Real estate wholesaling has been gaining a ton of traction in popularity. As a result, we started this real estate wholesaling for beginners guide. With multiple real estate shows airing on TV, it has brought attention to an area of real estate investing that most aren’t familiar with. As with anything involving risk & profit, being educated & informed will give you a tremendous edge when it comes to execution!
Real Estate Wholesaling Definition
Condensing a real estate wholesaling definition to a few words is actually easier than you think. Real estate wholesaling, in short, is a way to buy and sell real estate contracts. The key word here is contracts, no properties outright. We will get into that further below.
What is Real Estate Wholesaling?
Real estate wholesaling is when a seller is looking to unload a property. The “wholesaler” creates a contract with the seller, at a discounted price, to sell the home on their behalf (ex $280k). The wholesaler then goes to find buyers / investors for say 300k. The 20k difference is what the wholesaler receives as a profit, all without using a single dollar of his own.
So what’s the catch?
How Does Real Estate Wholesaling Work? – Example
The actual owner of the property (sellers) , are dealing with properties that are either off market or distressed (generally both). In order for the seller to get the listing up to par to up for a traditional sale, would involve more funds than they want to. So this gives the wholesaler tons of options from the sale side to buyers
What is the Real Estate Wholesaling Process?
Below is a general outline of the real estate wholesaling process:
- Identify a property to wholesale:
This can be done through various methods such as networking with other real estate professionals, searching online listings, or driving through neighborhoods to find distressed properties.
- Negotiate a purchase contract with the seller:
The wholesaler will negotiate a purchase price for the property that is lower than the market value.
- Assign the contract to another buyer:
Once the contract has been signed, the wholesaler will find a buyer who is willing to pay a higher price for the property. The wholesaler will then assign the contract to this buyer and collect the difference between the contract price and the assignment price as their profit.
- Close the sale:
The buyer will then take over the contract and complete the purchase of the property, typically using a mortgage loan.
What are the Pros and Cons to Real Estate Wholesaling?
There are several pros and cons to real estate wholesaling. Like anything that involves the profit potential, no matter the upside, it’s important you understand the risks. Knowing the pros & cons of wholesaling real estate will allow you to mitigate your risks, while capitalizing on the upside
What are the Pros to Real Estate Wholesaling?
There are several pros to wholesaling in real estate. One of the main benefits is the low risk involved. As the wholesaler does not typically take ownership of the property, they are not responsible for any repairs or maintenance. This means that the wholesaler does not have to worry about the costs and risks associated with owning and managing a rental property.
In addition to being low risk, wholesaling can also be a relatively quick way to make a profit. The wholesaler does not have to hold onto the property for an extended period of time, as they are only acting as a middleman between the seller and the end buyer. This means that the wholesaler can potentially make a profit on multiple deals in a short period of time.
Another pro of wholesaling is the flexibility it offers. As a wholesaler, you are not tied down to a specific property and can take on multiple deals at once. This allows you to diversify your portfolio and potentially increase your profits.
What are the Cons to Real Estate Wholesaling?
However, there are also several cons to consider when it comes to wholesaling in real estate. One major drawback is the difficulty of finding suitable properties to wholesale. The success of a wholesale deal depends on the ability of the wholesaler to find a seller willing to sell the property at a discounted price, and to find an end buyer willing to pay a higher price. This can be challenging, as the wholesaler must have a thorough understanding of the local real estate market in order to accurately estimate the value of the property and determine the appropriate resale price.
Additionally, the wholesaler must be able to negotiate favorable deals with both the seller and the end buyer. This requires strong negotiation skills and the ability to build relationships with potential buyers and sellers.
Can You Really Do Real Estate Wholesaling with No Money?
This is always a critical question, especially beginners to real estate wholesaling. Is it truly possible to do real estate wholesaling with no money? The answer is absolutely yes; however, like anything, money makes it a lot easier to have several different options
If you absolutely want to stick with real estate wholesaling with no money, that is more than ok. As you get some wins under your belt, you’ll naturally start exploring and seeing if you can use money to accelerate your growth and profits.
The reason you are able to do real estate wholesaling with no money is the “product” you’re actually buying. You’re not buying a thing! You’re not purchasing property, you are convincing a seller to give you a contract to sell his property. Now that sounds amazing, but you need several factors at play to actually make money off this. The two largest ones are to research the area to know values and to have a list of buyers ready to pounce on a favorable contract. If you have a personable skills to get that contract, and have a buyer you can contact, you can make money with real estate wholesaling with no money for a very very long time (at least, until you graduate to wanting to expedite your growth)!
