How To Wholesale Real Estate For Beginners

Wholesaling is a great way for a new real estate investor to get started without having to put a lot of money down.

But you need to hustle and put in the effort in finding a really good deal. For those who aren’t familiar or have never heard of wholesaling, here’s a quick explanation of the process of wholesaling.

How Does It Work?

Wholesaling is when you go out and find a property that has a lot of potential to be sold for a higher value. You approach the owner of the property and offer to buy it and get it under contract.

Then you find someone else, like a flipper, interested in buying the property. You assign that contract to the flipper. The flipper then pays you a finder’s fee or wholesaling fee for finding the deal for them.

If you’re interested in wholesaling, there are a few steps you need to do first.

Getting Started Wholesaling

Find a Good Buyer’s List

Don’t expect that finding an off-market property would automatically lead buyers to you. Join your local networking groups or attend virtual meetups. You need to find 4-5 people in your space who will become your buyers later on.

Find out what their actual buying criteria is. What do they like to buy? Who’s buying which type of property? What do they look for in terms of profit margins?

You can also do a market analysis and look for properties that got sold to fixers. Then backtrack and look for their contact information.

Once you have a list of potential buyers, now it’s time to find a good deal.

Generate Leads

Finding that property that would get a fixer interested requires a lot of work. Expect that you will get rejected multiple times. But if you can close 1- 2 wholesale deals in a year, that would already be good.

There are three ways you can use to find property to wholesale:

1. Door Knocking

Go out and look for houses in disarray and make an offer to buy the house for cash. Door knocking has its benefits because you’d be able to find properties that most people wouldn’t find by just searching online.

2. Cold Calling

Instead of going door to door, cold calling is more efficient because you’d be able to contact more people in a day. Make a list of the potential sellers you want to approach, get their contact information, then start calling them up.

You can even sign up for a service like Mojo and call 3 people at the same time. Then you’ll only talk to the one that picks up.

Or you can hire your own team of cold callers who will do the cold calling for you.

3. Direct Mail Campaigns

This is the most expensive out of the three. Sending a small poster or letter could cost between 50-70 cents. That adds up especially when you’re sending to thousands of people.

The key is to generate a list first. Sites like Property Radar will show you breakdowns of how much equity a property will have. It also has a foreclosure list. Costing $90 a month, it may cost a bit, but if you’re using it every day, it could be worth your money.

You can also talk to your local title company to find out which properties meet your criteria. Then you can use skip tracing software to find out the contact details of the property owners.

Get the Property Under Contract

Once you’ve found a lead, it’s time to build rapport with the seller. Sometimes it could take months and months of going back and forth before you can get the property under contract.

Just make sure that you did the math first. Make sure that it’ll be a good deal for a flipper, then backtrack from that number by $10,000 or $50,000. That will be the number you should get the property under contract for.

What’s also important is to get a contract that allows assignments. The new contracts from the California Association of Realtors do not naturally allow assignments. You can instead download a contract online or join a program.

Here’s another tip: In the contract where buyer’s name is written, beside it include this text ‘and/or assigns’. This means that you can assign the contract to someone else or an LLC.

What About the Down Payment?

Once you have a firm purchase price and assignment clause, your buyer might expect an earnest money deposit (EMD). This is normally 3% of the purchase price. But since this is your contract, you can negotiate.

Some people have offered putting down $100 or $1,000 as EMD. If they back out from the deal, the seller will get to keep the money.

Sell the Contract

Finally, you can sell the contract to a flipper. Tell the flipper the contract price, the purchase price, the after-repair value (ARV), and the estimate for how much it would cost to rehab it.

Most likely they’ll do their own due diligence. Once they tell you they’re interested in buying the property, have the flipper sign an assignment contract with you that shows how much you’ll be paid for the assignment fee.

You can also have the flipper or end buyer put down that 3% EMD that will go to you. If they back out of the deal, then you’ll get to keep that money.

After that, put both contracts to a title or escrow company. The title company will be handling the entire transaction. When the deal closes, the title company will pay you directly your assignment fee. So you don’t have to go after the end buyer.

My First Wholesale Deal

Wholesaling is really a great way to make money without needing to do the effort of doing the rehab and finding a family to buy or rent the house.

I still remember my first successful wholesale deal. After months and months of calling, my partners and I got a deal for a property worth $1.55M if it’s fixed up. But because it was occupied by squatters, the seller offered it for $1.1M.

We were able to find a flipper interested in buying it for $1.2M. And another great thing that happened was that we were able to negotiate with the seller for us to get it for $1.075M instead of $1.1M.

Which means, we made $125,000 on that deal!

You don’t need a lot of upfront capital to do wholesaling. So pick up the phone or start sending out those direct mail pieces because in a matter of time, you could also be making money from wholesaling.