Real Estate Wholesaling for Beginners: The Pros & Cons
– Real Estate Wholesaling –
Wholesale real estate is the perfect way to get your feet wet in real estate investing. A real estate wholesaling business buys off-market properties at a deep discount with the intention of selling or assigning the property to another real estate investor.
This business can be rewarding and educational making it a perfect fit for anyone interested in real estate as an investor who is also passionate about finding great deals.
As with any new business opportunity, there are both benefits and disadvantages to the process. Make sure to evaluate the following pros and cons before getting started.
What is Real Estate Wholesaling?
Real estate wholesaling is a short-term business strategy investors use to make big profits. Contrary to what you may think, real estate wholesaling has nothing to do with retail wholesaling.
In retail wholesaling, the wholesaler sells a large number of goods to a retailer, who repackages and sells them to consumers at a much higher price.
Because of the volume of goods sold to the retailer, the wholesaler can charge the retailer a much lower price. Real estate wholesaling doesn’t involve the sale of multiple properties at lower prices at all.
Real Estate Wholesaling
In this strategy, the wholesaler contracts a home usually one that is distressed with a seller, shops that home around to potential buyers, and then assigns the contract to one of them.
Instead of purchasing a home and selling it, a wholesaler contracts it with the seller and finds a party interested in buying the property.
The goal in real estate wholesaling is to sell the home to an interested party before the contract with the original homeowner closes.
This means no money exchanges hands between the wholesaler and the seller, not at least until a buyer is found by the wholesaler
Wholesaling Real Estate for Beginners
Wholesaling real estate works for those who are willing to put in a great deal of sweat equity. While it is relatively risk-free, wholesaling requires plenty of due diligence and effort to see a healthy return.
Running a wholesaling business can be challenging because you must be able to identify properties being sold for well under market value, negotiate deals with sellers, and target cash buyers who are willing to purchase those properties.
To be successful in wholesaling, you must be prepared to invest a lot of effort in building strong lead lists, as well as networking and curating your wholesale buyer’s list over time.
Those willing to master the process in such ways are sure to experience the benefits of wholesaling real estate.
Pros of Wholesaling Real Estate
Now that we have defined wholesale real estate, you probably wonder about the benefits associated with the strategy. Read on to gain insights into the top three benefits of property wholesaling:
1. Make Money in Less Time
If you’ve done your due diligence and educated yourself on the process, wholesaling can be a very lucrative business. Wholesaling is great for new investors because it requires little to no personal finances or experience.
If your offer is accepted, it is entirely possible to close the deal and get your check-in 30 to 45 days or less.
2. Learn About the Real Estate Market
Wholesaling is great for beginners because it fully immerses them into the real estate industry in a short period of time.
With the right instruction and education, you will learn marketing, negotiating, organizing, and acquiring the proper legal documentation.
The wholesale deal combines many aspects of other types of real estate transactions you would encounter throughout your investing career. With a few wholesale deals under your belt, you will know what to look for in deals, as well as what to avoid.
3. No Credit Involved and Little Cash Required
If a low credit score or limited access to capital is what has been keeping you from investing in real estate, wholesaling is an excellent route to take.
You can participate in a wholesale agreement even with bad credit because you do not typically purchase the property.
Instead, you are assigning the purchase contract to an end buyer, who is the one that has to go through the credit checks and fund the purchase. However, wholesale real estate is not without potential downsides.
Cons of Wholesaling Real Estate
Investors should know that any exit strategy will come with potential risks and downsides, although most can be mitigated. The following includes some disadvantages of wholesale real estate investing that should be given careful consideration:
1. No Guaranteed Income
Wholesaling is not your typical nine-to-five job. Of course, there is the merit of being your own boss, but unfortunately, you are not guaranteed that trusty paycheck every two weeks.
There is also no health insurance or retirement benefits that come with wholesaling.
Therefore, if you are considering making real estate investing especially wholesaling your full-time gig, you must be the type of person who knows how to manage their finances.
The best thing you can do is set aside a “rainy day” fund if a deal does not materialize as planned.
2. Difficulty Finding Buyers
The key to being a successful wholesaler is having a solid buyers list. In the world of wholesaling, no buyer means no deal. Additionally, your personal risk is contingent on the way your contract is written.
Depending on how much you put down in escrow, you might have to repay your seller if you cannot find a buyer. It is best to have potential buyers lined up before even making an initial offer to the seller.
That way, your risk of losing money is substantially lessened. Also, if word gets out that you cannot complete deals, future buyers will be less likely to want to do business with you.
3. Staying on Top of an Organized Buyers List
Half the battle of maintaining a successful wholesale business is maintaining an active buyers list. With the right marketing, you should have a fairly solid list of contacts after completing a few deals.
However, it is not just about having those contacts. It is about knowing the different preferences of each buyer.
Instead of offering every property you come across to every contact on your buyer’s list, only reach out to those you truly believe will find value in that particular property.
By staying on top of your contact list and tailoring your offers to each individual’s preferences, you will be sure to earn loyal clients.
What is Virtual Wholesaling?
Virtual wholesale real estate involves buying and selling a property remotely, without ever visiting it in person.
This transaction takes place via a computer or smartphone, and investors will sign the necessary documentation electronically.
Virtual wholesaling allows real estate investors to operate in any market, regardless of the location. But to fully understand virtual wholesaling, it helps to know what wholesaling real estate means.
Wholesaling real estate is best suited for people who want to get into the business, but don’t have the finances.
One of the best things is that you don’t need to take a course, pass an exam, or get a real estate license to become a wholesaler. If you have great people skills and are fairly patient, wholesaling may be right for you.
Pros and Cons of Virtual Wholesaling Real Estate
Just like any other real estate investing strategy, there are pros and cons to virtual wholesaling. Let’s look at some of the biggest benefits and drawbacks you need to know about.
Pros
1. Since you don’t have to visit multiple properties in person, virtual wholesaling is a more efficient use of your time.
2. It’s a good entry point to getting started as a real estate investor.
3. You have the opportunity to close real estate deals in any market, regardless of proximity.
4. Very little capital is required to begin, so it’s a low-risk way to get started as an investor.
5. If you have access to a laptop and Wi-Fi, you have everything you need to communicate with buyers and sellers.
Cons
1. You’ll have to do quite a bit of research to find the right properties and cash buyers.
2. It will take time to be successful and start earning a profit as a virtual wholesaler.
3. Since you may not see the property in person, there could be issues that you are unaware of.
Frequently Asked Questions About Real Estate Wholesaling
How Does Wholesaling with Real Estate Work?
In real estate wholesaling, a wholesaler contracts a home with a seller, then finds an interested party to buy it. The wholesaler contracts the home with a buyer at a higher price than with the seller and keeps the difference as profit. Real estate wholesalers generally find and contract distressed properties.
What do you Think About Wholesale Real Estate?
If you’ve done your due diligence and educated yourself on the process, wholesaling can be a very lucrative business. Wholesaling is great for new investors because it requires little to no personal finances or experience.
So how does the wholesaler make money? He makes a profit by finding a buyer willing to purchase the home at a price higher than the amount agreed upon by the buyer.
The difference in price paid for by the buyer is the profit, retained by the wholesaler.
The information will go a long way in helping you if you are looking forward to getting involved in real estate investment, wholesaling is a terrific way to start.
This business requires little initial investment and low risk but delivers fast, providing you with the skill and financing to expand your investments and provide a service to your community.
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CSN Team.
