Many people enjoy the liquidity of trading stocks since you are able to make trades during market hours and even after hours with some trading accounts. Real estate wholesaling, while not as liquid as trading stocks, can be a much more lucrative way to make money if you know what you are doing. Today we'll go into what you need to know about wholesaling real estate, which is something we teach in our real estate mentoring program.
What is Real Estate Wholesaling?
This type of real estate investing focuses on the buying of distressed properties that are purchased without any renovations in mind, (unlike the fix and flip model we also teach) and instead having an attractive investment where the contract can be assigned to other parties very quickly. Essentially the whole premise behind wholesaling is finding a deal on a property before anyone else can, and getting it under contract, and then shopping that around to someone who will either keep it as an investment or perhaps even flip it from there.
One major goal in the wholesale space is to have the home sold to another party prior to the contract closing with the original homeowner. In this case, money won't even change hands between the wholesaler and seller until the wholesaler finds a willing buyer. The wholesaler earns money by finding someone who will buy the home at a higher price than they agreed on with the seller, so they essentially make the marked up difference that was agreed upon between them and the new buyer.
If you are looking to get into Florida real estate investing, but are worried you don't have the capital, wholesaling real estate is a great way to start. In fact, many of our students focus on wholesale deals prior to doing any rehabs or fix & flips. The best part of being a Florida wholesaler is that you don't need to take a real estate exam or course, and there is no license you need to have to be involved in this career! If you have people skills and are organized, this can be a great way for you to break into the world of real estate investing.
Real Estate Wholesaling Examples
To explain how this works, lets use a real life example. Pretend there is a homeowner who has a property that he or she didn't believe was something that would sell because it was distressed. The owner didn't have the capital or know how to fix it, perhaps because of old age even, but they continue to occupy the property. A wholesaler comes into the picture and makes an offer on the property for $75,000 and it goes under contract. The wholesaler then uses his or her network of investing partners to find someone who will buy the property for $85,000. The contract is then assigned to the new investor who then has the idea of putting money into the property and doing a full on rehab. The wholesaler just made $10,000 without having closed on the home or having it in his or her name.
How to Be a Successful Wholesaler in Real Estate
You'll have to come into this space knowing that it's not for everyone. We recommend that you dedicate time, passion, and patience as well as have strong organizational skills and a desire to communicate with others. Of course, if you know anyone in real estate investing, that helps as well, but don't let that shy you away from getting involved because we have a network of investors we can plug in you into as well if you join our real estate mentor program.
The first thing you'll need to know how to do is locate a property. While people who own homes that aren't in tip top shape are eager to sell, you'll have to locate these people. (Don't worry, we teach this also.) Location is key in real estate, as well as features that make the property desirable, but knowing what sorts of repairs are needed for the next person is also a good thing to have in your head because it must have a potential for ROI for them as well. Nobody wants to take on a massive investment or rehab where everything must be repaired.
Another thing to remember is that you want to add a contingency to the contract that allows you to get out of the deal if you are unable to find an investor to buy it from you. This makes your risk ZERO.
Comparing Wholesaling to Flipping
While these are similar in the case that they are both methods to make money in real estate, there is far less work and capital involved in the wholesale business.
A “flipper” generally will close on the home and make repairs. A wholesaler does not do this as it's time, capital, and risk, not to mention there are no carrying costs associated with wholesaling properties.
Hopefully this shed some light on how real estate wholesaling works. If you have questions, please don't hesitate to call us at 954-585-2274.