Wholesale Real Estate: The Definitive Guide (2022)

  • Brandon Boushy by Brandon Boushy
  • 1 month ago
  • Blog
  • 0
9 Steps to Real Estate Wholesaling

Ever wondered how to start wholesale real estate?

Santino Filipelli started Northwest Home Investments, two construction companies, and a real estate (RE) brokerage firm. Across all his companies he’s making more than $2 million per year at 32 years old. He explains how to start wholesaling real estate and make $100,000+ in less than five months without any money upfront.

We’ll walk you through the process, but first, we’ll explain a little about the RE wholesaling industry to help you understand how it operates. Once you’re done reading this you should be comfortable with the information you need to run a RE wholesaling firm.

What is wholesale real estate?

Wholesaling real estate is the process of finding sellable homes that aren’t on the market, negotiating to find a seller, and making a profit on them by selling to a real estate investor before a certain date. 

Real estate wholesaling may be focused on:

  • A distressed property
  • High-profit margin home
  • Preforeclosure homes

A real estate wholesaling business is a real estate investing strategy that people will commonly use when they don’t have the funds or credit for real estate investing, but want to get into the real estate industry.

Real estate wholesaling requires a bit of creativity when it comes to NAICS. Depending on how you operate within the real estate market, you might fall into the following categories:

  • 531390: Real Estate Management and Consulting
  • 53121: Real Estate Sales and Brokerage
  • 425120: Wholesale Trade Agents and Brokers

If you are a licensed real estate agent, you might want to stick with the 53121 NAICS classification. 

Otherwise, use classification 531390. Wholesaling real estate would fall into the subcategory “other” in the IBIS database.  That means the revenue was nearly $3.7 billion in 2021 and is expected to grow 1.8% per year between now and 2026.

Products and services segmentation graph

Wholesalers are not classified as a separate NAICS code. You’ll find it difficult to find a lot of statistics on wholesalers. These are some of the largest real estate wholesaling businesses.

Many of the major players in Real Estate Sales and Brokerage have divisions like Keller Offers, which are similar to wholesalers and house flippers.

Real estate wholesaler vs. real estate agent

The real estate industry has a variety of views on real estate wholesalers. They are effectively competing for real estate agents because real estate wholesalers pursue home buyers to help them sell homes.

Some real estate agents love the real estate wholesaling business because it provides another opportunity to increase their revenue. Santino falls into this category. He told us:

If you’re a real estate investor and you’re looking for investment opportunities, one thing is looking at areas that are gentrifying or like areas that are up and coming, and trying to get in there beforehand.

You might buy an ugly property, but at the end of the day, if you can see .. that it has potential, you have a lot of opportunities to make some good money.

Other real estate agents often don’t like working with real estate wholesaling companies because wholesalers primarily sell to real estate investors that are cash buyers looking to drive up local market prices by providing long-term or short-term rental properties.

Honestly, I’d love to see a real estate wholesaler partner with real estate agents to help people achieve more affordable housing. In Santino’s scenario, I could see that working.

Wholesaling real estate vs. house flipping

Young man holding a house key

Real estate wholesaling doesn’t actually buy the property, while house flipping involves buying and fixing up a distressed property. Both wholesale properties and house flippers might do repairs before the property sells, but the wholesaler has a much shorter time to find potential buyers.

When the wholesaler sells the property, they will make their profit based on the difference between the contract price + repair value and the fair market value. Flipping houses works the same way, but can be a more lucrative business because they can rent out the property as well.

Santino does a little bit of wholesaling and house flipping. He will occasionally be a wholesale buyer if the property looks like something he can repair with one of his construction companies. He told us:

Basically, we look at, first of all, what are the margins here? If this looks like it’s a property where we’re not gonna hit that $50,000 mark but we see that it’s a really good area and there’s a lot of people coming in, good tourist attraction, basically we say, ‘Let’s turn this into an Airbnb.’

