Wholesale Real Estate The Pros and Cons

real estate wholesaling to millions

Real Estate Wholesaling and everything about real estate mean money, money, money! And you know you want to get your way into this business, gather some money and make your first of many real estate investments. But you feel you don’t know where to start, or maybe you need a capital you don’t have to begin. If this sounds just like you, let me tell you I have the solution right here, and it is real estate wholesale

What is Wholesale Real Estate?

Wholesaling in real estate is the name given to a very specific branch of this business where a person, called real estate wholesaler, find a property selling at under market value to get a contract from the seller to then assign that same contract to a final buyer.

What is a Wholesaler in Real Estate?

The person acting as middleman in the transaction. His/her role is to take the weight off the seller’s and buyer’s shoulders. Buyers won’t waste their time negotiating with sellers or identifying properties with a bright future.

How Do You Make Money in Wholesale Real Estate?

The key is finding distressed homes or sellers motivated to sell fast as is, so properties are offered at under market values. The intention is to offer the same property in the same conditions to expert candidates (often investors or contractors) for a higher value, considering the potential property that will turn out after performing the repairs or renovations needed. That price difference (minus all expenses incurred to carry out the transaction) is wholesalers’ profit.

Does Wholesaling Real Estate Work?

Yes! It absolutely works! Real Estate Wholesaling is an excellent alternative for those who can invest more hard work and time than money to begin. The best part? Wholesaling is pretty much risk-free. Why? Because of the tiny financial efforts, it may require and the safety a good contract can offer you.

Your biggest challenge will be finding properties selling for under market prices, developing unbeatable negotiation skills and identifying cash buyers who may later be part of your seasoned buyer’s list. If you can commit to put all your efforts on this, success in wholesaling real estate is assured.

What is Real Estate Wholesaling and House Flipping?

Some people confused the purpose of these two branches in real estate despite they are totally different. Again, the wholesaling transaction involves a wholesaler finding a distressed home and getting it under contract to assign it to final buyer. When the buyer finishes the purchase, so does the wholesale.

On the other hand, House flipping requires a good capital, longer time, experience, and expertise. But in exchange, investors can resell properties at higher price and make juicy profits.

We can say wholesaling opens the door to house flipping. Wholesale is basically a low-risk transaction; therefore, incomes are good, but never as great as those from house flipping. The advantage is that when done properly and at bigger volume, wholesaling revenues will build up in a shorter term, resulting in a very lucrative business.

Pros of Wholesaling Houses

Wholesale Real Estate Step By Step

Now that you already know what is a wholesale in real estate, do you need more reasons to fall in love with it? Find below the top three benefits of this real estate practice:

1.      Wholesale Real Estate Allows You To Make Money Fast!

The reason we all are here for! DINERO RAPIDO! (Fast Money)

If you follow your process diligently, you can be sure your transactions will have a happy ending. After your offer is accepted, the wholesale deal typically takes 30 to 45 days to close, sometimes even less.

The key to make more and more money is to correctly estimate the property’s after-repair value (ARV) to contrast this your offer to the seller and your offer to the end buyer. Always make sure to get into deals that can offer good income margins for you and future buyers.

2.      Wholesale Real Estate Requires Little to no Investment & NO Experience required

If a low credit score or limitations to access capital has been the biggest obstacles keeping you from entering in the real estate world, wholesaling is the path you needed to take. The wholesaler is not responsible for funding the purchase. Instead, his/her duty is to handle the transaction and assign the contract to the end buyer. This means your financial situation or even a bad credit score are no limitation to wholesale.

Also, no real estate license is required to wholesale. You can begin your wholesale journey with free/inexpensive classes, without having to pay licensing fees. Throughout the wholesaling procedure, you’ll find some payed advertising and mailing methods where little money is required. But you can always find ways to minimize your expenses.

3.      Get Familiar to the Wholesale Real Estate Market, MLS, and FSBO Sites

After getting yourself into several wholesale deals, you’ll see how your expertise on negotiation, basic marketing, legal documentation, CMR, and other areas improve. With time, you’ll know what to look for and what to avoid in every case. All these skills are perfectly useful in other areas in real estate you may want to try later.

