TheFlipKing Answers Your Questions: “What Is Wholesaling?”

[Joe Evangelisti]

I often get questions from investors about how to invest, so I’ve been answering them here. In this blog post, I want to answer the question “what is wholesaling?”

Most people who are new to the real estate investing world haven’t heard of wholesaling. They’ve heard of flipping or rehabbing, which has been made popular on those annoying TV shows. And they’re probably aware of renting or landlording as a type of investment. But wholesaling is the hidden way to invest.

It’s very powerful because it’s a way to invest without using a lot of money or even doing a ton of work… plus you don’t have to deal with tenants!

Here’s how wholesaling works (and I’m using some really basic “layman’s language” here and just giving you a simple explanation… there are, of course, variations on this that are too detailed for this blog post).

In short, wholesalers find a property, lock it up, and then wholesale the property to a buyer.

It works like this (although you should be aware that there are some variations from one wholesaler to the next):

1. First, they find a property. Good properties to wholesale are priced below-market by motivated sellers.

2. Once they’ve found a property, the wholesaler will then put the property under contract by purchasing the right to buy the property. This ensures that no other buyer can swoop in and purchase the deal.

3. Then, the wholesaler finds a buyer who wants the property and the wholesaler sells that “right to buy” contract to the prospective buyer for a fee. (The buyer now owns the right to buy the property and they act on it, purchasing the property from the seller at the priced agreed-upon in the contract).

As a wholesaler, you are paid the fee by the buyer when they purchase the contract. That’s where you make your money. Ultimately, you’re getting paid because you find a seller and you find a buyer and you bring them together. The fees you earn range from a few hundred to a few thousand, depending on what you negotiate with the buyer.

Again, there are variations to the wholesaling explanation above but this is the simplest way to understand wholesaling.

It’s a great way to start investing because it requires almost no cash on your own (you should give a small deposit to the seller when the two of you sign the contract but it’s often very minimal) and you don’t need to use your own credit because there’s no mortgage involved and you never actually own the property yourself.

And if you’re already an investor, it’s a great way to expand your business without a lot of effort (such as fixing a property or finding tenants).