5 Tips for Real Estate Wholesalers
Contrary to popular belief, you don’t need stellar credit or money saved to get into real estate investing. There is a technique called wholesaling that allows practitioners to earn money on the sale of an investment property without being a buyer, seller, or agent. Here is a brief look at wholesaling and some tips for those looking to get involved in the technique.
What is Wholesaling?
Wholesaling is a real estate investment technique where an investor secures the sale of a property at a discounted price and turns around and sells the contract to an investor at a higher price. Typically, the property will be distressed, and the seller will be motivated to get rid of it quickly. It takes hard work and persistence to find a property that has investment potential that is being offered at a price low enough to effectively wholesale. But, if you can pull it off, you can earn a decent commission without actually purchasing the property.
Let’s say you find out a home in your neighborhood is being foreclosed on. The house is worth about $150,000 in good condition, but it’s fallen into disrepair. The neighbor only has about $75,000 left on the mortgage and is looking to get out as soon as possible. You may offer to pay off the mortgage in exchange for the contract to the property. You could then turn around and sell that contract to an investor who wants to flip it. Depending on the condition of the property, you could reasonably sell it to the investor for as much as $100,000, then pay off the mortgage after the closing and walk away with $25,000 just for brokering the deal.
Keep in mind that this is simplified for explanation purposes and you’d have to be very lucky for a deal to work out that easily. But this demonstrates the basic concept of wholesaling.
If you’re thinking about getting into wholesaling, here are a few tips to help you out.
- Line up a team of investors before you make an offer: Make sure you have a buyer ready to go before you make an offer on a property. Otherwise, you may have to back out in the middle of the contract, which could damage your reputation and cost you in time and fees.
- Be empathetic when dealing with motivated sellers: Very few people short sell their property when they are in a good position in life. Wholesaling often entails dealing with sellers who are desperate for one reason or another. To make things smoother and non-confrontational, be cognizant of the seller’s position and emotional state at the time of sale
- Be transparent: Don’t pretend to be a home buyer or investor if you are wholesaling. Be honest and straightforward. The truth will come to light eventually and it may get you into trouble if you lie to the seller just to secure a better deal.
- Be prepared to hustle: You’ll likely be very disappointed if you think you can spend a few hours making phone calls or knocking on doors and you’ll find a deal. Finding a property to wholesale is difficult because you need to find a home that has the potential to turn a profit but is being offered at a rock bottom price. You’ll have to be patient, but it will be well worth the wait if you’re willing to put in the work.
- Use several different methods to find properties: You catch more fish with a net than you do with a pole. You can send out direct mailers, post ads on craigslist or Facebook, find lists of foreclosed homes online, reach out to local contractors and real estate agents, or just drive around your city looking for homes in disrepair. There is a litany of ways you can identify distressed properties. One way or another, you’ll have to face a lot of rejection if you want to find a deal. But it will increase your chances of success if you have several methods at your disposal.