Reviewed by Jamil Damji, expert panelist on the BiggerPockets On the Market podcast. Jamil Damji is an internationally renowned real estate investing/wholesaling expert with 18 years of experience. He is the co-founder of KeyGlee, the No. 1 wholesale company in the world, with over 75 franchises.

Do you want to be a real estate investor but don’t have the finances to buy or hold rental properties, or the desire to start flipping houses? If so, the real estate wholesaling business may be one of the best real estate investing strategies for you.

Your first impression of the term “real estate wholesaling” is probably related to retail wholesaling, where a wholesaler sells a high volume of a product to a retailer, who then sells the product in smaller quantities for a higher price. 

In the real estate wholesaling process, the wholesaler acquires contracts from motivated property owners (typically of a distressed property) and finds potential end buyers, who they can sell real estate contracts to. 

In this guide, you’ll discover everything you need to know about the basics of wholesale real estate transactions, including:

• What is Real Estate Wholesaling?
• How Does Wholesale Real Estate Work
• The Pros and Cons of Wholesaling Real Estate
• Wholesaling vs House Flipping
• The Numbers of Real Estate Wholesaling
• Is Wholesaling Real Estate Legal 
• How Do You Start a Wholesaling Real Estate Business
• Tips for Becoming a Successful Wholesaler

What is Real Estate Wholesaling?

How Does Wholesale Real Estate Work?

The trick to wholesale real estate is to find real estate deals offered by motivated sellers. Those who own distressed properties that have some value-add potential and are willing to trade this for speed and convenience typically offer the best wholesale deals.

Often, these sellers are property owners who are unsuccessful at trying to sell their home themselves or don’t think they can because of the distressed property’s condition. In other cases, the seller needs to sell their home quickly because they’re relocating for work, recently divorced, or experiencing financial challenges. 

Initiating an agreement

By initiating an agreement, you’re offering to purchase the discounted property from them. The terms of this agreement are outlined in a wholesale real estate contract, wherein you agree to the home sale transaction during a set time frame and for a specific minimum price.

Wholesalers rarely end up owning the property. Instead, the real estate wholesaler is assigning the rights to buy the home from the owner. Once the wholesaler and the seller agree on the terms, they enter into a purchase and sale agreement (PSA). Once the wholesaler finds a buyer, they assign their rights to purchase by drafting an Assignment of Real Estate Purchase and Sale Agreement. 

When creating this agreement as a wholesaler, make sure the contract clearly states that you have permission to “assign” or “sell the contract” to an end buyer. Once you do, you’re absolved from all responsibility as far as the property is concerned.

Example of wholesaling

Cameron and Raj are investors in the wholesale real estate business. Harry lives in a property he’s been trying to sell for $190,000 for six months. Cameron and Raj know of several buyers looking for a property in Harry’s neighborhood.

They approach Harry and agree to purchase his home for a minimum of $190,000 in three months. Harry agrees, and they sign a contract stating Cameron and Raj can purchase Harry’s property for $190,000. If Cameron and Raj can find a buyer above that contracted price, they can keep the difference.

The Pros and Cons of Wholesaling Real Estate

No real estate investing strategy is perfect. All of them have pros and cons. Here are the benefits and drawbacks of real estate wholesaling.

Wholesaling vs. House Flipping

 The Numbers of Real Estate Wholesaling: Is It Worth It?

Here’s how wholesale investors make a profit in real estate:

• Assignment of contract
• Double closing
• Profit sharing

Contract assignment fees are the fastest, most common way for wholesalers to earn money, and it can be done at no cost to you. Assignment of contract is the method referenced throughout this article.

The process is as follows:

1. Find an investment property and a motivated seller.
2. Agree on a purchase contract.
3. Submit the contract.
4. Line up a buyer.
5. Assign the contract to the buyer.
6. Get paid your assignment fee.

For example, if you obtain a contract from the seller, agreeing to purchase their property for at least $135,000, and then you line up a buyer who agrees to pay $150,000, your assignment wholesale fee is the difference, or $15,000. 

How much money do you need to get started?

Technically, you don’t need any money to start wholesaling. You’re not purchasing property, so you’re not assuming any financial risk. You’re merely acting as the middleman.

