How to Do Co-Wholesaling – The Complete Guide

Wholesaling offers real estate investors an outstanding opportunity to make money without the hassle of supervising a house rehab. But, for new investors, the idea of wholesaling a property on their own can seem intimidating. Instead, many investors have embraced a new strategy over the past few years: co-wholesaling deals. As such, I’ve recently had tons of questions about how to do co-wholesaling. 

With wholesaling, investors put a deal under contract then assign that contract to a third-party investor, typically a house flipper. With co-wholesaling, two investors form a partnership. One finds the seller, and the other finds the buyer. After the deal, the co-wholesalers split the profits.

I’ll use the rest of this article to dive into the details of co-wholesaling. Specifically, I’ll cover the following topics: 

  • A Wholesaling Overview
  • What Is Co-Wholesaling? 
  • Finding Sellers as a Co-Wholesaler
  • Finding Buyers as a Co-Wholesaler
  • Co-Wholesaling Advantages
  • Potential Co-Wholesaling Pitfalls and Disadvantages
  • Final Thoughts 

A Wholesaling Overview

To understand how to do co-wholesaling, investors must first have a solid grasp of the wholesaling strategy. 

When wholesaling houses, you don’t purchase an investment property. Instead, wholesalers find off-market properties, and they enter contracts to purchase these properties. Rather than close on the purchases, they assign the contracts to a third party, typically a fix & flip investor. And, they assign these contracts for a fee. In a nutshell, wholesalers find deals, connect the sellers with investors, and collect a fee in the process – all without dealing with the headaches of doing any rehab work themselves. In other words, wholesalers complete these four steps in every deal:

  • Step 1: Find solid off-market deals, ones that will appeal to fix & flip investors.
  • Step 2: The wholesaler then goes under contract to purchase the home, typically a distressed property.
  • Step 3: The wholesaler then shops the contract/deal around to potential buyers, generally house flippers. 
  • Step 4: With a third-party buyer confirmed, the wholesaler assigns the new buyer the contract rights and obligations – for a fee. This new buyer then carries out the remainder of the closing process and actually purchases the home. 

When you wholesale, you learn very quickly how to spot good deals for fix & flip investors. If you don’t find good deals, you won’t be able to assign contracts to these people. Simply put, you learn what to look for in a property. Additionally, you have to work closely with house flippers. This gives you the added benefit of learning from them. Pick these people’s brains. They have tons of experience, and you can learn from it. Lastly, wholesaling puts money in your pocket. If disciplined, you can allocate a portion of these funds for a down payment to purchase your own fix & flip property.

What Is Co-Wholesaling? 

how to do co-wholesaling

Now that I’ve explained wholesaling, I’ll dive into co-wholesaling. The underlying concepts remain the same, but the individual investor responsibilities become more focused. 

Co-Wholesaling Overview

As co-wholesalers, investors pursue the same strategy outlined in the above section. However, they do it as a team, that is, two co-wholesalers work together by dividing roles and responsibilities for a single deal. 

From a business perspective, co-wholesalers can form a partnership if they plan on establishing an on-going relationship. Alternatively, two wholesalers can form a joint venture if they only plan on completing a single wholesale deal together. 

Regardless of which of these organizational paths co-wholesalers choose, the approach to single deals remains largely the same. Broadly speaking, one investor will focus on finding the seller. That is, this wholesaler finds a quality off-market property with a motivated seller. As a result, the other wholesaler focuses on finding the investor/buyer, that is, the house flipper or BRRR investor willing to purchase the contract from the co-wholesalers. 

Once the co-wholesalers have found these two parties, they close the deal. And, once the contract has been assigned and the deal closed, these wholesalers split the wholesale fee. If in a partnership, they then look for the next deal. If in a joint venture, they take their funds and go their separate ways, potentially rolling the co-wholesale profits into another investing strategy

How to Do Co-Wholesaling: A Step-by-Step Process

If the above strategy interests you as an investor, here’s a step-by-step approach to co-wholesaling:

Step 1, Find a Co-Wholesaler

As the name suggests, co-wholesaling requires two people. Consequently, you first need to find a fellow investor willing to enter a co-wholesaling agreement with you. This isn’t always as easy as it seems, for two reasons. First, due to the relatively lower margins, not all investors are willing to wholesale deals. Second, for the investors who do focus on wholesaling, not all want to partner with someone else – for a single deal or an ongoing relationship. 

