Real Estate Wholesaling 101

There are several ways to invest in real estate. From residential real estate to house flipping and more, real estate investing offers many avenues for profit.

One such avenue is called wholesaling. Real estate wholesaling is one of the least expensive ways to invest in real estate, and it’s one of the least risky options, too. For the beginning investor, real estate wholesaling might be the best way to get your feet wet.

What is Real Estate Wholesaling?

Real estate wholesaling is when one party – the wholesaler – contracts with a homeowner to find a buyer for his home. The wholesaler then markets the home to interested investors, finding one to purchase the home. The wholesaler makes a profit off the difference between what he contracted with the homeowner for and what the investor pays. The goal for the wholesaler is to sell the property before his contract is up with the homeowner.

A Real Estate Wholesale Example

Here is a real estate wholesaling transaction to help explain how wholesaling works.

A wholesaler contracts with a homeowner for $90,000. The house is a fixer-upper that he estimates will need about $20,000 worth of repairs but should sell for around $150,000 when the repairs are complete.

The wholesaler then goes to his trusty network of investors and markets the house. An interested investor buys the house for $100,000, which gives the investor a profitable investment property. The transaction nets the wholesaler a profit of $10,000 without him ever having to own the property himself.

As stated before, the goal of wholesaling is to find a buyer before the contract with the homeowner runs out. To help lower the risk for the wholesaler, a contingency is usually added to the contract that allows the wholesaler to back out of the deal should he fail to find a buyer before the contract closing date.

The nice thing about wholesaling is that you don’t need a lot of money upfront to get started. Since you don’t actually own the property yourself, you don’t have to worry about repair costs, carrying costs, or down payments. Earnest money is all that’s generally needed, as well as an extensive knowledge of the market and access to a wide network of investors to make quick sales.