Real estate wholesaling is a popular strategy to get started in real estate with little or no capital.
Why, you might ask? Because you do not take ownership of the property and in turn you incur low risk when entering the real estate business. Moreover, new real estate investors gravitate toward real estate wholesaling because they make lots of money in a faster time frame as opposed to ‘flipping houses’. Having said that, wholesaling is similar to ‘flipping houses’, the only difference is you don’t own and you don’t renovate the property.
In real estate wholesaling the transaction is among three parties: the seller, the buyer, and the mediator, aka the wholesaler. The contract terms are in a much shorter duration, and it is up to the wholesaler to find a buyer before the contract expires. This post will walk you through the whole process of real estate wholesaling and give you a clear understanding of what real estate investors must do in order to succeed and make big profits in the wholesaling business.
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Becoming a Successful Real Estate Wholesaler
As previously noted, wholesaling is a great way to get started in real estate investing if you have little capital and experience. Wholesalers make big bucks off selling the contract to a cash buyer. The trick is to contract a house under market value and sell it for a big chunk of cash upon closing the deal with the buyer.
Moreover, wholesalers tend to use direct marketing to find sellers and have a huge list of cash buyers who are looking for great deals. You must build your real estate network and repertoire in order to find lucrative deals and cash buyers who are willing to spend money. Your negotiation and marketing skills are necessary to set you apart and make you a successful real estate wholesaler.
The Advantages of Real Estate Wholesaling
- Little capital is needed
- You do not need a license
- Less risky than flipping houses
- Transaction is done within a short period of time
- No need to renovate the property and/or spend money on contractors
- Fast way to make money in real estate
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Real Estate Wholesaling: Step By Step
1. Marketing
Direct marketing is the most important part to grow your real estate wholesaling business. Kickstarting the business will be your main challenge and if you do it right and market yourself to the right cash buyers, you will be on your way to closing the right deals for your business.
As a real estate wholesaler, your main aim is to strategize a marketing plan to find good deals. Your marketing plan should entail a social media marketing and non-stop networking with the right people who will grow your real estate business. Having the right connections is the way to successful real estate wholesaling.
2. Research and Gathering Info
As a real estate wholesaler, you have to do your own due diligence because there is no one else to depend on to grow your business. In a nutshell, you must know everything about the property, including the after repair value, or ARV. One way to go about this is to get comparable sales from a local real estate agent or broker to confirm the value. You need to analyze all the information pertaining to the property before you agree on the contracting price with the seller.
3 ways to determine the property’s ARV:
- Do it yourself using some online resources and some math to estimate repairs/construction costs and other expenses
- Consult a real estate agent – have them supply the comps and possibly have them generate a CMA (comparable market analysis)
- Use an appraiser
3. Property Inspection
This step is crucial in order to properly determine the property’s ARV as well as renovation expenses. For beginner investors, it is highly recommended to hire a professional inspector to get the right estimation on the house.
4. Negotiation
If you want to get good real estate deals, you must be a good negotiator. Most sellers want to get the most value for their home, and it is up to the wholesaler to get the best possible price to create a win-win situation for both parties. One key takeaway: Your deals will get better as you master the art of negotiation.
5. Signing the Contract and Making Things Legal
This one is pretty self explanatory; once you and the seller reach a mutual agreement, you must get the seller to sign the contract, highlighting the terms of the agreement. Involve a real estate lawyer to make sure the contract is legally binding and plays in your favor.
6. Find a Cash Buyer
Once you get the seller to sign the contract, the next step is to advertise the deal to get a cash buyer on board. This is where marketing and networking comes into play. Post your deal online, call renovators, or simply flip the house retail for more profits.
7. Passing the Baton
Once they have found your cash buyer and come to an agreement, real estate wholesalers will simply transfer their rights and responsibilities in the contract to the buyer. Again, wholesalers are not the owner of the property, they are just mediators to facilitate the deal and bring a seller and buyer together in a transaction.
8. Closing the Deal
This is the last step of the real estate wholesaling process. The closing is also known as the settlement because you sign all the documents and cash your check in turn.
Related: Becoming an Expert on Financial Planning for Real Estate Investments
Conclusion
Real estate wholesaling has become the go-to real estate strategy for beginner investors. It is a lucrative business indeed, but do not expect cash buyers to come running after you. There is a lot of work involved in closing a good deal and making a big profit from the sale. Marketing is the key in real estate wholesaling, and you must be able to have a successful marketing strategy to get good leads for your business.
Head over to the Mashvisor blog for more real estate tips, tricks, and advice.
