Real estate wholesaling is a business model that’s seen massive growth over the past decade.
Investing in real estate with very little upfront capital… taking home large assignment fees without ever owning the property… those are appealing propositions to someone who’s always wanted to invest in real estate, but maybe never had the confidence to do so.
And that’s what we’re seeing — both seasoned investors and total beginners are flooding wholesaling markets around the U.S., trying to get their cut of the pie.
In this guide, we’re speaking to the beginners. We’re going to tell you the truth about real estate wholesaling without any of the sales-y fluff that most “gurus” preach.
Wholesaling real estate is not as easy and clear-cut as most course-peddling “gurus” make it sound, but it’s also not as difficult as that last clause might make you expect.
It’s a business model that — like all businesses — consistently requires grit, thoughtfulness, and the ability to make clear-headed decisions.
Let’s dive into the details.
What is Real Estate Wholesaling?
Real estate wholesaling is the process of finding and securing contracts with home sellers and “flipping” those contracts to buyers for an assignment fee of usually $5,000 to $10,000.
Essentially, you’re playing the middle-man between motivated sellers (people who want to sell their home quickly for cash) and cash buyers (people who are looking for good real estate investments).
Wholesalers benefit both parties. The seller benefits because they now have an avenue by which to sell their home quickly and as-is for a fair cash price. And the cash buyer benefits because they get a new investment for a good price.
This, of course, is assuming that the wholesaler got the home under contract for a good selling price.
To help you understand how this works, here’s an example.
As a wholesaler, imagine that I find the homeowners of a property that tenants damaged and that the homeowners don’t have the money or time to repair it. Because it’s damaged, they can’t easily sell it on the MLS. The owners also have a lot of equity. And thus they are willing and eager to sell for a fair cash price.
Upon examining the home and running thorough due diligence, I conclude that the ARV (After Repair Value) of the home is $300,000. I crunch some more numbers to ensure that I can give my future buyer a great deal and myself a fair commission. I offer the homeowners $120,000 and they accept.
We sign a contract and then I flip that contract to one of my cash buyers who I’ve given a full rundown of the property. My buyer pays $130,000 for the house — $120,000 goes to the seller and $10,000 goes to me (my assignment fee). The cash buyer then fixes up the home for $70,000 and sells it for its ARV of $300,000, profiting $100,000 overall.
Hopefully, you now understand how the wholesaling process works.
Next, we’re going to walk you through 6 steps to securing your 1st deal.
Step 1. Find Your Cash Buyers
First, we recommend finding some potential cash buyers. These are people who are willing and eager to buy good real estate deals and, ideally, they understand the wholesaling business model and don’t mind working with wholesalers.
How do you find these people?
Here are a few ideas…
- Attend Foreclosure Auctions — Foreclosure auctions are the best place to meet high-quality cash buyers. These people are actively seeking real estate investments, they have cash on hand, and they’re willing to buy properties sight-unseen. Attend these auctions, introduce yourself to people when it’s appropriate (not during the auction), and let them know what you’re doing. Most of them will be happy to have you contact them with future deals.
- Call Real Estate Agents — You might be surprised at how many real estate agents are also investors. Even if they’re not, most agents are well-connected enough to know investors in the community. So at the very least, it’s worth your time to build rapport with agents in your community and see what opportunities those relationships create.
- Find Landlords — Obviously, not all landlords are going to make great cash buyers… but some of them will! You can find cash buyers by browsing through the “Apartment/Housing For Rent” section. Again, call the homeowners, tell them what you’re doing, and see if they’re interested.
When you find someone who’s interested in purchasing your deals, snag their phone number and email address and ask them if you can contact them when you’ve got a good deal.
We recommend trying to find at least 10 solid cash buyer leads before seeking out motivated sellers.
Step 2. Spend $2,000 to $4,000 on Direct Mail
Wholesaling is often touted as a no-cash-down real estate investment strategy.
