Wholesaling Real Estate

Interested in real estate investing but don’t want to make a long-term commitment or a big investment? Welcome to the exciting world of wholesaling real estate! This strategy is perfect for investors who are looking for a quick, cost-effective way to dip a toe into real estate investing.

What is Real Estate Wholesaling?

Wholesaling real estate is a short-term type of real estate investing. A wholesaler makes a contract with a real estate owner who is interested in selling. The wholesaler gives the seller a small earnest-money deposit and agrees to find a buyer for them at a specific price. The wholesaler never takes possession of the property and never intends to; their goal is to assign the contract to the buyer for more than the price stipulated in the contract.

Example of Wholesaling Real Estate

Real estate wholesaling is a relatively straightforward concept, but an example may help to make it more concrete.

Let’s say a homeowner has a house they’d like to put on the market, but the home is in poor condition, and they believe they will have to do repairs or renovations before they can put it on the market. Unable to find the money for the upgrades, they continue to live there as the property falls into further disrepair.

A wholesaler approaches the homeowner with an offer to find a buyer for the house in its current state. The homeowner and the wholesaler arrive at a price of $200,000, and they put the house under contract for that sum.

The wholesaler finds a buyer willing to pay $225,000 for the house. The buyer could be a flipper, someone who will eventually live in the home, or another investor. The wholesaler then assigns the contract to the buyer. The wholesaler gets the difference between the contracted price ($200,000) and the assigned price ($225,000). Without ever having purchased the property or invested in upgrades, they have earned $25,000.

This is a simplified overview of the process, but it illustrates how wholesaling real estate works. You can learn more details about the process by going to the section “What is the process of wholesaling real estate?” below.

Is Wholesaling Legal in Canada?

Wholesaling real estate is legal in Canada but may be subject to regulatory restrictions depending on the province. Prospective wholesalers must ensure they use legally valid contracts, follow all relevant laws, and operate transparently and ethically. Failure to follow these rules and guidelines could result in fines, lawsuits, or even criminal charges.

Fortunately, there is plenty of guidance about how to engage in real estate wholesaling without violating norms or statutes. As you learn more about real estate wholesaling, you will get a better understanding of how successful wholesalers maintain high legal and ethical standards.

What are the Advantages of Wholesaling Real Estate?

Wholesaling real estate offers some unique advantages, particularly for those who are new to real estate investing.

Low Barriers to Entry

You don’t need a large sum of money to get started. Your only outlay is the earnest money deposit you use to get the assignment contract. Even if your credit score is low, it won’t stand in your way. Wholesaling real estate can give you the cash flow you need to build your credit back up.

Quick Turnaround

Wholesaling real estate is typically much faster than other real estate investment strategies. You can often get through the entire process in a few weeks or a month. You also receive your profit quickly: as soon as the deal closes, you should get your assignment fee.

Low Risk

You never actually own the property, so you are exposed to much less financial risk.

Learning Experience and Networking Opportunities

Wholesaling can be an excellent way to learn about the real estate investment industry, including how to interpret market metrics, evaluate properties, talk to buyers and sellers, and negotiate deals.

The process will also help you build a network of contacts, including real estate agents, contractors, industry professionals, and other investors, which can be beneficial for future deals or other types of real estate investments.

Variety

Wholesaling real estate is not restricted to single-family homes: you can wholesale apartment buildings, commercial property, and even vacant land. This opens up your opportunities and also gives you a chance to learn about different segments of the market.

Scalability

Once you’ve learned the basics of wholesaling real estate and you have a few successful deals behind you, you can ramp up your enterprise by putting more than one deal in play at a time.

Flexibility

You can wholesale real estate part-time while working a regular full-time job. If you want to, you can take extended breaks from real estate wholesaling to spend time with family or travel. You can also work remotely and conduct most of your business virtually, so you have geographic flexibility as well.

What are the Cons of Wholesaling Real Estate?

Despite the many attractive advantages of wholesaling real estate, there are some downsides:

Time Requirement

Although deals can be completed relatively quickly, you will need to devote considerable time to your wholesaling projects, especially when you’re starting out. Once you’ve made some new connections and you start to build your network, the process will be smoother and less time-consuming.

Lack of Buyers

One of the biggest risks of wholesaling real estate is not finding an end buyer before the contract runs out, which could result in losing your earnest-money deposit and damaging your reputation. If this happens, you may be able to negotiate an extension with the seller, but this is not guaranteed.

Thin Margins

Some types of real estate investing offer the potential for big profits, but in wholesaling, the margins are typically smaller. Profits can also be eaten up by downturns in the market or unexpected expenses.

No Steady Income or Asset Building

In wholesaling, you never own the properties, and you don’t earn the steady income that comes from renting out properties that you own. If you stick exclusively with wholesaling, you will not build equity of your own.