Fortunately, modern technology can help with this search. If you have nowhere to start in your search for a fellow wholesaler, begin with a Google search: “wholesalers in [enter your city].” This will give you a good foundation. Additionally, local real estate investing clubs can be great resources for connecting with local wholesalers. Also ask among your friends, family, coworkers…post on Facebook…just get the word out what you’re looking to do and you’ll find a partner.

Step 2, Vet the Co-Wholesaler’s Experience and Character 

Once you find a potential co-wholesaler, you need to vet him or her. That is, should I partner with this individual? I like to look at this as both a competence and character review. From a competence perspective, you want to make sure that the other wholesaler has enough experience, drive, and intelligence to fulfill his or her side of the bargain. 

From a character perspective, you’re looking at whether a potential partner is a good person. More simply, can I trust this individual to do right by me? The last thing you want is to enter an agreement with someone looking to rip you off at the first opportunity. To complete this due diligence with a level of tact, you can state that, before partnering, you both will complete criminal background and credit checks. That way, you both begin on the same page and no one feels personally offended.

NOTE: If someone is unwilling to complete these tests, that’s probably a good sign not to partner with him or her.  

Step 3, Sign a Co-Wholesaling Agreement 

Even if you plan on working with family or close friends, always sign a co-wholesaling agreement (it could look something like this). Joint venture or on-going partnership, this step will A) protect you legally, B) clearly define both parties’ co-wholesaling roles and responsibilities, and C) outline how you’ll split deal profits. It’s easy to skip this step – especially with a one-time deal – but the front-end effort can save you a ton of back-end stress and possible legal fees. 

Step 4, Execute Your Responsibilities

Once you’ve signed the co-working agreement, both parties need to complete their respective responsibilities. If you’re tasked with finding a seller, that means going out and finding deals! If tasked with finding a buyer/investor, start looking for one! In the next two sections, I’ll outline some strategies for fulfilling both of these roles. 

Step 5, Close the Deal

Once you’ve found both a property for sale and buyer, you need to put the property under contract and close the deal. That is, you need to sign the paperwork to legally assign the purchase agreement to the third-party investor buying the property. If you haven’t done this before (and even if you have), I highly recommend involving a real estate attorney in this step. Property sales, particularly ones involving an assigned contract, are complicated transactions. It’s better to pay for a professional to make sure everything goes smoothly than run the risk of A) the deal falling through, or B) in a worst case scenario, facing a lawsuit. 

Step 6, Split the Profits 

This is the fun part! Once you receive your wholesale fee, split it between both co-wholesalers in accordance with the terms outlined in the operating agreement. 

Step 7 (Optional), Repeat

I referenced it above, but some wholesalers see this strategy as a stepping stone. That is, some investors use wholesaling proceeds to fund another sort of real estate deal (e.g. fix & flip, BRRR, buy & hold property, etc.). But, I also know extremely successful investors who have made a career focusing only on wholesale deals. You’ll need to decide what path works best for you. 

But, I’ll emphasize this: co-wholesaling is not mutually exclusive to other strategies. That is, there’s no reason why you can’t, for instance, keep co-wholesaling deals with a partner while also buying your own rental properties. 

Finding Sellers as a Co-Wholesaler

“How to Wholesale Properties Out of State”

From a strategy perspective, I’ll use this section to explain solid ways for co-wholesalers to find sellers

When looking for deals, wholesalers need to view potential properties through the eyes of a house flipper. These are the people to whom wholesalers generally assign contracts, so the deals need to support a flipper’s investment criteria. As a result, to find a good deal, investors first need to understand the basic house flip profit formula:

Final sales price 

MINUS

Total costs (Purchase price PLUS rehab costs PLUS holding costs PLUS transaction costs) 

EQUALS

Deal profit or loss

This formula frames any deal analysis. Simply put, investors look for deals that A) result in a final profit, and B) ideally, have total costs less than 70% of ARV, which allows for 100% hard money financing. 

Typically, wholesalers will not find distressed properties that meet these criteria on the Multiple Listing Service, or MLS. These properties generally list at retail and require little to no renovation, making them a poor fit for house flippers. Consequently, successful wholesalers build strategies to 1) find potential off-market deals, 2) market to owners, 3) set up interviews, and 4) convince owners to actually sell their properties. I highly recommend using our Investor’s Edge software for this process. This software helps wholesalers do the following: 

  • Find deals: We include a database of over 160 million properties, giving you massive deal potential. And, we include information about how much equity owners have in these properties. This will help you find potentially motivated sellers – all from the comfort of home.
  • Save preferences: As you filter through hundreds of potential deals, you need to stay organized. If not, you’ll quickly become overwhelmed – or simply commit far more time than necessary. Our software lets you save all of your preferences with a click, keeping you organized and focused on what matters – closing deals!
  • Market instantly: Once you find a deal, you still need to contact the owner. With Investor’s Edge, you can automate this process. Our software lets you print postcards with pre-filled addresses and send voicemails to your saved list of potential deals. 

