How to Wholesale Real Estate with No Money
If you’re reading this, you’ve heard the hype surrounding wholesale real estate, and it’s piqued your interest.
Congratulations! Wholesaling is a fantastic way to get into real estate investing with little money and is where a large portion of real estate investors get their start.
This guide will walk you through the wholesaling process step by step.
We’ll cover everything a beginner needs to know on how to find deals, negotiate with sellers and buyers, close deals, and scale to the moon.
Let’s get started!
How to Start Wholesaling Real Estate
There is a lot of information online about wholesaling real estate, so you’ll inevitably find investors with different strategies. But, at its core, the wholesaling process has five steps.
- Finding a House to Wholesale
- Calculating ARV & MPT
- Getting the property under contract
- Finding a buyer
- Closing the deal
I’ll break down each of those steps for you, share best practices, and then explain how and why real estate wholesalers take them.
Step 1: Finding a House to Wholesale
While most people focus on searching for properties actively being marketed, there are also many benefits to be found by searching for off-market or “distressed properties.”
These properties often come at a discount since the owner may be motivated to sell quickly due to financial hardship or other circumstances. Additionally, you may have a better chance of negotiating a favorable price if there is less competition from other buyers.
Contact a real estate agent specializing in foreclosures and short sales to find off-market or distressed properties. These agents often access exclusive listings not yet on the market and may be aware of sellers looking to unload their property quickly.
Another way to find off-market properties is to search online databases that list homes under market value like PropertyShark.Government agencies or lenders usually run these databases, which can be a great resource for finding properties that are not yet listed for sale.
You can also look for properties that have been listed for an extended period of time, as this may indicate that the owner is willing to accept a lower offer.
Another route you can take is marketing your business online, using paid advertising, SEO, or social media marketing.
Finding properties with Paid Advertising
There are only so many hours in a day that you (or your team) can manually search for off-market properties. This is where digital marketing creates a mostly passive stream of leads for your wholesaling business.
Paid advertising is a great way to generate motivated seller leads because it allows you to target your audience precisely. You can choose the demographics, interests, and specific behaviors you want your ad to target. This ensures that your ad reaches people in the market to sell their homes.
Paid advertising also allows you to track the performance of your ad campaigns so that you can see which ones are generating the most seller leads. This information can be used to improve your campaigns and ensure that you are getting the most return on your investment.
Overall, paid advertising is an effective way to generate seller leads. You can maximize your chances of success by targeting your audience and tracking your results.
Finding properties with SEO
Chances are high that there are people in your area looking desperately to sell their homes. They could be going through a divorce or facing foreclosure on their home. Whatever the case, people search online for a way out of their predicament.
Good SEO helps us position ourselves as the first solution they see when they search for things like “need to sell my house fast” or “how to sell my house before foreclosure.”
SEO stands for “Search Engine Optimization” and exists to get more eyeballs on our website than anyone else.
I won’t get into the technical details of SEO, but know that when SEO is done properly on your website, you won’t have to find motivated sellers — they’ll find you.
Finding Properties with Social Media
Social media platforms can be a great tool for finding distressed properties. For example, you can search for hashtags like #foreclosure or #preforeclosure to find posts about homes that are in danger of being foreclosed on.
You can also follow real estate investors and agents specializing in distressed properties. These professionals often post about their latest deals, which can give you a sense of what properties are currently discounted.
By utilizing social media, you can stay up-to-date on the latest distressed properties and find some great deals on investments.
Nurture Every Lead Automatically
A wholesale real estate business lives or dies on the quality of relationships you build with your clients and others in the industry. This means you need to keep track of the people you come in contact with.
Why? Because real estate investing is a long game, and the leads you get today may not pay out for months, even years. During this long sales process, you need to keep the conversation going, so you’ll be top of mind when a lead finally decides to sell.
Look for a purpose-built CRM for real estate investors, one with a nice stack of features and automation. Get a CRM that will nurture your leads on auto-pilot, keep your contact information tidy, and help market to the right audiences.
Once you have a CRM, connect it to an email provider so that you can automate the nurturing process with your leads. Send leads on your list scheduled emails every month, quarter, or 6-months with a few clicks.
Tip:
Don’t be conned into paying outrageous fees for this software. There are free options for both CRM and email providers, you just have to do a little digging.
Action vs. Systems
I listed the systems you can implement to help generate and convert leads, but don’t get lost in the weeds. Sometimes the simplest option is best, especially when you’re just starting.
Take enough action on just one channel, and you’ll find a deal.
Good on the phone? Grab a delinquent tax list from the courthouse and start dialing the homeowners.
