When it comes to wholesaling real estate, a person acts as an intermediary between property sellers and buyers. The seller agrees to sell the property on their behalf at a mutually agreed-upon price without being their real estate agent or buying the property themselves. If the house is sold for more than the agreed-upon price, the seller keeps the difference as profit.
What is Wholesaling Real Estate?
Wholesaling real estate is a business strategy where investors enter into a temporary contract on a property with the owner and then sell or reassign that contract to another buyer later. Real estate wholesalers make profits by finding a buyer willing to pay a higher amount than the price agreed upon in the initial contract with the seller.
“Wholesalers and property owners sign a contract in which the wholesaler agrees to sell the property on behalf of the owner within a specified timeframe and for a specified minimum price,” according to David Eilor, a lawyer and owner of David Eilor Legal Offices, in an email to The Balance. “This is often done when property owners feel that their property is hard to sell or simply do not want to go through the trouble of trying to sell it themselves.”
Unlike other forms of real estate investing, wholesalers do not own the property in question and do not need to purchase it upfront. In fact, wholesaling real estate does not require upfront capital; the larger investment is time.
How to Wholesale Real Estate
Step 1: Find Properties for Sale
To wholesale real estate, you first need to find properties to buy and sell. Sellers entering into wholesaling contracts may have distressed situations – either the property is in poor condition, or the seller is experiencing financial hardship and wants to sell. For example, the seller may be someone who has inherited a distressed property and does not want to fix it up and sell it themselves.
According to Jeff Shipwash, a real estate investor and owner of Shipwash Properties LLC, good marketing strategies can help you find those properties.
“To successfully wholesale real estate, you first need to establish an excellent marketing strategy to find off-market properties,” Shipwash stated in an email to The Balance. “Common marketing strategies include direct mail, driving for dollars, Google ads, search engine optimization, and cold calling.”
Step 2: Enter into a Contract
Once you find a property to wholesale, you will enter into a contract with the seller. The contract specifies a timeframe within which you must sell the property and the minimum price at which you can sell it. For example, you might agree to sell the property for $200,000 within 90 days. The minimum sale price is $200,000 – the amount the seller will receive from the sale. Any amount above this minimum price is profit for you as the wholesaler. So, if you sell the house for $225,000 during that specified timeframe, you will keep $25,000 while the seller receives the agreed-upon $200,000.
Step 3: Find a Buyer
After entering into a contract with the property seller, it’s time to look for a buyer. In most cases, buyers for wholesale properties are real estate investors who are ready to pay cash, according to Shipwash.
As a real estate wholesaler, it’s beneficial to have a network of investors you can turn to when you have a property available. You may be able to utilize social media platforms like Facebook and LinkedIn to connect with others or local real estate investment groups in your area.
Step 4: Reassign or Sell the Contract for Profit
Once you find a buyer and agree on a sale price, you will sell the property contract to the buyer, ideally at a price higher than what you agreed upon with the seller. The buyer receives ownership of the home, just like in any regular property purchase. The seller gets the agreed-upon amount, and you keep the difference as profit.
Sale
Wholesale Real Estate vs. House Flipping
Wholesale real estate and house flipping are both forms of real estate investment where profit is made by acting as a middleman between the buyer and seller. However, apart from this factor, the processes are quite different.
First, a wholesale real estate investor does not actually own the property. They simply enter into a contract until they can find a legitimate buyer.
On the other hand, a person who flips houses actually buys the home. Before reselling it, the house flipper often renovates it. Between purchasing and flipping, house flipping can require a significant investment of both money and time.
“Typically, wholesale real estate does not involve any renovations, while house flipping revolves around the idea of finding a home you can quickly renovate to increase its value”, according to Aylor. “Wholesale properties are often sold ‘as-is’, and are usually sold to a buyer who is prepared to work on improving them”.
However, house flippers usually enjoy a much larger profit margin than those who wholesale real estate. After all, the house flipper has increased the home’s value through renovations and improvements, while the wholesale property is sold as is. The lower profit margins for wholesale real estate distributors can be attributed to the fact that these investors bear far less risk than those who flip houses.
Should You Wholesale Real Estate?
Wholesaling real estate can be a good strategy for those looking to enter the real estate world but lack sufficient capital to do so. Since there is no upfront investment, wholesaling real estate may be more feasible than other forms of real estate investing.
However, you should keep in mind that wholesaling real estate is not for everyone. It requires a marketing strategy to find properties and also a large network of real estate investors who are willing to buy the properties you are wholesaling. Therefore, this type of investment may not be ideal for those who are not skilled in sales or who prefer passive and non-active investment.
Frequently Asked Questions
How old do you have to be to wholesale real estate?
You typically need to be at least 18 years old to wholesale real estate, which is the legal minimum age to enter into a real estate contract. Exceptions are in the states of Alabama and Nebraska, where the age of majority is 19 years.
How do you find wholesale real estate deals?
To find properties to wholesale, you will need to use a good marketing strategy that may include cold calling, direct mail marketing, and social media optimization.
How do you start a wholesaling real estate business?
To start a wholesaling real estate business, you will need to use marketing efforts to find off-market properties for sale and build your network of real estate investors to buy the properties.
In which states can you wholesale real estate without a license?
In most cases, a real estate license is not required to wholesale real estate as long as your activities do not exceed the scope of a real estate agent or broker. Some states may limit the number of deals you can make without a license. Be sure to research your state’s laws before starting your wholesaling real estate business.
Source: https://www.thebalancemoney.com/how-to-wholesale-real-estate-5191763
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