But if we say, ‘Hey, we can make $100,000 off this in five months,’ that’s not bad. We’ll take that. So, it just depends. Interest rates play a role as well.

Benefits of wholesale real estate

A wholesaling business is highly beneficial for several reasons:

  1. Can make nearly double what real estate agents do
  2. Helps people get out of distressed homes and improves neighborhoods
  3. Much lower startup costs than house flipping
  4. Home-based business
  5. Lower risk than other real estate investment opportunities
  6. Can be run as a multiple listing service
  7. Can work from anywhere if selling online
  8. High-profit margin

So, what kind of risks are there when working with distressed properties?

Risks in real estate wholesaling

Some of the risks of becoming a real estate wholesaler include:

  • Lots of research and math
  • You might not find an end buyer
  • Often takes time to become profitable
  • Lots of networking (or SEO for virtual wholesalers)
  • Difficulty finding motivated sellers
  • Ability to gain access to the property
  • Fewer revenue options than other real estate investors
  • Short contract duration

You might want to consider whether you are a prolific networker. Santino told us:

Letting people know what you do is also a big deal.

Like any real estate job, real estate wholesalers rely on their people skills to find and close wholesale deals. If you tend to alienate people when you talk, you might want to include some practice with communication skills as you get started.

How does wholesale real estate work?

Young man and woman working on laptop

If you’re wondering how to get into wholesale real estate, consider this six-step process:

  1. Set up a business.
  2. Find wholesale real estate opportunities.
  3. Reach out to the property owner.
  4. Sign a wholesale real estate contract.
  5. Find a buyer.
  6. Close the deal.

Santino performs repairs (or outsources them) to close the deal because he owns a construction company too. This is more commonly associated with house flipping, but if it’s quick repairs it might be worthwhile.

How to wholesale real estate step by step

Santino described the process like this:

  1. The first thing you wanna do is figure out how your risk tolerance is gonna be. Do you want to pay everything (in) cash? Do you wanna finance it? Where is your money (gonna be)? 
  2. And then after you figured that out, I would begin to look for a deal. I would start out really small and start to leverage. 

That would be my best advice to leverage early on. That way you’re not risking a lot of your own money. That’s the way I started. And for me, that was something that was really great.

He explained that the leverage he uses to grow his business limits his losses to an original $6,000 investment and a bad credit score.

That’s a bit simplified because most businesses have some extra steps. You’ll want to:

  1. Form the business.
  2. Create websites and social media.
  3. Create a wholesale real estate contract template.
  4. Identify opportunities.
  5. Reach out to the property owner.
  6. Sign a wholesale real estate contract.
  7. Find a buyer.
  8. Submit to escrow.
  9. Close the deal.

Step 1. Business formation for wholesale real estate companies 

Screenshot of LLCUniversity website

Before you start trying to approach homeowners of off-market properties, you’ll want to form a business as either a limited liability company or corporation with your Secretary of State Office (SOS). This isn’t absolutely required, but it will make it easier to find deals if you are a professional.  

Also, remember to check if you need any local real estate or business licenses.

Do you need a real estate license to wholesale?

Most states don’t require a real estate agent license to get involved in real estate wholesaling, but you would have to describe yourself as a marketing company that helps buyers find, not sell, properties.

At least the following states have written laws regarding real estate wholesaling  licenses including:

Make sure you check with your local county clerk or business office to make sure there are no other requirements.

Screenshot of CountyOffice website

Santino told us:

Northwest Home Investments started out of having a real estate brokerage, or as a real estate agent. So, the profits that we get are basically based upon what we wanna do with the house. So, if it’s a fix and flip, we’ll basically put it into that, and our construction company will come in, flip it. We look for margins. They have to be pretty significant.

Do you need a business license to wholesale real estate?

All states have different laws. Therefore, some states may require a business license to negotiate a wholesale deal, while others may require a RE Agent or Broker License, and others do not require any licensing. You may be required to pay income taxes or business taxes depending on your state. You’ll need to check on your state SOS website.

