What is real estate investing? It’s basically putting your time, money, and efforts into activities related to the real estate market in an attempt to make money. But it could be so diverse. You can buy and rent out residential real estate properties or commercial real estate, you could go traditional or Airbnb, you could become a real estate investor on your own or through a real estate partnerships, you can invest in REITs or crowdfund… Last but not least, you can also try out real estate wholesaling. Though a less popular option among investors, that’s a great option to make money in real estate. But what is real estate wholesaling? Does it work with anyone? Is it a good idea for beginner real estate investors? To learn the answers to all these real estate questions, keep reading below.
What Is Real Estate Wholesaling?
Real estate wholesaling is somewhat similar to fix-and-flips. However, there are some important differences between these two real estate investment strategies. The basic idea is the same – you buy a real estate property with the idea to sell it to someone else within a very short time period. That’s what makes these approaches so different from rentals, where you buy an investment property, prepare it for renting out, rent it to tenants for a few months or years or decades, and potentially eventually sell it when the right time comes. What differentiates real estate wholesaling from fix-and-flips is that in the former you don’t actually buy the real estate property at any time and you don’t have to worry about fixing any parts of it.
The idea is that a real estate wholesaler makes a contract with a home seller, then markets the property for sale to potential buyers, and finally assigns the contract to a buyer before the contract period expires. How does a real estate investor make money in real estate wholesaling? From the difference between the purchase price paid by the buyer and the contracted price agreed upon with the seller. Obviously, the larger the gap, the more money the real estate wholesaler will make in any particular deal.
Is Real Estate Wholesaling Appropriate for Beginner Real Estate Investors?
Yes, it is. There are few real estate investing questions with a definite answer, but this one is among them. Actually real estate wholesaling is a great way to enter the wide world of real estate investing and to start thinking and acting as a real estate investor. But why is it so?
Why Is Real Estate Wholesaling a Great Option for New Real Estate Investors?
There are a few features of real estate wholesaling which make it perfect for new real estate investors. Here they are:
1. No need for extensive real estate skills and experience
In real estate wholesaling you will obviously be making some important real estate moves and taking major decisions. However, since you are not buying a rental property to keep for yourself for the years to come, to act as your source of regular rental income, you don’t have to worry about such things as rental income, cash flow, real estate investment location, mortgage, professional property management, maintenance, property taxes, tenants, eviction, etc. This minimizes a lot the knowledge and skills that you need to have a real estate wholesaler. While you should be well aware of the local real estate market, the state it is in – a buyer’s market or a seller’s market, real estate deals, real estate laws, and others, that’s just a fraction of what you would need to know if you were to be a landlord.
2. No need for cash
One of the main obstacles preventing many young and not so young people from investing in real estate is the lack of sufficient cash to buy an investment property. With a mortgage payment of a minimum of 20%, you need some serious savings in order to afford buying a rental property, especially in markets where prices can exceed half a million dollars or even a million dollars. In real estate wholesaling, you will have no expenses other than the costs related to getting to know the local real estate market, searching for real estate properties for sale, meeting with and contracting with sellers, marketing the property for sale, looking for buyers, and finalizing the deal. All these expenses will soon be covered by the money you make at the end, and a lot more should be left for you as a profit.
Related: 9 Ways to Invest in Real Estate With Little or No Money
3. No need to deal with tenants
Some people are just not made to be landlords – they don’t have the necessary social skills. However, most can learn how to be decent landlords with some practice. Still others are born to be landlords, but that’s definitely not the majority of us. In general, beginner real estate investors are unlikely to be ready to be landlords, so real estate wholesaling is really a great opportunity for them. While they will be dealing with real estate properties, learning about the real estate business, and exploring the housing market, they will not need to complicate their life unnecessarily by being landlords, choosing good tenants, worrying about vacancy rates and/or damage caused by tenants, and dealing with bad tenants.
Related: 5 Risks That Come With a Rental Property and How to Mitigate Them
4. A great opportunity to learn about the real estate business
Maybe the most important reason for real estate wholesaling to be so appropriate for beginner investors is that it gives them an irreplaceable opportunity to learn about real estate investing. As a real estate wholesaler, you will gain experience in real estate property purchases and sales; you will learn all about marketing; you will get exposed to the best real estate investment tools and real estate investing resources; you will get to know the local real estate market. You will also have a chance to start building your real estate network including real estate investors, real estate agents and brokers, real estate lawyers, bankers, accountants, professional property managers, sellers, buyers, and others. All in all, through real estate wholesaling you can get a great exposure to the world of real estate investing without getting stuck with a 30 year mortgage and a negative cash flow rental property.
Related: How to Start Learning About Real Estate Investing
If you are looking for a way to enter the real estate business, real estate wholesaling might be the thing for you. Eliminating many of the burdens of buying, owning, and managing multiple income property, it still gives you the chance to learn about real estate investments and gain important experience with them. In your search for available real estate properties, don’t forget to visit Mashvisor.