You may have more in common with a real estate investor than you think if you like staying up to date with market trends, following respected real estate blogs or if you’re addicted to HGTV.
Maybe you have thought about a career in real estate for a long time, but have not yet taken the next step. You may have gotten close to making an offer on a property, but the deal failed because you were unwilling to take action.
Wholesale real estate investing involves finding discounted properties and then selling them to investors for a profit. If you’re looking for a way to make money in real estate without having to fix up properties or be a landlord, wholesaling might be for you.
Wholesale real estate investing is a great way to get started in the industry. When starting a new business, it is important to consider both the benefits and the disadvantages of the venture. Before taking any action, be sure to weigh the following pros and cons.
What Is Real Estate Wholesaling?
The wholesaler acquires a contract from the seller of a property and assigns that same contract to an end buyer, which is real estate wholesaling. The property is not purchased by the wholesaler. The owner has the right to sell the property on behalf of the company. Wholesalers earn money by charging a fee for their services. This fee is usually a percentage of the total cost of the property.
These properties are commonly distressed properties or off-market homes. The owner doesn’t need the property anymore and can’t be bothered to put in the work to fix it up to sell. Instead of finding their own buyers, they pay a wholesaler to do it for them.
End buyers are people who buy properties to either fix them up or resell them, and they don’t want to waste their time looking for good deals or haggling with sellers. Wholesalers act as the middleman and generate income by helping real estate investors find potential deals and close them.
How Does Wholesaling Work In Real Estate?
Wholesaling real estate involves finding properties being sold for below market value, negotiating with the seller, and then selling the property contract to another buyer. This can provide a steady stream of income for investors.
A contract between the seller and the wholesaler is necessary for this transaction to take place. The wholesaler agrees to sell the property for a set minimum price within an arranged period of time. A typical contract may state that a wholesaler agrees to sell a property for $200,000 within three months.
After finalizing the contract, the wholesaler seeks a buyer. The wholesaler’s goal is to sell the property for more than the contract price. The wholesaler should try to sell the property for $25,000 more than the contract price. The wholesaler will profit $25,000 from the sale once the deal is closed.
The two main methods for closing a deal are the assignment of a contract and double closing. Let’s examine the two ways to close a wholesale deal more closely.
Assigning The Contract
One way to wholesale real estate is to assign a contract. This is considered to be an easy method. When a wholesaler assigns a contract, they are selling the contract to another party, not the property itself. Although they don’t technically own the property, they are able to control it through the contract they have in place. Once the wholesaler assigns the contract for the subject property, an end buyer will become the buyer.
You must sign a contract to purchase a subject property during a wholesale deal. This is known as a purchase and sale agreement. Also, verify that the contract does not prohibit you from transferring the agreement to a final buyer. Contracts normally can be sold to another party unless the contract says otherwise.
When you assign a contract, you are not selling the property. Your name will not go on the title. You are selling your rights to purchase the home to the end buyer for a profit. When the time comes for the buyer to purchase the property, they should send the deposit to the title agent or attorney handling the closing. Once the transaction is completed and all the requirements in the purchase and sale agreement are met, you will receive a “finder’s fee” for acting as the middleman.
The Double Close
Wholesalers may choose to do a double escrow in situations where the seller won’t agree to an assignment of contract clause, or when local regulations don’t allow it. A double closing is a real estate wholesaling strategy that is just as profitable.
This type of transaction will involve the investor purchasing the property and then selling it at a later date. The resale of the subject property may occur on the same day it was purchased or up to 60 days later.
During a double close, your company will become the legal owner of the property for a short amount of time. This means that the ownership of the property is transferred from the seller to you in an official capacity. The next step is finding a buyer who is willing to pay more for the property than you paid for it. While the execution of a double closing is not much different from a regular purchase, wholesalers should make sure that their lender allows this type of transaction.
Example Of Wholesaling Real Estate
Let’s discuss an example of real estate wholesaling in more depth to help you understand the concept. Assume there’s a homeowner intent on selling. The property is in bad shape and would probably not sell for its true value, if it could be sold at all.
In addition to the traditional option of repairing the home themselves, the homeowner could also enter into an agreement to sell the home to an investor at a discounted price. If a homeowner is unable or unwilling to make upgrades to their home, they can enter into a contract with a wholesaler.
