Wholesaling in Real Estate
Wholesaling real estate is the act of getting a property under contract for a low enough price that you can assign the contract to somebody else for profit. Occasionally you can find these deals listed on the multiple listing service (MLS), but they are most frequently off-market deals.
The trick is to find good enough deals that you can add an assignment fee and it will still be a solid deal for the end buyer!
The definition for wholesaling real estate according to Fortune Builders is: “Real estate wholesaling is the process through which an individual, the ‘wholesaler,' acquires a contract from the seller of the property and assigns that same contract to an end buyer.” (source)
Loved this picture from an Eventbrite event.
How do you find deals When Wholesaling Real Estate?
1. Direct Mail
Direct Mail is when you send letters out in bulk to homeowners asking if they would like to sell their home. I tried writing these letters by hand on a yellow legal pad once. Wrote 120-ish letters while on a 24-hour duty post in Hawaii.
I then swore off handwriting bulk letters ever again and began to utilize mailhouses to send my letters. Currently, my go to mailhouse is Ballpoint Marketing, which uses machines with ballpoint pens to “handwrite” letters and post cards in order to increase the percentage of your mail that is actually opened.
I’ve had pretty solid response rates from Ballpoint mailers, and have landed at least 10 deals through their mailers over the last year!
If you’re a sadist, cold-calling could mean picking up the phone and calling several hundred people every day asking if they’d like to sell their home.
If you’re like me, you could hire one or two virtual assistants for $5/hr in another country and have them cold call your lists for you!
Okay, okay. Making your own phone calls isn’t being a sadist, it just isn’t sustainable as you begin to scale your business.
This is dubbed cold-calling because the person on the other end of the phone hasn’t expressed interest in selling yet, and you have no idea whether or not they will be interested.
3. Driving for dollars
Driving for dollars is the act of driving through neighborhoods looking for abandoned or dilapidated properties. Ideally, you want to find the worst house in a nice neighborhood!
Once you locate a property that appears distressed, you write the address down in order to contact them later!
Once you get home you can either send them a letter (see the next bullet-point) or trace their phone number in order to call them.
The benefit of driving for dollars is that you become intimately familiar with local neighborhoods, and you’ll be able to see as neighborhoods turnover.
I recommend finding a friend or two who is interested in real estate as well. Driving for dollars on your own can get boring, fast! My friend Jin and I drive for dollars all the time, and we are able to make it into a fun evolution! We have even had four people pile into the Focus and driven all over town looking for junky houses…This is fun, and a great learning opportunity for everyone involved.
Ensure you discuss how you’re going to tackle deals found this way ahead of time though, don’t want to find a deal and then be arguing over who gets to profit from it. We always just decided to split it 50/50!
Door-knocking is similar to driving for dollars except that you’re going to walk up and knock on the door of any house that looks rundown. You could even leave a flyer, postcard, or door-hanger with your contact info on it in case they aren’t home!
I like to use this method in conjunction with driving for dollars. I will knock on the door of houses I think have a lot of potential…houses that make me excited!
You could also do this with “running for dollars” which is the exact same thing as driving for dollars, but with more exercise!
5. Text Blasting
Text blasting is similar to cold-calling except–you guessed it–you’re texting the prospect rather than calling them. You have no idea if they are interested, but you are reaching out via text message to find out.
You get a pretty high response rate with texting, and a lot of “fuck you’s” as well, haha
Building a website is a more recent technique for gaining attention. A website allows you to take advantage of search engine optimization (SEO) in order to generate leads while you sleep!
SEO is how Google decides what articles show up when you type keywords into the search bar. For example, if your website ranks for “How do I sell my house in X city” or “I need to sell my house fast” then you will gain the attention of anybody who searches for these keywords. That means they might look at your website, and contact you…without you doing anything (after setting up the site).
Another benefit to the website is credibility. I hate to say it, but in this day and age if you don’t have a website, you’re hurting your “street-cred.”
The absolute best way to set this up is with an Investor Carrot website. They are incredibly effective, and they produce all of the content for you!
7. PPC and PPL
Pay Per Click (PPC) advertising is like running advertisements on Google or Facebook to target people who are searching to sell their home in your area. It is called pay per click advertising because everytime somebody clicks on your ad it costs you money.
How much money will depend on how competitive your market is for PPC advertising, and how well your ads are being managed.
I like PPC leads because they are generally pretty motivated. They went out of the way to search for you online, that’s fairly motivated in my book!
Pay Per Lead (PPL) is similar to PPC, except that you’re not doing the frontload work. Basically, with PPL services they are running nationwide advertisements (PPC) for motivated seller leads. They will then sell you these leads at a mark up.
In this scenario you do virtual no work, and only pay when you receive a lead, but you are paying more per lead than if you put in the time and effort up front to pay for and manage your own PPC advertising.
