Wholesaling real estate has been a significant investment strategy for years, and its relevance will grow in 2023.
According to a recent National Association of Realtors report, the US housing market will likely remain competitive in 2023, with rising home prices and inventory shortages.
As a result, many investors are turning to real estate wholesaling to identify undervalued properties and capitalize on opportunities in the market. In addition, real estate wholesalers can help distressed property owners facing foreclosure or other financial difficulties by providing a fast and easy way to sell their property.
With the proper knowledge, expertise, and network, real estate wholesalers can help bridge the gap between buyers and sellers and create a win-win situation for all parties involved.
What Is Wholesaling Real Estate
Wholesaling real estate is a type of real estate investing strategy where an investor finds a property below market value, typically distressed or in need of repairs, and contracts to purchase it from the seller.
The investor then assigns or resells the contract to a buyer, usually another real estate investor, at a higher price. The investor’s profit is the difference between the contracted purchase and sale prices.
Wholesaling real estate requires finding properties at a discount, negotiating with motivated sellers, and marketing the property to potential buyers. It can be a lucrative strategy for investors who can identify undervalued properties and have a network of buyers to sell to.
It is important to note that wholesaling real estate is not the same as “flipping” a property, which involves buying, renovating, and reselling a property for a profit. Wholesaling is a faster and less capital-intensive way to make money in real estate investing, but it also comes with its own risks and challenges.
In this guide, we will break down the basics of wholesaling, how to get started, what successful wholesalers do differently, and the biggest mistakes to avoid as a new wholesaler.
Demystifying Wholesaling Real Estate: Understanding the Fundamentals
As mentioned above, real estate wholesaling is an investing strategy where you find deals and flip those deals to other real estate investors (like house flippers) for an assignment fee. In a sense, you get paid to find the deals other real estate investors seek.
By “deals,” we’re discussing finding discounted or distressed properties priced below market value.
With the properties being distressed or discounted, it typically means that they need a significant amount of work, and the sellers are highly motivated to sell. They usually aren’t able to (or don’t want to) sell their home the traditional route (with an agent on the MLS).
To give you an example, maybe you will find a property that is being sold for $150,000. You run the numbers and determine that the property’s ARV (After Repair Value) is around $250,000, and repair costs would only be about $20,000.
In this simplified example, you could flip the contract to another investor for $160,000 and keep the $10,000 difference (your assignment fee). The investor will then be able to spend $20,000 on repairs and relist the property for its ARV, making about $70,000. Win, win, win.
The key, of course, is finding a good deal.
Here’s an example of how Ryan Dossey — a real estate investor in Florida — found just one of his great deals…
And here’s the property he found…
This guide will show you how to find these kinds of deals.
You’re usually looking for undervalued, distressed, in foreclosure, or properties that have gone unsold — all signs of seller motivation.
7 Steps to Start Wholesaling Real Estate & Find Your First Deals
Here are the steps to getting started as a wholesaler so you can find your first deal!
Step 1: Understand The Business Model
Before you start, you’ll want to understand the business model and the laws surrounding what’s legal — and what needs to be avoided.
Some states now require a real estate license to wholesale real estate.
Quickly search for “wholesaling real estate in ” to learn about your state’s laws.
As far as the business model goes, here’s the gist…
- You find distressed properties, meaning the seller might be motivated and willing to sell for under-market value. You do this by marketing to homeowners with signs of distress (foreclosure, probate, divorce, tax delinquency, etc.). You can do this through cold calling, direct mail, door knocking, or optimizing your website to rank in Google.
- When you find a property that might make a great deal, you run the numbers and make an offer on the property that accounts for your assignment fee, repair costs, and your buyer’s desired profit.
- If the owner accepts, you both sign a purchase agreement. You don’t have to pay anything at this point. The contract gives you the right to buy the property within, say, the next 30 days.
- You then flip this purchase agreement to a cash buyer or real estate investor for a slightly higher amount — typically $5,000 to $20,000 more. That’s the money you get to keep.
That’s how it works. Let’s talk about how to do all of that.
Step 2: Find a Great Deal
The wholesaling process hinges on finding a great deal.
Because if you find a great deal — one with excellent profit margins — virtually everything else will work itself out. You can always find a cash buyer if you’ve got a great deal under contract.
But how do you find these gems?
Here are some of the most common methods…
- Website SEO — You might not know it, but people search for things like “sell my house fast in [your city]” on Google. What if you showed up on the first page when motivated sellers in your market search for that? You’d get great deals coming to you.
