There are a lot of ways to become financially successful and there are a lot of people who have done so through the wholesale of real estate.
Before we go any further, if you’re looking for a way to channel your inner Chip and Joanna Gaines from Fixer Upper, this isn’t the strategy for you. In fact, with wholesaling, you never even take ownership of the houses.
I’m going to break real estate wholesaling down for you from my perspective as a 20 year financial advisor who has clients with substantial real estate holdings and who have made a lot of money doing all kinds of real estate investing.
Here’s what I’m going to cover
- I’ll start with an overview of wholesaling and move on to the process itself
- From there, I’ll explain how it works
- Then I’ll share with you how to get started
- Next, I’ll talk about income potential and what’s realistic
- Finally, I’ll close with some additional resources for digging deeper
What is wholesaling real estate?
Traditional “wholesaling” is when someone (the wholesaler) buys a large quantity of product from the product manufacturer, then sells those products to a retailer for a profit, and then the retailer sells those products to consumers for a profit.
Real estate wholesaling works like this; the wholesaler identifies a distressed property (house) in a desirable neighborhood, approaches the owner and negotiates a deal to buy the property, then negotiates with a buyer to purchase the property at a higher price than the selling price, thereby making a profit on the transaction. The wholesaler never actually takes ownership of the property, they simply broker the deal.
This is attractive because it’s possible to make a meaningful amount of money in a short amount of time. There is no licensing or formal training required to engage in wholesaling and little to no money required to complete the actual transaction.
What’s the process for wholesaling real estate?
Step one, identify the property. You’re looking for value, meaning properties that can be acquired below market value and brought to market value with minimal improvements. More often than not, these properties are not currently listed for sale.
Step two, approach the homeowner and make an offer. You’ll need to identify who the owner of the property is and find a way to get in touch with them. Making the “right” offer means finding a price that will entice the owner to sell and still ensure you’ll be able to make a profit when you match the house with a buyer.
Step three, find a buyer (investor) for the property. Ideally, you’ll have several people (investors) already lined up to present deals to. When your buyer agrees to the price, the deal closes and the buyer gives you the money, which you then give to the homeowner minus your profit.
Here’s a simple example. You identify a property and make an offer to the homeowner for $90,000. They agree and you sell the property to an investor for $100,000. Your profit is $10,000. You never take ownership of the property, you simply arrange the deal and act as the go-between (wholesaler).
How do you get started? What’s required
While no license or training is legally required, you need to know what you’re doing to avoid making costly mistakes. There are many variables to consider so you’ll need to educate yourself.
To be successful and to make your wholesaling business sustainable, you need to figure out how to create a consistent stream of new leads (potential homes). Deciding on what method or methods of marketing you’ll use is key and then developing systems around those.
Once you’ve identified leads, you’ll need to have a system and method for approaching the homeowner. This will require good communication and sales skills.
In order to get the homeowner to agree to sell and for you to make a profit, you’ll need to figure out pricing. Having knowledge of what renovations will be required to bring the house from it’s current state to market value is essential.
You’ll need an understanding of contracts as well as a title company to facilitate your deals. It goes without saying, but the devil’s in the details. Making sure you’ve got the proper legal documents will ensure smooth transactions. The proper documents will also protect you in the event things don’t go as you’d like.
Having investors lined up to present your deals to will make your life a lot easier. Think about it, you’ve done all the work of sourcing a deal, the homeowner has agreed on a price, what if you can’t find a buyer? That would be very frustrating and would be a waste of your time and money.
Finally, patience, tenacity and adaptability are just some of the character traits required to be successful in wholesaling. Fundamentally, you’re going into business for yourself and there’s a lot that’s required of entrepreneurship.
What’s the income potential and what’s realistic?
According to ZipRecruiter, real estate wholesalers can earn between $20,000 and $100,000 a year. That being said, I’m sure there are plenty of folks who dip a toe in the water and never make a dime, and plenty of folks who are making substantially more than $100,000.
Wholesaling real estate can become your full time job and source of income if you commit to it. I’m also confident, with the right system, you can do it as a side hustle and create an additional income stream.
I like to think about things in three year increments; so if we were to fast forward three years and you’d become a successful wholesaler, what would your business look like?
- You’d have a deep knowledge base. You’d be a subject matter expert who has learned by doing as well as invested in training programs.
- You’d have a great team. You’d have marketers who help you source deals, contractors and appraisers who help you set pricing, as well as title and legal professionals to complete your deals.
- You’d have a strong network of investors who you bring deals to in order to get them closed quickly and efficiently.
Success is available to anyone, and this is no different. But you need to commit to becoming an expert and a professional.
We’ve had several guests on the LifeBlood podcast talking about wholesaling real estate, check out these three episodes if you’d like to learn more; Buck Joffrey, Raphael Vargas, Lauren Hardy and Brandon Barnes.
We also have Certified LifeBlood Partners who offer Courses on wholesaling real estate.
If you’d like to explore a real estate coaching program, let us know and we can connect you with someone for a no-cost conversation.
You’re someone who can create and have the success and life that you desire. Take the first step today.