How to start wholesaling real estate?

Wholesaling real estate is an excellent way to get into the real estate investing business. It allows one to make money without even purchasing properties, thus a low-risk entry into the business.

This is a business model of finding distressed properties, locking them up under contract, and then reselling that contract to a buyer for a fee. But how do you wholesale real estate, and do you need a real estate license to do so? In this tutorial, we’re going to break down the process, laws, and important steps to get you started.

What is wholesale real estate?

Wholesale real estate is a strategy where investors, known as wholesalers, identify properties being sold below market value, often by motivated sellers. The wholesaler contracts the property at a negotiated price and then reassigns the contract to a potential buyer for a fee. Unlike traditional real estate transactions, the wholesaler never actually buys the property—just the rights to purchase it.

Key elements of wholesaling:

• Finding distressed properties
• Negotiating a favorable purchase price
• Signing an assignment contract
• Finding a buyer willing to pay more
• Collecting a wholesaling fee upon contract transfer

Do you need a real estate license to wholesale?

One of the most common questions for aspiring wholesalers is whether a real estate license is required. The short answer is no, but it depends on the specific regulations of each state. While wholesaling is legal across the United States, some states impose restrictions on how wholesalers market properties, interact with buyers and assign contracts, which can create scenarios where having a real estate license becomes necessary.

Understanding wholesaling and licensing requirements

Wholesaling in real estate is the act of purchasing a property under contract and reselling that contract to another buyer for a commission. Since wholesalers do not sell real estate per se but sell their interest in a contract, they prefer to do so without a real estate license. However, some states have tightened their laws to prevent unlicensed individuals from engaging in activities that are akin to real estate brokerage.

States with stricter wholesaling laws

Certain states have implemented legal requirements that make wholesaling in an unlicensed manner more challenging. Such legislation may comprise:

A Real Estate License to Sell Contracts

Some states consider marketing a property that is already under contract a licensable real estate activity. In these states, wholesalers must be careful what they say about their deals, as promoting a property in which they have no interest could be considered unlicensed real estate brokering.

The majority of states require wholesalers to reveal their status in the transaction. Some have passed laws requiring disclosures in straightforward language that reminds everyone involved that the wholesaler is not an owner of the property but is providing an assignable contract. Others have banned or limited the use of assignment contracts altogether, requiring wholesalers to purchase the property first before reselling it.

Talking to a Real Estate Attorney to Avoid Trouble

As wholesaling laws are complex, wholesalers in certain states would need to work with real estate attorneys to ensure that they do not lapse out of compliance. An attorney can draft contracts, get transactions legally structured, and offer any regulatory subtleties that would lead to penalties or lawsuits for the wholesaler.

Benefits of getting a real estate license for wholesaling

Even in states where a license is not required, obtaining one can offer several advantages:

• Increased Legitimacy and Credibility: A licensed wholesaler may be viewed as more trustworthy by sellers and buyers.
• Increased Marketing Potential: Licensed professionals can list properties on the Multiple Listing Service (MLS) and legally market properties without restriction.
• Increased Deal Accessibility: A license provides access to more resources, such as networking with other agents, finding off-market deals, and earning commissions on traditional real estate deals.
• Legal Protection: Being licensed ensures compliance with real estate laws, eradicating the risk of legal conflicts.

How does wholesale real estate work?

Understanding the wholesaling process step-by-step can help ensure success in this business model. Here’s how it typically works:

1. Find a motivated seller – Look for distressed properties or homeowners willing to sell quickly.
2. Negotiate a purchase price – Secure the property at a price below market value.
3. Sign an assignment contract – This contract gives you the right to assign the deal to a buyer.
4. Market to potential buyers – Use social media, networking, and investor groups to find a buyer.
5. Assign the contract and collect a fee – Once a buyer is secured, the contract is transferred, and the wholesaler earns a fee.

Is wholesaling real estate legal?

Wholesaling real estate is legal in most states; however, it operates within a gray area of real estate law, and wholesalers must adhere to specific regulations to avoid violating licensing requirements. The primary legal concern is whether a wholesaler is engaging in activities that require a real estate license, such as marketing or negotiating the sale of a property on behalf of a seller, which could be considered acting as an unlicensed real estate agent.

Key legal considerations in wholesaling

1. Avoiding Unauthorized Brokerage Activity

Many states have strict laws prohibiting individuals from representing sellers or buyers in a real estate transaction without a license. If a wholesaler appears to be marketing a property rather than their contractual rights, they may be violating real estate licensing laws.

2. Assignment of Contract vs. Double Closing

Wholesalers typically use an assignment contract to transfer their rights to purchase the property to an end buyer. Some states have restrictions on assignment contracts, requiring full transparency and seller consent.

