When new real estate investors ask me about wholesaling houses, I always tell them one thing: it’s not for the faint of heart. It’s a fast-paced business where you need to buy as quickly as possible and sell even faster. But, despite how quickly things can move, you should take your time to learn the laws, develop a solid plan, find out how to get funding, and network.
Ready to get started wholesaling houses? Then here’s what you need to know.
How To Begin Wholesaling Houses
Unlike traditional real estate investing where you purchase one property and make a decision on whether to fix-and-flip or sell as-is, wholesaling houses works best when you already have a buyer in mind—oftentimes before you even purchase it.
Here are a few things you should do when starting a business in wholesaling houses:
Understand the Laws in Your Area
For a long time, wholesaling existed in sort of a legal gray area. It was possible to “buy” and sell a house without ever taking ownership of the contract, allowing the real estate investor to act as a middleman. But many states have cracked down on that, and have instituted regulations that have made it a more straightforward business. Regulations like these keep things simple: you buy a property and then you sell it.
If you’re considering wholesaling houses, here’s a tip:
Pro Tip #1: Don’t market a property you don’t own.
There are people out there who claim to be wholesalers but they market properties they don’t own, assuming at some point the deal will close. Doing this doesn’t make one a wholesaler: it makes them a real estate agent. And for that, a real estate agent license is required. Not having the proper credentials could lead to criminal charges and fines.
Each state has its own set of laws and regulations in regards to wholesaling houses. Check out some of the laws regarding wholesaling in these six states, for example:
Build a Network of Buyers
Selling your house is the last step of the wholesaling process, but doing so quickly is the most important part. Every day you own a house you’re likely losing money on associated costs such as utilities and taxes. To avoid these costs adding up, you should sell as quickly as possible.
Having a network of buyers can help you in offloading properties in a timely manner. You don’t want to contract a house and then start shopping it around on Craigslist. You need to be able to say “Here’s a house I’m selling. Who’s ready to buy?” to a group of people who all raise their hands.
Pro Tip #2: Form a network of investor buyers.
When you are wholesaling, other investors, specifically fix-and-flippers, will likely be your primary buyers. You’re saving them a step by finding the property for them. In turn, they may be more likely to turn to you when they’re looking to flip another house. Having a network of buyers who trust you can help you offload fairly quickly.
Find Houses to Buy
Getting leads is probably one of the most important aspects of any wholesaling business; you can’t sell what you don’t have. Many wholesalers turn to the following to find real estate to purchase:
- Free online research
- Sheriff’s auctions
- Real estate agents
While there are many ways to find a lead, not all leads are quality. You want a house where the person is ready to sell and ready to sell quickly. You want one where there isn’t a ton of bidding to drive the price up. And you want to make sure that the house you buy isn’t so dilapidated that no one will want it.
Pro Tip #3: Look for houses that will appeal to other real estate investors.
Buyers are often looking for a house that they can put a little money into and flip. You want to consider this when searching for a lead.
Establish the Right Price(s)
This is where wholesaling can become complex. Let’s break down what the interest of each party involved might be:
- THE SELLER wants cash fast, and they want a fair price.
- THE WHOLESALER wants to buy at a lower price than they are going to sell it for.
- THE BUYER wants to buy at a lower price than what they are going to sell it for minus the work they put in.
Your buying price has to take into account your selling price, which should be able to help your buyer estimate the ultimate selling price. (You might want to read that again.)
Pro Tip #4: Don’t wing it.
There are formulas out there, but they can be misleading and not universal to every situation. The best way to go about establishing the right price is to use every appraisal tool possible to understand your end buyer.
Secure Financing and Buy the Property
Getting the funds to purchase multiple properties isn’t easy; not too many wholesalers have enough liquid cash to finance multiple deals at once. To remedy this, many turn to hard money lenders.
Of the many ways to secure funding, hard money loans are often the go-to for wholesalers. Traditional lending institutions can take too long and other methods can be too risky. Hard money lending gives you access to cash sooner. Of course, terms and rates vary so it’s best to compare different hard money lenders.
Once you have the money and the contract, the next step is to close the deal.
Pro Tip #5: Don’t contract a property unless you are ready and willing to close.
Too many wholesalers contract a ton of properties without financing them or just because they want to hold onto them in case other deals fall through. This isn’t the most trustworthy business model. If you don’t want to buy a property, or aren’t sure you can, don’t contract it.
The Best Way To Get Started in Wholesaling Real Estate
There are many things to learn when it comes to wholesaling houses. There are a lot of complexities to resolve. In my opinion, the best way to resolve them is to join a network that provides you with support and guidance. That’s what I did when I became an independently owned and operated HomeVestors® franchise.
HomeVestors® has everything wholesalers need. This includes:
- An unparalleled lead generation machine, where you get sellers who are motivated, ready, and who contacted HomeVestors: no cold-calling, less competition
- Proprietary property evaluation tool
- Proprietary hard money lending portal
- A network of investors ready to buy
Through the online listing website, DealVestors®™, franchisees have access to a network of national investor buyers who are looking for a deal—looking to buy your property.
Wholesaling houses is fast-paced. It takes careful planning and attention. It might not be for everyone. But for those who embrace it, becoming a franchisee is the best way to give yourself the tools and support you need to make the most of your business. If you want to get started wholesaling houses, request information about becoming a franc