Wholesale Real Estate Investing Guide
Are you good at selling distressed properties? Do you prefer to sell off properties as quickly as possible? If you are then wholesale real estate may be ideal for you, and here’s how the process works.
What Is Real Estate Wholesaling?
Wholesale real estate is a short term business strategy that involves contracting distressed or low-value homes and selling them to potential buyers and investors. In this setup, the wholesaler agrees to help the seller sell his property by creating a contract which they can assign to potential buyers.
The real estate wholesaler doesn’t actually buy the property, however. He merely holds on to the contract until he can find a contractor who is willing to buy the property.
Once the buyer releases the funds for the property, the wholesale retailer assigns the contract to him, after which the whole transaction process is concluded.
Furthermore, contrary to its name, real estate wholesaling doesn’t actually involve buying and selling several properties at a time. It merely involves assigning a contract for the property that’s being sold.
A real estate wholesaler can still carry out the same process using multiple assets, but the number of properties being bought and sold through this process is irrelevant. Only the contract matters.
How Does Real Estate Wholesaling Work?
The best way to illustrate how real estate wholesaling works is through a quick example. Let’s say that you’re a homeowner who is having trouble selling his property because it’s old and deteriorating.
One day, a real estate wholesaler comes to you and offers to help you sell the property, and you want to sell it for around $80,000. The wholesaler agrees, after which you give him the contract for your property.
He then uses his network of contacts to find a buyer for the property. He finds one, and the buyer is willing to pay $84,000 for the property. Once payment has been made, the wholesaler assigns the contract to this new investor buyer.
The wholesaler managed to earn $4,000 from this entire transaction without ever actually owning the property itself. All he did was to act as an intermediary between the seller and the buyer.
But wait a minute! Isn’t this what real estate agents normally do?
Yes, that’s true. However unlike real estate agents, wholesalers almost exclusively handle high risk, depreciated properties and their buyers are usually investors and house-flippers, not ordinary people looking for new homes.
Here’s a quick summary of how wholesale real estate works, and what it has to offer.
- The wholesaler contracts a house or property with the seller then he looks for an interested party to buy it.
- The wholesaler then contacts the property with a buyer who is willing to pay a slightly higher price than the seller. The buyer gets the property and the wholesaler keeps the difference as profit.
- Also, real estate wholesalers generally look for and contract distressed properties, such as aging, pre-foreclosed and damaged houses. This allows them to get the best deals from both buyers and sellers.
- Unlike house flippers, real estate wholesalers don’t carry out renovations. They just buy properties, and manage the risk of holding onto low value houses and properties.
Should You Go Into Wholesale Real Estate?
Wholesale real estate is a great choice for people who are proficient at selling distressed properties. If you can do that, then the rest is easy. Unlike house flipping, you don’t need to renovate houses in order to sell them, nor will you have to shoulder any financial burden yourself.
The only thing you have to worry about is assigning the property contract to an interested buyer.
Additionally, real estate wholesalers don’t need to pass an exam or a license to engage for this sort of thing. They may need the help of a lawyer to help them put together the necessary contracts, but they themselves don’t need any special paperwork or IDs. So you don’t really need to worry about any requirements.
Finally, it’s worth mentioning that in order to become a real estate wholesaler you will need a large network of interested buyers and investors who are interested in buying distressed properties. In other words, you are catering to a very specific niche of people, and unlike other forms of real estate transactions, you will need to keep your clients and contacts happy otherwise, they will look for other options.
Tips On How to Become A Good Real Estate Wholesaler
Here are several useful tips for aspiring real estate wholesalers:
- Look for a neighborhood or community with a lot of distressed properties. This is where you will find most of the houses that you will promote throughout your wholesaling career.
- Establish and maintain a robust network of real estate investors. These are your buyers, and you will need to keep them happy if you want to sell your ‘stocks’ fast.
- Learn to negotiate with homeowners with distressed properties. These kinds of sellers usually have fairly simple and predictable problems, and they are more likely to respond to you if you know how to present solutions the right way.
- Consult other real estate wholesalers at your town, and figure out how they do things. Who knows? They may even help you with your work.
- Learn to identify different types of distressed properties. For example, there are certain properties which are structurally sound and aesthetically pleasing to look at, but are located in rapidly declining areas.
Furthermore, there are also many pre-foreclosed houses that have minimal to no problems. So, remember, distressed properties are not always synonymous with damaged or dilapidated properties. Certain other signs are more subtle.
Finally, it’s also worth mentioning that a good wholesaler should know how to set his commission. For example, if a seller is selling her property for $100,000, don’t ask prospective buyers to pay $120,000.
If you do, you’ll only drive them away. Instead, keep your slice of the transaction small by putting up a $105,000 or even $107,000 price tag. Your commission will be smaller but it will also allow you to attract more buyers.