If you are new to real estate investing, you may not have the capital, credit, or connections to begin by fixing and flipping properties, which can require a sizeable amount of capital and connections with private and hard money lenders to provide additional capital. Wholesaling is one way to get your foot in the real estate investing door and begin making connections with other investors, realtors, and lenders.

What Is Wholesaling?

As a wholesaler, you make an offer on a property, get it accepted, and obtain a contract on the property with little or no money down and no intention of actually owning the property. Then, you resell the contract to an investor who does wish to own the property (as either a short- or long-term investment) before the closing date. Wholesaling requires a clause in the original sale contract allowing it to be reassigned in order to do this.

Wholesalers typically seek out distressed properties in need of extensive repairs that can be purchased considerably below market value. Then, they mark the properties up when they resell them to an investor. The typical range for such mark-ups is between $5,000 and $15,000. The investor purchasing the property from the wholesaler will typically use cash, a line of credit, or a hard money loan, enabling an expeditious closing.

Perhaps the greatest challenge in wholesaling is the responsibility of finding a buyer to acquire the property from you in the necessary timeframe (before the closing date). This forces you to network with other investors in your area, thereby forging more connections that will be helpful to you both as a wholesaler and later as an investor and rehabber (you should also pay attention to which private capital and hard money lenders they use so that you will know who to contact when you need to finance future deals). As a wholesaler, you want to avoid utilizing real estate agents as their fees will cut into your margin of profit, which will often be quite small.

What Does It Take to Be a Wholesaler?

If you don’t yet know enough people in the real estate industry or have enough capital to begin purchasing investment properties yourself yet, then wholesaling can be a way to begin both making connections and earning capital. However, you must be willing to exert the necessary effort to network through industry events and conferences so that you can meet potential buyers for your contracts. It’s also important to familiarize yourself with your local real estate landscape through sources such as the Multiple Listing Service (MLS).

The bottom line is that, while wholesalers make smaller profits per property than investors who fix and flip properties, they buy and sell in far greater quantities and the connections that you make as a wholesaler can help you move on to more ambitious real estate investment projects later on.