You’ve little to no money but want to plunge into the real estate world.
So what option do you have?
While there are many ways to get started in the real estate industry, real estate wholesaling is the one that requires minimal capital.
In a nutshell, real estate wholesaling is the process of finding a property with a seller and then finding an interested party to buy it. The wholesaler contracts the property with the end investor at a higher price than with the seller and keeps the difference as profit.
Wholesaling real estate is one of the best ways to gain a foothold in the real estate industry. However, just like any other business, it also needs its share of research and understanding before getting in. And this article will help you to gain an in-depth knowledge of everything about real estate wholesaling.
Starting with the basics.
What is Real Estate Wholesaling?
Real estate wholesaling is a short-term business strategy used by investors for making big profits. In the process, a wholesaler acquires a contract from a seller, contracts mostly for distressed properties, look out for potential buyers, and finally assigns the contract to one buyer. Wholesaling real estate is considered a great way to start as a real estate investor as it can help beginners learn quickly about the real estate market and gain negotiation skills.
Example of Wholesaling
Here’s how it works: You found a property in a preferable neighborhood that is at the brink of foreclosure. The property isn’t in its best condition and needs a lot of renovation. Now you contact the owner of the house and try to negotiate a deal with him. Here your goal isn’t to buy it and settle down or renovate it and then sell, but it’s to assign it to an interested buyer who might renovate it and resell or just settle down.
So you sell the property to the investor at a wholesale price or less than the market price. Most of the wholesale properties are off-market that means they haven’t been publicly listed for sale. In this way, investors get a chance to compete with only the investors and not with the other homeowners who could boost the price.
Do you need a License for Wholesaling?
TL;DR: You don’t need a license for real estate wholesaling.
This might be the question that almost every wholesaling beginner asks: Do I need a license to get started?
While it’s good to know the buying and selling process, there’s no assessment required to start. However, having a real estate license can have multiple advantages for investors interested in wholesaling. For example, if you have got a real estate license, you get access to MLS, an excellent lead generation source. Moreover, having a license can also pave the way for many networking opportunities, and that, in turn, can help you to establish yourself as a trusted real estate professional.
But is it the right business for you?
Before you get into wholesaling, you must understand whether it’s the right choice for you or not. So let’s talk about the pros and cons of wholesaling.
Pros of Real Estate Wholesaling
Needs Minimal Capital to Start
This is probably the biggest reason why newbies prefer real estate because it needs minimal to no investment. This means you don’t need to get a loan or invest your money into it. So even with a bad credit score, you can start wholesaling real estate because you don’t need to buy the property. Instead, it’s the end buyer who needs to buy and has to go through credit checks.
Learn About the Real Estate Market
To grow, you need to learn, and wholesaling is the perfect way to gain an in-depth knowledge of the real estate industry. With the right instructions and education, you will learn many different skills like negotiating, marketing, acquiring, and more. And after some time in the wholesaling business, you will gain sufficient knowledge of the real estate market, and you will be able to invest in other real estate investment opportunities as well.
Make Money in Short Span of Time
If you have done your due diligence and have a good understanding of the wholesaling business, it can be profitable for investors, even newbies. Moreover, if everything falls into the plan, a wholesale deal takes just about 30-45 days or sometimes even less.
Cons of Real Estate Wholesaling-
Unlike your typical 9-5 job, wholesaling doesn’t guarantee you a consistent income. It doesn’t even come with benefits like paid leaves, health insurance, and retirement benefits. Yes, you are your own boss, but that has its own set of drawbacks. So before you get into real estate wholesaling, make sure that you have enough savings with you for the days you might not get significant leads.
Finding Buyers can be Challenging.
If you want to be a successful wholesaler, you need to have a substantial list of buyers. However, finding buyers isn’t that easy. Finding buyers is way more complicated than finding sellers. So it’s always advisable to keep building a list of buyers even before you make an initial offer to a seller.
The Process of Wholesaling isn’t Easy.
While it can be a quick way to make money, it certainly isn’t an easy way. From understanding the industry to finding buyers and sellers, negotiating a deal, doing it all, especially when you’re new and solely handling the business, isn’t easy. So if you’re thinking that you can just get in and start earning money, you might be very wrong. The idea here is to work under a mentor for some time, gain knowledge and experience, and then plunge in.