Bad on the phone? Create Facebook ads or send out direct mail that let people know you buy homes in their area.
Good with people? Develop relationships with local real estate agents or other investors and have them feed you potential properties.
Bad with people? Partner up with an extrovert. You run the data while they negotiate the deals.
There are dozens of ways to find a wholesale property to flip — you’ll have to find which strategy/channel works best for you.
Once you have found a property you’d like to pursue, it’s time to break out the calculator…
Step 2. Calculating ARV & MPT
The most exciting part of wholesaling is calculating how much you could make on a deal.
To help you visualize how these calculations work, we’ll look at a fictional scenario and go through the numbers together.
Note: this example is extremely simple – typical wholesale deals tend to be a bit more complicated.
How to Calculate ARV
ARV (After Repair Value) is a property’s current value + the value of repairs.
The first step in this equation is to find the home’s current, or “as-is” value.
The best practice for finding the current value of a home is to employ a licensed, professional appraiser. These folks spend most of their working hours walking through homes and estimating the values, year-round, in every neighborhood in your city.
Note: If you don’t like the number an appraiser comes back with, you can always try a second appraiser, but the numbers shouldn’t be too far apart.
The second step is determining the value of repairs. To do this, we need to scout finished houses in our target area to see what they sold for and why.
For instance, if granite countertops are popular in your market and boost appraisals, then we can surmise how much value our wholesale would get by installing new granite countertops in the kitchens and bathrooms.
To get this information, we need to source a CMA, or “comparative market analysis.”
A CMA report is used to compare your house with comparable houses in your area, houses that have sold recently or are currently listed, and are most similar to how your wholesale house will be after repairs.
Tip:
The easiest way to get a CMA is by working with a local real estate agent, preferably one who understands the wholesaling business.
Whether you do this manually, hire an agent to do it, or use a software solution like Mashvisor, you need to focus your analysis on a few things:
- Houses within 1-2 miles of your house – MAX.
- Preferably in the same neighborhood.
- Built around the same time, same square footage, number of bedrooms, etc.
- Homes that have sold recently (no longer than 4-5 months ago.)
Compare three or four homes and see if they match up against what you envision your wholesale house’s value is after the work is done.
Ultimately you want to come up with an ARV that matches the market value and leaves a nice margin between your actual cost of repairs and the value of those repairs.
(I’ll show you how to find this margin in a second…)
So far, your math should look like this: (Property Value) + (Value of Repairs) = ARV
Okay, so we now have an ARV we can work with. But, we still need to determine if the wholesale house will earn a profit for ourselves and potential buyers.
If you want to become a successful real estate wholesaler, you will also have to ensure your buyers’ profit, or no one will buy from you.
That’s where the MPT comes in…
MPT stands for (Maximum Purchase Target), but you’ll sometimes see this formula referred to as Maximum Bid Price, MAO (Maximum Allowable Offer), etc.
This formula helps us find the highest offer we can make for a property while ensuring we make a profit and our buyer can purchase the house below market price.
The most important piece of this formula is the 70% Rule, a popular rule of thumb that real estate investors use to calculate profitable deals.
How to use the 70% Rule
Understanding the 70% Rule is essential when learning how to wholesale real estate. The formula considers our ARV and cost of repairs to find a number we can safely use to bid on a property and secure a profit.
In a nutshell, the idea is to avoid spending more than 70% of the ARV minus the cost of repairs to ensure at least a 30% profit margin, or ROI.
Why 30%?
Thirty percent is the magic number real estate wholesalers look for when searching for real estate deals. It’s a margin that gives an investor breathing room to make a profit, even if the project doesn’t go according to plan.
The math looks like this: (ARV x 70%) – (Cost of repairs) = MPT
Once we have all our numbers plugged into this formula, we should be able to see whether or not the house we’re looking at is a good fit for our wholesale real estate business.
Tip:
If your numbers don’t work out, try adjusting your cost of repairs.
Are there repairs you could use cheaper materials on? Or maybe you’ve included costly repairs that won’t raise the value of the home — like landscaping — that can be cut out to save money.
Step 3: Getting The Property Under Contract
We’ve found a property, done the math, and now it’s time to get the house under contract!
Before I go any further, know this: even the greatest, wisest, most successful wholesaler will not win every contract.
Wholesaling real estate is a numbers game, and you will lose contracts to other competitors, to the retail market, to indecision, to the weather – you name it.
Real estate wholesalers make millions of dollars annually by winning a few contracts.
Let’s look briefly at the first real estate contract we’ll use for wholesale real estate deals – the PSA or “Purchase and Sale Agreement.”
You can download a basic template for this contract on LawDepot.com.
