Unsourced material may be challenged and removed. The term “flipping” is used by real estate investors to describe “residential redevelopment”. Wholesalers make a profit by signing a contract to purchase a property from a seller and then entering into an agreement with a third party to resell the same property at real estate 101 pdf higher price for a profit.
All rights to the original purchase contract are assigned to the new buyer and the new buyer pays an “assignment fee” to the wholesaler in order to gain all rights to purchase the property at the original purchase price. The original purchase contract usually has an “inspection period” which allows the original buyer to back out of the contract and not close on it if they do not find a buyer to assign their contract to. Many wholesalers have no intention of actually purchasing the property and simply use wholesaling as a tool to locate properties for other investors. Wholesaling requires little or no money to be secured in escrow, and in most cases the wholesaler never intends to actually purchase the property. 10 and often even the deposit can be returned if the wholesaler cancels the contract before the end of the inspection period.
Some people are of the opinion that wholesaling is fraudulent misrepresentation since the wholesaler does not actually intend to close on the property themselves. However, in the United States wholesaling is perfectly legal and most real estate contracts allow the buyer an inspection period and any amount of deposit that buyer and seller agree to. Wholesaling in property is no different from wholesaling in any other industry. In a successful transaction the seller is often unaware that original buyer is not purchasing the property. In some cases, wholesalers actually purchase the property for cash and then resell the property to their end buyer in a second closing. This practice is considered more costly since the buyer is paying closing costs to purchase the property and to resell the property.
However many people consider double closing to be more ethical. It is not uncommon for a property to be assigned multiple times and for a few wholesalers to make money in a transaction from the seller to the end buyer. The original wholesaler enters into a contract to purchase a property and then assigns or sells their rights to that contract to another investor. That investor then assigns their rights to said contract to a third investor and so forth. In many cases wholesalers work together ensuring that all parties get paid on a transaction.