None the less, I’ve had a decent amount of success through PPL advertising in my marketing journey so far!
8. Craigslist and FSBO
Craigslist is the tried and true king of want-ads. As such, it is a good place to upload advertisements for what sort of properties you’re looking to buy. You could even make this ad as simple as the message you might put on a bandit sign or billboard.
Another opportunity on Craigslist is to call “for rent” advertisements. These for rent ads are often mom and pop landlords, and there is a decent chance they might be frustrated, or sick of being a landlord. Pick up the phone, call them, and ask if they're interested in selling the property! If not, they may call you later on, when they are interested in selling!
9. Bandit signs
Bandit signs, aptly named because they are illegal in many counties, are those yellow (or white) corrugated signs that you see all over town. Often handwritten, they bear messages such as “We buy houses cash, any condition! Call: 111-222-3333” or some deviation of this simple message. These signs are effective but check with your county to stay within the boundaries of the law.
I am not a fan of breaking the law or cluttering neighborhoods, so stay as classy as possible with these signs!
A good alternative to these signs might be a billboard, they are fairly inexpensive, much more visible, and classier! Also, you could easily place these signs in the yard of any property you own!
Referrals are what happens as a result of solid networking, and being a good person! You need to tell everyone what you’re doing, and constantly build relationships.
Brandon Turner says that we often miss a valuable opportunity when someone asks “What’s up?” The knee-jerk answer is to say something to the effect of “not much” or “living the dream.” What if you took this opportunity to say “Actually, I’m looking for single-family homes that are in disrepair, or owners that need to sell quickly, do you know of any?” You may be surprised by the effectiveness of this strategy!
Be creative! There are so many ways to network, market, and hustle in order to find great deals…get out there and start looking!
Learning to Find Off-Market Deals is A Valuable Skill!
If you're interested in learning how to find your own off-market deals, check out my course which will teach you everything you need to know to get started along that journey!
Start Finding Off-Market Real Estate Deals Today!
How do You Determine How Much the House is Worth?
Now that you've found a home driving for dollars you are ready for the next step in the wholesaling real estate process.
You need to be able to determine how much the home is worth so that you can avoid overpaying. You could find the best home in the world, but if you overpay for it, you're probably going to lose money while wholesaling real estate.
The formula I use for wholesaling real estate is to find the after-repair value (ARV). ARV is the amount a home will be worth after it has been completely updated. The best way to determine this is to use the multiple listing service (MLS) to determine how much homes in the area have been selling for. Look for homes that have sold within 6 months, and within a half-mile of the home you're looking at that have the same amount of bedrooms and bathrooms, and are within 20% of the size in square feet.
If you don't have access to the MLS through a real estate agent (or have your own license) then you could use Zillow and sort by recently sold properties, or use a service like Propstream.
Personally, I use Propstream and absolutely love it for this!
You can utilize Propstream for a lot more than just estimating ARV's too! Propstream can be used to find deals and a ton of other features, I definitely recommend checking it out!
Now that you know the ARV you should use 75% of the ARV and subtract how much the renovation will cost, and how much profit you want to make. The remaining number = your maximum allowable offer on that home!
Maximum allowable offer (MAO) = 75% of the ARV – the cost of renovation – profit you want to make for wholesaling the real estate!
So if the ARV is 100k your MAO would be 75,000 minus renovation costs, minus your profit.
How do you find buyers?
I’m a firm believer that finding a great deal is the most important piece of the puzzle. If you find a great deal, finding a buyer, financing, or private money won’t be too hard. Everybody wants to make money, so if you can find great deals consistently, you won’t have too much trouble finding willing buyers!
That being said, a great way to meet these buyers is at local real estate investor association (REIA) meetups! REIA’s and other real estate meetups are hubs for people to get together, network, and talk story about real estate investing. Take advantage of these opportunities to network, and meet local investors. You will often find potential buyers at these meetups, and if not, somebody at the meetup will undoubtedly know of a buyer that might be interested in your great deal.
*Side Note* if there is no local REIA or meetup, START ONE! There are so many benefits to starting your own meetup, check out this article I wrote for more information!
Ultimately, you find cash buyers by networking with local investors and finding deals that are too good to turn down. The right investors will find you!
Is it legal to wholesale real estate?
This is an ongoing debate in many counties/states. The issue with wholesaling real estate is in the verbiage. When you contract to purchase a property, and then assign the contract to another buyer, some people argue that you are marketing a property (which is illegal if you’re not a licensed realtor). This is a grey area because if you just tell a buddy about it over lunch, are you really marketing the property?
Ultimately, you aren’t marketing the property for sale, but rather you are selling the rights to the purchase and sale agreement (contract) of the underlying transaction.
