Wholesalers of real estate are an investor’s best friend. I have personally bought countless properties from wholesalers and have paid them lots of money for bringing me a property. Wholesaling real estate can be a fantastic way for anyone to make a lot of money quickly and easily.
The amazing thing is that the wholesaler usually does not need to pay anything to the seller and will have no money in the deal. So, a person can get started wholesaling properties with no money, no credit, and no ability to buy the property.
What Is Wholesaling Real Estate
The process of wholesaling real estate starts off with a wholesaler acquiring a contract from the original seller of the property with the intention of assigning the same contract to a potential end buyer.
The basics of what his wholesaling real estate is:
- Find a person who wants to sell their home
- Negotiate a purchase price that is under market value
- Sign the contract with the seller for the purchase of the property.
- Find a buyer who is willing to purchase the property at the price negotiated and pay you a commission.
- Assign the contract over to the buyer
- Collect your commission and let the buyer and seller work together.
Wholesaling real estate is much like wholesaling products in business. A middleman connects the buyer and seller while the middleman makes a commission.
In wholesaling real estate, the wholesaler finds the seller of a property and connects them with a buyer of the property. In the process, he makes money connecting these two together.
The great thing about wholesaling is that the wholesaler usually doesn’t need to put any of his own money into the deal.
How Wholesaling Real Estate Makes You Money
The profit a wholesaler receives comes from identifying properties sold for lower than the market value, making agreements with the seller of the said property, and assigning the purchase to a different buyer for a higher price than what the property is under contract for.
Simply put, the wholesaler is the middleman between the seller of the property and the end buyer.
Typically, the end buyers are those who have no intention of making any further negotiations to acquire the property. A wholesaler’s income usually comes from helping these end buyers find better deals.
While this work demands a great deal of effort and time from the wholesaler, it can provide good outcomes in return.
Pros and Cons of Wholesaling Real Estate
The Pros of Wholesaling Real Estate
Like every other business opportunity, wholesaling real estate has its benefits which include:
Making money within a short time frame.
With the right deal of effort, wholesaling real estate can be really cost-effective.
This is recommended for those who are new to investing because of how accessible it is. Unlike most businesses, wholesaling requires little to no capital and experience in the field.
This is because when you locate a seller, you negotiate a good price and then get the property under a contract to purchase it. Then the wholesaler assigns the contract to a buyer for a commission. In most cases, there is no money out of the wholesalers pocket in the deal.
If your offer to the seller is accepted and the deal is closed by a buyer that you found, you’re able to earn a fairly high amount of money depending on how fast you’re able to find a buyer for the property. This could mean a month or less.
Starting with little cash and no credit.
As mentioned, wholesaling is beginner-friendly because it does not rely on upfront money in any deal.
Investing on real estate isn’t easy to get into for everyone, especially for those who deal with low credit and limited capital.
If you’re more on the bad end, there’s no need to worry about extra matters such as credit scores. This is because you, typically, won’t actually be purchasing the property yourself.
You are simply putting effort into finding potential end buyers, who are the ones that will be needing their credit checked in order to make the purchase.
Cons of Wholesaling Real Estate
Unpredictable income.
While it’s easier to make money, there is also no guarantee that you’ll be earning money twice or thrice a month. Unlike regular jobs, there is no boss that will dictate how much you’re getting and when.
Your pay will solely depend on how quickly your offers and deals are accepted by both parties.
For example, you plan to make money twice a month, which is every two weeks. You are able to find a seller who agrees to your offer in only a week, but end up taking two to three weeks to find a potential end buyer. This would disrupt your plan of earning twice a month because it took longer to find a buyer rather than finding both within the same time frame.
There are also no benefits for retirement nor any insurance.
If you’re considering to wholesale real estate as a full-time gig, you should know how to manage your finances accordingly. This is very important for jobs that don’t provide a stable income, especially when situations arrive wherein things don’t go the way you expected.
Finding buyers is a challenge.
Ideally, it’s better to have a solid list of buyers who may be interested in your offers.
With buyers already lined up before you get a contract, you’re cutting down on the time you have to put into finding buyers once you’ve sealed the property. Instead, you simply need to contact one of the buyers on your list.
The ease of working in wholesaling real estate will depend on how hard you work to look for potential buyers. Depending on your contract, it’s possible that you might have to pay your seller back for not finding them a buyer.
If you fail to complete deals, less people are likely to want to work with you.
Maintaining a stable buyers list.
Having a quick list of buyers to contact makes work easier, but each of them will have their own preferences.
