Wholesaling real estate can be an excellent way for beginners to break into the industry and start investing in properties without needing significant capital upfront. This guide will provide an in-depth look at everything beginners need to know to successfully get started wholesaling real estate.
What is Real Estate Wholesaling?
Real estate wholesaling involves finding discounted properties, getting them under contract, and then assigning those purchase contracts to end buyers for a fee. Wholesalers act as the middleman between motivated sellers and cash buyers.
In a typical wholesaling deal, the steps are:
- A wholesaler negotiates a below market value purchase price with a motivated seller
- The seller signs a contract agreeing to sell the property to the wholesaler
- The wholesaler finds a cash buyer interested in purchasing the property
- The wholesaler assigns the original purchase contract to the cash buyer for an assignment fee
- The buyer purchases directly from the seller at the original negotiated price
- The wholesaler collects the assignment fee as profit
The wholesaler never takes ownership of the property. They simply facilitate the sale between seller and buyer and collect a fee for this service.
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How to Start Wholesaling Real Estate as a Beginner
Wholesaling can be done part-time or full-time. Here are the key steps any beginner needs to take to break into real estate wholesaling:
1. Learn the Fundamentals
Before wholesaling your first deal, spend time educating yourself on the basics of real estate investing. Understand core concepts like:
- How to calculate fixer upper repair costs
- Estimating a property’s after repaired value (ARV)
- Figuring out maximum allowable offers (MAO)
- How to find and evaluate potential deals
- Negotiating with sellers
- Marketing properties to buyers
- Drafting purchase contracts with proper clauses
- How title companies handle closings
Taking the time up front to learn wholesaling fundamentals will give beginners the confidence and skills to successfully navigate their first deals. Consider taking courses, reading books, or finding an experienced mentor.
2. Build a Cash Buyers List
A pre-built list of cash buyers is critical for wholesalers. These need to be real estate investors interested in buying discounted investment properties with cash.
To build a cash buyer list:
- Network at local real estate meetups and events
- Join real estate investment clubs and Facebook Groups
- Search public records for buyers of similar properties
- Market yourself through direct mail, social media and bandit signs
- Ask brokers for investor names from title company data
Nurture relationships with potential buyers and collect details like preferred investment criteria. Maintaining an updated cash buyer list saves wholesalers significant time when they need to quickly find buyers for deals under contract.
3. Find Discounted Properties
Wholesalers find success locating discounted properties that have inherent motivation from the seller. Examples include:
- Homeowners facing foreclosure
- Inherited properties needing to be liquidated
- Out of state sellers
- Divorce settlements
- Abandoned properties
- Houses needing extensive repairs
Search public records for pre-foreclosures, code violations, absentee owners, and probate filings. Drive targeted neighborhoods looking for deteriorating houses with overgrown lawns. Market yourself through direct mail and bandit signs to attract motivated sellers.
4. Make Low Offers
Once identifying a motivated seller, wholesalers need to make offers low enough to attract cash buyers while still high enough to get the property under contract.
Analyze ARV, repair costs, holding costs, and potential buyer profit margins to calculate the maximum allowable offer (MAO) you can make while still leaving room for a wholesale fee.
Present your offer along with your ability to close quickly with an all-cash buyer. Motivated sellers will likely be open to reasonable lowball offers to get out of their situation quickly.
5. Find a Buyer
With the property under contract, immediately market it to your cash buyer list. Send an email blast with the deal specifics. Call/text buyers who have previously bought similar properties. Be prepared to act fast, as motivated buyers may want to jump on a good deal.
Collect proof of funds letters from interested buyers to show sellers you can deliver. Choose the strongest buyer and coordinate the assignment of the purchase contract.
6. Close the Deal
The original seller and end cash buyer will close directly through a title company, with you entitled to your assignment fee. Earnest money is also released, letting you repeat the wholesaling process.
To successfully close as a beginner:
- Use a title company familiar with wholesaling
- Hire an attorney to review documents
- Personally explain the process to buyers/sellers
- Follow-up regularly with all parties
- Be available to resolve any questions
Repeat these steps, perfecting your skills with each additional deal. Stay persistent and focused, even when challenges arise during the learning process.
READ ALSO: A Step-by-Step Guide to Real Estate Market Analysis for Investors
Example of a Beginner Wholesaling a Property
Let’s walk through a hypothetical example of how a new wholesaler could make $20,000 on their first deal:
- A wholesaler finds a rundown home through a probate record. The house needs $20,000 in repairs and has an ARV of $200,000.
- The wholesaler verifies with seller that they need a quick cash sale to settle estate.
- Following MAO formula, wholesaler offers $140,000, which seller accepts. A purchase contract was signed.
- Wholesaler markets to cash buyers list. Finds one willing to pay $160,000.
- The wholesaler gets $160,000 purchase contract signed by buyer and assigns rights to the original contract for $20,000 fee.
