Wholesale real estate: A beginner's guide

There are many ways to invest in real estate, from rental properties to flipping houses. But wholesale real estate is another path that can be just as profitable, and it doesn’t require you to put any money down.

Wholesaling is essentially a legal real estate strategy that allows you to earn a profit by facilitating deals without ever purchasing the property yourself.

If you’re a new investor curious about whether wholesaling might be a good place to start, we’ll walk you through the basics so you know what to expect before diving in.

What is wholesale real estate?

Put simply, real estate wholesaling works like this: You agree to buy a house from the seller, then pass that agreement to another buyer, but with a higher price. Wholesalers usually start by looking for a discounted or distressed property priced below market value. These homes often need a lot of work, and the owner may be motivated to sell quickly and isn’t interested in working with a real estate agent. Absentee owners can also be a good match because many of them want a quick, hands-off sale.

From there, you’ll put the property under a wholesale contract and then assign that contract to the end buyer (the investor) for a higher sale price. The difference between the two prices is your wholesale fee. This fee is usually between 5% and 10% of the property’s value. In many markets, wholesalers typically earn around $5,000 to $20,000 per deal, depending on the property and the amount of from investors.

As a wholesaler, your buyers are usually all-cash investors, especially those who flip homes and are always on the lookout for good deals. That said, building a strong buyer list can make it easier to move contracts quickly and keep your deals on track.

It’s also helpful to know that some cities require wholesalers to get a license before doing this kind of work. For example, Philadelphia requires a Residential Property Wholesaler License.

If you’re interested in becoming a real estate investor but feel unsure because you don’t have a lot of upfront capital, wholesaling may be a good place to start. With clear expectations and the right connections, it can be a practical, beginner-friendly way to start building experience in real estate investing.

Wholesale property example

In many real estate wholesaling situations, the story starts with a homeowner who feels stuck. They may have a house that’s outdated and in need of more repairs than they can afford, so selling it never felt like an option.

That’s where a wholesaler steps in with a solution. They offer to put the home under contract for $120,000 and then use their network to find an investor willing to buy it for $150,000. This gives the homeowner a way out, the investor a new opportunity, and the wholesaler a chance to earn a fee for putting the deal together.

Steps to real estate wholesaling

If you want to break into real estate investing but you’re short on cash, becoming a wholesaler could be a lucrative option for you. Here are eight steps you can take to get started.

1. Do your research

Before you hit the ground running and start looking for the best wholesale deals, make sure you get familiar with the laws in your state. Since each state has different rules, knowing the basics upfront can help you avoid surprises or issues later on. It also helps to look into the neighborhoods where you want to find deals. For example, you can use resources like Redfin to look into specific neighborhoods and get a feel for pricing, demand, and overall market trends.

Remember that you can wholesale both residential and commercial properties, so knowing what kind of market you want to work in can help guide your search.

When it comes to choosing neighborhoods, some areas naturally offer more opportunities than others. For example, neighborhoods labeled “up and coming” might be easier to sell to an investor than areas that are already high-priced, since rising prices can shrink the profit margin on a wholesaled home. You may also want to pay attention to places with low inventory. In markets with limited inventory, investors may have a harder time finding properties on their own, making a wholesaler’s deal a helpful resource.

Taking time to understand the rules and get to know the neighborhoods you want to work in can make the wholesaling process much more straightforward and help you spot opportunities that align with your goals.

2. Find the right property

Now that you know a few things to look for in a market, the next step is finding properties that might be a good fit for real estate wholesaling. While success isn’t guaranteed, choosing the right properties can help stack the odds in your favor. For starters, look for homes priced below market value that you can make more appealing to the end buyer.

Another way to find deals is to look for homeowners who need to sell quickly. For example, properties in foreclosure or with liens can sometimes be great finds.

You can also find deals through resources like:

• Multiple listing service (MLS)
• Online networking groups
• Direct mail campaigns
• Social media marketing

When you’re just starting out, it’s a good idea to try a variety of methods and pay attention to what works. Over time, you can narrow it down to one or two strategies that give you the best results.

3. Crunch the numbers

Once you find a property you’re interested in, the next step is to run the numbers to make sure it makes financial sense. A big part of this equation is knowing the property’s fair market value so you have a clear picture of what it could realistically sell for. From there, you can figure out your maximum allowable offer. In other words, the highest price you can comfortably agree to while still making a profit.

You’ll also want to think through a few practical details. For example, do you already have an investor in mind who might be interested in the deal? If not, holding the property under contract for too long can put you at risk of losing your earnest money deposit or running out of time on the agreement if the timeline stretches out. Looking at factors like demand in the area, investor interest, and how quickly similar properties are moving can help you decide whether the deal is worth pursuing.

Taking a moment to think through these pieces up front can save you time, money, and stress as you work toward finding the right wholesale opportunities.

4. Get in touch with the seller

Next, it’s time to reach out to the seller to start the negotiation process. Depending on where you found them, their information may not be readily available. You may be able to find their information by looking at public tax records or by searching for them online.

When you reach out to the seller to make your offer, it’s important to be up front about the fact that you’re a real estate wholesaler. Explain why working with a real estate wholesaler is beneficial to them and how you plan to handle the entire process.

5. Perform due diligence

Doing due diligence is an important step, whether you’re evaluating the property in person or online. A good place to start is by verifying the fair market value of the property. You can do this by looking at comparable properties recently sold in the area to get a sense of what the property may realistically be worth.

