Real estate wholesaling is similar to flipping except that the time frame is much shorter and no repairs are made to the home before the wholesaler sells it. A real estate wholesaler contracts with a home seller, markets the home to his potential buyers, and then assigns the contract to the buyer. The wholesaler makes a profit, which is the difference between the contracted price with the seller and the amount paid by the buyer. The goal in real estate wholesaling is to sell the home before the contract with the original seller closes.
A typical wholesaling scenario looks like this: The wholesaler has a house under contract for $90,000 that he estimates needs $20,000 in repairs but will sell for $150,000 once the repairs are made. Using his network of investors, he finds an eager buyer at $100,000. He assigns the contract to his investor, who then has a profitable fixer-upper project, and the wholesaler made a $10,000 profit without ever owning the home.
The key to wholesaling is to add a contingency to the purchase contract that allows the wholesaler to back out if he is unable to find a buyer before the expected closing date. This limits the wholesaler’s risk. As the wholesaler never actually purchases a home, real estate wholesaling is much less risky than flipping, which cannot only involve renovation costs but also carrying costs. Real estate wholesaling also involves much less capital than flipping. Generally, only enough to make earnest money payments on a few properties is sufficient for wholesaling. Success depends on the wholesaler’s knowledge of the market and connection to investors for quick sales.