A Guide To Real Estate Wholesaling
How to – Real Estate Wholesaling
If you are thinking of venturing into the real estate business, wholesaling houses is one of the easiest to break into real estate investing. If you’ve been researching about real estate investing, you might have noticed that real estate investing is nothing like investing in bonds and stocks, where you start investing with as little as 100 bucks and can enter and exit as you wish.
Dealing with properties is not that easy and tends to have hefty price tags. Furthermore, it can take time to sell and buy properties. First, there is the issue of having to come up with a down payment, getting the finances you need, filling out paperwork, and working on closing deals. If you want to make money investing in real estate but do not want to go through the stress of saving up money and going through the buying process, options like real estate wholesaling are a great way to break even. In this article, we will be looking at what wholesale real estate is, how it works, and you to get started.
Real Estate Wholesaling Explained
Wholesaling real estate is where an individual finds a deal, gets it under contract then sells it at a small profit to end investors. It is a short-term business strategy where you become the middle-man who matches up undervalued or distressed properties to willing buyers. But who are the buyers? In most cases, buyers are long term rental investors or fix and flip investors.
In retail wholesaling, wholesalers sell large quantities of goods to retailers, who then repackage them and sell them to consumers at a higher price. Since the goods are sold to the retailer in bulk, the wholesaler can charge retailers a lower price.
Wholesaling houses, on the other hand, is a different kettle of fish. Unlike retail wholesaling, real estate wholesaling does not involve selling multiple properties at significantly lower prices. Under this option, wholesalers contract a home (often a distressed property) with a seller, shops for potential buyers, and then relegate the contract to the most suitable one.
Side note: Instead of buying a property and selling it, wholesalers contract it with sellers and find parties interested in buying it.
The goal of wholesaling houses is to ensure that you sell the property to interested parties before the contract between you and the seller comes to an end. It is worth noting that no money actually exchanges hands between the seller and the wholesaler – well, not until the wholesaler finds an interested buyer.
How do real estate wholesalers make money then?
Wholesalers earn profits by finding buyers that are willing to purchase the property at a price that is higher than what they have agreed with the seller. The price difference – what the buyer pays – is what they get to retain.
To successfully wholesale properties, you need to be patient. At the same time, you will need to invest your skills and time into locating undervalued or distressed properties, committing them, and then finding buyers that are willing to buy them.
When wholesaling real estate, it is essential to keep in mind that investors are always looking to buy properties that are below their current market value. Savvy investors understand that successful real estate investments start with a purchase below the current value, which means that some profit must be made once the deal is closed.
With this in mind, your task as a real estate wholesaler is to find and purchase properties that are well below current market value so you can meet a buyer’s needs while still making a profit.
If you are selling a property to a fix and flip investor, it is vital that you know enough about what it will cost to repair and renovate the property. This will allow you to determine if the property can be rehabilitated and if the after repair value (ARV), is high enough for both you and the buyer to make some money.
If you are selling the property to a long-term rental investor, it is imperative that you understand the local population demographics, real estate market, rents, and rental prospects. It is also crucial that you be able to calculate what the buyer will get from the property through rent; if they are buying using a mortgage or cash; what they consider to be adequate cash flow; and their costs for the property.
Who Is Best Suited For Real Estate Wholesaling?
Wholesaling real estate is perfect for anyone who wants to get into the real estate business but does not have the funds to do so. The great thing about this option is that you do not need to take any course or pass any exams or to get licensed. If you possess great people skills and are patient, then this might be an excellent option for you. While it may require a lot of time and patience from you, if done right, real estate wholesaling can reap significant rewards.
How to Get Started
To get started, you will need to do research – and lots of it! It is advisable that you locate and join a real estate investor group(s) where you can get advice and wisdom. You’ll also need to commit yourself to find distressed or undervalued properties and motivated investors. Last, but not least, you’ll need to familiarize yourself with wholesaling contracts.