Real Estate Purchase and Sale Agreement
Step one in securing the sale is getting a homeowner to agree to purchase terms and sign a Purchase and Sale Agreement.
I won’t bore you with all the details you’ll need to add to the purchase contract, but here are a few key details you’ll want to be included.
- Purchase Price
- Parties Involved (contact info, signatures, and the like)
- Description of the property
- Condition of the property
- Deed type
- Closing date
Beyond these items, you’ll want to add a few “escape ladders” or contingencies, both for you and the seller. Contingencies are “what if” items that allow both parties to get out of a contract.
- Financing contingency – you won’t have to purchase the property if you can’t find financing or a cash buyer.
- Home inspection contingency – if the home inspection uncovers something you don’t like about the property, you can back out of the contract.
- Marketable title – if you can’t get title insurance or the seller fails to produce the title, we can nix the contract.
Tip:
Not sure what to include in a contract? Have a real estate agent or attorney look over any contract before you take it to market. You don’t want to open yourself to legal trouble by using a poorly-worded contract.
Once armed with a solid contract, we need to convince the seller to sign it!
Negotiating with the Seller
Every seller has an idea of how much money they’d be willing to put their house under contract for; our job is to sniff out that number.
Your first offer will rarely be the number the seller wants to hear. Sometimes your second, third, or even final offer will not be enough to sway some sellers – that’s just how the game goes. These back-and-forth negotiations with sellers are normal and are the primary battle everyone must face as a real estate wholesaler.
However, if you’ve followed the steps in this guide, you have all the information to make this wholesale deal a profitable one. You’re armed with an MPT.
Our MPT or Maximum Purchase Target is the most we can comfortably offer for a distressed property. This number will ensure a healthy profit margin for the buyer we assign the contract to and for us.
If we CAN’T get the seller to come down to our MPT, we’ll have difficulty finding a buyer willing to purchase the contract from us.
If we CAN get the seller to come down to our MPT, we’ll have an easier time finding a buyer willing to take over the contract.
Once we’ve arrived at a purchase price that leaves our seller and us happy, we can walk them through each line of the Purchase and Sale Agreement, get a signature, shake hands, and part ways.
Tip:
For a more in-depth guide on negotiating with sellers, or negotiating anything really, I highly recommend you read “Never Split the Difference” by Chris Voss.
This book is a one-stop shop for learning to negotiate and easily earned a place in my list of best real estate investing books.
Next step: we’ll build a list of entrepreneurs interested in real estate and assign a contract to one of them.
Step 4: Finding a Buyer
Finding a willing buyer to whom you can assign the contract is easier now than ever.
The internet has encouraged new investors to get started in real estate. Some are traditional flippers, others are wholesalers, and some are buying and holding to build a rental portfolio. These men and women enter the real estate industry in droves, each with a different investment strategy, but they all need property to get started.
This is great news for us as a real estate wholesaler because we’ll need buyers of all shapes and sizes.
Tip:
If you already have a buyer to assign the purchase contract to, then you can skip this next step.
But, I encourage everyone looking to get started learning how to wholesale real estate to learn how to build a buyers list.
How To Start Building a Buyers List
There are many, many ways to build a list of potential buyers, but the most effective way is to go online.
First, I’ll explain the paid advertising route – the quick and easy option.
Secondly, I’ll cover free options, like “buyer websites” and Facebook groups. The free options will initially involve a bit more effort but can be just as effective as paid channels.
How to Build a Buyers List with Paid Ads
Can you run paid advertisements with no money? No, but they are considerably cheaper than most ads you’ll run as a real estate investor.
See, property buyers are used to paying money to find a property, so they’re more than happy to let you show them one for free.
Additionally, advertising platforms like Google and Facebook have every data point imaginable to help you find other investors.
I won’t go in-depth on how to create paid ads (there are many tutorials online), but here are a few resources I recommend:
Once you’ve created ads and are generating traffic, you can begin collecting contact info. We’ll use a lead form or landing page to gather contact details.
Facebook has built-in lead forms that allow you to collect information from people who interact with your ads.
On the other hand, landing pages are “mini-websites” where we’ll send Google traffic. If you’ve clicked on an ad before, you’ve probably landed on one yourself.
The end goal for our paid ads is for buyers to submit their contact information.
We’re not trying to sell these people anything – yet. We want their name and email address — no more, no less.
How to Build a Buyers List with Facebook
Real estate investors like to hang out with and do business with one another. We’re very communal creatures in that way.
So, where do real estate investors hang out online? Facebook.
