How To Wholesale Real Estate

How to Wholesale Real Estate: A Step-by-Step Guide for Beginners

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If you’re looking for a way to try real estate investing but you don’t have a ton of money to invest, real estate wholesaling could be a viable option. Real estate wholesaling involves finding properties for sale, putting them under contract and then finding a third-party buyer. When a sale completes successfully, the wholesaler takes a cut in return for connecting the buyer and seller.

What is real estate wholesaling?

If you want to enter the world of real estate investing, real estate wholesaling is one of the ways to do that with the fewest barriers to entry. Simply put, a wholesaler is someone who acts as a middleman between a seller and buyer in a real estate transaction. Wholesalers who can facilitate a steady stream of home sales can make significant money — all without having to invest a ton of cash up front, get licensed (in most states) or deal with complex issues like construction or DIY rehabbing.

Wholesalers typically coordinate the sale of distressed properties, which are usually homes that are in default, being foreclosed upon, “real estate owned” (REO) or otherwise being sold to settle a debt. The owners of these properties are highly motivated to sell — usually as quickly as possible — but need help finding buyers who are willing to buy. The properties are often in disrepair, since homeowners with serious financial troubles aren’t typically able to keep a house in tip-top shape.

Unlike house flippers, wholesalers get distressed properties to closing without making any improvements to them.

Wholesalers use two general methods to close a sale:

Selling or “assigning” a contract

Assignment contract wholesaling is when a wholesaler finds a seller willing to put their house under contract for an agreed-upon price. The wholesaler then turns around and finds a buyer willing to pay more than that price, transfers (“assigns”) the contract to that buyer and pockets the difference when the sale closes as an assignment fee.

A double close

In this transaction, a wholesaler will purchase the property with their own money (or a hard money loan) before selling it to a buyer. However, the wholesaler arranges for their purchase to overlap in time with the buyer’s purchase. If a double close is timed correctly, a wholesaler can own a property for only a few days or even just a few minutes. The wholesaler will make their money by profiting from the sale directly, since they are technically the seller.

Real estate wholesaling example

Here’s an example of how assignment contract wholesaling works:

First, a wholesaler finds someone who agrees to sell their home. Let’s say the seller wants $90,000 for their property. The seller enters into a purchase agreement contract with the wholesaler, but the wholesaler doesn’t buy the property outright. The signed contract gives the wholesaler the right to buy the home, but now the wholesaler turns to their networks to find a buyer willing to pay more than $90,000 to buy the property.

The wholesaler can find a buyer who agrees to pay $100,000 for the property and then sells the contract to them. The property is bought for $10,000 and sold for $90,000; the difference is the wholesaler’s fee.

Step by step: Wholesaling real estate

For this example, we’ll stick with assignment contract wholesaling because it’s the best way to get into wholesale real estate with no money, no licensing and no credit requirement.

Step 1: Identify motivated sellers

In general home sellers want to get as much money as they can for their homes, even if aiming for that goal means the sale will take some extra time. However, as a wholesaler, you want to target a slightly different demographic: sellers who are motivated to sell their homes quickly and with as little hassle as possible, even if it means lowering the price. This discounted price gives you some headroom to set a higher price when you approach buyers later.

Here are some ways to find motivated sellers:

• Search for homes that have been on the market for a long time or have been taken off the market.
• Look for homes that are vacant or neglected.
• Search public records to find homeowners who are in default and facing foreclosure or have liens or judgments against their homes.
• Use advertising methods like direct mail, TV and radio spots or Facebook ads to find homeowners who want to sell a home quickly.

Step 2: Make an offer

Before you make an offer to a seller, you should look over the property closely — or, if you’re out of state and operating virtually, gather as much information on it as you can — to estimate the state of the home. How much money would someone need to put into repairs or renovations in order to earn a higher price when they resell it?

The amount a wholesaler offers to the seller should factor in:

• Repair costs
• Buyer’s holding costs
• Closing costs
• The buyer’s end profit
• The wholesaler’s fee

Step 3: Enter a contract

When you and the seller come to an agreement, both parties will sign a purchase agreement — a contract that gives you the right to purchase the property at the agreed-upon price. A typical wholesaling contract permits you to assign the contract to a third-party buyer. A real estate attorney who works with investors and wholesalers can help you draft a contract that follows your state’s laws.

Step 4: Find a buyer and assign the contract

At this point in the process, you will find a buyer — often a real estate investor with cash — who wants to buy the property. Once you agree on a price, you’ll assign the contract to them using an assignment of contract. Assigning the contract means transferring your role to the buyer, giving them the right to buy the property for the price listed in the contract. As a wholesaler, you’ll earn an assignment fee from the buyer when you sell the buying rights.

