What is Wholesaling? And Why is it so Appealing?

Wholesaling in real estate is when an ‘investor’ takes property under contract at a certain price and then assigns it to another investor buyer before closing at a higher price, thereby making a profit on the price arbitrage.

I put the quotations around the word ‘investor’ since it’s debatable whether a wholesaler is genuinely an investor or more of a middleman between a property owner and an actual investor buyer.

Wholesaling typically involves a property that is in some distress with a seller who is motivated to sell.

Wholesaling Sample Deal

A typical scenario will involve a wholesaler finding a motivated seller on a property that is not currently listed for sale on the open market. Maybe the seller is behind on a few mortgage payments and wants to sell and move to another part of the country.

The wholesaler meets and visits the seller at the property, does a thorough assessment of the repair work that’s needed on the property (which can be substantial) and then makes an all-cash offer for the property as-is in its current state. The wholesaler offers to buy the house with all cash at a discount off of the market value in exchange for a quick and hassle-free closing.

Let’s say the homeowner agrees to sell their house for $75K to the wholesaler. And the wholesaler has done their homework and knows that this house will likely sell for $125K+ in the market after approximately $25K in rehab work, leaving a healthy profit margin for a flip investor buyer to work with.

Once under contract, the wholesaler pitches the property to all-cash investor buyers they already know in the market. Maybe they find a buyer investor who is looking to flip a house just like this in the market. The flip buyer likely has completed similar projects in this market before and knows the economics very well. They offer to take the property off the wholesaler for $80K, as-is.

The wholesaler then closes both contracts (e.g., double closing) and pockets a tidy profit of $5K without having to actually take possession of the property or do any rehab work, all within a few weeks.

In the end, wholesaling could create a win-win-win situation.

The homeowner received their much-needed cash without any of the hassles of a long drawn out sales process that involves finding an agent or having to clean or fix all the defects on their house. It was fast and painless.

The flip investor, who is experienced and was able to do all the rehab at $25K ($105K all in) and then turned it around and sold the home for $125K three months later, making a nice $20K in profits).

You can think of the wholesaler as someone who is connecting the dots between sellers and investor buyers and getting paid for it (sorta like a finders fee but not since you need a license for that).

In the ideal case, everyone wins. Are these numbers achievable? Yes. But ultimately it will depend on the market you’re in and the size of the deals you’re working with. Some will average less and some more.

So why is wholesaling so appealing?

Well, when done legally, it’s a great way to get started in real estate.

It can be done with little to no initial capital, which is a great thing for those just starting out in real estate investing.

And it doesn’t require a real estate license, and it’s relatively easy to learn. However, in states where the laws are murkier, wholesalers may want to consider getting a license just to be on the safe side. The process of getting a license is usually straight forward and not very costly. The lesson here: understand the laws in your state.

So practically anyone with no money or experience could get started in wholesaling.

Wholesaling is simple but that doesn’t mean it’s easy.

Go join any local wholesaling meetup or Facebook group, talk to people are starting out or even who have been doing it for a few years, and you’ll quickly discover that it takes commitment and hard work. And it requires that you really understand the markets that you are operating in. The same techniques that work well in one market may not work at all in your market.

It takes time to learn and perfect your process for finding deals and finding cash buyers. It takes time to develop and nurture the relationships that will help you succeed. It takes networking. And to do it to any meaningful level, it’ll take hustling.

Don’t let any internet real estate guru trying to take your hard earned money tell you otherwise.

Are you a wholesaler? How does your personal experience compare to what I’ve described?