You are likely familiar with flipping houses: finding a property that is in some degree of disrepair, fixing it up aesthetically, then selling it for a profit. Real estate wholesaling is similar to flipping but differs on one key point: the investor does not make any repairs to the property nor takes ownership before reselling his/her position. Price is a critical factor. If you can put a property under contract for a low enough price, the likelihood is you will find somebody will buy it, most likely to an investor who has the resources to repair and market it.
How it works: A wholesaler searches the market to find possible properties that may need help, contracts with the owner of a house to buy the property, markets the home to their network of investors, and works to close before actually obtaining ownership of the property. For example, suppose you were to invest $100,000 into wholesaling a home. Before the deal closes, you find a buyer who will take the house for $110,000 as-is, and you transfer the contract for the house over to that buyer.
As the wholesaler never actually purchases a home, real estate wholesaling is much less risky than flipping, because it takes away renovation and carrying costs. However, the wholesaler may have a deposit at risk in the event the wholesaler cannot find a buyer to purchase the property. The wholesaler is then in a position to either lose the deposit or purchase the property.
Therefore, the key to wholesaling from an wholesaler’s standpoint is simple: have a network of buyers (investors) you can contact to sell the property. Since time is of the essence when wholesaling, already having potential buyers you can assign the property to before ever actually entering into a contract is highly advisable.
A crucial principle to keep in mind when wholesaling is that the end buyer (the person who acquires the property after the wholesaler) must be able to earn enough revenue to generate a reasonable profit. Forgetting this as a wholesale investor can leave you stuck with a property that is you cannot sell, ultimately costing money.
Keep in mind that knowing what it will cost to repair the property and being able to convincingly state those potential costs for the investor is also critical to profiting from wholesaling. The two keys to success in real estate wholesaling are simple: have the determination and resilience to find a distressed property that is underpriced, and have a quality network of investors to sell your position in the property for a profit.
Please login to post a comment to this article.
Copyright © 2024 Investors MLS
