Wholesaling Real Estate Investing Strategy
If you’re looking to get into real estate investing but don’t have much capital or a good credit score don’t worry.
Wholesaling is one of the best strategies available to beginning investors.
Wholesaling doesn’t require any capital to complete a deal if you know what you are doing and your credit score is completely irrelevant for this investing strategy.
What is Wholesaling Real Estate and How Does It Work?
The wholesale real estate investing strategy is similar to flipping houses but without the renovations.
Let’s say you are a wholesaler who finds a property that is under market value (meaning the property is selling for less than similar properties on the block).
As a wholesaler, you would get that property under contract with the seller and then assign or sell that contract to another investor or buyer and that investor or buyer would complete the purchase with the seller.
A wholesaler does not improve the property at all. The only job is to get it under contract and sell the contract to another investor who is looking for a worn down house in need of repair.
In the real estate purchase contract you would write on the Buyer Name Line your name (or company name) and then the words “And/Or Assignee” to give you the right to assign the contract to another buyer.
Pretty simple huh?
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How Much Can a Wholesaler Sell a Contract For?
Great question. It all depends on how good of a deal the wholesaler is able to find. For example…
If a house is selling for $40,000 and it’s ARV (after repair value) is $100,000 then the wholesaler needs to calculate how much it will cost in repairs to bring the house up to market value of $100,000.
Whatever the difference is will be profit and the wholesaler can choose how big of a slice of profit to take while still leaving the investor enough room to profit a good amount.
If your wholesale fee is too large compared to the investor’s potential profit in the flip then the investor may not accept the deal so don’t be greedy but don’t short yourself either.
Generally, wholesalers can charge anywhere from $1,000 to $20,000 in assignment fees (also known as wholesale fees) but it all depends on the financials of the deal.
Why Would Real Estate Investors Work with Wholesalers?
The reason investors/buyers will pay a wholesaler a fee for the property is because of convenience.
Time is valuable and many house flippers are stretched for time due to ongoing projects they may have with other houses they are currently renovating. As a result, your end buyer doesn’t have the time to search for investment deals and instead prefers to use wholesalers to locate them deals.
Then the investor can get back to the current project and when it’s complete they can transition their crew to the next rehab seamlessly without any down time in between projects.
The wholesale real estate strategy can be an easy way to earn commissions without doing any work to the property. It’s useful for those who don’t have the skill set or finances to handle rehabbing properties.
Rehabbing homes, which I show you the cost breakdown in this training, is a great way for earning substantial profits but also carries the risk of potential unforeseen problems arising during the rehab that add to costs and time commitment.
Wholesaling allows for quick hands-off commissions where time is spent looking for deals and connecting deals with buyers.
The Challenging Side of Wholesaling Real Estate
Wholesaling is a simple concept but not easy by any means. It’s tough to locate investment properties at 50% discount to the market value. In other words, finding a $200,000 home selling for $100,000 isn’t easy!
Expect to spend a lot of time searching through deals to find properties selling at huge discounts. Once you’ve found one though you should be able to find a buyer for it rather easily.
Real estate is a supply/demand market.
The supply of heavily discounted properties is low in most markets and the demand for them by investors is high so when one is discovered it’s a great opportunity to make money wholesaling it.
Building a Buyer’s List to Sell Deals To
A buyer’s list is a database of potential people you can sell a property to after getting it under contract. Without another buyer, you have no wholesale real estate deal.
Who gets added to your wholesaling buyer’s list?
- Fix and Flippers
- Buy and Hold Owners
You need to study your market and locate where buy and hold investors are and where fix and flip investors are. You have two opposing customer strategies to satisfy.
Go to each type of investor and discover their needs so that you can get to work finding them the right deal to flip.
Ask the fix and flippers what they want. Learn their criteria for acquisition price, rehab budget, return on investment, etc.
You should also build excel sheets tracking your investors’ preferences such as:
- How many bedrooms
- How many bathrooms
- Price range
- Year Built
- Number of Stories
Where to Find Investors to Wholesale to?
If you have time to check out this training on real estate investing, you’ll learn many strategies for finding real estate deals as well as how to find other investors to partner with.
