Beginner in Wholesaling

[Alexandra Preziosi]

Hello BP community!

So this might be a newbie-type question but I have been reading a lot about wholesaling and the process. I seem to have gained a fair understanding about how it works overall but I think the one part that confusing me is in regards to getting a house under contract without spending money yourself. My question is whether as a wholesaler, you are actually giving the seller the money they are willing to accept for their home (for example $50,000) or are you kind of simply officially agreeing to find them a buyer to get them their home for at least that amount of money ($50000) or more, and then transfer the house contract to the prospective buyer? I hope I explained this question correctly. A more basic question is, how do you as a wholesaler not spend any money on the transaction and still make a profit for yourself? Thanks so much!

[Eric F.]

@Alexandra Preziosi  Do you have a purchase and sale contract in front of you? Look at where you fill out all the numbers. There is a line that should say "Earnest money" That is where you put what you give them when you sign the contract. $100, $500, whatever you actually pay right then you put there. Then there is a balance due which would be the rest. So if you give them $500 when you sign, and the agreed price is $50,000, you would put balance due at closing $49,500. At the bottom you put total purchase price $50,000.  

So you, or your assigned buyer, will need to come up with the $49,500 plus whatever closing costs and fees you are paying at closing to buy the house.

Once you have the contract signed you can look for a buyer. You can assign the contract to the buyer for whatever the difference in price is. So if your buyer will pay 60k, you can do a 10k assignment fee and the buyer brings the money to closing and you get your fee when it closes. Or, you can double close, where you have to pay the $49,500 at closing, take title, then immediately (or the next day or whatever) you sell it to the next buyer for 60k, and you net the difference. 

What you do not, and cannot do, is tell the seller you will find them a buyer. That is acting as an agent. As a wholesaler, you are closing to, or intending to close, on your deal. If someone wants to buy it from you for an assignment fee, then that is fine. I would advise you not to enter into deals you would never close yourself. 

As an aside, as @Ned Carey and @Steve Vaughan touched on, wholesaling is not "easy" or something you can do with "no money." Advertising costs money and you have to know what you are doing. I get 10 horrible deals e-mailed to me every day. Terrible ARVs (and never because they are too low) repair estimate costs I can tell are not even half of what it will really cost, etc. If you sign a deal that is not really a deal hoping to lie your way to getting a buyer it won't work and you will have to back out, going back on your word to the seller and harming your reputation. The only legitimate reasons to back out are title issues or something during an inspection you really did not count on, like a bad structural problem or whatever. These types of things would stop any deal be it a wholesale or a MLS transaction so there is no shame in backing out. Telling someone you can pay more for the property than you really can and then backing out because you can't find a buyer, that is on you.