Real estate wholesaling is a business strategy that investors use to make profits with little to no risk. It’s important to note that this short-term investment strategy does not relate to retail wholesaling as some people think. Retail wholesaling entails selling goods in large quantities to retailers that repackage them before selling to consumers at higher prices. But, we're talking about real estate here!
So, let's get into exactly what wholesale real estate is & why it might be a beneficial addition to your current real estate business!
What is Wholesale In Real Estate?
Wholesale real estate refers to when an individual or a real estate investor puts a distressed property under a contract hoping to assign the contract to another buyer. It’s an investment strategy where a wholesaler contracts a property with a seller and then finds a party that is interested in purchasing it.
A real estate wholesaler contracts a home at a higher price than what he sets with the seller. The profit the wholesaler gets after selling the property is the difference in those prices. The work of real estate wholesalers is generally finding distressed properties, putting them under contract, and assigning contracts to other investors. Unlike house flipping, real estate wholesaling does not involve renovations.
Why Should I Wholesale Real Estate?
Now that you know what wholesale real estate investment is all about, you may wonder whether it’s a good way to venture into the real estate industry. Well, there are many reasons to start wholesaling real estate. Here are the major reasons:
Save Time and Actually Make Money
Real estate wholesaling becomes a lucrative business after educating yourself about it and doing your due diligence. It’s a great way for new investors to venture into the real estate investment industry because it does not require extensive experience or a lot of personal finances. Once you find a respectable deal, you'll need to get it under contract below market value. Once the seller accepts your offer, you can close and get a check within weeks or even less depending on the closing time frame.
For instance, you can find a distressed home worth $125,000 after repair and make a $100,000 offer. Proceed to put the home under a contract. You can then let your buyer of the deal know that they can take this property off your hands for $115,000. Thus, you buy the property at a low price and sell it at a high price. Be sure to use a title company or your attorney to close the deal. You'll make $15,000 as your profit within a relatively short time and the deal benefits you, the buyer, and the seller.
We'll cover the steps of wholesaling down below!
Learn about Real Estate Quickly
Wholesaling real estate enables beginners to easily immerse into the real estate industry. As long as you get the right education and instruction, learning the basics of real estate negotiating, marketing, acquiring and organizing legal documentation will take time, but you will begin to understand the process. Any wholesale deal involves different aspects of a real estate transaction. The most important thing is to know how to get wholesale deals, what to avoid, and what to consider in every deal.
No Capital or Credit is Required to Wholesaler
If you have not invested in real estate because of limited capital access or a poor credit score, you can take the wholesaling route. Even a person with bad credit can venture into real estate wholesaling. That’s because a real estate wholesaler is not the person that purchases a property. Only eventual buyers undergo credit checks. When putting a home under a contract, you can put down as little as $10. This mitigates personal risk just in case the deal fails.
Is Real Estate Wholesaling Legal?
Yes, Real estate wholesaling is generally legal. It involves finding distressed properties and making offers on them. These offers are contingent on the person selling to another investor. After an investor buys the property, the wholesale deal is complete. Be aware that regulations and rules vary from one state to another. As such, it helps to consult a real estate investment attorney or local investors association. It’s also advisable to talk to other investors in your proximity about grey areas.
It’s also important to be aware of the possible licensing requirements depending on the state or country of your residence. Different countries and states have varying definitions of the activities that need licensing. Therefore, know the activities that your state regulates and act accordingly.
If you have questions about licensing requirements in your state, ask your attorney.
What are the Pros and Cons of Wholesale Real Estate?
Once ready to invest your time and effort in learning the ropes of real estate wholesaling, you can make a profit within a very short time. However, there are pros and cons of real estate wholesaling just like they exist in other ventures.
Pros
No Capital Investment Required
Real estate wholesaling does not require a cash investment. Your credit score won’t be reviewed. You will also not worry about monthly mortgage payments or make hefty down payments. Thus, you don’t have to save up for cash investment or secure financing. These are the major hindrances for people that want to venture into real estate investment.
