How to Wholesale Real Estate: Top 7 Essential Basics to Know

To wholesale real estate, you must know the basics, such as how it works, how to do it, and the skills and money you need to do it in the first place. Look below for a breakdown of these fundamentals.

Table of Contents

• What Does it Mean to Wholesale Real Estate?
• How Wholesaling Houses Works
• What You Should Do to Get Started
• Wholesaling Houses vs. Flipping
• Resources and Skills You Need to Succeed
• Is a Registered License Required?
• Do I Need to Pay Taxes for Wholesaling Houses?

Table of Contents

• With wholesaling, sellers of undesirable houses partner with wholesalers who can market the property. In exchange, the wholesaler takes a cut of the property price.
• The process involves steps like finding a property and seller to work with, calculating your property’s profitability potential, and marketing to find a buyer.
• To be a good wholesaler, you must have good networking and salesperson skills, as well as an ability to finance the various expenses attached to this business.

What Does it Mean to Wholesale Real Estate?

As Maryland hard money lending professionals, we define wholesaling real estate as a short-term sales strategy. With this strategy, home sellers enlist the help of wholesalers to sell a less-than-ideal property, for a fee.

People who act as wholesalers do not have to buy a property or rehab it. Because of this, wholesaling real estate is great for people who want to get into real estate.

How Wholesaling Houses Works

Wholesaling houses can work in two ways. First, the wholesaler directly buys the seller’s property and resells it for an upcharge, often called a double close.

Or, the seller forms a contract that gives the wholesaler a specified selling rate to work with and a period by which they must sell the property. In turn, the wholesaler will sell the property contract (in other words, the rights to buy the property) to a second investor for a cut of the property price or other fee.

The process is intended to benefit both the wholesaler and the seller. By using a wholesaler, the seller quickly secures a buyer for a home that otherwise might not attract buyers. They don’t have to handle the hefty costs of marketing and sale negotiations, because the wholesaler will take care of that.

In exchange, the wholesaler directly gets a chunk of the cash sale amount. What’s more, they can get this chunk expeditiously without a long closing process.

What You Should Do to Get Started 

Here are the steps involved in wholesaling real estate.

1. Do Your Due Diligence

Before wholesaling houses, you should narrow down the areas you want to find properties in. Just as importantly, consider the types of properties you want to focus on, their price points, and other factors that matter to you.

Also, don’t forget to review your area’s laws about wholesaling real estate.

As we will state many times in this article, you may want to secure financing for a real estate lawyer at this stage. This way, you can ensure that you stay compliant in your business throughout the process.

2. Find Your Target Property

Next, you should seek out properties whose owners need to sell quickly, for low prices. For instance, a property abandoned or in bad shape may sell for a lower-than-market rate. These may seem like subprime properties, but the right buyer might be interested in using them for flipping.

You can find such properties by directly driving around to find properties and contacting the property owner, whether it’s through a note, in-person, or social media. In addition, you could let sellers come to you by publicizing that you’re looking for ones to work with.

Other options could be looking for records of impending sale efforts that are about to emerge, or, on the contrary, ones that have been on the market for too long.

3. Calculate How Much You Can Charge for the Property

Now, you should examine your property’s condition carefully. This way, you can get the information to calculate whether you’d profit from wholesaling houses.

First and foremost, you want to quantify your property’s worth to buyers in numbers—in other words, how much your buyer could raise the property value after buying and repairing it. You can discern this by calculating the property’s after-repair value (ARV).

Then, you should factor in any losses you’d make from marketing, negotiation, and other necessary costs. Not to mention, you should factor in the percentage of the property price you want to charge as your wholesaler’s fee.

As an aside, other factors to figure out are:

• The comps—or, the fair market value of properties with comparable qualities that have sold recently. This also will give you an idea of how much you can ask for.
• Comparable properties’ rental income and occupancy rates
• Comparable properties’ cash-on-cash returns
• Holding and closing costs: You and your seller may need to secure financial assistance to pay for these sums ahead of time, so keep this in mind.

After taking all these measures, you can decide if it’s worth taking the plunge to wholesale real estate. And you can calculate the highest amount you feel you can ask for the property, as-is, to make a profit.

