What Are the Risks Associated With Real Estate Wholesaling and How Can You Avoid Them?

As you might know already, real estate wholesaling is one of the most profitable types of real estate investing. You get to find a real estate property for sale at a lower price than it is actually worth, put it under a contract, and then sell it to another real estate investor or homeowner. However, the real questions here are: What are the risks associated with real estate wholesaling? And what can you do to avoid them and therefore succeed in your career as a real estate wholesaler?

Nothing is perfect, including in the real estate investing business. As there are pros to it, there are cons as well. So, what are the cons or the risks that you, as a real estate investor, might face in the real estate wholesaling business?

Related: What Are the Different Types of Investors in the Real Estate Market?

Risks associated with real estate wholesaling

No guaranteed income

Real estate wholesaling does not guarantee you a steady income at all. You can’t just get into real estate wholesaling and expect to close a deal and get a paycheck every two weeks or so. It does not provide you with privileges that other ordinary jobs provide. You do not get insurance coverage nor retirement options. So, you have to make sure you have an emergency fund that will serve you while working on your deals, as well as learning to manage your finances well.

Deal failure

As a real estate wholesaler, you have to keep in mind the worst case scenarios. It is not guaranteed that you will be able to close every deal you put your hands on successfully. This is especially true if you are just starting in real estate wholesaling. There is a 50% for you as a beginner in real estate wholesaling to fail. Therefore, you have to be ready for that both mentally and financially. Moreover, the reason for failure does not always have to be you. It could be that the property buyer has backed out all of a sudden. If you are wondering whether buyers have the right to do so or not, then the answer is “Yes, they do.” Always have a plan B for you to act upon in case of closing deal failure.

Related: Why Do New Investors Fail at Real Estate Wholesaling?

It isn’t easy to get great deals

If you are thinking of getting into real estate wholesaling because it is easy, then don’t. Real estate wholesaling is not as easy as it sounds. The whole purpose of real estate wholesaling is finding properties for sale that are being offered for a lower price than they are actually worth in order to leave a margin of profit for you and the end buyer to benefit from after the final sale. But keep in mind, there aren’t as many such properties as you might think. Unless you find a seller who is looking to sell a distressed real estate property or who is mortgaged to the bank, it is hard to find great deals. After all, you can’t get into something and expect it to work the way you want it to.

Not having a buyer by the end of the contract period

Remember, in real estate wholesaling, you put the property under a contract for a specific period of time. During that time you are supposed to find a buyer to whom you are going to transfer your rights. Well, sometimes you might not be able to find a buyer within the set period.

The instability of the real estate market

The instability of the real estate market is a challenge for every real estate investor including real estate wholesalers. Property prices going up is not in your best interest at all. It could indicate a profit missed out for you.

Now, do not worry. We will not just leave you wondering if you have made the right decision by becoming a real estate wholesaler. We are going to give you some tips on how to avoid the above risks and be a successful real estate wholesaler.

How to avoid the risks associated with real estate wholesaling

Build a list of potential buyers

Here comes the role of real estate networking and building connections in the real estate world. This is what you are really supposed to be working on when starting a business in real estate wholesaling. Building a list of potential buyers will help you when working on deals. They are mostly real estate investors who are looking to buy cheaper properties. In this way you will guarantee that you will get at least one of them to buy the property you are working with to.

However, it does not stop at building a list of potential buyers. You should also keep in touch with them and updated on their preferences. You must know what to offer and to whom. Know what kinds of properties they are interested in purchasing. Just make sure to take things slowly and start .networking with real estate investors right away. They are going to be your number one priority to work with.

Make attractive offers!

Yes, you heard it right, attractive offers! In other words, make it easier for your potential buyers to say “yes” to your offers. Get them interested by the way you present your offers. You should include all the “bait” information in them. Closing deals will get much easier once you get your clients interested in what you have to offer.

A successful real estate wholesaler is a successful money manager!

We have talked about the risks of real estate wholesaling in terms of income. Yes, indeed real estate wholesaling does not provide you with a steady income. However, what you should do to face this problem is to learn to be a better money manager. Keep track of your finances. You can’t just expect to have a paycheck every two weeks or even every month. Real estate wholesaling depends solely on your ability to find deals and close them by the end of the contract’s duration. So, make sure you calculate your personal expenses and keep track of your financial matters to the last detail.

Related: Making Money in Real Estate Does Not Have to Be Hard. Just Follow This Advice

Bottom line

Real estate wholesaling is just like any other real estate business. It has its own pros to it, and of course cons. But in order for you to succeed and have the best experience in one of the most lucrative real estate investment strategies, you have to have good knowledge of it. You must be ready to face the market and meet real estate investors’ demands. So, do what you have to do and watch, while everything works out for you as smoothly as you want it to be!

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