Wholesaling Explained: How to Flip Houses for Quick Cash

You know, after more than a decade now in real estate investing, it can be easy to forget sometimes how challenging things seemed at first.

Today I have the privilege of running a very successful, high-profit real estate wholesaling business. Because of that, I enjoy a lifestyle that most people stuck in the 9 to 5 can’t even imagine. I get to work remotely on my laptop from just about anywhere in the world with Wi-Fi. I’m a surfer dude turned full-time real estate investor, and honestly I typically spend more time surfing each day than I do working on my business. I travel incessantly with my family and can run my business from wherever the heck I happen to be in the world at any moment in time.

Here’s a view of me and my ‘office’ on a Costa Rican beach. Pretty awesome, right?!

freedom in costa 3

But thinking back now, I can remember what it was like early on, and how even just getting my head around the fundamental concepts and industry lingo of flipping houses was a struggle at first. I mean, when you’re green, you don’t even know what you don’t know yet!

So if this is you, and you haven’t quite got your head wrapped around what wholesaling houses is all about and how it may fit into your real estate endeavors, then this blog post is for you. I aim to concisely explain wholesaling as a process and as a model for doing quick, high-profit deals in real estate, plus answer some of the most frequently asked questions I hear from newer investors all the time.

So I’ll start in this post with the very foundation of what wholesaling houses really is and what it’s not… Then in future blog posts, I’ll dig deeper into my specific niche of wholesaling and how I’ve been able to tweak and perfect my process over the years to make it unique. I think you’ll dig it. 🙂

So let’s do it…

What is Wholesaling?

When most people think of “flipping houses” they think of fixing-and-flipping, like you see in those flipping and rehab reality TV shows where someone fixes up a property over a period of time, then resells it for (hopefully) a much higher profit.

Wholesaling is a type of property flipping in which you can make good money fast, without rehabbing the house. Yes, rehabbers tend to make more on average per deal, but wholesalers thrive on volume and velocity. Many people make the distinction saying you’ll make “quick nickels” wholesaling houses or “slower dimes” rehabbing them.

In its simplest form:

 Wholesaling houses is when you get a house under contract at a solid discount…

 then effectively sell that contract to another person for a profit, and…

 the difference between what you and your end buyer each paid (i.e. the spread) is your profit.

As an industry norm, your end-buyer is usually referred to as your “cash buyer” or “investor-buyer”, and could be a landlord who plans to rent the property out, or maybe a rehabber who plans to fix-and-flip the house for a profit. Sometimes you can wholesale a house to an owner occupant, but it’s not the norm for most real estate wholesalers.

Key Takeaway: The key to wholesaling is finding properties that are cheap enough so there’s still room for your end buyer to get a smokin’ deal when you sell it to them.

Let me explain…

As a wholesaler, you are typically looking for (or marketing to attract) motivated sellers – that is, someone with either a distressed property or in a distressed situation, who is in great need or perhaps even desperate to sell their home. For one reason or another, they have a problem that selling their property would help solve – and usually in ‘as-is’ condition with a relatively quick closing.

As the wholesaler investor, you negotiate the best below-market deal you can with the motivated seller, based on the condition of the property, or the circumstances, or a combination o both.

Once you have a deal, you’ll put it all down in a simple purchase contract, and and then simply sell your contract to a cash buyer for a price.

This could typically happen a couple of ways: Either through (i) assigning your contract, or (ii) doing two ‘simultaneous’ closings back-to-back. More on the differences in a minute, but first let’s put some basic numbers to this so you can see a little more tangibly how it might play out…

You get the motivated seller’s house under contract for $30,000. You then quickly sell that contract to a cash buyer investor for $40,000, leaving you with a fat (and maybe even easy) payday of $10k. Not too bad, huh? That is wholesaling. 🙂

wholesaling houses sketch

Do Wholesalers Only Pay 50 Cents on the Dollar?

I hear this said a lot actually – that wholesalers simply must get a house under contract for at least 50% below market value in order for it to make sense.

