Wholesaling houses is a great way to get into the world of real estate investing. In short, wholesaling is finding a deal and selling it to an end investor. This allows you to avoid any risk and not use up your money for the time it takes to fix the property.
While wholesale real estate can be a relatively easy way to get into the business, there is no guarantee that it will lead to success. To be successful in real estate, you need to find the right balance between taking risks and being cautious. You should have a basic understanding of the process and what it entails. Without it, you could end up spinning your wheels.
Here are a few basic concepts you need to know before you start wholesaling real estate.
What Is Wholesaling Real Estate?
Wholesaling real estate is a lot like flipping houses in many ways. Both individuals and companies acquire property for the purpose of earning a profit. Wholesaling real estate for beginners can be difficult to understand because of all the nuances involved.
Wholesaling real estate is a shorter-term strategy that allows for the accumulation of capital, as opposed to buying and holding a property to turn it into a rental, or selling it as an investment.
Product wholesalers are able to sell their products to end buyers through motivated sellers who act as intermediaries. The wholesaler creates a purchase contract between the motivated seller and an end buyer for the rights to purchase the property before finishing the deal.
The wholesaler and seller do not exchange money as the wholesaler does not purchase the property. The wholesaler gets a portion of the sale proceeds as their profit, also known as the assignment fee, for connecting the seller with the end buyer.
Wholesaling houses is a good way to get into the real estate business without as much risk as some other strategies. This is a good option for people who understand other people, are passionate about marketing, and can be patient.
What Is The Difference Between Wholesaling vs. Flipping?
Unlike the many reality television shows that make flipping houses seem glamorous, let’s take a closer look at what it really entails to start wholesaling real estate.
Flipping real estate generally signifies a longer-term investment, whereas wholesaling typically denotes a shorter-term commitment.
The role of a wholesaler in a real estate transaction is to find a property that is typically distressed. As a middleman, you will need to find an offer that meets the needs of the seller while connecting them with an ideal end buyer. This may require some negotiations and research on your part, but it will be worth it to find a fair deal for both parties.
Wholesaling carries less risk because the wholesaler does not need to make repairs or renovations. Wholesalers don’t have to pay for some of the traditional costs of a flip, such as a mortgage, property taxes, and insurance.
What Is Reverse Wholesaling?
When you find buyers first, you are looking for deals before you reverse the wholesaling process. Wholesaling in reverse order differs from traditional wholesaling in that you have a good idea of what your potential buyers want. It is your job to then find the property and match it with the buyer.
In reverse wholesaling, flipping the contract can be easier since the buyer is already interested in the property.
Pros and Cons Of Wholesaling Real Estate
You should do your research on the benefits and disadvantages of investing in property before you start investing. There are many real estate investment strategies to choose from, so it is important to select the one that is right for you and your career.
Consider some of the advantages and disadvantages of wholesaling below:
Wholesaling Pros:
Easy To Start
You can be successful at wholesaling real estate if you have a good strategy. You can start your wholesaling business with very little overhead, unlike other business models within real estate. You don’t need an office, employees, or lots of software.
Wholesaling is a great way to learn the skills you need to be successful in other areas of real estate. You’ll learn things like networking, deal analysis, negotiation, and real estate contracts.
The three things you need to be successful as a beginner wholesaler are: a step-by-step process to follow, an experienced mentor to shadow, and a community of like-minded professionals to hold you accountable.
Wholesaling With No Money
The best part about wholesaling real estate for beginners is that you can do it without using any of your own money. This concept, while absolutely true and able to give your investment returns a boost, comes with challenges.
You need to have a solid plan and know what you’re doing. It’s always better to have extra money or access to money in case you need to show proof that you have enough money to a seller or real estate broker.
Faster Closing
Compared to other investment strategies, wholesalers may actually profit before a deal is closed! Wholesalers are usually paid at closing when the end buyer pays for the deal. We teach our students how to get paid even if the deal does not close.
