Real Estate Wholesaling

Real Estate Wholesaling

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Guest Author:  Andrew Reichek

Wholesaling a home is a relatively new way of generating a lot of income with almost no money down. With that being said, it’s not easy, even though you can find plenty of investors and other people online showing off their big commission checks. In fact, wholesaling is so far under the radar of most real estate agents, they aren’t exactly sure what this process entails. Let’s get into what wholesaling is and how anybody can do it. 

What is Wholesaling 

There is nothing advanced about this process. It is completely legal.  Wholesaling is simply getting a property under contract and then assigning the contract to another buyer before closing at the title company. In essence, it’s flipping a contract!   The person actually buying the property at the close is called the “end buyer”. This is the person who will be paying for the property. Usually, they pay with the full amount of the property with cash or “hard money”

The individual doing the wholesaling is called a wholesaler. It can be anybody, and you don’t need to have a real estate license. Many wholesalers are realtors.  It’s not just residential homes, people can wholesale duplexes, commercial property, apartments, whatever. 

How Does a Wholesaler Make Money

The difference between the contract price and the amount the end buyer pays for the property will be the fee the wholesaler collects.  

The seller and the end buyer almost never meet, and the seller isn’t aware of the process. It’s usually in the best interest of the person doing the wholesaling that these parties never meet. It’s possible that if they did, it could blow up the deal. There are ways to minimize the chance of this occurring by taking advantage of a process called a “double close”

How Much Money Does a Person Need to Get Started 

The only real hard money a wholesaler spends is getting the property under contract. There are 2 components that make up most real estate contracts. The first is the option fee. This is a nominal fee that is usually between $50-$250. The option fee is the cost the buyer pays to get the property under contract. It is used for the option period. 

Usually, the buyer will inspect the property during this period. If the buyer realizes that the property needs more repairs than they expected, or they simply don’t want the property, they can cancel; and all he or she will lose will be the option fee. 

The other component to real estate contracts will be the earnest money. Usually, this is 1% of the contract price of the home. So if the home is under contract for $100,000, the wholesaler will need to wire $1000 in earnest money plus the option fee to the title company. If the contract is canceled during the option period, then the earnest money is refunded to the buyer. 

The Hardest Part of Wholesaling 

The most difficult part of this process is finding the homes. These won’t be turnkey properties. Turnkey properties are those that are ready to move in. They may be updated with the latest amenities and won’t have any damage or repairs. Most houses that an investor can wholesale will have some sort of distress; or in need of repair. 

What is a Distressed Property

A distressed property usually has  one of the following characteristics 

  • The property needs major repairs. This might include a new roof, foundation damage, or a new air condition unit. All of these items are the big-ticket items that cost the most 
  • A property that is under pre-foreclosure can also be characterized as distressed. 

In both situations, the seller wants to sell the property quickly, and without having to make any repairs. 

How Does Person Find an End Buyer 

Finding the actual end-buyer or person with the funds is one of the easiest parts of the process. End buyers are everywhere. You can find them on Facebook, real estate investor websites, other social media platforms, and even simply by contacting local real estate agents in your city. 

As stated before, getting the property under contract at the right price is the most important part of this entire process. If the person doing the wholesaling does this correctly, then the rest of the process should flow accordingly.  

Takeaways to Wholesale 

Here are the key points in order to successfully wholesale a property. 

  1. Get a property under contract
  2. During the inspection period, locate an end buyer who wants to purchase the property
  3. Assign the contract to the end buyer ideally before the option period expires. 
  4. The buyer and seller will both sign at closing. 
  5. The title company will wire the wholesaler the commission check. 

About the Author:  Andrew Reichek is a real estate broker in Texas. He practices all facets of real estate from residential home sales, to commercial leases, to wholesaling. He writes about related real estate topics that appeal to consumers and professionals in the industry.