At the beginning of a new year, you might be wondering what you can do to transform your financial situation and unlock a better career. There’s good news: wholesaling real estate is a great way to do it!
If you want to learn a new skill set, enjoy new opportunities, and join a community of highly-motivated people in 2023, you’ve come to the right place. In this guide, we’ll show you how to become a real estate wholesaler.
What is wholesale real estate?
Wholesaling real estate is the process of getting properties under contract at below-market prices and then finding real estate investors who want to buy them. You’ll commonly hear this process referred to as “buying properties at a discount” and then “assigning the contract to a cash buyer.”
Initially, you may wonder how this can help you transform your financial situation. Real estate is expensive, after all, and it’s usually reserved for people who have capital they can invest. However, wholesaling involves very little monetary risk.
As a wholesaler, you aren’t buying any properties, only signing contracts, assigning them to other investors, and then collecting an assignment fee as a result. The only money you’ll risk is the earnest money you place in escrow to secure the contract.
Why would someone sell for below-market value?
Most homeowners renovate their properties and sell them for as much as they possibly can. The real estate market in mid-2022 crystallized this point as bidding wars and rising prices caused home values to skyrocket. But not every homeowner has this luxury.
Sometimes financial problems or other situations outside of a property owner’s control require them to sell quickly. In these cases, the individual may not have the time or money to fix their property and improve its value. If they need to sell within a short time frame, they may not even be able to list it with a real estate agent.
Homeowners in these situations are known as motivated sellers. As the name implies, they’re motivated to sell because some external factor is causing them distress or threatening them with an outcome they don’t want.
For example, consider homeowners who enter pre-foreclosure. If they don’t catch up on their payments, their lender will repossess their house. Not only will they lose the house, but foreclosure will also negatively affect their credit score and they will forfeit all of their equity. For them, selling to an investor for below-market value is preferable to losing the home to the bank. This way, they at least walk away with some cash.
This business model works because wholesalers offer motivated sellers convenience. Owners don’t have to make repairs to the home, go through a lengthy closing process, or pay a real estate agent. They just have to sign a contract and show up to a closing. Many motivated sellers will gladly accept less for their homes in exchange for a quick way to escape their negative financial situation.
Financial ruin isn’t the only reason someone will sell to a wholesaler. Many long-time landlords have watched their property values appreciate and have grown tired of managing a rental property. They may be willing to sell for less than a property is worth because they will still profit from a sale. Additionally, people who have recently inherited a house may be willing to sell it quickly instead of holding it and waiting for market value.
Some people are even willing to sell at a discount simply because they don’t care about the property. To them, a cash purchase is more appealing than holding onto the house. These homeowners might not even be motivated to sell; they just don’t want to maintain the property and would rather accept a cash offer.
As you can see, there are many reasons why someone might want to sell for less than a property is worth. The first step to becoming a real estate wholesaler is understanding these motivations and learning what owners in each situation need. Once you understand that, you’re ready to wholesale real estate.
The wholesale real estate process
The wholesale real estate process is relatively straightforward, but the individual steps can quickly become complex. Here are the steps that most wholesalers follow.
To start wholesaling, you need to identify motivated sellers in your market. To do this, you can talk to real estate agents, place bandit signs around town, or use real estate lead generation software to search for properties with specific distress factors.
Each of these methods is viable in its own way, so it will be up to you to figure out which route you want to take.
Skip tracing is the process of finding people’s contact information. Unlike lead generation, you’ll need some kind of software or platform for this step. You’ll also want to choose a platform with high-quality data, since you typically pay per result and wrong numbers will cost time and money.
Market to property owners
Once you know how to contact someone, it’s time to tell them you’re interested in buying their property. You can launch SMS or text campaigns, cold calling campaigns, send direct mail, or even use social media ads. Each of these options can return fantastic results, but if you’re new, we recommend starting with cold calling. It’s a vital skill in this industry, and also the most affordable marketing option for new investors.
Comping is the act of comparing your deal to similar houses that recently sold in the area. It’s an essential part of wholesaling real estate because it helps you determine what a house is worth after it’s repaired.
It also helps you determine the right purchase price so you can sell the house to a cash buyer and make a profit. Remember that the cash buyer is an investor who’s also looking to make a profit, so you never want to get a property under contract at full price. Comping will help you avoid that.
Make offers and negotiate
Once you know how much a property is worth and you find an owner who’s ready to sell, it’s time to make an offer. At this stage you should be ready to negotiate; sellers will usually start at their highest offers.
Assign contracts to cash buyers
Once you have a house under contract, it’s time to assign it to a cash buyer. There are several ways to find buyers, and the most reliable option will depend on where you live and how active the real estate market is in your area.
Once you find a buyer who’s interested in purchasing your wholesale deal, you’ll sign a wholesale assignment agreement and collect a deposit on the assignment fee. Once the investor and the seller close, you’ll collect the full assignment fee. At that point, you can celebrate because you’ve completed your first wholesale real estate deal!
Pros and cons of wholesaling real estate
Wholesaling real estate is one of the best investment strategies for someone with little capital and no experience in real estate investing. For starters, you don’t need a real estate license to wholesale. It’s also low-risk because it doesn’t require capital.
Of course, wholesaling isn’t a magic method for generating wealth, and it’s not a guaranteed way to make money. One of the trouble areas that investors run into is not knowing the law in the state where they’re working. While wholesaling is 100% legal, some states have stricter laws than others.
Another pitfall some new investors run into is signing contracts on deals they don’t intend to complete or can’t find a buyer for. In some states, consistently pulling out of real estate contracts can lead to legal trouble.
These pitfalls are why you should look for a mentor if you want to start wholesaling. The right coach or training program won’t just teach you how to become a real estate wholesaler. You’ll also have access to a community of people willing to help you grow, and you’ll learn the sales techniques and lead generation strategies that can separate side hustles from growing real estate businesses.
Wholesaling is a special real estate investing strategy because anyone can use it to transform their lives. In fact, we’ve seen countless people embark on the wholesaling journey and experience a lifestyle and degree of financial freedom that they never thought possible.
If you want to make a change, this year is a great time to start. Don’t let talk of an uncertain economic future stop you from taking the first steps. Since you’re not risking your own money, you have very little to lose and a lot to gain.
So if you’re wondering how to become a real estate wholesaler, the answer is very simple: just take the first step. After reading this guide, you know how the wholesale process works. You also have access to several other resources that will help you learn more. Now you just have to start generating leads and talking to property owners.