Real estate wholesaling is a hot strategy for new property investors because it can be done with limited experience and funds.
Wholesaling defines the process of finding real estate deals and receiving a “finder’s fee” for bringing these properties to investors.
For example: John wants to sell his older home but he doesn’t want to pay an agent’s fee. Ann, a wholesaler, hears about John and contacts him. Ann offers John an agreement stating that she OR someone else will purchase the property for $250,000 within the next 21 days. Ann then contacts Lisa, who is a house flipper. Lisa goes over the numbers, decides it’s a good investment, and agrees to pay $260,000 for the property knowing she can bump the property into a higher price bracket. Ann and Lisa sign an “assignment contract” where Ann gives Lisa the right to purchase the property from John. John gets his asking price, and Ann receives a $10,000 wholesale fee. Ann never purchased the property. She made $10,000 by bringing John and Ann together.
Sounds simple, right? It’s actually a complex process filled with potentially expensive pitfalls.
What You Must Know
How are you going to learn how to wholesale a property on your own? Reading books and “YouTube University” is NOT going to get it done! Here’s why you need to be thoroughly educated in wholesaling:
- Some states consider wholesaling to be illegal because of legal implications of “brokering” (in most states, brokers require licenses). Wholesaling proponents argue that wholesaling is not the same as brokering.
- Wholesaling contracts are complex. Do you understand them? Do they protect everyone’s interests?
What You Can Do
First, ask yourself, “Do I have the time to educate myself and work this as a full-time business?” If not… walk away.
To start the ball rolling, get your broker’s license. You can’t be accused of brokering without a license if you have one. It’s an investment of several thousand dollars, but it’s ultimately cheaper than fines and legal hassles.
Wholesaling is not as easy as the example outlined above; and yet, who doesn’t want to profit from property with no money down?
To be a successful wholesaler, you must:
- Be intimately familiar with the market
- Know the math behind a good flip (accurately estimate reno/repair costs and future market value)
- Be great at sales, negotiating, and marketing
- Find great properties, cheap (= lots of phone calls and driving)
- Talk with motivated sellers in distressed and emotional situations
- Compete with investors who can source their own properties
- Know how to write, read, and understand contracts
- Be in a financial position to make mistakes, to make your wholesaling business a daily priority and to purchase a property short-term if it’s a great deal but you don’t have investors lined up
Ultimately the way to succeed comes down to your hustle.
Wholesaling gurus will have you believe that anyone can do it when in reality, you have to be extremely well educated and put in the work.
There are resources on the Internet to support you. Many will cost you some money upfront, but save you immense headaches later.
Don’t go into Wholesaling with Stars in Your Eyes!
Property flipping is cutthroat-competitive, it’s a full-time job, and it’s hard work. If you’re still thinking, “I want to do this,” then get your broker’s license as a start, and learn the industry inside-out. We offer personal mentoring programs if you live in Dade or Broward County.