Wholesaling is one of the fastest ways to get started in real estate investing without needing a lot of capital. In most states it does not require a real estate license. Here is exactly how it works and how to get started.
What Is Real Estate Wholesaling?
A wholesaler finds a distressed property, negotiates a purchase contract with the seller at a below-market price, and then assigns that contract to a cash buyer (usually a flipper or landlord) for a fee. The wholesaler never actually buys the property. The fee is called an assignment fee and typically ranges from $2,000 to $20,000 or more depending on the deal.
How It Works Step by Step
First, you find a motivated seller, someone who needs to sell quickly due to foreclosure, divorce, inherited property, or financial distress. Second, you negotiate a purchase price below market value, typically 60 to 70 percent of ARV minus rehab costs. Third, you sign a purchase and sale agreement with the seller that includes an assignment clause. Fourth, you find a cash buyer from your investor buyers list who wants the deal at a higher price than you contracted. Fifth, you assign the contract to the buyer for your fee. Sixth, the buyer closes with the seller directly, and you collect your assignment fee at closing.
How to Find Motivated Sellers
Driving for dollars (looking for distressed properties in neighborhoods). Direct mail campaigns to absentee owners and pre-foreclosure lists. Probate court records for inherited properties. Tax delinquent lists from the county. Bandit signs and online ads.
Building Your Cash Buyers List
You need buyers before you have deals. Attend local real estate investment association (REIA) meetups. Connect with other wholesalers who might refer buyers. Search for recent cash sales in your target market on public records. Post in local real estate Facebook groups.
Legal Considerations
Wholesaling laws vary by state. Some states have passed laws requiring wholesalers to have a real estate license. Research your specific state before starting. Using a double close (buying and immediately reselling) instead of an assignment can address many legal concerns but requires more capital.
Wholesaling Is Not Passive Income
Wholesaling is a sales and marketing business. You will spend significant time finding leads, negotiating with sellers, and building your buyers list. Most new wholesalers do not close their first deal for 3 to 6 months. Treat it like a job.