The contract gives the wholesaler the right to buy the property at a specified price, which is often lower than the market value. The wholesaler will sell the contract to buy the house to a new buyer who is willing to pay more than the original price.
Do I Need A License To Wholesale Real Estate?
Most states do not require a license to wholesale real estate. When wholesaling, you are not actually managing the transaction as a real estate agent would. You are connecting the right people with each other and then getting paid a flat fee or a percentage of the deal. Instead of being the person who buys or sells the product, you are the person in the middle of the transaction. It is important to check local real estate laws to make sure you are qualified to be a licensed agent before assuming that responsibility.
Is Wholesaling Real Estate Legal?
Wholesaling is legal because wholesalers are not selling a property, but rather the ownership of the real estate contract associated with the property.
Some people believe that wholesale real estate investors are operating illegally because they do not have a real estate license. This is emphasizing that real estate professionals should know the laws, rules, and regulations of wholesaling in their local market to make sure they are doing everything legally before taking any actions.
Is Wholesaling Real Estate A Good Investment?
Wholesaling is a good short-term investment strategy that is a good way for people to get started in the real estate investing industry. Wholesaling does not require much capital to start, making it a good choice for those with limited resources. Wholesaling can also help beginners learn quickly about the real estate market and gain negotiation skills that will be useful to them in the future.
Making a profit through wholesaling real estate requires a lot of hard work. Even though wholesaling is not very risky, you need to do your homework and work hard to earn a good profit. Wholesaling businesses are ones in which properties are bought below market value and then sold to cash buyers at a higher price. These businesses can be challenging to run because finding such deals requires keen negotiation skills with sellers. To succeed at wholesaling, you must be willing to invest a lot of time and effort into building strong lead lists and cultivating your relationships with wholesale buyers. If you are willing to put in the effort to learn how to wholesale real estate, you will be rewarded with the benefits that come with it.
Real Estate Wholesaling Vs. House Flipping: Which Is The Better Investment?
Flipping houses is usually done by investors who have more money, time, and experience. House flipping requires more investment, time, and risk than wholesaling real estate, but if done correctly, also has the potential for greater rewards.
Wholesaling real estate has become a common strategy for those just starting out in the field. Wholesaling is a lower risk investment than other real estate ventures because you don’t purchase the property or finance the repairs yourself. Wholesaling is a less expensive way to get into the real estate market than buying and rehabbing a house. As a wholesaler, you invest your time and money to generate leads and send marketing to sellers.
Real estate wholesaling generally requires less time to complete, costs investors less upfront, and reduces risk exposure. Consequently, wholesaling also comes with smaller returns.
The choice of whether to wholesale or flip properties depends on the investor’s level of experience, access to money, available time, and willingness to take risks. However, there is no right or wrong answer. You can make a lot of money from each type of career. Wholesaling generally results in lower returns per deal, but the shorter time frame will make up for lower returns in volume. Flipping, or selling property for a profit, will see investors complete fewer deals but also increase profits. Now that you know more about wholesaling real estate, you can decide if this type of career is a good fit for you. What are the traits of successful wholesale real estate investors? How can you execute a proper business plan?
How To Be A Successful Wholesale Real Estate Investor
Do you think that investing in wholesale real estate would be a good fit for you? Below we share the character traits that make for a successful wholesale real estate investor:
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- They are not born with “the right stuff.” However, through increased exposure to opportunities, mentors and role models, they gain the motivation to succeed. The mindset of a successful entrepreneur can be trained through exposure to opportunities, mentors, and role models. This increased exposure can motivate them to succeed. People who are successful at investing tend to have the right mindset. This mindset is something that is developed over time and allows them to be consistent and dedicated in everything they do.
- Workers who use technology as part of their regular workflow tend to be able to handle more information accurately, as well as stay organized. Some software and mobile applications that can be beneficial for your business are ones that help with customer relations and allow you to store documents electronically. If you want to learn more about how to use real estate software to automate your business, click here.
- The National Association of Realtors says that 51% of people who are buying homes right now are finding them on the internet. This is the largest group of people who use the internet to search for goods and services. Your website is a key part of your branding and marketing efforts. A strong website helps you build credibility and attract more customers.
