The old adage that you must spend money to make money is true of most investments. If you want to profit from the growth of a company, you buy stock. If you want to cash in on the steadily increasing value of real estate, you take out a loan and purchase a property.
Real estate is an excellent investment, but there is a high barrier to entry. You need to save for a down payment, get financing, do paperwork, and close. Fortunately, there is a legal strategy that allows you to quickly profit from the sale of a house without having to pay these upfront costs—wholesale real estate investing.
Real estate wholesalers act as intermediaries between buyers and sellers. A wholesaler hunts for an undervalued property and then draws up a contract agreeing to purchase it within a set time frame.
The wholesaler makes a profit by finding a cash buyer that is willing to purchase the home at a higher price than the amount agreed upon with the seller. Thus the wholesaler is able to profit from the difference in price without having to invest their capital into the property.
Example of Real Estate Wholesaling
Real estate wholesaling is quite simple. Imagine that the owner of a derelict home wants to sell their property, but does not believe they can capture a fair price, nor do they have the time or money to fix it up.
A real estate wholesaler approaches this individual and agrees to purchase the property for $100,000 within 30 days. Using his market expertise and network of investors, the wholesaler finds an interested party who is willing to purchase the property for $115,000.
The original homeowner gets to sell their property for a healthy sales price, the buyer gets a house that they can flip or rent out, and the wholesaler receives $15,000 in profit—a win-win-win.
Wholesale Real Estate Investing vs House Flipping
House flipping and wholesale real estate investing are similar in that they both involve profiting off the sale of a property, but this is where the similarities end.
Flipping houses involves purchasing a home, renovation, and finally finding a buyer. This process requires paying property taxes, insurance, and a mortgage. Additionally, renovating a property can take months, and you can lose money if your sale price doesn’t cover the money you’ve invested into the property.
Wholesaling eliminates the most expensive steps from the equation, so the entire process may only take weeks, rather than months. Without the necessity of upfront capital, there is very little risk. Even if you don’t find a buyer, all you’ve lost is your time.
How to Succeed as a Wholesaler in Real Estate
The rewards of a wholesale real estate investor are directly related to their labor. Therefore, you must be a go-getter. Becoming a networking master and building a solid cash buyers list will allow you to quickly match sellers and buyers.
Intimate knowledge of your local real estate market will enable you to find lucrative properties for your carefully curated list of buyers. If you can do those two things, while sharpening your negotiation and marketing skills, you will succeed as a wholesaler in real estate.
The South Texas Wholesaler
JR Medrano is a real estate investor who specializes in wholesaling inherited homes. He has been wholesaling real estate in the Corpus Christi, TX area for the past 7 years. If you would like some honest advise about wholesaling houses. Feel free to contact him at anytime.