If you’re looking to expand your investment portfolio, wholesale real estate may be something you want to consider. Wholesale real estate is one way to gain exposure to the real estate market at a slightly lower risk than buying a home outright. It saves you from investing capital into renovations or repairs. Please note that this type of investment is not always successful or risk-free, so be sure to understand what wholesale real estate requires.
Wholesale real estate means that a real estate investor creates a contract with the seller of a property and then sells that contract to a buyer at a higher price. The investor then keeps the difference between the selling and buying price as their investment.
Wholesale real estate can only occur when a property is being sold under its market value, such as in the case of a foreclosure. Typically, homes go into foreclosure either due to the seller experiencing financial hardship or the house requiring repairs that the seller cannot afford to fix. Properties in foreclosure drop substantially in price, making them the perfect option for wholesale real estate investors.
What Do I Need to Get Started?
Wholesale real estate can be tricky, so having a keen eye, a basic understanding of the process from start to finish, and the right connections can help you get started. You don’t need a real estate license to buy or sell wholesale real estate. However, the license can be helpful because it gives you access to the multiple listing service (MLS) before those properties hit the market for the public.
You want to establish connections with industry professionals such as lawyers, title companies, lenders, and other agents. These connections will help you gather information on properties that will be listed soon. It’s also essential to understand the market, what types of properties are desired, where desirable properties are located, what the averages property prices are, and what buyers in the market to purchase those properties.
Do I Need Money?
You may wonder if you can get started in wholesale real estate without money. However, you can only begin in wholesale real estate with no money if you can move the contract to a buyer prior to when the payment comes due. Starting in wholesale real estate with no money can be a risky strategy for this reason. Either way, the process should require you to use very little of your own money.
When negotiating a buying contract, be sure to consider fees such as earnest money, title company fees, and appraisal. In some cases, you can convince the seller to cover these fees. The seller knows that your position in this contract is to find them a buyer. The seller does miss out on some of the profit from selling the property but doesn’t have to go through any of the hassles of negotiating or marketing the property.
How to Start Wholesaling Real Estate
Successful wholesale real estate investing requires you to establish connections and do your research on potential properties. The steps include:
- Find a property. Consider your list of buyers and what they’re looking for in a property. You’ll need to wait to find a property that fits these criteria at a price that’s under market value. Be careful not to jump on the first property lead you find. Diligent research will help improve your chances of moving the property quickly.
- Have a backup plan. During the process of finding a property and a buyer, you’ll want to understand that if you’re unable to move the contract before payment is due, the property becomes your responsibility. Having a backup plan if the property doesn’t sell and becomes yours will help eliminate any issues. Your plan can be to renovate and repair the property to list and sell later at a higher price, flip it, or rent it out.
- Negotiate a contract. Once you’ve found a seller with a property that fits your needs and is under market value, it’s time to draw up a contract. Bring your best negotiation skills with you because the seller will know that you intend to keep any monies between the price you agree on to purchase the property and the amount you’ll sell that contract for to a buyer.
- Find a buyer. Once you have the contract for the property, it’s time to find a buyer. You should have already compiled a list of potential buyers during your research in the beginning. The buyer also knows your intent in the process, so you’ll need to use your negotiation skills again to create a fair price that enables you to make money too.
- Assign the contract. Once you’ve agreed on a price with the buyer, you assign the contract to them. The buyer will need to agree to the assignment fee and a deposit amount to agree to purchase the property and pay out the difference between the purchase and selling price to you.
- Close the contract and collect. You’ll need to be at the closing to make sure the process goes smoothly. After the title company is done, you’ll receive your property purchase payment.
Wholesale real estate can be a quick way to make a profit with little to no effort. The connections you make with industry professionals and potential buyers will increase your success rate and overall profits.
What Are the Risks of Wholesale Real Estate?
As with any type of investment, the wholesale real estate industry has its risks. One of those risks is that you may not find a buyer in time, and the home will become yours by default. Sometimes you can include a special clause in your contract with the seller stating that if a buyer is not found in time, the contract can be canceled. Another potential risk is the buyer backing out of the purchase. Having a backup plan will alleviate your concerns with the risks involved in wholesale real estate. If you’d like to learn more about private money lending, contact the knowledgeable professionals at Titan Funding. We have the experience and expertise to answer any questions you may have and provide you with a full range of private real estate financing options. You can contact us online 24 hours a day, seven days a week, or give us a call at 855-912-8313.