Real estate wholesaling is one of the ultimate real estate investment strategies. However, in order to succeed in this endeavor, you need to know the ins and outs of it. So, here is Mashvisor’s complete guide on how to wholesale investment properties.
But before we get into the details, you should understand what is wholesale real estate investing. When we say real estate wholesaling, it means that your part is simply as a middleman. You find a motivated seller, negotiate the property for a significantly low price, and then resell it for a low price (but still higher than the initial price). The margin between the two prices is your profit. Here is an example:
Related: Investment Property in Real Estate: The Beginner’s Guide
You found a motivated seller who wants to sell his property as soon as possible. The first step you should make is to negotiate the price. Motivated sellers are easy to find as they are called so due to life circumstances such as divorce or foreclosure. This leaves you with the advantage of getting the property for a very low price. Now that you have agreed with the property owner on the price, go ahead and assign the property to a contract. This contract will have a date by which you must find an end-buyer for the property. You start looking for a real estate investor who is interested in buying investment properties for a low price. Finally, close the deal with the end buyer and walk off.
Now, you are wondering about the money part. Well, this part comes in between the negotiation with the property seller and closing the deal with the end-buyer. Let’s say you agreed with the seller on $50,000 as the property price. You found a real estate investor who is willing to buy the property for $70,000. The $20,000 difference is what you earn from the deal. In other words, this is how you make money in real estate through wholesaling.
What is the ideal way to make money through real estate wholesaling?
Real estate wholesaling is one of the best ways to make money in real estate. However, the amount of money you make depends on your client base. What we mean is that choosing to wholesale investment properties might be a better choice compared to regular residential properties. The reason is very simple; there is always a real estate investor out there who is interested in buying investment properties. It is easier for you to find an end-buyer who wants to invest in property rather than to live in it. Real estate investors are always seeking to get the best deals in the real estate market and, in this case, you have what they want. Therefore, targeting a certain category of clients might be a good strategy to go about making money in real estate.
How is real estate wholesaling different from flipping a property?
Real estate wholesaling is very similar to the fix-and-flip strategy. In both ways you get a property for a low price and then resell it. However, there are two main differences:
- Fixing the property: As the name suggests, you FIX and FLIP the property. It means that you buy a property for a cheap price due to its distressed condition. You get the repairs done and then resell it to someone else for a higher price. This has to do with forced appreciation. The moment you apply the changes to the property, it appreciates in value so you could make a profit. However, on the other hand, when you wholesale property, you do not perform any repairs. You also do not buy the property. You only agree to a price and find an end-buyer who will apply all needed improvements.
Either way, it does not mean that you will get a severely damaged property. Sometimes, the damages are only worth a couple of hundreds of dollars.
- The return on investment: As a wholesaler, your main goal is to make money in real estate. In real estate investing, in general, we call it return on investment. With real estate wholesaling, you are investing a few hundred dollars and your time to get a high rate of return on what you have invested. However, when you fix and flip a property, you invest more money and your time in repairing the property. This does not mean that you do not get a good return on your investment. It only means that you invest more.
Related: How to Save on Fix-and-Flip Investment?
What to know before getting into real estate wholesaling?
It takes the right person to be in the right place for success. Therefore, before getting into real estate wholesaling decide whether wholesaling is the right place for you in the real estate business. Now, we are not trying to talk you out of it, but we are encouraging you to evaluate your situation first and then decide whether you want to do it or not. In order for you to be able to wholesale investment properties, you must acquire the right real estate education, the right connections, and the needed negotiation skills. These are the vital success factors in real estate wholesaling.
Moreover, you should take a look at the pros and cons of real estate wholesaling. Even though wholesaling is one of the answers to the question “How to make money in real estate?“, the problem is that it’s not guaranteed! What we mean is that if you fail to find a property buyer, you would have wasted your time. This is the very reason why you need connections when working with such investment strategies. Connections make it easier to find clients and, in your case, buyers.
One great aspect of wholesaling investment properties is learning about the housing market. Real estate wholesaling might be one of the fastest ways you could learn about the real estate market. Therefore, getting into it will give you a great experience enhancement.
Finally
Real estate wholesaling is great if you know what you are getting into. However, this does not mean that you can’t go with other profitable investment strategies. It only means that you should take into account the shortfalls and work them out. If you want to learn more about how to wholesale investment properties, make sure to check out Mashvisor. With Mashvisor, you will be able to find all the best investment strategies to make money in real estate.