Well… not in my experience. Now always at least…

In fact, contrary to popular belief, there’s actually no “magic number” or standard percentage you should aim to get the property under contract for.

It really just depends on so many variables like the market itself, the neighborhood the house is in, the comps, and how many active investors there are in the area, for example. In some areas, that means you’ve got to snag it at half off or better. In other markets you can buy at 10% below retail and still make decent money, because that market (or even that specific neighborhood) is super hot.

So keep this in mind: Cheaper is always better, but a wholesale deal doesn’t necessary have to be a super-cheap, .50-cents-on-the-dollar kinda situation in order to make sense. What really does matter is the price your end-buyer is willing to pay for it. So you could still potentially pay a decent amount to get it under contract from the motivated seller, so long as you can carve out a decent piece for yourself.

do you accept cash

I’m active wholesaling houses in multiple markets and I can tell you for a fact that we’ve made great money wholesaling houses that we “paid too much for” according to what many formula-based wholesalers will tell you, but it’s because we really know what our buyers want and what a good cash deal looks like through their eyes.

Any light bulbs going off yet? I hope so.

Let’s keep going…

Are Wholesalers Actually “Investors”?

Well no, not technically…

A lot of people refer to wholesaling as a type of ‘real estate investing,’ but truth be told it’s not actually investing, but rather an active, transactional business.

Investing is when you put your money into something and your money stays in that something (as an investment) and that money then works for you to make you even more money.

Yes, in wholesaling you’re actually a real estate dealer not an investor. You’re actively involved buying and selling houses (or contracts) just like you would any other wholesale commodity. I.E. not an investment.

It’s really just semantics anyway. No need to go around correcting wholesalers who call themselves “real estate investors”. But if you want to be technically right, now you know the technically right answer 🙂

Where Can I Find Properties to Wholesale?

There are looooots of viable strategies wholesalers use to find good distressed property leads. That could be an entire stand-alone blog post, or heck, a full book even.

I’ll whet your beak with 4 deal-getting strategies I use and constantly work well for me…

Strategy 1 – Direct Mail

One of the most popular and effective ways to bring motivated sellers to the surface is through targeted direct mail campaigns.

So one way or another, you start by getting your hands on a targeted list of people who have a likely reason to have a distressed property or be in a distressed situation. Then you simply mail them some kind of marketing mailer, like a postcard or a letter. A very popular type of mailer nowadays with investors of all types is the “yellow letter” because they’re effective and relatively inexpensive marketing. I use them regularly myself.

Yellow letters (yes – on yellow legal pad paper) are meant to look like a handwritten letter, which people are more inclined to read because it feels more personal by being handwritten instead of typed on a generic white piece of printer paper. There’s actually printed fonts that look very realistically like handwriting nowadays – so you don’t have to literally hand-write hundreds of letters like we used to do.

Yellow letters usually say something very simple and to the point, like:

yellow letter

So let’s say you have your yellow letters or another type of direct mail piece ready to go. Who do you mail them to?

Well, there are several lead lists you can target with your direct mail marketing. Here’s a few time-tested, proven ones that tend to work well:

 Absentee Owners
 Absentee Owners with Equity
 Absentee Owners with Equity & 50+
 Probate estates
 Inherited Properties
 Vacant /Abandoned Houses
 Recently Divorced
 Recently Dismissed Bankruptcy
 Housing Code Violations
 Tax-Delinquent (behind/late on property taxes)

I just fired this list off the top of my head real quick, but there are lots of other types of leads you could target effectively with direct mail to get the phone ringing with motivated sellers. Some of these lists you’d compile yourself, and some of them you can buy from list companies like Listsource.com for example.

The two biggest keys to getting exceptional results with direct mail are:

  1. Consistency – Always keep your letter or postcard campaigns rolling out, or you’ll suffer from stop-and-go lead flow.
  2. Follow-up – Statistics show that 80% of people who will respond to your mailer, will only do so after the fifth contact. So if you only mail a list one time ever, then you’re missing most of the meat on the bone!

