If you’re thinking about breaking into real estate, wholesaling real estate might be the best option for you.
Starting as a real estate investor might not be a piece of cake, but once you get the foothold, you begin to generate a regular income from it. However, to make your first deal and then keep making deals, you need to know many things about real estate wholesaling or wholesaling real estate. And if you want to know all those “lots of things,” you’ve come to the right place. In this article, we’ll talk about everything that you need to know.
What is Real Estate Wholesaling?
To put it simply, the process of finding a deal and passing it along to an end investor is real estate wholesaling. The reason why real estate wholesaling is considered one of the best short-term investment strategies is that it doesn’t require any huge investment. Moreover, it helps beginners and newbies to learn about the real estate industry and acquire vital negotiating skills.
A real estate wholesaler makes a profit by first determining the distressed properties, then contacting the seller, convincing them to take their offer, and then assigning the contract to an end buyer. The profit here is the wholesaling fee attached to the transaction– usually a pre-decided percentage of the overall property cost.
Now that you know what real estate wholesaling is, it’s time to learn more about the advantages and disadvantages.
Advantages of Wholesaling Real Estate
- It needs minimal capital to start.
- The quickest way to make money in real estate.
- It opens the door for people beginning in real estate investing.
Needs Minimal Capital to Start
The biggest reason a real estate investor or realtor should start with wholesaling real estate is that it doesn’t require too much investment, even in the initial stages. As a wholesaler, you don’t need to have good credit or too much money to assign a contract to another buyer. All you need is the zest to start it and get going.
The Quickest Way to Making Money in Real Estate
This is why real estate investors prefer getting into real estate wholesaling– it is the quickest way to earn money in real estate. All you need to do is find the right properties, make a deal with the seller and then find the right end buyer—no need of getting a license or having experience. Just start, and you’ll discover it all yourself.
It Opens the Door for People Beginning Real Estate Investing
Here’s the fact– to start as a real estate wholesaler, you don’t need a good credit score. All you need is a little experience. This is because the process of wholesaling real estate is easy to learn, and it involves little to no risk.
With real estate wholesaling, you get the opportunity to learn about real estate investing. From learning how to find distressed properties to learning the art of negotiation and then how to find the right end buyer, the process teaches you everything.
This was all about the advantages of wholesaling real estate, and now it’s time to discover the flip side of real estate wholesaling which is the disadvantages.
Disadvantages of Real Estate Wholesaling
- No regular income.
- Dependent on finding buyers.
No Regular Income
Wholesaling is nothing like the regular nine-to-five job. Yes, with real estate wholesaling, you get to be your boss, but unfortunately, there’s no paycheck waiting for you at the end of the month. So, if you’re planning to get into real estate as a wholesaler, you must be a person who knows how to manage personal finances.
Dependent on Finding Buyers
The key to successfully running a real estate wholesaling business is to have a solid buyer list. No buyer means no deals. Depending upon how much money is put into the escrow, you might need to repay your seller if you fail to find a buyer. So the best idea here is to have a buyers’ list prepared even before making an initial offer to the seller.
Is Wholesaling Real Estate Illegal?
Here comes the hottest question for debate– is wholesaling illegal? Now those who believe that real estate wholesaling is unlawful feel this way as wholesalers don’t have a broker’s license. But the thing is, wholesalers are not selling property in and of itself. They are selling the ownership of the real estate contract associated with the property. And this makes wholesaling real estate a legal business. However, a real estate investor should always be well-versed in the local market’s rules and regulations and ensure that every move they make is entirely legal and doesn’t involve illegal activities.
How To Start as a Real Estate Wholesaler?
Now that you know all the basics of real estate wholesaling, it’s time to show you how to start as a real estate wholesaler and get your first deal-
Step #01- Find Motivated Sellers
The first step is to find owners of distressed properties or motivated sellers. Motivated sellers are people with distressed properties that they want to sell. These properties are the easiest to start with as they can be bought under market value and sell for more than you put it under contract.
One of the best strategies to do this is by driving for dollars. Besides this, you also use various marketing channels to promote your name in the real estate market. In this way, motivated sellers will come to you themselves.
Step #02- Negotiate a Deal with the Seller
So you found motivated sellers, and now you’re looking forward to getting the deal signed. Here’s what you need to do-
- Approach the Seller.
- Propose an irresistible offer.
- Get the agreement signed.
Step #03- Find a Buyer
You’ve got the deal, but what do you need to do next? Get a buyer who’s ready to buy the property.
Mostly the end-buyers aren’t first-time buyers. The chances are that the buyer is an investor or a contractor who will buy the property, makes some improvements, and sell it at a high price. Here’s how to find a buyer-
- Call or email all the investors or agents in your network and let them know that you’ve got a property to sell.
- Leverage online classified websites like Craigslist.
- Do offline marketing like distributing flyers or advertising in newspapers.
Step #04- Negotiate a Deal with the Buyer
This is one of the most crucial steps, as it determines how much profit are you going to make from a deal. The gain is the difference between the amount you bought the property at and the amount you’re wholesaling the property at. So the more you sell the property, the more profit you make. Also, make sure that all the extra costs are covered such as-
- Appraiser fee
- Contractor walk through fee
- Title fees
- Marketing fees
Step #05- Assign the Contract to the End Buyer
Everything is set, and now you need to assign the contract to the end buyer. Get all the legalities done. The easiest way to do this is by executing an assignment of a contract agreement. An assignment agreement is a one-page that states that you are assigning an interest in the original purchase contract over to your end buyer for a specified amount.
Step #06- Close it!
Congratulations on getting your first deal done. Now close the deal by meeting all the parties involved and getting the final documentation done.
Tips to Thrive as a Real Estate Wholesaler
Tip #01- Market Yourself As Much As Possible
Be it for finding motivated sellers or end buyers; marketing can help you a lot in both these cases. With the help of marketing, people around you will get to know about you, and whenever they would need any expertise regarding real estate, they would come to you. This will help you contact the people who are looking for someone who can help them sell their properties. And this, in turn, will help you grow your business.
In order to successfully market yourself, you can leverage both online and offline marketing methods. Online marketing methods include social media marketing, cold calling, and more. Most real estate investors use cold calling as their primary method for finding prospects. However, it’s quite tricky, so make sure you do it in the right way and avoid the most common cold calling mistakes. Offline marketing includes flyers, newspaper ads, and more.
Tip #02- Driving for Dollars
Finding distressed properties for your first few deals can seem like a daunting task. After all, you’ve got little to no idea about how to find such properties. One of the best ways to find such properties in the initial stages is by driving for dollars. Driving for dollars is a term in the real estate industry that means driving to neighborhoods to find interesting deals for your business.
So look around your neighborhood or a specific area and try to find distressed properties that you can sell.
Tip #03- Know The Numbers
A common mistake that most newbie wholesalers make is not knowing the numbers. The process of wholesaling involves acquiring a property at a price lower than the market value and then selling it at a better price. Depending on the property’s condition, you might need to repair the property and make some more investments.
If you’re not someone having experience in repair, you should leave that to a contractor, which will also get under additional expenses. Also, there can be some more expenses like takes, insurance, and utilities after a few months. Yes, improvements are useful, but they may not yield as large of a rate increase as you may suppose. So make sure you know the number before you make an offer to the end buyers.
So this was all about wholesaling real estate. Now it’s your turn to take a leap and start your wholesaling business.