Real estate wholesale is a way of buying and selling real estate contracts. Wholesalers act as intermediaries between sellers and buyers, who are usually investors. A wholesaler typically contacts distressed property owners and convinces them to enter into a wholesale deal with them.
A wholesale contract is not a promise to buy the property, but a contract that gives the wholesaler a specific period of time to find a buyer for the property. The wholesaler usually does not have to pay more than a deposit or repair the property in any way. This process is a popular way for people of limited funds to dive into real estate transactions.
During the pandemic, wholesale has “experienced a gigantic surge,” says Ryan David, principal investor at We Buy Houses in Scranton, Pennsylvania. He adds: “When a lot of people were stuck at home [they] Watched wholesale YouTube videos and decided to try it myself.”
If you’re here for a TikTok about someone making $50,000 a week in wholesale who started out with just $500, there are a few things you need to know about wholesale before jumping right in. Sometimes things seem too good to be true for a reason.
How to sell real estate wholesale
With “good contracts and paperwork prepared by a real estate attorney” you can be on the right track [your] State” or the wrong way with an “over-the-counter agreement [you bought] at Staples,” says David. While it takes time and money to get things right, going for the cheap fix could be a “big mistake,” says David.
Most wholesalers develop their own ways of finding buyers and sellers. Each system depends on your local market conditions. One way to find sellers is to drive through neighborhoods and list properties that appear to be in poor condition. When you get home you can use the property tax records to locate and contact the listed owner. Another common way to find sellers is to visit an area several months after a natural disaster. Homes that weren’t repaired usually had poor homeowner insurance coverage and could be a sign that the owners need the money.
Finding and contacting sellers in this way requires tact and social skills. If an elderly relative of yours is going through a tough time, how would you like a wholesaler to speak to them? While you may find your sellers by looking for homes in poor condition, it’s a bad idea to start your conversation by saying, “I’ve noticed that your house isn’t being taken care of.” Working with a mentor can help you help you figure out the best ways to find sellers and, more importantly, how to talk to them.
You can usually find buyers by attending your local real estate networking events or by reaching out to your own friends and family. Anyone who manufactures property for sale or rent is a potential buyer for your wholesale contract.
Example real estate wholesale
John recently inherited his grandmother’s property. His grandmother was a hoarder and the house is in extremely poor condition. John is unsure what to do with the property. Jane is a real estate wholesaler and keeps an eye on properties in the area. Noticing a change of ownership in the property tax records, she contacts John to offer to take the property from him without issue. John is relieved not to have to put the property on the market or clean up, so he agrees to the wholesale deal. Jane contacts her friend Judy, who buys and repairs hamster houses. Judy wants John’s house, so she agrees to buy the contract from Jane and pay Jane a $10,000 wholesale fee.
Pros and cons of wholesale real estate
The biggest benefit of wholesale real estate is that “when done right, it can easily become a win-win,” says David. In the example above, John got rid of a house he didn’t want to deal with, Jane made money, and Judy got a house to fix and flip, the neighborhood had a vacant hamster house cleaned up, and Judy’s eventual buyers got a house to live in.
The downsides of wholesale real estate abound. Unscrupulous wholesalers can cause real harm to communities. Too many wholesalers coming into an area and selling to investors who are exchanging homes for rent can create a community of renters. If all the less desirable homes in an area are bought by wholesalers, first-time home buyers will be taken out of the market.
Agreeing to have a property managed by a wholesaler can result in the homeowner receiving less money than if they listed the home.