Cons About Wholesale Real Estate

As any other business, wholesale comes with risk. Despite being minors, it is important for you to be aware of them. For instance, you better know that:

1.      Incomes Are Not Guaranteed in Wholesale Real Estate

Unlike any other regular job, wholesalers won’t have a paycheck at the end of every month. Your incomes will arrive just after the deal is closed. This is what happens when you become your own boss or dare to start your own business: it will do just as good as you do.

You must also consider that the typical bonuses and benefits are not part of wholesaling either. This may be scary for some people, but seeing the half-full glass, you have the opportunity to  leverage from the “rainy days” and fund your needs on your own, get you some savings for “dry days”, and accomplish your goals.

2.      No Buyer, No Deal, No Money

That’s right! The hardest part is to find the right kind of buyer this business requires. Knowing you can add them to your list and have them lined up in case of a sudden change of plans is a great relieve.

3.      You Should Work Hard on Your Buyers’ List

Creating connections and having a list is not enough. Your job is to keep yourself in the top of their list, having you as their favorite option when thinking about buying a property. Completing a few deals and a little good advertising is great to have a contact. But knowing their preferences and giving them what they want will send you to the top. Respect each buyer’s field of expertise, budget, choices, and requests and focus on filtering the properties accordingly.

How to wholesale real estate in a successful way

Find below the features a successful house wholesaler must have.

  • Work on Building the Right Mindset. Mindset is not something everyone is born with. Instead, is something you build with time. Cultivate your talents and abilities with consistency and dedication to see the fruits of your work. This is valid for this business and for ANYTHING you want to accomplish in life. So, write it down!
  • Recognize What and When to Delegate. See yourself as an entrepreneur because that’s what you are. Recognize the value of your time and choose to dedicate it to tasks that really need you. Trying to do everything by yourself may lead to work overload, stress, and mistakes. The las thing you want is missing great opportunities. So, organize your duties and outsource/delegate minor time-consuming tasks to see your performance (and incomes) improve.
  • Technology is Your New Best Friend! Technology offers so many accessible, free tools to keep all your wholesale business organized, available wherever you go and with more accuracy than physical records. Talking about accuracy, CMR are lifesaving software and apps for real estate business these days, allowing to keep and manage all your communications from one place.

Your Wholesale Real Estate Business Plan to Success

If you already decided wholesaling at its best is your goal, follow the recommendations below to build a successful business plan.

Step 1. Master Lead Generation

This business is fabulous as you may see, but it’s nothing without the leads. From going through your neighborhood looking for great deals to creating email marketing campaigns, advertising flyers, or digging on Craigslist. There are different ways to find great people, use any of them. Here, consistency is the real key. Keep looking!

Step 2. Learn the basic wholesale realestate math

Please do not be afraid! No exams will be taken. You just need to consider current conditions and work required, as well as the property after repair value (ARV) to make the right offer to both, seller, and buyer.

That’s why having a reliable contractor’s opinion does so much in this business. You’re dealing with expert buyers who know better than anyone what needs to be done and the money they can make out of the property. So, your offer must assure a good profit for you and for them, while being fair to the seller as well.

Step 3. Get your buyers list together

We can’t emphasize enough on this! Each transaction will let you know your client’s preferences. Take time study them and build a strong database with the right information. With time, you’ll see how having a short, curated list of regular clients is way better than having long list of just names.

How to find cash buyers for wholesaling in real estate

Wholesale Real Estate Step By Step - How To Find Cash Buyers

Speaking of the importance of having a curated buyers’ list, we can say that almost 50% of the success in real estate wholesaling comes from having a solid database of cash buyers.  Probably the other 50% comes mostly from lead generation. I guess this gives you a clear idea of where your efforts should be directed, right? Find below some proven methods to find these buyers:

  1. Go online: again, Craigslist and similar websites with thousands of ads can help you find owners and landlords who may be interested in receiving your wholesale offers. For this, we recommend visiting the Housing section and check the ads selling and renting houses.
  2. Create a lead capture forms for your website. Explode every chance your website has for you. Create short forms to capture visitors’ personal information. Also work on your website to increase traffic and thus, get new leads frequently.
  3. Work on your networking. A great approach is building good, strong relationships with all parts involved in the real estate business in your local area. As an active member of that community, it is quite likely that you meet potential buyers, and even mentors and partners to help you grow.
  4. Visit courthouse auction sessions. Why? Because buyers must have all cash to  courthouse auctions. So, this is the perfect place to spot them regularly and make great connections with amazing candidates. Remember to share your business card!
  5. Partner with hard money lenders. It is very easy to partner with hard money lenders, as they know this is a win-win association. Lenders can give you excellent referrals of cash buyers as they must know several while serving. And if this buyers decide to buy from you and don’t have the amount, for sure they will need to request the remaining amount to the lender.

How real estate wholesalers increase their profits

Wholesale Real Estate Step By Step - Make more money virtually

We believe there’s always room for improvement in everything we do. If we do better, be sure our incomes will do better as well. And who doesn’t want to increase their profits? Let’s see what we can try to grow the numbers in our bank account!

1.      Earn the Seller’s Trust

There are so many options out there, so why should the seller go with you and not somebody else? Because you will be the one who shows empathy to the case, the one making a clean presentation, keeping an honest communication, letting the seller now you know and understand their pain points. The one who presents the best, the most logical way out of their problems.

2.      Make Honesty Your Policy

This is related to the previous recommendation. You can be sure about this: if you make your position and your intentions clear, and explain the little risks you’re facing, any seller would love to work with you. Clear all doubts, answer all question with the truth. even if you don’t know the answer, let them know you’ll work to find it. It is well known that people buy from people they trust in.

3.      Have a Plan B… and Even C?

Never out all your eggs in one basket! Remember that saying? Well, never trust only one option as people can retract and you don’t want to waist all your time an effort for nothing. If you dedicate time to stay in touch with all buyers in your list, it is quite likely you find a second option quickly if the main buyer steps out of the deal. How you stay in touch is up to you (meetings, coffees, social media). But let them know you’re there for them, so they are there for you when needed.

4.      Communicate All the Way till The End

Keep everybody informed and involved during the whole process. Let the buyer and seller know about the progress, what has been done so far, keep them happy with the great news while building great relationships for future deals. It also says a lot about your customer service.

5.      Follow Up After the Closing

You probably don’t see the logic on this, but this is a great moment to get feedback about your services and use this insight to grow your business. It won’t take too much, a quick email, text or call works fine. It also helps to keep their memories fresh and probably recommend your services.

What is Wholesaling Closing and How to Do It

Wholesale Real Estate Step By Step

The closing is super important, it’s actually the day when you get your cut, when you finally collect the fruits of your hard work. If you  want to get to it, make sure you try any of these 2 methods:

Method 1: Assigning the Real Estate Wholesaling Contract

This method is the most widely used and the one we’ve been mentioning so far. As the name suggests, the wholesaler gets the seller the contract assigned from the seller and then, sells the contract to the final buyer (not the property itself, that’s why your credit score is not relevant to wholesale).

Any contract can be sold to another party (at least indicated otherwise). The wholesale  transaction allows the end buyer becomes the new owner of such distressed property. For this purpose, your contract (handed by you to benefit you ALWAYS) does not prevent you from assigning or selling the property.

This contract assignment does not imply you are selling or purchasing the home, so your name never appears on it. At the end, you were the middleman, the finder, and you’ll receive the corresponding fee for that.

Method 2: The Double Close When Wholesaling Houses

If the seller doesn’t like the idea of signing an assignment contract, or if local legislations does not allow to do so, the double close is the only route available. The double escrow or simultaneous close is a wholesaling technique. Unlike the previous method, your company will become the new owner for a breve period.

The first sale from seller to wholesaler is the A-B transaction. Then, the wholesaler can resell the property to the investor in what’s call the B-C transaction. The process is not too different than the first. But sometimes, the B-C transaction can take up to 60 days. You must take extra precautions in such cases.

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