In states with stricter wholesaling regulations, investors may need to perform a double closing, where they briefly take ownership of the property before reselling it. This ensures compliance with laws preventing unlicensed brokering.

3. State-Specific Regulations

Some states, such as Illinois and Oklahoma, have passed laws that require wholesalers to be licensed in real estate if they are not handling their own property. Other states may also have similar limitations or prohibitions on assignment fees and advertising.

4. Advertising Restrictions

Many states prohibit wholesalers from advertising a property they do not own. Instead, they can only market their equitable interest in the contract, not the property itself. Misleading advertisements can result in penalties and legal action.

5. Ways to Ensure Legal Compliance

Consult a Real Estate Attorney. A legal professional can review contracts and ensure that wholesaling practices comply with state laws.

6. Clearly Disclose Wholesaling Activities

Both sellers and buyers should fully understand that the wholesaler is assigning a contract rather than selling the property. Transparency helps prevent legal disputes.

7. Follow State-Specific Assignment Laws

Since laws vary by state, wholesalers must understand whether their state has restrictions on contract assignments or requires licensing for certain transactions.

8.Structure Deals Properly

If an assignment contract is not legally allowed, a wholesaler may need to use a double-closing strategy, where they purchase the property before reselling it.

By adhering to these best practices and understanding legal requirements, wholesalers can operate within the law and avoid penalties or legal complications.

How to become a wholesaler in real estate?

Wholesaling real estate occurs when a wholesaler seeks out and purchases distressed homes at a price below market. Then, the wholesaler simply assigns the contract to the ultimate user, usually a real estate investor. The following are some hints on how to become a wholesaler in real estate.

1. Educate Yourself

Before jumping into wholesaling, it’s crucial to understand the basics of real estate investing, local market trends, and legal regulations. This includes:

• Learning real estate laws in your state, as wholesaling regulations vary. Some states require wholesalers to have a real estate license.
• Understanding contract assignments and double closings are the two primary methods wholesalers use to close deals.
• Gaining knowledge about property valuation, repair estimates, and negotiation tactics to make profitable deals.

2. Build a Strong Network

Success in wholesaling depends on relationships. Building a network with key players in the real estate industry can help you find deals and buyers more efficiently. Your network should include:

• Real estate agents who can provide access to off-market listings.
• Investors and house flippers who are potential end buyers for your deals.
• Attorneys and title companies to ensure contracts are legally sound.
• Contractors who can estimate repair costs for distressed properties.

3. Find Distressed Properties

Wholesalers typically target distressed properties because sellers are more likely to accept below-market offers. To find these properties:

• Search foreclosure and auction sites like Zillow, RealtyTrac, or county records.
• Look for pre-foreclosures, tax-delinquent properties, and absentee owners who may want to sell quickly.
• Use direct marketing strategies such as cold calling, sending mailers, or door-knocking in target neighborhoods.

4. Secure Financing if Needed

Although wholesaling doesn’t require purchasing the property outright, some deals may require upfront costs, such as:

• Earnest money deposits to secure a contract with the seller.
• Marketing expenses for direct mail campaigns or online ads.
• Transactional funding is available if a double closing is necessary.
• Having access to a line of credit, private lenders, or a small cash reserve can help cover these costs.

5. Market to Cash Buyers

Once you have a property under contract, you need to find a buyer quickly. The best buyers are real estate investors who pay cash and close fast. To build a strong buyers list:

• Join real estate investor groups on Facebook, LinkedIn, or Meetup.
• Attend real estate networking events and auctions.
• Advertise on Craigslist, local investor forums, and wholesaling websites.
• Establish email campaigns to reach out to potential buyers consistently.

How to become a wholesaler in real estate?” starts with gaining a solid understanding of market trends, legal requirements, and investment strategies. Building a strong network, finding distressed properties, securing necessary financing, and effectively marketing to cash buyers are essential steps. By mastering these elements, aspiring wholesalers can successfully navigate the real estate market and close profitable deals.

Best states to wholesale real estate

Some states have better conditions for wholesaling due to lower property prices and investor-friendly laws. Consider wholesaling in:

• Texas – Large market with many distressed properties
• Florida – High demand from cash buyers
• Georgia – Favorable wholesaling laws
• Ohio – Affordable housing market
• Arizona – Strong investor presence

Summing-up

Wholesaling real estate is a great way to get into the real estate business without spending a lot of money. Knowledge about it, legal knowledge, and the best practices can make you successful in wholesaling.

If you’re ready to take it to the next level, Lexawise can help. With professional coaching, educational material, and up-to-date information on real estate law, we provide you with everything you need to dominate wholesaling and obtain your real estate licensing exam if needed. Start your experience at Lexawise today!