4. Contact the Seller

Once you’ve crunched the numbers, you should finally make your move and reach out to the property seller. You can introduce yourself, your role, and your process to see if the person would be interested. This is a prime time to market your role’s benefits to the seller—exactly how you’d make selling their property easier and more efficient.

Also, be sure to clarify your role thoroughly and what it entails—and doesn’t. For instance, explain how you are different from a real estate agent. After all, you don’t want to mislead the seller and start on the legal and socially wrong foot.

5. Set Up Your Contract

Here is when you craft a contract to sign with the property seller. This should factor in all the calculations from step 3. Moreover, it must include the sale terms and your right to assign the contract to the buying party.

The contract should allow you to withdraw from the contract just in case the property sale falls through or the inspection fails. Also, to be safe, always have these contracts approved by a real estate attorney.

6. Find a Cash Buyer

Now, you need to market the property purchase contract. This is the moment in wholesaling real estate when you need to secure funding for outreach efforts, like advertising and real estate organization memberships.

In addition, you should connect with investors, property managers, and other industry professionals to spread the word. In addition, you could use general social media, real estate forums, or other digital avenues to help. Then, hopefully, you’ll find a buyer.

If you do advertise, remember to stay compliant with your area’s advertising laws, because they can get specific when it comes to wholesaling houses.

7. Transfer the Property Contract to The Buyer

At this point, you should transfer the sales contract to your buyer. Also, arrange a wholesaler’s fee that you can earn for your hard work, usually a small percentage of the overall purchase price. Then, the buyer will purchase the home.

This is another point where you should hire a lawyer to iron out the details for legal compliance.

Wholesaling Houses vs. Flipping

Wholesaling real estate is not the same thing as flipping.

With flipping, you remodel a home before selling it. However, when you wholesale real estate, you sell a home just as is.

However, wholesaled properties are prime options to use for flipping. As such, they’re very popular with house flippers. That’s what may have caused such widespread confusion between the terms.

Resources and Skills You Need to Succeed

On a material level, you need to find financing, such as hard money loans, for:

• Purchase Agreement and other Legal Documents: You must hire a lawyer to draft a purchase agreement and other documents you need for your process.
• Legal Consultation: In general, as make various moves in your business journey, you will almost certainly need legal expertise. As such, you should find funding for this.
• Software: If you use software to aid the transaction or marketing process, such as Microsoft Word, you may have to pay a fee for these services.
• Earnest Money: You may be asked to provide a deposit to demonstrate your stake in applicable transactions. This could cost thousands of dollars.
• Marketing: You may have to pay for various advertisements or access to organizations that can give you leads.

In terms of soft skills, you need:

• Salesperson Chops: On a non-monetary level, marketing also means you must be prepared to take on the persona of a salesperson. You will need the people skills needed to connect with people where they’re at.
• Networking Chops: In order to find leads, you’ll want to also connect with others in the industry. This will require developing seasoned networking skills.
• A Mentor: No one is a one-man island in the world of wholesaling real estate. As such, you should search for people who can give you their advice and wisdom. This can save you from big mistakes and missteps.

Is a Registered License Required?

In Maryland, as long as your actions don’t require a license, you do not need a real estate license for wholesaling. Other states may differ. In any case (we know we keep saying this over and over), you should check with a lawyer to make sure you’re operating within the confines of the law.

Do I Need to Pay Taxes for Wholesaling Houses?

Unless you are somehow exempt, then yes, you must pay taxes for any income you make when wholesaling.

Fund Your Ventures with MHML

For wholesaling real estate, you must narrow down the right properties and profitability, negotiate with sellers and buyers to make deals, market yourself, and get proper legal advice throughout the entire process.

As you can see, going through the wholesaling process can be costly. If you need fast funding for imminent wholesaling fees, such as legal consultations, contract formations, marketing, negotiation efforts, closing costs, and other routine wholesaling costs, hard money loans can help.

Furthermore, if your wholesaling buyers need help funding their flip, hard money loans are one of the most popular ways to secure financing. So, we can assist them, too!

Our team of experienced real estate professionals has years of experience as real estate professionals. We have the expertise to financially and informatively support everyone involved in the wholesaling processes, from start to end. Contact us today to gain a partner in your wholesaling journey.