February 13, 2023
What does wholesaling real estate mean?
If you’ve been interested in real estate investing, chances are that you’ve heard the term “wholesaling” before. But what does it mean?
Simply put, wholesaling is the act of assigning the purchase contract of a property to a new buyer with the permission of a seller. The wholesaler typically signs a purchase contract with a homeowner stating that they’ll find them a buyer, typically within a specific timeframe. We previously explained the process and more in a previous post that you can find here.
A wholesaler is not a realtor, and they are not required to obtain a real estate license. Since the purchase contract has been assigned, they never participate in the final sale of the home directly. Usually, wholesalers help those who have distressed properties or are having hard times financially find buyers for their properties for a fee. Often times, those who purchase homes from wholesalers are investors looking for a property at below-market value.
A realtor, on the other hand, helps a seller list their home for sale on the MLS, or Multiple Listing Service. They represent sellers as a knowledgeable party and advise them on the sale of their home. They can also represent buyers on the other end of the transaction by helping clients find and bid on properties they might be interested in owning.
What is the difference between flipping and wholesaling?
While flippers may interact with wholesalers, flipping and wholesaling are two different things. As elaborated previously, wholesalers help facilitate the sale of a property by finding a purchaser for the property in question. Flippers purchase properties with the goal of renovating them and selling them for profit. If they happen to purchase a house well below market value, a flipper may even sell the property for a profit without making any modifications to the house.
Do you need a real estate license to flip houses?
In short, no—you don’t need a real estate license to flip a house. A real estate license really means that an individual is authorized to represent clients in the purchase and sale of property and adhere to certain disclosure rules set by the state. The biggest benefit of having a real estate license is having access to the MLS.
For flippers, while it might be nice to have access to the MLS, it is very common for the houses they purchase to be off market. Why? They don’t want to pay market value for a house they plan on reselling. An important part of a flipper’s strategy is the 70 rule, which we’ll dive into next.
What is the 70 rule in house flipping?
The 70 rule means that when searching for a house to flip, you only want to pay 70% of the ARV (after repair value) of a house, minus any renovation costs. This is common practice among flippers and was created as a way to protect them from overpaying for a property. While this rule is not always able to prevent a flipper from going overbudget on their renovation costs, it’s a trusted method used while property hunting.
Bay Mountain Capital can help fund your flip!
Are you interested in flipping properties? Or maybe you’re already an expert? Bay Mountain Capital can help both new investors and seasoned ones alike. We offer private money loans for residential and commercial investment properties and operate in Texas, Oklahoma, Tennessee, Alabama, Georgia, and Florida. We’ve been helping borrowers fund their flip with our easy, transparent process since 2008. With our in-house underwriting and loan servicing, we’re prepared to make sure our borrowers and Bay Mountain Capital succeed together.
If you’re ready to learn more, check out our terms on our residential page and commercial page for more information. If you already have a deal in mind, we’d be happy to take a look and let you know what we can do for you.