That said, there are a few minor costs associated with wholesaling real estate, including:

• Small earnest money deposit and other fees associated with a contract
• Marketing costs
• Access to a network of motivated buyers and sellers
• Real estate investor groups and local real estate meetups
• Wholesale real estate coaching or mentorships
• Real estate license (if you need or want one)

How much do wholesalers make?

Wholesale real estate investors can make anywhere from a few thousand dollars to six figures per year, depending on their experience, business model, connections, and other factors. Since they don’t receive a traditional salary, investors can find their annual cash flow can vary greatly from year to year, depending on the market and countless other circumstances.

According to ZipRecruiter, the national average salary for a real estate wholesaler is $53,805 per year. In California, the average is $52,249 per year, with the 90th percentile averaging just under $83,000. The top 1% of wholesalers can make millions of dollars with an organized business structure.

How much can you expect to make per transaction?

The average wholesale assignment fee per transaction is around $10,000. If you close a deal every other month at that rate, you’ll earn $60,000, which isn’t an unreasonable salary for a new wholesale investor. As a newbie to wholesale real estate strategy, you should aim for at least $5,000 per transaction.

How to calculate the maximum allowable offer (MAO)

If your buyer wants to flip and fix a property, you’ve got to figure out how much they usually pay for it. The MAO helps investors maintain their desired profit when determining their asking purchase price. The formula is:

(ARV x .70, or 70%) – Rehabbing – Assignment fee = MAO

For example, Alex is a wholesaler who frequently makes deals with Joaquin, a house flipper. Alex finds a distressed home with an ARV of $160,000, and Joaquin estimates it will cost him $25,000 to rehab it. If Alex wants to make $10,000 as a wholesaler, he needs to figure out what his MAO is before approaching the seller.

($160,000 x .70) – $25,000 – $10,000 = $77,000

At most, Alex should offer to sell the property for $77,000, and then offer the contract to Joaquin for $87,000 ($77,000 + $10,000 assignment fee).

Is Wholesaling Real Estate Legal?

Short answer: Yes, usually. 

That said, there are rules and regulations you have to follow, and they vary from state to state. Look up the laws of your state before getting started. We also recommend consulting with an attorney, so you have a clear picture of what you can and can’t do. For instance, since the seller is usually in a stressful or complicated situation, avoid language that can be negatively misinterpreted when marketing the property to potential buyers. 

Do wholesalers need a real estate license?

Short answer: No, usually.  

In many states, you don’t need a real estate license to get started. However, you should consider getting one if you want to scale a wholesale business. It may help you establish more credibility when interacting with motivated buyers and sellers, or even when you work with a real estate agent. 

The reason why wholesalers don’t need a real estate license is because they’re not selling properties; they’re marketing the rights to buy them. As such, they have a contractual interest in the purchase and sale agreement. Since their involvement is limited to a contractual interest, they don’t need a license. 

In some states, licensing can be a gray area. According to KKOS Lawyers, California defines a real estate broker as “someone who sells, buys, or negotiates for another with the expectation of compensation.” Looking for buyers to acquire a contract can be considered negotiating, so you should consider getting a license just to be on the safe side.

How Do You Start a Wholesaling Real Estate Business?

Getting into the business isn’t complicated. The process is as follows:

1. Educate yourself on the industry.
2. Create a list of buyers.
3. Secure financing.
4. Understand contracts.
5. Start looking for wholesale properties.
6. Grow your business.

1. Educate yourself

Learn as much as possible about wholesaling real estate. If you know people in the industry, ask them for advice or see if they will mentor you during your first few transactions. Get a good idea of what to look for in properties and in people looking to sell or buy them.

Also, because it’s worth repeating, consult a real estate attorney about your state’s rules and regulations. The more prepared you are, the less likely you are to make newbie mistakes.

2. Create a list of buyers

Before you start searching for deals, you need investors who are looking to make them. You can find the perfect property to wholesale, but without an end buyer in mind, you have little to offer a seller.

You can get connected with buyers by:

• Joining networking groups
• Attending real estate events
• Interacting with other investors in the BiggerPockets forums
• Joining real estate groups on LinkedIn and Facebook
• Email marketing
• Talking to your friends, family, and followers in real estate for introductions

3. Secure financing

Securing financing is hands down the easiest step in the process. You don’t need much to get started. It’s only recommended to set aside some personal finance for marketing, hiring a contract attorney, and joining real estate-related groups. 

