What is Wholesale? The Beginner Strategy in Real Estate Investing

What is wholesale? Real estate wholesaling can be described as similar to flipping except that the time frame is much shorter, and as the wholesaler you don’t do any of the actual rehabbing required before being able to put the house on the market. In fact, as a real estate wholesaler, you act as more of a middle person between a seller and buyer and don’t actually ever own the property yourself.

In theory, learning what is wholesale can be a pretty simple concept. In general, there can be a bit of work that goes into this process, but a wholesaling scenario usually goes like this: suppose you find a house that will sell for $150,000 after all the necessary repairs are made.

You estimate that it’ll cost about $20,000 in repairs, so you put the house under contract for $90,000. Using a network of investors, you’re able to find a buyer at $100,000. Then you can assign or double close the contract to the investor who then has a profitable fixer upper project, and you as the wholesaler walk away with a profit of $10,000 without ever owning the house.

If you’re an investor who is stuck between buying the property outright and wholesaling, remember that just because you have the cash to buy doesn’t automatically mean that you should. There can always be many problems that can pop up, a lot of which can keep the property from being sold. So if you’re stuck, ask yourself these questions:

 Do I have enough money to invest in this property myself?

 Is the seller willing to lower their asking price to my liking?

 Am I confident about the property’s true market value?

 Are there any potential problems with the property that I can’t resolve?

After you’ve asked yourself these questions and decided that learning what is wholesale is the better option, you can begin the process.

Your first step in learning what is wholesale is of course to find a motivated seller. There are several ways to go about this – the best way being perhaps to work with the county where you’re looking to invest. The county always has date and information updated in real time so it’s always accurate. Once you’ve gathered up a list of sellers, it’s time to approach them.

Remember that every seller has different circumstances behind their motivations, so tailoring your approach for each person is the best way to get a positive response every time.

If you’ve found a distressed seller and are ready to make an offer, it’s important to make sure that the seller understands what you intend to do. As the Purchase Agreement (the contract) doesn’t explicitly say what is going to happen, failure to explain properly can potentially end with both you and the seller unhappy. It’s not necessary to go into too much detail, as that can just confuse the seller even more, but if the seller asks, you can say that you work with other real estate investors and there is the possibility that you will bring another investor into the deal.

The next step is to market the property to potential buyers. If you already have a list of buyers you can call about the property, or know someone interested in a specific one, great! This is definitely the best way to go. If not, finding buyers is as simple as putting an ad in the paper or online (social media, craigslist and other sites.) You’ll most likely get a lot of interested callers, and you can sort them out how you like. Try to get enough information of the house or property to write up a summary of it. It doesn’t have to be overly detailed, just make it obvious enough that whoever is interested is looking at a deal with some great potential.

Once you’ve found a buyer, have them sign the purchase agreement and put down a deposit, which is usually 10% of the total purchase price. Make sure you’ve added an ‘assignment clause’ to your Purchase Agreement, allowing you to assign it to a third-party, otherwise the rest of the process will fall through completely.

All that’s left at this point is to deliver all required documentation to a Title Company or a Closing Attorney which includes a copy of the fully executed Purchase Agreement, a copy of the fully executed Assignment Agreement (if any), and proof of the deposit you’ve received from the buyer. The Title Company will take care of the rest in order to move forward with closing the transaction.

Though learning what is wholesale definitely has a lot of benefits, there are also a few drawbacks that go along with it. For example: You have a much shorter time frame to get the deal done, you won’t be able to make any improvements to the property, and your buyer must have the ability to pay cash. There are always pros and cons to every venture, though by doing your research thoroughly, there’s no reason learning what is wholesale can’t be just as profitable as anything else.