Investing in real estate can be a long and tricky process. After all, it’s nothing like investing in stocks or cryptos, where you can just throw in $100 when you want and cash out when you’ve made a solid profit. However, there are ways to dive into the world of real estate without breaking the bank. For instance, some investors lean towards wholesale real estate to earn a profit. Here’s how it works.
What Is Wholesale Real Estate Investing?
Wholesale real estate investing is a business strategy that some investors use to earn large profits. It works like this: A wholesaler seeks out a property for sale, contracts it with the seller, and then finds someone interested in buying it. From here, a wholesaler will contract the property to a buyer at a higher price than the seller, then keep the difference as profit.
Some investment methods are similar, like buying a home, fixing it up, and selling it for profit. However, a wholesaler doesn’t have to do any work to the property–they sell it as is and still profit from it.
Wholesale investing is excellent for people who want to get into the business but don’t have the finances to purchase properties. This investment strategy is great for anyone since you don’t need to take a course or get a real estate license to become a wholesaler. However, it’s crucial that you’re patient, friendly, and committed to making a sale happen.
How Does Wholesale Investing Work?
Wholesale real estate works by finding properties being sold for under-market value. Then, a wholesaler will create an agreement with the seller of the property stating that they’ll sell the property for a specified minimum amount within a certain timeframe. For instance, the contract may say that the wholesaler must sell the property for $150,000 within four months.
From here, the investor will assign the purchase contract to another buyer. The goal is for the wholesaler to sell the property for a higher price than the contract states. As such, if the agreement sets a property at $150,000, the wholesaler may attempt to sell it for $175,000 instead. Then, the difference between the contract price and selling price is profited by the wholesaler.
You don’t need a real estate license to wholesale real estate in most states. After all, you’re not directly managing the transaction like a real estate agent would. Alternatively, you’re an intermediary between the buyer and seller. That said, ensure you’re up to date with your local real estate laws to avoid illegal actions.
Legality of Wholesaling
Wholesaling real estate is completely legal since wholesalers aren’t selling the property directly. Instead, they’re selling the ownership of the real estate contract associated with the property. However, some people question the legality of wholesaling since it doesn’t require a real estate license.
Although wholesalers don’t need a real estate license, they must remain well-versed in their local market’s laws, rules, and regulations. Staying compliant and ensuring all business activities are fully legal is crucial for all investors, including wholesalers.
Tips for Getting Started As a Wholesale Real Estate Investor
If you’re thinking about getting started in wholesaling, exploring every aspect is crucial to see if it’s a good fit for you. That said, here are a few tips to keep in mind if you’re looking to start wholesaling real estate.
- Utilize Technology
- Know When to Outsource
- Create a Helpful Website
- Be Transparent
- Follow Up With Buyers
Knowing how to use technology to your advantage is crucial in most businesses, including wholesaling. Online tools like CRM (customer relationship management) software and mobile apps can help you manage and store documents efficiently.
Know When to Outsource
Experienced business professionals know that outsourcing tasks can increase efficiency and save time. After all, entrepreneurs who try to do everything themselves may end up with too much work on their plate, leading to errors and disorganization. So, knowing when to delegate tasks and projects can help tremendously.
Create a Helpful Website
These days, everything is online. That said, most people search the internet when they’re looking to buy anything, including a new home. So, creating a helpful and engaging website can help establish your brand and authority, bringing more business your way.
When working with buyers and sellers, you must be transparent and honest. Explain your position, intentions, and any associated risks with the transaction. Sellers generally want to work with trustworthy people, so it’s vital to answer questions truthfully and thoroughly, even if the answer isn’t desirable.
Follow Up With Buyers
With every deal you close, consider contacting the buyer for a follow-up. Whether you set up a meeting or a short phone call, reaching out after a completed transaction can ensure everyone is satisfied with the deal. If everyone is happy, they may want to work with you again in the future or recommend you to another potential buyer.
Pros and Cons of Wholesale Real Estate
Like any investment method, wholesale real estate investing has some benefits and disadvantages. If you’re considering this business strategy, first consider some of the pros and cons.
Benefits of Wholesale Real Estate
- Quick Way to Make Money- When done correctly, wholesaling can be a highly lucrative business. Since it requires little personal finances and experience, it can be a quick and easy way to make money.
- Get Involved With Real Estate- Wholesaling is an excellent way for beginners to immerse themselves in the world of real estate. With the right steps, you can learn a ton about marketing, negotiating a deal, and acquiring the right legal documentation to buy and sell a property. If you want to learn more about real estate, ask your local property management company in Philadelphia.
- No Credit Checks and Little Cash Required- Since you’re not buying the property yourself, you don’t have to have great credit. Instead, you’re just assigning the purchase contract to another buyer, so they’ll have to go through credit checks and finance the property.
Disadvantages of Wholesale Real Estate
- Unpredictable Income- Wholesaling isn’t a typical job, so you aren’t guaranteed income. Although you have the luxury of being your own boss, you don’t get any of the benefits of a 9-5 job with insurance or benefits.
- Can Be Hard to Find Buyers- To successfully wholesale real estate, you have to have a solid buyers list. Without a buyer, you don’t have a deal. That said, it’s best to have a potential buyers list before making an offer to the seller.
- Consistent Maintenance of Buyers- One of the hardest parts of wholesaling is maintaining a list of active buyers. After completing a few deals, you should have a solid contact list. However, it can be hard to seal a deal without knowing your buyer’s preferences.
Is Wholesale Real Estate Right for You?
Wholesale is a great way to enter the real estate investing industry. You can learn more about the real estate market, gain valuable negotiation skills, and learn how to market properties. However, it’s not for everybody.
Wholesale real estate investing requires hard work and plenty of due diligence to see a good return. Although it’s generally risk-free, running this type of business can be challenging because you have to seek out properties being sold under market value. Additionally, you must know how to negotiate deals and target buyers willing to buy these properties.
To be a successful wholesale real estate investor, you must be prepared to put a lot of effort into building leads, networking, and assembling a wholesale buyers list. After all, investors willing to put in the time and effort will experience the benefits.
Protect Your Investments with Property Management
Whether you’re interested in buying properties or wholesale investing, getting involved in the real estate business can be highly profitable. However, if you own several properties, it can become overwhelming to manage. But luckily, you can outsource management tasks and focus on growing your business.
Bay Property Management Group offers comprehensive property management services, so you don’t have to focus on the day-to-day tasks of running your business. Contact BMG today if you need property management services in Baltimore, Philadelphia, Northern Virginia, or Washington DC.