Finding reliable and high-quality real estate wholesalers is not an easy task. Sometimes, you may come across many self-proclaimed wholesalers who never complete any transactions. However, when you do find truly good wholesalers, they can be a great source of income. I have purchased over ten properties from wholesalers just this year!
What is a Wholesaler?
A wholesaler is someone who finds good real estate deals and sells those deals to other investors. They usually don't buy the properties directly, but rather sell the contracts. Wholesalers don't typically work with real estate and buyers don't have many opportunities for thorough inspections. Here are the basics:
- Wholesalers search for good deals through direct marketing or other sources of information.
- Wholesalers sign purchase and sale agreements with the sellers.
- Wholesalers send information about the deals to their investor list.
- If an investor is interested in the deal, they will complete the purchase by assigning the contract or doing a double closing with the wholesaler.
- Wholesalers make money by selling the properties or contracts to investors at a higher price than the agreed purchase price from the original seller.
Pros and Cons of Buying from Wholesalers
When an investor buys a property from a wholesaler, the process can be very different from buying through the Multiple Listing Service (MLS). Buyers don't have much flexibility in deciding the closing timeline or other terms. Usually, the buyer has to place a non-refundable deposit and is not allowed to inspect the property. The properties are sold as-is, with no further repairs. These terms can make it challenging to secure financing for a wholesale deal, especially if the bank needs to appraise the property.
The advantage of buying from wholesalers is that buyers can often get a very good deal without doing much legwork. I have received deals from wholesalers, and not all of them were suitable. You have to analyze and validate each deal yourself.
Watch the video below to learn how real estate wholesalers make money.
Factors that Make a Good Real Estate Wholesaler
One of the challenges when dealing with wholesalers is that most of them never complete any transactions. There are many self-proclaimed wholesalers because it is a popular investment strategy that is widely taught. Many programs promise huge profits without using any of your own capital when you become a wholesaler.
Investors buying from wholesalers want a significant discount compared to what they could buy through the MLS; otherwise, the deal is not worth doing. Wholesalers have to find a great deal for themselves to make money and for the buyer to make money. This requires a lot of time, effort, and marketing. I estimate that 90% of wholesalers never find a good enough deal to sell. Here are some issues I have noticed with many wholesalers:
- They may find properties they think are good deals, but they don't understand the market value.
- They overvalue the market value, undervalue the repair costs, and end up without any real deals.
- They don't know how much profit an investor needs for a deal. Many investors buy based on the 70% rule, but many wholesale prices don't leave enough profit.
- They believe that only repair costs need to be considered in a deal, forgetting about other costs like transportation, selling costs, etc.
- They don't know how to market or don't have enough money to market as necessary.
They won't tell investors that they have never done a deal, so when looking for wholesalers, you have to be very cautious. You can waste a lot of time with wholesalers who don't do anything. However, if you find the right wholesaler, they can be a great source of deals.
How Investors can Buy from Wholesalers?
If you are on a real estate wholesaler's customer list, they will email all their investors listing the price, work needed, terms, and value of the property when they have a deal (never trust these numbers and always verify everything). The wholesaler will generate a list of investors interested in seeing the property, and they will meet with the investors at the property (usually multiple people at once).
Each real estate wholesaler operates in their own way, so how they decide which investor will get the property may vary. In some cases, the first investor to agree to buy the property at the asking price will be the winner. Some wholesalers use online forms to send contracts, and the highest proposed price will be chosen. If there aren't enough interested investors, the wholesaler may negotiate their fee or try to persuade the seller to lower the price.
When I go to see properties with other investors, I always let the wholesaler know immediately if I want to do the deal. You can't hesitate and wait for the wholesaler to finish talking or conclude conversations with other investors. If you want it, speak up.
Below is a property I purchased from a real estate wholesaler:
How to Find Good Real Estate Wholesalers?
