Real Estate Wholesaling – A Beginner’s Guide
Getting into real estate is a great way to make money, and a lot of people are recognizing the promise of this market. In fact, who wouldn’t want to be their own boss and utilize their skills to take charge of their financial destiny?
Real estate wholesaling has risen in popularity in the recent past, given the fact that it is an attractive way for both investors and investor-buyers to drive profits. To thrive in this particular niche, you need talent and a hardcore dedication to evaluate, find and close deals and sell them. This requires you to work quickly and have access to a lot of knowledge – which isn’t readily available out there.
Real estate wholesaling is a turbocharged industry, which is a series of sprints. So, let’s get right to the starting line.
What Is Real Estate Wholesaling?
Real estate wholesaling is a way of buying and selling houses. The wholesaler will act as the intermediary between the seller and the buyer who is often the investor. The wholesaler will get in touch with owners of distressed properties and then convince them to get into a wholesale contract with them. They will buy houses for less than their market value and then sell them at a price the wholesaler thinks it is worth.
In real estate wholesaling transactions, the wholesaler will get into a purchase contract for a house for a small money deposit. The contract includes the amount that the wholesaler will sell the property for and the period for the sale to take place. Once this contract is in place, the wholesaler will try to find an investor after which the contract will be reassigned to the investor at a higher price. This price difference is known as the wholesale fee that the wholesaler will receive, which could be 5-10% of the property price.
Let’s try to understand this with a quick example:
There is a home in your neighborhood that would be worth $500,000 if it were in good condition. However, the home needs a lot of maintenance work, which the homeowner cannot afford. Your job is to convince the owner to let you purchase the property for $300,000 and then turn around and sell that contract to an investor for $310,000. Therefore, you get $10,000 only for being a middleman.
A wholesale real estate is a good option for people who are interested in real estate but don’t possess the financial capacity to purchase and sell properties. Now, this brings us to the next key question:
How Do I Do Wholesale Real Estate?
The good news is that wholesale real estate doesn’t require you to possess large sums of money. The bad news, however, is that this involves exhaustive property research and strong networking skills to find the right investors. It also requires the foresight to efficiently craft convincing financial deals that will convince the investor to accept.
Let’s have a quick look at the steps this process entails:
Conducting Strong Research
Be sure to take the time to acquaint yourself with the wholesale laws in your jurisdiction. You will also need to be well-versed in the neighborhoods where you intend to purchase a property.
Pick Out a Distressed Property
Keep an eye out for properties that have been listed under market value and whose owners are desperate to sell. A good idea is to look for homes that have liens or are being foreclosed since such homeowners are often more open to selling them for less than they are actually worth.
Work Out the Math
Your wholesale real estate deal must be financially sound. To do this, you have to find out the fair market value of the property. You can look at similar properties in the area and then determine the costs of any required repairs. This will allow you to calculate the after-repair value; you can then use this to calculate the best price you can offer for the distressed property so you can make a good profit.
Get In Touch With The Seller
Be clear in your role as a real estate wholesaler and talk to the seller about how working together can sell the property. Given the fact that wholesale real estate transactions are completely legal, you have absolutely nothing you hide.
Get A Property Contract
Put forward your offer to the seller and get the property under a contract. This should include the right to assign the contract to another party as well. It should also include a contingency that allows you to withdraw from the deal if you cannot find a buyer before the contract expires. Doing so will limit your risk.
Look For a Cash Buyer
Now that you have found the property and have made a wholesale real estate contract with the seller, the next step is to market the contract to potential buyers. This is where your networking skills will be put to the test.
The Benefits of Real Estate Wholesaling
- It’s a money-making strategy that involves less risk since it requires very little upfront investment.
- This particular industry is a great way to learn all the nitty-gritty of the real estate market and help you to enhance your negotiating skills.
- There is no credit score required.
- Prior property renovation experience or efforts are not needed.
- It’s a great way to make some quick and large profits, particularly if you have a good network of investors.
However, there is a less glamorous side to real estate wholesaling as well. And this is expected because wherever there is an up, there will inevitably be a down too.
The Disadvantages of Real Estate Wholesaling
- There is no guaranteed income because you will not make money until you find properties and investors.
- Trying to find good leads is a tedious process that involves a lot of hands-on work.
- It requires active involvement and if you are not constantly finding and closing deals, then you’re not likely to be making a lot of money.
- You should develop optimal networking skills and a strong pipeline of leads.
- Wholesalers who are unable to find investors can risk the possibility of losing their earnest money deposit.
The Bottom Line
Real estate wholesaling is not everyone’s forte; it requires a lot of time, patience, work, and commitment. While it is a fast and relatively low-risk way to earn money, it is crucial to understand and follow all the legal and ethical aspects of real estate wholesaling. If you have done good research about this particular topic and possess strong networking skills, then you can certainly be confident in enjoying the profits that you can reap from this business model.