Guide to Real Estate Wholesaling

Wholesale real estate provides a way to make a profit on buying and selling real estate quickly, without needing capital or performing major renovations. Learning the pros and cons of wholesaling houses and how this strategy varies from house flipping is essential if you’re considering getting into the world of wholesale real estate. Wholesaling can be a great way for new investors to diversify their portfolio and get started in the real estate field.

Read on to learn everything you need to know about this strategic real estate investment opportunity in our Guide to Wholesaling Real Estate.

What Is Wholesale Real Estate?

Wholesaling real estate involves signing a contract on a house and then selling it to another buyer. In real estate wholesale transactions, a wholesaler doesn't actually put any money down on a home or property. Instead, they sell the property for the owner for a commission, pocketing any profit over and above the seller’s asking price – this can be in the form of a simple transaction fee, or it can be the result of selling a property above the asking price.

Here, you'll learn about how this structured business venture works. Essentially, wholesale real estate is a way to make money on residential or commercial properties without having capital.

How Does Real Estate Wholesaling Work?

Wholesale in real estate is just a contract between a seller and wholesaler, rather than the seller and the end buyer. The wholesaler’s job is to find a buyer to meet the asking price plus an upcharge that allows the wholesaler to turn a profit. The end buyer takes over the contract, the seller gets their asking price, and the wholesaler walks away with cash.

Wholesale Real Estate Example

Let’s say you’re the wholesaler. You agree to sell a home for at least $165,000 within 100 days. You then find a buyer (usually an investor) who’s willing to pay $170,000 to fix and flip the property. The difference is your profit.

Before deciding you want to get into the world of real estate wholesale, it’s important to know and understand both the advantages and disadvantages.

Benefits of Wholesale Real Estate

Can get started in real estate quickly

Little cash required upfront

Learn about commercial real estate

Start Investing in Real Estate Fast

Although wholesaling requires a certain finesse, it also lets you get your foot in the door of the real estate industry quickly. You can use your experience to grow your knowledge with every deal. Along the way, you’ll meet other investors and fine tune your approach reaching both buyers and sellers. Wholesaling can ultimately help you gain confidence in your ability to make money in the industry.

Learn About Real Estate Transactions Without Having Large Reserves

You won't need a lot of cash reserves to get started and wholesaling. You can also look for a mentor to provide you with wholesale real estate tips to help you get started. The main asset you'll need is just time to conduct the proper research and market a home for a fast sale. In some cases, you might need earnest money (also known as a good faith deposit that reassures the seller you can find a buyer).

Get Started in Commercial Real Estate

When you learn how to wholesale commercial real estate, you can make substantial profits in a short period of time. Wholesaling can be a way to break into the commercial real estate sector. There are greater risks in commercial real estate, but you also have the potential to exponentially increase your initial investment.

Disadvantages of Real Estate Wholesaling

Lower profit margin

Depends on sellers and buyers

Unpredictable income

Lower Profits Than Flipping

It's important to keep in mind that wholesaling might not make you as much as some other types of real estate investing opportunities, like flipping. That said, with lower returns you'll also have lower risk, so this “disadvantage” isn’t all bad. Facing lower risk might be comforting as a beginning investor.

You Need to Find Motivated Buyers and Sellers

Your profit largely depends on finding a motivated seller who wants to sell quickly and is interested in using a wholesaler. You’ll also need to find the right buyer or investor who’s willing to pay the asking price on the property.

It's an Uncertain Way to Make a Living

You'll often find there are periods of low inventory where it's hard to make a living as a wholesaler. Also, there's no guarantee that you'll make a profit. For example, you can lose on the deal if you can't find a buyer willing to pay enough that you can make a profit in a timely manner. Remember, you can be bound by the contract regardless of the outcome.

Wholesale Real Estate vs. Flipping

When learning how to wholesale real estate, it's important to know the difference between real estate flipping and wholesaling. When you flip a home, you purchase it outright, fix it up and resell it for a profit.

Wholesale real estate, on the other hand, does not involve paying for the property or fixing it up prior to assigning the contract to an end buyer.

Final Thoughts

There are both advantages and disadvantages to wholesale real estate. It's important to weigh the risk carefully before you take on this real estate strategy. When all goes well, wholesale real estate ventures can be a lucrative way to make a healthy return on your overall investments. But you need to fully understand the process to increase your chance of earning a sizable living in this sector.