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A Complete Guide to Wholesale Real Estate

BatchService
Written by BatchService 
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When you hear the term “real estate investing” you may think of large developments, expensive flips, or long-term strategies such as owning rental properties. While those are all popular real estate investing strategies, there’s another type of investing that requires very little start-up capital and the deals are closed as quickly as possible. That type of investing is wholesale real estate investing. 

What is Wholesale Real Estate?

Wholesale real estate is a business strategy in which a wholesaler seeks out a property, typically one with distress factors, and enters into a contract with the owner of the property. In the contract, the wholesaler agrees that he or she will find a buyer for the property for an amount the two parties agree upon. The wholesaler then assigns the right to purchase the property to a buyer. 

Any type of real estate can be sold wholesale, including raw land, houses, mobile homes, condominiums, apartment complexes, and even commercial properties. Wholesale real estate is a popular strategy for newer investors as it doesn’t require a real estate license, just an ability to find a homeowner willing to sell their property and a buyer for that property. 

How to Wholesale Real Estate 

The first step for wholesalers is to find a distressed property, typically one with either physical and/or financial distress factors. The most common distress is when the property is in extreme disrepair or it has been abandoned. The most common financial distress factors include a property that’s in probate or pre foreclosure; a rental property that is struggling to maintain occupancy; or a property whose owners are divorcing.

The wholesaler approaches the homeowner to gauge their interest in selling. If the homeowner is interested, the wholesaler and the homeowner enter into an agreement that the wholesaler has the right to buy the property at a certain price and within a certain amount of time. The wholesaler then reassigns the contract to an investor who purchases the property for an amount higher than the price that the homeowner and wholesaler agreed upon. The difference in these amounts, commonly referred to as the spread, is what the wholesaler earns for putting the deal together.  The property changes hands without the wholesaler ever personally buying or selling the property. 

The wholesaler brings an important value to the transaction. First, the wholesaler is finding the property, which is no small feat. Next, the wholesaler has to approach the owner of the property, persuade them to sell the property, and agree upon a price. 

The wholesaler has to exercise tact, persuasiveness, and also be ready to explain to the homeowner why their offer for the property is reasonable based on market factors and the property’s after repair value (ARV). In addition, wholesalers have to have thick skin, because they get turned down more often than not. The wholesaler earns their money by doing a lot of the difficult legwork to facilitate the sale for the buyer.

average price per square foot of comps

ARV= Average Price Per Square Foot of Comps x Square Footage of the Deal

Much like finding a property to wholesale, finding investors to purchase wholesale properties can involve significant time and effort. Most wholesalers, especially new ones, need to continuously network to have a sufficient list of potential buyers. Just because an investor bought your last wholesale property does not necessarily mean that it fits their buy box or that they are in a position to buy your next one.

The price that the wholesaler offers the homeowner is determined by market factors, such as the sale price of comparable properties and the extent of disrepair to the property. Your offer for the property should be high enough to satisfy the homeowner, but not so high that you can’t sell it to an investor for even more.

Wholesale Real Estate Legalities

There are two common misconceptions regarding wholesale real estate. The first is that wholesale real estate is illegal. In fact, wholesaling real estate is legal in all fifty states. The other misconception is that you need a real estate license in order to be a wholesaler. Having a real estate license can benefit wholesalers, but there is no legal requirement for wholesalers to have a real estate license. 

Real estate agents can wholesale real estate, but most states require that they disclose this to both the seller and buyer. It’s also the law in many states that a wholesaler must inform the buyer that they are not the owner of the property. A wholesaler cannot decide to put the house on the market and represent the seller’s interests without having a real estate license. 

Many of the documents and disclosure requirements that exist in a conventional property sale are also present in wholesale real estate. The first contract in wholesale real estate is a purchase deal between the homeowner and the wholesaler. When you enter into a purchase deal with a homeowner, the contract states that the wholesaler has the right to buy the property. When you find an investor who is interested in buying the property, you enter into a real estate assignment contract with the buyer. This contract transfers all obligations from the wholesaler to the buyer. The same terms outlined in your contract carry over to the buyer except for the price of the property. 

The key elements of a wholesale contract are: 

  • The legal names of the buyer and seller
  • The property’s street address, type of property, and assessor’s parcel number (APN)
  • The physical condition of the property, including any defects and repairs
  • The purchase price as well as specifications regarding financing and deposits (if applicable)
  • The closing date
  • Any contingencies

Common Contingencies

Wholesale contracts, like agreements for conventional real estate transactions, require contingencies to protect the parties involved. As the wholesaler, there are a few contingencies that you should consider for your agreement:

  • Right to assign contingency

This contingency releases the wholesaler from any obligation to buy the property if they can’t find a buyer. 

