What is wholesaling real estate? You sign a contract to buy a house, which gives you an equitable interest, then a cash buyer takes over that contract and pays you an assignment fee at closing.
Wholesaling real estate is when you sign a contract to buy a house from a motivated seller, which gives you an equitable interest in it, then sell that contract position to a cash buyer before closing. The buyer pays you an assignment fee and closes on the house. You never take ownership. The rules vary by state, so check yours first.
Lesson
1 of 19, module 1: Foundations
Time
About 14 minutes to read
You'll need
A notebook and your state's name
Next
Lesson 2: is wholesaling legal?
The definition
What is wholesaling real estate?
When you and a seller sign a purchase agreement, you get the right to buy that house on the terms you agreed to. That right is called an equitable interest. A wholesaler doesn't sell the house, because they don't own it. They sell the contract position, either by assigning the contract to a cash buyer or by buying and reselling in a double close.
So what is real estate wholesaling, in one line? Finding deals and passing them to investors who pay cash, for a fee. This lesson is real estate wholesaling for beginners: the parts of a deal, the two ways to close it, the money you put at risk, and the laws to check.
Quick note before we start: I'm a real estate investor, not an attorney or financial advisor. This lesson explains how wholesaling works. It isn't legal advice.
Motivated sellerNeeds to sell as-is and agrees to your price.
You, the wholesalerSign a purchase agreement you can assign.
Cash buyerTakes over your contract and pays your fee.
Title companyHolds the earnest money, closes, and pays everyone.
How a wholesale deal flows: seller, you, cash buyer, closing
Wholesaler
That's you. You find the deal, negotiate it, sign the contract and match it with a buyer. You act for yourself, not as the seller's agent.
Motivated seller
An owner who needs to sell soon or as-is: an inherited house, a tired landlord, a vacant property, back taxes.
Cash buyer
An investor who pays cash and closes fast, then fixes the house to resell or rent. Lesson 4 shows you how to find them.
Assignment fee
What the buyer pays you to take over your contract. It's set in the assignment agreement and paid at closing.
Step by step
How does wholesaling real estate work? Step by step
1
Step 1: Find a motivated seller
Wholesale deals come from owners who need to sell more than they need top dollar: inherited houses, vacant properties, tired landlords, owners behind on taxes, houses with code violations. Driving for dollars, direct mail, cold calling and referrals are the usual ways to reach them. Lesson 7 compares them.
I use DealMachine for this. It lets me pull lists of vacant and absentee-owned houses, add houses while I drive for dollars, skip trace the owners and send postcards from one app. Read my DealMachine review to see if it fits how you work.
Every offer starts with three numbers: what the house should sell for after repairs (the ARV), what the repairs will cost, and what your buyers will pay. From those you get your maximum allowable offer (MAO), the most you can pay and still leave room for your buyer's profit and your fee.
Step 3: Sign a purchase contract and put up earnest money
When you and the seller agree on a price, you both sign a purchase agreement. For a wholesale deal it should say, in plain words, that you can assign it, give you an inspection or due diligence period, and set a closing date. Many states also require a written disclosure that you're buying to resell or assign. Lesson 13 covers making the offer.
Your earnest money goes to a neutral title company or escrow agent, not to the seller and not into your pocket. It's real money, and it's at risk if you back out outside the contract's terms. My free wholesale real estate contracts show what these agreements look like. Have a local attorney review whatever you use.
Checklist
Assignment language the seller understands and agrees to
An inspection or due diligence period
Any disclosure your state requires, in writing
Earnest money sent to a title company or escrow agent
4
Step 4: Find a cash buyer for the contract
Now you send the deal to investors who buy that kind of house, with photos, your repair notes and the numbers. Lesson 4 shows you how to build a cash buyers list, and Lesson 15 covers marketing a deal. Build the list early, so you're not racing your closing date.
You're marketing a contract, not a house you own, so never advertise it as yours. Some states require a license or a disclosure to market a contract to the public. If you want help finding buyers, read my InvestorBase review and InvestorLift review first.
Checklist
Buyers who purchase in that ZIP code
Proof of funds from the buyer you pick
Marketing that says you hold a contract
5
Step 5: Assign the contract or double close
With an assignment, you and your buyer sign an assignment agreement. It hands them your contract, sets your fee and usually takes a deposit from them. With a double close, you buy the house in one closing and sell it to your buyer in a second one. The next section compares the two, and Lesson 14 goes deeper on exit strategies.
