Wait, what does wholesaling houses mean? Every time you go to the grocery store to buy the stuff you need off the shelves, there’s a huge chance that these goods were provided by a wholesaler. Someone who buys goods in a large amount at low prices from a source and sells them at a higher price to your local stores is a wholesaler – in other words, the middleman.
This also could be done in real estate. Many people recommend this strategy if you have just started in the real estate business and have a small amount of money to start with or even no capital at all. Or if you just don’t want to take the risk of buying real estate properties and reselling them.
Related: Real Estate: How to Invest with Little Money
So, the question is:
What is wholesaling houses in real estate?
Wholesaling is a term that describes the process of finding a real estate property, putting it under a contract, and then reselling it to a real estate investor who would have an interest in buying the property for a lower price than it is actually worth. So basically, a wholesaler is a person who puts the property, that is usually in a distressed situation, under a contract and then resells it to another real estate investor. This way you have the opportunity to make a good income with a little capital on your hands. Here is an example of how wholesaling houses works:
You find a house that is selling for a low price. Let’s say the property is worth $100,000, and the owner wants to sell it for $70,000 due to its distressed condition. You, as a wholesaler, sign a contract with the owner to sell it in a period of 30 days. Then you proceed with contacting real estate investors who would be interested in buying this property for $80,000. This way the investor pays $80,000, the owner gets his $70,000, and you get the $10,000 as a wholesaling fee.
Another question that might occur to you is:
What would it take to become a successful real estate wholesaler?
Here are some general tips for you:
- Possessing the ability to calculate the benefits of a good deal.
- Calculating the profits of a good real estate deal.
- Having good negotiation skills.
- Finding a good, low-cost marketing method. Though it might be hard, this is still not impossible.
- Making sure you always answer your phone and check your email. You never know when you will receive a deal that might be beneficial to you.
- Being good at dealing with numbers. Wholesaling houses requires that you have the ability to estimate repair costs and calculate the after repair value.
Keep in mind that you are only a middleman. This means that you do not need to obtain an academic degree in any specific field of education to become a real estate wholesaler. In some cases, you will not need a license either.
Now, here are tips that you might find helpful starting in the business of the wholesaling houses:
Wholesaling houses is all about marketing and networking
Marketing yourself is very important. Though it is not free, still you might find ways to advertise for a low cost. At the same time, building a buyers’ list is very important to your success as your deals depend on these real estate investors looking to buy new properties. Market yourself and run some ads with your name and number on it. Then when potential buyers start calling, build a contact list, so as soon as you get a deal, your list of buyers will be waiting. This will also save you time because usually, real estate wholesaling contracts have a timeframe. Keep your business card in your pocket ready to be handed out at all times.
Hunt for a property
The key is to find a property at a good price, low enough for you to make a profit and leave space for the end investor to make money. Real estate wholesaling usually applies either to properties that are in a bad shape or to properties whose owner is in debt or mortgaged to the bank. Therefore, finding deals is a key skill. Here you might need to put some money and effort to find such deals because they won’t come knocking on your door. There are so many different ways to find what you want, and you can do most of it online.
Related: How to Buy and Hold Real Estate Property?
Negotiate a deal with both the owner and the buyer
Wholesaling houses depends on your negotiation skills. In order for you to set a good deal, you have to be able to convince the owner to sell his/her property for the lowest price possible. This way it will be easier for you to find a real estate investor who is interested in buying the property, and still have a margin for you to make a profit.
Always count your numbers
Always remember that the goal of wholesaling houses is to find a property that is priced low enough for you and the end investor or rehabber to make a profit. Fresh real estate wholesalers usually mess up in numbers and rush to a property and forget to count other costs. These costs include insurance, utilities, and taxes. In some cases, you might even need a contractor for the repairs. So, before you spill your offer, always know what numbers you are dealing with.
Related: Why an Investment Property Calculator Is Better Than Spreadsheets
Now all you have left to do is to close your deals
As a middleman, you close a deal with your seller with an assignment contract. This contract allows assigning your rights to someone else. Practically you profit out of selling your rights to the buyer and letting yourself out of the deal.
Of course, that is just a simple explanation of real estate wholesaling that might motivate you to dig deeper in this field. It is based on hunting for the right opportunities at the right time. Just like every other career in real estate, you need to be patient and learn what the best way to work deals in wholesaling houses is. Anyways, the sellers are going to sell the property either to you or any other wholesaler. All you need to do is to give them a reason to choose you! Know the right things to say – wholesaling houses can be your kick off in the real estate business.
For more advice on running a successful career in real estate, keep reading on Mashvisor.