Strategy 2 – Real Estate Agents

Another way we find properties to wholesale is by having relationships with Realtors who understand your business and can let you know directly when they come across distressed property deals that might be a good fit for you as a wholesale deal.

Now let’s clear the air on something here…

There’s yet another common misconception among novice wholesalers that there are no good wholesale deals available on the MLS anymore. Well I’m here to tell you, there absolutely are wholesale deals on the MLS, but you need an industry insider (i.e. a good agent) to help you locate them.

I’m telling you, I’ve made money off them time and time again and I still do. But it’s probably not in the same “traditional” way you might think. I’m not using a real estate agent as my “exclusive buyers agent”, though I will always pay a commission on any viable wholesale deals they bring me.

The the way I do it is through cultivating symbiotic relationships with investor-friendly Realtors. They know I’m a player and I can make it rain. I’ve worked hard to impress upon them that when they find a distressed property or distressed seller that might work for me, they can get my full undivided attention and I’ll almost always make an all cash offer. They also know that in return, I’ll gladly refer to them motivated sellers who aren’t a good fit for me but could be a great fit for listing their property.

Through the relationship I built, they know it’s worthwhile to invest their time weeding out the retail and/or unmotivated deals on the MLS and send me the wholesale-type deals that meet my (i.e. my buyers’) criteria.

So don’t assume MLS referrals from agents aren’t viable. I’m telling you, it’s been straight up golden for me in my wholesaling business.

Strategy 3 – Online Leads Services

A third great strategy is to simply buy them from a leads service that’s specifically in the business of selling motivated seller leads to real estate investors. So online services such as Zbuyer for example. (I buy leads from them, but here are others I hear good things about too.)

While the cost of buying leads varies from county to county based on volume, for 200,000 people, I pay $225 per month. These purchased leads are worth the cost because the names on the list are people who have responded to Zbuyer’s advertising saying they are interested in selling their house – so these aren’t dead leads, they are active, interested and hopefully, very motivated.

Strategy 4 – Bandit Signs

Another marketing strategy to find wholesale properties is bandit signs. That’s the industry lingo for those corrugated plastic signs that you’ve no doubt noticed before stuck in the grass in the median or affixed to wooden power poles?

You can hand-write them yourself or order them from a printing company. The message on bandit signs is almost always some variation of the “We Buy Houses” message…

bandit 1b

A Little Disclaimer:

For whatever reason, some people find these disagreeable and in many areas code enforcement says these are a no-no and might very well get on your case. Or even better, some neighborhood do-gooder might even take it upon themselves to collect your unsightly and nefarious marketing devices and recycle them into a playhouse for the grandkids…

Whatever. That doesn’t change the fact that bandit signs are by far the cheapest and fastest way to get your phone ringing with calls from motivated sellers, and they flat out work.. Investors still use them all the time with great results.

Bandit Sign Pro Tip: I’ve found that one of the best times to put out bandit signs and not get in trouble with code enforcement is during election time – local or national. Why? Because there are loads of election signs out (which are basically bandit signs), so we sneak a few in that election mix. We try to match to the color scheme of the election signs, and just throw ours in the batch, kinda stealth-like under the radar.

Can You Explain More of the Mechanics of a Wholesale Transaction?

Sure thing!

As I mentioned before, a typical wholesale deal is a simple and straightforward concept, and there are two common ways to actually structure a wholesale deal:

(1) Assign your contract
(2) Double close

Let’s take a closer look at each method for a minute…

Assignment Method

The first wholesale deal structure involves assigning the contract.

It starts by the wholesaler (you) finding a great deal and signing a Standard Purchase Agreement with the motivated seller. In other words, just a regular contract of some sort.

