How To Get Started Wholesaling Real Estate

By
Services for Real Estate Pros with RealEstateSkills.com DRE #01998734

Wholesaling real estate is a great strategy for beginners who want to get into investing but don’t have the funds or the experience to do it on their own. It involves scouting potential deals on behalf of an investor and collecting substantial fees just for acting as the middleman in a transaction.

After teaching thousands of real estate investors around the country to flip contracts on houses for profit, I know that anyone who follows a tried and true process can earn five to six figures per month with this strategy.

It doesn’t require a license or years of schooling to wholesale real estate, but it requires patience and a thorough understanding of the local market. So, if you’re thinking about wholesaling houses, here’s a step-by-step look at how it’s done.

What Is Wholesaling Real Estate?

Wholesaling is a real estate investing strategy that involves finding motivated sellers willing to sell their property at a discount, getting the property under contract, and then flipping that contract to real estate investors at a slightly higher price. Doing so allows you to collect the difference between the price you negotiated with the seller and the purchase price paid to buy the end buyer, which can be substantial if done correctly.

You can wholesale properties without ever putting up any of your own cash or assuming ownership of the property, making it a great strategy for beginners. You must identify profitable real estate deals, negotiate with the buyer and seller, and then assign the wholesale contract to a new buyer. But finding a good wholesale deal is easier said than done. You’ll have to learn how to build a solid buyers list and study the local real estate market to know where to look.

How To Get Started Wholesaling Real Estate (7 Steps)

While there are many strategies on exactly how to wholesale real estate, here's a step-by-step wholesaling process to get you to your first deal:

Step 1: Build A Buyers List

The first step to becoming a wholesaler is building a solid buyer list. Wholesale transactions move pretty quickly, so the deal will likely fall through if you don’t have a list of potential buyers to call when you get a property under contract. Look for any real estate investors in your area who are flippers. In most cases, the buyer will want to rehab the property and sell it for market value. 

So, you should start by building contacts in the real estate business who are actively looking for investment properties. It’s best to look for cash buyers because they will be able to move quickly and won’t get delayed due to a lack of financing. But get the contact info of as many investors as possible and find some basic information about what they’re looking to buy, what kind of budget they're working with, what markets they invest in, and any other questions you find relevant to the conversation. 

You can find flippers and cash buyers by attending local real estate events, networking on social media, joining local real estate investor clubs, and reaching out to real estate agents for leads. There are many different ways to build a buyers list, so you’ll have to develop a strategy that works for you.

Step 2: Research The Local Real Estate Market

The next step is to do your due diligence and research the local real estate market. Get to know the local property values and learn to calculate the after-repair value of a home, which refers to the price a distressed property would sell for after it’s been rehabbed. 

You can do this simply by pulling the sales data for recent real estate transactions off Zillow or other listings websites to determine the rough market value of a similar property in good condition. Most flippers use the 70% rule when buying investment properties, which means they will pay up to 70% of the ARV for wholesale properties. 

So, learning the different price points and identifying what investors are looking for will help you tremendously when making an offer. Also, study demographic and location data like local school districts, population statistics, zoning regulations, and anything else that seems relevant.

Step 3: Develop A Marketing Strategy

The next step is developing a solid marketing strategy to help you find leads. The more you streamline the process and create a consistent pipeline for finding wholesaling deals, the easier it will be to earn consistent fees. This includes developing a strategy for finding both homeowners and real estate investors. 

Creating a reliable strategy that will show consistent results may take time. But try out as many different methods as possible until you land on a strategy that makes sense. You may consider posting bandit signs, using social media, checking public records, obtaining email subscribers, consulting with realtors, posting ads on Craigslist or Facebook Marketplace, direct mail, or other standard strategies. But being a successful wholesaler will hinge on your ability to develop strategies and systems to find and market properties that will continue to bring consistent leads.

Step 4: Practice Cold Calling Sellers

One of the most complex parts of wholesaling is contacting motivated sellers. In most cases, the homeowner will go through a foreclosure or be on the verge of missing payments, so they may not be in the best emotional state. 

So, if you want the best price, you must learn to be patient and empathetic when approaching sellers so you don’t come off as opportunistic or predatory. If you don’t have much experience with cold calling, you may want to practice a few times before contacting sellers or even develop a brief wholesaling cold calling script to feel confident when you eventually get on the phone.

Step 5: Talk To An Expert

Before you begin searching for distressed properties, you may want to consult a real estate attorney or agent to ensure you have everything you need. While wholesaling is perfectly legal, certain behavior is prohibited, and laws vary from county to county. So it helps to consult a professional to fill in any knowledge gaps that may impede your wholesaling business. It’s also essential to be sure you have the proper contracts and correctly execute them to be prepared when you come across a great deal.

Step 6: Look For Deals

Once you have everything prepared, you can start reaching out to property owners and making offers. The trick is to look for motivated sellers willing to move quickly and who won’t mind giving up their homes at a discount. It’s essential to determine the price points you need to make the deal work, so you don’t waste your time going after homes that house flippers won’t buy. 

