Wholesale – What Is Real Estate Wholesaling

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What Is Real Estate Wholesaling

What is wholesaling? 

You hear that a lot in the real estate circles or as a real estate investment strategy. Wholesaling is nothing more than going out and getting a property at a good price from a motivated seller and then selling it to somebody else at a higher price. And normally it’s an assignment. I’ll explain that. 

For example, let’s say you have a bunch of buyers out there that are looking to fix and flip properties and they’re willing to buy properties from you if the property makes sense. What you would do is you would go out and you would find properties, let’s say, at 50 cents or 60 cents on the dollar. You put these properties under contract, meaning you would put an agreement of purchase and sale on the property. You put down the deposit and then you would go and you’d find an investor or cash buyer that’s interested in investing in these types of properties.

The reason why investors would be interested in investing in these properties is because they want to do a fix and flip on these properties. 

And then all you do is you assign the contract that you have with the seller to this buyer. And when you assign it, you assign it for a certain amount of money. 

That assignment amount of money is called an assignment fee. 

The reason it’s called wholesaling is because you’re selling to an interim buyer and not the final buyer in the process. The interim buyer would be the person that’s doing the fix and flip in this case. 

So wholesaling is nothing more than buying or getting a property under contract from a seller, usually a motivated seller, and then assigning it to a buyer who’s going to be somebody who’s going to do something with that property, usually fixing and flipping it. 

Another lesser involved type of transaction that’s sort of associated with wholesaling is referrals.

The difference between referrals and wholesaling is that a referrer is somebody who finds a property and then just brings it to the cash buyer or the fix and flipper for a referral fee. They don’t put it under contract. They have no legal relationship with that property. They don’t have anything in writing. It’s just a referral. It’s just a recommendation for this property. If the cash buyer buys it, or if the investor buys it, they’ll give that person a referral fee. 

The difference in fees is quite a bit but usually, the wholesaler has done a lot more work. The wholesalers will also usually estimate the after repair value (ARV) and the estimates. They’ll do a lot more digging into what needs to be done to that property. It’s almost like a, a turnkey fix and flip type of solution. 

The referral might get a thousand or $2,000 for their work. The wholesaler might get $10,000, $15,000, or $20,000 for their work depending on the price of the house in both cases. 

Okay. So that’s what wholesaling means, and that’s what a referral means.

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