Wholesaling in California: The Ultimate Guide

High demand for housing makes California an extraordinary place for real estate wholesaling. 

However, all real estate investors need to know what they're getting into to avoid rubbing up against California's stringent laws and regulations regarding home sales. 

In this guide to wholesaling in California, we’ll break down:

• How wholesaling in California differs from other states in the US
• Wholesale laws specific to California to abide by
• The best communities in California for wholesaling today
• And more

If you’re ready to learn everything you need to know about wholesaling in California, let’s get started! 

How Is Wholesaling Different in California?

First, let's make sure we're clear on how basic real estate wholesaling works. 

A real estate wholesaler is someone who identifies an unconventional property seller. 

A wholesale property is generally one that requires extensive repairs, is in a distressed state, or is in mortgage or tax default. 

The thought process behind approaching owners of distressed properties is that they will sell for much lower than market value.  

Wholesaling real estate is finding these distressed properties at discounted prices and, after that, assigning the contract to a buyer who will purchase the property for a higher price. 

The wholesaler is typically paid a fee, usually 5-10% of the purchase price.

The most obvious difference in wholesaling in California compared to the rest of the country is that California's market generally moves much faster than markets in other parts of the country — which can mean more opportunity for you as a wholesaler. 

Advantages of Wholesaling in California

Why is wholesaling in California considered advantageous? 

California ranks second when it comes to states with the highest average home prices. 

With buyers paying $468 per square foot, wholesalers seeking to profit can purchase homes for far below market value by finding homes that aren't technically on the market. 

California's real estate market also has consistent demand. This is due to California's strong economy. In fact, California accounts for roughly 14% of the nation's gross national product (GDP). 

As anyone who has studied trends in real estate knows, housing demand accompanies economic opportunity. 

With some data showing that California is poised to become the world's fourth-biggest economy, demand for homes in California won't be slowing down any time soon. 

While California's real estate prices are some of the highest in the country, wholesalers are in a unique position to take advantage of the "best of both worlds." 

Unlike traditional buyers, wholesalers aren't simply shopping for homes that are already on the market. 

They are hunting for distressed properties that owners are willing to unload for much less than market value in exchange for the perk of not having to fix or improve anything prior to the sale. 

The wholesaler also won't need to fund any renovations because they won't be living in the home. 

They will simply be passing the property on to a new buyer while using the difference in price as their commission. 

Disadvantages of Wholesaling in California

While opportunities for wholesaling in California can be lucrative, it's important to know that the Golden State has some regulations when it comes to real estate. 

You will also have competition from both wholesalers and ordinary buyers using creative ways to find deals in some of the country's priciest markets. 

Wholesaling Laws in California

Whether or not you need a professional license to become a wholesaler in California depends upon the amount of deals you expect to have in a given year. 

If wholesaling is a supplement to your current income and you expect to assign less than 8 contracts in a year, you don't need a license.

However, if you do plan on assigning 8 or more contracts per year — and wholesaling is more of a full time venture instead of an additional income — then you'll need a license.

That being said, there are other wholesaling laws to know about. Here's a look at the main legal codes dictating how California wholesale transactions must operate:

Section 10016

While a wholesaler doesn't need a real estate license in order to operate in California, wholesalers need to be careful about misrepresenting themselves as sales agents or taking on duties that are legally reserved for sales agents. 

Section 10016 of California real estate law defines a real estate agent as a professionally licensed salesperson who is retained by a broker in exchange for compensation.

Section 10130 

Under this portion of California real estate law, it's illegal for anyone to act in the capacity of a real estate agent or broker unless they have the necessary licensing from the California Department of Real Estate. 

What's more, fraudulently marketing yourself as a real estate agent is illegal.

Section 10139 

This part of California's real estate law outlines the penalties that will be imposed for anyone caught fraudulently practicing as a real estate agent or broker. 

Violators are subject to fines up to $20,000, a jail sentence of up to six months, or a combination of both.

California real estate law doesn't directly outline restrictions and penalties for wholesalers. Codes are in place to regulate what unlicensed actors can and cannot do. 

For this reason, many wholesalers do obtain California real estate licensing in order to be more active in the full real estate transaction without worries of crossing legal lines.

How to Wholesale in California

 The barrier to entry for wholesaling in California is relatively low compared to other professional roles or investment options. 

However, each transaction requires up to 10 steps that must be performed with diligence. 

Here's a step-by-step look at the transaction process for wholesaling in California.

Step 1: Seek Mentorship & Education

It's very difficult to break into wholesaling in California without guidance simply because it’s:

• easy to make profit-reducing mistakes 
• overlook important regulations
• miss avenues to opportunities 

Most new wholesalers get under the wing of an experienced mentor who can offer support and guidance. 

Watching transactions in the real world is the best training.

Along with that, commit to constantly educate yourself through avenues such as real estate books. 

Step 2: Get Familiar With California Wholesaling Laws

Study all state and federal laws covering wholesaling before you begin to look for properties. 

As a wholesaler, you'll need to be familiar with your legal rights and obligations as both a buyer and seller because you'll be on both ends of a transaction. 

Step 3: Read California Association of Realtors (CAR) Data

One of the best ways to become entrenched in the California real estate market is to read all updates and reports published by the California Association of Realtors (CAR). 

Weekly market reports are roadmaps that show you what homes are selling for in the local market. 

