Real Estate Wholesaling 101: Understanding the Basics

What is Real Estate Wholesaling?

Simply put, real estate wholesaling is the process of finding real estate you can buy at a substantial discount, placing the property under contract by signing a purchase agreement with the seller, then selling your interest in the property to another buyer at a discount.

​The difference between the "substantial discount" you buy at, and the "discount" you sell at is where you make your money. Here's the reason why wholesaling works...

​When you sign a contract with someone and give them consideration, usually in the form of an Earnest Money Deposit (EMD), they're legally bound to sell you that property. (There has to be some type of consideration to make the contract binding, even if it's just one dollar $1.00)

In other words, it gives you "equitable rights" to the property, and selling those rights to another buyer is perfectly legal.

​Typically in the real estate wholesaling world, your buyer will be an investor who will fix up and either rent or resell the house.

​The best type of buyer you can have is a cash investor because they can move quickly and make the real estate transaction go smoothly, and quite often, they have experience working with other wholesalers.​​​​

​Let's take a look at what a typical wholesaling transaction looks like:

  • The Wholesaler (you) locates a house owned by someone motivated to sell below market value because the home needs repair or for numerous other reasons we'll discuss later.
  • The house's ARV (After Repair Value) is $110,000, but the savvy Wholesaler (you) negotiates a price of $60,000 because of the condition of the property, and you estimate the needed repairs to be in the neighborhood of $10,000
  • The Wholesaler (you) and property owner (Mr. Seller) agree to the price, and you place the property under contract with a real estate purchase agreement.
  • The Wholesaler (you) then sends the property information to his list of house-hungry cash investors and quickly finds one eager to buy it at the price of $70,000 ($60,000 sales price + $10,000 assignment fee)
  • The Wholesaler (you) and the cash investor (Mr. Cash) sign a one-page ​assignment agreement that transfers your equitable rights to purchase the property to him for an assignment fee of 10,000 dollars.
  • Lastly, the real estate closing takes place, and you walk away with a check for 10,000 dollars and move on to your next deal.

Obviously, the example above is overly simplified, but it's meant to be so you get a basic understanding of how the wholesaling process works. Don't worry; by the end of the course, you'll know everything there is to know about the real estate wholesaling business.

No Cash, Credit, or Hammers Needed!

Many people want to get into real estate investing because we've all been told it's one of the best ways to build wealth, but there is a common misconception you need cash and good credit to jump into the game... This is just Not True!

As you'll learn, wholesaling doesn't require cash or credit because you're not personally going to buy the property. You are the middleman in the transaction that brings the seller and buyer (investor) together.

​The funds needed to buy the property will come from the buyer you assign the contract to, so again, you'll never need cash, credit, a line of credit, or mortgage approval to be a real estate wholesaler.

​In addition, to eliminate any risk, all the real estate contracts you'll use in wholesaling contain "exit clauses" that allow you to get out of the contract should you have problems finding a buyer to assign the contract to.

We'll speak more about contracts and exit clauses in the wholesaling contracts section later in the course.

Another significant aspect of wholesaling houses is that, unlike flipping houses, you'll never lift a hammer or touch a paintbrush. Wholesaling is a quick transaction that is usually completed in 30 days and often much less.

​So while flippers sometimes make more money on a deal, they also have a lot more time, money, and risk invested. (YAY WHOLESALING!)

Wholesaling Facts You Must Understand!!!

Real Estate Agents (Realtors) and Brokers are licensed to sell real estate (you're not)

​Your state's laws require Realtors and Brokers to meet specific education requirements and pay licensing fees to legally negotiate and arrange the buying and selling of real estate transactions.

On the other hand, Real Estate Wholesalers DO NOT sell property; they sell their equitable rights to a purchase contract.

I'll say it again... Real Estate Wholesalers sell the rights to the purchase agreement they have negotiated with the property seller, not the property itself.​

As you might have noticed, I've repeated myself several times on this page because I want to beat the basic concept of wholesaling into your head.

Wholesalers often advertise a "house for sale" instead of a "contract assignment."

​This is entirely wrong and could get them into hot water. Later will discuss how to market the properties you get under contract the correct way so you don't get yourself into trouble.​

Income Potential

Many people ask how much they can earn wholesaling houses, and as you can imagine, it's primarily based on your market, skills, and effort. Since you're looking for a more specific answer, let's dive deeper.

I've done most of my wholesaling in metro Detroit, and the investors I work with typically buy houses in the 20-50k range. Many rehab the properties and turn them into rentals and a few completely renovate and resell them.

My assignment fees are usually between $5,000 and $10,000 on homes in this price range but can go as high as 15,000 and as low as $2,500.

Now I like making money on my deals just as much as the next guy, but I'm not greedy and like to leave profit in the deals so the investors I work with can make money too.

I also rarely have problems finding buyers like many wholesalers I see online trying to peddle their overpriced deals.

If you're in a city similar to Detroit, Chicago, Philadelphia, Saint Louis, Baltimore, or any other like them and are working with lower-priced properties, I'd expect you to make the same on your assignment fees.

However, if you're in an area with higher-priced properties or working with investors flipping high-end homes, you could expect to make two or three times the amount on your deals.

The quantity of deals is also a factor... Some wholesalers do a sale or two a month and are okay with that. While others fine-tune their system, pour money into marketing, and do dozens per month.

Hopefully, this gives you an idea of what you can make wholesaling houses, but your skills and effort will ultimately determine what you'll earn.

Market Conditions

I've read some articles about the impending doom of another housing collapse and how it would kill the real estate investing and wholesaling business.

These articles must have been written by house flippers or people who only understand that side of the business, so I wanted to clarify things for you.

As a professional real estate wholesaler, you should have two kinds of investors on your cash buyers list... Landlords (buy and hold investors) and Flippers (buy, renovate, and sell investors)

You see, when the real estate market is hot, Flippers are buying up properties to renovate and resell because many potential homeowners are looking to buy. But when the market cools down, Flippers stop buying.

However, savvy real estate investors who like to "buy and hold" know that a down market is the best opportunity to make money, so they start buying discounted property while the market is bad.

I personally got into wholesaling in a down market, so it makes me laugh when the "experts" say wholesaling will be more challenging in a down market. Trust me, and there will be more opportunities than you can handle if you have the right investors on your cash buyers list.

Wholesaling Basics Recap

  • Wholesalers make their money on the assignment of the purchase contract.
  • You do not need a real estate license to wholesale real estate.
  • It's 100% legal because you're assigning your rights to a contract, not selling real estate.
  • Wholesaling is a cash-now strategy, unlike flipping or owning rental properties.
  • You don't need cash or good credit to be a real estate wholesaler
  • ​Wholesaling is the perfect place to start for new real estate investors
  • Make sure you have both types of investors on your cash buyers list

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estate wholesaling


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