Whether you are able to curate a huge number of contacts or not, these will not matter if you are not able to meet any of their needs.
Say you are able to find a property sold for cheap but needs a lot of repairs, but none of the buyers on your list intend to buy a property needing too much work done. This will urge you to look for more buyers outside of your list that may be interested in the property, which adds on to your work.
Knowing what your buyers are looking for and making offers to those who may find value in the property you have is crucial in gaining loyal clients.
How Do I Start Wholesaling Real Estate?
No requirements are needed to begin wholesaling real estate. There is no need for a license, a good financial reputation, nor a big capital to start with.
However, knowing your market beforehand makes increases your advantages between competitors. This would also affect your performance as a middleman, as well as the quality of your work.
Usually, wholesaling real estate starts by finding a seller who has their property up for a price lower than the market value.
To make the job a little easier, you can begin by finding potential buyers and taking note of the properties they are looking to purchase.
It sounds simple, but this isn’t always the right job for everyone.
There are different ways to be successful in the field of wholesale real estate. Knowing what to expect is a good way to let yourself figure out if the work is going to truly benefit you. It could be through learning about the market, or check to see if you have the right attitude to keep going in the field before finally taking the plunge.
What It Takes To Be A Successful Wholesaler
- Having the proper mindset that allows you to be consistent and dedicated in the work you do.
- Making use of different tools to organize, manage, and track information efficiently.
- Providing your buyers with a platform wherein they could easily find your offers, such as a website.
- Being up-to-date on other sales posted to price your properties competitively while still being able to gain a good profit.
- Knowing when to expand your business rather than trying to juggle all the work on your own; which may eventually affect the quality of your work.
Steps to Wholesale Real Estate
There are few steps to follow when wholesaling real estate. It mostly consists of putting a lot of effort into doing enough research and contacting enough people. To start:
1. Do your research on the local market.
Before setting out into the field of wholesaling real estate, it’s best to familiarize yourself with the market you’ll be dealing with.
Take note of the average prices set for certain properties, where different neighborhoods are located, and the type of properties available near you.
Building your knowledge about wholesaling will be a strong foundation for your future sales.
Put together a list of potential buyers in your area.
While it’s not wrong to look for a property before a buyer, the end result is different when you start by curating buyers.
Being the middleman in the whole process, it’s more effective to have a list of buyers and knowing their preferences before securing a property. This will let you know what properties your buyers are willing to pay for.
You can find them through various ways such as networking, events, social media, or maybe even through email marketing.
Look around for properties.
Distressed properties in the area is a good kickoff before looking into further wholesale deals.
Typically, these are properties that sellers are willing to give up for under market value as long as they could get rid of it.
You can look through online real estate sites or look around public records to find a distressed property that is good enough to sell.
Make An Offer To the Seller and Put the Property Under Contract.
Selling a contract is a common strategy in wholesaling real estate.
The wholesaler makes a deal with the seller under contract for a property under market value, and passes this onto an interested buyer for a slightly higher price. Through this, they are able to make a profit.
Although another method involves the wholesaler actually purchases the property and resells it later on.
Typically, this utilized when there’s a buyer willing to pay a larger amount for the property.
How to Find Wholesale Properties
Wholesale properties are available in different platforms.
There are websites online for real estate, such as Zillow or Realtor.com, which provide all the information on the properties being sold.
You can also find them by asking around your network and looking at public records.
These will usually have information on the property and owners, as well as why they have been put up on the market. Some may be due to an inheritance, or due to being behind on payments.
The properties you will find for wholesale are likely to have flaws, which you should take note of.
What Contracts You Will Need When You Wholesale Real Estate
To communicate your intentions to both your seller and buyer, there are certain contracts that you’ll need to present. This will also keep you from losing more than you bargained for.
Wholesale Purchase Agreement
This contract states that the wholesaler has the ability to sell the property.
This is where sellers lay out other arrangements for the wholesaler to meet, like finding a buyer for the property within a given time period.
Other negotiations they have made will be listed in this as well.
These may include the parties involved, condition of the property, what happens when the wholesaler fails to find a buyer within the given time, and the like. Consulting an attorney helps to make sure you’re not risking too much.
Assignment Contract
The wholesaler prepares this contract to present to the buyer to give them control over the property.
In this contract, the wholesaler will be indicating the assignment fee which is a compensation given to the wholesaler for being the bridge between a seller and a buyer.
Buyers usually don’t mind paying the assignment fee as long as it falls under a price range they like.
Once they come to an agreement, the buyer can now make their purchase from the seller themselves.