If you have strong communication skills, like to meet new people, and are passionate about real estate, then you are already halfway there. Real estate wholesaling was the first step into real estate some of the most successful investors made since doesn’t require any educational requirements or licensure. Also, compared to other fields of real estate, wholesaling requires very little seed money to start.
Once you have ventured into wholesaling houses, you will know if you are cut out for it or not. It’s worth noting that there are tons of gray areas, and this is one venture that will require a lot of commitment, time-wise, to find properties and buyers willing to buy them. However, after several deals, you’ll be a bit more familiar with the marketing process, contracts, and ways to find undervalued properties. The right knowledge and a bit of experience will give you the self-assurance you need to be successful in this cut-throat business.
Succeeding At Real Estate Wholesaling
Finding the right properties is the most important thing when it comes to wholesaling. Distressed property owners are often eager to get the properties off their hands and earn some money while at it. While a burden to their sellers, most of these properties look like great prospects to potential investors, especially if they are priced just right, possess desirable features, and are in the right location. However, before making an offer, review the kind of additions or repair the property needs.
Understanding what to offer is essential. If you go too low, you might end up scaring off potential sellers. Going too high, on the other hand, might make it hard for you to find someone willing to take on the risk of purchasing, then fixing up the property. To be on the safe side, you should consider adding a contingency to the purchasing contract that allows you to back out should you be unable to find a willing buyer before the deal comes to an end. Doing so will help limit your risk.
It is also worth noting that you can use assignment contracts to control a property you are considering through closing with an investor with a small money deposit. Profits under this option can be increased if you contract to purchase the property and do something known as a “double close.” It is worth noting that double-close deals generally require transactional funding. But where do you get this funding? Through transactional lenders. Under this option, you become the buyer, and the lender gives you the funds you need to purchase the property and gets paid back a day or a few hours after you’ve sold the property to your buyer.
Is Real Estate Wholesaling Legal?
Wholesaling real estate is legal but if you straight up ask a real estate agent you may get a different answer! As we have already seen, it involves finding distressed properties and making offers on them. These offers are contingent on you, the wholesaler, selling the properties to other investors. Once they’ve been bought, the deal is complete.
However, there are components that you need to be cautious of considering that you are entering into a contract with another party. Real estate regulations and rules vary from state to state, so it can be helpful to turn to your local real estate investment group for guidance. It’s also wise that you consult a local real estate attorney since there several grey areas to watch out for.
An area of wholesaling houses often surrounded by controversy is the assignment portion. This is where wholesalers get properties under contract and sell them to other investors for an assignment fee. A lot of people think that this is illegal since it is brokering real estate without a valid license. However, it is perfectly legal in some states – that is why it is essential that you consult an attorney first.
Finding Buyers
Knowing where you can find buyers is essential since these are the people who’ll be buying the properties you are wholesaling, hence making you money. The great thing is that buyers are all over – you can find them in real estate sites, real estate investor groups, and through marketing flyers and signs. Other places to check include free sites such as Craigslist and Zillow.
However, if you are new to real estate wholesaling business, consider attending investor seminars and joining investor groups to get guidance and advice on where and how to look for potential buyers. At the same time, these are great places to see if you can find investors interested in the property you have to offer. Another option involves using marketing materials that list similar properties that are for sale. These can be mailed to neighborhoods you are targeting or in public places that have lots of traffic.
After a while, you will have mastered the art of wholesaling real estate and will have several investors that you work with consistently. As you continue to do business with them, you will get to know them and understand their preferences. This will make it easier for you to look for properties they are likely to buy based on their investment strategy, neighborhood preferences, and style of home. Working with seasoned investors is a great way to learn how the industry operates.
Bottom Line
Now that know more about wholesaling houses, what the process entails and how to successfully wholesale real estate, it is our hope that this guide has helped you determine if this is the right path for you to take and if it is, how you can start making money.
If you want to learn more about real estate wholesaling or need help getting started, reach out to us today for advice and guidance.
