New markets require new approaches and tactics. Experts and industry leaders take the stage at Inman Connect New York in January to help navigate the market shift — and prepare for the next one. Meet the moment and join us. Register here.
Real estate investments can be made in a variety of ways, including renting out properties and flipping houses. While not requiring any financial responsibility, wholesale real estate can be just as profitable.
Without ever purchasing a home, you can make a lot of money in the real estate industry through wholesaling.
For new investors who are interested in wholesale real estate, read this article. It will give you the fundamental details you need to get going.
Real estate wholesaling is the practice of a wholesaler negotiating a purchase agreement for a property with the seller before selling it to an investor. Wholesalers start by looking for properties that are on the cheap to put under contract. These properties are usually off market and have an issue surrounding them.
Wholesalers frequently show interest in distressed homes that are listed for less than the market value. These homes frequently need a lot of maintenance, have some sort of damage and the owner might not want to pay a commission to a real estate agent or pay closing costs.
The real estate wholesaler will then sign a wholesale contract for it before selling it again to an end user at a higher price.
This is called the assignment fee.
For those who want to invest in real estate but lack the funds, wholesaling real estate may be a possibility.
An illustration of wholesale real estate
Real estate wholesaling is actually pretty straightforward, despite the fact that it could seem complex.
The owners might not think the house can be sold because it’s so old and needs lots of repairs.
Even though a home’s repair costs prevented the owner from repairing it themselves, they may still be able to get a lot of equity out of the home.
The wholesaler puts the house under contract and makes the homeowner an offer of $120,000. The wholesaler uses their network to find a prospective investor who will pay $150,000 for the house.
The investor accepts this assignment contract as a profitable refurbishment project. The wholesaler, in turn, generates a legal profit of $30,000 without having to buy the land.
Benefits and drawbacks of real estate wholesaling
Similar to any other real estate investing approach, wholesale has advantages and disadvantages. Let’s examine the main advantages and disadvantages of wholesaling.
Benefits
As a real estate investor, you can start here.
You have the capacity to close real estate deals wherever you reside.
The start-up costs are extremely minimal, making it a low-risk investment.
In a relatively short period of time, you can make a lot of money.
Drawbacks
In comparison to other real estate businesses like flipping, wholesaling has a lower profit margin.
You’ll need to conduct extensive research in order to identify the greatest homes and cash buyers.
It will take time for a wholesaler to be prosperous.
Because profit depends on a market that is open, unpredictability is a factor.
The key to your success will be finding real estate investors and property owners who are comfortable with the wholesale technique.
Real estate wholesaling vs. house flipping
It’s crucial to understand that wholesale does not equate to house flipping. Both approaches entail acquiring properties and later reselling them for a profit. But they go about it very differently.
With flipping, you spend some time renovating a house that needs work after buying it. It is time to turn the corner and make a profit after you have raised the value of the house.
Purchasing distressed houses through wholesaling allows you to avoid doing any work. Wholesalers don’t buy any materials or make any renovations on their own.
Instead, you assess the buyer a fee. In wholesale deals, you’ll make less money, and you won’t have to rehab the property yourself.
How to be a pro at real estate wholesale
If you want to get into real estate investing but lack the funds, you could have a terrific career as a wholesaler. These are the first eight steps to get you going.
Research your topic
Before you start selling wholesale, it’s crucial to be aware of the relevant laws. It is crucial to do your homework on the markets in which you are interested in investing in real estate.
Select the ideal property
The best homes must be found for less than market value, and you must then improve their buyer appeal.
Investors seek out homeowners that are eager to sell their properties. Start by looking at houses that are in foreclosure or that have liens.
You can locate excellent deals using these resources:
- MLS
- Social media
- Direct mail
You should try out several alternative approaches at first before concentrating more on the ones that are successful.
The choices will eventually be whittled down to those that deliver the best outcomes.
Analyze the market data
Once you have located a home that interests you, it is crucial to analyze the financial repercussions to see if buying it is within your budget.
