Is Wholesaling Houses Legit?
Wholesaling houses sometimes gets a bad reputation. But why? Real estate wholesalers often work with seller’s who live in distressed properties and may be in a tight spot financially. Thus, some people from outside of the industry mischaracterize wholesalers as predatory when in reality they are offering a service that benefits sellers.
That’s not to say that predatory wholesalers don’t exist, but there are also predatory lawyers and doctors. The outliers don’t define the entire occupation. Furthermore, predation is not a sustainable business model, and the wholesalers that succeed are the ones that generate benefits for themselves, and the buyers and sellers they work with.
The main source of slander against wholesalers is ignorance. Most people don’t understand what an important service wholesalers offer, and how lucrative it is for all parties involved. This article will demonstrate the legitimacy of wholesaling real estate, and provide information on how to break into the industry.
Table of Contents
- How Does Wholesaling Real Estate Work?
- Example of Wholesaling Real Estate
- Does Wholesaling Houses Cost Money?
- Can you Make a Lot of Money Wholesaling Houses?
- Is Wholesale Real Estate Risk Free?
- How to Succeed in Wholesaling Real Estate
How Does Wholesaling Real Estate Work?
Wholesaling real estate is a legal strategy used to generate profits from the sale of a home without purchasing it or making a down payment. Wholesalers will typically seek out distressed properties with owners that are unsure whether or not they can sell their home for a fair price.
Why? Well, homeowners that want to sell their home and believe they can will put it on the market. In contrast, wholesalers typically curate a network of real estate investors looking for properties to renovate and sell, enabling them to quickly find a buyer for “fixer-uppers”.
To generate profits, a wholesaler sets up a contract with the seller to sell their property by a certain date and for a certain price. The wholesaler then finds a buyer who will pay more than the contracted selling price and pocket the difference.
So, what is the point of wholesaling real estate? Is wholesaling houses legit?
There are three parties in a real estate wholesaling deal: the wholesaler, the seller, and the buyer. The “point” is different for each party. The wholesaler generates profit without risking or investing substantial capital, the seller gets to sell their property at a fair price in a short time, and the buyer makes a potentially fruitful investment. That’s a legitimate win-win-win deal.
Related: What is Real Estate Wholesaling, and How Does It Work?
Example of Wholesaling Real Estate
Wholesaling real estate can seem complicated at first, but it is quite simple when demonstrated through example.
Imagine that the owner of a distressed property wants to move but doesn’t believe she can sell at a fair price. Furthermore, she doesn’t have the money to invest in renovations.
She reluctantly continues to live in her home until she is approached by a real estate wholesaler. After some discussion they agree to a contract stipulating that the house must be sold for $100,000 within 30 days.
The wholesaler uses his network of real estate investors to find a buyer interested in a fixer-upper project. Within a week he succeeds, finding an investor willing to pay $115,000 for the property.
In this example, the wholesaler made $15,000 profit in one week. He never purchased any property himself, or put up any substantial capital. He merely acted as a liaison between buyer and seller.
Does Wholesaling Houses Cost Money?
In contrast to many real estate ventures, it does not cost any money to wholesale a property. Wholesaler’s typically don’t need an office or even employees. However, you will need some money for transportation, a phone, and eventually, marketing.
As your business grows, you can use your profits strategically to grow your business, but for those just starting out, wholesaling real estate offers a low-risk business model with negligible start up costs.
Can you Make a Lot of Money Wholesaling Houses?
You can absolutely make a lot of money wholesaling houses. It’s not uncommon for the average real estate wholesaler to make between $5,000 to $10,000 per property. As with any business, there is a learning curve, but there is no limit on potential growth.
As your wholesale real estate business grows, so will your list of contacts, your knowledge of the market, your marketing savvy, and negotiation skills. Together, these assets will allow you to close more deals at a faster pace and generate greater profits.
Is Wholesale Real Estate Risk Free?
Wholesaling real estate is an excellent short-term investment strategy because you don’t have to risk the capital required for other real estate ventures, like house flipping. Therefore, we can say that it is relatively risk-free, but no business venture is entirely absent of risk.
You have to risk the time you put into the business as you learn the market and close your first deals. You could fail, but your efforts will only be wasted if you quit. For the diligent and determined wholesaler, the time invested will pay dividends.
How to Succeed in Wholesaling Real Estate
The key to success in wholesaling real estate is finding the right property. You will have to curate intimate knowledge of the real estate market you operate in. It’s not enough to find a distressed property, you have to see that property from the eyes of the potential real estate investor that’s going to purchase it. Are the neighborhood’s crime rates on a downward trend? Has the area been experiencing increased investments? How are the schools?
Next, understanding the market value of the property is vital to making a proper offer. If you go too high, you may not be able to find a buyer or make a profit. If you go too low, your potential seller may think that you’re trying to take advantage.
Once you have found a property and set a sale price, you will have to find a buyer. Successful wholesalers build a strong list of potential cash buyers that are willing to make an investment on a moment’s notice. To curate such a list, wholesalers must network by attending foreclosure auctions, going to conventions, joining real estate related groups in their area, and creating a digital presence.
So we come back to our original question, is wholesaling houses legit? The answer: Yes. Wholesaling real estate is a great opportunity for individuals with a “get up and go” attitude who want the fruits of their labor to be tied directly to their effort. For those who want to get into real estate investing but don’t have the capital, wholesaling offers the opportunity to build wealth while learning the market.