6
Step 6: Close with a title company or attorney
Your buyer wires their funds to the closing agent, which is a title company or a closing attorney depending on your state. The seller signs the deed, and the closing agent pays everyone from the closing funds, including your fee. Your earnest money is usually credited or returned at closing. Lesson 6 and my title company directory help you find an investor-friendly one.
Checklist
Buyer's funds wired to the closing agent
Your fee shown the way your closing agent requires
Signed copies of everything filed
The mindset part. Most people who quit wholesaling don't quit because it's complicated. They quit because calling strangers feels uncomfortable and the first deal takes longer than they hoped. You don't need to be a natural salesperson. I wasn't. Be honest that you're new, make a list of next steps with dates on it, and do one uncomfortable thing a day. It gets easier with reps.
Two ways to close
Assignment vs. double close: what's the difference?
Both get the house from your seller to your cash buyer. The difference is whether you ever take title.
Two sets, and transfer taxes can apply to both deeds
Who sees your fee
Depends on the closing agent. Ask them.
Depends on the closing agent. Ask them.
FHA end buyer
Not allowed (24 CFR 203.37a)
Usually not if the resale is within 90 days
Transactional funding is a short-term loan, often for a single day, that pays for the first closing of a double close. It has fees, so get a written quote before you count on it. My transactional funding guide explains how it works.
FHA buyers. Federal rules say an FHA-financed buyer must buy from the owner of record, with no sale or assignment of the sales contract, and a resale within 90 days of the seller's purchase generally isn't eligible for FHA financing (24 CFR 203.37a ↗). That's why wholesale buyers are usually cash investors.
Some contracts forbid assignment. A contract can ban assignment outright. Writing "and/or assigns" after your name only helps if the contract also has a clear assignment clause, and only use it with the seller's informed agreement. Tell your seller you may assign the contract, and what that means, before they sign.
On paper
A simple example
Simplified illustration, not typical results. The same made-up deal, closed both ways. Every real deal is different.
Simplified illustration
As an assignment
A seller with an inherited house that needs work agrees to sell to you. A cash buyer on your list agrees to take over your contract.
Item
Amount
After repair value (ARV)
$110,000
Your contract price with the seller
$60,000
Assignment fee your buyer agrees to
$10,000
Buyer pays at the one closing
$70,000
The seller gets the $60,000 contract price, less their own closing costs. You get the $10,000 fee at closing. The buyer still has to pay for repairs, holding and selling costs.
Simplified illustration
As a double close
Same house, same buyer. This time you buy it and resell it the same day.
Item
Amount
Closing 1: you buy from the seller
$60,000
Closing 2: your buyer buys from you
$70,000
Spread before your costs
$10,000
Your costs
Two closings, any transfer taxes, funding fees
You need $60,000 for the first closing, from your own money or transactional funding. Your share is the $10,000 spread minus the extra closing costs, taxes and funding fees.
Laws and licensing
Is wholesaling legal?
Yes. No state bans wholesaling, but 22 states now regulate it with license, registration or disclosure rules, and some cities add their own. Lesson 2 shows when you need a license, which states require written disclosures, and the checklist I'd run before your first contract. Not legal advice. Confirm with a licensed attorney in your state.
Doing it right
Earnest money, risks and doing it honestly
Your earnest money is a real deposit held by a neutral title company or escrow agent. If you can't find a buyer and you're past your inspection period, you can lose it. In some states, like Oregon and Iowa, skipping a required disclosure can let the seller cancel and keep it. Only put up money you can afford to lose.
Why people start with wholesaling
You learn to find deals and run numbers, skills that carry over to flipping and rentals
You don't need a mortgage or a big down payment to control a deal
Deals usually close in weeks, not months
You can start part-time from your own area
The real risks
Earnest money you can lose if a deal falls apart
Marketing costs before your first deal, with no deal promised
State licensing, registration and disclosure rules, with penalties for skipping them
Contracts with no buyer, which can hurt sellers who are counting on you
Say what you are. You're a principal buying for yourself, not the seller's agent. Put that in writing.
Never advertise the house as yours. You hold a contract, so market it that way.
