Acquire
BY MANLY DANH

A Complete Guide To Wholesale Real Estate In 2021

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.

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.

What Is Real Estate Wholesaling?

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:

  • Identifying properties that are being sold at under market value
  • Making an agreement with the property seller
  • Assigning the seller's contract to another buyer 

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.

The Wholesaling Real Estate Work 

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.

Wholesale Real Estate Investing Strategies Vs House Flipping

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.

Pros And Cons Of Wholesaling Real Estate

Pros:

1) Earn More In Less Time

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.

2) Learning Curve Of The Real Estate Market

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.

3) No Credit But Need Require A Little Cash

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).

Cons:

1) There Is No Guaranteed Income

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.

2) Difficulty In Finding Buyers For The Motivated Seller

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.

3) Always Staying On Top Of The Buyers List

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.

Interior of abandoned house

Becoming A Successful Real Estate Wholesaler

Here are the character traits that determine a successful wholesale real estate investor:

  • A mindset that is trained - A successful investor must carry the right mindset to help them attack every task with consistency
  • Is not technologically challenged - Incorporating technology into the workflow is the best way to be able to process more information with accuracy and also to stay organized. 
  • Have a running and effective website - New online real estate systems for success resources represent a larger proportion of consumers who tend to actively invest in real estate properties. Therefore, having a running website helps engage more traffic and business
  • Access to the neighborhood comps  - The neighborhood comps allow investors to identify the properties that are being sold for under the market value
  • Must know when to outsource - Entrepreneurs must know how much of their time is worth the investment and must know how to manage tasks and projects in a balanced fashion

 

How To Create A Real Estate Wholesaling Business Plan?

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:

  • Generate Leads - In order to generate a list, a wholesaler must have a good grasp on the local market and the wholesaling process, ranging from Craigslist to launching direct mail campaigns.
  • Knowledge of numbers - Most sellers and buyers will only look for wholesalers who show fair and accurate numbers, including the fair purchase price, the cost of repairs, and after repair value (ARV) of the property. Here, you will be in charge of mutually benefiting both, the seller and the end buyer while also ensuring your wholesaling fee. This is the reason why most wholesalers must focus on the volume and turnover and not just the profitability of each sale.
  • A strong buyers list - Building a dedicated list of clients with whom you’ve formed relationships is the best way to know the buyers. Make sure to take some time out to find out what the buyer is looking for. In case you know, try to look for specific properties and deals that manage to fit their needs which also streamlines your wholesale business.

 

Note - If you as a wholesaler are able to deliver good properties with good deals, the investors will want to work with you again.

How To Close Deals In Wholesaling?

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:

1) Assigning The Contract

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.

2) The Double Close

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.

To Conclude:

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.

FAQs: A Complete Guide Of Wholesale Real Estate In 2021

1) What are the steps to start wholesale real estate?

Here are the steps that will help you start wholesaling real estate:

  • Research the local market thoroughly before you get started
  • Curate and keep the buyers list updated
  • Make sure to secure a financing source
  • Try and begin with the potential wholesaling properties
  • Decide between selling the contract, or work on double closing

 

2) What is the 70% rule in 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.

3) How do I buy a wholesale property?

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.

 

4) What is JD Esajian real estate investing net worth?

One of the biggest names in the real estate market, JD Esajian real estate investing had a $75 million USD worth as of February 2017 and is projected to clock in at $100 million USD as of July 2020.


Author

Manly Danh

Manly is the founder with this vision. 200+ investment projects in real estate gave him the passion to build a better future for real estate investors through Fund.me

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