In this article, I will share what is wholesale business, how to start a real estate wholesale business, whether is it legal, and how to make good money by wholesaling real estate in your area as a wholesale agent.
Before I start, I want you to know that this type of real estate business is available in every country around the world. The name might be different, but the ideas are the same.
In the US, they call it real estate wholesaling, but in other countries, it is called a contract-based real estate deal by the agent or simply a property contract deal. Ask a nearby agent, he will tell you how this is done in your area.
How to Start a Real Estate Wholesale Business from Scratch
Here, we shall discuss, what is wholesale, how to start a real estate wholesale business with some example? Plus the difference between wholesaling and house flipping with their advantages and disadvantages and many more. Let’s start how to start a real estate wholesale business.
Table of Contents
1. What is Real Estate Wholesaling Exactly
Many people think that wholesaling means flipping properties in a lot. A wholesale agent will sell more than one property at a time. But, that is not wholesaling. They don’t sell properties. They sell the contracts of those properties they have found in the area by doing their research (an undervalued discounted property).
2. How Does Wholesaling Work
You as a wholesaler shall find an undervalued property. You will create a contract for that property with the help of the Property Owner, a ‘Right to Sell Contract’ you will sell the contract to an investor and profit from them. That’s the whole concept of wholesaling.
When the contract is signed you hold the ‘Right to Sell’ documents of that house. Without your permission, no one can sell the house, not even the Owner. That’s what the contract says. That’s how a wholesale agent gets paid.
Otherwise, people will scam you, and you will earn nothing. All the work you have done by finding the house, analyzing it, and offering it to an investor will become a waste, and you will have no proof to counter them. That’s why the contact is required.
3. Examples on How to Start a Real Estate Wholesale Business
This is the best example on how to start a real estate wholesale business. For example, the price of a house is $100,000 in that area. But there are some problems that need maintenance immediately. New paint is required, updating the lawn, and some other maintenance. A total expense will be $5,000 to repair all those. The Owner’s asking price for this is $90,000. If you can manage to give him that money, he will sell it.
So, you will create a contact, he will get what he wants, and the money that is left will be yours. That is the wholesale contract you and the Owner both have agreed on.
Now you have the right to sell the property. You will knock on some doors of interested investors and tell them you have an offer for them. Tell them this is a good property. The asking price is $95,000 only as the property needs an update of $5,000. Otherwise, your asking price would be $100,000.
The investor will analyze it, and if everything looks promising, they will buy it. You will make $5,000 here.
That is real estate wholesaling. You will sell the ‘Right to Sell’ contract, not the property itself. A lot of wholesalers make millions by finding and offering it to potential investors. If they buy, he will make thousands of dollars every month, millions in a year.
4. Real Estate Wholesaling versus House Flipping
There are three main differences between House flipping and Wholesaling.
- The basic difference is that in a flipping business, you need money about $100,000 to purchase a house, but here you can start with zero investment.
- Yes, the wholesale business will not give you huge incomes like house flipping, but if you do it right, your return on effort will be much higher than flipping properties.
- Here you don’t have to handle all the hassle that an investor faces. Your work is to find, analyze, and offer to an investor. If they buy, you will make money.
If you don’t have money to start flipping houses then the wholesale business is good for you. Now, let’s learn why this is one of the best real estate businesses.
5. The Advantages of Real Estate Wholesale Business
Here are the four main advantages of a wholesale business that you know understand before moving further on how to start a real estate wholesale business.
Earn Money in Less Time
You can earn your commission in less than a month. That is the beauty of this business. No need to wait for a year as normal real estate agents do to get the commission from the developer. You can earn your $5,000 in between 1 to 2 months.
Become A Master in Due Diligence
This business will make you a PRO in property Due Diligence processes. You will analyze 10 to 15 properties every month. You will learn a lot about the ins and out of the industry, what is a good property and what is not. That will help you in the future to find a better property if you decide to become an investor along with this business.
Required No Credit Report
You don’t need to submit or manage your credit score over time as the bank shall ask you to submit your credit card if you want to take a mortgage loan. That’s how the bank makes sure that you have the ability to pay the EMI on time. If everything looks promising the bank will lend you money to buy a house.
Here you don’t need to give them the score. You are not taking a loan. You are negotiating with the Owner and investor where a little communication skill is required. Learn how to sell a property, and you are on the go. If not, you can always learn while doing them.
The first few months be difficult, but you will learn along the way.
Required No Money At All
On average, to buy a house in the United States takes $100,000. Most people don’t have that much money, and I think you are one of them. In this business, you don’t need that huge amount. If you have at least $1,000, you can start.