Wholesaling is the best way to make money in real estate quickly.
Risk-Free
Risk comes from a lack of knowledge or experience.
Wholesaling is often seen as one of the safest ways to make money in the real estate industry. As a wholesaler, you will not be responsible for any negative aspects of the deal as you do not provide funding for the purchase of the real estate.
Wholesaling does not require you to invest your own money in the properties you are working on, unlike renting out properties or buying and selling them.
The biggest risk in wholesaling real estate is not knowing the legalities and having contracts in place.
Wholesaling Cons:
Rising Prices
It is more difficult to find good deals on properties in the current seller’s market. This means that there is more demand for housing than there is available housing, causing prices to increase rapidly over the last 1-2 years.
Since the pandemic, there has been a massive amount of cheap debt and capital floating around, paired with concerns of inflation in the USA. This is why everyone wants a piece of the real estate market.
The upside to this is that you will be able to charge higher wholesale fees because there will be a lot of investor interest in your deals.
Wholesaling success is mainly achieved by studying local market conditions, being good with numbers, and having excellent people skills so you can connect buyers and sellers.
Unrealistic Expectations
Wholesaling real estate for beginners can be a great way to make a profit. However, it is important to keep in mind that profit margins can vary greatly. Wholesaling real estate requires a lot of hard work, but you wouldn’t know it from looking at social media. All you see there are flashy images of checks, Lamborghinis, and luxury lifestyles.
New real estate investors who think they will make $100,000 or more on their first deal might need to reconsider their expectations. If you want to be successful in real estate, you need to think long-term. Having this mindset will help you achieve your goals.
Do You Need A License To Wholesale Real Estate?
You don’t need a license to wholesale real estate; you just need to be the main buyer in the transaction. You don’t need to be an expert on home buying and selling to get started, but it can be helpful to have specialized knowledge. A real estate license could be beneficial for investors interested in wholesaling. A real estate license gives investors access to the MLS, a good source for leads on properties. If you become a real estate agent, you will have the chance to meet new people who could help you in your career in the future.
How To Start Wholesaling Real Estate: 4 Beginner Tips
1. You Need To Market To Find Deals
Wholesaling does not require a lot of money, but you will need some money set aside to find good deals. Wholesale deals differ from regular rehab deals in that there is an extra layer of complexity involved. You need to have enough profit potential to make an end investor want to buy your company. You need to find deals at a low enough price for everyone in order to make a profit. You may have to spend money on marketing to find good deals. Though you may not need to put together an expansive marketing campaign, you cannot expect opportunities to simply present themselves. There are a few ways to look for properties without spending a lot of money, such as bandit signs, targeted marketing, and social media exposure. You need to spend money to find deals.
2. Networking Is Critical
If you want to be successful in real estate, you need to make an effort to promote and sell yourself. If you want to be successful in real estate, you need to increase your local exposure. This is true whether you are wholesaling, flipping, or looking for rental properties. This is especially important when it comes to the wholesale side of the business. Good wholesale deals are hard to find. Some of the best ways to find a job will be through your personal contacts. Starting a wholesale buyers list from scratch can take a lot of time and effort. All networking events, whether they be local meetups or real estate investment clubs, are great opportunities to expand your reach and meet new people. The greater the number of people you know in the business, the greater the likelihood they will think of you the next time they have a specific deal. You should always have business cards ready to hand out. You will often make the best contacts from informal settings. You can use any opportunity to talk about real estate with your children’s school field trips, office projects, and even happy hours at your favorite bar. The more options you have, the more likely you are to find a good wholesale deal.