If you are wondering about the real estate agent license, Oklahoma, Illinois, and Philadelphia definitely require one.

Step 2. Create a real estate wholesaler website and related social media 

Website builder with young woman using a laptop computer

Wholesale real estate investors will need a website and social media to look professional when they’re working on a wholesale deal. Without it, who is going to take you seriously?

Plenty of folks work in the real estate business and people are more inclined to deal with people they are more familiar with, even if only briefly. So make sure it looks good.

Check out our blog on how to build a website to learn how to create your own or hire a website builder on Fiverr.

Step 3. Create a real estate wholesale contract template

Wholesale real estate contracts are necessary for every deal. You’ll want a purchase contract and a seller contract. There are three types of contracts:

  • Wholesale Real Estate Assignment Contract
  • Wholesale Real Estate Purchase Agreement
  • Double Close Contract

Wholesale Real Estate Assignment Contract

Young man working on a laptop

A real estate wholesaling assignment contract is a contract where the wholesaler sells the right to purchase the house to an interested buyer. It includes a wholesale fee that is in addition to the price the homeowner agreed to sell the house.

You can download a free printable real estate wholesale contract template pdf. Make sure to consult with a licensed attorney in your state to verify that the template you develop is legally binding.

You will need this contract in conjunction with a wholesale real estate purchase agreement contract, which we’ll discuss next.

Wholesale Real Estate Purchase Agreement

A purchase agreement is a contract that can be used for wholesale deals between the motivated seller and the wholesaler. The contract will include:

  • Seller and buyer information
  • Property location
  • Purchase price
  • Payment method
  • Zoning restrictions
  • Closing costs and terms
  • Prorated and delinquent tax terms
  • Occupancy terms
  • Access to property terms
  • Assignment clause
  • Terms of default
  • Any additional terms
  • Buyer and seller signature blocks

You’ll use the purchase contract in conjunction with the assignment contract if other investors will be buying the home.  Download our free purchase contract template.

Double Close Contracts

Double closing in real estate investing involves two contracts and two closing costs: one deal is between the homeowner and the wholesaler, while the other is between the wholesaler and the real estate investor.

These are primarily used when wholesaling real estate if:

  1. Your profit margin is really high and you want to keep it hidden from the other parties
  2. Your state requires wholesaling real estate to use this closing method
  3. You do not have a real estate license and the title company requests it

These contracts are basically identical to standard real estate contracts used when buying a home. Real estate agents are not allowed to share closing documents otherwise I’d provide a template.

Step 4. Identify opportunities

Next, you’ll want to identify investment property opportunities that you can get under fair market value and sell to cash buyers for a fair price. We asked Santino where to find opportunities and he told us:

…definitely not Redfin or Zillow.

You’re probably looking for off-market deals. Some of the best platforms that you can find are Batch Leads, Batch Dialer, or Remine.com

There are a lot of resources (for) being a real estate agent as well that you have to find off-market properties, so there are both ways.

Screenshot of Remine website

He went on to tell us what he looks for in the way of profit margins:

Anything over $50,000 and up. So, if we (do not have) at least a $50,000 profit margin, it’s probably not the deal for us.

Or we’ll take it, and if it has more of a long-term potential or it’s in a really good downtown area, we’ll take it and we’ll turn it into an Airbnb. And we’ve kind of switched from long-term rentals to more short-term because they’ve been way more profitable.

Establish your risk tolerance

While real estate wholesaling is lower risk than other ways a real estate investor might invest, there are still risks in any real estate deal. You might struggle to attract sellers or there may be low liquidity to buy houses depending on how the market is doing.

A house that needs a new roof and foundation presents a greater risk than a house that just needs a new air conditioner. Remember to price that into your offer. An air conditioner might justify a $20K to $30K discount, while a new roof and foundation could mean you should offer the land value minus demo costs.

