Real estate wholesaling is simply when one party (a wholesaler / buyer) puts a property under contract with the seller, then markets the home to other potential buyers for a higher price. The Wholesaler will assign the contract to the new buyer. The wholesaler will make their profit from what is referred to as an assignment fee, which is the difference between the contracted price with the seller and the amount paid by the buyer.
While there are many ways to finance your first investment deal, wholesaling does not require significant capital to get started and therefor many real estate investors consider wholesaling to be the best short term money making strategy.
In order to be a successful wholesaler you will need to be able to identify properties that have profitability to end buyers. End buyers are typically real estate flippers or other types of investors who prefer not to spend time searching for discounted properties.
By acting as the connector between investors and sellers, wholesalers essentially generate income by helping real estate investors find potential deals.
Now that we’ve covered what wholesaling is you are probably wondering what some of the benefits might be.
You find a property that needs some repairs but you don’t have the funds to do the repairs and you know it would be worth at least $250,000 after repairs. You offer $170,000 and put the property under contract. You find a cash buyer, ask for $185,000 – Assign the contract and close the deal with your title company or attorney.
DON’T BE GREEDY– you’ve just made $15,000 (minus some marketing fees and closing cost) and both you, your seller and your buyer benefit from the deal. You solved the problem for the seller, and you found the investor that has the funds to complete the project. Next step make sure you add your buyer’s information to your buyers list because they might want to do business with you in the future, assuming your initial transaction went well.
A Millionaire Business Mindset: Being in business for yourself is difficult you have to be able to recognize that you are solving a problem for the sellers and by solving that problem you are rewarded with the assignment fee. A Millionaire Business person is not greedy, they look to build relationships that will help them grow their business for life.
Having a support team: The best entrepreneurs understand and recognize that their time should be used to complete the highest dollar tasks. Juggling daily tasks and projects is a constant balancing act, and investors who try to accomplish everything end up really hurting themselves in the long run. I ran several of my own companies over the years, and one thing I discovered the hard way was that without having A Million Dollar Team to support me I would find myself cramming too many activities into my schedule which lead to errors, sloppiness, and even missing out on great opportunities. Knowing what you are good at and when you should outsource or delegate tasks can prove to be a worthy investment.
The way wholesaling works is pretty simple: When the wholesaler finds a property and signs a purchase and sales agreement with the seller, they need to include the language to make sure the contract is assignable. Have your attorney review your purchase and sales contract to be sure you have a good wholesale contract. If another buyer is interested, in the property the wholesaler has under contract they complete a simple "Assignment Agreement" document.
The risk of not finding an end buyer: In order to be a successful wholesaler you need to maintain a solid buyers list. In the world of wholesaling, no buyer means no deal. It is best practice to have potential buyers lined up before even making an offer to the seller. That way, your risk of losing money is substantially less. While owing your seller a measly $10 earnest money deposit doesn’t sound like a lot, it has a bigger impact on your reputation. If word gets out that you are writing contracts and failing to come through sellers and buyers will be less likely to want to do business with you.
The legality in wholesaling real estate can make for a great debate. In general, those who like to argue that wholesale real estate investors are doing business illegally feel this way because wholesalers are not licensed realtors, agents, or brokers. However, wholesalers are not actually selling a property in of itself, but rather, they are selling the ownership of the real estate contract associated with the property. Based on this argument, wholesaling is widely viewed as a legal activity.
If after hearing the stories above you would rather earn a commission from doing the same activities (finding motivated sellers and connecting them with investors) There is always the option of becoming a licensed real estate professional. It is a very similar amount of work, when you find a seller that is willing to sell a home, you would list the property on the MLS and you have a much longer window of time to find an end buyer.
However If you are driven, disciplined, and organized, there is no limit to how much money you can make in your wholesaling career.
Have you ever thought about wholesaling real estate? Have you ever successfully completed a wholesale deal? If so, what special techniques did you use? Would you do it again? Are you looking for cash buyers for your buyers list? Share your wholesale stories with us:
Mitch Durfee is a keynote speaker, entrepreneur, business coach, realtor and investor. A veteran of the U.S. Army and U.S. Army Reserves, Mitch served from 2003-2008 in Korea, Iraq, Colorado Springs, and Vermont. Later he served overseas again from 2012-2013 as a government contractor in Kuwait and Afghanistan. He is the 3-time best-selling author of Serve 2 Win, Millionaire Business Mindset and Military House Hacking.