Wholesale Real Estate for Beginners
Wholesaling houses may seem very complicated at first, but it really is quite simple. New real estate investors often choose wholesale real estate as their first investing strategy.
This complete guide to wholesale real estate will provide you with the knowledge you need to start investing in real estate without cash, credit, or experience.
Table of Contents
What is Wholesale Real Estate?
Wholesale real estate is a process where you find a motivated seller who is willing to sell their house below market value. You then get that property under contract and assign that contract to a cash buyer for a higher price.
Instead of buying the house yourself, a cash buyer will purchase the contract from you. And you will receive a fee in return. This is called an assignment fee.
There will be two contracts, one between you and the seller and another between you and the purchaser. Once both contracts are signed, you can take the contracts over to an investor friendly title company or attorney who will complete the entire closing process.
Wholesaling real estate is suitable for most beginners because it requires little to no capital or experience.
Wholesaling real estate is like flipping houses without having to make any renovations. The process is quite simple. Nonetheless, the following is an example to help you better understand.
Examples of Wholesale Real Estate
Michael is a real estate wholesaler. He looks for the best real estate deals, stays updated with the latest offers and hangs out with real estate investors.
One day, he finds out that his friend Bob wants to sell his home before it goes into foreclosure. Bob wants $100k for the house.
Michael and Bob both agree to a Purchase and Sales contract saying that Michael or his partners will buy the home within X amount of days for $100k cash.
Michael goes to his buyers list and contacts real estate investors to see if anybody wants to buy the house. One of the investors is interested and wants to see the house. Let’s name him Ross.
Ross agrees to buy the house for $110k because it looks like a great deal. As per the contract that Michael and Bob signed, Michael OR his partners can buy the house. So, Ross and Michael agree to an Assignment of Contract saying Ross will buy the house for $110k cash and pay for all the closing costs.
Now Michael can hand over both real estate contracts to the title company or a closing attorney for further processing.
As per the contract Bob will get $100k, Ross will buy the house for $110k and Michael will earn a profit of $10k without ever buying or fixing up the property.
Before You Start Investing
The entire wholesaling process we have discussed is quite simple but does require effort on your part.
There are many things that you need to keep in mind while you are wholesaling real estate.
Legal Aspects
Considering Michael sold a house at a profit of $10k without even buying it, you may be wondering, “is this legal?”
The answer is YES. Just make sure you know the correct way to wholesale real estate. Make sure you don’t need a license to wholesale in your state. In the great state of Texas where I close my wholesale deals, wholesaling is completely legal.
Also, have purchase and sales agreements along with assignment of contracts that will protect you from liability. For this, I recommend you consult an attorney.
Wholesaling Real Estate Time Frame
The above example stated that Michael and Bob agreed to a contract stating that Michael will buy the house for $100k cash in x amount of days. This is very important to note. In this case, assume Michael has agreed to close the deal within 30 days.
What if Michael is not able to find a buyer and close the deal within 30 days? If the sale of the home is not concluded then Michael can either ask Bob for more time, or he can walk away from the home with no consequences. Michael has invested little to no capital on this property.
In this case, Michael did not have to forgo his profits because he had taken the time and put in effort to build his buyers list. He was easily able to market the property to his buyers and quickly close this deal. You, like Michael, will need to work hard in marketing yourself and building a network of cash buyers. People that are willing to buy from you without any issues.
Cash Buyers List
The example above showed how quick and simple the wholesaling process can be. But, this was only possible because Michael spent a great deal of time putting together a cash buyers list.
He searched for buyers online, networking and through marketing himself as a wholesaler. As soon as he had a house under contract he contacted his list of buyers and was able to find a cash buyer quickly and easily.
How to Wholesale Real Estate the Right Way
Wholesale real estate guide:
How to wholesale real estate?
Total Time: 30 days
Know and understand the legal aspects before you begin
• Do I need a real estate license?
• Should I use a title company or hire a closing attorney?
• Where can I get a PSA and Assignment of Contract?
• What clauses should I include in the contracts?
Set your Goal
To be successful in the real estate industry as in anything in life; make a plan and set a goal.
For example your plan could be:
• I will build a real estate team which consists of a VA, closing attorney, title company, real estate agent, contractor, real estate investing CRM, etc.
Your goal in turn could be:
• I will flip X amount of properties every month worth Y amount
Execute your plan while keeping your goal in mind and begin the process.
Finding your first property
The first real task would be to find a property. Look at various places where you can find a house for sale at a deep discount. This will make it easier to find a cash buyer fast and earn a large assignment fee.
Here are some of the places where you can find properties:
• Look on the MLS. MLS Stands for Multiple Listing Service
• Foreclosure listings and auctions
• Newspaper listings
• Place bandit signs that say We Buy Houses
• Drive around neighborhoods looking for vacant houses and houses for rent
• Websites like Craigslist, FSBO, or Foreclosure can always be useful when you are looking for motivated sellers
Wholesaling Math
There is a wholesaling math formula that most real estate wholesalers use. This formula is very simple to understand, and very important.