Real estate wholesalers can use search engine optimization (SEO) to increase their online visibility and generate leads. SEO is optimizing your website and its content to rank higher in search engine results pages (SERPs) for specific keywords and phrases that potential customers might use to find your services. Here are some ways real estate wholesalers can use SEO to find leads:
- Keyword research: Conducting keyword research is crucial to identifying the search terms that potential customers use when looking for real estate wholesalers. Tools like Google Keyword Planner, Ahrefs, and SEMrush can help wholesalers target high-volume, low-competition keywords in their SEO strategy.
- On-page optimization: Once you have identified your target keywords, you need to optimize your website’s pages and content to include those keywords. This includes optimizing your title tags, meta descriptions, headings, and body content.
- Local SEO: Real estate wholesalers typically serve a specific geographic area, so optimizing for local search is important. This includes creating local business listings on Google Business Profile, Yelp, and other directories and optimizing your website’s content to include location-specific keywords.
- Content marketing: Creating high-quality, informative content is a great way to attract potential customers to your website. Wholesalers can create blog posts, videos, and other types of content that target their audience’s pain points and offer solutions.
- Link building: Getting links from high-authority websites can improve your website’s search engine rankings. Wholesalers can reach out to other real estate websites, blogs, and directories to request backlinks to their websites.
Here are some statistics on the effectiveness of SEO for generating leads in the real estate industry:
- 51% of all website traffic comes from organic search (BrightEdge).
- 72% of consumers who did a local search visited a store within five miles (HubSpot).
- Real estate is the fourth most popular industry for Google searches (SEMRush).
- The top five results in Google’s search engine results pages get 67% of all clicks (Chitika).
Using SEO to generate leads, real estate wholesalers can increase their online visibility, attract potential customers, and ultimately grow their business.
- Direct Mail — One of the most common ways wholesalers find deals is by sending direct mail. The great thing about this strategy is that you can specifically target people with signs of distress (foreclosure, probate, tax delinquency, etc.). But you’ll want to be consistent and send mail every single month. To find one deal, you should expect to send at least 1,000 pieces of mail (potentially as high as 5,000, depending on your market). Here’s our full direct mail checklist.
- Cold Calling — Direct mail can get expensive fast. So some wholesalers turn to cold calling instead. Max Maxwell, for instance, built his wholesaling business almost entirely off of cold calling. Check out his story here. But make sure to familiarize yourself with cold-calling laws in your area.
You might be wondering how you get the data you need to send direct mail or cold call — for that, and you can use a tool like Propstream.
Step 3: Run The Numbers
Of course, to find a great deal… you’ve got to know what a great deal looks like.
Once you’ve located a property you think would make a good investment, you need to look at the numbers to make sure they make sense for you and your buyer.
Start by doing something real estate professionals call “running comps.” This is the process of analyzing similar properties (the more similar, the better) sold recently on the MLS (at full market value). This will help you determine what the property is worth after it’s repaired (it’s ARV).
Here’s a video showing you how to run comps for free on Zillow.
If you’re intimidated, you could always find a real estate agent to run comps on the property for you — they do this all the time.
The next step is to determine the cost of repairs on the property.
This is a little more involved, and until you know how much the stuff costs, it will be challenging to make accurate estimates.
Here’s a video showing one method for how to do this…
If you’re starting out as a wholesaler, do this…
- Walk The Property & Take Pictures — You’ll always want to do this. Visit the property and take many pictures of any damage you find. The more thorough you are, the better.
- Get a Professional Inspection — I highly recommend doing this if you want to play it safe. Professional inspectors are good at finding damage and will be able to find anything you may have missed.
- Consider Partnering With Your Cash Buyer — Finally, you might consider partnering with your cash buyer or another experienced real estate investor (someone who knows how to estimate the cost of repairs). Walk the property with them or show them your pictures and ask them how much they think it’ll cost to repair.
- Ask a Contractor For a Quote — Another option is to hire a contractor to look at the property and give you an estimated quote on what they think it’d take to make all the necessary repairs. Just make sure you’re working with someone trustworthy.
Once you know the cost of repairs and the ARV, you want to apply the 70% rule. This rule states that your cash buyer will want to pay no more than 70% of the ARV of the property minus the cost of repairs.
Here’s the formula…
Max Offer = ((ARV x 0.7) – Repair Costs) – Your Assignment Fee
This will give you your max offer.
