Want to know how to make money quickly in real estate? This is our guide to wholesaling real estate for beginners: all you need to know about the process.
Wholesaling real estate properties has been the best investment strategy for many novice investors. As a form of short-term investments, it has provided them with the opportunity to make quick money in real estate. However, there is more to this strategy than just making money. It is, in fact, a very delicate process that should not be taken lightly at all.
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In this post, we are going to discuss the details of such an investment strategy. Moreover, we are going to shine the light on the details of the process itself. So, keep reading to find out what wholesaling real estate really is.
What is Wholesaling Real Estate?
Wholesaling real estate is a very simple concept. It is when you become the middleman in transferring ownership over a distressed and undervalued investment property to an end buyer. In this scenario, you are the real estate wholesaler of investment properties. The buyer, however, could be anyone from an ordinary person looking to buy a cheap house to a real estate investor looking to flip a property.
As for your part in this process, you provide your time, effort and skills in finding undervalued properties and end buyers.
Note that we said that wholesaling involves undervalued investment properties. Why is that? Well, two reasons: first, because a buyer wants a property for below-market value, and second, you want to leave a profit margin for yourself as well.
The Pros and Cons of Wholesaling Real Estate
We are not going to tell you that real estate wholesaling is all roses. However, we are going to present to you the advantages and disadvantages of it so maybe it could help you decide whether this is the strategy you want to go with:
The Pros of Wholesaling Real Estate
There are four main advantages of wholesaling real estate. First of all, it is a great way to invest with little capital. This feature makes it perfect for those just starting a real estate career. Many beginners look for ways to invest without the need for major financing. Therefore, this investment strategy is perfect to invest in with as little as a few hundred bucks.
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The second advantage also makes real estate wholesaling the perfect strategy for new investors. It is a great learning opportunity as well as a chance to acquire experience in a short period of time. As for the third advantage, you get to make quick money considering the fact that wholesaling is a short-term investment strategy. This means that you won’t have to wait for ages to have a little return on your investment.
The last advantage of wholesaling real estate properties is it being a form of low-risk investments. This is due to the fact that you are not buying the property but acting as a middleman between a motivated seller who is actually interested in selling a property and a buyer who is interested in buying a property.
The Cons of Wholesaling Real Estate
I guess this is the part that everybody wants to skip. However, mentioning the downside of a matter helps mitigate any possible risks. So, here are the shortfalls of real estate wholesaling:
First, what if you fail to find an end buyer? That is something to keep in mind. However, you can avoid that by working on creating your own list of contacts. Also, you can join a real estate investment network or a real estate investment club. These are outstanding opportunities to know as many people as possible in the field.
Second, there is no guaranteed income. Wholesaling properties does not guarantee you a steady paycheck at the end of each month. Instead, you get paid every time you close a deal. This means, if a deal takes you 2 months to close, then that is when you are going to get your money. So, make sure you are good at managing your finances. Otherwise, it is not a strategy that you want to engage in.
Third, it requires being meticulous. One thing to know is that every buyer’s preference is different from others’. When wholesaling a real estate property, make sure you know your buyer’s preference. This way you can skip making offers to people who you know are not interested.
Is Wholesaling Real Estate Legal?
There is no way we can talk about real estate wholesaling without addressing this matter. In fact, it has been a huge controversy as many people linked it to ‘brokering without a license’. Moreover, there were cases in some states where real estate wholesalers got fined because it is considered an ‘illegal act’.
Well, we are not legal experts. Thus, let us say the following: every state is different in its regulations. Therefore, every state has defined brokering in their own perspective of it. So, to be safe, check with the laws and regulations regarding this matter in your state. The last thing you want is any legal issues with your business that could cost you your last penny.
The Property Wholesaling Process
The best part of the real estate wholesaling process is that it’s not so complicated. Still, you should not take it lightly at all. It requires smart work rather than hard work. So, here is how to wholesale a real estate property:
Find a Motivated Seller:
When looking for undervalued properties, you might have a better shot with a motivated seller. He/she is a seller who is looking to sell his/her property as soon as possible for less than what it’s actually worth. Therefore, buying a foreclosure or a short-sale property might be a good option to start with. Plus, there are so many real estate websites that specialize in such listings. Once you have found a motivated seller, proceed with negotiating a great deal with him/her.
The Real Estate Wholesale Contract:
After negotiating the deal with the seller, proceed with the contract. Keep in mind, a real estate wholesale contract is a sensitive matter. First, make sure no terms are there that could put you at risk. Second, take a copy of the contract to a title company. A title company will investigate the property to make sure there are no liens against it. Only then you can rest assured that this deal is a safe investment.
Start the Hunt for an End Buyer:
Only after the title company is done with the search and you’ve got positive results, you can start marketing for an end buyer. At this point, you want the property to get as much exposure as possible. Contact people you know, another real estate wholesaler, or even other real estate investors who might want it. When you finally find a buyer, sign the purchase contract with him/her.
Get Your Money!
Now that the hard work is all behind, you get to reap what you have sown. After all the documents are signed, you get your share of the deal which is the difference in the price agreed with the seller and the one that is agreed with the end buyer.
The moment you are done with this process, press reset and repeat the same process in other wholesaling real estate deals.
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If you are looking for more on making money from real estate, feel free to check out Mashvisor’s blog.