real estate wholesaling pros and cons

As we pointed out in Part 1 of this two-part blog series, real estate wholesaling is a great way for anyone interested in venturing into the real estate sector to gain entry into the industry.

Reason, as previously stated, is because you don’t take ownership of the property you are putting up: all you need is to have it under contract, then assign that contract to another buyer (mostly an investor) who will close on it on your behalf. Unlike real estate flipping, the good thing about wholesaling is that the task of renovating the property prior to selling is someone else’s, not yours.

What this means for you as a wholesaler is that the amount of capital you need to pump in is minimal, or nothing at all. Plus, there is little risk involved in this sort of arrangement.

It very well may have its own positives, wholesaling, but all that glitters is not gold. And this is what I want to base today’s post on. Because you need to know what you’re really getting into considering the path isn’t all peaches and cream as some might have you mistakenly believe.

There is No Guaranteed Income

As much as real estate wholesaling allows you to be your own boss, don’t forget that this is not your typical 9 to 5 job that guarantees you a check every fortnight, or month. Nor do you have perks like health insurance or retirement benefits.

In other words, if you are intent on becoming a full-time real estate investor – and more so wholesaler – it’s paramount that you are the kind of person with a penchant for good personal finance management. But given not everyone is the same, those who don’t need to train themselves on how to manage their finances.

I say this because there are times a deal will not always materialize as planned, and the best thing you could do is have an emergency kitty for a rainy day. You never know when that rolls around.

The Inability to Find a Buyer

The key to becoming a successful wholesaler is to have a list of solid buyers. Because in this business, no buyer is equals to no deal.

Notwithstanding, the risk on your end is dependent upon the way your contract has been drafted. So, going by the amount you put down in escrow – need not be much; probably even as little as $10 as we previously mentioned – you might end up repaying your seller in the event you fail to land a buyer.

You might probably think, ‘Meh, that’s peanuts.’ But should word ever get out that you’re negatively impacting homeowners, future buyers might be less inclined to do business with you. If you have been following our posts then you’ll probably know the importance of concentrating your efforts in a measured geographical area. Which means there are chances word will travel, and you don’t want to come out across as someone who runs their operations like an HBO villain.

But there is a workaround to this whole potential charade. Prior to making an offer to the seller, you could line up a couple of potential buyers which should mitigate your risk. Problem is, as a new wholesaler, there might not be that many a buyer on your list.

Staying on Top of an Organized Buyer List

Let’s say you’ve been lucky to wrap up a few deals – which should give you a couple of solid contacts.

But having a list of buyer contacts alone is not enough.

You see, part of the secret to sustaining a successful wholesale business is to stay on top of your potential buyers. It’s also about knowing the preferences of each individual buyer.

Say you have two buyers, right… One prefers property they can use as rentals, another is more into dilapidated property that they can renovate before selling. Which means in the case of the latter, the properties you offer them have to be much cheaper because they are in bad shape and will incur a significant cost to spruce up.

The good thing about differentiating your buyers like this is that it allows you to reach out to a particular buyer interested in a particular type of property, as opposed to offering the property to every single buyer on your list. In the long run, the relationship should benefit both of you.

The caveat to this is that you need time to establish yourself. Then again, nothing comes on a silver platter, and if you are really set on becoming a serious wholesaler, the time and effort it will take shouldn’t stand in your way.

If you are disciplined, driven and organized, a wholesaling career guarantees much promise.