Wholesale Real Estate
If you’ve been thinking about a career in real estate investing but have yet to make it a reality, wholesale real estate may be the right solution for you.
At The Investor's Edge, we make the wholesale real estate investment process simple with our online tools and software.
WHAT DOES IT MEAN TO WHOLESALE REAL ESTATE
Wholesaling real estate means finding a property that would make a good fix and flip deal, putting the deal under contract, but then assigning the contract to another investor before the deal closes.
You don’t have to finance the deal, but you get paid by the other investor for finding the deal.
Finding a good wholesale deal requires the investor to find a discounted deal.
This happens when the seller has motivation to move quickly, and usually the property is in severe disrepair—meaning they can’t just list it for a good price on the MLS.
Once you’ve found a property like this, you’ll put it under contract and pay any needed earnest money.
After a property is put under contract, you now have until closing to find another person to assign the contract to!
This means that you’re going to find another real estate investor who will take on the full fix and flip, and they pay you for the trouble of finding the deal.
This is called “assignment.”
If you can’t find someone else to take on the contract, you can walk away before closing.
If you’ve phrased your deal correctly, you won’t even lose your earnest money.
WHY WHOLESALE REAL ESTATE?
Great for Beginners
Fixing and flipping deals require many moving parts. A wholesale deal only involves selling a property contract — without worrying about revamping or other renovation concerns.
You don’t need to pay for the property or find financing to purchase the property when wholesaling, which means you can spend less time and energy wholesaling than flipping houses.
No Loan Management
After you get the funding for a fix and flip, you still have to manage your payments and work out loan extensions.
No Rehab/Contractor to Manage
With a wholesale real estate deal that doesn’t require renovations, you remove the headache of dealing with and managing contractors.
Holding land or starting new construction can take years to receive a payoff. Wholesale real estate has a dramatically shorter turnaround time. The entire process could last hours to a month, from the first contract to getting a check.
The only risk with a wholesale real estate deal is losing earnest money. Thankfully, most off-market sales don’t require large earnest deposits and you should be able to get your money back.
Your earnings from wholesale real estate will vary depending on your property type and how much an investor charges. While fix and flip deals can generate higher earnings, typical profits for a wholesale deal can range from $5,000 to $10,000.
No Down Payment
There are no hidden fees or down payments with real estate wholesaling. If you decide to invest in marketing or an earnest money deposit, these two transactions are entirely under your control.
No Credit Required
With a fix and flip deal, you may need a decent credit score to qualify for loans or other financing needs. When you engage in wholesale real estate, you don’t actually buy the properties — which means you can start real estate investing, whatever your credit score.
Example Wholesale Deal:
The overall premise to finding a good wholesale deal is to first find a property that would make a great fix and flip, and then ensure there’s enough profit that you can take a cut as well.
Here’s what that might look like:
$80k purchase price + $65k loan/closing costs = $145k
You’ve determined the after repair value (ARV) of the property to be $220k.
A good rule of thumb for a profitable fix and flip is to keep all your costs under 70% of the ARV. That leaves enough room for unforeseen costs and still profit nicely.
Now, let’s calculate that wholesale deal with these numbers in mind. With an ARV of $220k, that leaves your 70% target at $154k! That’s great because your costs are under that number.
As a wholesaler, you could offer a great deal to a fix and flipper and pocket $9k as your assignment fee ($154k – $145k).
Wholesale VS. Fix and Flip VS. BRRR
When determining what type of deal works for you, there are a number of factors to consider. Let’s look at them.
YOUR FINANCIAL SITUATION
The first factor is how much money you can dedicate towards real estate investing. Both fix and flips and BRRR deals require more capital. Even if you find a deal that qualifies for our 100% financing program, you’ll still need capital to guard against unforeseen costs. With a BRRR deal especially you’ll want some funds to protect against vacancy and other costs associated with owning a rental property.
As there are only minimal upfront and no long-term costs associated with a wholesale deal, going that route ends up being popular for many new real estate investors.