  • Risk of loss and damage

This contingency specifies that the agreement is to buy the property in its current condition. If any further loss or damage occurs, the wholesaler can walk away. 

  • Inspection contingency

If the inspection reveals the need for expensive repairs, this contingency allows the buyer to walk away from the property or renegotiate.

  • Default clauses

Default clauses specify what happens if either party has to walk away from the sale. 

  • Insurance contingency 

If a property cannot be insured, this allows the buyer to walk away. 

How Wholesaling Real Estate Varies from State to State

Wholesaling real estate is legal in all fifty states. The regulations on wholesale real estate can vary from state to state, and even from city to city within the same state. Wholesale investors should consult an attorney who is familiar with the laws and regulations of their state and city. The last thing you want to do after putting in all the hard work of finding a property and a buyer is to find yourself in trouble for unknowingly violating the law. Here’s how wholesaling can differ in some of the most popular wholesaling states. 

How to Wholesale Real Estate in New York

Wholesalers operating in New York state cannot advertise a property for sale without a broker’s license. They are however able to market the sale of their wholesale contract to investors. In addition, wholesalers in New York can only collect their fee as a difference between the price the seller is charging and what the buyer is paying. They cannot legally collect a finder’s fee for bringing the two parties together. 

How to Wholesale Real Estate in Texas

When operating as a wholesaler in Texas, you need a broker’s license to market a property or a property option. However, you don’t need a license to market your wholesaling services or to assign the contract for a property. 

How to Wholesale Real Estate in California

California state law bars wholesalers who don’t have a real estate license from marketing the property. That said, wholesalers can legally approach buyers and investors from their contacts.

How to Wholesale Real Estate in Florida

In Florida, wholesalers without real estate licenses are barred from marketing their properties. They can however market their services as wholesalers. 

How to Wholesale Real Estate in Georgia

Wholesalers in Georgia must be able to show proof of funds or financing offers even though the wholesaler does not personally buy the property. The biggest concern for wholesalers in Georgia is that they do not have the ability to walk away from a deal if they can’t find a buyer. 

Importance of Cash Buyers in Wholesale Real Estate

It’s difficult to overstate the advantages of cash buyers in wholesale real estate. There are several reasons why having a pool of cash buyers can make wholesaling much easier.

  • Reduced risk – As wholesalers, the last thing that you want is to go through the effort of persuading a homeowner to sell their property and then have a buyer walk away due to financing issues. Once that happens, the wholesaler has to find a different buyer. 
  • Enhanced negotiating power – Similar to conventional real estate transactions, having a cash buyer in wholesaling gives the wholesaler more negotiating power than a buyer who needs to wait and see if their financing will come through.
  • No unexpected delays – Having a cash buyer increases the certainty that the deal will close. The financing process can have surprises and hiccups, so cash buyers can also help speed up the process.
  • Referrals and repeat business – Cash buyers are much more likely to be recurring investors than buyers who need to secure financing. Additionally, they’re more likely to know other cash buyers and can recommend you to other investors if your deal was profitable and professional.

While higher interest rates have cooled demand in the traditional housing market, the wholesale real estate market has been largely unaffected. This is because most wholesale transactions tend to be cash purchases, so the cost of financing hasn’t impeded buyers. There are however two other trends that are making an impact on wholesale real estate. 

Increased Competition

Wholesaling has become more challenging due to increased competition. The rapid rise in home values in 2021 and 2022 led to a new wave of wholesalers. With double-digit year-over-year property value increases, this surge in newer investors has led to a massive drop in available inventory in most markets. 

Virtual wholesale real estate

Another trend to be aware of is virtual wholesale real estate. Don’t mistake this for “virtual real estate,” which refers to purely online “properties.” Virtual wholesale real estate refers to the process of wholesaling a property without ever visiting it in person. This is especially popular for wholesalers in markets where demand is so high that even a tear-down property can be sold on the MLS.

Nathan Payne on Virtual wholesaling real estate

FAQs

Do you need a license to wholesale real estate?

You do not need a real estate license to wholesale. However, there are certain advantages to having a real estate license. In some states, wholesalers cannot market their properties without a license. Also, in certain cases, a homeowner may decide that it makes more sense to list the property on the MLS versus wholesale their property. If you have a real estate license, you can work as a wholesaler and an agent. 

