California is one of the most sought-after places to live in the United States.
With its year-round sunshine, beautiful scenery, and vibrant, diverse culture, it’s no wonder that residents have been flocking to the Golden State for decades. California’s desirability also means that it’s full of opportunities for real estate investors, although the competitive market requires a savvy strategy.
One popular strategy for real estate investors is wholesaling.
If you didn’t already know, a wholesaler acts as the middleman between seller and buyer by putting a distressed home under contract, finding a buyer at a higher price, and keeping the difference.
Here’s a look at how wholesaling works in California.
How is Wholesaling Different in California?
Real estate professionals in California are highly regulated, so investors interested in wholesaling will need to be very familiar with relevant laws and regulations. While wholesaling is legal, there are strict limitations, and failing to adhere to them could result in fines or even legal action.
Because California is a very desirable location, properties tend to be more expensive than the rest of the country, and the market moves very quickly. This can create very exciting opportunities for investors, but it also means you’ll need to conduct in-depth research and move quickly when properties hit the market.
Advantages of Wholesaling in California
The biggest advantage of wholesaling in California is high property values. Even a distressed property in poor condition can command a high price tag due to the location. This means that eagle-eyed investors can stand to make significant properties on deals in this state. Wholesalers aren’t responsible for repairs, which makes it a more financially accessible strategy than house flipping.
Since the California real estate market is so competitive, it’s also relatively easy to find buyers for the properties you wholesale, especially if you already have a network of local connections. This means you can close deals faster than you would in other states.
Disadvantages of Wholesaling in California
The biggest disadvantage of wholesaling in California is the state’s strict regulations for real estate transactions.
If you want to wholesale without a real estate license, you will not be able to market your properties — instead, you’ll have to rely entirely on word-of-mouth to find buyers and sellers.
Getting a real estate license will allow you to promote your services and properties with traditional advertising strategies. However, getting a real estate license can take time and comes with extra costs.
The speed of the market in California can also pose some challenges for investors. You’ll face high levels of competition, even for distressed properties, and you’ll need to be prepared to act quickly.
How to Wholesale in California in 5 Steps
Ready to start wholesaling in California? Here’s a step-by-step breakdown of the process.
- Prepare for business: Wholesaling requires in-depth knowledge of your local real estate market. Start by educating yourself on wholesaling by taking online courses or working with a local mentor. You may also want to consider getting a real estate license.
- Build your network: Next, build up a network of local contacts in California — this will make it easier to find the types of properties you are looking for. You can do this by joining local investor groups, attending meetups, and connecting with other real estate professionals online.
- Find distressed properties: Once you’ve prepared for business, the next step is to start searching for distressed properties with potential. You can do this by searching for houses that have multiple liens or are associated with bankruptcies, or by searching for properties for sale by owner, among other strategies.
- Make an offer: Contact the owner and make an offer on the property. This offer should be high enough that the owner will be interested, but low enough that you will make a profit.
- Find a buyer: Next, create a purchase contract at your desired price and find a buyer. Once both parties have agreed, you’ll facilitate the deal and cash in on the profit. Many real estate investors use their profits to find new wholesaling opportunities.
Wholesaling Laws in California
California has some strict wholesaling laws that differ from other states. Laws to be aware of include:
- Section 10139: This law specifies that anyone caught fraudulently working as a real estate agent or broker is subject to penalties of up to $20,000 and/or a six-month jail sentence.
- Section 10016: This law states that wholesalers without a real estate license cannot fraudulently represent themselves as an agent.
- Section 10130: This law states that those without a license cannot act in the capacity of a real estate agent or market their services as such.
Where Are Some of the Best Places to Wholesale in California Right Now?
There are wholesaling opportunities in cities and towns throughout California. However, some places have more opportunities than others. Some of the best places to wholesale in California include:
- Inland Empire: This region is nestled in between the San Bernardino Mountains and consists of cities like San Bernardino, Riverside, Ontario, and Temecula. It is located within driving distance of Los Angeles, Orange County, Palm Springs, and Big Bear, but offers much lower property prices than these destinations. This region is growing quickly, so there’s plenty of potential for strong returns.
- Chula Vista: Located just south of San Diego, this suburb has lower property prices than the rest of the metro area. However, it’s recently become more popular among young professionals and families thanks to its proximity to the water, access to light rail, and charming central business district.
- Fresno: This city in central California has relatively low property values compared to the rest of the state, with a good selection of distressed properties to choose from. However, the city is growing at a consistent pace, with plenty of buyers interested in its low cost of living.
- Stockton: If you’re interested in wholesaling in northern California, Stockton has some of the lowest property prices in the region, but has potential for growth thanks to its proximity to the Bay Area.
The Bottom Line: Wholesaling in California
Savvy wholesalers will find plenty of interesting opportunities in California thanks to the state’s thriving real estate market.
However, you will need to be mindful of local laws and restrictions to avoid fines and other legal consequences.
