What is Real Estate Wholesaling?
The premise is simple. Real estate wholesalers find great deals on properties, place them under contract and sell/assign the rights to the contract to a qualified end buyer – usually a real estate investor.
A real estate wholesaler executes a contract with a home seller, markets the contract to the property to potential end buyers, and assigns the contract to the buyer. The wholesaler makes a profit – called the “assignment fee,” which is the difference between the contracted price with the seller and the amount paid by the end buyer.
There is massive wholesale profit potential in servicing the needs of real estate investors because they are always looking for high-equity properties. Most active real estate investors are busy managing fix and flip projects or rental property management. This creates a big demand for wholesale properties and the services of a real estate wholesaler.The successful wholesaler has to have a firm grasp of what makes for an attractive deal. Once you understand this, the path to wholesale profits becomes much easier. Fortunately wholesaling can be broken down into a series of repeatable steps that creates a solid income for those who master their markets.
Wholesaling Investment Properties – Step by Step
Many wholesalers focus their efforts in their local market – keeping their deal finding and buyer network close to home. But “remote” wholesaling is gaining traction as data and tech remove geography as limit on the markets that can be worked. In this article, we cover local wholesaling and also how to wholesale real estate out of state as well as how to wholesale properties online but first, it’s helpful to understand the step by step process of wholesaling.
1) Create Deal Flow – Consistently Find Great Deals on Off-Market Properties
Distressed properties and motivated sellers are everywhere, but you have to know how to find investment real estate. It’s all about DEAL FLOW. Without great deals, you’ll have no chance at wholesale success. Wholesaling is highly profitable ‘wash-rinse-repeat’ business. To keep the deals coming, you can become a marketing machine seeking motivated sellers using old school methods like driving for dollars and bandit signs. Or you can take advantage of the data and technology available inside Connected Investors to find high-equity properties, motivated sellers and their contact information.
2) Connect with Motivated Sellers
Direct contact with potential sellers is the next step in getting a wholesale property under contract. The goal is to gather information on the seller, the situation and the property. This is the first step in starting to analyze the deal – with the end goal of an appointment to view the property. What you learn during your initial contact with the seller tells you a lot about the potential for profit.
Did you know PiN puts incredible data (properties, owners and contact information) direct to your device?
3) Property Visit & Evaluation
The next step is meeting with the seller and assessing the true value of the property – noting needed repairs, neighborhood and anything else that impacts the value to your end-buyer – the fix and flip investor or possibly a landlord. Wholesalers use generally accepted formulas to determine how much to offer on investment property deals.
4) Offer & Contract
After the initial property evaluation, the wholesaler makes the seller an offer and puts pen to paper by signing a sales contract for their property. The contract must include an assignment clause that allows the wholesaler to assign the rights to the contract to the end buyer. This is also called “flipping” the contract.
5) Find an End Buyer
Once there is an assignable contract in place, the property/contract is offered to potential investors for assignment. Wholesalers can create their own buyers list, networking and marketing or post the property to the Connected Investors Marketplace where it gets blasted out to a huge network of active, qualified buyers.
6) Property Visit by the End Buyer
Most investors will want to personally inspect the property. Coordinate a time that works for both the seller and the end buyer to visit the property for further evaluation.
7) Contract Assignment to the Investor Buyer
This step involves assigning your interest in the contract to the investor for a wholesale fee. The difference between the price you offer the owner and investor is what makes up your wholesale fee.
8) Close & Collect Wholesale Profits
The investor purchases the investment property from the seller – this is when you collect your fee from the title company or escrow attorney.
9) Rinse & Repeat
The path to wholesale profits is one you can take again and again. Take your profits, reinvest it into your business, and complete the process all over again for more and more income. The key to success is deal flow – with new leads for investment properties coming in regularly.