4. Understand contracts

One of your most complicated tasks as a wholesaler is understanding what needs to be included in a wholesale contract—and sometimes, more importantly, what shouldn’t be. Rules and regulations are different in each state, so consult with an attorney before getting started.

Here are a few items you need to include in your wholesale contracts:

• Buyer and sellers names
• Property address
• Terms and conditions
• Inspection period
• Earnest money deposit (depending on your state)
• Signatures and date

Sometimes wholesale real estate deals fall through. Even the most experienced wholesale real estate investors may fail to meet the terms of their contract agreement. What would happen to Cameron and Raj if Jessica backed out of the deal, and they can’t find another end buyer in time?

Reduce risk by including a contingency clause. A contingency allows the wholesaler to get out of a deal if they’re unable to meet the terms of the contract. However, merely putting a contingency clause in your contract isn’t enough.

Courts usually require you to put in a good-faith effort to meet the clause. If Cameron and Raj signed with Harry but didn’t bother inspecting the wholesale property, they could be in breach of contract and risk a lawsuit. If their contract included earnest money, they’d lose that too. 

5. Start looking for properties

Now that you know how to wholesale real estate, have a list of prospective buyers, and obtained capital, you’re ready to look for properties. 

Since “location, location, location” is the mantra of real estate, begin by looking for distressed local properties in your market. Search for these properties on real estate sites like Redfin, Zillow, and Realtor.com. All of these sites use the Multiple Listing Service (MLS), so they can get competitive, particularly in popular areas. Also, while it doesn’t use MLS, don’t rule out the Craigslist Housing section.

Search public records in your area, and look for cases where someone recently inherited a property they may want to get rid of. Also, build close relationships with real estate agents. When deals fall through, owners can get distressed. If you have an interested buyer, that’s your chance to come to the table. 

6. Grow your business

The most successful real estate investors never do it alone. As you become more competent and confident in your processes, start building your power team. When chosen wisely, your wholesale team will make your business more productive and increase your profit margins.

Here are a few positions you should consider adding to your power team:

These specialists evaluate prospective deals, determining whether they should be acquired. They have a keen knowledge of financing, offers, and exit strategies.

If your buyers are predominantly fix-and-flippers, your general contractor can determine what repairs are needed and how much they’ll cost. This will help you calculate MAO. Sometimes, this falls under the duties of the acquisition specialist. 

Selling specialists focus on building and maintaining your buyer list.

Processors focus on the contractual side of your wholesale business, bringing them from close to sale.

Your marketing manager focuses on building brand visibility through a series of ad and content marketing campaigns. Depending on your needs and marketing scope, it may be advantageous to work with a marketing team. 

Your office assistant handles the daily tasks that are essential but not your priority. These tasks include answering phones, checking the mail, and running various errands. 

Agents have access to the MLS and can help you identify comparable home sales. They can also connect you with distressed clients who are having difficulty finding buyers. Find out more about the benefits of having an investor-friendly agent on your team.

Final Tips for Becoming a Successful Wholesaler

Now that you know the basics of real estate wholesaling, here are a few last tips to help you thrive:

• Build a website: Your website is your virtual storefront. It establishes your brand, thought leadership, and helps drive traffic and generate quality leads. Also, the National Association of Realtors found that 51% of today’s homebuyers find their properties online, so they should find you there too.
• Have a positive mindset: Successful wholesalers see obstacles as opportunities. They’re dedicated, consistent, and always rise to a challenge. 
• Take advantage of tech: You don’t have to be a tech wizard, but you should use modern tools for your day-to-day work, like the cloud, mobile-friendly applications, and customer relationship management (CRM) software.
• Know fair market values: Pay close attention to how much money properties sell for in the neighborhoods you’re prospecting. Knowing this will help you identify undervalued homes. 

• Know the value of your time: Savvy wholesalers know when it’s time to outsource or delegate specific projects or tasks. When you build the right power team, you’ll minimize mistakes, increase efficiencies, and close more deals.