Real estate wholesaling is a business strategy in which a wholesaler enters into a contract on a home before eventually selling the contract to a new buyer. The wholesaler acts like an intermediary, selling the property on behalf of the property owner and keeping the profit.
Wholesale real estate can be an effective way for new investors to break into the real estate market without investing significant capital. Keep reading to learn how real estate wholesaling works and whether it’s right for you.
Definition and Examples of Real Estate Wholesaling
Real estate wholesaling is a business venture wherein a wholesaler sells a property on behalf of the owner for a profit. The wholesaler and seller enter into a contract, which the wholesaler ultimately sells to another buyer.
The wholesaler doesn’t actually purchase the property. Instead, the temporary contract with the owner gives them the right to sell it on their behalf, keeping the profit for themselves.
The properties that wholesalers sell are often distressed off-market properties. The owner no longer wants the home, nor do they want to do the work necessary to get it ready for a traditional sale. Instead, they contract with a wholesaler, who takes it off their hands.
How Does Real Estate Wholesaling Work?
A wholesale real estate transaction involves a contract between the seller and the wholesaler. In the contract, the wholesaler agrees to sell the property for a minimum amount by a certain date, and it may require that they invest some earnest money. For example, a wholesaler might agree to sell a property for $150,000 within 90 days.
Once the contract is signed, the wholesaler finds a buyer—often a real estate investor—to take over the contract. The wholesaler’s goal is to sell the property for more than the amount listed in the contract. For example, with a contract that lists the price of a property as $150,000, the wholesaler might try to sell the property for $175,000. The difference between the contract price and the sale price, known as the “spread,” is the wholesaler’s profit. In this case, the profit would be $25,000.
Pros and Cons of Real Estate Wholesaling
Little upfront investment required
Potentially large profits in a short period
Gives a foot in the door of the real estate industry
Lower profit margin
Dependent on other buyers and sellers
- Little upfront investment required: Real estate wholesaling doesn’t require you to actually purchase the property. The only real upfront investment required on your end is your time and your marketing efforts and, in some cases, earnest money.
- Potentially large profits in a short period: A wholesale real estate deal might not take more than a few months to complete and could result in a substantial profit.
- Gives a foot in the door of the real estate industry: Wholesale real estate can be a great opportunity for those trying to break into the real estate industry. You’ll learn a lot about the business and have the opportunity to network with other investors.
- Lower profit margin: Real estate wholesaling can be profitable, but often has lower profit margins than other forms of real estate investing, such as flipping. This lower profit margin reflects the lower risk and financial investment required for wholesalers.
- Dependent on other buyers and sellers: To be a successful wholesaler, you need property owners willing to sell via a wholesale real estate deal and investors willing to buy.
- Unpredictable income: There’s no guaranteed profit with wholesale real estate. If you don’t sell a home within the time period in the contract, you may lose out on the deal. You may also find that you go through seasons of lower inventory to sell.
What It Means for Individual Investors
Real estate has been a popular investment strategy for decades. In fact, Gallup polling consistently shows that Americans believe real estate to be the best long-term investment, beating out stocks.
As an individual investor, real estate can feel intimidating because of the up-front investment required to buy homes and the ongoing yearly investment of time and money.
Real estate wholesaling can be a good entry point into the world of real estate. There’s little investment required on your part, outside of what you pay to market to buyers and sellers. So, if you’ve been considering getting into real estate but don’t have the savings to do so, you can consider real estate wholesaling.
Is Real Estate Wholesaling Worth It?
As with any business or investment opportunity, you might find yourself asking: Is it worth it? And like most things, the answer is: it depends.
Wholesaling real estate can be profitable and has the benefit of requiring little up-front capital. But you must also consider whether it’s really something that interests you. Real estate wholesaling requires marketing and networking. You’ll also likely need a deep understanding of real estate and the local market.
If you find that marketing and networking don’t sound like something you’d enjoy, then you might find that the effort real estate wholesaling requires to earn a profit isn't worth it.
Real estate wholesaling can absolutely be worth it if you have a passion for real estate but just need the capital to help you get there. Wholesaling real estate gives you the experience you need as well as profits to reinvest in your next business venture.
How To Start Real Estate Wholesaling
To start real estate wholesaling, you’ll first need a marketing strategy to help you attract sellers and find off-market properties. Marketing strategies you might employ include direct marketing, online advertising, cold-calling, and search engine optimization (SEO).
Often, the sellers in wholesale property deals have distressed properties and aren’t able or willing to fix them up or sell them on their own. That information can help you target your marketing efforts.
The other thing you’ll need to start real estate wholesaling is a network of willing buyers. The buyers in wholesale real estate transactions are often real estate investors willing to pay cash. You can find investors via social media platforms like Facebook or LinkedIn. You can also join local real estate investment meetups. Once you’ve built your network, you’ll have people to call when you have a property to sell.
- Real estate wholesaling is a business venture wherein a wholesaler enters into a contract with a property owner and then assigns the contract to an end buyer for a profit.
- The wholesaler makes a profit when the buyer agrees to pay more than the sale price promised to the seller.
- Wholesale real estate doesn’t require much up-front capital because the wholesaler doesn’t actually purchase the home. As a result, wholesaling is a more accessible form of real estate investing.
- Real estate wholesaling requires significant marketing and networking to find sellers and buyers to do business with.
- Real estate wholesaling may have lower profit margins than other forms of real estate investing because of the minimal risk and investment required for the wholesaler.