It can be helpful to build up a list of real estate investors who want to buy distressed properties before you enter into a wholesale contract.

You can build a contact list through sources like:

• Attending local real estate meetups
• Visiting online forums
• Asking title companies about investors
• Calling landlords in your area who are advertising rentals
• Visiting property auctions to meet investors

Whenever you reach out to potential buyers, you must comply with advertising regulations in your area. In most cases, you cannot advertise the house itself. Instead, you need to advertise that you’re selling your legal interest in the purchase contract only.

Step 5: The buyer closes on the property

Generally, the closing will occur with a title company and, in some cases, a real estate attorney. Wholesalers aren’t directly involved in the closing; it’s a transaction between the buyer and the homeowner. However, because wholesaling also involves handing off the contract from the wholesaler to the buyer, closing on a wholesale deal can be more complicated than a typical home purchase.

Not every title company will understand the complexities associated with the real estate wholesaling process. Finding a title company that works with wholesalers and real estate investors may help the closing go more smoothly and quickly.

Pros and cons of wholesaling real estate

Pros

• You don’t need financing or cash to buy a property, which in turn means no credit check
• You don’t need a real estate license (in most states)
• Your upfront investment is minimal, which reduces the risk of the home sale transaction for you
• You can build a network in the real estate business

Cons

• You may struggle to find good deals if you’re operating in a competitive market
• You’ll have to comply with legal limitations on how you can advertise a property that you don’t own
• You’ve put less at risk, but as a result, you stand to earn less than you might with house flipping or other real estate investment strategies
• Your assignment fee will be publicly viewable on the closing disclosure unless you use the double-close method

Frequently asked questions

What’s the difference between real estate wholesaling and house flipping?

Flipping a house involves buying a house, fixing it up and selling it at a profit. In wholesaling, you don’t improve the home. Instead, you find a buyer — generally an investor like a house flipper — who intends to fix up the property to then sell or rent it.

Do you need a license to wholesale real estate?

Are assignment fees taxable?

Yes. According to the Internal Revenue Service (IRS), all income you generate during the year is taxable unless explicitly exempt. Additionally, the paperwork involved in a real estate wholesaling by contract assignment creates a record of the assignment fees paid on home sales you are involved in as a wholesaler — and the IRS can see these.

What’s the difference between a wholesaler, real estate broker, real estate agent and realtor?

Wholesalers, brokers and real estate agents all serve as middlemen between buyers and sellers, connecting the two to help initiate a home sale. The defining differences between these roles turn on whether they require licensing, how they make their money and whether they involve becoming a principal in the transaction, meaning whether they ever own the house being sold in the deals they facilitate.

Real estate brokers and real estate agents have to be licensed (realtors are just real estate agents or brokers who are members of the National Association of Realtors, which is a trade association). They are not principals in the sales they earn money from, meaning that they never own the property. They make money by charging a fee, usually paid by the seller.

On the other hand, a wholesaler may decide to use methods that involve owning the property for a short time before selling it and doesn’t usually have any licensing. The buyer, not the seller, pays the wholesaler’s fee.

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What Is Real Estate Wholesaling? How It Works, Example, and Strategies

Troy Segal is an editor and writer. She has 20+ years of experience covering personal finance, wealth management, and business news.

Updated October 18, 2024
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What Is Real Estate Wholesaling?

Real estate wholesaling involves buying a property, then quickly selling it to another buyer without making any significant improvements or repairs. The point is to profit by finding a great deal on a property, then passing the deal on to another investor willing to pay more.

Investing in real estate is nothing like investing in stocks and bonds. With the latter two, depending on the type of investment, you may be able to dive right in with perhaps as little as $100. You can exit whenever you wish. It’s not that easy when you’re dealing with real estate. In fact, real estate transactions can be tricky to navigate and often come with a hefty price tag.

What’s more, it takes time to buy and sell homes. First, there’s the issue of the down payment. You also need financing for what your down payment doesn’t cover. You must fill out all kinds of paperwork. Then, there’s the closing, not to mention the time required to deal with tenants and collect rent.

If you really want to invest in real estate, but can’t bear the thought of all the money involved and going through the purchase process, you have options. Wholesale real estate is one of them. It’s a legal strategy concerning the purchase of real estate that you don’t commit to buying yourself or make a down payment on.

So, how does it work? Read on to find out about wholesale real estate and the profits available from it.

Key Takeaways

• In real estate wholesaling, a wholesaler puts a seller’s home under contract and then finds an interested investor to buy it.
• The wholesaler assigns their rights in the contract to the buyer at a higher price than the price contracted with the seller and keeps the difference.
• Real estate wholesalers generally deal in distressed properties.
• They take on the role of middleman to match investors/buyers with sellers.
• Unlike flipping real estate, a real estate wholesaler doesn’t make any renovations and carries no costs.