Here are some quick examples to build your wholesale real estate buyer’s list:
- Real estate investor meet ups in your local city – find monthly gatherings hosted by real estate investors and go network
- Sheriff’s Sale / Foreclosure Auctions – usually a place full of lots of investors seeking foreclosure deals
- Realtors – some may have clients that are investors.
- A title company – chances are their escrow managers work with at least 1-2 real estate investors.
- The tax assessor’s office – search the tax records in your area and look for buyers that purchase more than 10-15 properties a year, or more. Contact them by mail, phone, etc.
- Marketing on Your Website – use a website to capture leads / contacts for your buyer’s list
- Online Investor Forums – online investor forums are another great idea for meeting investors
- Facebook Groups – find local real estate groups or investor groups on Facebook
- Facebook Marketplace – this is a great place to find people looking to buy things
- Craigslist – put up ads on Craigslist to attract investors/buyers for your wholesale deals
Overall, don’t get caught up trying to find deals and overthinking the mechanical side. Instead go out and meet some buyers in your local area and learn their criteria for rentals and fix & flips they purchase.
Then go look for deals to suit their needs and earn your commission wholesaling them the property. Without a wholesale buyers list, you won’t succeed.
How do you know if you are wholesaling a property at the right price?
Generally, you will be able to sell a property to an end buyer at between 60-70% ARV. This means you will want to contract the property from the seller at 50-60% of market value.
Example: Purchase a $200,000 house for $125,000. Resell it as a wholesale real estate deal to another investor for $135,000 and pocket yourself a $10,000 profit.
Properties that sell for these low of prices are either in great need of repair or have a really motivated seller.
Sellers have all kinds of problems that could result in them wanting out of a home. Maybe they don’t have the cash to fix up the property and sell for market value.
It could also be a result of falling behind on mortgage payments and needing out soon before foreclosure. Who knows. It’s your job to find out the reasoning from the seller and look for any red flags as well that could turn you away from the deal.
Here are some possibilities of motivated sellers:
- Job loss (cannot afford to continue making payments or fix up to get to market value)
- Probate property (out of state family member passed away and left property that needs repair to unexcited heir)
- Relocation/Moving (person doesn’t want to be a landlord or own multiple houses)
- Vacant house
- Burned out landlord
Who Should Be Part of My Real Estate Investing Team?
The first part of your team you want to put together is your support group. Such members include:
- Business Partners
Having a mentor is important especially if you’re just starting out. Attend local real estate club meetings and reach out to fellow wholesalers for advice and tips.
Not everyone is wholesaling the same niche so don’t be afraid to ask for help from another wholesaler.
Next you’ll want to assemble your money making team. Such members include:
- Real Estate Agent
- Property Managers
Your final team will take time to build until you find the right people to work with you. This is what I would call your Service Team and such members include:
- Title Company
- Insurance Agents
- Lawn Care
- Cleaning Service
- Staging Service
- Appliance Rental Service
Make phone calls to several companies for each service type in order to decide which company offers its services for the best price while maintaining good quality.
You don’t want to pay a premium price for the same work another company could have done cheaper especially on things that don’t add much value to the home.
Your real estate agent should be able to recommend the majority of your service team as they have most likely had to deal with several servicemen over the years throughout different deals the agent has worked on.
Always continue to expand your network. Networking as well as mentors will be huge for your business. Check out some local real estate clubs and meet-ups to learn from other investors in your area and expand your network.
As a wholesaler you’ll need to know how to estimate rehab costs so that you can lay them out for your investor who will be buying the wholesale deal from you once he sees there is room for him to profit. That’s how you’ll sell him into being a buyer on your buyer’s list consistently.
Now that you’ve read a little about wholesaling it’s important to note that before you take action you need to know what you are doing. If this is your first time reading about wholesaling I would encourage you to do further research and grow your education.
Real Estate Investing Course
Lastly, if you’d like to learn more about the various real estate investing strategies and how to find your first deal I created an in depth course for beginners teaching many different lessons including:
- How to choose the best strategy for you
- How to line up financing
- How to analyze deals and estimate profits
- How to re-invest and grow your wealth
- And much more