Once you find a seller willing to let go of the property at a price that makes sense for your budget, you have to get them to sign a wholesale contract committing them to that price. This step is crucial so you don’t get cut out of the deal. Once you have a property under contract, you can start calling investors on your buyer’s list to see who may be interested in purchasing the property.

Step 7: Find A Buyer And Close The Sale

The final step to closing on a wholesale deal is assigning the contract to the home buyer. This is where having a solid buyers list will make your life much easier. If you already have a large pool of potential candidates, finding a buyer should only take a few phone calls. But if you have to scramble to find investors at the last minute, the chances of the seller backing out of the contract expiring are much higher. 

Once you find a buyer interested in purchasing the property, you’ll simply negotiate a price and assign the wholesale contract to them (or use whatever method makes sense for the deal). Once contracts are signed, they will assume all the responsibilities of owning the property, and you will collect your assignment fee.

Beginner Tips On Wholesaling Real Estate

Temper Your Expectations

Many new wholesalers think this technique is easy money, but it can be pretty challenging. While it isn’t as risky or capital-intensive as other real estate investment types, it requires time and patience. Depending on how much time you have to commit to the practice, it may take months or even years to land your first wholesale deal. 

So, before you begin, you must set your goals and determine how much time you can give up to become a wholesaler. If you are patient and put in the work, you may be surprised at how quickly you can find deals. But you may be disappointed if you’re searching for a get-rich-quick scheme.

Network As Much As Possible

Successful wholesalers are great networkers, so if you want to succeed, you’ll need to get out there and pass out business cards. The real estate business relies on relationships, so the more people you know, the better. Don’t just limit yourself to house flippers. 

Talk to as many people as possible because you never know who may point you to your next deal. This includes realtors, contractors, appraisers, inspectors, mortgage brokers, hard-money lenders, and anyone else who works in the real estate industry. Even chatting with friends, neighbors, and family can result in a potential lead. The more seeds you plant, the easier it will become to find great wholesale deals. So go out and shake as many hands as possible.

Work On Creating Systems

Many new wholesalers fail because they don’t create a reliable system to manage leads and process deals. In the beginning, you may have to try various methods and go through trial and error to find out what works and what doesn’t. But, if you don’t streamline this process, you’ll eventually get frustrated and want to quit. 

So it’s essential to begin creating systems that can help keep your business organized and running smoothly. You may want to invest in CRM software or purchase signs and mailers in bulk to continue advertising your business. There’s no right or wrong way to do this, just find a technique that works for you and helps you reduce any friction that may cause issues.

How To Start Wholesaling Real Estate With No Money

One of the fantastic benefits of wholesaling is that you don’t need any money to start, just time and work ethic. However, it likely won’t provide consistent income immediately, especially if you have no experience. So you may need to keep your day job while you work toward building your wholesale business. But you don’t need money for a downpayment or good credit to be a wholesaler.

The trick is to get the buyer to pay any costs associated with closing the deal. When working with a cash buyer, you won’t have to worry about dealing with lenders or getting the financing in order. 

Most homeowners you’ll be dealing with are motivated sellers, so they probably won’t require an earnest money deposit to be put in escrow because that would only delay the sale. The buyer will also be responsible for paying most of the closing costs, so you won’t have to worry about that.

You may need a small amount of money to pay for your advertising costs and other expenses related to finding leads, such as gas for driving around neighborhoods or paying your cell phone bill. But if done correctly, you can close a wholesale deal and earn an assignment fee without spending more than a few hundred dollars of your own money.

Pros and Cons Of Wholesaling Real Estate

Here are some pros and cons to consider as you start flipping real estate contracts:

Pros

Easy to Get Started: One of the significant benefits of wholesaling is that it’s easy to get started. You don’t need any special schooling or money in the bank, you only need people skills and an ability to identify deals. This makes wholesaling an excellent strategy for beginners who want to learn the ropes before buying property on their own.

Lower Risk: Wholesaling is far less risky than flipping houses or pursuing a rental property because you never assume ownership of a property or the responsibilities that come with it. The worst thing that can happen is you get a property under contract but can’t find a buyer. Still, there is typically a clause in the contract that allows you to back out of the deal without making a purchase, which means that you’re only risking your time and whatever small investments you’ve made in your business.

No Time Commitment: Another massive benefit of wholesaling is that you can do it independently without being committed to a particular schedule. This means you have total flexibility to structure your business however you want and can spend 80 hours a week doing it or just spend a few hours on the weekend searching for leads.

Cons

Less Earning Potential: Although wholesaling does offer the ability to earn significant fees, the earning potential is not the same as other real estate investing techniques. It doesn’t provide the same kind of large payout as flipping a house, and because it’s a short-term strategy, it won’t provide the same consistent cash flow as a rental property. But, it is also less risky, which diminishes the earning potential.

No Guaranteed Income: While wholesaling can provide a significant income stream if you stay committed, it doesn’t offer the same guaranteed income as a regular job. This means you may spend weeks or months working without seeing any money from your efforts. Closing one deal can make up for this period of struggle. However, you must remain patient and consistent. Otherwise, it’s easy to get frustrated.

