Lately, I have been working with more and more real estate investor wholesalers.
One of the first questions I am asked by people who are new to the business is exactly how wholesalers actually make money.
First, I want to describe what a wholesaler does and does not do and then I will cover how they actually make a profit when they wholesale a deal.
When we are talking about wholesaling real estate, we are specifically referring to you finding a great deal, placing a contract on the property and then selling your rights in the contract to another investor or someone who will be living in the property.
Specifically, you are not "helping people sell their home," like you would be with a real estate license.
So, how do wholesalers make money? They make money by selling their rights to the contract.
Here's an example of how a wholesale deal might work.
You find a property that is worth $100,000.
You talk with the seller, and they agree to sell you the property for $55,000.
You then write up a contract to purchase the house in the next 45 days for $55,000.
You also include that you have the right to assign your contract to someone else if you want to.
Next, you go and find another investor who wants to purchase the house or someone who wants to live in the house.
For this discussion, we will call them your buyer.
You and your buyer agree that they are willing to pay $65,000 for the house.
So, you buy it for $55,000 and you are selling it for $65,000.
You have a gross profit of $10,000 (not including your expenses to find the seller, find the buyer and any closing costs you might have).
In future articles, I will cover the mechanics of how the transaction works, but for now realize that your buyer will be purchasing the property for $65,000 and the seller will receive their price of $55,000.
This leaves you with a gross profit of $10,000 on the deal.
If your buyer comes from a real estate agent or broker on your dream team, you may also need to pay a real estate commission from your profits.
On this particular deal, if you agreed to pay a 3% real estate commission for your real estate agent or broker to bring you a buyer, you would pay them 3% of the $65,000 purchase price or $1,950.
In that case, instead of grossing $10,000 on the deal, your profit (before other expenses) would be about $8,050.
The big picture is simple: wholesalers are paid for finding truly great deals, placing them under contract and then selling their rights to purchase the property at the contracted price.
One of the first questions I am asked by people who are new to the business is exactly how wholesalers actually make money.
First, I want to describe what a wholesaler does and does not do and then I will cover how they actually make a profit when they wholesale a deal.
When we are talking about wholesaling real estate, we are specifically referring to you finding a great deal, placing a contract on the property and then selling your rights in the contract to another investor or someone who will be living in the property.
Specifically, you are not "helping people sell their home," like you would be with a real estate license.
So, how do wholesalers make money? They make money by selling their rights to the contract.
Here's an example of how a wholesale deal might work.
You find a property that is worth $100,000.
You talk with the seller, and they agree to sell you the property for $55,000.
You then write up a contract to purchase the house in the next 45 days for $55,000.
You also include that you have the right to assign your contract to someone else if you want to.
Next, you go and find another investor who wants to purchase the house or someone who wants to live in the house.
For this discussion, we will call them your buyer.
You and your buyer agree that they are willing to pay $65,000 for the house.
So, you buy it for $55,000 and you are selling it for $65,000.
You have a gross profit of $10,000 (not including your expenses to find the seller, find the buyer and any closing costs you might have).
In future articles, I will cover the mechanics of how the transaction works, but for now realize that your buyer will be purchasing the property for $65,000 and the seller will receive their price of $55,000.
This leaves you with a gross profit of $10,000 on the deal.
If your buyer comes from a real estate agent or broker on your dream team, you may also need to pay a real estate commission from your profits.
On this particular deal, if you agreed to pay a 3% real estate commission for your real estate agent or broker to bring you a buyer, you would pay them 3% of the $65,000 purchase price or $1,950.
In that case, instead of grossing $10,000 on the deal, your profit (before other expenses) would be about $8,050.
The big picture is simple: wholesalers are paid for finding truly great deals, placing them under contract and then selling their rights to purchase the property at the contracted price.