Real Estate “Wholesaling” is similar to rehabbing except that in wholesaling, no actual repairs are made to the property before the real estate wholesaler sells it. A real estate wholesaler will enter into a short term “right to purchase” on a property, quickly market the property through a network of buyers (rehabbers), and will then assign the purchase contract to the new purchaser. The goal of the wholesaler is to never actually close on the property, but to sell and assign the contract before closing (or cash) is required.
Key to Wholesaling
The key to wholesaling is the ability to negotiate the purchase of a property but on a contingent basis which allows an “out” if the wholesaler cannot resell the property within a given timeframe. Wholesaling is much like rehabbing but without the risks associated with construction. It is also much less capital
intensive since there are no renovation costs incurred. Often, wholesalers are simply experts at locating properties and will then contract and sell those properties to a member of their “rehabbing network”. So success in wholesaling simply depends on the wholesalers ability to find properties and to then develop a network of ready buyers.
Successful Wholesaling
Success in wholesaling means you never actually buy a property. Like rehabbing, however, you will need to be a good “estimator” and know your local market inside out. Additionally, wholesalers tend to be good negotiators with the ability to tie up a piece of real estate for a short time on contingency. Because wholesalers are not purchasing a property to live in themselves, these real estate transactions are exempt from the stringent rules and regulations of Dodd-Frank so short term owner financing can play a significant part in these transactions.
Limited Capital Required…No Money Down
Another characteristic of wholesaling is the minimal capital required to participate in this enterprise. Typically, a wholesaler will try to tie up a property for 45-60 days with a very small down payment, such as few hundred dollars. If they fail, were wrong about the property’s value, and cannot resell the property before closing, little is lost.
Wholesalers are often very active in the foreclosure markets, where residents need to sell properties quickly and move on. If the property looks like a good rehab project, it can be a perfect opportunity for a wholesaler who will simply contract for sale and then assign the purchase contract to a ready and able rehabber.