Wholesaling is when an investor purchases a property from a seller at a discounted value, often because the sale is distressed, and then turns around to assign that contract to another investor for a margin.
A major risk is market volatility between signing and closing. If property prices fall, your end buyer may not close, leaving you legally obligated to the seller. You can be sued if your assignment clause does not fully relieve you of liability.
Early in the pandemic, sellers were reluctant to allow home visits, but distress and fear of market crashes later created buying opportunities. At the same time, private lenders became cautious and financing dried up, making it harder to assign contracts without deeper discounts.
Most lenders will finance based on the lower of the purchase price and the market value. However, there are some lenders who will finance based on the appraised value, which means you can buy the property with less money in the deal.
In an upward market, it is harder to buy at a discount but easier to sell to eager investors. In a downward market, it is easier to buy but harder to sell, so you must purchase at a deeper discount and rely on strong buyer relationships and reputation.