Step 5. Reach out to the property owner

Next, you’ll want to reach out to the property owner. You can call them, run direct mail campaigns, or reach out in person. Santino told us you’ll be a successful wholesaler:

If you’re willing to pick up a phone and knock on a door. The phone’s a little bit faster, but knocking on a door, meeting someone face to face and say(ing):

“Hey, have you ever thought about selling? 

Or

“You know, I’m in the neighborhood. Just saw your house, I really love it.” 

Some will be interested and some people won’t.

Be prepared to offer them a real estate deal if they show interest. Most real estate investors expect to pay around 70% of the after repair value (ARV) when flipping homes, so which means you’ll need to calculate:

  1. After repair value (use comparables in the area)
  2. Cost of repairs
  3. Maximum allowable offer (MAO)

The repair value is based on the cost of a contractor or your parts and the time to complete various upgrades. The maximum allowable offer will be equal to:

(70% x After Repair Value) – (Cost of Repairs) = MAO

Let’s use an example of a $300,000 market value that needs $20K in repairs.

With that in mind, the highest offer you would want to make the homeowner is:

(70% x $300,000) – $20K = $190K

Anything more than $190K and you’re unlikely to make a profit. But if you can negotiate to get the seller to accept a price of $140K, you’ll definitely make a nice profit.

Step 6. Sign a wholesale real estate contract

Contract signing form for real estate property

Once you have agreed upon the terms of the offer, you’ll need to get it in writing with the homeowner so you can reach out to real estate investors to find a buyer.

 Step 7. Find a buyer

To find new investors buying houses, you might build relationships through a variety of means. You’ll want to network with:

  1. Licensed real estate agents
  2. Hard money lenders: Brokers and other people who work with investors.
  3. Airbnb super hosts: Check out Ask A Super Host to learn how they operate.

Look for people buying properties at places like:

  • Real estate professional meetups
  • Groups on social media
  • Trade conferences

Step 8. Escrow

This stage of wholesaling real estate will be handled by a title and escrow company. The title company will make sure that any liens and tax defaults are identified. They make sure that the deal is ready and that everything goes smoothly for the homeowner, the contract seller, and the end buyer.

Step 9. Close the deal

After everything has been evaluated, there are closing costs when buying houses. They range from about $1,500 to $7,000 without taxes and can be as high as $30,000 with taxes. Rocket Mortgage has a great article on closing costs.

Rocketmortgage.com website screenshot

Once the deal has closed, the homeowner gets the money, you get your wholesale fee, and the buyer has a new property.

Now that you know the process, there are a variety of wholesale real estate resources you may wish to consider.

Resources for Real Estate Investors

Sanitno emphasized the importance of increasing your knowledge in the industry to maximize your results. Some of the ways you can increase your knowledge include:

  1. Getting a wholesale real estate mentor
  2. Reading wholesale real estate books
  3. Following wholesale real estate websites and their trends

Let’s look at each of these.

Find a mentor

If you are new to how a wholesaler makes money, you’ll want to find someone with experience to help teach you the market. While wholesaling doesn’t require significant capital, the more upfront capital you have the easier it will be. 

If you can interact with someone who has already developed a process, you will learn how to do wholesale real estate faster. Some ways you can find RE wholesaling mentors include:

Read RE books

Reading books about wholesaling real estate is a great way to learn more about the industry––Amazon has plenty of them to offer. Here are a few of the highest rated ones.

ADD A CODE

Real Estate Wholesaling Websites

Looking at what the industry is doing well and what it is doing poorly can also be highly beneficial. Make sure to check out websites for real estate wholesaling to help you get a better idea of what other wholesalers are doing. Here are a few to check out:

Conclusion

If you look, you’ll encounter a ton of resources out there for wholesale real estate investing. You just have to decide you want to get into it, build a network, and close some deals. Once you build a little capital, you can start doing more advanced deals like home flipping or fixing up and renting as an Airbnb.

What aspects of the real estate market would you like us to write more about?

Join The Discussion

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Compare listings

Compare