Real estate is supposed to be the king of passive income, the number one way to become financially independent. The only problem is that you need money to get started. That single fact makes it inaccessible to many people.
If you’re struggling to save up money to buy your first rental, you’re not alone. Inflation is at historic highs, the job market is looking a bit shaky, and home prices are sky-high. Even if you did have money to put down on a new mortgage, rising interest rates would take a large chunk out of each month’s revenue should you decide to rent it.
In spite of all these negative trends, you don’t have to feel defeated. There’s actually a great way to get involved in real estate without putting 15-20% down on a home. It’s called wholesaling, and getting started is as easy as finding people who need to sell their homes. The following steps will show you how to wholesale real estate and build a real estate business from the ground up.
What is wholesale real estate?
Before we explore the steps to landing your first wholesale deal, you need to understand what the process is and how it works. Unlike other real estate investments, like fix and flipping, wholesaling doesn’t involve buying a house. Instead, wholesaling real estate is the process of signing contracts on properties at a discount and then selling those contracts to cash buyers for a profit before the closing date.
Unlike real estate investors who buy homes and rehab them, real estate wholesalers focus on finding good deals for other investors. They don’t buy houses for themselves, meaning they don’t need thousands of dollars to use as a down payment. They also don’t need a real estate license, because they’re not brokering any transactions. They’re just finding homes that can’t sell on-market, getting them under contract at below-market prices, and then finding someone else to complete the transaction and pay them for finding it.
It may seem too good to be true, but thousands of people have completely changed their lives with this investment strategy. If you’re ready to be the next one, then this is how to wholesale real estate.
Step 1: Find motivated sellers and distressed properties
As we mentioned, real estate wholesalers find homes that can’t be listed on the market for full price. There are usually two reasons a home will be in this situation: the owner has a financial motivation to sell quickly or the home is in disrepair and the owner can’t afford to fix it.
Owners who have a financial motivation to sell are called motivated sellers. There are several situations that can turn an ordinary homeowner into a motivated seller. They include:
- Pre-foreclosure – The owner is 3+ months behind on their mortgage payments
- Absentee/tired landlord – The owner doesn’t live near the property or they are tired of maintaining rentals
- Bankruptcy – The owner is liquidating assets to pay off debts
In each of these scenarios, homeowners are either required to sell or are highly motivated to sell within a short time frame. Because they’re working within a tight timeline, they aren’t able to repair the property, shop around for the best agent, or wait for the property to sell on the market. They need to sell immediately, even if it means accepting less than the property is worth.
The other type of property that real estate wholesalers usually deal with is called a distressed property. This type of house is suffering from damage or neglect that the owner either can’t afford to fix or just isn’t interested in repairing. Distressed properties are usually easy to spot, because of their
- Roof damage
- Fallen-in structures
- Vacant or abandoned appearance
- Broken windows
- Overgrown yards
- Broken-down cars in the yard
As you can imagine, houses in this condition don’t sell for high value on the Multiple Listings Serice (MLS) where real estate agents list houses. If the owners of distressed properties want to sell, they usually have to do it off-market. This means that you can get these properties under contract at a very low price!
There are a few ways to find distressed property and motivated sellers. The lowest-cost method is to use your county’s public records office to find pre-foreclosures, bankruptcies, and abandoned or condemned houses. You can also drive for dollars, which is the process of driving around neighborhoods looking for homes with signs of distress.
However, one of the most popular ways to find homes that you can wholesale is to use real estate lead generation software. With the right platform, you can search for any combination of distress factors, property characteristics, and financial or demographic information. Once you find properties that you like, you can add them to a list and explore detailed property and owner information that will help you identify promising wholesale opportunities.
A few real estate apps even have driving for dollars and virtual driving for dollars modules so you can find distressed properties by driving through neighborhoods and immediately access all the information you need about them and their owners. With the virtual driving for dollars tools, you don’t even have to leave home to find distressed properties. You can use street view to find them from your phone or computer.
While real estate lead generation software is the most efficient way to find leads, public records, driving for dollars, and even networking with local real estate professionals are all great ways to find leads as well. The most important thing you can do is to just get started.
Step 2: Finding property owner contact information
Once you generate a list of wholesale real estate leads that you want to pursue, there’s still one step you have to complete before you can start talking to property owners: you need to find their phone numbers.
This process is called skip tracing, and modern technology has made it far easier than you might imagine. All you have to do is leverage a trusted skip tracing service and you’ll receive phone numbers and email addresses for your leads. Most real estate lead generation software platforms even have a skip tracing service built in to make the process as easy as possible.
However, not all data providers are created equal. In fact, most skip tracing services only return the phone numbers you’re looking for, also called right-party contact information, about 12-20% of the time. That’s why it’s important to choose a data provider with a proven track record of quality data.
To find the right data provider, look for a platform that offers tier-one data pulled from multiple data repositories with an accuracy standard of at least 70%. Otherwise, you’ll just be paying for inaccurate information you could have gotten for free from the white pages.
Step 3: Real estate marketing
Once you have contact information for the property owners on your real estate lead list, you’re ready to start marketing. Marketing to motivated sellers is different from standard marketing, though, so there are a few things to consider.