MAO and ARV
Before you can make a seller an offer. You will need to find out your MAO, Maximum Allowable Offer. To do this you must first find out the ARV of the home, After Repaired Value.
The formula I use is: ARV x .70 – Repairs – Assignment Fee = MAO
Learn the Art of Negotiation
If you are in the real estate industry, especially if you want to wholesale real estate, then learning how to negotiate will become essential.
You will find yourself negotiating with both the seller as well as the purchaser. Negotiating a fair price with both parties will allow you to make profits in any given situation.
Negotiating is a learned skill and with time and practice you will become great at it. And once mastered you will be able to get the best wholesale deals.
Create a Cash Buyers List
As a wholesaler you need to create and grow a cash buyers list. Your list needs to consist of cash buyer investors who are looking to buy houses fast.
You can look for cash buyers in the following places:
• Foreclosure auctions
• REIA meetings
• Craigslist
• Real estate investor software
• Real estate Facebook groups
• Cash buyer websites
Once you create and grow a cash buyers list. It will be easy for you to sell the houses you get under contract.
Closing Deals
Last but not least you will have to close the deal. As we mentioned above, there is a lot of paperwork that the title company or attorney will have to complete. Once the contracts are signed and paperwork completed, the title company or attorney will give you your check and the transaction will be completed.
After you close your first wholesale deal, you can celebrate because you just closed your first deal as a real estate wholesaler.
Keep in mind that in wholesale real estate you will not close every deal as planned. There will be many obstacles that you will face during the process. It’s all about how you work to overcome them that will make you successful in the long run.
Supply:
- Computer with internet access
- Phone
Tools:
- Mode of transportation
- Real estate investor software
- Lock box
- Video recorder
- Camera
- Motivated seller leads
- Cash buyers list
Materials: Real estate wholesaling contracts and business cards.
Wholesaling Real Estate Tips
During this entire wholesale real estate guide, we have told you to learn this and do that. Now, the main question is what are the things that you need to learn to put together better deals.
Here are some suggestions that will be handy:
- The first thing to learn to make a better deal is to know the ARV of the home. You must estimate your ARV as accurately as possible.
- Be as accurate as possible when you calculate the repair cost.
- Only deal with legitimate cash buyer investors.
- Negotiating. Just like the buyer will negotiate with you, you will have to negotiate with the seller for a better price.
Final Words
We are sure this guide to wholesaling real estate will be helpful to you. There are a lot of things that you need to learn as a beginner. If you are willing to put in the work, you will surely obtain success.
The last and most important thing is to take action. Now that you know wholesale real estate and how it works, it would be a good idea to attend a REIA meeting. This will allow you to meet new like-minded people which will help you achieve success in the real estate industry.
Wholesale Real Estate Investing FAQ’s
What Does Wholesale Mean in Real Estate?
No matter if you follow real estate blogs, watch HGTV or own fix-and-flip properties, wholesale is likely something familiar to you. Real estate wholesaling provides an accessible route into real estate investing without direct involvement or funds.
Real Estate Wholesaling Definition – Wholesale real estate doesn’t involve purchasing the actual property itself; rather, you gain rights through contract and then sell those rights to an end buyer.
For instance, John was left his grandmother’s house when she passed away, leaving him uncertain what he should do with it. Jane, a local wholesaler in his area saw how neglected the house was so she decided to offer John a wholesale contract knowing her buyer, Judy specializes in hoarder homes so would happily take it off his hands.
An effective wholesale real estate business hinges on maintaining an active cash buyers list. This can be accomplished via social media and local networking events; understanding your buyers preferences so you can offer them properties which meet their buying criteria.
Do You Need a License to Wholesale Real Estate?
Wholesale real estate can be an extremely lucrative and successful venture, but before embarking on this strategy it is vital that all parties involved understand its risks and legal requirements.
Wholesaling involves purchasing properties below their market value and then selling them for a profit to end buyers. To be successful at wholesaling requires excellent negotiating skills and an established network of cash investors; profits may also have lower margins than other real estate investments but may vary significantly based on availability and buyer interest.
Investors engaging in real estate wholesaling do not require a license to conduct the transaction, although most states allow this practice provided the investor does not act as a real estate agent. Before engaging in such activity, however, it is crucial to gain knowledge of any local laws concerning it.
In order to comply with real estate law, it is crucial that all purchase and sale agreements are legally valid and it would be wise to consult an attorney about how your state regulations might impact them.
Additionally, you should become acquainted with local zoning ordinances, home inspection regulations, and any legal implications affecting property investment. It’s also vital that you become acquainted with your intended investment area in order to identify motivated sellers and identify undervalued property.
Real estate wholesaling may raise some concerns regarding its legitimacy; however, most consider it an ethical and legitimate way of purchasing and selling homes. By being honest and transparent with sellers while keeping all paperwork up-to-date, wholesalers can avoid breaking real estate law and remaining compliant.
How to Wholesale Real Estate for Beginners?
Wholesaling can be an ideal entryway to real estate investing for beginners. Acting as the liaison between motivated sellers and end investors, wholesaling professionals collect their fee based on any differences in price at closing time – which they collect as an assignment fee at closing time.
