
  • Wholesale Real Estate Step-By-Step Guide
    • Track down a Distressed Property or a Driven Seller
    • Bargaining
    • Contract Signing
    • Look for The End Buyer
    • Bargain With the Buyer
    • Re-assign The Contract
    • Complete The Deal
• Benefits of Wholesale Real Estate
• Disadvantages of Wholesale Real Estate
• House Flipping vs. Wholesaling
• Key Takeaway

What Is Wholesale Real Estate?

In a nutshell, wholesale real estate is a short-term business approach used by investors to generate large profits. Contrary to popular belief, real estate wholesale has nothing to do with retail wholesale. 

It is common practice for wholesalers to distribute goods to retailers who, in turn, will resell the items to customers at an increased price point. The wholesaler can charge the retailer a substantially lower price because of the number of items sold to the retailer.

What Is The Goal Of Wholesale Real Estate?

Real estate wholesaling is a perfect opportunity for wholesalers to discover attractive prices on properties, secure them, and then sell contracts to the end buyer before a home transaction closes. That is to say, the wholesaler does not gain ownership of the property. It’s a good bargain, but they sell the contract before it’s even signed off.

If the deal is done correctly, the distributor gets a nice finder’s fee and never takes possession of the property.

How Does It Work?

The process begins as soon as the wholesaler and the seller agree on the terms of an agreement or contract. Most of the time, sellers are either in danger of losing their home to foreclosure or just want to get rid of a troubled property without spending time or money patching it up.

Either the wholesaler or real estate investor then looks for interested cash buyers, who are usually real estate investors who are willing to fix up the house themselves or have the funds to hire someone to do so. 

The contract is sold by the wholesaler to the investor in exchange for a fee, also known as a “spread,” which is agreed upon by the investor and the wholesaler.

Wholesale Real Estate: Step-By-Step Guide 

Setting up your business is the first step in getting into wholesale real estate. In the United States, you would most likely begin by forming a limited liability corporation (LLC) to operate your wholesale real estate business.

After that, you’re ready to enter the real estate industry and look for investment properties. Follow these steps to get started in wholesale real estate.

1. Track Down A Distressed Property Or A Driven Seller

It would be best if you found motivated sellers of distressed properties to make real estate wholesaling work. These sellers want to sell their homes quickly and are unwilling to go through the traditional channels of real estate agencies, mortgage lenders, earnest money, and house inspections or appraisals.

Instead, they’d rather sell to a cash buyer who can close quickly before the property goes to foreclosure. Driven sellers will usually sell the property for less than the market value in order to get out of the house as soon as possible.

If you bid far enough below market value, you’ll have enough room to put the house under agreement at a higher price with your investor team. This is necessary so that you can profit or receive a “finder’s fee” for facilitating the transaction.

To find a distressed property owner, you must market yourself as a cash buyer of distressed properties through direct mail, social media, and even word-of-mouth. The more people aware of your services, the more homes you will have available to contract.

2. Bargaining

When you’ve found the ideal property, it’s time to strike a deal with the seller. This is a crucial step in the procedure. If you bid too high, there will be no room for profit when the contract is assigned to the final investor. If you don’t place a high enough bid, the seller may reject your offer.

Be competent, courteous, and give the seller reasons to trust you when negotiating a real estate purchase agreement. Let the seller know about your experience and how many other sellers you’ve helped avoid foreclosure or mortgage default.

You also need a keen eye for detail. Walking around the house should tell you what improvements the home requires so you can use it in your negotiation, notifying the seller how much it will cost to fix up the property to help you negotiate a lower rate.

The less you agree to pay the seller, the easier it may be to find investors who see a profit opportunity.

3. Contract Signing

Create a wholesale contract after you and the seller have agreed on a price. You can hire a real estate attorney or agent to do it for you or draft one yourself. You’ll save more cash if you do it yourself, but there’s a chance something will go wrong. If you are unfamiliar with real estate contracts, you should consult an attorney.

4. Look For An End Buyer

You’ll need to depend on your network of real estate investors to find an end buyer. While you may not personally know anyone who is interested, someone you know may. You might want to increase your network by using social media and attending local real estate meetups.

You can also assemble a group of real estate investors who will buy the properties you find as you build your real estate wholesale business. The person who will buy the property is the final buyer.

5. Bargain With The Buyer

You’ll negotiate how much you stand to make on the sale of the contract with the end buyer in the same way you deal the price with the seller. This is the stage at which you negotiate your transaction fee. This could be a standard fee you charge or something specific you agree on with the buyer.

6. Re-assign the Contract

You’ll have to complete an assignment of contract agreement to officially assign the contract you signed with the seller to the buyer.

According to this agreement, you assign the contract you signed with the seller to your end buyer for the agreed-upon amount. The contract amount is the difference between the amount you agreed to pay the seller and the amount the buyer decided to pay you for the home.

The buyer agrees to purchase and take possession of the house. You (the seller) agree to accept the fee as a contract assignment, which gives you no rights to the home.

7. Complete The Deal

Settlement is the final step. When all parties sign the documents, the deed is transferred to the end buyer. The wholesaler (you) is not required to pay anything out of pocket. The final buyer is responsible for all closing costs and the cost of the home.

You pass the money to the seller, keeping only your profit or the difference between your sales price and the price agreed upon with the end buyer.

It’s critical to have a solid grasp on the ins and outs of wholesale real estate investing before diving in headfirst.

Benefits Of Wholesale Real Estate

• You get paid quickly because you do not take possession of the property.
• Your credit is unimportant (you can have bad credit and still do it)
• To get started, you don’t need much money.
• You don’t need to know how to restructure houses or do the work.
• You can sell the house quickly if you have a good network of investors.

Disadvantages Of Wholesale Real Estate

• To find a buyer, you must have a strong network and strong marketing skills, or you risk being left in the dust.
• If you don’t find the right property or investors, you could be out of work for months.
• You may not have as large a profit margin as you would with other types of investing.

House Flipping vs. Wholesaling

Both wholesale and house flipping have the same goal of making money, but how they get there is significantly different.

Once a distressed property has been placed under contract, they immediately sell it to another real estate investor for a profit. Only the final purchaser is in a position to profit from the home’s renovation and resale. The wholesaler has no contact with the residence.

House flippers, on the other hand, make a deal, buy the house, and immediately take ownership of it. Immediately after determining what has to be done, they begin working on the necessary renovations. House flippers sell their properties quickly after completing improvements in order to make a profit on the sale price, which includes the renovation costs.

In many cases, house flippers rely on wholesalers to help them identify a profitable property.

Key Takeaway

If you wish to be successful in real estate but don’t want to obtain a broker’s license, you can make some extra money by selling wholesale. A successful sale hinges on your market expertise, your ability to offer properties for sale, and your ability to persuade distressed sellers to sell their property to cash purchasers.