3. Know Your Numbers
If you don’t understand the numbers involved in real estate wholesaling, you’re likely to make mistakes. Think about the wholesale process for a minute. You need to purchase the property at a low enough price where an end investor still sees potential for a return on investment. There will probably be a list of repairs and expenses required for most properties. If you are not an expert in repairs, you should refrain from attempting said repairs and instead consult a contractor or someone that is knowledgeable in the field. Carrying costs must be paid for as long as you own the property. These expenses will start to add up after a few months. How much are similar homes going for in the area? While making improvements to your home is a great way to increase its value, you may not see as large of a return on your investment as you expect. Investors are not interested in a profit that is only significant after everything has been taken into account. You need to be aware of the numbers before making an offer.
4. Convert Leads To Deals
You should take advantage of opportunities in real estate as you would with anything else. You need to turn leads into deals. You need to spend time learning how to talk to homeowners and what to say to them. In most cases, they are selling because they want to alleviate a problem for you. Whether you buy the house or someone else does, they will most likely sell it. The way in which you communicate with them, respond to their inquiries, and handle issues is of utmost importance. When your phone is ringing constantly, it’s great. But if you’re not closing deals, it’s not helping much. Once you have completed a few successful deals, the process becomes much simpler to manage. Before you can become successful, you need to go through a period of experimentation. You will need to gain experience before you know what to say to a homeowner. Sometimes a lead will be lost during the process. After you establish a routine and a method of converting deals, wholesaling will become simpler.
How Much Money Do You Need To Start Wholesaling Houses?
Wholesaling houses does not require a large amount of money to get started. To get started, you will not need to take out any loans or have excellent credit. Setting a budget for marketing is critical. Wholesaling is only possible if you have a way to market your deals, find buyers, and assign contracts. Marketing is therefore one of the most important aspects of wholesaling. If you are new to marketing, use free channels such as Craigslist to get exposure.
If you are finding it difficult to raise enough money for an adequate marketing budget, you might want to consider working with a partner. A partner can bring in money and skills that you might need.
How Much Do Real Estate Wholesalers Make?
How much money real estate wholesalers make depends entirely on how good they are at finding the right deal. The main objective is to find a property that an investor is willing to pay for, but only spending less money. The wider the gap, the more money you can make. The more experienced and skilled you become at finding great deals, the more potential there is for you to make a profit.
There is no definitive answer for how much one can make from a deal, but it is not uncommon to make $5,000 to $10,000 per transaction if the circumstances are favorable. If you want to make more money, you need to do more deals.
How Much Should You Offer For A Wholesale Deal?
You should basically offer 60 to 70 percent of the property’s value after repairs are made. When negotiating, keep in mind that the price you pay will affect your profits down the road. It is important to estimate repair costs and timeline in order to make the most profit.
Is Wholesaling Houses Worthwhile?
If you can find properties, develop a buyers list and assign contracts regularly, wholesaling houses can be a good way to achieve your financial goals. Often, the job is what you make of it. Many investors find the option to start with no money appealing. Many people will say that wholesaling is a waste of time. This is because it can be difficult to find your first contract, especially if you don’t know anyone in the business. You may have to do a lot of networking and research to find a company that is hiring. The more contracts you assign, the more comfortable you will feel. Wholesaling can be a worthwhile endeavor if you are willing to put in the effort. If the previous sentence seems to involve too much work, there are many other investing methods in real estate you can try.
Is Wholesaling Real Estate Legal?
People are often curious about how wholesaling real estate is legal.
We’ve all been warned that if something sounds too good to be true, it probably is.
Rest assured, wholesaling real estate is perfectly legal. Consider checking to see how rules and regulations vary depending on the state you live in.
When selling to someone who may be in a difficult situation, it is important to use language that cannot be misconstrued, in both verbal and written communication.
It is a good idea to speak to a real estate lawyer to make sure you are following the law and not making common mistakes in the industry.
Summary
Wholesaling houses is a process where you find a deeply discounted property and then sell the contract to another investor. This is a great way to generate income and build a network in the real estate industry. Don’t just take a leap of faith without learning about the process first. To increase the chances of success when wholesaling, research your market and build a strong list of potential buyers. People who are good at this strategy can use it to start their real estate businesses.