Many wholesale professionals start off working part-time before gradually taking on more assignments as their networks and experience grow.
A successful wholesaler can locate off-market properties and monitor them strategically to avoid competition. He or she should possess effective communication and negotiation skills as well as possess an in-depth knowledge of local market conditions; oftentimes the best deals lie outside the MLS and require connecting with private sellers to access.
An active social network can also assist wholesalers in finding opportunities. Knowing more people increases the chance that someone will remember you when it’s time to sell or purchase property.
Wholesaling requires special skills, but there are numerous books designed to teach beginners the fundamentals of this lucrative business. Some popular examples are The Real Estate Wholesaling Bible, The Ultimate Guide to Wholesaling Houses and How to Flip a House Fast.
Furthermore, getting a real estate license may prove helpful; providing access to multiple listing services (MLS), networking opportunities that would otherwise be hard to come by and providing access to potential investors who might help facilitate deals more quickly.
About Author
The South Texas Wholesaler
JR Medrano is a seasoned real estate investor and the founder of WholesalingHousesInfo.com. With a passion for helping aspiring investors navigate the complex world of real estate, JR shares his extensive knowledge and experience in wholesaling houses through comprehensive guides, expert tips, and real-life success stories. Known for his practical approach and dedication to empowering others, JR aims to demystify the wholesaling process and provide valuable insights for both beginners and seasoned professionals. When he's not busy analyzing deals or mentoring others, JR enjoys exploring new markets and staying ahead of industry trends. Follow his journey and gain actionable advice at WholesalingHousesInfo.com.
Do you offer a paid mentorship? I’d really like to get into the business of wholesaling and would like some assistance. If so what is your mentoring fee and how can I get started?
I am not currently offering a mentorship program. If something changes I will let you know.
Hi J.R. Medrano,
I would like to know when wholesaling in Houston, Texas area. Where would I get the purchase and sales agreement and the assignment of contract forms from?
Hey Quincy,
– You can get wholesaling contracts that are included in real estate investor software like FreedomSoft & Realeflow.
– You can purchase cheap real estate contracts ➜ HERE
– You can also contact a real estate attorney in the state you are looking to wholesale in.
Let me know if I can help with anything further,
J.R. Medrano
Hello Mr. Medrano I hope you are doing well.
I have a quick question. I am currently in an 8-5 office job, and I am very interested in starting to wholesale properties. I live in San Antonio, TX, and I am wondering if it is possible for me to wholesale properties as a part time gig to start off. I still need to have some sort of income secured just in case I fail in the wholesale business.
I am hoping that eventually I could leave my current job to start my own real estate investing business if it all works out.
Thank you
Hey Humberto,
Yes it is very possible to work an 8-5 job and wholesale properties on the side.
I have experience wholesaling real estate full time and part time.
One time I closed a wholesale deal while working nights out of town in the oilfield.
Also I think it is very important to keep a positive attitude no matter what. Even when you are 1st starting off investing in real estate with no experience.
If you would like some help pursuing your goal of starting your own real estate investing business → Check This Out ←
I wish you the best of luck.
Let me know if I can help with anything further,
J.R. Medrano
Do you need a closing attorney for Texas or just a title company
Hey Mark,
Great question, but I am not an attorney. I recommend you consult an attorney for legal advise.
When I wholesale properties in Texas, I use a title company.
Let me know if I can help with anything further,
J.R. Medrano
I’m in the Houston TX market, do I have to use TREC contract for wholesaling in Texas or can I use my own contracts? I have been looking for this answer but have not gotten a clear answer anywhere.
Hello Krystal,
Sorry but I am not an attorney. I recommend you consult a Texas licensed attorney for legal advise.
When closing wholesale deals in Corpus Christi, Texas I use a contract that I drafted.
Let me know if I can help with anything further,
J.R. Medrano
What are the documents needed in the state of Texas
Hello Christopher,
Sorry but I am not an attorney and recommend that you consult with a Texas licensed real estate attorney.
As far as the documents I utilize when wholesaling houses in Texas is a Purchase and Sale agreement and an Assignment of Contract.
My escrow officer takes care of the rest of the documents needed to close the transaction.
Let me know if I can help with anything further,
J.R. Medrano
Is now a good time to enter the market of wholesalers, or do you think there is a lot of competition in the state of texas?
Hello Tamika,
I think anytime is a good time to start wholesaling houses. As far as competition goes, I wouldn’t worry about that.
Good Luck!
When would an inspection occur? And are we as the wholesaler responsible for it in order to calculate the cost of repairs? If so, on average how much do you think that would cost?
Thanks so much for your time!
Hello Alicia,
Great question. The way I calculate repair cost for a home is first by gathering information from the seller about the condition of the home over the phone. After I give the seller my cash offer and they except it. I schedule a time to meet with the seller at the property to verify the condition of the home. This is also the time I take pictures and make a video of the home to show my cash buyers.
Here’s a great tool to help you Analyze Deals & Estimate Repair Cost, CLICK HERE.
Let me know if I can help with anything further,
J.R. Medrano