Wholesaling Real Estate Contracts

To be a successful wholesaler, you must have a solid understanding of real estate contracts. You’ll want to be able to commit the seller to the negotiated price without committing yourself to buy the property in the process. There are several contracts you may use to wholesale real estate.

The first is a purchase sale agreement, a standard contract used to purchase real estate in many scenarios. There are two ways to use a purchase contract in wholesale deals. You can either include a clause that allows you to assign the contract and the responsibilities that come with it to the end buyer. This is also known as an assignment of contract and is the most common strategy used by wholesalers.

Another option is to do what is called a double closing, where you close on the property twice, once with the seller and once with the buyer. This will involve the wholesaler briefly taking ownership of the property on the closing date and enlisting the help of a title company to ensure the transfer of ownership is handled correctly. This strategy is a bit more complex but may be required by lenders who won’t accept an assignment contract.

There’s also a contract called a lease option agreement, which includes a rental agreement, an option contract, and a purchase and sale agreement. This is mainly for more complex wholesale deals but can be helpful depending on your strategy.

How to Get Started Wholesaling: FAQ

Here are some frequently asked questions that I get from beginners in the wholesaling business.

Is Wholesaling a Good Way to Make Money?

Yes, wholesaling is a great way to earn money if you have the right mindset and expectations. It doesn’t necessarily provide consistent, reliable income, so it may not be a safe replacement for your nine-to-five job unless you are already experienced in real estate.

But it is a strategy that almost anyone can use to earn four to five-figure checks relatively quickly (most wholesale deals can close in as little as 30 days). So, if you’re patient and determined, it can be a great way to earn sizable fees without taking on any serious risk.

Is Wholesaling Real Estate Legal?

Yes, wholesaling real estate is perfectly legal. However, there is a specific behavior that is prohibited. For instance, you can’t use deceptive tactics to get the seller to agree to a specific price or fail to disclose your relationship to the buyer. 

It’s best to be honest and transparent when dealing with sellers and move on to another deal if they aren’t interested in working with you. There are also wholesaling laws that vary from state to state, so be sure to research local legislation to find out if there are any restrictions or requirements in your area.

Do You Need A License To Wholesale?

No, you do not need a real estate license to be a wholesaler unless you plan on offering brokerage services for a commission. For instance, if you plan to represent the buyer in the transaction in exchange for a fee, you would need to be licensed. 

But this may also create a severe conflict of interest, so it's probably best to keep these two worlds separate if you are a real estate agent and a wholesaler.  In general, you do not have to be licensed to perform the typical duties of a wholesaler, as long as you stick to finding deals and assigning the contract to the buyer.

How Much Money Do You Need To Start Wholesaling?

You don’t need much money to start wholesaling; depending on your strategy, you may not need any money. You are not required to pay an earnest money deposit or any closing costs related to the sale. 

You may have to pay for certain expenses related to running your business, such as advertising costs, phone bills, computers, etc. But much of this stuff you may already have, and most people can get started with as little as a few hundred dollars.

How Much Money Can You Make Wholesaling Real Estate?

The amount you will make per deal depends on the local market and how well you can negotiate. But most wholesalers earn an average of about $5,000 to $10,000 per deal. 

In specific markets, experienced wholesalers earn as much as $30,000 - $50,000 per deal, while beginners may be happy with $2000 -$3000. But, in general, you can expect to make at least a few thousand dollars on every deal if done correctly.

Final Thoughts

While it may seem overwhelming at first, investing in real estate is the most proven path to creating wealth that's available to the everyday person.

Wholesaling real estate is a fabulous way to enter the industry because you learn the ropes without having to invest capital into a deal.

If you're looking for a world-class mentorship program, a community of other wholesalers around the nation, and a step-by-step course to build your wholesale business, check out our brand new free training on my site, RealEstateSkills.com.

Comments (3)

John Pusa
Berkshire Hathaway Home Services Crest - Glendale, CA
Your All Time Realtor With Exceptional Service

Welcome to the ActiveRain community. Congratulations on your first post.

Aug 04, 2022 08:23 PM
Ryan Zomorodi

Thank you, John. I appreciate the warm welcome!

Aug 05, 2022 02:14 PM
Graziella Bruner
NCS Premier Real Estate - Detroit, MI
Associate Broker - Serving Wayne & Oakland County

Congratulations on your first post and welcome to active rain. Wishing you much success. Looking forward to reading more of your post.

Aug 06, 2022 06:19 AM
Ryan Zomorodi

Thank you, Graziella! I appreciate it. Stay tuned for more like this. 

Aug 08, 2022 09:06 PM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Ryan Zomorodi welcome to ActiveRain, and congratulations on successfully posting your first blog on this site.

Aug 09, 2022 05:27 PM
Ryan Zomorodi

Thank you, George, for your kind words. Hope you enjoyed it. 

Aug 10, 2022 07:24 PM