Wholesale Real Estate: How It Works and How to Get Started

Reviewed for accuracy by David Lecko, real estate investor and founder and CEO of DealMachine.

Thinking about changing your investment strategy? Wholesale real estate, which involves finding and securing off-market properties and then transferring them to a buyer for a fee, could be a viable solution. This guide will walk real estate investors like yourself through what real estate wholesaling is and how to put this investment approach to use.

What is Wholesale Real Estate?

Wholesale real estate is a strategy where you put a distressed or off-market property under contract, then assign that contract to a cash buyer for a fee. You never own the home. Your profit is the difference between your contract price and the buyer's price, often $5,000 to $20,000 per deal.

When someone acts as a real estate wholesaler, they locate properties they can get at a bargain. These properties are often distressed or off-market homes the current owners are motivated to sell. Real estate wholesaling gets these homes under contract and then transfers the contract to another buyer at a higher price within a short amount of time.

How Wholesale Real Estate Works: Step by Step

To wholesale real estate, you find a distressed or off-market property, estimate its after-repair value and repair costs, get it under contract below market, line up a cash buyer, assign the contract to them for a fee, then close. Most deals move from contract to close in a few weeks.

A wholesaling real estate strategy comes down to six successive steps. If you’re new to wholesale real estate, don’t worry. Once you’ve learned to follow and master the steps, the process will become second nature. Let’s review them now.

1. Find a distressed or off-market property

2. Estimate ARV (after repair value) and repairs

3. Get the property under contract below market

4. Find a cash buyer

5. Assign the contract

6. Close and collect the assignment fee

Maybe you’re thinking that this sounds simple, but what’s involved in each of these steps? You want to know how to find distressed properties and how to find buyers. Here are the details you need to know for each step.

Finding Distressed and Off-Market Properties

Tactics for finding distressed properties and those not on the market include driving for dollars in targeted neighborhoods, searching foreclosure databases and online public data platforms, leveraging real estate agent networks, and using wholesale real estate software. You can also attend auctions and estate sales to find distressed properties, although you may run into bidding wars.

While distressed homes usually show mild to severe signs of neglect, this isn’t necessarily the case with off-market properties. These are homes with owners who may want to sell exclusively and test the real estate market waters.

Estimating ARV and Repairs

Learning how to get into wholesale real estate means estimating a property’s after-repair value. Simply put, ARV is the current value of the property plus the value after renovations. However, you also need to calculate the estimated cost of those renovations or repairs. These calculations are essential so you don’t overpay for an investment property.

Secure the Property Below Market Value

Once you’ve determined what you can comfortably secure a property for, the goal is to get it under contract for below market value. Say there’s a distressed home in a neighborhood that has an ARV of $400,000.

It needs about $30,000 in renovations. Ideally, you want to bid at or slightly below 70% of the ARV. Since 70% of $400,000 is $280,000, your highest bid would be $250,000 after subtracting estimated repairs of $30,000.

Find a Cash Buyer

To find cash buyers, you need to build a list. And any solid list of leads starts with good data and relationships. Referrals from your personal network and online platforms are where many wholesalers get their start. You can leverage social media and websites where you advertise your properties.

Another way is to use wholesaling software to build targeted lead lists. With list builders, public data gets filtered according to your criteria. Narrow it down by neighborhood, property type, and estimated home value range.

Assign the Contract

The second-to-last step is to assign the contract to a cash buyer. The buyer either purchases the contract or you assign it to them. Assignment is typically done through a contract addendum.

Close and Collect the Assignment Fee

After you’ve assigned the contract to your buyer, you’ve closed the deal. Collect your assignment fee and add the profits to your portfolio.

A Real Wholesale Deal Example With Numbers

Let's break down a realistic deal. Say you find a distressed property the owner will sell for $250,000. You assess the after-repair value at $500,000, and it needs about $50,000 in renovations.

Run the 70% rule from your cash buyer's point of view. Their maximum is 70% of the $500,000 ARV, which is $350,000, minus the $50,000 in repairs, so they can pay up to $300,000 and still have room to profit. You have it under contract at $250,000, which leaves plenty of spread.

You assign the contract to a cash buyer for $270,000 and collect a $20,000 assignment fee. The buyer is still well under their $300,000 ceiling, and you never took title to the property.

Wholesale Real Estate Profit Calculator

You can use this calculator to determine what your potential profit on various deals will be. Plug in the wholesale contract price, which is the price to purchase the property.

Then, enter the amount a cash buyer is willing to pay to cover the assignment fee. The number at the bottom is your potential profit, representing what wholesalers make per deal.

How Much Do Wholesalers Make?

The salary wholesalers make is naturally going to vary, depending on experience, market fluctuations, and whether someone works full or part-time. Business expenses and volume also come into play. Nonetheless, the typical amount wholesalers make per deal ranges from $5,000 to $20,000.

You could make less or more on individual transactions, as each deal will have a unique set of factors. The average salary of real estate wholesalers, though, is $55,699. This comes out to about $26.78 per hour.