Make An Income Quickly
If you’ve always wanted to make an income via the real estate industry, wholesaling real estate can be a perfect route for you to follow. As long as you successfully find an investment property that is below the market value, you can get an impressive return on your investment.
Although finding a good investment property and a buyer can take time, real estate wholesaling can take you a few days or months to finally close a deal. Generally, we see the average closing time to be about 2 weeks on a standard wholesale deal. Nevertheless, it’s still one of the quickest ways to make an income in the real estate industry. This is because you don’t have to wait for investment properties to be renovated until you see a profit, or go through the standard loan process of buying a rental property with conventional financing.
It’s a Great Way to Start Investing in Real Estate
In addition to the fact that it does not require cash investment or a good credit score, real estate wholesaling requires a little experience. It’s easy to learn to wholesale real estate and you can do it with minimal risk. You just need to know what to look for in a real estate wholesale deal, how to find properties below the market value, and how to negotiate an investment property sale.
No Rental Property Maintenance and Management Hassles
Many people associate real estate investment with property repairs and property management hassles. But, wholesaling real estate is different. Real estate wholesaling enables you to make money without worrying about preparing a property for tenants or the responsibilities of managing a rental property.
Low Risk
The fact that no cash investment is required makes wholesaling properties a low-risk investment. Even if your real estate wholesale deal fails, you will lose a minimum cash amount compared to what you would lose in other real estate investments.
Cons
No Regular Income
Real estate wholesaling doesn't have recurring, regular income like a paycheck from an employer that pays you every 2 weeks. That’s because a wholesale deal only makes you money once your buyer buys it. On the other hand, rental properties generate monthly income that can be relied on by an investor.
The Process of Wholesaling Real Estate is Not Effortless
Although making money through real estate wholesaling can be quicker and easier, it requires effort nonetheless. You need to find homes below the market value and perform a comparative real estate market analysis. These combined with finding a buyer for any property are the most challenging tasks of the wholesaling real estate process. Accumulating a reliable list of potential buyers also requires networking and effort.
It’s only through networking that you quickly and consistently find real estate investors that are interested in the properties you will wholesale. Thus, real estate wholesaling is not a source of passive income.
How Do I Go about Wholesaling My First House?
Once you’ve learned as much as possible about wholesale real estate, you will be ready to wholesale your first house. Here are the steps to follow when wholesaling your first house.
Step 1: Line up Buyers
The first step in the real estate wholesaling process is ensuring that you have cash buyers in place. Lining up buyers is important before thinking about wholesaling a house this way you always have someone in mind to sell the property to. The last thing you want is to have a great deal on your hands below market value that you cannot sell!
Step 2: Talk to Your Escrow or Title Company
There are many escrow or title companies you can work with. Contact a reliable escrow or title company and ensure that they are familiar with double closing deals or assignments. Assigning a contract, or double closing a real estate deal are the 2 most common ways to wholesale it.
Step 3: Advertise
Go out there and tell everybody that you buy homes in cash in ‘as is’ condition. Let them know that you buy houses in different locations. Include your contact details in flyers, cards, and signs. You will get calls from motivated sellers once they receive your message from marketing correctly.
Step 4: Get One House Under Contract
Get one of the houses from motivated sellers under contract then bring in a cash buyer. Assign the contract with an aim at getting ~$10,000 as your fee. $10,000 is a standard wholesale fee.
Step 5: Close
Move to closing the deal and receive your wholesale fee. The process can take less than 30 days within which you will make a solid & timely profit.
The Bottom Line
Not everybody will succeed in real estate wholesaling. To wholesale real estate successfully, you need effort, commitment, time, and patience. You should also have great marketing and communication skills. Even more, finding properties under market value is not the only task you have to complete. You need a network with investors that will be interested in buying the property you want to wholesale at some point!