Contract Pro Tip: Many newer investors worry waaaaay to much about whether or not they’re using the “right contract”. Any seasoned investor will tell you that you can morph any contract to say anything you want to. So the “right contract” is one where you’ve crossed out things you don’t want to include, and written in stuff you want added. Basically you can shape it to your preferences. That said, I do prefer a shorter contract written in plain English and my sellers usually seem to appreciate that. But don’t let having the “right contract” stand in your way or slow you down. Heck, you can use something off the Office Depot shelf if you want, so long as you modify it to suit the needs of your deal.

Once you have a signed contract to purchase from the seller, then you market that contract to your cash buyers. Once you have a buyer lined up who wants your deal, then you can simply assign your original Purchase Agreement to your end-buyer.

To do this, you use an extremely simple Assignment Agreement, which legally transfers all of your rights and obligations as buyer over to your new end-buyer.

Yes, that means everything in the original Purchase Agreement gets assigned over – the new buyer basically steps into your shoes and becomes your substitute, and you are then released from any liability or obligation to that contract. From that point forward the new end-buyer works directly with the seller to buy the property at the same price and terms in the original contract.

With this structure, you never actually take title to the property yourself, and your profit comes in the form of an Assignment Fee, which you’ll have negotiated with the end-buyer and will be included in the terms of your Assignment Agreement.

So in the example I doodled out above, your original contract with the seller was for $30k, and when you assigned it over to your end-buyer, they agreed to pay you a $10k assignment fee, which made their total output $40k (plus closing costs of course).

When and how do you get paid your assignment fee?

Well some wholesalers get paid their assignment fee right up front, at the time the contract is assigned, and others let the title company cut them a check for their assignment fee at closing. It’s all up to what you negotiate and how you want it to work really.

And that, friends, is how your basic assignment wholesale transaction works.

Contract Fun Fact: Many wholesalers believe you have to include “…and/or assigns” verbiage on your Purchase Agreement in order for it to be assignable. This isn’t actually true. Standard contract law states that all contracts are automatically assignable unless they explicitly say they are not. So you can feel free to leave the “…and/or assigns” off your agreements, and still assign the heck out of them. 😀

Double Close Method

The double close (also called a simultaneous close) method is pretty different, in that you’re basically doing two back-to-back closings on the same property on the same day.

Let’s learn our A, B, Cs of a double close…

marker-arrows-jp 5 Your motivated seller is A
 You are B
 Your end-buyer is C

So the first transaction in a double close is called the A-to-B, in which you (B) are buying the property from the motivated seller (A).

So logically of course, the second is the B-to-C transaction, in which you (B) are selling the property to your end buyer (C).

When I choose to use the double closing method rather than doing an assignment, it’s typically for one of two reasons: privacy or REOs.

Reason 1: Privacy  

Sometimes if I’m making a profit of over $10,000 in the deal, depending on who I’m selling it to I may want to leverage the privacy aspect of a double close.

A double close allows you privacy because the end-buyer won’t know how much money you’re making on this deal – at least not at the closing table. These are two entirely separate transactions with completely different settlement statements.

mind ya business

In most cases it’s not even a thing really. Most of my cash buyers understand the authentic value a good wholesaler brings to the table and have zero problem with how much money I make, so long as it’s still a great deal to them at whatever price they’re paying out the door (purchase + assignment).

But real estate’s not always rainbows and butterflies, and sometimes you’ll run across a buyer who’s not thrilled your making so much money. So if I get a sense that an end-buyer may be small-minded enough to feel like I (as the wholesaler) should be limited in how much money I make, then as a precaution I’ll go ahead and do a double closing instead of a contract assignment, putting a temporary smoke screen over my spread.

I say it’s a “temporary” smoke screen because they could always go look up how much I paid for it in public records days or weeks later if they really want to, but by that time, we’re long-since closed.

So to avoid potential yuckiness, I suggest using the double close when you’re making a profit over $10,000 because it affords you privacy.

Reason 2: REOs

I also use double closings when wholesaling foreclosure properties or HUD government-owned properties – i.e. REOs.  Simply put, the banks who own these properties don’t want you wholesaling them if possible, so they’re contractually non-assignable, so we can’t do the assignment method even if we wanted to.