But, you’re not done after this initial outreach. Once you connect with a potential seller, you still need to convince him or her to sell. I like to look at this as problem solving. Typically, motivated sellers have a need that they must meet. Frequently, they need cash for something or other but can’t sell their house due to its current condition. It may be significantly distressed, or it may just require a major repair that the owner cannot afford. 

As a result, these owners can only sell to all-cash or hard money loan investors. Enter you as the problem solver. You can put this property under contract, and the house flipper then provides the owner the cash he or she needs. But, I always want to emphasize to new investors: don’t pretend you’re doing this out of the goodness of your heart. This is disingenuous, as you’re doing it to profit – not for charity. Rather, you’re looking for a win-win situation. By putting the home under contract, you solve the owner’s cash-need problem. But, you also gain a good wholesale deal in the process. Win-win. 

Here’s the major takeaway: when looking for properties, remember that you’re a problem solver. But, to solve problems, you must first understand the seller’s needs. If you take the time and effort to do this – which requires a little empathy and communication – you’ll find great deals. And, you’ll help people out in the process. 

As you research potential deals, you’ll eventually find one that looks like a winner. At this point, you’ll estimate a flip budget using rough numbers. For wholesalers, it’s not critical that the numbers be precise. Instead, your back-of-the-napkin budget will let you know whether you should put the property under contract. The house flipper will then confirm a refined rehab budget once he or she takes over your contract. 

Driving for Dollars 

In more than two decades of investing in real estate, I’ve tried a bunch of different strategies for finding individual deals. One strategy absolutely beats all the others: driving for dollars! And, it’s really as simple as it sounds. Every week, you need to carve out a few hours to hop in your car and drive around your neighborhood (or wherever you’re looking for deals). During these drives, you look for homes that exhibit signs of disrepair, distress, or abandonment. While not an all-inclusive list, here are some key indicators:

  • Clear signs of disrepair or damage on a home’s exterior 
  • Overgrown grass, bushes, and other signs of landscaping neglect
  • No blinds or window coverings – can see right through the house
  • Snow on the ground but no footprints or tire tracks
  • Stacks of garbage outside
  • Mail jammed into and overflowing from the mailbox
  • Any other basic signs of abandonment

All of these indicators suggest that a home won’t qualify for traditional financing. With traditional mortgages, lenders want to make sure a home is actually habitable. Before approving a loan, these lenders will require that major repairs have been addressed, a cost-prohibitive undertaking for most sellers of these homes. 

Alternatively, investors can step in and purchase these homes with, as discussed, cash or hard money loans. Recognizing this, I’ll make a note of every single home I see while driving for dollars that seems to meet these criteria, as they represent potential deals. 

And, at Do Hard Money, we believe so strongly in this strategy that we’ve built a Driving for Dollars app. Using this app, you can precisely track your progress in a given zip code. That way, you can guarantee that you’ve covered every single street so you won’t miss out on any potential deals. Additionally, you can skip trace potential deals and 

And, we’ve now integrated all of the above Investor’s Edge features directly into our Driving for Dollars app! As a Do Hard Money member, you’ll have access to this incredible tool for free. If interested, drop us a note – we love helping new investors!

Finding Buyers as a Co-Wholesaler

Now, I’ll change gears. In the above section, I talked about ways to find sellers. Now, I’ll discuss some techniques for marketing those deals to potential buyers

With wholesaling, finding good deals only represents one part of the equation. If you don’t have another investor to take over the contract, the deal collapses. This reality makes marketing to investors willing to purchase these contracts absolutely critical to the wholesaling strategy. Recognizing this importance, I recommend a couple marketing strategies for finding these investors: 

Marketing Technique #1: Cash Buyers List

With traditional mortgages, lenders will not approve the financing of a distressed property. These sorts of homes pose too much collateral risk for lenders, so investors need to either A) use hard money loans, or B) purchase distressed properties with cash. 

Recognizing that many fix & flip investors purchase homes with cash, wholesalers can create a cash buyers list. Basically, this is a tracker of all people who’ve bought properties for cash in the same zip code over the last year. Armed with this information, wholesalers can narrow down their list of potential buyers to motivated leads – people looking for similar properties. And, once they find a deal, wholesalers can reach out to these cash buyers directly, a far more efficient process than marketing to all potential buyers. 