How to Wholesale Real Estate with No Money
Wholesaling is often presented as a low-to-no cost way of getting into real estate investing and this can be true. A new wholesaler can profit with a much lower initial cash outlay than an investor who has to buy a property and rehab it.Unlike fixing and flipping that requires funding for investment properties along with cash for renovations, wholesalers need little to no money to get started. There’s no need to borrow or put your money into a deal since wholesalers don’t typically close on the contract – they flip the contract, rather than the house so deep pockets or funding partners are not a pre-req. But, while bags of money aren’t required, time and effort is. Successful wholesalers take the time to learn their market. They identify solid sources of leads and follow up on those leads. They execute purchase and sale agreements with sellers and assignment agreements with investor buyers. None of this requires a financial commitment but it does require learning the process and following it through from finding the deals to finding the end buyer.
Is Wholesaling Houses Legal?
Some consider the assignment part of wholesaling controversial – though it is in fact, not illegal. The misinformed think it’s illegal because it resembles brokering real estate without a license when in fact, real estate is not brokered but rather contracts are assigned.While there are some situations where assignments are verboten, (such as most bank-owned properties) as a general rule, wholesaling is not illegal.
Where to Find Wholesale Real Estate Deals
When looking for viable properties to offer as wholesale deals, the MLS is the least likely place to find them. Instead, successful wholesalers focus on off-market properties. In the past, wholesalers primarily used bandit signs to find sellers looking to sell quickly and easily without the services or cost of listing with a real estate agent. Now, wholesalers have access to databases rich with motivated seller leads and properties nationwide. This kind of access has dramatically increased deal flow for wholesalers as they can find off-market opportunities by using data and tech traditionally only used by hedge funds and big institutional investors. It’s an ‘everyman’ real estate game now and more and more wholesalers are finding success in tech-driven deal flow market.
How To Wholesale Real Estate Online
With the advent of online data and tech to find motivated sellers and off-market property leads, also comes the ability to complete the entire process online.
- Use PiN to find and connect with off-market property leads
- Find end buyers quickly and easily when deals are posted inside the Connected Investors Marketplace
How To Wholesale Properties Out Of State
It’s also possible to take online wholesaling one step further and wholesale real estate remotely, rather than just in one local market.
- Use PiN to find and connect with off-market property leads
- Engage boots on the ground pros to evaluate the property and provide a property report
- Execute purchase and sale agreements digitally
- Find end buyers anywhere nationwide inside Connected Investors
How much do Real Estate Wholesalers Make?
Ultimately, every wholesaler, property and motivated seller is a bit different…Fortunately the steps involved in taking a deal from initial contact to close remain the same. Mastering the steps in the wholesale process allows you to repeatedly close wholesale deals for impressive income. How much money does a wholesaler make? An average per deal is about $5000 but don’t take that number to the bank. It can be significantly more and it can be less. It varies wildly depending on the market, the property and the quality of the deal. Deal quality and the number deals you close will have the biggest impact on the real estate wholesaler salary.To learn more about the formulas wholesalers use, check out our article on Formulas for Flipping.
Win-Win Wholesale Transactions
Always keep in mind that as a wholesaler, you’re working for three different people at the same time.
The Motivated Seller – This is the owner of a property that they can either no longer afford or no longer want. As a wholesaler, you can bring sellers and buyers together in a non-traditional way that works for everyone involved.The Investor – They need properties with enough equity to allow for profits after renovations. Wholesalers can tailor their marketing efforts to motivated sellers in areas attractive to investors. Finding high demand properties makes it easier to present to a wide network of investors.
TIP: As a top-notch wholesaler, you can also refer your buyers to the #1 Funding Source for real estate investors, CiX.com. You’ll close more deals faster because your investor buyers have easy access to funding.
The Wholesaler (You!) – When you take care of both the seller and investor while leaving enough in the middle to profit, you win! Wholesalers can generate very nice commissions in a very short time. It takes effective marketing and understanding the local investing landscape.
The Tools Wholesalers Need to Succeed
Collecting wholesale profits isn’t the difficult process it used to be. The Connected Investors Marketplace allows wholesalers to post wholesale deals to a huge network of nationwide cash buyers. Contract Genie makes state-specific, customizable contracts available 24-7. Ci’s Value Report allows remote wholesalers to put boots on the ground in any market. And most importantly, PiN provides direct access to motivated sellers in any market. Once a wholesaler understands what a quality deal looks like and follows the basic path to profits, they can repeat the wholesaling steps over and over again for incredible returns.
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