What is Wholesale Home Buying?
Wholesale home buying is a real estate investment strategy where an investor (the wholesaler) finds a property under market value, secures it under contract, and then either assigns that contract to an end buyer or closes the purchase and resells the property quickly. Wholesaling focuses on deal sourcing, fast transactions, and low capital outlay for the wholesaler.
Step 1: Finding Distressed Properties
Where to look
- Public records for pre-foreclosures and probate.
- Driving for dollars—spotting neglected or vacant homes.
- Direct mail campaigns and targeted online ads.
- Networking with real estate agents, contractors, and other investors.
Qualities of a good wholesale lead
Look for motivated sellers who need a quick sale—owners facing foreclosure, inherited properties, or homes with serious repair needs. The more motivated the seller, the greater the potential for a below-market contracted price.
Step 2: Analyzing Deals
Understand ARV and repair costs
ARV (After Repair Value) is the expected market value after renovations. Accurately estimating repair costs is essential. Use comparables in the neighborhood to estimate ARV and get at least one contractor estimate for repairs.
Calculate the Maximum Allowable Offer (MAO)
A common rule of thumb is: MAO = ARV x 70% – repair costs. This helps protect both the end buyer’s profit margin and your assignment fee.
Step 3: Making an Offer and Securing the Contract
Negotiate terms and include assignability
Present a written purchase agreement that clearly outlines price, earnest money, inspection contingencies, and a realistic closing timeline. If you plan to assign the contract, include language that allows assignment or use the phrase “and/or assigns” when appropriate.
Earnest money and due diligence
Earnest money shows good faith; it should be sized reasonably for the market. Use the inspection and contingency period to confirm condition, title issues, or any red flags.
Step 4: Assigning the Contract or Double Closing
Assigning the contract
The most common wholesale exit is assigning the purchase contract to an end buyer for an assignment fee. The wholesaler remains on the contract only long enough to transfer rights. The title company typically processes the assignment at closing so all parties sign required paperwork.
Double closing
If assignment is not possible or desirable, a wholesaler may perform a double closing: buying the property and immediately reselling it. Double closings require more capital and incur additional closing costs, but they can help protect your fee and avoid assignment restrictions.
Step 5: Closing and Getting Paid
Role of the title company or closing attorney
Choose a reputable title company or closing attorney experienced in wholesale transactions. They will verify title, coordinate documents, and disburse funds. Clear title and accurate documentation help speed closing and reduce risk.
Receiving your fee
If you assigned the contract, you receive the assignment fee at closing once the title company disburses funds. If you double-closed, your profit is the difference between the purchase price and resale price after closing costs.
Risks, Legal Considerations, and Best Practices
Know the laws in your state
Wholesale regulations vary by state. Some jurisdictions have specific rules about assignment, disclosure, or licensing. Consult with a real estate attorney to ensure compliance and avoid accusations of brokering without a license.
Protect your reputation
- Be transparent with sellers and buyers about your role and timelines.
- Document all communications and maintain clean contracts.
- Work with trusted title companies, contractors, and attorneys.
Common pitfalls and how to avoid them
- Overestimating ARV or underestimating repairs: Always verify comps and contractor bids.
- Weak buyer list: Build and maintain a vetted list of cash-ready investors.
- Funding gaps: Have contingency plans for earnest money and potential double-closing costs.
Practical Tips for New Wholesalers
- Build a buyers list before you get under contract—attend local real estate investor meetings and use online marketplaces.
- Keep a template packet for sellers and buyers to streamline communication and set expectations.
- Start small and document every step to refine your process and minimize errors.
Conclusion
Wholesale home buying can be an efficient way to enter real estate investing with limited capital, but success depends on finding great deals, accurately evaluating properties, using solid contracts, and following legal best practices. With diligence, transparent communication, and the right partners, wholesaling can be a reliable path to consistent real estate profits.
