What you need to know about real estate wholesaling
Starting as a real estate investor is challenging, especially if you have no capital. The capital you require is not a minor deal, and you can't jump in and exit real estate as you desire, unlike other forms of investment. Dealing with properties can be very delicate; it's like walking on eggshells, and navigating through is not a piece of meat. Real estate investors require a lot of patience and time to buy and sell properties.
If you want to start as a real estate investor, then Real estate wholesaling is for you.
This article provides the basic things you need to know about real estate wholesaling.
Wholesaling in real estate is a good money strategy that requires little or no capital. You don't need to offer a purchase or put down a down payment to get started.
The legality of Real estate wholesaling
The best part is that real estate wholesaling is legal in most states, mainly if you abide by the ground rules, and you might not need a real estate license to get started. However, It's imperative to note that wholesalers must be careful with their activities so that they are not assumed to be brokering a deal and perhaps get arrested. So ensure you check out your state's laws before you start.
That is why a wholesaler can't take a commission and can only use the assigned contract to connect the buyer and seller or buy the property themself.
So, what then is real estate wholesaling?
Real estate wholesaling
Wholesaling in real estate is unlike wholesaling in other businesses; It doesn't involve selling many properties to a retailer cheaply. Instead, real estate wholesaling is when a person (wholesaler) acquires a temporary contract from a motivated seller and markets it to potential buyers at a higher price. The wholesaler usually keeps the difference in price as profit. A real estate wholesaler is like a middleman between a motivated seller and an end buyer- another investor. Most of the properties sold by wholesalers are usually distressed properties, and unlike fix and flip, the wholesaler doesn't have to repair anything or take possession of the property.
For example, A wholesaler finds a distressed property, and the property owner can't afford the necessary repair or doesn't want the home anymore but doesn't want to go through a traditional sale. So the wholesaler obtains a contract from the property owner with a price of, say, $125,000, and he scouts for a buyer and sells it in the same contract for $165,000. The wholesaler keeps the $40,000 difference as profit.
Real estate wholesaling takes place in a shorter period compared to fix and flip.
A real estate wholesaler can wholesale a residence (apartment, condo, plot of land, mobile home).
The real estate wholesaling objective is to sell properties to the buyer before the assigned contract closes at a higher price.
How real estate wholesaling works in Six steps
Not everyone should dive into real estate wholesale. It lot takes effort, dedication, and time. In addition, you must possess excellent marketing and communication skills and have a good network of investors who might be eager to purchase your wholesale homes. Finally, in the long run, one requires an idea of real estate to scale through wholesaling.
If you don't have good marketing skills, investors' networks, and tenacity, then real estate wholesaling may not be for you. Real estate wholesaling is not designed for everyone. If the wholesaler doesn't get a buyer within the stipulated time he and the seller agreed, the wholesaler might have to pay the price.
Essentially, There are six significant steps involved in real estate wholesaling.
Step 1: Research.
Nothing beats a preparation meeting opportunity. Preparation gives you an edge because you know what to expect.
It would be best if you familiarized yourself with the business. But, first, you have to do much research on your local market. You can't get it wrong with researching, especially when starting wholesaling.
If you want to excel as a wholesaler, you need to do thorough research.
Step 2: Find a distressed property with a motivated seller.
After thorough research, ideally, you choose a neighborhood with distressed properties. You have to find off-market properties that may be up for wholesale. You take note of these properties and go ahead to find their owners. Then, ensure you go around and find the average home price in the neighborhood where you found the properties before contacting the owner.
Step 3: Negotiate
Negotiation is the most pivotal step in wholesaling because it determines what happens next. When you've found a motivated seller, you must next pitch your proposal to the motivated seller. Give them reasons to trust you and bid for a fair price- Not too small or big.
To increase your negotiation strength, find significant repairs that the house needs. Then, walk around the house and watch for disrepair to inform the seller about the cost so you can pitch a lower rate.
Pro tip: The lower the rate you bargain for, the higher your chance of closing a deal with the end buyer and invariably a good profit.
Step 4: Get a contract.
When you've come into an agreement with the seller, the next thing is to get a contract and sign it.
Pro tip: You can involve an attorney or not. Involving an attorney might save you from making costly mistakes.
Step 5: Find an end buyer
As earlier mentioned, a real estate wholesaler is a middleman between the motivated seller and the end buyer. When you've got the contract, You seek an end buyer and negotiate. The primary goal is to profit and ensure you're not opting for a low rate.
Pro tip: Having a network of investors helps in speeding things up. Also, never settle for less. Know the home's worth and ensure you are happy at the end of the deal.
Step 6: Assign the contract
When the buyer agrees to get the property, you assign the contract you signed, and Finally, you close the deal.
Everyone signs, the buyer pays based on the agreed amount, and the wholesaler bags his profit.
It takes time to build anything worthwhile. Real estate wholesaling is not a quick scheme for making money. You need to be very organized and we recommend using REsimpli - an all-in-one CRM software for real estate wholesalers.