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Looking to get into real estate investing, but don’t have the money you need to start investing directly? There are still plenty of real estate investing opportunities.
Believe it or not, having a lot of cash on hand isn’t a requirement to get started as a real estate investing.
There are a lot of strategies you can use to start investing and making money on the real estate market without having to personally purchase or manage properties, from passive investment strategies to wholesaling.
But even passive real estate investment still requires that you use at least a little money to invest. Wholesalers use a legal real estate process without ever purchasing the property, which means you can start making money on the real estate market without spending a dollar on the actual real estate.
Sound too good to be true?
Well, keep reading because we’ll explain exactly how this process works, why it works, and the pros and cons of wholesaling real estate.
What Is Wholesaling Real Estate?
The core of wholesaling real estate is that you’re a middleman looking to connect sellers with a potential investor who can benefit from the property. It’s an all-win situation, where the seller gets help finding a buyer, the investor gets a property they can leverage in their investment strategy (or use personally of course), and you get to make a tidy profit in the bargain.
A wholesaler goes through a few steps to make money under this system:
- Locate a potential property with an amenable seller,
- Enter a wholesale real estate contract
- Find a buyer
- Reassign the wholesale contract to the end buyer and collect your wholesale fee
- Rinse and repeat.
How Does Wholesale Real Estate Work?
One of the tricks of wholesale real estate is that the typical successful wholesaler isn’t looking at the same properties that a traditional real estate agent or investor is looking at. The wholesaler is looking for the kinds of properties that need a little more active involvement to find a buyer, and for sellers who might not even realize they have a salable property on their hands.
The quintessential wholesale real estate opportunity is an owner who has a property they don’t use, but also aren’t looking to sell because they don’t think it’s in good enough condition, or don’t think that it’s worth the hassle of putting it on the market.
A wholesaler can come into that kind of situation and offer to find a buyer, usually a real estate investor if the seller is willing to put the property under a wholesale contract. Then the wholesaler turns around and offers the property to investors for slightly more than the wholesale contract is worth.
The difference between the purchase price, and the price of the contract on the property is the profit for the wholesaler.
How Much Money Do You Need To Start Wholesale Real Estate Investing?
Technically, you don’t need any money at all to start wholesaling. Since a wholesaler isn’t buying and flipping the property, simply creating a contract and then finding a buyer for that contract, a wholesaler doesn’t need to invest any of their own capital into the property.
However, wholesaling can come with costs in terms of time, advertisements, and other expenses. The less you are willing to spend, the more time and effort you’re likely to need to invest into the process to be successful.
This is very different from real estate investing, where you generally do need at least a little capital to start investing, and the amount of time required for a successful investment is more dependent on
Pros And Cons Of Wholesaling Real Estate
The biggest advantage of wholesaling real estate is that you can potentially make a lot of profit with very little personal risk and without having to invest any of your own money into the property.
However, wholesaling isn’t a get-rich-quick scheme, and it’s not necessarily easy money either. Real Estate Wholesalers need to be strategic and understand the markets they are operating in very well. Effective networking and building relationships with key investors in your area can also be a big help, which means that wholesaling requires a specific kind of personality – this isn’t a money-making strategy for everyone.
The other con is that this can be a fairly boom-and-bust business. Finding opportunities to wholesale a property takes time and effort, as does finding the right buyer for the property in question.
That means that wholesalers might have a lot of business for a while, and then need time to find fresh properties and start the process over again. Consistent income isn’t what this business is known for, and like some other real estate careers, you need to plan for the dry spells between paychecks if you want to be successful as a wholesaler.
How To Get Started Wholesaling Real Estate
Getting started a wholesaler takes some guts and know-how, but it helps to know what you should be paying attention to while you’re getting started.
Here’s a quick guide to help you get going and to create a successful wholesaling business.
Start With Research
The first and most powerful tool in any wholesaler’s pocket is information about the local market, conditions, possible investors, and other information about the area they intend to work in.
Many experts agree that the first month of any wholesaler’s career should be dedicated to learning about the market, existing opportunities, potential investors, and all the other information that goes into making a successful career wholesaling.