Understanding Real Estate Wholesaling

Wholesale real estate refers to a short-term business strategy that investors can use to make quick and steady income in the real estate market.

In wholesale real estate transactions, the wholesaler enters into a purchase contract for a home from a seller for a small earnest money deposit. The contract spells out the amount that the wholesaler will sell the property for and the required time period for the sale.

After the wholesale real estate contract is in place, the wholesaler attempts to find an interested investor. Once found, the wholesaler reassigns the contract to the investor at an agreed-upon higher price. The difference in prices is known as the wholesale fee and can be 5% to 10% of the property price. This goes to the wholesaler.

Usually, wholesalers look for a distressed property that the owner doesn’t want to spend time or money on. The owner is usually motivated to sell and often doesn’t want to work with a real estate agent.

Wholesale real estate may be well suited for people interested in real estate transactions but who don’t have the financial wherewithal to actually buy and sell properties.

You often don’t need a real estate license to become a wholesaler, but check your local laws to be sure. If you have great people skills and are industrious, wholesale real estate may be right for you.

Important

Instead of purchasing a home and selling it, a wholesaler contracts with a seller for the property, finds a party interested in buying it, and sells them their rights to the contract.

How to Wholesale Real Estate

While wholesaling real estate doesn’t require a large amount of money, it does require that a wholesaler do the necessary property research, the networking to find the right investors, and the work to craft a financial deal that the investor will accept.

Here are the steps involved in real estate wholesaling.

1. Conduct Research

Learn about the wholesaling laws in your jurisdiction. In addition, look into the locales and neighborhoods where you want to buy property.

2. Locate a Distressed Property

Look for properties that may be listed below market value and owners who are motivated to sell. Owners of homes that are being foreclosed or have liens may be open to selling for less than what the house is worth. These resources may help you find such properties:

• Multiple Listing Service (MLS)
• Networking organizations
• Online real estate auction sites
• Social media platforms
• Foreclosure sites

3. Do the Math and Due Diligence

Once you find a property that fits your criteria, make sure your wholesale real estate transaction will make financial sense. First, find out the property’s fair market value. Looking at comparable properties sold in the area, occupancy rates, and cash-on-cash returns can help. Then, determine what any required repairs will cost.

This information will allow you to calculate the after-repair value (the fair market value after repairs are done). With that, you can calculate a maximum allowable offer (the highest price you can offer for the distressed property and still make a profit).

4. Contact the Seller

Explain your role as a real estate wholesaler and how working together may be an ideal way to sell their property. Clearly describe how the wholesale real estate transaction would work. Wholesale real estate transactions are legitimate (as long as state laws are followed), and there’s nothing to hide.

5. Obtain a Property Contract

Present your offer to the seller and get the property under contract. Be sure your contract includes the right to assign the contract to another party. Also, include in your contract a contingency that allows you, as the wholesaler, to withdraw from the deal if you are unable to find a buyer before the contract expires. This limits your risk.

6. Find a Cash Buyer

Once you’ve found the right property and have a wholesale real estate contract with the seller in place, you need to market your contract to potential cash buyers.

Use your networking skills, both online and off, to connect with potential investors. You might also contact local real estate agents and ask about cash purchases made over the recent past.

7. Reassign the Contract to the Buyer

Now’s the time to close the deal with the investor who best fits your wholesale real estate transaction. Both of you have to agree to terms and conditions. Of course, as the real estate wholesaler, you want to be paid for the work you did to find the distressed property and to put the deal together.

Pros and Cons of Wholesale Real Estate

Pros

• Real estate wholesaling can school you in the real estate market and help you build high-value negotiating skills.
• It’s a low-risk money-making strategy because it requires little money upfront.
• Money is made quickly. Profits, when they come, are made in a relatively shorter time frame than other kinds of real estate investments. The fee is partially paid at the assignment of the purchase contract and the remainder at the closing of the property sale.
• No credit score (good or bad) is required.
• No property renovation experience or effort is necessary.
• If you have a good network of investors, you can sell the house fast.
• You may make a large profit in a relatively short time, depending on how many deals you put into play.

Cons

• To make reliable income quickly, you must develop (or already have) optimal networking skills and a solid pipeline of leads that can deliver investors.
• You won’t make any money until you find properties and investors, so a lot of sweat equity can be required as you master the process and build your book.
• Some states require a real estate license to wholesale real estate.
• Wholesale real estate transactions involve a profit margin that’s lower than other real estate investments.
• They can be unpredictable due to the dependency on suitable/available properties.
• Wholesalers who fail to find investors may lose their earnest money deposits.
• Property owners may not understand or be comfortable with the wholesale real estate strategy.