How To Start Real Estate Wholesaling: The Step-by-step Guide
Step 1: Do The Groundwork
This goes without saying; the first step to starting any business is to do the research work. Start by learning and understanding the industry and the overall process to know how the process works before getting started. Some ways of researching including, reading guides like one, attending real estate events, or consulting with real estate professionals.
Once you’ve got some basic knowledge of the industry, do some research on the neighborhood. Identify at least three areas where you can begin to find deals. There are also some other ways to find distressed or vacant properties; for example, you can try driving for dollars or use tools like BatchLeads, which can help you find highly motivated sellers in just a few minutes.
Step 2: Create a Buyer’s List
To put it simply, a buyer’s list is a list of potential interested buyers, investors, or entrepreneurs. Before you start searching for deals, it’s ideal to look for potential buyers first. As a wholesaler, your role is to act as the middleman between buyers and sellers. And that’s why you should be searching for buyers before you get a property under contract. Building a long and strong list of buyers will help make sure you know what to do with the deals.
There are plenty of ways to find potential buyers. For example, you can use email, join real estate networking events, or do social media marketing, basically any strategy that can help you get the word out about a potential investment opportunity. Also, you can go the traditional way, like putting bandit signs outside the house.
Step 3: Find Motivated Sellers
Once you’re done with the buyer’s list, it’s time for you to search for motivated sellers. A motivated seller is a property owner who is eager to sell their property. The behind can be anything like they are unable to repay mortgage loans or they are planning to migrate soon, any reason that motivated them to sell as quickly as possible. No matter why motivated sellers are the best way to get good properties at a price lower than the market value. Explore how to find vacant properties using BatchLeads.
Here are a few ways to find motivated sellers-
- Drive for dollars: Driving for dollars is the most popular way to find motivated sellers that involve driving around a specific area and searching for opportunities.
- Direct mail marketing: Direct mail marketing involves going through the public records and creating a list of motivated sellers based on the available data.
- Contact local attorneys: Local attorneys keep working with clients who are eager to sell their properties because of reasons like bankruptcy, divorce, or probate.
Step 4: Get a Property Under Contract
You’ve got a list of motivated sellers and now comes the crucial part–getting a property under contract. Cold call the motivated sellers, visit them personally or send an email. Reach out to them and tell them how you can help them sell their property. A good way to do this is by highlighting the issues that you’re gonna solve for them in the process of selling and making it easier for them.
Ensure that both of you are on the same page as you decide upon the negotiations and have all the relevant information you need to mention in the agreement. You may even have a legal professional to help you out so that you don’t miss out on anything necessary.
Step 5: Get an End Buyer
You have got a property under contract, and now it’s time to find a buyer interested in the property. In this step, you can use the buyer’s list that you made earlier. To convince your buyers, create a list of comparable properties, mention the estimated cost of repairs, and put it all together in a report. Once done, start reaching out to all the potential buyers from the list. The more people you reach, the better.
Know the fact that different types of properties attract different types of buyers. For example, if a property requires significant repairs, it is most likely to attract rehabbers, and if it needs just a few repairs, it may attract rental property investors. Familiarize yourself with various types of exit strategies to understand what kind of investor your property is supposed to attract.
Step 6: Assign the Contract
Now that you’re done with finding an interested buyer, you need to get the contract done. First, make sure that you’ve included the assignment fee and deposit amount in the final agreement. The agreement should also mention all the other important details.
Step 7: Close the Deal
Here comes the final step, and the day of closing, also known as settlement. Make sure that the end buyer is there to sign the appropriate paperwork. They need to come with the right documents and payment to buy the property, including your fee. And don’t forget to ask for testimonials.
Congratulations, you did it. Now you can use this step-by-step guide to get more deals and run a profitable wholesaling business.
Real Estate Wholesaling Vs. Flipping: What’s the Best Bet?
Real estate wholesaling and flipping can be similar in many ways. In both cases, a property is used to invest and gain profit. However, there are some differences between the two. The differences include-
- The time required in wholesaling is less than needed in flipping.
- In wholesaling, you don’t need to repair or renovate the property, unlike in flipping.
- Also, since wholesaling doesn’t require buying the property, it’s much less risky than flipping.
Learning how to do real estate wholesaling at first can seem intimidating. However, as you start doing it, you will begin learning the process and gaining a foothold. The best way to get started is to have a mentor who can guide you through it. Even if you don’t have one, just use this guide, and you will be able to build a thriving wholesaling business.