You should have several neighborhoods you’re comfortable working in with known opportunities you can start with. It’s important to find a path of least resistance because it can be easy to fall into the trap of trying to get a dream wholesaling property or working with potential sellers who aren’t as interested as they seemed at first.
Find A Good Property To Start With
Finding a starting property can be tricky, and you should have several potential properties lined up before you get started.
Your first property won’t necessarily be the best option of the potential list. Instead, you should go for the property, or rather the seller, most willing to work with you. That way you’re eliminating one of the potential hurdles in the process, convincing the seller.
Once you have a larger portfolio of success stories, you’ll have more tools to convince a reluctant seller to trust that you can help.
Do The Math
Before you approach a potential seller it’s important to do the math to make sure the property is worth the time and effort you’re going to invest in it. This is important because you don’t want to spend the entire second month of your wholesaling career trying to land a buyer, only to not get fair compensation for the time and energy that sale took.
Work with other wholesalers to figure out how much time and marketing you’re going to need to invest in the property, and how much you can potentially earn from the sale.
If you can make a reasonable wage in the process, go for it. If not, you might want to aim for a property with a bigger potential payout, or less time and effort needed to sell.
Reach Out To The Seller
Now that you’ve found property options, done the math to know which opportunities are worth pursuing, and have done the research so you know the potential buyers, the right price point, and have a strategy in mind, it’s time to present your work to the potential seller.
The better prepared you are for this meeting the more successful you’re likely to be.
And remember, not everyone is going to sell. It’s okay if you pitch a couple of potential sellers before you get your first opportunity.
If there are other wholesalers in the area, you might consider reaching out to them and asking for their help with your first few contacts, in exchange for a small portion of the earnings. This way you have help, and a good way to build your personal portfolio, plus a professional contact who can help in the future.
Do The Due Diligence Work
Due diligence usually involves finding the fair market value of the property, making sure you understand what condition it’s in, and that you’ve thoroughly analyzed the investment.
Ideally, you should be looking for properties where everyone involved in the deal stands to benefit, which means you need to tell potential buyers how much work a property needs, and the seller should be receiving fair value for their property at the same time.
If someone comes out feeling cheated, word will spread and it will be harder to find willing sellers and interested buyers in the future.
Get A Contract (And Make Sure To Include Inspection)
Once you understand the value of a property and feel ready to prepare a wholesale contract, it’s time to talk to the seller again. Tell them what they get in the contract, and make sure you have a contingency to include inspection.
You don’t want to get a property under wholesale contract only to find out that the building is badly termite-infested and needs to be condemned when a potential buyer has it inspected. Having an inspection contingency lets you back out if the inspection reveals too many problems, or the known problems turn out to be more expensive than you anticipated.
Your contract also needs to include the right to assign the contract to another property. Basically, this is the provision that lets you do your job, and make sure you don’t have to buy the property before selling it (or rather, its contract) to someone else.
The next step is marketing and finding the right buyer for the job. This is where your personal charisma and marketing skills come into play.
There are thousands of marketing strategies to choose from. Just make sure you have a strategy in mind before you get started.
Reassign The Contract
Once you have a buyer the last step is simple. Reassign the contract to the buyer, collect your wholesaler’s fee, and start working on your next deal.
Not Sure How To Start? We Can Help
Getting started as a wholesaler can be intimidating, but you don’t have to do it alone. If you’re looking for coaching, help finding a potential property, or help creating a wholesaler contract, Teifke Real Estate’s experts can help.
Our goal is to help you succeed, so don’t wait, schedule a consultation.
Sources:
- Distressed property: What you need to know. Distressed Property: What You Need To Know | Rocket Mortgage. https://www.rocketmortgage.com/learn/distressed-property. Accessed January 16, 2023.
- Real estate investing: How to get started. Real Estate Investing: How To Get Started | Rocket Mortgage. https://www.rocketmortgage.com/learn/real-estate-investing. Accessed January 16, 2023.
- Than Merrill. How to wholesale real estate: Step-by-step guide. Wholesaling Real Estate: A Step-By-Step Guide | Than Merrill. https://www.thanmerrill.com/real-estate-wholesaling-goals/. Published November 5, 2021. Accessed January 16, 2023.
