What’s real estate wholesaling?

If you find an excellent deal, you can sell the contract to another investor for a fee. Most of the time this fee ranges from $2,000 to $5,000 but you are really only limited by the discount you get from the seller. Investors typically want to buy a property for 70% or less of retail value. If you can make $50,000 or even $100,000 and still sell the property to an investor for less than 70% of retail, you win.

For example, say you get a beautiful home in Austin’s Clarksville neighborhood under contract for $400,000, a steal since it will easily sell for $1 million or more fixed up. It needs $100,000 in work, but investors are willing to pay $600,000 for the property (purchase price + repairs = 70% of retail), leaving you $200,000 profit for wholesaling it to them. Even if you’ve underestimated the repairs, you have room to negotiate.

  • Purchase: $400,000
  • Repairs needed: $100,000
  • Retail value: $1,000,000
  • Investor’s maximum allowable offer including repairs: 70%, or $700,000
  • Potential profit from wholesale to investor: $200,000

If you are interested in real estate wholesaling, we buy quickly for cash. Central Austin is preferred but we’ll look at anything in Austin. If you need bridge funding to buy a property you plan to wholesale, we can help with that too.

There are 2 basic ways to wholesale real estate: assignments and double closings.

What’s an assignment?

Assignments are when you sell your contract to another investor. Keep in mind your seller will know this is happening and may see how much you’re making. You cannot earn a commission on a property sale in Texas unless you are a licensed Texas real estate agent, but you can profit from a purchase contract you are a party to.

What’s a double closing?

The classic double closing is where you buy and sell the property on the same day with the same money. You buy the house from the seller with your buyer’s money and take the difference home. Your title company arranges a pass-through title insurance policy in advance. Be aware that not all title companies offer this type of policy. Also, some will require the seller to sign something notifying them about the pass-through status of the title policy. This may or may not raise a flag.

If the buyer is not paying cash (or using a private lender) you will invariably have what they call a “seasoning issue” if you try to schedule a double closing. In short, lenders fear fraud and usually want to see 60 to 90+ days of the same seller on title (seasoning) before they will make a loan on the property. Hard money lenders and cash buyers aren’t usually bothered by seasoning (or real estate wholesaling in general) as long as the title is insurable.

Another way of wholesaling is with 2 separate closings. You close on the property with cash or bridge financing and immediately market the property for sale. After the 90-day mark you can typically sell to people with conventional and FHA loans without a seasoning problem. You might close with hard money and hold the property for a few hours, days or weeks. The downside is you will typically need to purchase 2 title policies for this type of wholesaling.

Marketing to the general public and targeting people who plan to live in the house will increase your sale price, but you will likely need to engage (and pay) a licensed agent and you’ll be expected to pay more of the closing costs than if you’re selling to an investor in an off-market sale.

4 thoughts on “Real Estate Wholesaling Explained

Leave a Reply

Your email address will not be published. Required fields are marked *