Wholesale Real Estate

Flip deals in two weeks or less

What Does it Mean to Wholesale Real Estate

Wholesaling real estate means finding a property that would make a good fix and flip deal, putting the deal under contract, but then assigning the contract to another investor before the deal closes. You don’t have to finance the deal, but you get paid by the other investor for finding the deal.

Finding a good wholesale deal requires the investor to find a discounted deal. This happens when the seller has motivation to move quickly, and usually the property is in severe disrepair—meaning they can’t just list it for a good price on the MLS.

Once you’ve found a property like this, you’ll put it under contract and pay any needed earnest money. 

After a property is put under contract, you now have until closing to find another person to assign the contract to! This means that you’re going to find another real estate investor who will take on the full fix and flip, and they pay you for the trouble of finding the deal. This is called “assignment.”

If you can’t find someone else to take on the contract, you can walk away before closing. If you’ve phrased your deal correctly, you won’t even lose your earnest money.

Why Wholesale Real Estate?

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Great for beginners

Fix and flips are complicated and require many moving parts. Wholesale deals are much simpler by comparison.

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No funding

 Finding money for deals can be difficult. No worries with a wholesale deal

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No loan management

After you get the funding for a fix and flip, you still have to manage your payments and work out loan extensions.

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No rehab/contractor to manage

Perhaps the most difficult part of a fix and flip is managing a long and complicated rehab project. Avoid that headache with a wholesale deal.

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Quick turnaround

From first contact with a deal to getting a check can be 1-2 weeks with a wholesale deal.

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Less risk

Your only real risk is losing your earnest money. On off-market deals, this should be a very small number and you should be able to get it back anyway.

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Decent paychecks

While the payouts won’t resemble what you could get with a fix and flip, you can still expect to earn $2,500 – $10,000 per deal.

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No down payment

The only money you need is for marketing and earnest money.

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No credit required

While our fix and flip loans don’t require a minimum credit score, it does have an affect on your interest rate. Going the wholesale route eliminates any credit issues altogether.

Example Wholesale Deal

The overall premise to finding a good wholesale deal is to first find a property that would make a great fix and flip, and then ensure there’s enough profit that you can take a cut as well.

Here’s what that might look like:

$80k purchase price + $65k loan/closing costs = $145k

You’ve determined the after repair value (ARV) of the property to be $220k.

A good rule of thumb for a profitable fix and flip is to keep all your costs under 70% of the ARV. That leaves enough room for unforeseen costs and still profit nicely.

Now, let’s calculate that wholesale deal with these numbers in mind. With an ARV of $220k, that leaves your 70% target at $154k! That’s great because your costs are under that number.

As a wholesaler, you could offer a great deal to a fix and flipper and pocket $9k as your assignment fee ($154k – $145k).

Wholesale vs Fix and Flip vs BRRR

When determining what type of deal works for you, there are a number of factors to consider. Let’s look at them.

Your Financial Situation

The first factor is how much money you can dedicate towards real estate investing. Both fix and flips and BRRR deals require more capital (If you’re not sure what BRRR is, you can read more here). Even if you find a deal that qualifies for our 100% financing program, you’ll still need capital to guard against unforeseen costs. With a BRRR deal especially you’ll want some funds to protect against vacancy and other costs associated with owning a rental property.

As there are only minimal upfront and no long-term costs associated with a wholesale deal, going that route ends up being popular for many new real estate investors.

shaking hands
shaking hands
How to Finance Your First Real Estate Investment

Your Financial Goals

What is your goal with real estate investing? Most investors eventually would like to have a diversified portfolio, but where do you want to start?

If your biggest goal from the start is passive cash flow, then you’re going to gravitate towards BRRR deals.

If you need fast cash in order to fund other projects, pay off a credit card, or purchase something in the near future (like fixing your car or buying a new laptop), then a wholesale deal is the best way to go.

However, the allure of a big payday with fix and flips ends up enticing most investors. Our member’s average profit on a paid-off loan is $39,714 per deal! With that kind of money, you can pursue many other investing routes, including funding other deals, or going after fix and flips with higher cash-to-close requirements.

 

How to Finance Your First Real Estate Investment

The Property Itself

Once you take a look at the property, the ideal strategy often presents itself. For example, a property with minimal repairs would be ideal for a BRRR property. You can quickly do the renovation and get it rented out.

Or, a property with a massive rehab requirement may turn you towards a wholesale deal. Let someone else deal with that headache while you walk away with $5k.

 

shaking hands
shaking hands
real estate investing risk

Your Risk Tolerance

Lowest Risk – Wholesale deals have clearly the lowest risk of these three deal types because there are few moving parts. It’s extraordinarily simple and requires little capital on your part.

Medium Risk – Fix and flips carry more risk because they’re longer, more complicated, and require you to get a loan or involve a lot of your own money.

Highest Risk – BRRR deals are the riskiest because you have to go through the whole process of a fix and flip, as well as trying to find a new 30-year loan to refinance your hard money loan. You also need to find a renter, as well as manage the property and tenants for as long as you have the property.

real estate investing risk

How to Start Wholesaling Properties

First, you’ll want to know your endgame. I mentioned above that the state of the property can make a determination into what type of deal you do, but I’d recommend having a strategy in mind for your first one.

If you’re committed to doing wholesale deals, you’ll first want to know how you’re going to offload your deal.

Who’s going to buy the contract from you? Buyers won’t materialize out of thin air. 

This is where a list of cash buyers comes into play. For most wholesalers, their cash buyers list is their most important asset!

These are people who would potentially purchase the contract from you. Ideally, you’ll find a wholesale property, send the deal out to your cash buyers list, and someone will pick it up!

However, you’re likely someone who doesn’t like to wait to build that list. You’re someone who gets things done—as is everyone else who has success in this type of active real estate investing.

In this scenario, you need to:

    1. Find groups of real estate investors that you can advertise your deal to. The two most common of these are local, in-person investing groups. The other one is Facebook groups. Take some time to identify active groups where you see other people picking up wholesale deals. Then when you have one, hopefully you can get it picked up too. All the while, you can be building up your personal list of cash buyers.
    2. Use someone else’s cash buyers list.

Use Do Hard Money’s Cash Buyer List

We know that finding someone to assign your wholesale contract to is the hardest and most stressful part of the process. That’s why we’ve made our cash buyers list available to you.

Here’s how the wholesale process works inside our Find-Fund-Flip System:

  1. Use our software to find, market, and evaluate deals. That software is called Investor’s Edge.
  2. Close on the deal.
  3. Submit a loan application to us.
  4. We evaluate the deal first by an in-house expert, then followed by a third party local expert.
  5. If the numbers line up, we’ll send your deal out to our list of 20,000+. Most deals are picked up within 1 business day.

Of course, in order to be a successful wholesaler, you’ll need a constant supply of new potential deals. Read our page on Find Sellers to learn how we can help!