Is Real Estate Wholesaling Legal?
After reading this guide, along the way, you’ll be asking yourself is real estate wholesaling legal? The short answer, as long as you’re transparent it is. But like anything, there’s more to it than that.
Real estate wholesaling is generally considered to be legal, although it is important to note that the legal status of wholesaling may vary depending on the location and specific circumstances.
In most states, real estate wholesalers are required to have a real estate license if they are acting as a principal in the transaction (i.e., they are buying the property for themselves and then reselling it). This is to ensure that they are operating legally and ethically.
It is important for real estate wholesalers to disclose their intentions to the seller and to any potential buyers. Failing to disclose that a property is being offered for wholesale can be considered fraud and may result in legal consequences.
Additionally, it is important for wholesalers to comply with any applicable laws and regulations, including those related to contracts, disclosure, and fair housing.
Overall, as long as a real estate wholesaler is operating transparently and in compliance with the law, real estate wholesaling can be an amazing & legal way to make money in the real estate industry.
What is the Difference Between Real Estate Wholesaling & Flipping?
At some point, you might find yourself comparing the difference between real estate wholesaling and flipping. Real estate wholesaling and flipping are both strategies used to purchase and sell properties for a profit. However, there are some key differences between the two.
Real estate wholesaling involves finding a property that is undervalued or in high demand, negotiating a purchase contract with the seller at a discounted price, and then assigning the contract to another buyer for a higher price. The goal of a wholesaler is to make a profit by quickly reselling the property to another buyer, without actually taking ownership of the property.
On the other hand, flipping involves purchasing a property, making improvements to increase its value, and then reselling it for a profit. Flippers generally hold onto the property for a longer period of time, as they are responsible for completing the renovations and finding a buyer for the property.
In summary, the main difference between wholesaling and flipping is that wholesaling involves finding a buyer for a property that the wholesaler does not actually own, while flipping involves purchasing a property, making improvements, and then reselling it.
What are Some Great Real Estate Wholesaling Tools?
Here are some great real estate wholesaling tools:
- A good real estate CRM (customer relationship management) software: This can help a wholesaler keep track of leads, manage contracts and paperwork, and communicate with clients.
- A professional-grade camera: Having high-quality photos of the properties a wholesaler is trying to sell can be very helpful in attracting buyers.
- A reliable network of buyers: Building a network of potential buyers, such as other investors or real estate agents, can be helpful for a wholesaler looking to quickly resell properties.
- A real estate attorney: Having a real estate attorney on hand can be helpful for reviewing and negotiating contracts, as well as handling any legal issues that may arise.
- A real estate calculator: A calculator or app that can help a wholesaler quickly estimate the potential profit on a deal can be useful in determining the feasibility of a potential transaction.
- A title company: Working with a reputable title company can help ensure that the transfer of ownership of a property goes smoothly and that any potential issues with the title are resolved.
Real Estate Wholesaling Contracts – How Do These Work?
Here is a general outline of the terms that might be included in real estate wholesaling contracts:
- Parties: The contract should specify the names of the parties involved in the transaction, including the seller and the wholesaler.
- Property: The contract should describe the property being sold, including the address, legal description, and any relevant details.
- Purchase price: The contract should specify the purchase price that the wholesaler is offering to the seller.
- Closing date: The contract should specify when the closing is scheduled to take place.
- Contingencies: The contract should outline any contingencies that must be met in order for the sale to be completed, such as the wholesaler finding a buyer or obtaining financing.
- Assignment of contract: The contract should include a clause allowing the wholesaler to assign the contract to another buyer.
Disclaimer: The contract should include a disclaimer stating that the wholesaler is acting as a principal in the transaction and is not acting as a real estate agent.
It’s important to note that this is just a general outline and that the specific terms of a real estate wholesaling contract will depend on the needs and goals of the parties involved. It is always a good idea to have a real estate attorney review any contracts before signing.
Still Interested in More Details About Real Estate Wholesaling?
The amount of details and intricacies involved in real estate wholesaling is immense. However, we try to simplify the process so it can be easy to digest and easy for you to get into the game. For many, real estate wholesaling is an amazing way to get into the real estate game without money. For others with more experience, real estate wholesaling is just another tool to use in the real estate investment space. With the economy and real estate market turned, you’ll see all sorts of upside down opportunities occur in the next several years. As a result, getting educated quickly and acting on the market conditions, while understanding your risk/reward is crucial. Sign up for our email list to gain additional information that might be the nugget of information needed for your next venture.