CAR also publishes live glossaries of important real estate terms that you'll be using daily while wholesaling in California. 

Step 4: Build Your Buyer Profile

The goal with wholesaling is to find all-cash investors. 

A blueprint for engaging with these investors can include:

• attending real estate auctions, 
• building a website funnel to attract cash buyers
• joining California real estate groups on LinkedIn
• attending networking events for regional investors
• linking up with local real estate agents who can introduce you to cash buyers and MLS data in exchange for commissions
• looking at public records to identify repeat buyers who are likely investors 

Step 5: Locate Distressed Properties

What makes a wholesaler different from a real estate agent is that you look for properties instead of waiting for sellers to come to you. 

Wholesaling relies on sellers who are willing to sell distressed or unwanted properties for below market value. 

Common ways to find motivated sellers include:

• tracking bankruptcies in federal court records
• networking with local inspectors to pinpoint properties that are not up to code 
• visiting for sale by owner (FSBO) listings 
• finding properties with multiple leans
• browsing MLS for properties that couldn't find buyers

Step 6: Get Under Contract

Once you've found a viable property, it's time to make an offer. 

Your profit on any property is calculated by subtracting your offer price to the seller from what you reasonably believe you can get when selling to an investor. 

As you go into negotiations, make sure that you've determined the maximum amount you can offer while still benefiting financially. 

Step 7: Create a Purchase Contract

Your wholesaling real estate contract is a legally binding document that lays out the terms of the transaction between the wholesaler and homeowner.

Consider using a real estate agent for at least your first wholesaling deal. 

Step 8: Find a Buyer

Once you've signed your purchase contract with the seller, the rush is on to identify a buyer who will take the property. 

Wholesalers generally use an assignment of contract agreement that allows them to transfer the property's purchase contract to a buyer. 

You can also buy and sell separately. 

Step 9: Close the Deal

If you select the assignment of contract option, your buyer will pay you an assignment fee. 

As stated in the step above, you can also choose to complete two separate sale transactions. 

Some real estate wholesalers use a method called a double closing because sellers aren't always comfortable having their sale contracts passed to a third party. 

With a double close, the wholesaler pays the seller via escrow before signing different closing documents with the new buyer.

Step 10: Do It Again

Successfully wholesaling in California is all about maintaining volume by having a constant pipeline of deals spinning in the background. 

Unlike flippers who spend three to six months on a property, wholesalers generally dedicate anywhere from a few days to a few weeks to each home. 

California real estate wholesalers can't rest on their laurels. You should already have another property in motion while you're closing on the current one. 

Where Are Some of the Best Places to Wholesale in California?

California has 58 distinct counties that all come with their own pros and cons for real estate wholesalers. 

Here's a look at three communities that offer great opportunities for wholesaling in California.  

Riverside

Riverside is one of the top 10 places in California experiencing population growth. 

Residents seeking affordability are drawn to the fact that Riverside's cost of living is nearly 20% lower compared to the rest of the state. 

For wholesalers, this presents an opportunity to purchase from long-time residents who haven't been keeping up their properties in order to sell to newcomers looking for deals. 

Fresno

According to Zillow, the median home value in Fresno is $363,928. 

While Fresno has much lower home values compared to other parts of California, this city is on the rise. 

Fresno's population is growing at a pace of around 1.6% a year. 

What's more, year-over-year home values are rising nearly 7.6%. 

Finding a distressed property puts a wholesaler in position to get an ignored or neglected property on the market for the wave of buyers discovering this affordable city. 

Chula Vista

As a suburb of San Diego, Chula Vista is popular among buyers looking for both lifestyle and commuting benefits. 

The urban-suburban feel of Chula Vista attracts younger buyers and working professionals.

For wholesalers, the sprawling layout of Chula Vista presents opportunities for finding hidden gems. 

Frequently Asked Questions: Wholesaling in California

Q. Is Wholesaling Legal in California?

Yes, wholesaling is completely legal in California as long as wholesalers who are not licensed as real estate agents or brokers are not misrepresenting themselves as licensed salespeople. 

Q. How Much Do Real Estate Wholesalers Make in California?

 It can be hard to pinpoint a salary range for wholesalers in California because many wholesalers actually buy and sell properties while also maintaining full-time employment in other professions. 

This is an industry where the amount of time that a wholesaler dedicates dictates how many transactions they close annually. 

ZipRecruiter shows that the average annual salary for wholesalers in some parts of California can be as high as $83,790.  

Q. Do You Need a License to Wholesale Real Estate in California?

No licensing is required for wholesaling in California. 

While not required, many wholesalers do obtain real estate licenses in order to avoid paying commission fees to real estate agents. 

Q. How Does California Tax Wholesale Deals?

 Unfortunately, the short-term nature of real estate wholesaling means that wholesalers don't enjoy the benefits of holding on to properties long enough to avoid capital gains taxes the way that long-term investors often can. 

Wholesalers are subject to short-term capital gains taxes on their real estate profits at the same rate as regular income. 

Wholesaling in California: The Bottom Line

Consistent demand makes California an attractive place for real estate wholesaling because the chances of being stuck holding a property are comparably low. 

However, the heat of the market in California means that you will have more competition for distressed homes that become available. 

Finally, the fact that California doesn't tightly regulate wholesalers beyond prohibiting them to act as real estate agents means that entering into wholesaling activity is a profitable endeavor.

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