The Essentials Of Real Estate Wholesaling: A Beginner’s Guide

Did you know that 95% of all real estate investors lose money? Large upfront costs and an often unpredictable market mean budding investors can quickly face financial loss.

Wholesaling is an excellent alternative real estate investment strategy. In fact, the average profit per wholesale deal is typically between $50,000 and $200,000, making it worth your while.

Additionally wholesaling:

☑️ Is low risk.

☑️ Yields quick profits.

☑️ Doesn’t require down payments and financing. 

☑️ Doesn’t necessarily require you to have a real estate license.

If real estate wholesaling sounds like a good idea, you’ve come to the right place. In this article, we’ll guide you through the wholesaling process, including the steps you need to take to get this short-term investment strategy right.

What Is Real Estate Wholesaling?

Wholesaling is a strategy where real estate investors find properties, get them under contract, and then reassign the contract to a buyer for a profit. 

The process involves:

  • The wholesaler: This is the property investor who locates the property, gets it under contract, and sells the contract.
  • The buyer: The person or institution that purchases the contract and pays the wholesaler a fee for finding the property and putting together the deal. These buyers are typically looking for homes they can fix up for a profit.
  • The seller: The individual who owns a property and sells it to a buyer

You can complete a wholesale deal without involving a real estate agent or broker. This is because wholesalers do the negotiation and the assignment of the contract themselves.

In fact, wholesalers bypass the traditional sales market as they locate properties and buyers themselves. 

To wholesale real estate, an investor enters into a purchase agreement with the seller for a small earnest money deposit. 

In this type of investment, you don’t need a mortgage down payment as you’re not technically purchasing the property. 

This makes it a great investment opportunity if you don’t have the financial means to buy and sell properties the traditional way.

Typically, real estate wholesalers will seek out a discounted or distressed property that the seller doesn’t want to spend time and money on.

🤔 What Is a Distressed Property?
In the context of real estate wholesaling, a distressed property is often one that needs a lot of repairs and work before it can be sold for a profit. For this reason, they’re often listed below market value or at a discounted selling price as the owner doesn’t want to put in the work to fix up the property themselves.

In some cases, distressed properties are homes that are on the market because the property owners have fallen into financial difficulties and need to get out of debt.

Once the wholesaler has entered into a wholesale real estate contract with a seller, they can then reassign the contract to a buyer. They then receive a wholesale fee, which the buyer pays you.

A wholesale fee is typically around 5 to 10% of the property price. Part of the fee is paid when the contract is assigned to the buyer. The remainder of the fee is paid when the sale is closed.

Wholesalers typically prefer cash buyers. This is because having a cash buyer will mean the deal will close quicker, and lead to fast profits.

🤔 Is Wholesaling the Same as Flipping Houses?
Wholesaling and flipping are similar as they both use a property as a real estate investment, and both involve the sale of a home for a profit.

However, in a wholesale deal, the real estate investor doesn’t make any repairs or modifications to the property as they never purchase the home themselves. They charge a wholesale fee to the final buyer, getting less money than you would in flipping but without investing resources into the home. 

On the other hand, flipping involves carrying out renovations and having to take on costs like mortgage, property taxes, and insurance—which can all be costly. However, the profit is often larger.

What Does Wholesaling Real Estate Look Like?

An example of a wholesale real estate transaction would be a wholesaler approaching a property owner who doesn’t believe their home will sell. 

Often, these owners don’t have the resources to fix up the property and continue living in it as they don’t think they’ll get a good price for it on the open market.

  1. The wholesaler will reach an agreement with the homeowner to put the house under contract for a purchase price. In this example, the purchase price is $100,000.
  1. Next, the wholesaler will use their network and pipeline of investors to find an interested buyer who is willing to pay $120,000 for the property.
  1. The wholesaler then assigns the contract to the buyer, making a profit of $20,000 without having to take the risk of purchasing the property themselves.
  1. Under the wholesale contract, the buyer has paid $20,000 to the wholesaler and closed the purchase with the owner with a payment of $100,000.

Now, the end buyer has a fixer-upper project that could be significantly profitable, which they’ve obtained at a low price. 

The wholesaler has made a quick profit, some of which can go toward the earnest money deposit on their next wholesale deal.

The seller has now sold their property quickly when it could’ve been very challenging to do on the open market.

The Benefits of Real Estate Wholesaling

Now that you know more about wholesaling works, let’s look at some of the advantages of this investment strategy:

✅ A low initial investment

Other real estate investments—like buying and renting out properties—often require large amounts of upfront capital, making these strategies unattainable for investors who are starting out. Wholesaling only requires a small earnest money deposit, making it more suitable for novice investors.

✅ You get to build invaluable negotiation skills

No matter your involvement in the real estate industry, you will always need excellent negotiation skills. 

Wholesaling can teach you how to negotiate to get the best deal, both with the owner of the property and potential cash buyers. The more you learn to negotiate, the better you will become at wholesaling.

✅ Minimized risk

If you fail to find investors for the property you have under contract, you may lose your earnest money deposit. 

However, if you were to buy rental properties and can’t find tenants to live in them, you’d lose far more than a small earnest money deposit. This makes wholesaling low-risk financially.

✅ Make fast profits

Wholesalers who are able to find investors can quickly make a decent profit. Of course, this will depend on how many deals you close. 