How can you wholesale real estate with no money?

Because wholesalers never buy the property themselves, there’s no up front money needed to get started as a wholesaler. When contracting with the seller, some wholesalers may wish to provide an earnest money deposit to demonstrate their commitment to the deal. This deposit typically ranges between $500 and $2,000. While making a deposit is a common practice, there is no legal requirement to do so. Apart from that, the actual wholesale process requires zero money from the wholesaler.

How hard is it to wholesale real estate?

There are a lot of external variables that can affect how difficult it is to wholesale real estate. Wholesalers have to be resourceful to find a distressed property and be persuasive with homeowners. This is a career where you need to be consistently finding potential leads and reaching out to buyers. The more leads and buyers you have in your database, the easier your job will be. 

How do you become a real estate wholesaler?

If someone wants to become a wholesaler, they can get started immediately. There is no educational or licensing requirement to become a real estate wholesaler, but new wholesalers should commit to learning as much as possible about wholesale real estate.

How do you find buyers for wholesale real estate?

The more consistently and creatively that wholesalers network, the more potential buyers they’ll find. Most markets have real estate investing clubs, so that’s an excellent way to network and learn more. There’s no limit to the ways that you can meet a potential buyer. Let as many people as possible know that you’re a wholesaler with a potential deal. Just be careful that you’re operating within the regulations of your market, as some states have restrictions on how wholesalers can market their properties. 

Do you need an LLC (limited liability company) to wholesale real estate?

Wholesalers don’t need an LLC, but it definitely helps to have one. LLCs offer legal protection. If you are ever sued for something related to your wholesale business, having an LLC will protect your personal assets. Also, if you decide to branch out into other areas of real estate investing, having an established LLC can help you.

Can real estate agents wholesale?

Yes, real estate agents can wholesale real estate. Some states require that real estate agents inform the buyer and/or seller of this, but there’s no law prohibiting real estate agents from wholesaling. In certain states, having a real estate license gives the wholesaler more freedom to market the property. 

Insider Info on Wholesale Real Estate

So by now you have a clear idea of how wholesale real estate works in theory, but how does it work in practice? We sat down with Jesse Burrell, co-founder and CEO of BatchService, to discuss how wholesaling real estate actually works. Jesse started wholesaling in 2014 and continued to do so for seven years before co-founding BatchService.

download free rei e book today.

What are some of your favorite things about wholesaling?

Helping people. Someone that doesn’t want to sell on the MLS typically has some type of situation or pain point and there’s a reason why they can’t list the property. Being able to make money while helping others is one of the most enjoyable aspects. 

I always went in with the intention of, “how can we help this person the most?” And if they had a house that was in good working order, I would recommend that they list their home. My partners and I had real estate licenses, so we could offer our services to help them list their home. 

What are some of the challenges of wholesaling?

It’s frustrating when homeowners mislead you. When you’ve spent a bunch of time and effort to help someone and they mislead you about things, like child support liens, alimony liens, or city liens, it can be a really frustrating experience. 

I’ve worked on deals with $200,000 in liens, and then you have to try to figure out how you can negotiate with the city or the IRS or the spouse. I’d generally try to avoid just walking away, but sometimes you have to. And it could take months. It could involve lawyers. I’ve had deals on contract for two years trying to work it out. 

How many distressed property owners would you have to talk to in order to successfully get one under contract?

Normally it required between 25-50 true leads of someone that is truly distressed and wants to sell.

Did you ever identify qualities that made it more likely that someone would want to sell their property? 

That goes back to finding out why they want to sell. I looked at myself as a consultant or an advisor. 

How did you get paid as the wholesaler?

You negotiate with the seller and then you’re making the difference on the price with the other investor. You collect the difference in between, and the title company handles all that.

How would you decide your fee for wholesaling? 

I was able to get to a place pretty quickly where I was able to flip or buy the houses myself. So I would always negotiate a price that I was comfortable paying if I didn’t find a buyer. I would still market the property to another investor to buy, and I would just test the market and see what they were willing to pay. So I never had a flat fee. 

How is the wholesale process similar to a traditional real estate purchase?

The difference is that the wholesale contracts are normally cash or hard money. You’re normally buying as is. Both normally have inspections, but if the market’s really hot and the wholesalers are confident, they’ll waive the inspection period. But I typically like to treat it similar to a traditional contract. I need this many days to inspect the property and do my due diligence. 