YOUR FINANCIAL GOALS
What is your goal with real estate investing? Most investors eventually would like to have a diversified portfolio, but where do you want to start?
If your biggest goal from the start is passive cash flow, then you’re going to gravitate towards BRRR deals.
If you need fast cash in order to fund other projects, pay off a credit card, or purchase something in the near future (like fixing your car or buying a new laptop), then a wholesale deal is the best way to go.
However, the allure of a big payday with fix and flips ends up enticing most investors. Our member’s average profit on a paid-off loan is $47,884 in 2021 per deal! With that kind of money, you can pursue many other investing routes, including funding other deals, or going after fix and flips with higher cash-to-close requirements.
THE PROPERTY ITSELF
Once you take a look at the property, the ideal strategy often presents itself. For example, a property with minimal repairs would be ideal for a BRRR property. You can quickly do the renovation and get it rented out.
Or, a property with a massive rehab requirement may turn you towards a wholesale deal. Let someone else deal with that headache while you walk away with $5k.
YOUR RISK TOLERANCE
Lowest Risk – Wholesale deals have clearly the lowest risk of these three deal types because there are few moving parts. It’s extraordinarily simple and requires little capital on your part.
Medium Risk – Fix and flips carry more risk because they’re longer, more complicated, and require you to get a loan or involve a lot of your own money.
Highest Risk – BRRR deals are the riskiest because you have to go through the whole process of a fix and flip, as well as trying to find a new 30-year loan to refinance your hard money loan. You also need to find a renter, as well as manage the property and tenants for as long as you have the property.
See What Our Members Are Saying:
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How To Start Wholesaling Properties
First, you’ll want to know your endgame.
I mentioned above that the state of the property can make a determination into what type of deal you do, but I’d recommend having a strategy in mind for your first one.
If you’re committed to doing wholesale deals, you’ll first want to know how you’re going to offload your deal.
Who’s going to buy the contract from you? Buyers won’t materialize out of thin air.
This is where a list of cash buyers comes into play. For most wholesalers, their cash buyers list is their most important asset!
These are people who would potentially purchase the contract from you.
Ideally, you’ll find a wholesale property, send the deal out to your cash buyers list, and someone will pick it up!
However, you’re likely someone who doesn’t like to wait to build that list. You’re someone who gets things done—as is everyone else who has success in this type of active real estate investing.
In this scenario, you need to:
1. Find groups of real estate investors that you can advertise your deal to. The two most common of these are local, in-person investing groups. The other one is Facebook groups. Take some time to identify active groups where you see other people picking up wholesale deals. Then when you have one, hopefully you can get it picked up too. All the while, you can be building up your personal list of cash buyers.
2. Use someone else’s cash buyers list.
Use The Investor's Edge Cash Buyer List
Whether you’ve dipped your toes into real estate before or you’re a complete beginner, wholesale real estate is one of the most straightforward ways to start investing in properties.
At The Investor's Edge, we want to help beginners and pros throughout the entire wholesaling process.
Our innovative real-estate software solutions, such as The Investors Edge software, makes it easy to find properties and make offers. The Investor's Edge website is also a wealth of information on wholesaling houses for beginners, with training and other resources available from industry experts.
Start your investing journey on the right foot when you use our virtual wholesaling platform today.
We know that finding someone to assign your wholesale contract to is the hardest and most stressful part of the process.
That’s why we’ve made our cash buyers list available to you.
Here’s how the wholesale process works inside our Find-Fund-Flip System:
- Use our software to find, market, and evaluate deals. That software is called The Investor’s Edge.
- Close on the deal.
- Submit a loan application to us.
- We evaluate the deal first by an in-house expert, then followed by a third party local expert.
- If the numbers line up, we’ll send your deal out to our list of 20,000+. Most deals are picked up within 1 business day.
Of course, in order to be a successful wholesaler, you’ll need a constant supply of new potential deals.