Jumping into real estate investing can be intimidating as it is vastly different from investing in the stock or cryptocurrency markets. With stocks and cryptocurrencies, you can dive right in and enter and exit as you please. But real estate investing is not as simple as it takes time, resources, and even a bit of luck to be successful. There are several opportunities that new investors may not be aware of including real estate wholesaling, an investment strategy that allows you to enter the market without making an offer to purchase or put down a down payment. So, what is wholesale real estate exactly and how does it work?
What is Wholesale Real Estate?
The term wholesaling is often associated with the retail industry as wholesale companies sell a high volume of goods to retailers who then sell to consumers at a higher price. Wholesale companies can sell their products at a lower price due to the high quantity of goods sold. While the name may suggest that real estate wholesaling follows the same pattern, this is not the case.
In wholesale real estate, a wholesaler will sell a property on behalf of the owner for a profit. The wholesaler and owner enter into an agreement in which the wholesaler will sell to another buyer. The wholesaler never purchases the property but the contract they originally entered into with the owner allows them to sell the property and keep the profit for themselves.
Wholesale real estate properties are often properties that are distressed and off-market. The original owners may be facing foreclosure, no longer want the home, or may just be avoiding the time and resources required for a traditional sale. This allows wholesalers to enter into a contract with the owner to take it off of their hands.
The basics of real estate wholesaling are simple as illustrated by Visual Real Estate.
Benefits of Wholesale Real Estate
Little Capital Necessary
- Compared to other types of real estate investments, wholesaling does not require investors to purchase the property and is great for beginner investors since it requires little capital to get started.
Gain Insight About the Market
- For new investors, wholesale real estate is a great way to break into the industry. Wholesaling requires an understanding of the current market, location, and provides opportunities to network with others.
Potential Large Profits in Short Period
- Wholesale real estate deals typically do not take more than a few months and could result in substantial profit for the investor. In some instances, deals can be closed in 45 days or less.
Potential Risks with Wholesaling
Income is Unpredictable
- The housing market is unpredictable and there is no guaranteed income when investing in wholesale properties. Investors may lose out on a deal if they don’t sell a home or may face difficulties finding properties in the first place.
Lower Profit Margin
- While less investment is required upfront, real estate wholesaling often has lower profit margins than other types of property investments. However, this lower profit margin is coupled with lower risk and less capital required on the part of wholesalers.
Difficulty Identifying Buyers and Sellers
- In order to earn profits, you need property owners who are willing to sell and others who are willing to purchase the property. For beginners, this can be difficult to assess when first entering the market.
Networking online with real estate professionals and other investors can open the door to opportunities.
Advice to Get Started
Getting started with wholesale real estate is not as complicated as you may think. To begin, check out these tips:
Research Your Area’s Market
Understanding your local market and what is available to you is the first step in the process. Once you find a property, you should also understand comparable home sales within the neighborhood; this allows you to assess whether homes are prices under-market value. One way to access this type of data is by partnering with a local real estate agent who has access to the MLS.
Create a Buyer and Client List
Once you have a grasp of what your local market offers, the next step is to generate leads of buyers and sellers interested in wholesaling. While the quantity of leads is great, having a smaller, more dedicated list of clients is even better. Networking on social media, real estate investment groups, or chatting with agents, title professionals, tax advisors, and attorneys can help you identify potential opportunities.
Identify Resources for Properties
While networking does a great job of building a buyer’s list, there are also resources available:
- Subscribe to Wholesaler’s Buyer Email Lists in Your City
- U.S. Department of Housing and Urban Development (HUD) lists foreclosed properties that were financed by an FHA-backed mortgage.
- Craigslist has hundreds of properties for sale and for rent in any city, these could be a potential source for a future deal.
- Realtor.com provides listings for over 800 MLS databases and allows users to search for foreclosures and sign up for email notifications.
- Auction.com allows investors to attend auctions online for numerous types of properties including real estate owned, short sales, and foreclosures.
- Realtytrac.com focuses on foreclosures locally and across the country.
Keep all Parties Involved
Serving as the middleman, it is the wholesaler’s responsibility to keep everyone involved until closing is completed. Taking the time to keep the seller and buyer informed is not only great for customer service, but also builds stronger relationships with both parties.
Follow up Post-Closing
Once the closing is completed, your job isn’t over just yet. Every deal gives you a chance to grow your network, so afterward be sure to follow up and make sure everyone is happy. This also keeps your name on their mind and can lead to future business.
Is Wholesale Real Estate the Investment Strategy for You?
Wholesale real estate is a great opportunity for new investors to enter the real estate market. Like other forms of real estate investments, there is risk associated but it can be worth it if you have the passion to pursue it and partners to help you along the way. At Millennial Title, we help investors make sound financial decisions and protect their investments from any title defects. Interested in learning more about our national title and escrow services? Contact our team!