What is wholesale real estate? Not to be confused with investment real estate or house flipping, wholesale real estate is the act of reselling a home to a network of buyers — usually home flippers. Whereas investment real estate is renting out your property, and house flipping is renovating and selling a fixer upper, wholesale real estate skips all of those steps.
Unlike the name suggests, wholesale real estate also is not the sale of multiple properties. So what exactly is it?
What is Wholesale Real Estate?
Wholesale real estate is when a wholesaler contracts a home with a seller and then finds an interested party to buy the contract. They never sell the home, rather, they sell the ownership of the contract associated with the home.
The home in question is usually in a distressed state or foreclosed and in need of much TLC. Unlike flipping, a real estate wholesaler doesn't do any renovations or additions, and carry no costs.
A Quick Example of Wholesale Real Estate
The concept can be hard to understand through just the definition. To clarify, let’s say a distressed home is on the market. The wholesaler approaches the homeowner with an offer of $75,000. The owner accepts the offer and the house is put under contract. The wholesaler then has a limited number of times to sell that contract to someone else.
Then, they market the property to their buyer list. A flipper sees potential and agrees to buy the home for $100K. If the transaction goes through successfully, the wholesaler will earn $25K from the deal.
Can You Be A Real Estate Wholesaler?
Wholesale real estate may seem lucrative and like a smart investment, but it isn’t as easy as it sounds. The goal in wholesale real estate is to sell the home to an interested party before the contract with the original homeowner closes.
To be a real estate wholesaler, you’re going to want a long list of connections and investors who flip homes. You also need the time and commitment to find the right home your investors would be interested in. In short, you need to know the market, what home has potential, and what locations are desirable.
Think about it this way: — which home is safer for you to contract?:
Home A: $60K market value, in a suburb about 30 minutes from the big city, with foundation issues and holes in the roof.
Home B: $75K market value, in the heart of downtown of a big city, with broken windows and in desperate need of new flooring.
In this scenario, both homes would be attractive, but house B has the most potential. It’s location is a superb selling point alone to house flippers. That, paired with the lack of costly repairs, makes it worth the extra money.
You also need extensive knowledge of the real estate market so you can make the right offer at the right time. Go too low too early and you may scare off a potential seller. But if you go too high, you may not be able to find a buyer who is willing to take on the risk of buying and fixing up a distressed property. It’s all about knowing the market, knowing the value of what you have, and being able to turn the sale around quickly.
Why Would Owners Sell to Wholesalers?
A wholesaler may not seem like the ideal candidate to purchase a home, but that’s not always the case. A reputable wholesaler will give the homeowner a fair offer for a home that may not otherwise sell.
In many cases, distressed homes are often foreclosed or aren’t appealing to many prospective buyers. Wholesalers can turn that situation around and give the seller the money they need, quickly. They are the lifeblood behind turning a distressed home into a beautiful one. They have access to investors and listing services that can get the property in front of prime home flippers.
Additionally, wholesalers are a lot easier to go through. Real estate wholesaling generally takes a lot less time to complete than traditional selling, costs investors a lot less upfront, and reduces risk exposure. In many cases, it is the easiest route to take that will result in a beautiful home.