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- They Have Reliable Access To Neighborhood Comps: A real estate investor’s success largely depends on their ability to identify comparable home sales, so that they can price their properties competitively. In addition, investors can use neighborhood comps to find properties that are being sold for less than their market value. If you want reliable market transaction data, one way to get it is to partner with a real estate agent who has access to the MLS.
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- Savvy entrepreneurs know when to outsource or delegate in order to save their own time. Trying to do everything yourself all the time is a bad idea, especially for investors. You will end up hurting yourself if you don’t take breaks and rely on others sometimes. If you try to do too many things at once, you might make mistakes, do things carelessly, or miss out on good chances. It can be a wise investment to know when to outsource or delegate tasks and projects.
What Is The Difference Between Wholesaling vs Flipping?
TV reality shows make flipping houses look glamorous, but the reality is quite different. If you’re considering wholesaling real estate as a beginner, it’s important to understand the difference.
Wholesaling real estate is perfect for those looking for a quick and easy sale, as the turnaround time is much shorter than flipping houses.
Your role in a wholesale real estate transaction is to find a great deal, usually on a distressed property. Try to find a balance between what the seller wants and what the end buyer is willing to pay, acting as a middleman to connect the two.
Wholesaling is much less risky than holding a property for repairs or renovations because the wholesaler doesn’t own the property. Wholesalers don’t have to pay for some of the traditional costs that come with flipping a house, like a mortgage, property taxes, and repairs.
Pros and Cons Of Wholesaling Real Estate
Wholesaling real estate can be a great way to make money, but there are some things you need to watch out for. Make sure you do your research before getting started. There are many different real estate investment strategies available today. You want to make sure you choose the right place to start your career.
Consider some of the advantages and disadvantages of wholesaling below:
Wholesaling Pros:
Easy To Start
Wholesaling real estate is a business model where anyone can succeed as long as they have the right strategy. The business model for wholesaling real estate is much simpler and requires less overhead than other models within the real estate industry, such as an office, employees, or expensive software.
If you want to learn the necessary skills to be successful in the real estate industry, wholesaling is a great place to start. Wholesaling will teach you important skills like networking, deal analysis, negotiation, real estate contracts, and more.
The best way to succeed when starting out as a wholesaler is to have a specific process to follow, someone experienced to look up to, and a group of people with similar goals to help hold you accountable.
Wholesaling With No Money
The ability to wholesale real estate without using any of your own money is appealing to many beginner investors. Although this concept can significantly improve your investment returns, it is not without challenges.
You need to have a clear idea of what you want to do and a well-thought-out plan to make it happen. If you want to buy a property, it’s a good idea to have money set aside or access to capital so you can show the seller or real estate broker that you have the funds to do so.
Faster Closing
A wholesaler may make a profit before a deal is closed, which is different from a fix and flip or buy and hold strategy. Wholesalers typically get paid when the end buyer funds the deal. However, we teach our students methods on how to get paid regardless of whether the deal closes.
There is no debate that wholesaling is the fastest way to make money in real estate.
Risk-Free
Wholesaling is one of the least risky ways to make money from real estate. As a wholesaler, you will not have to fund the purchase of the real estate, so you will not have any downside exposure to the deal.
In wholesaling, you do not need to invest in the properties you are working on. The biggest risk in wholesaling real estate is not knowing the law or understanding the contracts.
Wholesaling Cons:
Rising Prices
It is more difficult to find properties that are great bargains in the current seller’s market. This means that there are more people who want to buy houses than there are houses available, causing prices to go up higher than they have in the past 12 to 24 months.
Since the pandemic there has been a lot of cheap debt and capital floating around, paired with concerns of inflation in the USA, so it’s no wonder that everyone wants a piece of the real estate market.
The positive side of this is that you can charge more for your wholesale fees since there is high demand from investors.
Wholesaling success is mostly about understanding local market conditions, knowing your numbers, and having good people skills so you can connect buyers and sellers.
Unrealistic Expectations
Wholesaling real estate for beginners can be a great way to make money, with some expecting to make a large profit margin. It can be easy to get distracted by images of lavish lifestyle on social media and forget that it takes a lot of hard work to be successful in wholesaling real estate.
New real estate investors who are expecting to make $100,000 or more from their first deal might need to change their expectations. If you think about your development as a long-term goal, you will be more likely to achieve it.
