In one way or another, we’ve all come across the phrase “wholesaling real estate.” What is this mysterious real estate investment strategy? And, most importantly, why should real estate investors know of this precious strategy to boost their investment portfolio?
Wholesaling real estate defined
Overall, real estate wholesaling is a term used to describe the act of contracting a property from a property seller, then marketing the property to potential buyers, and ultimately assigning that initial contract to the property buyer. Fairly simple, eh?
To be more precise, the wholesaler makes his/her cut out of the transaction through the difference in the contracted price by the property seller and the offered price by the property buyer.
What makes wholesaling real estate a good path for investors?
With each real estate investment strategy, you get the ups and downs. Nothing is flawless. The key is to manage a way to overcome the challenges and eliminate the flaws within each single investment property. In the case of wholesaling real estate, here are a few reasons that push both beginner and expert real estate investors into wholesaling real estate:
Minimal cash Investment
With wholesaling real estate, real estate investors (wholesalers) are not expected to put down any initial payments to get the property under contract. That being said, an investor might have to get a property appraised or run a real estate market analysis to know the current market value of the property.
With a little cash investment into the property, real estate investors can make a commission on selling the property and assigning the contract to a buyer.
Minimal risk is taken
The beauty of wholesaling real estate is finding a property that’s undervalued and possibly not in the best condition and getting it under contract. What happens next is finding the right buyer for the property and selling it. The risk is at its lowest in real estate investing.
There are almost no cash transactions necessary, and if the contract expires, there is no real loss. No retractions whatsoever. For more insight into risk reduction in real estate, read this: How to Make Money in Real Estate with Risk Reduction Strategies.
Expiration date
With each real estate wholesale contract comes an expiration date. Accordingly, that expiration date comes along to protect the property owner and you as the wholesaler. If you manage to get the property under contract, you better start working before the contract expires.
Having an expiration date when wholesaling real estate can be both a blessing and a curse; having a restricted time frame to sell the property can push the wholesaler to get the job done as fast as he/she can. Meanwhile, it takes a whole lot of effort and marketing to get the word out there about an investment property for sale.
Simple steps to wholesaling real estate
Step one: Find an ideal candidate for real estate wholesaling
Firstly, real estate investors must acknowledge that finding a perfect property for real estate wholesaling is easier said than done. How come? Mainly, the ideal property fit for wholesaling must not be in the best condition. It works best with distressed properties as owners list them below market value. Moreover, a major defining characteristic of a wholesale deal is a rushed motivated seller.
Keep in mind that you can get more and more creative with your search methods as you advance in the field. Real estate investors can seek wholesaling deals through real estate investment groups, for example. In any case, if you don’t manage to find good wholesale deals through this method, you will benefit greatly from the connections you’ll make through it.
Another method that many real estate wholesalers employ to their advantage is hiring a property finder. It’s a real thing! You can hire a specialized professional to do all the dirty work for you. This includes knocking on doors, cold-calling potential deals, and even sending targeted mail. In return, you will pay a fee for this service and you will save time searching for future deals.
For wholesalers who are more comfortable using technology in their business operation, Mashvisor offers an online investment property calculator that you can use to your advantage. How? Through the property finder feature that can help you spot potential deals with just a few simple clicks. Not too shabby!
Through Mashvisor’s Property Finder feature, you can specify the location and budget for buying an investment property and voila, a list of properties that matches your search will appear.
Do you have a free Mashvisor account? Click here to use our Property Finder and find properties in a matter of minutes!
Step two: motivate the owner to sell and confirm an offer
Any means you find appropriate to locate a certain property can come in handy. That being said, it’s your job to convince the property owner to wholesale. Subsequently, you can make an offer that will guarantee you a handsome profit.
Let’s assume that you’ve found a property and the next step is to meet with the owner to discuss the details. A real estate wholesaler will make sure to explain every angle of the process to the property owner. Why? Mainly to comfort him/her with the unfamiliarity of wholesaling real estate. In addition to that, a wholesaler must explain to the owner that he/she won’t incur any costs or payments. Basically, he/she will get a free ride from A to Z.
Above all, giving the owner all the details of what you intend to do with the investment property will give a justification to the low offering price.