First, your goal is simply to inform people who need to sell their homes that you’re making cash offers on properties in the area. Secondly, remember that you’re not convincing or pressuring someone to sign a real estate contract. Instead, you’re taking the time to understand the problem they’re experiencing and then figuring out how to solve that problem with a cash offer.
Here are a few of the ways you can let motivated sellers know you’re interested in buying their property:
Over the past few years, text messaging has become one of the most effective ways to reach out to people who own off-market distressed properties. SMS is a great option because most people read their texts within seconds of receiving them, even if they don’t know your number. It’s also a great way to have a quick conversation with a seller or break the ice before calling them.
Direct mail is one of the most expensive marketing tools, but it can be highly effective. Unlike texts or calls, motivated sellers can hang onto a piece of direct mail, meaning your campaigns can be effective months or even years after you first launched them. However, we don’t usually recommend this approach to new wholesalers simply because it requires a significant financial investment to do it well.
Bandit signs are a new wholesaler’s best friend. All you have to do is buy a few signs that say something like “We Buy Houses for Cash,” and list your phone number. Then place them in highly trafficked areas in your market and wait for the calls to come in.
If you’re going to use them, just be prepared to answer your phone or have a voicemail box set up. You should also keep in mind that not everyone who calls you will be a qualified lead. Some people will mistake you for a real estate agent and call hoping to list their homes. However, if you can manage the incoming calls, a well-placed bandit sign may be the most cost-effective option when you’re learning how to wholesale real estate.
Going directly to sellers and calling them on the phone is the most well-known wholesale real estate marketing tactic, and for good reason. While there are a lot of ways to tell sellers that you’re in the market to buy a house, speaking to them on the phone has proven to be the most effective. It’s relatively low-cost, it’s fast and efficient, and it even gives you a chance to close a deal on the spot.
However, scam callers have run rampant on the voice network over the past few years, forcing the FCC to implement strict calling regulations that have changed how legitimate calling businesses can operate. If you’re going to cold call motivated sellers, make sure you understand STIR/SHAKEN and new cold calling best practices. Otherwise, you’ll put your business’ reputation at risk and have a hard time getting motivated sellers to answer your calls.
Step 4: Making offers on wholesale real estate
After you’ve marketed to sellers and found someone who’s interested, you’re ready to make an offer and close the deal. As we discussed earlier, one crucial mistake new wholesalers make is approaching conversations with motivated sellers as if they’re making sales calls. As a wholesaler, you’re rarely trying to convince anyone of anything. Instead, you’re trying to work with homeowners to create solutions to their problems.
This means you should be careful of your mindset when you make an offer. As BatchService CEO and former wholesaler Jesse Burrell says, if you’re only focused on making money, it will be obvious to motivated sellers. If you’re interested in helping people, you’ll naturally find solutions to their problems and be more successful as a result.
With all that in mind, here are a few general rules of thumb to remember when making offers on wholesale real estate:
- Sellers need to pay off their mortgages – Most sellers won’t accept an offer that leaves them with a balance on their mortgage
- Everyone needs a place to live – Being willing to pay a bit more so someone can cover rent or a new down payment can help you close a deal
- You need to understand what the house is worth – Make sure you calculate the after repair value and comp the property before making an offer
- You need to assign the contract – Don’t offer so much that you’ll have a hard time transferring the deal to a cash buyer
Assigning the contract to a cash buyer
Once a seller agrees to sign a contract with you, the hardest part of wholesaling is over. Now you’re only one step away from a good payday! All you have to do is find a cash buyer and agree on an assignment fee.
There are a few ways to find cash buyers. One reliable method is attending local foreclosure auctions. The cash buyers will be obvious since they’re the ones who will be bidding on real estate. You can also attend local real estate meet-ups. The cash buyers who frequent these events are usually looking to network and make deals.
Another great option is to joint venture with well-established wholesalers who have a healthy cash buyers list. You’ll be sharing a cut of the profit, but if you’re new to the industry, securing your first few deals is more important than maximizing your assignment fee.
Finally, you can use your real estate lead generation software to pull cash buyers lists. Then you can follow the same process as you would when pursuing motivated seller leads. Just call the buyers on your list until you find someone interested in your deal. Then negotiate a price, transfer the contract, and collect your check.
One important thing to remember is that some states have stricter wholesale real estate laws than others. States like California have restrictions on how you can market deals to buyers, so we highly recommend speaking to a real estate lawyer before you start marketing your deals.
Getting started in wholesale real estate is thrilling, because there’s a world of possibilities waiting for you. Every city has people who are facing dire financial challenges. Every neighborhood has neglected and damaged properties. If you look at them with an entrepreneurial mindset, there’s no end to the opportunities you can create.
Of course, wholesaling real estate involves a lot of steps and a lot of work. It can be discouraging to call motivated sellers and get negative replies several times in a row. Wholesaling is certainly a career that requires the right mindset. However, the process itself is simple. If you can commit to identifying and contacting motivated sellers, eventually you will land deals.
So if you’re wondering how to wholesale real estate, the answer is fairly simple: follow the steps in this blog over and over again. You’ll be amazed at the results.