How Does Wholesaling Real Estate Differ from Being a Selling Agent?

Wholesaling real estate may sound a lot like being a real estate agent. Like wholesalers, real estate agents try to find a buyer for a property on behalf of the seller. However, the two functions differ in key respects:

Role in the Transaction

A wholesaler acts as a middleman in the transaction between a seller and a buyer, whereas a selling real estate agent represents the owner of the property.

Licensing Requirements

In some jurisdictions, you need to have a real estate license to wholesale real estate, but in others, you do not. In contrast, real estate agents are required to have a real estate license and are subject to numerous laws and regulations, which are strictly enforced.

Risk and Investment

The main investment for real estate wholesalers is the time it takes to locate suitable properties and to find buyers for them. Their biggest risk is not being able to find a buyer before the contract expires, in which case they will lose their earnest money deposit.

Real estate agents also invest a great deal of time in their work, but they also have considerable overhead and marketing costs. Their main risk is their unpredictable and fluctuating income, which can be due to factors outside their control.

Method of Compensation

Wholesalers make money by assigning the contract to a buyer for more than the contract price. Real estate agents receive a commission based on the selling price of the property.

How Does Wholesaling Differ from Flipping Properties?

Wholesaling and flipping are somewhat similar in that the investor never intends to live in the home, rent it out, or use it for their business. With both strategies, the investor plans to find another buyer for the property.

However, someone flipping a property purchases the property and then repairs or renovates it before putting it on the market again. In contrast, wholesalers never take ownership of the property; the title belongs to the original owner until it is sold.

Because flippers own the property, they are responsible for property taxes, mortgage payments, utilities, and the expense of preparing the property for resale. For that reason, there is a great deal more financial risk involved in flipping.

What is the Process of Wholesaling Real Estate?

The process of retailing whole estate is relatively straightforward, but success or failure depends on attending to the details and staying actively involved. Don’t be scared off by the things you don’t know how to do yet: there are plenty of ways to learn, and you will become more adept at wholesaling as you progress.

Identify an Area to Search for Properties

The area where you conduct your search is essential to finding the right property. This is what you will want to look at:

Economic indicators such as strong job growth and low unemployment. Also, watch out for any changes that could affect employment in the area. For example, if a town is built around one industry, watch for regulatory changes that could impact it and lead to job losses. Conversely, if a company is building a large facility there, newcomers will be looking for housing, and ancillary businesses will need space.
High population growth offers more opportunities for wholesalers. Look for popular areas of a city where a lot of young people want to live or communities that welcome new immigrants, where demand for housing will likely rise.

Find a Property

Now comes the fun part: finding a home that can start you on your wholesaling adventure! Optimally, you will find a property that is under financial or legal duress, making it a candidate for a quick sale, such as:

Properties that are foreclosing or under power of sale (in Quebec, this is “taking in payment”/“prise en paiement”)
Properties with significant liens against them
Estate sales

You can also look for:

Properties that have been on the market for longer than average
Sellers who have purchased a new home but have not sold theirs yet.
Homes with absentee owners

Some resources for finding properties include:

The Multiple Listing Service (MLS)
Local real estate agents who may know of properties that fit the bill.
Online real estate investment forums
Driving around a neighbourhood to identify properties that might be suitable (also known as “driving for dollars).

Analyze the Property

Before you dive in, ensure that your wholesale real estate deal would make financial sense.

Conduct a title search to ensure the person claiming to own the property actually owns it.
Look at comparable homes in the area that have sold recently. This will be your starting point.
Evaluate the condition of the property for any necessary repairs or renovations. Subtract these costs from the fair market value of the property.
Subtract your fee from this figure. This is the maximum contract price you can offer the buyer. This figure is analogous to the highest amount you would be willing to pay if you were purchasing a property to flip it.

Approach the Seller

Before you make contact with the seller, find out why they are selling the property. Are they in financial difficulty? Are they getting a divorce? If it is an estate sale? If so, how long ago did the owner pass away, and what is the relationship of the person handling the sale to the deceased? This information will help you determine how to approach the owner with sensitivity and professionalism.

Explain the wholesaling process to the seller as clearly as possible. It might help if you bring some printed information with you or some reputable websites you can refer them to. Always be professional, courteous, and transparent, maintaining the highest ethical standards.

Get the Property Under Contract

Arrange for a home inspection of the property to ensure that no major repairs are needed that you haven’t already subtracted from your maximum contract price.

Present the contract to the client and be prepared to answer their questions. Give them a reasonable amount of time to consult with their advisors and consider your offer.