Here are the steps for building a list using Facebook groups:
- Apply to join a Facebook group
- Establish yourself as a wholesaler
- Engage with the group members
- Add contact details to your list
Tip:
Don’t spam these groups with your distressed property listing, or you’ll quickly be booted from the group. Take your time to engage with these communities, as they’ll become valuable assets to your real estate business.
Join a Wholesaling Website
If you don’t feel like building your list, you can tap into a pre-built list on a wholesaling website. This is an easy route to get eyeballs on your real estate, but it can come with costs.
Check out websites like these for getting quick access to buyers:
Tip:
Investorlift also has an awesome Facebook group behind it – kill two birds with one stone and check out both.
Using Your List to Find a Buyer
The hardest part of finding a buyer is behind us. Now that we have a list and a property to share with that list, it’s time to get the word out.
There are several ways to market to a buyers list, but email is the simplest and most common form of outreach.
How to Send Emails to a Buyer’s List
- Choose an email marketing software (My favorite is Sendinblue.)
- Connect it to your email provider (e.g. Gmail, Outlook, etc.)
- Write a great email showcasing your wholesale property.
- Wait for a response.
If you’d like more of a step-by-step guide for email, I recommend giving Hubspot’s guide a read.
Next step: We’ll negotiate terms with a buyer and assign the purchase contract.
Step 5: Closing the Deal
Closing a deal is the final leg in the real estate wholesaling race, and it’s where all the pieces come together to make us money!
Which pieces do we need to close a wholesale deal? Usually, there are just three:
- We need a PSA.
- We need a Buyer.
- We need an Assignment Of Purchase And Sale Agreement.
The PSA is an agreement between ourselves and the homeowner, but we don’t intend to purchase the property, so we must assign the contract to another buyer.
Assignment Of Purchase And Sale Agreement
To “transfer” the original Purchase and Sale Agreement, wholesalers (or assignors) use a separate contract to transfer purchasing rights to another party (or assignee). This secondary agreement is what’s referred to as an assignment.
In a nutshell, this Assignment contract allows your buyer to purchase the property in your place in exchange for an assignment fee paid to you.
Tip:
It’s common practice to receive your assignment fee as earnest money. This type of deposit ensures is non-refundable and ensures you make a profit whether or not your buyer does end up purchasing the property.
Negotiating Terms with a Buyer
If you’ve been marketing your wholesale deal to a list of buyers – several hundred people, ideally — you should’ve already received a purchase offer or two.
All you need to do now is negotiate a purchase price from a potential Buyer that matches or exceeds the purchase price you originally quoted to the Seller. Your assignment fee will be the difference between these two prices – so plan accordingly!
Congratulations! You’ve closed your first deal and officially know how to wholesale real estate!
This next section will answer a few common questions new investors tend to have.
Do You Need A License to Wholesale Real Estate?
You don’t need a real estate license to start wholesaling real estate in most states.
Illinois is an exception, however, and requires a real estate license if you intend to wholesale more than one house per year.
One way that having a real estate license can still help your business is by servicing retail leads.
For instance, while searching for off-market properties, you’ll find people who want to list their houses on the retail market. You can list these houses on the MLS and make a commission from the sale with a license.
This two-pronged approach allows you to make money from leads you otherwise wouldn’t be able to use for wholesaling.
What is Real Estate Wholesaling?
Real estate wholesaling, or “flipping,” is the process of finding deeply discounted properties, securing a purchase contract from the seller, and then assigning those contracts to another buyer.
Wholesalers typically find properties that need repair or are sold by motivated sellers willing to accept a lower price to sell the property quickly. The wholesaler then finds a buyer willing to pay a slightly higher price and assigns the contract to that buyer.
In most cases, the wholesaler charges a fee for their services. Real estate wholesaling can be a great way to make money in the real estate market without putting up a lot of money yourself. It is also a good way to start real estate investing if you don’t have much experience.
Wholesaling vs. House Flipping
While wholesaling and house flipping are two entirely separate real estate investing strategies, there can be confusion about the differences between the two.
It doesn’t help that wholesaling is often referred to as “flipping,” Both types of investing seek out distressed, off-market properties.
The key takeaways, however, are these:
- Wholesaling real estate means you’re acting as a “middle-man” between the seller and the actual buyer.
- Wholesalers sell purchase contracts.
- House flipping means you’re buying a real estate investment, not brokering the exchange.
- House flippers purchase, repair, and resell homes.
Final Thoughts
Wholesaling real estate is one of the best ways to start a real estate investment career. It’s surprisingly simple, highly profitable, and cheap to start doing!
Being a wholesaler can springboard you into flipping houses, building a rental property portfolio, syndications, etc. — the world is your oyster!
Good luck out there, and have fun!
