What is wholesale real estate?
Wholesale real estate is the process by which an organization or a person:
#1 Purchases property as an investment opportunity.
#2 They then find an investor to buy this property at a marked-up price.
#3 They make a profit from the difference between the purchase and sale price.
As real estate wholesaling has become increasingly popular, many people began to see it as an easy way into the realty industry, but this couldn’t be further from the truth.
Unless you are willing to go the extra mile and work incredibly hard to become an expert in the field, you’re simply wasting your time and money. You need to be able to identify top-quality investment properties, negotiate a heavily discounted price, and then find an investor to pay you a higher price than you paid, to become a successful real estate wholesaler.
Wholesaling involves extensive research to have any chance of discovering heavily discounted properties, and then you need to fix them under contract or purchase them, the next step is to either reassign them to another real estate investor or sell them as quick as you can
Here are some things you should know before you start
#1 You typically don’t buy any property
As a real estate wholesaler, you usually will not purchase any investment property. Your goal is to place a property under contract without having to come out of pocket for any money. Then this contract is reassigned to an investor. Your goal is to make as much profit as possible by finding the best real estate investments available. Some real estate wholesalers, as they progress in their careers, do end up purchasing some properties to resell. It’s known as double closing, where they and their customers will simultaneously close deals.
#2 It’s all about the discount
Your only goal from the minute you wake up is to find as many deeply discounted investment opportunities that you can get under contract as possible. Then you want to sell these and assign them to investors at a below retail price. This is why most wholesalers are constantly on the hunt for off-market properties.
To be successful, a real estate wholesaler, once they have found an investment opportunity, will need to be able to buy or get this property under contract at a heavily discounted price. Most successful real estate wholesaling businesses will often involve a team of people and a significant investment in marketing to allow you to identify properties before they come on the market successfully.
You will continuously be searching for properties that can offer the highest level of profit. This will involve extensive research on neighborhoods and cities to identify the best investment opportunities that exist.
#3 Who you know is just as important as what…..
Finding properties is only one part of your job; you also need to develop an extensive list of reliable investors. Your clients could be anything from small individual investors to large institutional investors, and they can be located anywhere. Some of the top wholesalers market their services to international investors, as many of them do not have the necessary expertise needed to successfully invest in specific regions successfully.
#4 Volume is king
As you will likely only make a small profit on each deal, you will be very dependent on the high turnover of properties to keep your business profitable. You may also need to employ sales, research, and administration staff.
For example, if you’re retaining a staff of three employees. You will need to turn over at least 10 deals a month to cover your expenses before making a small profit. For example, if you get a house under contract for $90,000 and you’ve sold it to an investor for $93,000, you’re making a profit of $3000. When you cover all your salaries, taxes, and expenses, you may breakeven at the end of the month.
This is a long-term vision, it is most likely you will be a sole trader starting out, but that’s not going to be a sustainable model in the long run. Your goal should be to expand your business and successfully retain as many individual and institutional investors as possible. While you build a team capable of identifying and wholesaling a larger amount of property?
#5 Think big or go home
As you probably already know, real estate wholesaling is the transactional business and will involve a much larger commitment than you may have initially thought. If you’re going to do this on your own, you can forget about, taking a day off, or getting sick, for the foreseeable future as you’ll never be able to stop working.
To build a successful wholesale real estate business, you need to recruit a strong team behind you, people who understand dispositions, acquisitions, and admin. Ideally, it would help if you look to build a three-person team.
- Person No.1 – In charge of acquisitions – negotiating deals, meeting sellers and generation leads
- Person No.2 – In charge of dispositions – Selling the properties, building your buyers list, networking with cash investors, and finding new investors.
- Person No.3 – In charge of admin – someone is going to have to take charge of all the paperwork,
Starting, you are going to be all of these, but as you progress, you should look to find someone to replace the skillsets that you’re weakest at. If you are a salesperson at heart, then employ someone who loves admin. They can help support you and make your business grow and run smoother.
#6 Not for the faint-hearted
The wholesale real estate industry is highly competitive, and it’s not easy to break into it. The best in the business are incredibly specialized and highly trusted real estate experts. They have a list of investors that employ them to provide a vitally important service. If you’re looking to make a quick buck, this is probably not the business for you. It isn’t the easiest way to get into real estate investing, no matter what you may have read. But if you’re willing to put in the time and energy and learn what it takes to become an expert, wholesaling real estate could prove very comfortable.
