As a real estate company, a question that often pops up in our circles has to do with real estate wholesaling.
And for good reason.
In this industry – or rather out of it – what most people are familiar with is retail properties. These are your regular properties sold through agents representing buyers and sellers, where someone may purchase a house every five or so years, probably a decade. But real estate wholesaling is a different ballgame altogether.
Don’t think of it as the regular wholesaling you would associate with a giant grocery store that sources its products from major producers like ranchers or farmers, no. This kind of ‘normal’ wholesaling the great unwashed are associated with everyday calls for huge investment in terms of capital outlay, transport, personnel and other whatchamacallits.
Unlike real estate wholesaling.
And here’s the straight dope of it.
What is Real Estate Wholesaling?
To put it simply, real estate wholesaling is a way you can acquire a contract on a property without buying it per se, and then reselling or assigning it to another investor. Think of it as quick flipping, yes, where you employ your resources to find a buyer prior to the expiry of the contract.
Wholesale properties usually come for cheap as they normally involve distressed property – a home facing foreclosure, for example – where the homeowner’s greatest asset is not time (and definitely neither the money). So they are willing to accept an offer that is in the realm of ‘reasonable’, which they wouldn’t otherwise accept were it not for the predicament they are in.
Let’s say a homeowner is facing a foreclosure (need not be), and s/he owes the bank $120,000. Offering them $125,000 would be a welcome reprieve as they’ll not only be able to repay the bank, but also earn a bonus of $5K in the process.
So, what you do is get the contract on that property, advertise and find a buyer, following which if you are successful in your efforts, you relinquish the property to the buyer (aka close the contract) at a slightly higher figure – obviously – than the amount you acquired the contract for. Say $130,000. And voila! Behold, your tidy $5,000 profit.
And everyone sleeps happy – the bank (if they care at all), the homeowner, yourself, and your buyer.
And on to your next property. Wash, rinse, repeat.
Think of yourself as a middleman. Your work is to source these kinds of properties and turn them on to other investors. These investors could probably proceed to remodel the house and put it on the market.
Real estate wholesaling won’t fetch you hefty profits in the five-figure range everytime, but the little $5,000 profit you rake in from the sale can quickly add up to something if you manage to turn a few properties within the space of a month, or quarter.
Why are the profits ‘meager’, you may wonder? Well, let’s just say you need to leave a good enough margin for the investors to make a good return too.
Anyone and everyone can do it
Provided you are a little creative, anyone can venture into real estate wholesaling. It is an interesting way to generate a positive cash flow (each month if luck is on your side), minus the financial risks associated with the actual purchasing of a property.
Plus, if real estate interests you, it can be a stepping stone for venturing into the sector quickly as it involves building a large network of buyers (call them investor buyers) through your multiple dealings, particularly if you engage in it for long.
In fact, with a robust network of investors interested in these kinds of properties, you could end up flipping the property within a few weeks, days even.