What is real estate wholesaling, you ask?
In the business world, real estate has become a top option to consider either as an investment or a major line of work. Real estate can be capital intensive or not, depending on the aspect you choose. An aspect of real estate; real estate wholesaling is starting to become popular due to its low capital requirement. It’s easy to start and get the hang of things without having to raise a huge capital. Depending on situations, some have successfully started it with zero capital.
How Does Wholesaling Work?
Real estate wholesaling may sound like business jargon, but to put it in simple terms, it means to find a property with anomalies, source for a buyer, and get a cut after an agreement. For example, a real estate wholesaler will look around for families ready to sell a property that needs lots of repairs. Such a property repair cost can be as high as $110, 000. The wholesaler bargains with the family/ seller to sell at $170,000. Now the wholesaler will look for investors who will likely sell the property at $400,000 after renovation. Then the wholesaler adds $15,000 as commission which brings the cost of the property to $185,000. You make a profit and so does the investor after making the sale.
Wholesale properties are usually not in house listings as a property up for sale. This means that the investor enjoys the benefit of competing with other investors. In real estate wholesaling, there are key points you’ve got to keep in mind to avoid some pitfalls. Here are they:
Get Familiar with the Rules
Yes, real estate wholesaling sounds fun and a bit easy but there are rules. You can’t just decide to jump on any deal and expect to earn a commission. In some regions of the world, only agents with licenses can earn commission on deals.
This means that at such places, there will be a need for you to register as a business. Registration as a business allows the wholesaler to earn commission and transact with an investor. To be on the safe side and avoid any sort of pitfall or legal troubles it’s best to speak to an attorney specialized in real estate. Such one will have ample knowledge of real estate and can help you function legally.
Know the Drill
You don’t want to make a loss or earn nothing after putting in efforts. Endeavor to study the market; get to know the cost of renovations and repairs, the market value of some types of properties, and a property’s conservative after repair value(ARV). The knowledge of this will assist you in making profits. You will be able to strike a good deal with the seller and with a fix-and-flipper(investor).
Devote Enough Time
The idea of real estate wholesaling sounds easy but it could be tough sometimes. It’s usually difficult to build a network of regular sellers. So, a wholesaler may have to go through the stress of knocking on tons of doors or making lots of calls to find potential buyers. This requires time, effort, and some money.
In some cases, a real estate wholesaler may end up struggling to find an investor even after landing a good deal. Some have deposited at foreclosure auctions only not to find investors, thereby losing their money and wasting time searching.
Another time-consuming task is the process of looking through the tax sales lists for properties in poor condition. Then reaching out to such owners to see if they are ready to sell. Added to the time-consuming processes listed above, upon finding a willing seller, there are things to be crossed and dotted. For example, some things to checks are if the property is still in use, the depth of repair needed, and its after repair value should be evaluated. So indeed, real estate wholesaling requires time.
Have Some Capital
The beauty of real estate wholesaling is the low capital requirement it gives. However, in some places, the rules do not allow for assigning a contract. The requirement is for an individual to make a property purchase before putting it up for sale.
In some cases, sellers may need the wholesaler to make a deposit no matter how little it may be.
The downside to making a purchase of the property and selling it later is that the investor may not be willing to pay high. This is why it is good to have a buyer ready. By having a buyer ready, you can negotiate well with the seller and get a good price that will be profitable after selling to the investor.
Doing Due Diligence
Diligence is required to keep in constant contact with sellers. Some sellers are quite acquainted with the method of knowing the worth of their property. It can be difficult to negotiate smoothly with such sellers since they might want to sell high. In this case, it’s important to keep in close touch with sellers and reach out to many as possible. As for investors too, close contact helps to determine their needs and goals; the property type they want at each moment, and other relevant information.
By and large, it is clear how lucrative real estate wholesaling can be. Yet, keep in mind the hard work that comes with it. Anyone can start real estate wholesaling, it’s not so easy but not extremely difficult either. If you learn the ropes and tick the key boxes, you will be successful at it.