You must calculate the fair market value of the property as well as the cost of repairs.
You can determine the maximum offer allowed using this information. The most you can spend on the property is this amount.
Communicate with the seller
Contact the seller next to start the negotiating process.
Depending on where they were discovered, their information might not be accessible. If you look up their details in tax records or do an internet search, it might not be immediately accessible.
When you get in touch with the seller, it’s crucial to let them know that you are a real estate wholesaler.
Discuss the advantages of dealing with a real estate wholesaler for them and how you plan to manage the entire process.
Exercise due care
Due diligence is more difficult to complete when purchasing an investment property online, but it is still achievable.
Verifying the property’s fair market value should be your first step.
To do this, look at nearby comparable real estate transactions.
To evaluate your investment, you can also consider factors like rental revenue, occupancy rates, and cash-on-cash returns.
Enter a contract for the property
It’s now time to make your offer to the seller and formally contract the purchase of the property.
Make sure the contract has an inspection contingency when you give it to the seller.
This clause gives you the option to end the contract if any unanticipated issues surface during the inspection.
The ability to transfer the contract to another party should also be stated in the agreement.
Promote your contract to buyers with cash
Your work is not done once you’ve chosen the ideal investment and negotiated a price with the seller. You must now seek out potential cash buyers for your contract.
Making contact with a Realtor in your region, who can assist you in identifying cash purchases done over the past year, is one of the simplest ways to achieve this.
On social media, you can also communicate with prospective customers.
Now you assign the contract
Once you’ve found a potential buyer, you can assign the contract to them and complete the transaction. It’s simple to sign contracts electronically and complete transactions today.
And that is how it works. From negotiating with the buyer to assigning the contract, these are the steps you need to take in order to wholesale your first deal.
Still on the fence
Now many Realtors might be saying they can’t do this. Take it from my experience, it pays to keep your eyes open. Most real estate agents like to list turnkey properties that don’t need many repairs, and can be listed on the MLS.
But just because the house needs a complete renovation, or has a mold issue, doesn’t mean it can’t be sold.
A true wholesaler’s experience
Here is an example of what a wholesaler’s daily schedule might be. It’s not unlike practicing regular real estate. The main difference is that the wholesaler must procure the buyer and the seller. Remember that the hardest part is finding the property at the right price.
If you can locate the property and get it “under contract” at an attractive price, the buyers will come.
My first deal
My first personal wholesale deal occurred in Richardson, Texas, a suburb of Dallas-Fort Worth, in July 2021.
Dallas-Fort Worth is the market I practice in, and the one in which I have the most success.
Through networking, I spoke with an agent who had a client who wanted a cash offer for her home, and didn’t want to make any repairs.
Now I just needed the buyer who had the cash to secure the property. But first, I had to run comps in the area and figure out what an investor would purchase it for.
Running comps is an art, and deserves further discussion in another article.
Nevertheless, I made an offer through the agent and it was accepted.
The next step was to arrange the walkthrough so my buyer could see if she wanted to purchase the property. To make a long story short, she did.
Strategies, tips and what to avoid
Personal experience is when you gain insight into almost anything. There are some tips I would give to someone who wants to get into wholesaling.
- It may take months to close your first deal, so prepare yourself mentally.
- Don’t try and wholesale deals from the MLS. From my experience, investors who purchase property with cash don’t like purchasing off the MLS unless it’s a great deal, which is another word for super cheap.
- Don’t worry so much about finding the right buyer. If you secure the property at the right price, the buyers will line up to purchase the property.
- Be careful about selling your deals to other wholesalers. They typically don’t have the cash to buy the homes; they are trying to “daisy chain” your property to another buyer, and add another fee on top.
Currently, I can average around one deal a month. For someone who has more time to dedicate to wholesaling, they may be able to do more.
The key takeaway is that there is always a buyer somewhere; opportunities are everywhere.
Andrew Reichek is the President of Bodebuilders.com. Connect with him on LinkedIn.