Find a Buyer

Now that you have the property under contract, it’s time to find a buyer! Here are some strategies you can use:

List the property on MLS if you have a real estate license of your own or are working with a real estate agent.
Look for other online platforms where you can list the property, such as Craigslist, Kijiji, or specialized online wholesaling marketplaces.
Work your network of real estate agents, contractors, mortgage brokers, house flippers, and fellow wholesalers. Let them know that you have a property available and send them the details.
Post the property on your social media. You can do this under your own name or open up new accounts for your wholesaling real estate business.
Consider buying targeted ads on social media. With the right hashtags, you can get plenty of interest.

If you plan to do more wholesaling, build your network right from the start. Get a LinkedIn account and start making connections in the real estate investment community. Post interesting articles or develop your own content to get engagement. Attend in-person social events and workshops for people interested in real estate investing. Most of these events are free, and you can pick up some great tips and insights while making new friends!

Assign the Contract and Close the Sale

It’s almost time to get paid! But first, you need to take care of the actual sale.

First, ensure your buyer has the money to pay for the property. Ask for proof of funds, verification of a pre-approved mortgage, or a letter from the buyer’s lender. Request a deposit from the buyer as a show of their good faith.

Draft an assignment agreement detailing the terms of the transfer. This should include your assignment fee. Have your lawyer check the agreement to make sure it follows all the relevant laws and regulations.

Following that, the process is similar to selling a house: the buyer may request an inspection or a final walkthrough. Finalize the last few details, such as the closing date and who will pay the closing costs. Your lawyer can then prepare the final documentation to transfer the title of the property.

Finally, get your assignment fee and celebrate your first wholesaling real estate deal!

What are the Personal Qualities That Make Someone a Great Wholesaler?

Anyone can get into wholesaling if they have time, energy, and patience. However, some people are more suited to the challenges of wholesaling real estate than others. Here are the qualities that are most important for a wholesaler:

An Entrepreneurial Mindset

As a wholesaler, you run your own business. No one will tell you what to do or give you instructions, so you need to be self-motivated and willing to hustle.

Good Communication Skills

Wholesalers must be able to explain the wholesaling process to property owners and convince them to use this method to sell their property. Clear, transparent, honest communication is essential to successfully wholesaling real estate.

Solid Research and Analytical Skills

Wholesaling real estate entails such tasks as assessing property values, researching neighbourhoods, and incorporating market-end demographic trends into an overall analysis of each property. Successful wholesalers are skilled at locating and synthesizing information.

Strong Networking Skills

A great wholesaler works hard at building relationships. They must be adept at making connections and maintaining relationships. The more strong relationships a wholesaler has with property owners, contractors, other investors, buyers, real estate agents, and industry professionals, the more successful they are likely to be.

Dedication to Ongoing Learning

The real estate industry can change rapidly. New laws and regulations may come into effect, new markets may open up, and external events such as an increase in immigration or a factory closing down may make existing markets more attractive.

There may also be new analytical tools, software, methods of analysis, and sources of information that could be helpful to real estate investors.

Staying up to date by taking courses, attending seminars, going to conferences, and attending social events for real estate investors helps a wholesaler stay up-to-date and relevant.

About Keyspire

Throughout this page, you will have read about the importance of knowledge and experience in wholesaling real estate. Although experience can only come from jumping into the wholesaling game, there are plenty of ways to gain the knowledge you will need.

Keyspire has given tens of thousands of new investors the training and tools to step into the real estate investing sphere with confidence. Our classes, workshops, and networking events not only provide you with knowledge and skills but also bring you into our growing community of over 100,000 like-minded individuals, a ready-made network you can tap into.

Ready to get started? Join our Masterclass, where you’ll learn the five things that successful real estate investors do consistently. The Masterclass will give you key insights you need to feel empowered to make real estate deals. Our live, interactive 3- or 2-day accelerated Bootcamp takes it to the next level with even more information and opportunities to apply what you’ve learned. You’ll leave this experience feeling confident and prepared!

Want more opportunities to meet with other investors and top industry experts? Come to our exciting 3-day Investor Summit. Through our seminars, workshops, and social events, you’ll be able to connect with others just like you to share your story, pick the brains of genuinely successful people close to the hottest real estate investment action, and build valuable and meaningful relationships with people from across Canada! Reserve a spot at this premium event for inspiration that will truly energize you!

Looking for some tailored coaching? We offer one-on-one sessions with our certified real estate investment experts. We will assess your goals, needs, and skills to provide you with customized insights and help you overcome any stumbling blocks. Your coach will also give you access to a suite of tools to guide you along your path to real estate investment success!

At Keyspire, we are not about competition; we are about coaching, training, and networking: all the things you need to embark on your real estate wholesaling journey. We are committed to seeing all our investors succeed and to celebrating everyone’s successes along the way. Come to one of our events to learn how you can achieve financial freedom by wholesaling real estate.