Wholesaling is often chosen by investors who want to make money but not really have the resources to buy (and sell) a property. Real estate wholesaling is a real deal, and it can be an alternative option for investment.
Amongst various types of investments in real estate (including house hacking, house flipping, rental properties, and REITs), wholesaling isn’t for everyone. It fits only for certain types of people, so you should understand the concept before jumping into the business.
How Real Estate Wholesaling Different?
So, how is real estate wholesaling is different from other types of investment, such as bonds or stocks? In the latter investment, you can immediately join and walk out whenever you want. With at least $100, your investment can begin and you can generate extra income.
However, things would be different when you make real estate investment. It’s tricky to navigate and manage, and this investment is coming with quite a price tag. Not to mention that it takes more commitment and time to actually buy homes and sell them.
Real estate investment is always related to down payment matter, financing matter, paperwork deal, and then the closing. When you start the investment, you will have to deal with tenants, the property management, and also rent collecting.
If you want to make a real estate investment, but you can’t handle the lengthy process, all the money involved, and other complications, then you can consider wholesale real estate.
Real Estate Wholesaling Concept
It’s completely a legitimate and legal strategy where you can buy a real estate, but you don’t actually commit in buying it yourself or making a down payment. In this process, it involves a wholesaler (in ithis case, it’s you), the seller, and the investor.
In this kind of transaction, you are making a purchase contract (for a house) from the seller. After the contract is made, you need to find interested investor. Once you have found an investor, you would reassign the contract to that investor – within an agreed higher price. This is how a wholesaling concept is done.
Wholesaling is basically a short term (business) strategy where investors can make steady and also fast quick money in the market. There are several things you need to know about the wholesaling arrangement:
- When making the purchasing contract, there would be a small (earnest) money would be deposited
- Within the contract, there should be information about the amount of money that you (the wholesaler) would sell. There is also the information about the needed time for the sale
- When wholesaler is able to sell the property, the difference within the price is called as the wholesale fee. It can range between 5% and 10% of the price of the property, which belongs to the wholesaler.
In general, wholesalers would search and find for abandoned and somewhat distressed properties whose owners don’t really want to spend money or time on.
The owners are typically motivated to sell their property, but they don’t really want to deal with real estate agents. In most cases, you don’t need a license to be a wholesaler, but it’s advisable that you always check the local laws. This work would be ideal for:
- People with impressive people skill and have a wide range of networking perks
- Industrious people
- People who are into real estate, wanting to make transactions but not really having the financial ability to buy (and sell) properties
So, the overall concept of a wholesaling is making a contract (over a property) with the seller, finding anyone interested in buying one, and then selling the rights to the contract. You don’t need to buy a house and sell it; causing you to spend money or to get a financing option.
Tips in Doing Wholesaling Properly
You need to perform a thorough property research, have the networking to finally find the right buyer or investor, and then come up with a strategy for the financial deal.
- Perform a research. You need to learn about the law of wholesaling in your area; even in your state. You should also check into the neighborhood and locals in which the property is located.
- Find a (distressed) property. Find properties listed below the market value whose owners are highly motivated to sell, such as foreclosed homes owners or those with liens. There are several resources that can help, including foreclosure sites, social media platforms, online (real estate) auction sites, networking organizations, and MLS (Multiple Listing Service).
- Once you have found the property, you need to make the calculation and work hard.
The wholesaling concept is only for specific people; not for everyone. It does take a lot of commitment, patience, time, and work.
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Not to mention that you should have good people skill, including marketing skills and communication abilities. After you understand the concept, you should ask yourself whether wholesaling is for you.