About Real Estate Wholesaling
Unlike the trade market investing in real estate is tricky and comes with a heavy investment. Buying and selling homes take time.
You would require to tackle the challenge of coming up with a down payment, getting financing, completing all the paperwork, and finally closing.
If you need to take to deal with tenants and collecting rent that is another time-consuming activity.
Real estate wholesaling is one option where you can make good money in real estate and also not have to save that much money or deal with the purchase process.
It’s a legal approach you can take advantage of, without making an offer to purchase or make a down payment. Let us look at how does real estate wholesaling works.
What is Real Estate Wholesaling?
Wholesaling real estate is a short-term business strategy used by investors to make big profits.
In real estate wholesale, the wholesaler contracts with a seller on a home particularly on one that is distressed, shops for potential buyers for that home, and then assign the contract to them.
So a real estate wholesale doesn’t involve purchasing a home and selling it, a wholesaler contracts it with the seller and looks for a party interested in buying the property.
The work of a real estate wholesaler is to sell the home to an interested party before the contract closes with the original homeowner.
Till a buyer is found by the wholesaler there is no financial transaction between the wholesaler and the seller.
The wholesaler then makes his profit by finding a buyer willing to purchase the home at a higher price than what was agreed upon by the buyer. The difference in price that the buyer pays is the profit, retained by the wholesaler.
People who want to get into the business, but don’t have the finances can opt for real estate wholesaling.
Neither does the real estate wholesaling need one to take a course, pass an exam, or get a real estate license to become a wholesaler. All you need is great people skills and patience, and wholesaling is your business!
Real estate wholesaling example
If a homeowner has a property that is fairly distressed and he doesn’t have enough resources to fix it up himself and continues to live in it, and he thinks that he’d never get a fair price for it.
At such time the wholesaler approaches the owner with an offer. Together, they concur to put the house under contract for $80,000. The wholesaler finds a buyer at $90,000 by using his network of investors.
He gives the contract to this investor who then works on a fixer-upper project. The wholesaler profits by $10,000 without ever owning the home.
The wholesaler just agreed to contract the house for the homeowner to an interested party. Under the contract, the buyer pays $90,000 to the wholesaler, who pays the homeowner $80,000 and pocketing the rest for himself as profit.
Becoming a pro at real estate wholesaling
Real estate wholesaling requires a lot of time, commitment, and patience the wholesaler needs to be good with his communication and marketing skills.
Having a network of investors who are interested in buying properties that you wholesale makes your work easy.
The first task of wholesaling is finding the right kind of property. Homeowners having their distressed properties and are eager to sell, make great prospects.
If the distressed property is in the right location, has beneficial features, and comes for the right price then they are a big attraction to potential investors.
Before making an offer, the wholesaler needs to review the kinds of repairs or additions the home will need.
This will help in knowing what kind of offer to make. If the rates are too low it may scare away the potential sellers.
And if the rates are too high, it may lead to difficulty in finding a buyer who is willing to take on the risk of buying and fixing up a distressed property.
In wholesaling there is a clause to the purchase contract allowing the wholesaler to back out of the deal if he is unable to find a buyer before the expected closing date, this takes care of the wholesaler’s risk.
How is real estate wholesaling different from flipping?
There are a lot of similarities between real estate wholesaling and flipping. Both the processes use the property as a way to invest and make a profit. Similarly, both need contracting and selling a home.
So the key difference between the two is the time frame, wholesaling is much shorter than it may be with flipping.
In the case of real estate wholesaling the wholesaler does not make any repairs or modifications to the home.
Because they never purchase the home. Real estate wholesaling is a less risky process compared to flipping. Home flipping involves the renovation and includes costs like mortgage, property taxes, and insurance.
Usually, there is no capital involved in real estate wholesaling compared to flipping except for earnest money payments on a few properties.
Conclusion
In real estate wholesaling, a wholesaler first contracts a home with a seller, then search for an interested party to buy it.
The wholesaler contracts the home at a higher price with a buyer than with the seller and pockets the difference as his takings.
Real estate wholesalers usually look for and contract distressed properties. A real estate wholesaler doesn’t do any renovations or additions and carries no costs like flippers.
A wholesaler’s knowledge of the market and his connection to investors is the key to success in real estate wholesaling.
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