The safest way to wholesale is to purchase the property completely, and then sell it to the buyer. This can happen via a double-closing, or in two separate transactions. A lot of people don’t like this method due to the additional closing costs and fees that may need to be paid.
I recommend looking into your local laws, asking other local wholesalers, and ultimately consulting an attorney to ensure you are 100% protected in the method you are using to assign properties. Better safe than sorry!
Wholesaling real estate as an exit strategy
Wholesaling is a great ace in the hole! Let’s say you are a BRRRR strategy investor (for more information on this strategy click HERE) but business has been so good that you can’t take on any more projects at this time. Why not wholesale the property to another investor so that you can make a little profit (rather than just passing on the deal) and another investor can make a profit too!
Real estate is a people business and the more money you can make for your team, and other investors, the more money you will make!
It is always important to have various exit strategies in mind when you begin investing, and wholesaling can be a great option!
WholeTailing Real Estate
Wholetailing real estate is a variation of wholesaling that is becoming more and more popular amongst investors.
The main difference between wholeSALING and wholeTAILING is that in wholetailing you actually purchase the property, whereas with wholesaling you generally just assign the contract, or conduct a double-closing. When you wholetail a property you will purchase it, and then you can turn around and sell it to another investor or a homeowner.
A good example of this would be when you find a “hoarder house” where somebody collected anything and everything in the home and absolutely trashed it. You could purchase this home and get rid of all the trash. Once you have the home cleaned up you could simply list it on the multiple listing service and “wholetail” it to another real estate investor or a homeowner.
Wholetailing real estate is great for a lot of reasons, but it is usually a longer process, and you could end up paying commissions to a real estate agent as well.
Make sure you weigh all of your options, but this could absolutely be a strategy worth checking out!
The formula for wholetailing real estate is the exact same as for wholesaling, except you also need to subtract any holding costs (mortgage, closing costs, agent commissions, etc.) from the ARV.
Should You Try Wholesaling Real Estate?
Wholesaling real estate is not my favorite investing strategy, but it is a great tool in the tool belt! Learning to wholesale real estate deals is often toted as the best way to get started with real estate. That is because it is possible to wholesale without a lot of capital. This allows you to build capital, in order to make your first down-payment(s) on buy and hold properties.
No matter how you choose to employ the art of wholesaling, it is a great strategy to understand, and can be used many times throughout your real estate investing “career.”
Whether you decide to get into wholesaling real estate, and/or wholetailing, you can make a lot of money doing this!
Pros of Wholesaling
- Minimal risk exposure
- Capability to earn a large income
- Can be started with minimal capital outlay and scaled over time
- Good way to build capital to begin flipping or holding homes
Cons of Wholesaling
- Takes a lot of time and effort to get off the ground
- Short term capital gains tax on every transaction
- No long-term benefits such as rental income, appreciation, depreciation, like you would get with rental properties
- Can feel “slimy”, and a lot of other investors dislike wholesaling because there are a lot of wholesalers who don’t operate ethically
- Is a very active business that requires you to constantly “feed the beast”. If you lay off the gas this business model will die.
Additional Resources for Wholesaling in Real Estate
FREE YouTube Channels and Podcasts
- Real Estate Disrupters (podcast)
- Ryan Dossey (YouTube)
- Ryan Pineda (both)
Books about Wholesaling in Real Estate
Courses and coaching
- Off-Market Real Estate Deals – Hosted by none other than myself and the Military Millionaire Community
- This is a very affordably priced overview of how to wholesale real estate. You’ll get to see my systems, platforms, forms, and learn how my business was running before I sold it. This course is nothing compared to the two below, but it will point you in the right direction as you decide whether or not to go all in.
- Create Cash Flow (CCF) – hosted by Ryan Dossey
- This is the community that I joined to learn about wholesaling from soup to nuts. It will run you about $10k, and is a great community for the aspiring wholesaler!
- 7-Figure Flipping – hosted by Bill Allen
- Bill Allen is a friend, and I know a ton of people in this community. I even spoke at their event in 2021! It will run you $15k or $25k depending on what level you’re at, and is a great community for wholesalers and flippers who are looking to build a 7-figure business.
Action Items for Wholesaling in Real Estate
- Get educated – Start consuming free content, books, and looking into some courses or coaching.
- Decide on a market (local is beneficial, but not necessary when starting out)
- Decide on your initial marketing source (pick one for starters)
- Grab a list of target properties from Propstream or Listsource
- Begin marketing, and stay consistent, it may take a lot of marketing up front to get off the ground.
- Go on appointments
- Make offers – and sign the contract immediately if accepted
- Market the contract for assignment
- Assign the contract to a qualified buyer who has cash to close
- Show up at the title company to collect your check
- Repeat until rich or moving into more passive options 🙂