Relative to other real estate investing business models, that’s true. But it’s rarely no cash down. You’ll typically need to spend at least a few thousand dollars on direct mail to find your first deal — and future deals. Many wholesalers expect to spend $2,000 to $4,000 (depending on the market competition) to find each deal.
That shouldn’t be a problem, though. It just means you’ll need to go in with proper expectations and ensure that your assignment fee covers your costs.
To get the best bang for your buck (and to potentially spend less money to find your first deal), we recommend using Ballpoint Marketing, which uses “handwritten” (i.e. written by robots with real ink) mailers with eye-catching designs.
And we recommend sending at least $2,000 worth of mailers to some combination of the following lists…
- Tax Delinquent List
- Code Violation List
- Equity List
- Inheritance List
Give it a few weeks and that’ll get the phone ringing.
Step 3. Answer The Phone & Pursue Every Lead
Now that you’ve sent out direct mail, you’re going to start getting responses.
Some of those people will just be curious to hear more about what you’re offering and some of those people will be angry that you contacted them… but some will be interested in hearing your cash offer on their property.
Those are the leads that you want to pay the most attention to.
However, to get a feel for how motivated the seller actually is, we recommend asking the following questions…
- Why do you want to sell the home?
- How soon do you need to sell the home?
- How much are you hoping to get for the home?
- How much equity do you have on the home?
(In fact, if you want to hear what this initial conversation should sound like, check out the audio recording on our homepage)
If their answers indicate that they’re motivated, then get the person’s name, phone number, and address of the property that they’re wanting to sell. Let them know that you’re going to do some preemptive due diligence on the property and you’ll give them a call back within the next 24 hours to schedule a time to come and take a look at the property.
We’ll talk more about due diligence in the next step.
But right now, we want to emphasize just how important it is to answer the phone when it rings. Remember: you paid a few thousand dollars for those leads… so make the most of them and answer the phone — your chances of getting in contact with the homeowner drastically decrease if you don’t answer when they call the first time.
In fact, that’s what we help wholesalers with at Call Porter — we answer the phone so you don’t have to (click below to get a free demo).
Step 4. Do Your Due Diligence
It’s difficult to overstate how important due diligence is for wholesaling real estate.
You’ve either got a good deal… or you don’t. And the reality of what you’ve got exists only in cold, hard numbers.
What’s the home’s ARV? How much will repairs cost? How much do you want to make as an assignment fee? How much does your cash buyer stand to make if the seller accepts your offer?
Most importantly, what is the max amount of money, according to your due diligence, that you can afford to offer on the home?
Before you make an offer, you should have crystal clear answers to those questions.
Of course, that probably sounds a little overwhelming.
We recommend setting aside some time to watch this video with Ryan Dossey and Andrew Syrios, two active real estate investors. They dive deep into what you should consider before buying a home, what you should look for, and how you should calculate your offer.
Step 5. Make An Offer
You’ve done your due diligence on the property and figured out the max offer you can afford to make.
Now it’s time to go back to the seller and make your offer — but as with all negotiations, you should start off lower than your max offer… $10,000 or $20,0000 lower even.
The seller will probably want to push the buying price up, so you’ll need to be prepared for that. But also be prepared to walk away if the seller refuses your max offer. Remember: the profitability of a deal is in the math and due diligence… not in the feelings you or the seller has during the negotiations.
(Plus, you might be surprised at how often a seller will accept your offer a few weeks or months down the road when they find themselves still stuck with the property)
If you have to, don’t be afraid to explain your max offer to the seller so that they understand why it is what it is. Honesty can sometimes be more persuasive than anything else.
Step 6. Contact Your Buyers
Assuming that you and the seller have agreed on a price that fits your due diligence and that you’ve got the property under contract, it’s now time to contact your buyers and tell them about the property.
This part of the process is not so much about selling the property as it is about showing your due diligence and comps to your cash buyers so that they can see how much they stand to make from the property if they pick it up.
Like you, your cash buyers just want a good deal. And if you’ve secured a property for a profitable price, then you shouldn’t have much trouble finding a cash buyer who’ll take the contract off your hands for an assignment fee.