Wholesale real estate is a great way to break the ice for beginners who are getting into real estate. The major advantage of wholesale for newbies is that it has a low learning curve. However, like any other business opportunity, there are both advantages and disadvantages.
What is wholesale real estate?
Real estate wholesaling is the process by which a wholesaler identifies properties that are selling for less than market value, and then acts as a middleman between the seller of a property and assigning its purchase contract to another buyer. The revenue made by the wholesaler is through a wholesaler’s fee, often a percentage of the property cost.
Since some investors or real estate rehabbers may not want to spend much time negotiating with sellers or finding discounted properties, wholesalers make their income by bridging the gap between seller and buyer and assisting buyers in locating and closing on potential deals. To wholesale more successfully, these are some points to keep in mind.
Advantages
- Quick entry and results: Once you’ve educated yourself and done due diligence, wholesaling can be a highly rewarding investment strategy. It doesn’t require a license or a degree, or know-how on how to fix up properties. Additionally, it requires very few expenses and experience in comparison to other real estate investment strategies. Should your offer be accepted, then it’s possible to close the deal and get paid within a few weeks.
- Little cash and no credit required: Even if you have limited access to cash or a bad credit score, wholesaling can still work for you. Since you wouldn’t buy a property, but rather act as a link between seller and buyer, you don’t have to worry too much about whether you have the cash or credit, making wholesaling a great beginning strategy.
- Experience: Wholesaling real estate offers a great way for beginners to learn valuable skills and knowledge, as well as get the requisite experience to venture further into the real estate industry in a relatively short period. From wholesaling, you will learn the criteria for buying and selling investment properties and how to negotiate, market, and acquire proper documentation for closing deals. You will also form useful connections and contacts along the way.
- Minimal risk: No investment is 100% risk-free, but since wholesaling real estate does not require you to buy or hold properties or find financing, wholesaling has a relatively low risk in comparison to its potential payoff.
Disadvantages
- Insecure income: Wholesaling is not a usual 9 to 5, and you cannot rely on consistent paychecks. While there are upsides to being your own boss, and this may be preferred for some real estate investors, you do have to keep in mind that you will not have work benefits. You will need to take extra care regarding your finances and be sure to save for a rainy day.
- Difficulty with finding buyers: It’s important with wholesaling to develop a good buyers list. Depending on how much risk is written for you into the contract with the seller, you may have to pay them back if you do not get a buyer in time. For this reason, it is best to have buyers in mind before initiating an offer. This will not only lessen your risk of losing money should a buyer not come through, but will also ensure that you have a good reputation as a wholesaler. If you cannot find buyers, then sellers and buyers might be less likely to work with you.
- Customizing deals: In addition to finding buyers, another challenge to wholesale real estate is to develop and maintain an active buyers list. As you complete a few deals and make more contacts, you will develop an idea of what kinds of properties different buyers are interested in. That way, you can cater your findings to what specific buyers want. Instead of sending every property towards every buyer, you can send specific properties that match the interests of certain buyers. This will increase your ability to close deals and cultivate loyal clients.
- Legality: There is some question as to the legality of wholesale real estate. While it is viewed widely as a legal activity, since wholesalers are only dealing with the selling of the contract ownership and not the property, there is some question of how legal their work is because they are not licensed brokers. As a general rule, all real estate investors should have a thorough understanding of the rules and regulations of their local market,
and be sure that their investment activities operate legally.
Wholesaling real estate is a great short-term investment strategy, teaches useful skills, offers valuable experience, and is, overall, an excellent way for a beginner to ease into real estate investment.
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