When you’re a beginner or working part-time, expect to earn less. You may only close two to five deals each year, making smaller profits on properties as you get your feet wet. After you gain experience and build up your business, you can expect to get at least one deal each month.

This is because by now you’ve learned the ropes and have built a buyer’s list. You may also be devoting more time to your venture, perhaps even working your way toward becoming a top wholesale agency with employees. Agencies tend to bring in annual profits in the six figures to millions.

How To Find Distressed Properties

A substantial part of your wholesale real estate strategy will involve finding distressed properties. However, be aware you’ll be competing with other wholesalers when locating and securing these homes.

To compete effectively, you can use wholesale real estate software and CRM tools for list building. These platforms also help you virtually drive for dollars and assist with skip tracing. If you’re unfamiliar with what skip tracing is, it’s essentially hunting down the correct contact information for people who are difficult to find.

Driving for Dollars

The nice thing about some wholesale real estate tools is that you can either virtually or physically drive for dollars. Should you choose the latter, the software keeps track of your location as you drive through neighborhoods looking for distressed and vacant homes.

The tool shows you which neighborhoods you’ve been in and the routes you’ve previously taken, so you don’t duplicate your efforts. Virtual driving for dollars features highlight properties that match the criteria you select.

Say you want to focus on a neighborhood you already know has a high percentage of foreclosures. You can narrow it down further to currently vacant homes and properties that appear unkempt.

Perhaps you want to add homes with delinquent tax bills. You can get a customized virtual list of properties to target before you head out there. It’s up to you to conduct a physical drive to get a better sense of how distressed a property may be or start reaching out to current owners.

Skip Tracing

Normally, skip tracing means going through various public databases. These can include the DMV, property deeds, and court records. It’s a manual process that can sometimes take hours and days of investigative work.

Modern platforms replace that manual work with verified owner data, and the stronger the contact matching, the fewer dead numbers you dial. This is where data quality matters most. Tools like DealMachine match owners against a database of 240 million people, so you spend less time chasing bad numbers and more time having real conversations.

How To Find Cash Buyers

Networking and referrals are going to be your top methods of finding cash buyers. If you haven’t closed deals or assigned wholesale real estate contracts yet, unfamiliarity and trust are going to be barriers. Referrals break down these barriers since the investor has familiarity with and trust in the person referring you.

A buyers list is how you identify, qualify, and nurture the investors who take your contracts. Start with the people you already know, then add every active buyer you meet at auctions, REIA meetings, and online investor groups. Track what each one wants, their price range, property type, and target area, so the moment you lock up a deal you already know who to call.

List Building

Buyers aren’t going to knock on your door. You’ve got to go after them. A buyer’s list is the way you identify, qualify, and nurture leads.

But for beginners who may start with no money, finding buyers may seem like an insurmountable task. Yet, if you use sophisticated list-building tools, it’s not as overwhelming.

No more keeping track of properties with pen and paper. You can use your criteria to create lists based on over 700 different types of filters.

Think about the relationships you currently have. Maybe there’s a realtor you’ve worked with in the past to buy and sell your properties. You could have colleagues, friends, and associates who know of investors looking for wholesale real estate deals.

They could be real estate investors on the side themselves. Extended family is fair game, too. Once you have a deal or two under your belt, you could get referrals from investors you’ve worked with who like the types of properties you secure.

As you expand your network, your targeted buyers list will naturally grow. Nevertheless, focusing on repeat buyers and those who drive the majority of your business will be more fruitful.

Eighty percent of your targeting and nurturing efforts should focus on the 20% of your high-volume, repeat buyers. Besides offline networking, online referrals can come from social media, digital marketplaces, websites, and digital content.

Wholesale Real Estate Contracts

A wholesale real estate contract starts with the seller of the property and the wholesaler, who is also known as the assignor. The contract spells out the details of the transaction, including the closing date, any contingencies, and the purchase price.

The contract is a legally binding document and should adhere to local legislation. These laws include applicable state, county, and municipal codes. In addition, there needs to be an assignment clause.

Without this clause, you legally don’t have an assignment contract. The clause lets a wholesaler assign the contract’s rights and obligations to another buyer before closing. Within the clause is the specific assignment fee the wholesaler will earn from the buyer or assignee.

When the closing date comes, there’s a double closing since there’s a transaction between the seller and the assignor. This is followed by the second transaction between the assignor and the assignee.

Quite a few jurisdictions require assignors to tell sellers they intend to assign the contract to another buyer and make a profit. Assignors may also have to inform assignees about what they know about the property, such as specifications and material defects.

Besides disclosure requirements, wholesalers have to meet all federal, state, and local real estate regulations. You may need to maintain certain licenses and comply with anti-fraud laws. As the wholesaler, you will typically extend the earnest money to secure the contract and disclose the amount.