Step three: Sign the contract
After signing the contract, you got a real estate wholesale deal on your hands. Accordingly, real estate wholesalers don’t shy away from writing their own contracts. Although it’s not uncommon to get an attorney or a realtor to draft it.
Step four: Get working on the contracted property
As a wholesaler, you are not to fix the contracted property. However, you will need a real estate investment network to navigate through the deal.
You will essentially need three real estate tools:
An investment property calculator or an appraiser
Essentially, an investment property calculator can perform the tasks of a home appraiser for a fraction of the price. In fact, a home appraiser can charge several hundreds of dollars to estimate the market value of the said property. Meanwhile, a real estate market analysis conducted by an investment property calculator can give you a more encompassing idea of the current value of the property and a future estimate of what it can be through computerized metrics. Moreover, Mashvisor’s investment property calculator can give both wholesalers and real estate investors the right investment strategy to utilize the property from all angles.
To sum up, the usage of an investment property calculator can guide you in the process of pricing the property; a high contracted price can affect your ability for resale and might even end up at a loss. By the same token, read this blog post to learn all you can about investment property calculators: What Can an Investment Property Calculator Do for You?
A contractor
While it may seem unnecessary for beginner real estate investors or wholesalers to hire a contractor for a real estate deal, you can’t go by without one. And that’s a fact. The real estate wholesaler is most likely going to have a fixer-upper on his hands, in one way or another. What property buyers must know is what the repairs will cost to get the property in tip-top shape. Accordingly, a contractor estimates the total cost of repairs so you can present the property buyer with a detailed description of the repairs and costs.
Title company
A title company can ensure both the wholesaler and the property buyer of the legitimacy of the property’s deed. In other words, it can assure you that you’re getting a legitimate piece of real estate.
While it may seem unnecessary to hire a title company to conduct a title search, you definitely want to invest in one. Expert investors know that it can be a whole lot costlier to rectify a mistake when made.
Step five: Find a buyer for your wholesale property
Finding a buyer when wholesaling real estate must be done as fast as possible, hence the settlement date. There are multiple channels to find investment property buyers; many real estate investors and wholesalers have managed to find buyers through advertising on Craigslist or through flyers in local neighborhoods. It has proven to work! Additionally, wholesalers don’t shy away from using their list of investors to advertise lucrative deals. Above all, don’t underestimate the value of email marketing. Emails have helped to make many deals, and you should give it a try.
That being said, real estate investors must think of both acquiring a wholesale deal and assigning the contract to a potential buyer as a funnel. You will get many prospective properties to wholesale but through careful filtering and studying, you will end up with one or two properties, if lucky! Additionally, you might get a bunch of offers from potential real estate buyers. But the key remains to be finding one serious investor or property buyer.
Step six: sealing the deal
Last but not least, closing the wholesale deal is the last step that a real estate wholesaler will go through with each property. Closing on the wholesale real estate is usually held at a title’s company’s office and doesn’t take longer than a couple of hours. At this step, the title company transfers the deed to the new owner.
The inevitable question: Is wholesaling real estate legal?
Wholesaling real estate (when done up to code) is legal. The process involves a wholesaler locating a distressed property or a distressed owner. Subsequently, the wholesaler will offer a solution to their issue through wholesaling the property. If the wholesaler contracts the property, he/she assigns the contract to the buyer.
There’s nothing illegal in the general guidelines that govern wholesaling properties. However, some wholesale real estate deals may involve a property owner in a scam type of situation. So, make sure to consult with a professional or even better, a real estate attorney.
Not to forget, laws vary by state. So, real estate wholesalers must acknowledge the laws in their area before jumping on the bandwagon.
Should you get into wholesaling real estate?
No one can really answer that for you. Real estate offers many investment strategies for real estate investors to choose from. If you’re a beginner real estate investor and looking for a method to raise capital for your first investment property, look no further, my friend!
After all, the key to success in real estate is increasing knowledge through trial and error. Additionally, don’t forget that someone at some point started wholesaling real estate and came up with the term. It’s about seeing what property sellers need and what property buyers are searching for and connecting the both together.
To conclude,
Whether you’re in real estate to buy an investment property or you’re in it for making a handsome profit without legally owning a property, you can find your path in the wide arrays of the real estate market.
If you have any more insights on the matter, don’t hesitate to drop a comment in the comments section below.