There are many ways to find wholesalers, but not all methods are effective. Here are some ways I have found real estate wholesalers and how I have heard about finding them:
Real Estate Investor Conferences
Most areas of the country have real estate investor conferences, and this can be a good place to network. I have met many real estate wholesalers at conferences and have never seen a property purchased from them. I'm not saying you can't find reputable wholesalers at conferences, but it is where many beginners attend.
Online Search
Many real estate wholesalers have dedicated websites for investors looking to buy deals. You can search online to find wholesalers in your area, but they may not necessarily have any real deals.
Ask Around
One of the best ways to find real estate wholesalers is by networking with other real estate investors, but they may not be willing to share their deal sources with you. Additionally, you can ask real estate agents, title companies, and others in the industry. Many wholesalers email real estate agents to find buyers.
Look for Wholesaler Marketing
If a real estate wholesaler is actively marketing, you know they are at least trying to find deals. Instead of searching for wholesalers, look for their marketing materials. Look for small signs, billboards, Craigslist ads, Facebook posts, and call the phone number. Most wholesalers market by advertising that they will buy houses quickly for cash. Let them know that you don't want to sell your house but want to be on their buyer list. If you receive a letter from someone wanting to buy your house, don't throw it away. Call back and say that you are the buyer.
How did I find good wholesalers?
I have purchased many properties from real estate wholesalers, but finding them was not easy. It took me a lot of time to identify good wholesalers. Here are some ways I found wholesalers or they found me:
- They emailed all the real estate agents they could find, and I was one of them.
- They posted a property on Craigslist, and I responded to that ad.
- They posted a property in a real estate investment group on Facebook.
- I met them through my blog or YouTube channel.
- I called them after seeing their signs or receiving a letter from them wanting to buy one of my properties.
Many wholesalers attend real estate investor meetings and look for buyers. I have met many wholesalers this way, but I have never received a deal from them. I'm not saying attending investor meetings is not worthwhile, but don't expect too many deals from potential wholesalers after meeting a few of them.
Buying from Wholesalers vs. MLS
When you buy from a real estate wholesaler, you have to realize that it is different from buying from the MLS. The wholesaler is not the owner, and they usually make everything easy for the seller. This means no inspections or appraisals, and financing can be challenging. The seller may leave many things in the house when they leave, and they may also hide issues with the property. I have seen quite a few people try to sell properties outside the market because they know there are issues with the property, and they have less chance of finding out about those issues if they don't list with a real estate agent.
Real estate wholesalers also want a non-refundable deposit to secure the deal. I usually see an average of $5,000 for an earnest money deposit from wholesalers. Wholesalers also use assignment contracts to sell the contract rights with the seller to you. Make sure to review the contract they sign with the seller to make sure it is valid and correct as they say before paying them.
Buying from Wholesalers as a Real Estate Agent
I am a real estate agent, and I have to buy houses differently than non-real estate agent investors. When I buy an off-market deal, I have to disclose that I am a real estate agent and comply with state laws regarding additional disclosures.
There is a good chance that a real estate wholesaler will not have any notices about lead paint or other required documents due to the seller signing. I have to make sure we get these documents signed because I am replacing the contract, and I also have to have the seller sign documents proving I am a real estate agent and can make money from the deal (I do that on all out-of-state deals I'm buying).
I opened my own brokerage, and during the process of moving from my old office, I was fired from that office because I did not sign the lead paint disclosure documents on an out-of-state real estate deal I was buying for myself. I didn't think that not disclosing to myself that a property may have lead paint was a big deal. I called the Real Estate Commission, and they also didn't think it was a big deal, but they said, in reality, I should be signing for every deal, including out-of-state deals. Make sure to check with your state's Real Estate Commission to find out everything you need to do as a real estate agent when buying from wholesalers or out-of-state deals.
Conclusion
Real estate wholesalers can be a great source of deals, but good ones can be hard to find. If you have met some self-proclaimed wholesalers who don't have any deals, don't assume there are no good wholesalers in your area. Understand that it may take a bit more time and effort to find the good ones. Building friendships and networking with other real estate investors in your area can also help as they may have surplus deals to send your way.