Real estate wholesalers are people who act as an intermediary between a buyer and a seller. Being a wholesaler is a good way to understand how to bargain property prices.
Becoming a wholesaler is a good way to step into the real estate industry, especially if you do not have much capital to invest. Moreover, mastering the art of wholesaling will help you in finding the best investment opportunities to purchase and will open multiple avenues for raising capital.
Now the question that arises here is that what exactly is wholesaling? Simply put, wholesaling can be understood as the process in which a wholesaler gets a particular property under his contract and later finds a suitable buyer and assigns that contract to him.
Generally, a contract is assigned to a buyer at a higher price than what was conditioned by the contract.
Becoming a real estate wholesaler means a lot of work and effort. In this article, we will discuss what a wholesaler is, what all he does, what are the various pros and cons associated to his job and how the process of real estate wholesaling takes place.
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What Do Real Estate Wholesalers Exactly Do?
A real estate wholesaler acts as a middleman in a property transaction, as already has been established. It is an excellent way of getting into the real estate industry, knowing how it operates when one does not have a lot of capital. It even saves one from the risk of losing money as no capital investment is required for becoming a real estate wholesaler.
Being a wholesaler is mostly a game of wits. It requires good analytical and investigating skills. The whole job revolves around finding sellers who are willing to buy their distressed properties.
A distressed property is basically worn-out property, that is in sheer need of repairs and renovation. The owners, thus, have a motive to sell these properties to lay off their financial burden and the obligatory expenditures.
Therefore, there is a fair chance that you can secure these properties at a lower value. You just must be good and smart with your choice of words. The owners want to get rid of their responsibilities and generally will not negotiate much. They tend to sell it quickly at a lower price,
This is where real estate wholesalers step in and offer to buy the property by means of signing a contract with the seller. But here is a catch. Instead of buying the property on your own, you begin to search for potential buyers and settle for the one who is willing to pay the most for the said property.
Therefore, you are only acting as an intermediary in the whole property transaction. On successfully closing the deal, you earn a commission ranging between $500 to $5,000 for every transaction. The bigger deal you land at, the better will be the pay-out.
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Is Real Estate Wholesaling Better Than Flipping Houses?
There are a lot of investors present in the marketing, belonging to different categories. The most common being the flippers. Flipping refers to the phenomena of buying a distressed house, renovating, and remodelling it and then later selling it for a higher price, raising huge profits.
The primary difference between a wholesaler and a flipper is that unlike a flipper, a wholesaler never really buys the property, but only passes the contract between the seller and the buyer, earning an income out of it.
Furthermore, the flipper does not need to worry about the renovation and repair of the house in question. wholesalers can sell these contracts to buyers; other types of investors make up the bulk of the wholesale market.
What is even more interesting is the fact that unlike flippers, the real estate wholesalers do not have to wait for a long time to enjoy their profits. They earn their fee very quickly as most of the buyers make the purchase in cash rather than opting for a lender.
Also, wholesaling does not require a bulky initial capital unlike flippers. Sure, flipping earns more profit as compared to wholesaling however, the huge chunk of investment it requires, both in terms of time as well as money is something that not everyone can manage to afford.
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How to Start Working as a Real Estate Wholesaler?
As a middleman or an intermediary, most of the work of a real estate wholesaler revolves around getting the house contract from the seller at a price which is lesser than the market value of the property and later, assigning that housing contract to a buyer. The buyer is charged a pre-decided amount as fee for selling the contract which constitutes as the income for the real estate wholesalers.
Therefore, the wholesaler was just a middleman in the entire deal. Most wholesalers can raise a decent amount from every property contract that they close with their earnings ranging around $500 to $5000 for each property.
The process of wholesaling is, therefore, quite simple. You just need to find a distressed property, convince the seller to sell it at a price profitable to you, secure the contract for the underlying property and find a suitable buyer, charge a fee to sell the housing contract to that buyer.
The process for starting your journey as a wholesaler is explained here in detail, step-by-step:
1. Property Hunt
Check property listings on various websites online by sellers who want to avoid the hassle of hiring a real estate broker. HomesByOwner and Craigslist are two of the most popular platforms where you can check properties.
Other than looking online, you can reach out to sellers in various social networking events, send mails to homeowners in nearby areas, develop contacts in the real estate industry, etc. You can also post some ads, send out newsletters and do some social media campaigning to tell people about your wholesale services.
2. Reach Out to the Homeowner
After you have found a suitable property of your choice, call the owner, and set up a meeting with them. Find out what they desire from the property sale, explain to them the various advantages of selling their property to you, why you want to buy it at the first place, etc. You will also need to decide whether you want to disclose to them that you are a real estate wholesaler and will not be buying the property yourself.
3. Evaluation of the Property and Fixing a Price
The next important step is the evaluation of the property. It involves a little bit of market research. Find out the prices of the previous property sold in the area, calculate the depreciation costs, and determine the estimated final value of the property before after interacting with the owner for the very first time.
You can also seek advice from a real estate expert or a realtor whom you may happen to know. Target to convince the home buyer to sell the property to you at least $20,000 less than its market price. It will make up for all the efforts and hard work that you have put in.
Generally, the sellers of a distressed property want to get rid of the property as soon as possible and do not negotiate much if they are offered close to the market value of the property.
4. Estimate the Cost of Repairs
The next important duty of yours as a Real Estate Wholesaler will be to evaluate the damages and the cost of repairs. It is important that you make these evaluations before making the final offer as any potential buyer would want to make these repairs. This will justify the offer that you will be making and will, therefore, help in strengthening your profits.
5. Get the House Contract Assigned to You
The next important step is to do some number crunching. A useful method is to calculate 75% of the estimated cost of house after the repairs. From the amount that you get, from this number, subtract the cost of repair and at least $5,000 as your fee. The number that you get will be your final offer.
6. Find a Buyer
Once you have the house contract, find a buyer within the next 30 days. Post some ads, attend a few social events, eventually you will create a few connections. Look at who is willing to pay the most for the house contract.
7. Close the Deal
The next important step is to work with a title company that understands real estate wholesaling. Put the buyer in contact with the company and close the deal.
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Also Read: Rent vs Buy: Should you buy a house or rent it?
A real estate wholesaler acts as an intermediary between a buyer and a seller for a property transaction. He earns by means of fee that he receives by selling the housing contract assigned to him by the seller. The process of real estate wholesaling is quite straightforward and simple.
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