- The buyer purchases home directly from seller at original $140,000 price.
- The wholesaler receives $20,000 assignment fee minus any transaction costs.
This example shows how a motivated seller combined with a discounted offer can result in a solid beginner fee. With some persistence, new wholesalers can complete their first deal in a relatively short timeframe.
Pros and Cons of Wholesaling for Beginners
Pros of Wholesaling Real Estate for Beginners:
- Low startup costs and barriers to entry
- No money needed for purchases – just an equitable interest in the property
- It can be done part-time or full-time
- Learn valuable real estate investing skills
- Network with other investors
- Creative financing options, like using hard money loans
Cons of Wholesaling Real Estate for Beginners:
- Low fees per deal, so high volume needed to earn significant income
- Identifying good deals takes effort and diligence
- Very competitive in some real estate markets
- There is no control over rehab or property improvements
- You have to move fast once a property is under contract
- Less potential upside than fix and flipping or buy and hold
Assess your personal goals, abilities, market, and financial situation to determine if the pros outweigh the cons when exploring wholesaling. It can serve as a solid starting point to gain experience, even if you later transition to other investment strategies.
Choosing the Right Market to Start Wholesaling
Not all real estate markets are ideal for new wholesalers to find profitable deals. The best areas for beginners have:
- Reasonable home prices – Higher priced areas make MAO calculations harder
- Inventory of old, dated homes – Newer neighborhoods won’t have many fixer deals
- Decent rents – This retains resale value for buyers
- Growing population – Brings investors interested in rentals
- Low cost of living – Maximizes net profit when setting fees
- Consistent housing demand – Helps deals close smoothly
Talk to local real estate agents and investors to gain insights about which neighborhoods may offer the best wholesaling opportunities. Start researching properties for sale to get firsthand data on pricing trends, days on market, and types of motivated sellers in your target areas.
READ ALSO: How to Create a Real Estate Investing Business Plan in 6 Steps
How to Find Motivated Sellers
Finding motivated sellers willing to accept below market value offers is the foundation of profitable wholesaling. As a beginner, focus your efforts on the following avenues to find discounted properties:
Pre-Foreclosure Listings
Homeowners who have fallen behind on mortgage payments and received default notices need fast solutions to avoid foreclosure. Comb public records for preliminary foreclosure notices, Lis Pendens filings, and mortgage default listings.
Probate and Inherited Properties
When a homeowner dies, heirs are often looking to quickly liquidate the property as part of resolving the estate. Search probate records and local obituaries, then make contact with surviving family members.
Divorce Settlements
The division of assets from a marriage dissolution can motivate quick sales. Look for divorce filings, then contact the owners to see if they want to liquidate.
Absentee Owners
Out of town, out of state or out of country landlords may be amenable to all-cash offers to get rid of headache properties. Identify absentee owners through address searches on property listings.
Code Violations
Owners facing fines and penalties to resolve violations like peeling paint, broken windows, or a crumbling deck may prefer a fast cash sale. Check municipal records for citation lists.
Tired Landlords
Mom and pop rental owners ready to exit the business after years of tenant headaches and maintenance issues make good prospects. Target small-time landlords through public records, Craigslist ads, or bandit signs.
Expired Listings
Properties that have lingered on the market indicate sellers who are more flexible on price. Follow up on any expired listings in your focus neighborhoods.
When targeting motivated sellers, be sure to show sensitivity to their situation and focus on presenting win-win solutions. With persistence and creativity, beginners can build a healthy list of prospects.
Tips for Negotiating Discounted Deals
As a wholesaler, your ability to negotiate motivated sellers down from their listing price is crucial for making profitable deals. Use these pro tips when negotiating:
- Research comparable sales – Know the true market value so you can justify lower offers.
- Establish trust and rapport – Sellers want to feel they are in good hands. Be transparent.
- Convey urgency of buyers – Cash buyers can close quickly, which suits motivated sellers.
- Cite property defects – Politely point out any flaws needing repair to lower the price.
- Suggest seller keep possessions – Offering to have a seller leave behind unwanted items can sweeten the deal.
- Remain win-win focused – Craft solutions that get sellers out of a tough spot while still netting you a fee.
- Follow-up persistently – Many deals require multiple contacts to finalize a contract.
- Move fast if accepted – Speed to an accepted offer before a seller changes their mind.
Proper preparation, market knowledge, and relationship building skills will help beginners successfully negotiate discounts. Don’t get discouraged if some sellers reject offers. Stay focused on the next opportunity.
How to Find Cash Buyers for Wholesaling
Once a discounted property is under contract, the next vital step is finding a cash buyer ready to purchase it. Some proven ways wholesalers source cash buyers include:
- Bandit signs – Place signs with your contact information near motivated neighborhoods to attract driving buyers.
- Direct mail – Send postcards or letters to owners of similar investment properties in the MLS.
