In this day and age, there is an increasing number of people who are interested in real estate. Many people think that the real estate market is not for them, but what they don’t realize is that there are plenty of avenues that you can explore. For example, are you aware of a concept known as real estate wholesaling? It really is something that you could consider looking into, and so here is some extra information:
What is Wholesale Real Estate Investing?
Real estate wholesaling is known as a short-term business strategy where real estate investors can make some tremendous profits. The first thing you need to realize is that real estate wholesaling is far different than retail wholesaling.
In retail wholesaling, a wholesaler will sell a large quantity of goods to a retailer, and then the goods are repackaged and sold to a consumer at a much higher price. On the other hand, real estate wholesaling is a whole different kettle of fish. In this endeavor, the main purpose of the wholesaler is to find a property that they can sell to an interested party before the original contract with the prior homeowner is finished.
No money will be exchanged between the wholesale and the seller until a buyer has been found by the wholesaler. Well, this all begs the question, how does a wholesaler make money? In a nutshell, they do it by finding a buyer that is willing to purchase the house at a much higher amount than his agreed-up price. Thus, this difference is the price that was paid for by the buyer is the profit that will be accrued by the wholesaler.
What are the Advantages and Disadvantages?
Of course, like everything else in life, there are advantages and disadvantages to being involved in real estate wholesaling. First of all, one of the main advantages to this real estate method is that the capital needed for doing real estate wholesaling is minimal. With wholesaling, you do not have to deal with such things as having large capital, a good credit score, or money to put down a large down payment. All you have to do is have the ability and discipline to do your research and engage in plenty of sweat equity.
Finally, you will have the opportunity to earn a large amount of money in a short time period. Basically, you are attempting to find a distressed property and you are serving as the middleman and selling it to another individual who will in turn fix the property up and flip it.
For example, you might be driving around, and you might see a property that is distressed, and you might go home and look it up and see that it is worth $75,000. You convince the homeowner to sell the home to you for $60,000, and then you turn around and sell it to a real estate investor for $65,000, netting yourself a quick $5,000 profit.
Of course, there are plenty of disadvantages to this method as well. First of all, one disadvantage is that the income can be unpredictable. You need to realize that wholesaling real estate is not a 9 to 5 job where you get a check every two weeks. It’s more a feast-or-famine type of job instead. Additionally, another disadvantage is that you might have a difficult time finding a buyer.
Finally, you should never go into real estate wholesaling without knowing some of the ground rules first. Yes, you do need a small amount of money to be a wholesaler, and you should make sure you are in the right state for this practice. As of right now, wholesaling real estate is illegal in the states of Virginia, Illinois, and Oklahoma.
What’s a Real Estate Wholesaler?
Much like wholesalers in other industries, a real estate wholesaler acts as an intermediary between the seller and a buyer with one major distinction.
In traditional wholesaling, the wholesaler purchases the items and products with the intent to resell them, often by quantity, at a markup to make a profit.
Real estate wholesaling, on the other hand, is where a wholesaler represents the seller and provides a buyer without ever taking hold of the property.
To learn about wholesaling real estate, the first thing to understand is that it’s a process called assigning, which is the action of gaining a contract and transferring ownership between the two parties – seller and buyer – without ever taking physical ownership of the real estate.
The advantage for a real estate wholesaler is that the wholesaler gets a property under contract to provide the seller with a buyer.
The wholesaler typically finds a distressed property to represent and gets a buyer to pay more than the seller’s contract. The difference is the profit, called a wholesaling fee, for the wholesaler.
With a significant amount of real estate taking place virtually, the trend in wholesaling has pivoted as well. Where in the past, people would physically walk through and inspect a home prior to making an offer, recent studies have found that roughly 52% of buyers found their home online.
The advantage of virtual wholesaling is that it allows the wholesaler to work with multiple markets without physical geographic limitations, increasing opportunities for the wholesaler.
By having unlimited reach, a virtual wholesaler can represent many more properties and increase their wholesaler fee without limitations to being in the geographic area.
The beauty of wholesaling is that a wholesaler can make significant returns on their investment with minimal financial obligation. Acting as an intermediary lowers the risk for the wholesaler and increases the opportunity to make a return simply by providing the seller with a buyer.
You Should Know the Best Practices For Wholesaling
Of course, you will need to know the tips to succeed in real estate wholesaling on a consistent basis in 2021. First, you should consider some of the best ways to find property deals on a consistent basis. The seasoned real estate wholesalers will look at sources such as using the MLS; “driving for dollars”, which is where you walk or drive around looking for properties that look distressed; doing networking; pursuing websites; and looking at FSBO (“For Sale By Owner”) signs. Finally, are you relocatable? There are some regions that are better than others when it comes to real estate wholesaling.
According to DealMachine, a location needs to have a “high number of distressed homes” in order to be a good candidate for a real estate wholesaler. In that regard, the top cities for wholesaling would include such diverse locales as Indianapolis, IN; El Paso, TX; St. Louis, MO; Kansas City, MO; Fort Worth, TX; Tucson, AZ, Las Vegas, NV, and Dallas, TX. As always, it is important to do your homework in order to find the best wholesale real estate opportunities.
Interesting related article: “What is Flipping?“