Here’s an example of what the math would look like if you found a property with an ARV of $250,000 and repair costs of $25,000. Let’s assume you want to make $10,000 on the deal.
(($250,000 x 0.7) – $25,000) – $10,000 = $140,000
So, in this case, your max offer would be $140,000. Don’t go above that, or you might lose money on the deal (or struggle to flip it to a cash buyer).
As a rule of thumb, the more offers you make, the more deals you’ll find. So make offers to homeowners even if you don’t think they’ll accept. It doesn’t hurt; you never know when someone will say “yes”.
Step 4: Make Your Offer & Sign The Purchase Agreement
If the owner accepts your offer, it’s time to sign the purchase agreement.
There are a few clauses that you might want to include, however.
The first is a “contingency clause,” and the second is a “right to assign” clause.
The contingency clause allows you to back out of the deal if something unforeseen occurs during a physical inspection that keeps the deal from making financial sense.
The right to assign clause gives you the ability, as a wholesaler, to make money on the deal by assigning the contract to a third party, like your investor.
Step 5: Find a Cash Buyer
Finding good deals on properties is only one-half of the equation. The other half revolves around reassigning those contracts so you can put the difference in your pocket.
That means you’ll need to start marketing the property to cash buyers. One of the easiest ways to get started doing this is by connecting with real estate agents who can generate a list of all the cash sales that have happened in the area over the last 3, 6, or 12 months.
That list of cash sales will tell you who is actively buying properties in the area. Then you can contact them to let them know the contract details you’ve signed.
Step 6: Reassign Your Contract
Once you’ve located an interested buyer, you can reassign the contract to them and get the deal closed.
They’ll purchase the property for cash, and you can collect the difference between what you put the property under contract for and what you “flipped” the contract to your investor for.
Here’s What Sets Successful Wholesalers Apart!
To ensure you’re as successful as possible, it’s always best to duplicate what the most successful wholesalers do in their business.
From nearly a decade of working with wholesalers and real estate investors, here’s what the top 1% do differently than everyone else….
1) They Are Relentless With Their Marketing
Deal flow is the name of the game as a wholesaler.
Having a consistent stream of incoming sellers for you to get under contract and a solid network of buyers to reassign those contracts to will make or break your business.
When you’re just starting, that may look like driving for dollars and cold calling.
But, as you gain more experience, you’re going to want to implement marketing strategies that will help bring in a consistent flow of sellers — and help you build a list of buyers you can announce new contracts to so you can get them flipped as quickly as possible.
You’ll want to have a website that represents your business that’s set up properly to rank in the search engines so when someone searches Google for “sell house fast,” you can turn those searches into leads.
A tool like Carrot can help you build the website and optimize it to rank in the major search engines so you can start building a list of motivated sellers and buyers you can connect them with once you’ve locked down the contracts.
It will also help you manage your pipeline so you’re not letting potential deals fall through the cracks — or dropping the ball on promises you’ve made to your network.
2) They Perform Thorough Due Diligence
The most successful wholesalers understand the importance of making accurate and conservative estimates when evaluating potential deals.
These investors take the time to conduct thorough research on the local market, analyze comparable properties, and account for any potential costs, such as repairs and holding costs, that may arise during the process.
This attention to detail allows them to minimize risks and maximize their profits in the long run.
3) They Have Excellent Negotiation Skills
According to a study by the National Association of Realtors, negotiation skills are one of the top qualities agents and real estate wholesalers need to succeed. 87% of home buyers and 89% of home sellers reported that negotiation skills are essential when working with a real estate professional.
Successful wholesalers with excellent negotiation skills can persuade sellers to accept lower offers or offer favorable terms, and they can convince buyers to pay higher prices or agree to terms that benefit the seller.
Creating win-win scenarios allows successful wholesalers to build long-term relationships with sellers and buyers, leading to repeat business and referrals.
In addition, successful wholesalers understand the importance of effective communication during negotiations. They know how to explain complex concepts, use persuasive language, and tailor their communication approach to the needs and preferences of the other party. This helps to build trust and rapport and leads to more successful negotiations.
Overall, successful wholesalers with solid negotiation skills can create favorable outcomes for all parties involved in a transaction. This can lead to increased profitability, better business relationships, and a stronger reputation in the industry.
Hone Your Negotiation Skills & Close More Deals
Get the fool-proof strategies & step-by-step scripts used by real estate investing’s top closers — all in one resource.