That $1,000 will be used to analyze all those properties and to get a License. You don’t need the License in some countries, you can wholesale property without a Government license, but in some countries, an agent license is required to deal in any property. Check whether you need a License or not.
6. The Disadvantages of Wholesale
Here are three main disadvantages of real estate wholesaling business.
Income can be very unpredictable. Most people will not give you as much as you want. It all depends on the negotiation. If you can convince them, you can earn good money.
People will SCAM you. They will sign the contract, but when it comes to your commission, they will try to avoid you. You will have no option rather than to sue them. And in Court, how much money it takes to manage the case, you know that. It will drain you.
That is why when you deal with someone, do a quick background check on that person on both buyer and the seller. If you find something wrong, prepare yourself that way. Otherwise, you may lose your commission.
It is Difficult to Find Buyers
It’s difficult to find a buyer who is willing to purchase that rehab house. In wholesaling business, your work is to find a rehab house or undervalued house. A rehab takes a lot of money to repair all those things:
- New paint
- Water leakage
- Electrical problems
- And more
That is why most investors will avoid those kinds of investments. But, some will buy them. It’s up to you how you generate leads for that house.
You know how damaging a house can be. You will say it’s not a house, garbage. So dirty, you can’t think. Your work is to clean them all, and that will be frustrating.
Although, this is good business with good income opportunities. It is up to you how you manage all those problems.
7. Is Real Estate Wholesaling Legal?
Before you learn how to start a real estate wholesale business, you need to know if it is legal in your country. Yes, it is legal in most counties as long as you follow the rules.
In every country, people do something similar. If you look at the Indian Subcontinent, people take a signed contract as an agent that says, I am going to give your $80,000 of this property, and whatever the extra price I sell will be mine. If I sell it for $90,000, the $10,000 shall be mine.
People do it indirectly in every country, but it’s wholesaling. You can ask your agent if something similar is done in your country or not. That means it’s legal in every country. Anyone can do it.
8. How to Become Successful Here
As Gary Keller said, Anyone can do it, but not everyone will. That thing also applies here. It’s not easy to find a rehab property. But, if your mindset is right and you are ready to do whatever it takes, you will become successful. You will sell 1000s of contracts every month. It’s all about the commitment you make to make this work.
9. The Business Plan
Now you have learned how to start a real estate wholesale business. It is time to build a business plan for your wholesaling business.
I can not tell you your business plan because it’s different for every business. Go and download a Real Estate CRM software and prepare your game plan. What are you going to achieve with this business in one year or five years? Make sure your goal and business plan are as clear as water. Otherwise, it might not work.
10. Your Wholesaling Agent Negotiation Tips in Five Steps
Here I am going to share with you five main steps to close a property deal faster, and those are:
- Greet Them: Say welcome if they are coming to you, and thanks for seeing me if you are going to them. It is the basics of getting to make a good first impression.
- Determine Their Wants and Needs: The purpose of this is to learn (a) what product to show them and (b) how to present in front of them in a manner that shall build value in their eyes.
- Select the Product and Build Value in Their Eyes: Select the product you think might work and present it. Select for your clients rather than allowing them to wander in the product list. Make this as short as possible. So your influence will have a good effect.
- Now Make Your Proposal: Always make a proposal even when people are not ready. If you don’t do it, you can not come to an agreement, and an agreement is all you need to close the deal.
- Close the Deal: You must be prepared to answer all their questions and solve all the problems they have. And when everything looks good, close the deal.
There are a lot of closing techniques you can use. Read ‘Sell or be sold by Grant Cardone’. It will help you to close faster.
11. Get a Real Estate License
You might need a license, depending on your country. If you do, then go and get a real estate agent license. That will do the work. Remember, if your country’s law does not allow dealing in property with a license don’t do it. It is a punishable offense. Contact the agent and get your real estate license.
But, in most counties license is not required. Anyone can deal in property. Ask a nearby real estate broker to know more about this.
So this is how to start a real estate wholesale business. If you are ready to start your journey as a real estate wholesale agent, good luck to you. Everything you need to know I have shared with you. Now, you practice all these to make it work.
Is wholesaling legal?
Yes, it’s legal as long you follow the rules and regulations. The laws may vary in every state. Check them before jumping.
What are the advantages of wholesaling?
The biggest advantage is that you can earn a minimum of $5,000 as commission in under 2 months.
Do I need a license to start wholesaling?
You might need a regular real estate license, depending on the state you live in. Ask your local agent.
How does wholesaling work?
You as a wholesaler shall find an undervalued property, create a Right to Sell Contract and sell the contract to an investor and make a profit.
What is the difference between wholesaling and house flipping?
The basic difference is that in a house flipping, you need $100,000 to purchase a house, but in wholesaling you can start with zero money.