It also helps to gather as much information as you can from the seller. For example, ask if they have made any updates or repairs recently and, if so, make sure they were completed with the proper permits. Remember that any unpermitted work can create issues for future owners, so it’s worth checking these details ahead of time.

Additionally, it’s best to run a title search to make sure the property does not have any outstanding liens, disputes, or other legal issues. By confirming the title is clean, you can avoid costly surprises later.

6. Get the property under contract

Now it’s time to present your offer to the seller and get the property under contract. When you share the contract with the seller, make sure it includes an inspection contingency.

An inspection contingency gives you the option to walk away if any unexpected issues come up during the inspection. It’s also important to include the right to assign the contract to another party since that’s what lets you to transfer the deal to your end buyer.

7. Market your contract to cash buyers

After you’ve found the right property and worked out a deal with the seller, your next step is getting the contract in front of potential cash buyers. This is where you share the opportunity with investors who may be interested in taking over the deal.

One simple way to do this is by connecting with a local REALTOR® who has experience working with investors. They can help you identify which homes were purchased with cash and may even recommend investors who are actively looking to invest. You can also reach new buyers by joining investor groups, real estate forums, or social media networks.

Building relationships with cash buyers takes time, but it can make the wholesaling process smoother and help you move contracts more quickly.

8. Reassign the contract to the end buyer

When a buyer agrees to the deal, your next step is to assign the contract and prepare for closing. With tools available like DocuSign, the paperwork side is usually pretty quick and smooth. You’ll receive your wholesale fee at closing, since it's paid when the deal officially closes.

Pros and cons of wholesaling real estate

Just like any other real estate investing strategy, there are pros and cons to wholesaling. Let’s look at some of the biggest benefits and drawbacks you need to know about.

Pros

• It can be a beginner-friendly way to get started with real estate investing.
• You can work in almost any market, even if you don’t live nearby.
• It typically requires a very little up-front investment, which keeps the financial risk lower than other forms of investing.
• There’s potential to earn a profit in a shorter period of time compared to other strategies.

Cons

• Wholesaling usually brings in smaller profits when compared to other investing options, like flipping homes.
• Finding the right properties and investors takes effort and consistent research.
• It can take some time before you start earning a consistent stream of income.
• Ever-changing market conditions can impact how many deals you find and what you can earn.

Wholesaling real estate vs. flipping houses

It’s important to understand that wholesaling isn’t the same as flipping houses. Both strategies involve working with distressed properties and selling them for a profit, but they approach the process very differently.

When you flip a house, you buy a property that needs work and invest time, money, and effort into fixing it up. After increasing the home’s value, you put it back on the market and sell it for a profit.

With wholesaling, you’re still working with properties that need work, but you’re not the one doing or paying for repairs or renovations. Instead, you secure the property under contract invest and earn a wholesale fee by assigning that contract to an investor. While the profit is usually smaller than a full flip, you’re not using your own money to renovate the home, which makes wholesaling a lower-risk approach overall.

FAQ about wholesale real estate investing

Let’s take a look at some of the most frequently asked questions about wholesale real estate investing.

Is wholesale real estate a good investment?

The simple answer is yes, it can be. But like any investment opportunity, the potential rewards come with risks. Wholesaling takes commitment and a solid understanding of your market, and it isn’t the right fit for everyone.

That said, it can be a good way to get into real estate investing if you are willing to learn how the process works and take the time to find the right properties and investors. For beginners, it can provide a lower-cost way to get started and a chance to build experience along the way.

What is virtual wholesaling?

Virtual wholesale real estate works just like traditional wholesaling. The difference is that instead of buying and selling properties in person, you do it remotely. The goal is to handle the entire process from your computer or smartphone, and investors can sign all the required documents electronically. Virtual wholesaling also gives you the flexibility to work in any market, no matter where you live.

But a word of caution. While this type of wholesaling gives you more flexibility, it also comes with extra due diligence to make sure the property is what it appears to be.

How do I make money through virtual wholesaling?

Just like traditional wholesaling, you make money by adding a wholesale fee to the virtual transaction. This fee is usually a percentage of the property’s total cost. As the wholesaler, you act as the middleman in the deal. Your job is to find undervalued properties with motivated sellers and connect them with investors who want to buy. Once the deal closes, you earn your fee.

But just remember, that fee isn’t guaranteed. It takes time, effort, and consistency to find the right deals, so it’s important to have realistic expectations about how quickly results may come.

Is wholesale real estate legal?

Yes, wholesaling is legal when it’s done correctly and within the laws of your state. Because the rules can vary from one state to another, it’s important to understand what your state allows and requires. For example, in some markets, you may need a license in order to conduct business as a wholesaler.

So, you’ll want to make sure you fully understand wholesale real estate laws where you live. If you’re still unsure, contact a real estate attorney who can help walk you through the legal details.

The bottom line: Understand wholesale real estate before deciding to pursue it

Wholesaling real estate can be a good way to state investing in real estate, since you don’t need a large amount of money to close deals. However, it can take time to learn the ropes, build a network of buyers, and understand the ins and outs of the entire process. By understanding the steps, risks, and the time commitment involved, you can decide whether this investment strategy make sense for you.

If you’re ready to buy a home, Rocket Mortgage is here to support you. Start your application today.