If you’re unsure how a wholesale real estate contract should look and what it needs to include to be legally compliant, you can work with a real estate attorney. You can also download a contract template here. There is more than one contract PDF to use and modify.

Is Wholesaling Legal? Do You Need a License?

Wholesaling real estate is legal in every US state, but the rules vary. Some states, including Illinois and Oklahoma, limit how many deals you can do without a license, and a few require one outright. The key is disclosing that you are assigning the contract, not selling the property itself.

The most stringent regulations have to do with advertising wholesale properties.

For example, it’s usually not legal to advertise a property you have under contract without disclosing that you’re selling the contract, not the home. You also usually can’t “forget” to disclose to the seller of the property that you intend to assign the contract.

Double closing, by definition, means the wholesaler purchases the home from the owner/seller. Then, the wholesaler sells the home to the assignee or end buyer. Each transaction occurs separately.

Typically, double closing falls within the legal lines and doesn’t require a license. But if a wholesaler simply sells the contract without a separate transaction, some jurisdictions may see this as brokering a real estate deal without a license.

Nonetheless, states like Pennsylvania, Illinois, and Oklahoma require wholesalers to have licenses, sometimes depending on the volume of deals they do. Pennsylvania is a state that does require wholesalers to be licensed regardless of volume.

To see what states require licensing and under which conditions, you can check out the Land Buyers Alliance guide to real estate wholesaling laws.

Wholesale vs. House Flipping

If wholesaling sounds like house flipping to you, there are similarities. But there are also critical distinctions you should be aware of. The following table breaks them down.

Best Software and Tools for Wholesalers

Choosing the right software and tools is a critical part of how to get into wholesaling. Wholesale real estate software, specifically wholesale CRM tools, makes you more efficient and able to target the individuals you’re looking for. Here’s a summary of the most comprehensive digital tools available.

1. DealMachine: A property intelligence platform built around data. You can search more than 150 million properties and 240 million owners using over 800 data points to surface motivated sellers, not just more addresses. Describe the list you want in plain English and its AI search builds it, reach owners with accurate verified contact info and automated direct mail, and pull that same data into the other tools you run through its API.

2. PropStream: A data aggregator with the capability of building lists of potential off-market leads. Examples of filters include possible wholesale houses with past-due tax bills, absent owners, and pre-foreclosures.

3. REISift: This platform identifies leads that appear on multiple distressed lists. It singles out the leads that have a higher probability of owning a distressed property.

4. REsimpli: A CRM tool for real estate investors who want to track key performance indicators, run marketing outreach campaigns, conduct skip tracing, and auto-dial prospects from a single platform.

5. DocuSign: Facilitates contract distribution and signatures. Buyers, sellers, and wholesalers can also review proposed contracts and make revisions as necessary.

FAQs

Common Wholesaling Terms

• Wholesaler: The individual or company specializing in finding and securing discounted properties. The wholesaler assigns contacts to other buyers.
• Assignor: A wholesaler who enters into a purchase contract with a property’s seller, later assigning the contract to an assignee.
• Assignee: The buyer who takes over the rights and obligations of the contract from the wholesaler/assignor.
• Assignment Fee: The profit earned by the wholesaler for assigning the contract. The fee is the difference between the contract price with the seller and the price at which the contract is assigned to the buyer.
• Double Closing: The process of closing two separate real estate transactions nearly simultaneously. The first transaction is between the seller and the wholesaler, while the second transaction is between the wholesaler and the buyer.
• Distressed Property: A property in poor physical condition, undergoing foreclosure or other legal issues, or facing financial difficulties.
• Motivated Seller: A property owner who is eager to sell quickly, usually because of personal or financial circumstances.
• Off-Market Property: A property not listed for sale on the conventional real estate market. The property is typically not advertised to the general public, and wholesalers see off-market properties as opportunities to negotiate for better deals directly with owners.
• Due Diligence: The process of thoroughly investigating and evaluating a property, including its legal, financial, and physical condition, before proceeding with the wholesale transaction.
• Purchase and Sale Agreement: The contract between the wholesaler and property seller outlining the sale’s terms and conditions, such as the purchase price, closing date, and contingencies.
• Closing Costs: Expenses incurred during the closing of the transaction, such as title, escrow, and recording fees.
• Marketing for Buyers: Strategies wholesalers use to attract potential buyers/investors interested in purchasing wholesale properties. It can include networking, online marketing, building a buyers’ list, and referrals.
• Buyers’ List: A database or list of potential buyers/investors interested in buying wholesale properties. Wholesalers create and maintain this list to make quick connections with buyers when they have properties available for assignment.
• Title Company: A neutral third-party company responsible for the closing process, ensuring the title is clear, and facilitating the transfer of ownership between all parties involved.
• Skip Tracing: Leveraging public databases and information to locate contact information for property owners.
• Driving for Dollars: Searching for potential distressed properties by neighborhood according to specific criteria, such as abandoned homes, pre-foreclosures, unkempt exteriors, and underwater mortgages.