Cities across Texas are booming, with residents flocking to the Lone Star State for its affordable cost of living, warm weather, and diverse job market.
This means there’s plenty of exciting opportunities for real estate investors LIKE YOU looking to build up business.
Wholesaling has become a very popular way for real estate investors to make profits without extensive repairs. Like many other states, Texas has its own wholesaling laws that real estate investors should be aware of. Here’s a look at how wholesaling works in Texas and how to get started.
How is Wholesaling Different in Texas?
With wholesaling, real estate investors make money by acting as a middleman between buyers and sellers. The investor puts a property under contract and sells that contract to a buyer at a markup, keeping the difference as profit.
Simply put, wholesalers typically focus on distressed properties that you can’t find on the standard real estate market.
Texas is a very large state, and the wholesaling experience can vary depending on the metro area you are in. Both small towns and large cities are growing quickly, so there’s plenty of demand from buyers — it’s all about finding the right property.
Advantages of Wholesaling in Texas
Like I mentioned earlier, the biggest advantage of wholesaling in Texas is that there are so many different markets to choose from. You can invest in a major metro area like Dallas, Houston, or Austin, or focus on small cities and towns with plenty of hidden gems.
Property values in some parts of Texas are lower than they are in other states, which can make it easier for investors to get started. Texas’s biggest cities are sprawling and property prices vary widely from neighborhood to neighborhood, which means you can find plenty of gems even in high-demand areas.
Disadvantages of Wholesaling in Texas
While many of Texas’s cities and towns are still growing, the local real estate market has cooled off over the past few years. New construction has kept supply levels high, and interest rates have increased, pushing prices down. This means it may take slightly longer to find a buyer than it would in some other states.
Additionally, Texas has some wholesaling laws that limit the way you can market your properties and represent your business. Investors will need to be very careful to adhere to these laws, or they could face fines and legal action.
How to Wholesale in Texas in 5 Steps
Ready to start wholesaling in Texas? Here’s an overview of the process to help you get started.
- Learn how to wholesale: In order to start wholesaling, you need to learn the ins and outs of the real estate market. Take time to educate yourself on wholesaling best practices. You can do this by working with a mentor, taking online classes, and reading books. You may also want to consider getting a Texas real estate license. While not required, getting a license will make it easier to market your properties without violating Texas law.
- Build your network: Making connections in the real estate industry can help you find buyers and sellers faster. Network both on- and offline with local agents, brokers, and contractors to learn more about the local market.
- Find properties: Search for off-market distressed properties in your area with potential for profit. In most cases, these will be properties facing foreclosure or liens where the owner needs to sell quickly.
- Make an offer: Make an offer to the seller to purchase and wholesale the property. You can do this legally in Texas by creating an assignment contract, or with a buy-and-sell agreement where you hold the property for a pre-specified period of time.
- Find a buyer and close the deal: Find a buyer and sell the property at a markup. Most wholesalers will then use the profit to continue investing in other properties and grow their business.
Wholesaling Laws in Texas
Wholesalers in Texas need to be aware of local laws in order to avoid penalties. If you are going to wholesale without a real estate license, there are limitations on how you can operate your business.
Most notably, Texas Senate Bill 2212 requires wholesalers to disclose that they are wholesaling. They cannot act as brokers or market their properties as brokers. Any wholesaler who fails to do this will face a penalty of up to three times the profit they receive from their wholesaling deals.
There are a few ways to wholesale legally without a license. The first strategy is to use an assignment contract, which legally allows you to assign the property’s contract to a buyer with a pre-specified assignment fee. The other option is to use a buy-and-sell agreement, where you buy the property, hold it for a short period of time, and then sell it at a markup.
Where Are Some of the Best Places to Wholesale in Texas?
Texas is chock-full of cities with great wholesaling opportunities. Here are some of the most exciting places to wholesale in Texas.
- Houston: This sprawling metro area has no shortage of distressed properties with potential.
- Dallas: Like Houston, the Dallas metro area is sprawling and continues to grow, creating plenty of opportunities for real estate investors.
- El Paso: El Paso is a steadily growing city with a strong job market, which means there’s plenty of opportunity for growth here.
- Austin: Austin is one of the most in-demand cities in Texas, and while property prices may be high, there’s also plenty of opportunity for profit.
- Waco: With a low cost of living and a rapid real estate boom, Waco is an ideal location for real estate investment.
The Bottom Line: Wholesaling in Texas
Texas is a vast state with plenty of excellent opportunities for real estate investors interested in wholesaling. Above all, when starting your wholesaling business, it’s important to make sure you’re adhering to Texas state laws to avoid penalties.
