Wholesaling real estate properties is among the quickest, simplest, and a very profitable real estate investment strategies out there. However, this also happens to be among the most undervalued and underestimated method in the market.
Surprisingly, both new and many veteran real estate investors alike don’t appreciate wholesaling strategy. Some just shrug it off or dismiss it because it just sounds easy while others doubt if it is valuable for long term business.
There are also those who are envious of the “easy money” many wholesalers make as compared to what they earn at the moment.
So, what is wholesaling, then? How do you wholesale properties? What are its pros and cons?
What is Wholesaling Properties?
Wholesaling is actually very simple in theory. The wholesaler finds the person selling the home and connects them to an investor who would then buy the property. In the process of connecting the buyer and seller, the wholesaler makes a small “commission” for working hard to connect the two together.
The wholesaler must find people who want to sell their homes, put the home under contract to sell, and then sells or assigns the contract to an investor for a small profit. ($3,000+ would usually be the wholesalers commission but it depends on the negotiations).
Realtors will hate my saying this but, wholesalers are just like realtors but they may even work harder than realtors.
Is Wholesaling Profitable?
Wholesaling is a strategy that is very profitable and the best thing is that it works.
You can think of wholesaling as just similar to wholesaling in other industries. A wholesaler gets the products for a cheap price and turns them over to retailers and even consumers in certain cases.
They earn money fast because they move volume quickly and taking advantage of doing away with the hassles and struggles others often deal with.
Wholesaling is a short term real estate business strategy and investors use this to earn more profits. Just to make things clear, real estate wholesaling is not related to retail wholesaling in any way.
The wholesaler in retail wholesaling sells large quantities of products to the retailer who will repackage and sell it to end consumers at higher prices. Due to the volume of products sold to retailers, wholesalers can charge retailers at a relatively cheap price.
On the other hand, real estate wholesaling doesn’t have anything to do with selling multiple properties at cheaper prices. Actually, it is a different story. In real estate wholesaling, a wholesaler will contract a property, often a distressed one, with the seller.
The wholesaler will then shop the property around to potential buyers and assign the contract to a certain buyer.
Instead of buying and selling a house, a wholesaler will contract it with a seller and look for a party interested to buy the property.
Wholesaling vs. Wholetailing
There is a new term in real estate now and that is wholetailing. This a very similar strategy but with a different end result. With wholesaling, you sell the contract to an investor. In Wholetailing, you sell the property to a homeowner.
Wholetailing is a lot like flipping a property but with one major difference.
Flipping properties cost a lot of money, take a lot of time, and take a lot of man power to get the job done. This is because there are walls to remove, kitchens to remodel, additions to be made, etc.
All this work is very time intensive and costly. The benefit is that you make a lot of money on when you sell the property.
Wholetailing is where you do minor work on the property once you have it under contract and then sell the property to a homeowner for a profit.
This is a much larger profit than with wholesaling by not as much as flipping.
The Real Objective of Wholesaling
The objective of real estate wholesaling is selling the house to the interested party before the original homeowner’s contract closes.
It means that there will be no exchanges of money between the seller and the wholesaler unless the wholesaler finds a buyer.
How will the wholesaler earn money, then?
The wholesaler will make a profit by looking for a buyer who is willing to buy the property at a higher price compared to the amount that the buyer agreed on.
The price difference that the buyer paid for will be the profit that the wholesaler retains.
Pro Tip: Create a Master List of Buyers
When you are building your wholesaling business, you want to make sure that you are finding all the investors who are willing to buy properties as possible.
Keep all their names, email addresses, and phone numbers so you can let them know when you have a deal and hopefully they will buy it off you.
Real estate wholesaling is most suitable for people who wish to enter the market but lack the necessary finances.
Among the good things about this strategy is that there is no need for you to take courses, pass any exam or acquire a real estate license just so you can be considered as a wholesaler.
As long as you have the patience and you have excellent people skills, wholesaling is the perfect strategy for you.
Wholesaling Real Estate for Beginners
Wholesaling real estate is appropriate for beginners as this is a great way to tap into the big real estate world and start acting and thinking like a true real estate investor.
What makes wholesaling real estate a good choice for new real estate investors?
Wholesaling real estate has several features that make it ideal for beginners in the real estate industry:
Extensive experience and skills in real estate is not required.
In wholesaling real estate, it is expected that you will make several critical real estate decisions and moves.
But, since you will not purchase a rental property that you will keep for years to come and serve as your regular source of income, there is no need for you to worry about holding it long term.
Items like cash flow, rental income, mortgage, location, maintenance, property management, tenants, property taxes, eviction, and more are not applicable.
It reduces the need for lots of skills and knowledge just so you can be considered as a real estate wholesaler.
Although you have to be familiar with the real estate market in your area and the current state it is in, it is only a fraction of what you have to know if you will become a landlord yourself.
There are no cash requirements.
Among the biggest obstacles that prevent many people from trying their hands on real estate investment is because they lack enough cash to purchase an income property.
Since mortgage payment of at least 20% is required, you are expected to have a substantial amount of savings just so you can afford to buy a rental property, particularly in markets with prices that go beyond a million dollars.
In wholesaling real estate, there will be no expenses aside from the costs associated with familiarizing the local estate market, looking for properties up for sale, contracting and meeting with sellers, marketing a for sale property, searching for buyers, and closing the deal.
