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WHAT ARE WHOLESALERS AND HOW DO THEY MAKE MONEY:
When I tell people I’m a Real Estate Wholesaler, they usually say:
Huh?
What’s that?
So you’re not an agent?
Etc...
I’m gonna try my best to explain exactly what a wholesaler does and how they fit into the RE economy
A THREAD
When I tell people I’m a Real Estate Wholesaler, they usually say:
Huh?
What’s that?
So you’re not an agent?
Etc...
I’m gonna try my best to explain exactly what a wholesaler does and how they fit into the RE economy
A THREAD
Okay so before we get into wholesaling, let’s start with something that people are more familiar with:
Flipping houses
> 
We all know how a house flipper makes money right?..
(Bear with me, this will all make sense at the end)
Flipping houses
> We all know how a house flipper makes money right?..
(Bear with me, this will all make sense at the end)
They buy a house that needs some work (usually a lot)
they spend time and money to fix it up and make it shine
then they sell it on the market (usually with an agent) for a profit
Simple right?
Let’s take a look at an example
they spend time and money to fix it up and make it shine
then they sell it on the market (usually with an agent) for a profit
Simple right?
Let’s take a look at an example
Fred the Flipper finds an old, beat-up house for $100,000
He walks through it and decides it needs about $50,000 worth of work to get fully rehabbed and market ready
After the rehab he knows it will be worth around $240,000 based on recent, comparable sales in the neighborhood
He walks through it and decides it needs about $50,000 worth of work to get fully rehabbed and market ready
After the rehab he knows it will be worth around $240,000 based on recent, comparable sales in the neighborhood
The deal seems like a no-brainer for Fred, so he buys it!
So far he’s in for $100k plus let’s say another $10k for closings costs
His scope of work was a little light and ended up costing him around $60k
It takes him 3 months and his holding costs are about $2k per month
So far he’s in for $100k plus let’s say another $10k for closings costs
His scope of work was a little light and ended up costing him around $60k
It takes him 3 months and his holding costs are about $2k per month
3 months later and Fred the Flipper is all done and ready to sell
He hires Randy the Realtor to list the house for $239,900 and it sells for $245,000 that week
So all in, Fred spends:
$110k acquisition
$60k rehab
$6k holding costs
$14.7k realtor fees (6%)
$190,700 total
He hires Randy the Realtor to list the house for $239,900 and it sells for $245,000 that week
So all in, Fred spends:
$110k acquisition
$60k rehab
$6k holding costs
$14.7k realtor fees (6%)
$190,700 total
His profit is:
$245,000 - $190,700
= $54,300 !
Not bad right?
“That’s all well and dandy Bruno, but weren’t you gonna teach me about wholesalers?”
(Trust me we’re getting there)
$245,000 - $190,700
= $54,300 !
Not bad right?
“That’s all well and dandy Bruno, but weren’t you gonna teach me about wholesalers?”
(Trust me we’re getting there)
In this scenario, the wholesaler made his money before the flipper, the realtor & the lender
And the best part is, he didn’t have to put any of his own money on the line
Sure, Fred the Flipper made a great profit, but how did he find this great deal in the first place?
And the best part is, he didn’t have to put any of his own money on the line
Sure, Fred the Flipper made a great profit, but how did he find this great deal in the first place?
The truth is, it's rare for flippers to find deals themselves. Most of the time, they buy their deals from
you guessed it...
The Wholesaler!
But Bruno, how does the wholesaler get paid?" ...
you guessed it...
The Wholesaler!
But Bruno, how does the wholesaler get paid?" ...
The Wholesaler gets paid by finding off market deals, and giving them to flippers for what's called an "assignment fee"
In our example, the Wholesaler got the property under contract for $70k & Fred was willing to pay $100k for it, collecting an assignment fee of $30k
In our example, the Wholesaler got the property under contract for $70k & Fred was willing to pay $100k for it, collecting an assignment fee of $30k
So in this scenario, Fred the Flipper made $54.3k and the Wholesaler made $30k.
At first glance it seems like it's better to be the flipper than the wholesaler, after all, Fred made the most money right?
WRONG!
& I'll show you why...
At first glance it seems like it's better to be the flipper than the wholesaler, after all, Fred made the most money right?
WRONG!
& I'll show you why...
Here's a little lesson on opportunity cost:
In order to make that $54.3k, Fred had to put up $190k of his own money over 3 months.
The wholesaler made $30k and most likely only spent between $1,000 to $3,000 in marketing.
And the best part is, his money is never tied up!
In order to make that $54.3k, Fred had to put up $190k of his own money over 3 months.
The wholesaler made $30k and most likely only spent between $1,000 to $3,000 in marketing.
And the best part is, his money is never tied up!
Opportunity cost is defined as follows:
"The loss of a potential gain from other alternatives when one alternative is chosen."
Fred can take $190k and make it into $240k in 3 months - don't get me wrong, this is a great ROI - but their money is tied up for 3 months...
"The loss of a potential gain from other alternatives when one alternative is chosen."
Fred can take $190k and make it into $240k in 3 months - don't get me wrong, this is a great ROI - but their money is tied up for 3 months...
In those 3 months, if another opportunity comes up to make $500k on a flip, but he can't access his capital because it's tied up in this deal to make $54.3k, then he misses out - Opportunity Cost
Meanwhile, someone who is liquid (like the wholesaler) can jump on the opportunity
Meanwhile, someone who is liquid (like the wholesaler) can jump on the opportunity
So obviously this wasn't super in depth but hopefully you now understand the basics of what a wholesaler does and how they get paid.
If you have any questions or criticism feel free to comment or dm
Next I think I'll make a thread on how to flip a house with very little money
If you have any questions or criticism feel free to comment or dm
Next I think I'll make a thread on how to flip a house with very little money
HOW TO FLIP A HOUSE WITH VERY LITTLE MONEY:
https://twitter.com/brunomaluf10/status/1286330784564027392?s=21 https://twitter.com/brunomaluf10/status/1286330784564027392
https://twitter.com/brunomaluf10/status/1286330784564027392?s=21 https://twitter.com/brunomaluf10/status/1286330784564027392