I think it goes back to the small-minded thing: The banks don’t feel wholesalers are legit or bring any real value to the table. They’d rather sell only to investors who are doing to rehab the property or keep it as a rental property.

So the way we get around the non-assignment factor is to simply wholesale via double closing instead.

Are there downsides to the double-closing method?

Yes, a couple. But not really big enough of a downside to prevent you from doing it, if it makes sense for your deal.

The first is that you two sets of closing costs to contend with. Makes sense though, right? And if you’re paying for your side of closing on both the A-to-B and B-to-C, then you get double whammied. Adding to that, if you agreed to pay your motivated seller’s closing costs to sweeten the deal for them (as many investors do) then things can really start adding up.

So just make sure the numbers in your deal take all closing costs into account, and that everyone knows clearly who’s responsible for paying for what closing costs.

The second downer is that you’ll typically need to bring funds to the table for your A-to-B, even if only for a minute. In other words, you’ll have to briefly borrow “transactional funds” from a private lender to fund the A-to-B  closing, because a lot of title companies will no longer allow you to use your end buyer’s funds to fund your first purchase.

So again, just make sure your deal justifies the additional cost.

How Do You Sell the House You’ve Got Under Contract?

Well my strong personal preference is to actually find cash buyers first, and then I’ve got the selling part pretty much handled. I use my cash buyers’ criteria to dictate where I market for properties including where I send direct mail, keywords I use with my Realtor on the MLS, and which lists we buy from the online national franchises. And then I serve up deals fresh, hot and tasty to them on a silver platter.

Having said that, I know plenty of other investors who find the deal first and then search for cash buyers. Nothing’s wrong with that, it’s just not my cup of tea.

But whether you start with the chicken or the egg here, you still need to locate and contact cash buyers one way or another… and there’s a number of proven ways you can do this.

Here are a few off the top of my head, in no particular order:

(1) Fiverr – Yes, I kid you not, I’ve gotten cash buyers from Fiverr.com. It works like this: Simply type ‘real estate cash buyers’ in the search bar, and you’ll get back a list of companies or people who can sell you their cash buyer’s lists. They may be compiling these lists themselves or gathering them from some other service. I don’t really know or care. It’s instant cash buyers and it’s worked for me.

(2) The MLS – You can ask a real estate agent to extract all the cash sales in a certain zip code within the past 180 days or whatever time frame you want. Then simply reach out directly to the new owner (you can look them up in your County Assessor’s online records) or reach out to the agent who helped them buy (it’s right there in the MLS) and see if they’re interested in a fresh commission if they’re buyer wants another sweet cash deal. In exchange for the agent helping us out, we often give them info from our marketing lists of possible deals that they might be able to become the listing agent for.

(3) Zillow – This is another unexpected one, but it’s worked for us. We use Zillow to search zip codes of neighborhoods that have rentals and fix & flip properties. Then we choose the least expensive recently sold properties (our new leads), which we can then export to a virtual assistant (VA) who will research and supply us with the owner’s contact info. Then we simply reach out and invite the person who just bought the property at a steep discount and ask them if they’re interested in more like it.

(4) Hand-Written Signs – I already mentioned using bandit signs for buying houses, but one of the most effective but often overlooked ways to sell your deal is simply putting 3-5 handwritten bandit signs in the area around the property you have under contract. You will get calls from this sign, which should look something like this:

(5) Your Local REIA – Another way to sell your deal and find some cash buyers is to head to your local REIA (Real Estate Investors Association). This is a local watering hole for many cash buyers. So just show up at a meeting, then stand up at the ‘deal-makers’ segment and offer your wholesale deal to the thirsty crowd by saying you have a smokin’ deal for a quality cash buyer. And just keep networking your butt off there.

This just scratches the surface. I could probably go on and on with proven ways to get buyers for your wholesale deals, but that should probably be saved for an entirely separate blog post. This one’s getting long enough!

How Much Money Can You Really Make Wholesaling?

Some people aren’t sure if you can really make a solid income by only wholesaling houses.