The money you will make once the deal is done will cover all these expenses and there will still be more left as your profit.
Steps to Wholesale Properties
Here are the steps for wholesaling properties:
- Search for a distressed property or motivated seller.
- Negotiate the deal with a seller.
- Search for a good property buyer.
- Try to negotiate a deal with the property buyer.
- Collect a deposit and assign purchase contract to your end buyer.
- Close the wholesale property.
As a wholesaler, your job is to look for motivated sellers with distressed properties they wish to sell fast.
These properties are ideal for real estate wholesaling because they are simple to buy below market value then sell this for more than what is indicated contract.
Start marketing yourself as a wholesaler through internet marketing, direct mail, signs, posters, door knocking, or any other method that suits your budget and time.
You also have the option to look for property tellers through online real estate websites, investment groups, or an assistant.
Once you are done with the marketing, you can start meeting and negotiating with property sellers. Make sure that the price you negotiate is low enough so as to leave some room for the wholesale fee.
In addition to that, see to it that you leave enough profits to make the deal attractive to property buyers. Below are some of the steps that you must take to close a deal with your seller:
- Meet the Owner – You should meet the seller professionally. Wholesalers aren’t the usual real estate professionals. Because of this, it’s important to gain the trust of the homeowner. It may be done through being on time, professional, and courteous.
- Sign – You may get the assistance of a real estate agent or a lawyer to help you create a contract as a wholesaler.But, majority of wholesalers write their contracts on their own through editing generic real estate purchase contracts or using wholesale agreement templates. It’s a good option for you if you like to add your clauses.
- Create an Offer – Discuss the perks of selling the property to you. Concentrate on the main points you want to alleviate that are motivating homeowner to sell at the first place.A good example is helping homeowners avoid defaulting on mortgage they can’t afford.
You must also emphasize the ways to handle the contract, appraisal, property inspection, and closing process. In addition, inform homeowners that they will not need any upfront costs.
Moreover, let the seller know about repairs required to be done before resale.
It’s essential since the expenses on repairs will help you give good reason for the offers you make to the owner of the property.
2. Search for a good property buyer.
Once you have signed the property contract, you should search for the end buyer. End buyers will not be first-time home buyers.
But rather, it’ll be a contractor or investor who will repair and purchase real estate properties. The effective ways to look for a property buyer include the following:
- Distribute the real estate flyers in investor meetings and throughout the neighborhood
- Market the property through using signs located near it
- Advertise on some online free classified websites
- Email or call all of the investors in the real estate network and make sure that they know about the new deal
Basically, you would want to market the deal to as many prospective buyers you like.
Keep track of the prospective buyers through establishing a buyer’s list that’s equivalent to book of business. You should also have to look for an end buyer as soon as possible since there is a settlement date on the contract that must be adhered to.
3. Try to negotiate a deal with the property buyer.
Negotiation is important since it determines your profits or how much money you’ll make off the deal. The profit is derived from the difference between what you are wholesaling the property for and what you bought the property for.
To have a quick sale, you should inform the buyer that you also have other potential buyers who are interested in the property.
Make sure that the buyer will give you a faith deposit until the property goes to settlement.
4. Collect a deposit and assign purchase contract to your end buyer.
If you already found an end buyer and have agreed on the purchase price, it is time to assign the wholesale contract to them. You may do it through executing assignment of contract agreement.
Usually, assignment agreement is a single page that states that you’re assigning the interest in the original purchase contract to your end buyer for a particular amount, which is the assignment fee.
You should also not forget about collecting the deposit from the property buyer once assignment agreement was executed.
5. Close the wholesale property.
The wholesale deal’s closing is also referred to as the settlement. It’s where you and other relevant parties meet, sign necessary documents, and transfer the deed to the new property owner.
It’s also where you as well as the end buyer pay every closing cost. Basically, the settlement concludes the wholesale deal.
How to Find Wholesale Properties
Finding a wholesale property doesn’t need to be difficult. Whether you’re a real estate investor or you’re just searching for a fixer-upper to call your own, such real estate deals aren’t as hidden as a pocket listing.
There are numerous wholesale companies that put together some exclusive deals for the investors. They just serve as a way for advertising that such properties are available to buy.
Some of the resources you can check out are:
- Social media platforms
- Newspaper ads
- Foreclosure auctions
- Bank REOs
But, the simplest way to find good wholesale properties is just working with one of the best seasoned realtors. A real estate agent has connections required in the industry to seek out as well as located the wholesale properties you’re interested to buy.
Since agents work with companies that charge affordable flat fees for their services, it makes sense not to go for it alone.
Pros and Cons of Wholesaling Real Estate
There are several benefits you can get from wholesaling and these include the following:
- It is a strategy that works in both up and down markets.
- There is a huge potential for high profit margins.
- You hold the property for a short period of time, which reduces the costs and risks
- You do not need to depend on the contractors for profits
- The process is fast, which also means quicker payday
- It’s one of the simplest real estate strategies you can learn
Once you learn about wholesaling properties, you will be able to all of these benefits, but there are also some risks that you must be aware of and these include:
- Deal failure
- No guaranteed income
- Market instability
For you to make an income, you should hustle. While there’s a potential for great financial success and growth, it definitely won’t be achieved without a particular amount of failures and setbacks.
So, you should make extra efforts for you to enjoy the benefits of wholesaling.