Real Estate Wholesaling: What You Need to Know

Real estate wholesaling is one of the best methods of making very quick money in real estate investing.

With good skills and knowledge of the housing market and of the real estate law, real estate wholesaling can make you tens of thousands of dollars each month without having to invest any of your own money in the process.

Be careful, though, as real estate wholesaling requires a set of skills without which your investments might end up in failure. Additionally, getting into real estate wholesaling without sufficient legal knowledge or without consulting a real estate lawyer might lead to you facing unexpected legal issues.

So, make sure to get your education straight before getting into it, and let Tom (read on to know who Tom is) be a good example for you to learn about the different aspects of real estate wholesaling.

What Is Real Estate Wholesaling?

Real estate wholesaling is the process of buying and selling houses in a short amount of time. In real estate wholesaling, the wholesaler will either buy a house or get a house under a contract below market value before selling it back to other real estate investors.

Real estate wholesaling is very similar to flipping, but it takes place over shorter periods of time. The beauty of real estate wholesaling is that the wholesaler does not necessarily have to purchase the property that he/she is wholesaling, which means that the process can be done with little to no money down from the wholesaler’s end.

So, how does a real estate wholesaling deal take place?

Meet Tom

Tom is a brilliant wholesaler.

Tom acquired a house under a contract for $70,000. He did not purchase the house, but he signed a contract with the seller to take the property listing off the market until Tom finds a buyer who is willing to buy the house.

The house, at $70,000, is way below market value due to it needing some repair and renovation works. The fixing of the property would cost $20,000, and once fixed, the value of the house will go up to $150,000.

Through his well-established network of real estate investors, both buyers and sellers, Tom manages to find a fix-and-flip investor who is willing to purchase the house at $85,000 with the intention of fixing it and selling it to a homebuyer for $150,000.

In this scenario, Tom, who invested $0 of his own money, just made a profit of $15,000. The seller finally managed to sell the house for $70,000. The fixer-upper investor, who purchased the house, fixed it and sold it made $45,000.

Tom is a winner, and so is everyone else.

How Can I Be Like Tom?

Tom knows that in real estate wholesaling networking is key.

Tom has been establishing his network of real estate acquaintances over the past few years, building connections with potential home sellers in order to acquire the best deals before anyone else does, and with potential homebuyers and investors whom he can contact as soon as he finds a good deal in order to guarantee to seal his wholesale deals.

Additionally, Tom has sharpened his marketing skills in order to convince both buyers and sellers that the deals he can provide will benefit both, and in order to advertise any properties that he manages to sign under a contract and get them sold quickly.

But, did you know that Tom almost went to jail once?

The Legal Issues with Real Estate Wholesaling

Depending on the state and city that you’re investing in, wholesaling might be illegal.

Tom learned this the hard way when he was trying to wholesale properties in Florida. Apparently, Tom did not have a brokerage license at the time, and that was a mistake.

You see, what Tom found out is that real estate wholesaling is considered illegal in some states due to wholesaling being very similar to brokerage. But in some states, in order to broker real estate properties, you first need to be a broker.

In Florida, for example, the definition of a broker is as follows:

“‘Broker’ means a person who, for another, and for a compensation or valuable consideration directly or indirectly paid or promised, expressly or impliedly, or with an intent to collect or receive a compensation or valuable consideration therefore, appraises, auctions, sells, exchanges, buys, rents, or offers, attempts or agrees to appraise, auction, or negotiate the sale, exchange, purchase, or rental of business enterprises or business opportunities or any real property or any interest in or concerning the same.”

As you can see, Florida’s definition of a broker includes all the tasks or functions of a real estate wholesaler. Tom was brokering real estate properties in Florida without him knowing the definition, and without having a brokerage license, which got him in trouble with the authorities.

Tom Learned His Lesson

Before investing in any real estate wholesaling deal, Tom now knows to consult his lawyer first. Should the need arise, Tom is willing to go after acquiring a real estate brokerage license. But until then, Tom seems content with the money he’s making in states where real estate wholesaling is legal.

Real Estate Wholesaling: The Bottom Line

Real estate wholesaling is an excellent way for making quick money. And since it does not require you to buy the property, real estate wholesaling does not require a lot, or any amount, of money to be invested out of your own pocket.

In order to achieve the same success that Tom has, you will need to develop strong and effective communication and marketing skills as well as a large network of sellers, buyers, and investors, and you will need either a brokerage license or a very good knowledge of the laws of each state that you’re investing in. With real estate wholesaling, it is usually advised to consult your lawyer or attorney first to make sure that you’re not doing something illegal.

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