4) They Focus On Building A Network
Successful wholesalers understand that building relationships with buyers, sellers, and other investors is crucial to their success. They network regularly and attend industry events to connect with potential clients.
Don’t just look at your investors as cash buyers.
The real estate industry is 100% relationship-based, and the relationships you establish, especially early on, will carry you as you get more experience.
Don’t just drop the relationship you’ve cultivated with your buyers as you get deals done. Focus on keeping that relationship alive so that you can move contracts even faster in the future. Learn the types of deals those buyers want the most so you can keep an eye out for them in your market.
5) Have A Deep Understanding Of The Market
Successful wholesalers stay up-to-date on market trends, property values, and local regulations. They use this knowledge to identify potential investment opportunities and negotiate favorable deals.
6) They Follow Up Consistently
Successful wholesalers follow up consistently with potential leads, buyers, and sellers. They use systems and processes to stay in touch and maintain relationships over time.
Research and data support the importance of a strong follow-up strategy for real estate investor wholesalers:
- According to a National Sales Executive Association study, 80% of sales are made after the fifth contact with a potential customer. This highlights the importance of consistent follow-up in converting leads into deals.
- A study by the Harvard Business Review found that companies that consistently follow up with leads are 60 times more likely to qualify the lead than companies that do not follow up consistently.
- A survey by InsideSales.com found that 35-50% of sales go to the vendor that responds first. This emphasizes the importance of responding quickly and following up consistently to maximize the revenue potential.
- Real estate investor wholesaler Michael Quarles has reported that 90% of his deals come from follow-ups. He emphasizes the importance of consistent follow-up, stating that “the fortune is in the follow-up.”
- According to a report by the National Association of Realtors, the average home seller in 2020 had lived in their home for 10 years before selling. This highlights the importance of staying top of mind with potential sellers over a long period of time.
Overall, these data points demonstrate the importance of a strong follow-up strategy for real estate investor wholesalers in generating leads, qualifying leads, closing deals, and staying top of mind with potential sellers over a long period of time. Consistent follow-up is key to maximizing the potential for revenue and growing a successful wholesaling business.
3 Common Mistakes to Avoid in Wholesaling Real Estate
As a beginner, mistakes are going to happen. The key is understanding what mistakes could be in store for you so you know how to avoid them and overcome them if you do find yourself in those situations.
Overpricing Or Underpricing Properties
Not understanding the deal, what your investors want, or what the market can support is a major mistake that beginners deal with regularly.
If you put a property under contract, but it’s overpriced compared to the properties around it, or there’s not enough money in the deal for your investors to turn a profit, you’ll have a hard time flipping the contract.
On the other side of that equation, if you’re underpricing properties (and you can get contracts signed on them), you’re leaving a lot of money on the table.
Your investors will be happy with you, but you’ll be working significantly harder for what you do earn by having to do more deals to hit your personal financial goals.
Not Building A Solid Real Estate Network
Your network is your net worth, especially in real estate. The more people you can rub shoulders with and build relationships with, the further (and faster) your career will go.
While it’s easy to be an introverted hermit as a wholesaler, you want to fight the urge to stay to yourself and make money. Get out into the community, network with people, build relationships, and provide value to those relationships.
Your business, 3-5 years from now, will be grateful you put that effort in, and you never truly know what doors could be opened just because you started a conversation with someone new.
Not Following Through On Commitments
In this industry, you want to become known as someone who gets things done. So if you say you’re going to do something, make sure you will do it.
Relationships can be lost in the blink of an eye because you said something would happen or would do something, only to have other people waiting around for you to do it. Then, if it never happens, you’ve lost credibility in their eyes.
Don’t be afraid to say no if you’re too busy, don’t have the experience, or believe something may get in the way of making it happen that no will go much further than saying yes and dropping the ball on your promise.
Wholesaling is one of the best investment strategies for beginners, especially beginners with no cash, credit, credentials, or experience in the real estate industry. It’s also an amazing strategy for agents looking to add additional income streams to their business.
When you start using the steps, strategies, and tips in this guide, you’re creating a foundation that will give you plenty of room to grow into other investing strategies.
To see what’s possible, check out this podcast episode we recorded with Ben Lovro, who went from serving a 5-year prison sentence to doing 5 deals a month.
Unlock your real estate investing potential with Carrot’s powerful features and performance. Our platform helps you build high-converting websites, create effective marketing campaigns, and track your performance to maximize ROI.
Don’t just take our word for it – take a free interactive tour and see why thousands of real estate investors have seen success with Carrot!