Marketing Technique #2: Reverse Marketing

With this technique, you reverse the sequencing of a deal. Instead of finding a deal and then finding a buyer, you find the buyer and then find the deal. Essentially, reverse marketing means finding motivated buyers – typically fix & flip investors – and asking what they’re looking for in terms of property and price, and then going out to find those deals. That way, you’ve already secured a buyer before putting a property under contract. As soon as you sign the contract, you contact the buyer, explain that you’ve found a property meeting his or her requirements, and then you assign the contract. 

Co-Wholesaling Advantages

Gain Real Estate Investing Experience

One of the primary advantages to co-wholesaling is that it provides new investors an incredible amount of experience – while limiting risk. Typically, wholesalers assign their contracts to fix & flip investors. As such, wholesalers need to understand exactly what these investors look for in a successful flip deal. If wholesalers put a property under contract that doesn’t meet fix & flip investment criteria, they won’t be able to assign the contract. 

This reality means that wholesalers need to learn how to research and analyze deals in the same fashion as fix & flip investors. Actually, they need to find better deals, as the numbers need to support the wholesaler’s and flipper’s profit margins. But, wholesalers have the benefit of finding these deals without the added rehab, holding, and resale risk that comes with a full flip deal. 

Little Cash Required

Additionally, co-wholesalers need very little cash to begin this strategy. I won’t say they don’t need any cash. Realistically, wholesalers will need $2,000 to $3,000 for up-front software, marketing, and other admin costs. But, they definitely don’t need tens or hundreds of thousands of dollars to pursue this strategy. 

This low financial barrier to entry makes wholesaling extremely appealing to new investors. You can get your foot in the real estate door, gain some experience, and put some money in your pocket – all without needing a ton of initial capital. 

Can Co-Wholesale with Bad Credit

Co-wholesaling also opens investing doors to people with bad credit. Most traditional lenders won’t approve loans for people with poor credit scores. This makes strategies like buy & hold real estate next to impossible if you don’t have great credit. 

On the other hand, with wholesaling, you don’t actually purchase an investment property. This means you have no need to apply and qualify for financing. Instead, wholesalers find deals, connect the sellers with investors, and collect a fee in the process – all without dealing with the headaches and credit requirements of qualifying for a mortgage. 

Do More Deals as a Co-Wholesaler

If executed correctly, co-wholesaling allows both investors to complete more deals together than they could do individually. This comes down to both time and specialization. First, spreading responsibilities for a single wholesale deal between two investors means you have more time to pursue additional deals. 

Second, co-wholesalers benefit from the idea of specialization. If you focus solely on finding deals, you can become extremely proficient at it. Similarly, investors focused on finding buyers can build solid procedures and relationships for doing so. Sure, single wholesalers can – and do – become experts at both parts of a deal. But, it’s easier to become an expert when you devote all of your attention to one or the other. 

Potential Co-Wholesaling Pitfalls and Disadvantages

Partner Disagreements 

As with any business relationship, co-wholesaling opens you up to potential disagreements with your fellow wholesaler. While you can never completely eliminate this potential, a solid operating agreement will significantly mitigate the likelihood of disagreements. In addition to serving as a binding legal agreement, the process of drafting these contracts helps outline clear expectations for both parties’ roles and responsibilities. 

Legal Compliance

Every state has different wholesaling laws. And, some have specific rules pertaining to co-wholesaling. Due to the state-level differences, trying to outline all of these laws is beyond the scope of this article. But, the important takeaway for investors is that, before beginning a co-wholesaling operation, consult a real estate attorney to ensure you’re complying with all relevant laws. 

Smaller Profit Margins

When you partner with someone, you need to split your profits with that partner. Accordingly, one of the inherent disadvantages to co-wholesaling is the smaller profit margins. But, as discussed above, this disadvantage can be mitigated – and turned into an advantage – due to increased deal volume. Yes, you’ll take a smaller cut of each deal. But, by working with a partner and specializing in one side of the wholesaling equation, your increased deal throughput should offset the reduced margins on individual deals. 

Final Thoughts 

Wholesaling provides a great opportunity to make money without the hassle of supervising a house rehab. But, if you’re not comfortable pursuing this strategy on your own, or if you just want to increase the number of deals you can close, co-wholesaling can be a great alternative. One investor finds the seller, and the other finds the buyer. After the deal, the co-wholesalers split the profits.

Leave a Comment

Your email address will not be published.