How to Succeed at Wholesale Real Estate

Real estate wholesaling isn’t for everyone. It requires a lot of work, time, commitment, and patience. You also need to have great communication and marketing skills.

You must build a network of investors who may be interested in buying the properties that you find.

Of course, finding the right kind of property is one of the keys to successful wholesaling. Homeowners who own distressed properties and are eager to sell make great prospects.

These are the kinds of properties that can attract potential investors. Before you make the seller an offer, you’ll want to review the types of repairs or additions that the home will need.

Here are some personal attributes that can help someone become a successful real estate wholesaler:

• A personality that focuses on goals and commits to achieving them
• An ability to organize and tackle tasks efficiently
• An ability to delegate tasks when useful
• A recognition that partnering with those with access to possible leads—e.g., the Multiple Listing Service—can be necessary
• An affinity for technology (such as customer relationship management software and mobile apps) that can make the entire wholesale real estate workflow easier and more effective
• An understanding of the power and value of a well-constructed website to market your services and dispense important information to potential sellers and investors
• A desire to learn more with each wholesaling experience and to make sure both seller and buyer are happy with the wholesale real estate transaction

Example of a Wholesale Real Estate Transaction

Real estate wholesaling may sound complicated, but it’s actually very simple.

Let’s say a homeowner has a property they don’t believe could sell because it’s fairly distressed. The owner doesn’t have the resources to fix it up and just continues to live in it, thinking they’ll never get a fair price for it.

Enter the wholesaler, who approaches the homeowner with an offer. Together, they agree to put the house under contract for a purchase price of $90,000. Using a network of investors, the wholesaler finds an eager buyer at $100,000.

The wholesaler assigns the contract to this investor, who then has a profitable fixer-upper project. The wholesaler makes a $10,000 profit without having to buy the home.

Essentially, the wholesaler contracted with the homeowner to find an interested party to buy the house. Under the contract, the buyer paid $10,000 to the wholesaler and then closed on the purchase with a payment of $90,000.

Wholesale Real Estate vs. Flipping

Real estate wholesaling is similar to flipping. Both use property as a means to invest and make a profit. Both require a contract and the sale of a home.

However, the time frame with wholesaling is much shorter than it may be with flipping. Also, the wholesaler does not make any repairs or modifications to the home.

Since the wholesaler never actually purchases a home, real estate wholesaling is much less risky than flipping. Flipping also often involves renovation and carrying costs such as a mortgage, property taxes, and insurance.

Real estate wholesaling requires much less capital than flipping. Earnest money payments on a few properties generally suffice. Success depends on the wholesaler’s knowledge of the market and connection to investors for quick sales.

What’s Involved in Running a Wholesale Real Estate Business?

Running a real estate wholesaling business requires that you be good at finding properties that can be sold for less than market value. You have to be comfortable and proficient at negotiating deals with both home sellers and cash buyers. In addition, you must work hard to build and manage a solid, reliable lead list of buyers. Usually, you’ll also have to invest a small amount of funds in the form of earnest money deposits.

Do You Need a License to Wholesale Real Estate?

You may need a real estate license in some states. An important aspect of wholesale real estate is that you must look into your state laws relating to it (or the laws of state(s) in which you’ll engage in it). Be sure to learn all you can, and abide by any rules and regulations. A real estate attorney can help explain the landscape for you.

What Is a Wholesale Real Estate Contract?

A wholesale real estate assignment contract is what the wholesaler and the homeowner sign to start the process of wholesale real estate. It doesn’t provide the wholesaler with title to the property, but it gives them some control over it while they try to find an investor to buy the seller’s house.

Once the wholesaler locates that investor, the wholesaler assigns their contractual rights to them. This involves a different contract—an Assignment of Real Estate Purchase and Sale Agreement. This second document states that the investor/buyer assumes the wholesaler’s responsibilities, including buying the property according to the terms in the first contract (made with the seller).

The Bottom Line

Real estate wholesalers are middlemen who bring together homeowners of distressed houses and investors who want a below-market real estate deal that they can make a profit on.

Wholesale real estate offers beginners the opportunity to start investing in real estate. It usually involves little or zero capital investment. With experience, wholesalers can get several deals working at the same time and make a sizable profit quickly.

Real estate wholesaling involves a certain amount of risk, especially if a wholesaler has to make earnest money deposits. However, the potential to make solid profits is there for those who commit to the time and effort required to build a wholesale real estate business.