If you are looking to tap into the real estate investing industry without tying yourself down with the owning, operating, and outsourcing strings attached, look no further than real estate wholesaling.
What is Real Estate Wholesaling?
Real estate wholesaling is a business venture in which an entrepreneur (the wholesaler) sells a property on behalf of an owner for a profit. The wholesaler and seller enter into a contract, which the wholesaler then sells to another buyer.
How Does Real Estate Wholesaling Work?
Real estate wholesalers generally find distressed off-market properties to sell for owners who do not want to do the extra work necessary to get it ready for traditional sale. The wholesaler agrees in the contract to sell the property for a minimum amount by a certain date. After the contract is signed, the wholesaler looks for a buyer, typically property flippers or real estate investors so that they can avoid repair and renovation costs.
The end goal of a real estate wholesaler is to sell the property for more than the amount listed in the contract.
Pros and Cons of Real Estate Wholesaling
1. Little upfront investment required.
Real estate wholesaling doesn't require purchase of the property. The only thing you will need to invest in the property upfront is time, marketing efforts, and in some cases, earnest money.
2. Potential for large profits in short period of time.
Because of the quick turnaround time for a wholesale real estate deal — tending to take only a few months — a higher profit will be in your pocket quicker.
3. Soft launch into real estate investing industry.
Wholesaling is great for new investors because it requires little to no personal finances or previous investing experience. You get immersed into the real estate industry in a short period of time while fine tuning your negotiating, marketing, and acquisition skills in the process.
Antonym of benefits include:
1. No guaranteed income.
With the merit of being your own boss comes the risk that you are not guaranteed a paycheck. Real estate wholesaling does not provide insurance or retirement benefits. So, if real estate wholesaling is your full-time gig, there is a lot more to keep in mind as far as cash management strategies and planning for a nest egg.
2. Lower profit margin.
If having an unguaranteed income does not scare you away from the potential of real estate wholesaling, then the smaller investment returns might. Profit coming from this type of real estate investing is smaller than that of flipping or renting out commercial properties, but this is because of the lower financial risk and financial investment.
3. Dependent on other buyers and sellers.
Something we've seen a lot of this past year is an unpredictable housing market. In order for real estate wholesaling to be successful, you need to find property owners who are willing to sell and investors who are willing to buy. No buyer means no deal, and you are left with a property you did not want. You may also end up with low inventory for possible buyers.
How to Start Real Estate Wholesaling
Too some's disdain — or satisfaction — the first steps into real estate wholesaling primarily require building your network. Nailing down a marketing strategy to build a buyer's list is the foundation of your future investing career. Buyers in the world of real estate wholesaling are typically other real estate investors who are willing to pay cash and willing to do continued business with you. Find them. You'll also need to look into local laws and regulations regarding real estate wholesaling or have an attorney do it.
After that is all said and done, you'll look for sellers and properties in your desired neighborhood and find a financing option that suits your needs.
If you’ve done your due diligence and educated yourself on the process, real estate wholesaling can be a very fruitful business venture. Flagship bank has the resources and expert advice when it comes to all things real estate investing. Talk with one of our lenders today on what you need to get started and how to be successful.