There are several real estate investment strategies that investors can choose to pursue. One lucrative strategy is real estate wholesaling. However, not everyone is familiar with the wholesale real estate definition and may be asking themselves questions like:
How can you get started?
Do you need a license to wholesale real estate?
In this article, I am going to answer these questions. I’ll also help you decide if real estate wholesaling is the right investment strategy for you.
What Is Real Estate Wholesaling?
The answer to the question “What is real estate wholesaling?” is quite simple. Real estate wholesaling is when you put a distressed home under contract with the plan to give that contract to another buyer. A party (real estate wholesaler) spots a real estate deal, enters into a binding contract to purchase the property from the seller, markets the property to potential buyers, and assigns the contract to one of the buyers. The real estate wholesaler doesn’t intend to fix up or sell the property.
The wholesaler usually markets the investment property to prospective buyers for a price that is higher than that which they have the property under contract for. For this reason, real estate marketing is very important to increase lead generation. Wholesalers make a profit as middlemen between the property sellers and property buyers without even owning the property. The profit is the difference between the contracted price with the property seller and the price offered by the buyer.
The goal is to sell the property before the contract with the original property seller closes. It is important for the wholesaler to add a contingency clause in the wholesale real estate contract allowing them to pull out from the deal if a buyer cannot be found before the expected closing date. This helps to limit the wholesaler’s risk.
The good thing about wholesaling is that you don’t need a license to get started. Investing in wholesale real estate can also be done with little or no money down. It can be a great way for beginner real estate investors with limited capital to get into real estate.
Is Real Estate Wholesaling Right for Me?
You now have a pretty good understanding of the answer to the question “what is real estate wholesaling?” There are some incredible advantages to getting started in real estate wholesaling. However, there are also some drawbacks. Let us now go through some of the scenarios when real estate wholesaling would be right for you.
1. You have limited capital
Compared to other real estate investment strategies, wholesaling requires less of an initial financial investment. Owning a rental property will cost you a down payment, repairs, closing costs, etc. In wholesaling, the expenses are much less. The incurred costs are related to finding properties for sale, marketing, and ownership transfer.
2. You are in real estate investing for the short run
Purchasing, owning, and managing investment properties is usually a great way to make money in real estate investing. However, this is typically a long term project. Not everyone is patient enough. Some people would prefer making a smaller profit right now than waiting for future revenue. If this describes you and your goals, then real estate wholesaling might be right for you. All you need is to find a cheap property for sale, market it well, and assign the purchase contract to a buyer within a few days or weeks. You will be making money almost immediately.
3. You have good knowledge of the local real estate market
To be successful in real estate, you need to buy an investment property at the right price, market it well, sell the property at a decent price, etc. Even with wholesaling, you need to ensure you obtain the right real estate skills to make the most of it. You will need to have knowledge of the local housing market to be able to successfully complete all the tasks within a limited period of time. It is advisable that you focus on investment properties that are in a housing market you understand well.
4. You are excellent at finding deals
Regardless of the business, finding deals is an important part of the process. Being able to find good deals is a useful skill to have, especially in real estate wholesaling. You need to have an eye for distressed properties and motivated sellers. If you are good at finding real estate properties for sale at a fair price, you should consider trying real estate wholesaling. Even though some people are naturally better at finding deals, you shouldn’t be discouraged if you are not. There are a lot of resources that you can use to learn the art of finding great deals.
5. You are good at real estate marketing
Selling real estate is not as simple as it may seem. You also can’t just rely on your real estate agent or ‘For Sale’ signs. A real estate wholesaler should also know how to search and find a property buyer through property marketing. As you learn how to wholesale real estate, ensure you also acquire excellent marketing skills. With good marketing, you will be able to build your buyers list.
6. You have strong negotiation and communication skills
In real estate wholesaling, you need to negotiate with the property seller (when putting the investment property under contract) as well as the property buyer (when selling the property). Therefore, if you want to be a successful real estate wholesaler, you will need to have excellent negotiation skills. It is almost impossible to be successful without this skill. Apart from negotiations skills, you will also need communication, organizational, and interpersonal skills. Since you will be dealing with people like real estate agents, buyers, and sellers, these skills are essential.
The Bottom Line
With that, we have answered the question “What is real estate wholesaling?” and you should even be able to answer the question “Is real estate wholesaling right for me?”
Having a wholesale real estate investment is one of the best ways of making money in real estate. If you want to get into real estate investing but lack the financial means, wholesaling may be the right choice for you. For most people, wholesaling is their first venture into the real estate business.
Real estate wholesaling is also good for people with good knowledge of the local housing market who also have an eye for distressed properties, and who have good negotiation skills. Though it might take a lot of time, real estate wholesaling can reap significant rewards when done correctly. Just ensure you do your research and learn how to start a wholesale business before you take that first step.
Did you find out that wholesaling real estate is not for you? Well, there are other ways to make money in real estate for beginners. Keep reading Mashvisor’s real estate investment blog to learn about more strategies.