Be upfront about assigning. Tell the seller you may assign or resell, and ask the closing agent how your fee will show.
Keep deposits in escrow. Real earnest money goes to a neutral title company or escrow agent.
Compare
Wholesaling vs. flipping houses
Wholesaling
Flipping
Do you buy the house?
No, you sell the contract (or buy briefly in a double close)
Yes
Your money in the deal
Earnest money and marketing
Purchase, repairs, holding and selling costs
How long it takes
Usually weeks
Usually months
How you get paid
An assignment fee or spread at closing
Profit if it sells for more than it cost
Main skill
Finding deals and buyers
Managing a rehab
Licensing rules
Vary by state, and growing
Usually none to buy and sell your own property
Costs only
What does it cost to start wholesaling?
I won't tell you what you'll earn, because nobody can. Here's what you'll spend money on. The amounts depend on your state and how you find sellers.
Earnest money deposits on each contract, held in escrow
Marketing: mail, lists, skip tracing, a phone line, or gas and time for driving for dollars
An attorney to review your contracts and disclosures
License or registration fees, in states that require them
Double close costs: a second set of closing costs and transfer taxes, plus transactional funding fees
Recap
Lesson recap
Wholesaling real estate means selling your contract position, your equitable interest, not a house you own.
A deal goes: motivated seller, numbers, contract and escrowed earnest money, cash buyer, assignment or double close, closing.
An assignment is one closing. A double close is two, with more cost and money needed for the first one.
Your earnest money is real money at risk.
The rules vary by state. Read yours and confirm with a local attorney before your first contract.
Before your first contract. Wholesaling laws vary by state and change often. Read your state's rules, and have a local real estate attorney review your contracts and disclosures.
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Tools
Tools I use for this
Two free resources from me, and two paid tools I've reviewed. Start with the free ones.
Free
Wholesale contracts
My purchase agreement, assignment contract, JV agreement and option, so you can see what you'll sign.
Yes. No state bans wholesaling, but 22 states now regulate it with license, registration or disclosure rules, so the rules vary by state. Lesson 2 covers when you need a license and the checklist to run before your first contract.
What happens to your earnest money in a wholesale deal?
It goes to a neutral title company or escrow agent and is held there until closing, when it's usually credited or returned. If you back out after your inspection period, or skip a disclosure your state requires, you can lose it. Treat it as real money at risk, because it is.
What is a wholesale real estate contract?
It's a purchase agreement between you and the seller that lets you assign it, plus an assignment agreement between you and your cash buyer. A good one names the price, earnest money, inspection period, closing date and assignment terms in plain words. My free contracts show the parts. Have a local attorney review yours.
How do wholesalers find cash buyers?
They look for investors who already buy in their area: recent cash sales in public records, local investor meetups, landlords, and buyer platforms. They ask each buyer what they buy and ask for proof of funds. Lesson 4 walks through building a cash buyers list before you need one.
How much does it cost to start wholesaling?
There's no set number. You'll pay for earnest money deposits, marketing like mail, lists and skip tracing, an attorney to review your contracts, and any license or registration your state requires. Double closes add a second set of closing costs and transactional funding fees. Driving for dollars costs mostly time.
What are the risks of wholesaling?
You can lose earnest money if a deal falls apart, spend on marketing before you get a deal, and break your state's rules without knowing it. A contract with no buyer can also hurt a seller who's counting on you. Learn the rules, line up buyers early and be honest with sellers.
What is MAO in wholesaling?
MAO stands for maximum allowable offer, the most you can pay a seller and still leave room for repairs, your buyer's profit and your fee. A common starting formula is ARV times your buyer's percentage, minus repairs, minus your fee. Lesson 12 shows how to set it for your market.
Next: lesson 2, Is wholesaling real estate legal?
Why the rules vary by state, what to check in yours, and how to stay on the right side of them.
Heads up: I earn a commission if you buy through my link. Costs you nothing extra, but it helps fund my Starbucks addiction. ☕
Not legal advice. Confirm with a licensed attorney in your state.
Not financial or legal advice. Wholesaling University is for education. David Frizzell is a real estate investor, not an attorney or financial advisor. Wholesaling laws vary by state, so check the rules in your state before you market a property or make offers, and talk to a local real estate attorney if you're not sure.
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