The Pros and Cons of Wholesaling Real Estate

Considering a career in real estate investing but not sure where to start? If you’re looking for one of the easiest ways to enter real estate investing and become a successful real estate investor, wholesaling real estate could be just what you’re looking for!

Of course, to decide if wholesaling real estate is truly the path of real estate investing you should take, you need answers to the following questions:

What Does Wholesaling Real Estate Mean?

What Are the Pros of Wholesaling Real Estate?

What Are the Cons of Wholesaling Real Estate?

By the end of this post, you will have all of the information you need to decide whether or not you want to become a wholesale investor.

What Does Wholesaling Real Estate Mean?

Wholesaling real estate is a way for real estate investors to make money from short term investments. The basic process of wholesaling real estate is as follows:

• Find an investment property for sale
• Get the investment property for sale under contract
• Sell the investment property to another real estate investor

Because the wholesale investor doesn’t hold onto the investment properties or use them as rental properties, wholesaling real estate is one type of short term investments. Let’s break down each step of the process of wholesaling real estate.

Find an Investment Property for Sale

The first step of wholesaling real estate is to find an investment property for sale. Not just any investment property for sale in the real estate market will do for a wholesale investor. The right investment properties will be priced below market value or have what’s known in the real estate investing world as “motivated sellers.” These motivated sellers are willing to let go of a real estate investment property for a lower price. There are a few ways to find an investment property for sale that fits this description for wholesaling real estate:

• Comparative market analysis: Determines if the real estate property is truly below market value. Use Mashvisor to find real estate comps for comparative market analysis.
• A real estate network: Helps find motivated sellers.
• Thorough real estate investment marketing.
• A visit to local city hall: Purchase lists of investment properties in the real estate market that are close to foreclosure or considered fixer-upper investment properties.

Find an investment property for sale in some of the best locations in the real estate market by signing up for Mashvisor.

Get the Investment Property for Sale under Contract

Once a wholesale investor finds an investment property for sale that is below market value (or negotiates with a motivated seller for a lower price), it’s time to pay for the wholesale real estate contract. Believe it or not, a wholesale real estate contract can cost a real estate investor as little as $10.

Sell the Investment Property to Another Real Estate Investor

The last step should actually be the first step in the process of wholesaling real estate. Why? A successful wholesale investor will have a buyer lined up before even making an offer on an investment property for sale. This will guarantee that the investment properties sell quickly.

“Buy low. Sell high.” is a common phrase in real estate investing, but it doesn’t apply to wholesaling real estate. Instead, a wholesale investor buys low and sells the real estate property for a low price, allowing the buyer to make a good return on investment.

For example, if an investment property for sale is worth $150,000 after repairs, a wholesale investor might negotiate it down to $125,000. Because a wholesale investor is selling the contract more than the property itself, a good sales price here would be $140,000. The wholesale investor makes a profit, and the buyer makes a return on investment after repairs.

Related: Real Estate Wholesaling in 7 Simple Steps

For a quick overview of how to wholesale real estate step by step, you can watch our video:

What Are the Pros of Wholesaling Real Estate?

With a basic understanding of wholesaling real estate, you can probably identify what some of the main advantages of these types of short term investments are. Let’s take a closer look at the pros of wholesaling real estate.

There Is No Need for a Cash Investment

The number one reason a real estate investor should consider wholesaling real estate property is the fact that it doesn’t require a cash investment. No credit score review, no down payments, and no monthly mortgage payments to worry about. Avoid financing and saving up for a cash investment, which can be one of the biggest hurdles when buying a real estate investment.

Related: Why Real Estate Property is The Best Option for Your Cash Investment

It’s the Quickest Way for Making Money in Real Estate

The reason so many real estate investors turn to wholesaling real estate is that it is a quick way for making money in real estate. If a wholesale investor manages to find investment properties below market value, the good return on investment he/she can bring to a real estate investor should make him/her sell quickly.

While it takes time to find investment properties for sale and the real estate investors to buy them, wholesaling real estate can take place over a few days to a few months. Still, it’s one of the quickest methods for making money in real estate. There’s no waiting for the renovation of investment properties or checks for rental income for rental properties!

Click here and start making money in real estate by finding an investment property today.

Related: How to Make Money in Real Estate: Follow Our Guide

Wholesaling Real Estate Opens the Door for Beginner Real Estate Investors

Beginner real estate investors should start with wholesaling real estate. Besides the fact that no real cash investment is involved and a good credit score isn’t necessary, little experience is needed for wholesaling real estate. This is because the process of wholesaling real estate property is simple to learn, and you can do so with little risk.

In fact, wholesaling real estate can be one of the best opportunities to learn all you need to know about real estate investing. A real estate investor learns how to find investment properties below market value, how to negotiate the sale of an investment property, and what to look for in a good real estate investment deal.

Besides this, a wholesale investor builds a good real estate network through wholesaling real estate. The list of buyers which is key to wholesaling real estate is a great start to a real estate network.

Short Term Investments Make for Great Low Risk Investments in Real Estate

Low risk investments are sought after by every real estate investor. While it’s definitely possible to find low risk investments in the real estate market, it isn’t always easy for beginner real estate investors. So, short term investments found in wholesale properties offer an easy alternative to low risk investments in the real estate market.

What makes wholesale properties such great low risk investments? The lack of a substantial cash investment makes all of the risks in this type of real estate investing essentially null. Even if a wholesaling real estate deal doesn’t work out, the amount of cash investment lost will be very little compared to the typical loss on a real estate investment.

Avoid the Hassle of Rental Property Management and Maintenance

Making money in real estate is often associated with the hassle of rental property management or repairs of a fixer-upper investment property. With wholesaling real estate, all of this goes out of the window. You can still be making money in real estate without worrying about getting an investment property ready for tenants or any rental property management responsibilities.

What Are the Cons of Wholesaling Real Estate?

Just like any other type of real estate investing, wholesale real estate has its disadvantages that you have to take into consideration.

There Is No Regular Income

Wholesaling real estate will probably not become your full-time job, simply because once the investment property is sold, it stops making you money. Rental properties have the benefit of generating a monthly income that a real estate investor can rely on; wholesaling real estate does not.

The Wholesaling Real Estate Process Is by No Means Effortless

While it can be an easier and quicker way for making money in real estate, it requires work nonetheless. Until comparative market analysis and finding below market value homes for sale becomes second nature, it can be one of the most difficult parts of wholesaling real estate property.

Even accumulating a reliable buyers list will take some effort and networking to be sure you can consistently and quickly find an interested real estate investor every time. Essentially, wholesaling real estate is not passive income.

Related: What Are the Best Passive Income Investments in the Real Estate Market?

Is Wholesaling Real Estate Right for You?

By now, you probably have the answer to this question. Wholesaling real estate is, no doubt, a great option for buying and selling investment properties in the real estate market. You don’t need a cash investment, but what you do need is the time and dedication to learn how to find the right investment properties, the right sellers, and the right buyers. Once you have the process down, be sure that wholesaling real estate will make you a successful real estate investor.