- Creative online ads – Market yourself cleverly through Craigslist, Facebook Groups, and LinkedIn without violating ad rules.
- Facebook targeting – Use Facebook tools to target buyers by interest, income level, and more.
- Property signs – Put “We Buy Houses” signs outside motivated seller homes to catch neighborhood buyers.
- Referral requests – Ask everyone you know for buyer referrals. Real estate agents may deliver strong leads.
- Investor meetups – Attend local real estate clubs and events to network with fellow investors.
- Call cash buyers on titles – Pull the title history of similar properties and contact those buyers.
- Search online investor forums – Join and participate in biggerpockets.com and other investor sites.
- Door knock neighborhoods – Knock on doors near a motivated seller’s home and make buyer pitches.
Put in the legwork to build a sizable cash buyer list. When you have a deal under contract, you can blast your entire list to find the quickest buyer. Follow up diligently, as deals wait for no one.
How to Determine Your Wholesale Fees
As a wholesaler, your profits come from the assignment fees collected for each successful deal. Common wholesale fee structures include:
- Flat fee model – Charging a fixed flat fee per deal. For example, $5,000 – $10,000 per transaction.
- Percentage model – Collecting a percentage of the total property sales price. Often 5-25% depending on purchase price.
- Hybrid model – Using a percentage for lower price point properties and a flat fee for higher sales prices. This hybrid maximizes fees.
To determine appropriate fees, research what other local wholesalers are charging. Weigh factors like how quickly you need to flip a deal, total transaction costs, and the type of buyer market.
Keep in mind that wholesaling competitions drive fees down over time. Manage your margins wisely as you gain experience. Exceeding 25% on fees raises legal red flags in some areas.
Legal Considerations for Beginner Wholesalers
Wholesaling real estate operates in a gray legal area, so caution is advised. Here are some guidelines for beginners to avoid legal missteps:
- Consult a real estate attorney to understand state laws.
- Never act as a licensed agent without proper credentials.
- Disclose that you do not own the property when marketing.
- Use proper verbiage in ads and buyer communications.
- Make buyers aware they are purchasing your equitable interest in the property.
- Only promote the commercial aspects of your business, like finding discounted properties.
- Do not try to inflate prices through false valuations or information misrepresentation.
- Avoid using language like “for sale by owner” that implies you own the property.
- Work with an investor-savvy title company familiar with wholesaling.
- Record necessary disclosures and assignments.
- Maintain transparent and ethical practices at all times.
While wholesaling itself is legal, violating real estate regulations or consumer protection laws quickly gets beginners in hot water. Seek proper guidance to operate safely within the law.
To Recap
Wholesaling real estate can be a rewarding entry point into investing, especially for beginners with limited funds. Follow this guide to understand the fundamentals of deal analysis, creatively finding sellers and buyers, negotiating profitable contracts, marketing property interests, and closing transactions.
Gain legal insights, study your local market thoroughly, build a strong social network, and don’t get discouraged by initial obstacles. With persistence and dedication to continual learning, real estate wholesaling can help beginners build a pathway to financial independence.
Wholesaling Real Estate – Beginner FAQs
How much can I make wholesaling as a beginner?
For first time wholesalers, average fees range from $5,000 – $20,000 per deal, depending on the property price and local market rates. Wholesaling income takes consistency and volume. Begin targeting 1-3 deals monthly.
Do I need a real estate license to wholesale properties?
In most states, you do not need a real estate license if you act only as a contract assignor between buyer and seller. However, get clarity from an attorney on the rules in your state to be sure.
What are the risks to avoid as a new wholesaler?
The top risks are failing to evaluate deals correctly, paying too much, not finding buyers, and violating legal regulations on promoting deals. Mitigate these through education, conservative offers, strong buyer relationships, and proper legal guidance.
How do I find motivated sellers as a beginner?
Target motivated sellers facing pre-foreclosure, probates, liens, code violations, and absentee situations. Comb public records, databases, obituaries, and MLS expired listings. Also use direct mail and marketing campaigns.
Can I wholesale real estate part-time as I’m starting out?
Absolutely. Many new wholesalers start out moonlighting in the evenings and weekends while still working a primary job. Expect the process to take longer until you can transition to full-time wholesaling.
What are assignment contracts in wholesaling?
An assignment contract legally transfers a purchase agreement from the wholesaler to the buyer of the property. The buyer is assigned the right to purchase the property on the original terms negotiated by the wholesaler.
How do I find cash buyers for my wholesale deals?
Market aggressively to establish a cash buyer list. Leverage marketing, network with fellow investors, comb through title records, join REIA clubs, and source buyers through MLS deal data.
How long does the typical wholesaling process take?
In general, expect 1-3 months to sell a property under contract. The process involves finding motivated sellers, analyzing deals, making discounted offers, locating buyers, assigning contracts, and closing. Speed is important.
In another related article, How to Become a Licensed Real Estate Agent: The Complete Guide
