Important Note: Before attempting to wholesale real estate, we highly recommend researching your local laws regarding wholesaling and speaking to a legal professional.
Real estate wholesaling is a popular strategy in the real estate industry that has gained significant attention over the past few years.
It’s a simple concept:
A real estate wholesaler finds a property at a discounted price and then sells the contract to an investor for a profit. The investor then takes over the property and either renovates it for resale or rents it out for passive income.
While it may seem easy to make money in real estate with this method, wholesaling requires hard work, dedication, and skill. This post will explore the ins and outs of wholesaling in real estate, including how it works, its benefits and drawbacks, and tools you can use to land your first wholesaling deal.
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How Does Real Estate Wholesaling Work?
The process of wholesaling real estate begins with finding a property that is undervalued or has significant potential for improvement, typically with a homeowner who needs to sell urgently for personal reasons.
The real estate wholesaler then makes an offer to purchase the property at a lower price than the market value (since the property is often distressed and requires extensive renovations), usually with a contingency that allows them to back out of the deal if they cannot find an investor to sell it to.
Finding an Investor to Buy the Property
Once the wholesaler has a contract to purchase the property, they begin marketing it to potential investors.
This may involve sending emails, posting on social media, or using real estate data to find investor leads. More seasoned wholesalers often have a network of real estate investors (e.g., flippers) who repeatedly buy distressed real estate. This allows them to assign contracts and move on to their next deal easily.
The main goal for a real estate wholesaler is to find an investor who is interested in purchasing the property at a price that allows the wholesaler to make a profit.
The investor then pays the wholesaler a fee for the right to purchase the property. This fee is typically a percentage of the final sale price and is agreed upon between the wholesaler and the investor before the property is sold.
What Are the Benefits of Wholesaling Real Estate?
Quicker entry into the real estate game: One of the biggest benefits of real estate wholesaling is that it allows investors to start earning commissions on deals relatively quickly. For investors looking to break into the rental market or start flipping properties, this can be a convenient way to generate income for a down payment.
The ability to help other investors: Wholesalers help other real estate investors acquire properties at discounted prices, a process that would be more time-consuming if they had to find the properties themselves. This can be especially beneficial for investors who are just starting and may not have much knowledge or experience finding leads.
The ability to help homeowners escape a difficult situation: The motivated sellers you would approach for a wholesaling deal typically need to sell their property urgently due to personal circumstances. By helping them find a buyer, you’re potentially helping them avoid foreclosure.
Can be a lower-risk real estate investment strategy: Real estate wholesaling can be a low-risk investment strategy compared to other forms of real estate investing. Because the wholesaler typically won’t purchase the property themselves, they are not responsible for the repairs or renovations needed. Additionally, if the wholesaler cannot find an investor to sell the property to, they can typically back out of the deal and walk away without any financial penalty.
Pro Tip: While wholesalers typically assign the contract of the property itself, there are some cases in which a wholesaler may need to purchase the property before finding a new buyer in a few days (also known as performing a double-closing). In this case, transactional funding may be required to obtain the property.
What Are the Drawbacks of Real Estate Wholesaling?
While there are plenty of benefits to real estate wholesaling, there are also some drawbacks that investors should be aware of.
Competition for wholesalers is growing: One of the biggest drawbacks of wholesaling is that it can be a highly-competitive market. Because it is a relatively easy way to get started in the real estate industry, many wholesalers compete for the same properties. This can make it difficult to find deals and drive up the price of properties, making it harder to generate a profit.
Potential legal barriers: Wholesaling can also be subject to legal challenges, as it can be seen as brokering without a license in some regions. To avoid any legal implications of wholesaling, wholesalers need to thoroughly understand the laws and regulations in their city and state before attempting a deal.
Potential for risky deals: As we mentioned previously, assigning the contract to another buyer is all that is needed to close deals for most wholesalers. However, in special circumstances where a wholesaler must first buy a property and then find a buyer, the wholesaler risks losing out on their investment if they cannot find a buyer quickly enough.
Learn How to Find Your First Wholesaling Deal With PropStream
Wholesaling real estate can be a lucrative strategy for getting into the real estate investment world with little to no upfront investment. Because of this, it’s become a more attractive option for many budding real estate pros.
However, a huge aspect of consistently closing wholesale deals is generating leads. How can you find the most valuable leads?
With PropStream, you can easily identify the most motivated sellers, identify specific lead niches competitors haven’t found yet, and craft your marketing campaign in one convenient location.
To learn more about how to get started as a wholesaler and how PropStream can support your journey, check out our free PropStream Academy course: Introduction to Wholesaling!
Psst! Don’t forget to activate your PropStream 7-day free trial to follow along with the lessons and save 50 free leads.