💡 Pro Tip: Close More Wholesale Deals with Paperless Pipeline
If you want to make high profits out of wholesaling by taking on multiple deals, you need a tool that can keep your deals on track. Putting multiple deals into play can be overwhelming, and they can be hard to keep track of. 

Using purpose-built transaction management software like Paperless Pipeline can help you stay organized when facilitating multiple deals at once, ensuring you close each deal successfully and get the profits you deserve. 

7 Steps to Wholesale Real Estate Successfully

Follow these steps to successfully complete your first wholesale real estate deal:

➡️ Do your research

The foundation of real estate wholesaling is good research. Before you enter into a deal, you must research:

The state and local laws and regulations

While real estate wholesaling is legal in the U.S., if you don’t follow the laws and regulations in the area where the property is located, you may face legal consequences.

You can find information on local regulations through:

  • Local government websites.
  • The Real Estate Commission for the state the property is located in.
  • Local and national real estate associations.
  • Consulting with a real estate attorney.

The neighborhood you want to buy in

Research the market demand, pricing strategies, and buyer preferences for the specific neighborhood in which you want to source a distressed property. 

This helps you make informed decisions, minimize risks, and improve your chances of a successful deal.

➡️ Network and build relationships

You need to spend time networking with property investors and building relationships with relevant people who would be interested in purchasing your contract. 

Build a pipeline of potential buyers actively looking for investment opportunities before you start looking for properties to get under contract. This will help to lower your risk.

If you get a property under contract and don’t manage to find an interested buyer, you could lose your earnest money deposit. You’ll also have wasted a lot of time and effort on finding the property and putting the deal together.

➡️ Find distressed properties

Next, find distressed or discounted properties listed below market value. A good place to start is to locate owners of properties in foreclosure or with liens.

You can find distressed properties using:

  • Multiple listing service (MLS) platforms.
  • Real estate auction websites.
  • Foreclosure websites.

➡️ Run the numbers

Once you’ve located a property, you need to ensure the deal will make financial sense for you. Do this by researching: 

  • Fair market value: Similar homes sold will help you determine the property’s fair market value. 
  • Occupancy rates: This is the percentage of all available properties in an area that are currently occupied or rented out.
  • Cash-on-cash returns for nearby properties: This refers to the amount of money an investor makes on a property compared to how much they invested in cash. This metric shows the annual return on the money invested in the deal.

Next, you need to find out what any repairs, modifications, and maintenance will cost. This will help you calculate the after-repair value of the property.

With this information, you can work out the maximum allowable offer, which is the highest price you can offer an investor for the distressed property and still make a profit.

➡️ Contact the seller and get the property under contract

Now, you need to contact the owner of the property and position your wholesale deal as the best option for them. 

You’ll need to convince them why working together is the best way to sell their property and explain how the transaction would work.

You then need to get the property under contract by presenting the seller with an offer. You may want to have a real estate attorney help you put this contract together to lower your risk of the deal falling through.

💡 Two Important Clauses for Your Real Estate Contracts:
To protect yourself and minimize risk, ensure your contract with the seller includes:
A clause that states that you have the right to assign it to another investor.
A contingency that allows you to withdraw from the deal if you aren’t able to find a suitable investor before the contract expires. 

➡️ Market your contract to potential buyers

Now, you need to use your network of interested buyers to find one that will be willing to purchase your contract.

You can also market the property to find a buyer. You can market the property to buyers by:

  • Collaborating with agents and brokers who have clients looking for investment properties.
  • Placing physical signage within the neighborhood advertising the property.
  • Posting on social media and using relevant hashtags.
  • Running online ads on Facebook or Google.
  • Sending postcards and letters to potential investors via direct mail.
  • Participating in forums and online communities that focus on real estate.

➡️ Close the deal

Once you’ve found an investor, it’s time to close the deal. In order for this to happen, you must both agree to the terms and conditions of the purchase agreement before the contract can be reassigned. 

You’ll then be paid your wholesale fee for finding the distressed property and putting the deal together by the buyer.

Why You Should Choose Paperless Pipeline for Your Wholesaling Business

If you want to drive large profits from real estate wholesaling, you’ll need to have multiple deals on the go. However, this can be challenging as it’s hard to keep track of everything. This is where software like Paperless Pipeline can help.

✔️ Our tool makes it easy for you to track the progress of your deals and stay organized by uploading documents, contracts, and correspondence related to each deal.

✔️ You can create fully customizable checklists and set automatic due dates and reminders to stay on track and ensure nothing falls through the cracks.

✔️ Using our software helps you maintain compliance with legal and regulatory requirements by providing a secure repository of transaction documents.

Former real estate wholesaler and CEO of Bowen Capital, Andrew McClam, uses Paperless Pipeline to streamline operations, saving him and his team over three hours of time each day.

The Ultimate Tool to Wholesale Real Estate Successfully 

Wholesaling is a big commitment, one that takes up a lot of time. However, it can be highly rewarding if you get it right.

To help you save time, stay on track, and close more wholesale deals, you’ll want to invest in software designed to help wholesalers just like you.

Paperless Pipeline is the ideal tool for wholesalers as it can grow and scale as you develop your wholesale business. Our pricing plans are completely flexible and are based on how many transactions you deal with each month—nothing more.

Visit our website to try Paperless Pipeline for free to see how our software can help you launch your own real estate wholesaling business.