Real Estate Wholesaling
The word wholesaling means “to sell in large quantities, as from a wholesale merchant.” In real estate, wholesaling is the process of buying a property and then selling it at a higher price without adding any value. When you do this, you intend to make a much larger profit on your investment than if you had simply bought rental properties that you would manage yourself. Wholesaling is a form of real estate investing that requires little up-front money but it’s hard to learn and takes years of experience to be successful. In general, wholesaling as a business will never fail as long as there are properties available in the market for you to buy. The possibility of failure arises when your sales skills become stale and your sales funnel goes dry. So, your skill of selling properties quickly before their prices fall too far is what will determine your success as a wholesaler. Wholesaling in real estate has become popular because it can be done with little or no money out-of-pocket.
How Does Wholesaling Work?
The process of wholesaling is both similar and different from other forms of real estate investing. The properties you invest in will generally be older homes that require a lot of rehabilitation work in order to bring them up to the standards required by modern buyers. Wholesalers buy these unwanted or distressed properties at a steep discount, fix them up, and then resell them at a higher price. The more repairs and improvements you can make to the property, the stronger its market value will be after you sell it on your own. Wholesalers must also get this property sold quickly in order to turn a profit, so they generally hire real estate agents who are willing to work on commission. By using a real estate agent to find buyers for your wholesale property, you increase the likelihood of selling quickly and at the maximum price. Wholesalers will face many obstacles in getting this done. They include:
- Difficulty in finding motivated sellers whom you can talk into selling their property quickly
- Finding buyers who are willing to pay the price of the property without negotiating
- The difficulty of finding buyers who can complete on their end and come up with the cash needed to buy
- Handling buyers and sellers and coordinating showings and inspections
- Make sure that all legalities surrounding a purchase are taken care of properly
Wholesalers who are successful in getting the property sold quickly for top dollar will earn their profit.
The Pros and Cons of Real Estate Wholesaling
The biggest advantage of wholesaling is that you earn fast results, especially if you make a few deals quickly. You can even make money from one deal which may be your first. However, this does not mean that it’s always easy to start a new business and repeat the success you had once before. The other advantage is that you don’t need to get every dollar of your money back before you start making new deals. You can get started with very little capital so it’s possible for people who are working in regular jobs to earn profits while they build the skills needed to become profitable real estate investors over some period of time. The biggest disadvantage is that wholesaling takes a lot of work. You will have to learn about real estate investing, deal with sellers and buyers, set up appointments for yourself, agents, inspectors, and more. This business model doesn’t offer instant gratification so if you are looking to get rich quickly, wholesaling is not the right choice for you. Wholesalers are often thought of as middlemen.
Steps for Getting Started in Real Estate Wholesaling
If you want to get started as a wholesaler, here are some steps that will help you:
1. Ask yourself if this is what you really want to do
Many people decide they want to become real estate investors after they see the big profits made by others. But, make sure that wholesaling or any other opportunity for that matter is what you want to do. Wholesaling requires hard work and dedication so if you are looking for a quick way to make money, wholesaling will not be of much use to you. It is recommended that you find something more appropriate if this is the case because otherwise, your motivation will dissipate, especially when things get tough later on down the road.
2. Ask yourself if you have the skills for this opportunity
Make sure that you know how to sell and negotiate as a wholesaler or else your business model will fail. You also need to be able to handle properties, manage sellers and buyers, and coordinate showings and inspections among other things. Your ability to successfully do the above will determine your success rate as a wholesaler and if you find that you lack some of these skills or need to develop them, consider getting professional help. The investment will be worth it in the end if it leads to better results for you.
3. Educate yourself on what needs to be done
Wholesaling is not like buying and selling a regular house. You need a lot of skills to be successful at it and you also need to understand that wholesaling is not as straightforward as some people think.
4. Find deals to work with
When it comes time for you to get started, where do you get these deals?
- Read the papers regularly so that you know what’s on offer in your area.
- Get referrals from friends and colleagues to find out if they know people who would like to sell.
- Use the internet to find listings.
Whichever method you use, make sure that it works for your situation before using it as a regular source of deals.
5. Don’t sell yourself short
Keep in mind that even if you are buying property for just $5,000-10,000, this is still a profitable business so you should be expecting to make at least $5,000-10,000 in profit through your efforts. Don’t take on so much work that you can’t handle it well and don’t sell yourself short.
6. Get all the legal paperwork in order
You will need to have things like corporate bank accounts, corporate tax ID numbers, etc., so make sure that you handle these tasks properly so that you can avoid problems down the road.
7. Get business cards and stationary
This will help you give off a more professional image as well as be more efficient at what you do. Wholesaling isn’t for everyone but if you have the skills needed to succeed, it can provide an incredibly lucrative way to make money with little initial investment. It is not supposed to be easy and if you give up at the first sign of trouble, you will never enjoy the results that this kind of business can create.
The Bottom Line
Wholesaling is a great way to make money in real estate without having to actually own the property. But, it does require hard work and dedication along with the right skills, so you should only consider it if you are willing to do everything that’s necessary. Use the simple tips above to get started wholesaling and if you do it right, you should be well on your way to enjoying the profits that can come from this business model. Preparing yourself to become a real estate wholesaler will take some time and effort but when you are done, there will be nothing standing between you and the cash-flowing real estate project that you have been dreaming about.
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.