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What is Real Estate Wholesaling

Real estate wholesaling occurs when an individual, referred to as the wholesaler, contracts with another individual, referred to as the home seller, and then turns around and markets the home to potential buyers, and then assigns their interest per the contract to one of them. The seller gets their money and the wholesaler makes a profit, and of which is the difference between the contracted price with the seller and the amount paid by the buyer, who of course gets the property . The most important part of wholesaling is to sell the home before the contract with the seller expires.

Here’s an example:

The wholesaler contracts the sellers property for $70,000 (buying price)? That needs $30,000 in repairs (renovation cost) but will sell for $140,000 (ARV=After Repair value) once the repairs are made. Using their network of investors, they find an eager buyer at $100,000. They assign the contract to their investor, who then has a profitable fixer-upper project. The wholesaler makes a $30,000 profit without ever owning the home.

The key to wholesaling is to add a “finders fee”, better known as the wholesaling fee to the purchase contract that allows the wholesaler to back out of the deal if they are unable to find a buyer before the expected closing date. This limits the wholesaler's risk.

It is similar to flipping a property, the difference is the time frame and no repairs are made to the home. The wholesaler never actually purchases a home, wholesaling real estate is no where near as risk as flipping real estate , which may involve renovation costs and carrying costs. Wholesaling real estate also involves less funds than flipping. Generally earnest money will be the wholesalers only out of pocket cost. Success depends on the wholesaler's knowledge of the market and connection to investors for quick sales.

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