Real estate wholesaling is an excellent way to break into the real estate investing field without significant personal financial risk. While there are plenty of extensive guides to wholesaling real estate, we're going to cover the basics in this post to help you understand the fundamentals and determine whether or not it’s for you.
What Is Real Estate Wholesaling?
Wholesaling real estate investing is a strategy where the investor purchases a property at a low price and quickly resells it to another investor for a profit. Unlike other real estate investment techniques such as flipping, wholesalers only retain the property contract until they can find a buyer. Other than paying legal, licensing and other fees, wholesalers don’t actually purchase the property (as long as they can find a buyer), which means you don’t need a lot of capital to get started.
Wholesaling is a low-risk, medium-reward alternative that allows investors to gain a deep understanding of the investment process, and the transactions that take place in that process, without needing to undertake the full financial burden of buying a property. On top of that, unlike other real estate investment options, wholesaling enables investors to earn without investing the time and money needed to make property improvements or manage properties.
7 Steps To Wholesaling
Step 1: Find a property
Finding properties is important, but even more important is finding property owners that are motivated to sell. Once you’ve found properties that fit your criteria, you can determine how motivated property owners would be to sell by going to your town’s local tax office and looking up records for your target properties to determine whether or not they’re in preforeclosure, if there’s a lien on the property, or if the owners are behind on their taxes.
This process is called skiptracing for real estate, and it enables you to find eligible properties along with basic property owner contact information.
Step 2: Analyze repair costs
Once you’ve found a motivated seller who owns a property that fits your needs, it’s time to analyze the repair costs.
This is where real estate wholesalers cut their teeth. If they’re able to assess repair costs, and those assessments are accurate, the wholesaler builds their reputation among investors looking to buy properties.
Step 3: Negotiate with seller
Now that you’ve accurately assessed how many repairs the property needs, you’ll need to negotiate. The reason you’ve identified a motivated seller is because they’re more receptive to negotiations, and because they’ll often take a lower price in exchange for cash.
Step 4: Sign contract for property
Once you’ve negotiated, it’s time to put the property contract under your name. Notice, you’re only putting the contract, not the property, under your name. This gives you time to go out and find a buyer for the property.
Step 5: Find a buyer
Finding a buyer requires connections and sales skills. Knowing who is looking to buy properties isn’t always obvious, which is why wholesalers with connections in the real estate industry usually outperform wholesalers without connections.
Step 6: Negotiate with buyer
Now it’s time to negotiate the sale of the property. This is where wholesalers make their money. They keep the difference between the buyer’s price and the seller’s price.
Here’s an example;
Seller: Willing to sell property for 247k cash
Buyer: Willing to buy property for 259k cash
Wholesaler: Keeps 12k difference in price
Step 7: Close the deal
And now? Time to close the deal. You’ll take the contract to the title company to officially transfer the contract and property to the buyer, and you as the wholesaler will cash out once the deal goes through.
Should You Get Into Wholesaling?
Wholesaling real estate is a great opportunity for anyone with decent connections and social skills to get their foot in the door of the real estate industry. It allows new investors to see the sales process first-hand and understand what it takes to be successful as they transition into careers as full-time investors.
