Do you quite often keep an account of the market trends? Are you considering standing firmly towards building a career in real estate? Are you working and reworking to make the best real estate investing strategies, but are afraid to take the plunge?
If either of the above seems familiar, then you might just have landed at the best place. We, at Fund Me, have curated this article that will help you understand both; the benefits and disadvantages of wholesale real estate to help you get started. But first, let's understand the basics.
Real estate wholesaling is a process where the ‘wholesaler’ acquires property under contract from the sellers and then assigns it to a buyer. It is the best short-term real estate investing strategy for individuals to break into the real estate investing industry and gain invaluable negotiation skills.
Ways a wholesaler can make a profit include:
The wholesalers earn the revenue through the wholesaling fee, attached to the transaction, in the percentage of the overall property cost. This income is generated by this middleman by helping the real estate investors find and close potential deals.
Wholesaling real estate is an area that requires individuals who are willing and are passionate enough to put in a great deal of sweat equity into the field. Irrespective of it being comparatively risk-free, it requires diligence and effort to run this rather challenging business. Wholesaling real estate requires the wholesaler to be able to identify the properties at under market value, negotiate deals with the motivated sellers, and encourage them to purchase the properties.
One must be prepared to have the willingness to invest in the real estate business in terms of efforts in order to build strong lead lists, networking and curate a wholesale buyers list.
House flipping is when the real estate investor purchases houses and sells them for profit to the end buyer. For a house to be considered a flip, one must buy a property with the intention of reselling it in a couple of months up to a year.
Therefore, there is no correct answer when it comes to the debate between “wholesaling vs house flipping.” The investors must pick between these two while keeping in mind what they wish to get as a result of investing and choose the strategy that suits them the best.
However, it should be noted that house flipping is only reserved for investors who have access to capital, time, and experience as compared to the others. This is because house flipping costs more, requires more time, and could cost more risk. Nonetheless, it also comes with more generous returns.
Wholesaling or flipping depends entirely on experience, capital, time, and risk aversion. It is possible to make a career out of each strategy. Wholesaling makes fewer returns per deal, and on the other hand, house flipping sees the investors complete fewer deals, but has an increase in profits.
Wholesaling can be a lucrative business for new investors as it requires almost no finances or experience. In the event your offer is accepted, it is possible to close the deal and get a check-in in 30 to 45 days, or less.
Wholesaling is a great option for beginners as it fully immerses the newcomers into the real estate industry in just a short span of time. This is possible if the wholesaler acquires accurate instruction and real estate investing education on marketing, negotiating, organizing, and acquiring legal documentation.
Wholesaling is the best route for the wholesalers who have stepped aside from investing in real estate wholesaling due to low credit scores or limited access to capital. One can take part in the wholesale agreement even with a low credit score as you assign the contract to the buyer (who goes through the credit checks).
Wholesaling isn't a nine-to-five job and does not guarantee the income as you might in the other sectors. Adding on, wholesaling doesn't provide any health insurance or even retirement benefits but is a rather full-time gig.
The simple and straight key to go big in wholesaling is to have a solid buyers list, which means, no buyer no deal. As per what you put down in escrow, you might also have to repay the seller in case you are unable to find them a buyer. Therefore, we recommend you have a list of the potential buyers before you end up making an initial offer to the seller.
If you are successful in maintaining a wholesale active buyers list, consider yourself winning half the battle that must be acquired after completing a few deals. This will not only help you ace the deal with the seller but also help you have a strong real estate business actively running with a large connection.
Now that you have learned of the basis of wholesaling real estate, let’s determine if this makes the perfect career path for you. Here are the traits of successful wholesale real estate investors, and how they have managed to execute a perfect business plan.
Here are the character traits that determine a successful wholesale real estate investor:
Actively investing in real estate with the right education and systems is the best way to start with the real estate wholesaling business. Therefore, to help you further, here is a step-by-step guide to help you put together your business plan:
Note - If you as a wholesaler are able to deliver good properties with good deals, the investors will want to work with you again.
There are two main methods in wholesale real estate that are used to close a deal. One, assigning the contract, and the second is the double closing or the double escrow. Here’s what these terms mean:
This is considered the easiest and the best way to wholesale real estate where the wholesaler will sell and control the contract for a subject property for the end buyer. One will require to sign a contract in order to purchase a property during the wholesale deal, known as a purchase and sale agreement. Assignment of the contract doesn't necessarily mean you are selling the property, but simply means assigning the rights to purchase the property and sell it to the end buyer for a profit.
Note - Make sure that the contract does not prevent you from “assigning” or “selling” the contract to an end buyer.
Also known as "simultaneous close," where the wholesaler would conduct a double escrow when the seller does not agree to an assignment or when the case is not allowed by local regulations.
It is an equally profitable real estate wholesaling strategy, where you will witness the investor purchase the property and resell it later, on the same day, or even 60 days later. Here, the company enters a chain of title and will be considered as a true owner for a short period of time.
Wholesale real estate is considered to be an excellent opportunity for wholesale beginners who seek entry into the real estate investing arena. It requires no capital, has great learning scope of the real estate industry, and is the perfect career for people who are driven, disciplined, and organized.
Here are the steps that will help you start wholesaling real estate:
The 70% rule in real estate states that an investor must prevent spending above 70% of a property's After Repair Value (ARV) on a property. This includes the price that you pay for the property and the estimated repair costs.
You must look for marketing, instead of the wholesalers, via bandit signs, billboards, Craigslist ads, Facebook posts, and numbers. Also, make sure to mention that you are not looking for a house but wish to be on the buyer's list.
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