What’s the most important thing a wholesaler can do to get established?

Be consistent. It’s hard work. A lot of money doesn’t come without a lot of effort. If you want those consistent checks, that requires consistent effort. The other really important thing is understanding your key performance indicators (KPIs) and marketing channels. 

Wholesaling is very creative. There are a lot of different ways to get leads, but that can change. Just because something worked great for six months or a year doesn’t mean it’s going to work forever. 

How would you recommend a new wholesaler establish credibility?

Do deals. Credibility comes from doing deals and doing right by the buyers and sellers. If you’re going to sell someone a property but you find someone two hours later who’s willing to pay more, commit to the first buyer. Don’t worry about the fast dollar. Your reputation means something. If you say you’re going to do something for a buyer or seller, do it.  

Future of Wholesaling Real Estate 

It’s impossible to overstate how much technology has shifted real estate wholesaling in just the past decade. Ten years ago wholesalers had to find properties to wholesale in person. There weren’t widely available data platforms that enabled real estate wholesalers to find distressed properties online. Today, a wholesaler doesn’t ever need to see a property in person in order to get the property under contract and sell it to a buyer.

As much of a transformation as this has been, the use of artificial intelligence could transform wholesaling a second time. Artificial intelligence could be used to identify up and coming areas for acquisitions, conduct enhanced property searches, identify wholesale opportunities, and evaluate a property’s potential ROI. AI can also power chatbots or draft emails to potential sellers and buyers. 

Due to the technology available, it’s likely that virtual wholesaling will continue to rise in popularity. This strategy is especially advantageous for wholesalers who are working in highly competitive or saturated markets, because it gives the wholesaler an opportunity to explore new markets. 

Resources for Wholesalers 

Reading this article is a good starting point, and here are some more resources to keep learning more about wholesale real estate.

BatchService Resource Center

In addition to data and software solutions, BatchService offers valuable educational resources designed to help you learn and build a thriving career in real estate. 

  • Blog – Our weekly blog covers a wide range of topics to help you learn the ins and outs of real estate and how to hone your wholesale strategy.
  • BatchTV – Our channel offers interviews and webinars featuring a variety of real estate investors as well as informational videos to help you work smarter. 
  • Batch Community – Our community was created to help you connect with other entrepreneurs, get answers to your questions, and learn more about the business.
  • Courses – Our on-demand mini-courses are designed for the newer investor but can also provide a valuable refresher for more experienced investors.

Real Estate Wholesaling Forum 

One of the most important ways for wholesalers to learn is by talking to other wholesalers. In BiggerPockets’ Real Estate Wholesaling Forum, you’ll be able to do just that. It’s an excellent way to ask questions and receive guidance from other wholesalers. 

How to Wholesale Real Estate: The No-Cash Strategy to Build a Scalable Business

This book by real estate agent and wholesaler extraordinaire Jamil Damji offers more practical advice from someone who has done hundreds of wholesale deals. He is also the co-founder of KeyGlee, the No. 1 wholesale company in the world, with over 75 franchises.

Wholesale Real Estate Podcasts

For education on-the-go, it’s tough to beat a podcast. Here are a few of our favorite wholesale real estate podcasts.

  • Wholesale Hotline – Brent Daniels, Jamil Damji, and Pace Morby team up to bring you insightful new episodes daily in which they apply creative solutions to real-life situations.
  • Wholesaling Inc. – Each episode features step-by-step instruction from successful wholesalers so listeners can replicate their successes.
  • Wholesale to Millions – This podcast features interviews with wholesalers who have achieved huge windfalls along with newer wholesalers spotlighting their smaller wins and how they achieved them.  
  • Flip Man’s Real Estate Tips – With more than 20 years of real estate experience, Ty “Flip Man” Taylor is a wealth of knowledge on wholesaling, flipping, and investing in multifamily properties.
  • The Bags to Riches Podcast –  Host Zach Guinn made the leap from grocery store bagger to real estate investor at the age of 17. In every episode Zach shares his experiences and interviews a successful wholesaler. 

Conclusion

Wholesale real estate is the most accessible entry point into real estate investing. It’s a great way to learn about real estate and develop essential investing skills, such as identifying deals, negotiating with buyers and sellers, and understanding the laws and regulations. There’s a lot of hard work involved in wholesale real estate, but for newer investors, wholesaling can lay the groundwork for a long and successful career as a real estate investor. 


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