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One of the most profitable ways to get into real estate investing is by way of wholesale real estate. Real estate wholesaling minimizes the level of risk involved while allowing buyers an opportunity to excel in wholesale real estate work while building a solid understanding of the process. Here is a complete guide to real estate wholesaling that will help you determine whether or not becoming a wholesale real estate investor is your cup of tea.
Real estate wholesaling is a real estate development and investment strategy. It involves:
When you find a buyer, you will likely sell the property at a wholesale price, which has to be less than the market value. These properties are not generally listed publicly, allowing buyers to purchase these properties without much competition from other buyers.
The ideal wholesale property is the one that you buy at a price well below market value. The price should be low enough that you will have made a reasonable profit after the cost of renovating it. After all, is said and done, it should also still be attractive enough that a buyer will want to buy and flip it to go back on the market for a higher price.
You will need to research to locate suitable properties that don’t require a lot of capital upfront. However, it may still require a small investment to attract the right type of buyers. It takes time to create a successful network of potential buyers who are interested in buying property wholesale. You’ll also need to follow these essential steps:
You will need to search for properties that are not included in the public MLS database.
Off Market Properties may Consist of:
Since they aren’t listed in the MLS, finding an off-market property generally takes research and networking.
Once you find an available property, you’ll need to negotiate a purchase price from the seller. This is where you will need good negotiation skills. Do some homework and prepare a compelling argument for offering you a low sale price.
It’s worth reiterating that you should keep the purchase price low enough that you earn some profit after accounting for all expenses.
Once you make an offer and the seller accepts, you should immediately put the property under contract. Time is most critical in wholesale deals, so move quickly so that you have the exclusive right to purchase the property. One way to do this is to follow a verbal deal up with a formal, written agreement within 24 hours.
Now that you’re under contract, you’ll need to find a buyer. For that purpose, you can take several steps, such as:
You can choose any one of these strategies or use a combination of all of them. Your primary goal is to find a buyer who is ready and willing to purchase your property.
Once you have a potential buyer, you will need to set a price that’s attractive and that they’ll agree to pay. One common mistake wholesale real estate investors make is greed and setting their desired sale price too high. As a result, they struggle to find a buyer who would want to buy the property at that price. Set a reasonable price on the onset so you can attract prospective buyers.
This is the last step — the one in which you’ll sell the property. Ideally, you’ll pocket anywhere from $5,000 to $10,000 in profit from the deal.
Dealing with a wholesale real estate investor will give you much insight into the real estate market. You will learn to find leads, do your due diligence on the property, create a network of potential sellers and buyers. You’ll also learn how to build relationships with real estate brokerage firms.
Wholesaling can push you to become more creative with how you budget and spend available funds. Even if you don’t have a lot of cash or the best credit, you can still score major deals just by having discipline, guidance, and putting in a little extra effort.
Once you build a network of potential buyers, you can earn big money in a short time as you will be the go-to for property sales.
You need buyers who can purchase the property that you have under contract. The issue is that the contract is usually time-bound; you only have exclusive purchase rights for so many days before the property opens up to others. Failure to find a buyer during the contract term can mean you lose the property. You might also incur a financial loss due to penalties.
Real estate wholesaling is not a 9-to-5 salaried job. On the contrary, real estate wholesaling may mean there will be times when you have no income coming in one month but will see a windfall in another.
There is a negative stigma attached to wholesaling. What happens is that some people enter into a business without first getting to know it, or they look for shortcuts to make money and end up doing unethical things that discredit all the genuine people doing wholesaling. For example, they advertise that they have a property for sale instead of advertising that they are selling their interest. It makes a difference between an illegal transaction and a legal business deal which brings a bad name to the whole community.
Note: It is illegal to wholesale in Virginia, Oklahoma, and Illinois.
As a real estate wholesaler, a purchase agreement or a contract is the most essential thing to have. This is what can bring you a profit if you can strike a deal in time. Explore letting a real estate attorney draft a purchase agreement when you find a property. The agreement will give you exclusive rights over the property’s purchase, so no one else can purchase the home directly from the seller.