The fact is, the amount of money you can make wholesaling houses is really only limited by how much time and energy you put into it and how many deals you do.

If you want to do a couple deals each month to produce some extra income so you can travel more, that’s doable. Some investors wholesale houses more as a hobby, or as an add-on tactic to whatever else they’re focused on doing, like rehabbing or landlording.

But if you want to scale it up to several deals a month and go full time, you absolutely can. You can make a very good income wholesaling houses. I personally know a number of investors who routinely bank 6 figures a month from wholesaling alone. Truth!

After 10 years of doing wholesaling, I’ve personally been able to scale up my business to something that some people can’t even dream is possible. I also run a “lifestyle” focused business. Remember, I already mentioned that I surf – a lot. As in, almost every day. And thanks to wholesaling, I get to enjoy a true lifestyle business that I couldn’t have even predicted a decade ago.

Is Wholesaling Practicing Real Estate Without a License?

If you do it wrong, it can be – yes. When done properly, wholesaling is not practicing real estate without a license.

Here’s why…

When you put a property under contract, you have established an equitable interest in that property. And once you have that equitable interest and contract in place, you have the legal right to sell your interest in that contract, which is where the assignment method comes in. And with the double close method, you also have the legal right to sell a property that you own, even if it’s just for 5 minutes – so in that type of transaction, you’re selling a property to a buyer that you have momentarily taken title to.

With either approach, you’re leveraging either your equitable interest or your actual ( even if brief) ownership – both perfectly legal.

However a Word of Caution: If you’re publicly advertising a deal that you have under contact but don’t own – you should advertise the contract for sale not the property. It’s increasingly called into question whether you can legitimately advertise a specific property for sale that you don’t actually own. I personally know investors who have actually changed the wording in all of their public advertisements, such as on Craigslist, to say “we are selling a contract on a property…” just for good measure.

Is Wholesaling Really the Best Way to Get Started in Real Estate Investing?

In my view, the answer is absolutely- yes – for most people.

First, even if you don’t want to be a full-timer at wholesaling houses, it’s just a phenomenal way to start getting your feet wet, learning the ropes and making some money.

One big reason is that wholesaling houses has an extremely low barrier of entry – depending on how you do it, you can get in and do deals with little-to-no money out of pocket.

Then there’s just the velocity of it – you can hustle and make thousands and thousands of dollars faster than any other type of business I can think of.

There’s even a special flavor of wholesaling I’ve been tweaking and perfecting over the years that’s even easier and has the lowest barrier of entry possible – it has to do with leveraging other people and their wholesaling businesses. But that’s a whole conversation unto itself really. In fact, I’ll make it the focal point of my next blog post here to lay it all out for you.

Next question I hear a lot is…

Can You Really Build an Entire Business Wholesaling Houses?

Abso-freakin-lutely! Clearly I have done so, as have dozens of friends of mine at this point. I’ve already told you, I know several people who pocket 6 figures a month in profits just from wholesaling houses.

That’s not to say, though, that you have to do it full time – you can go part-time or even time-to-time and still do great.

Let’s say you’re a doctor and you love what you do – you’re not trying to get out of the old J.O.B – but you still want to get a piece of real estate action on the side. Totally do-able. Or, maybe your preferred strategy is to fix-and-flip, but you just end up with more good leads than you can effectively handle – why not wholesale those extra leads to a colleague?

So yes, you can wholesale as an additional strategy to something else… Or you can do what I love to do and center your entire business around wholesaling houses for quick cash.

That’s a wrap, for now!

Wow, what a post! Had no idea it would end up being this long, but I truly hope I helped set a solid wholesaling houses baseline for you.

I’m actually super excited about my next blog post where I’m gonna put a spotlight on my own unique flavor of wholesaling, which allows me to work only about 10 hours a week, and enjoy a healthy, full-time income with a very part-time effort.

I really think you’ll dig it, so stay tuned. 🙂

Justin Wilmot - The 10 Hour Wholesaler