Wholesaling real estate is one of the best ways to break into the real estate investing industry, so it pays to have an idea of what you are doing from the start.
Real estate wholesaling has become synonymous with today’s greatest entry level business strategies.
Due, in large part, to its relatively risk averse nature, most entrepreneurs will use wholesaling real estate strategies as a stepping stone towards more complex exit strategies.
Wholesaling real estate is one of the best ways to break into the world of real estate investing. In a nutshell, wholesaling is the process of finding a deal and passing it along to an end investor. Doing this allows you to stay clear of any risk and not tie up capital for the length of the rehab. While this method offers an ease of entry to the business, it does not guarantee success. Like anything else you do in real estate, there is a fine line between success and failure. You need to have a baseline of knowledge about the process and everything it entails. Without it, you could end up spinning your wheels. Here are a few basic concepts you need to know before you start wholesaling real estate.
What Is Wholesaling?
Wholesaling is an exit strategy where investors find a discounted property, get it under contract, and then sell it to an interested buyer for a profit. This strategy has become synonymous with today’s quickest method of turning a profit, with some investors wholesaling properties in as little as a few hours. Learning how to start wholesaling real estate involves taking a closer look at the process. Investors will find discounted properties, usually ones that are below market value, that they can then control through the use of a “purchase and sale agreement.” While under contract through said agreement, the wholesaler will then proceed to locate a subsequent buyer who is willing to purchase the contract.
When investors sell a contract, they aren’t actually selling the property itself; they are actually selling their right to buy that property to someone else. Under what is known as the doctrine of equitable conversion, once a real estate agreement is signed by everyone involved in the wholesale deal, the final buyer becomes the equitable owner and the seller retains the bare legal title to the property under the terms of the agreement. A double closing, on the other hand, will have you purchase the subject property and sell it immediately after the acquisition (without rehabbing it).
Do You Need A License To Wholesale Real Estate?
You do not need a license to wholesale real estate; you just need to be the principal buyer in the transaction. It is helpful to have a specialized knowledge of the home buying and selling process, but there is no assessment required to begin. That said, obtaining a real estate license can have several benefits for investors interested in wholesaling. With a real estate license, investors can gain access to the MLS which is a great source of property leads. Obtaining your real estate license can also open investors up to a number of networking opportunities, which could be helpful down the road.
Wholesaling Real Estate Investing In 5 Simple Steps
Investors ready to learn how to start wholesaling houses will be happy to know the process is not complicated. Here are a few simple steps to get started wholesaling:
Research your local market before getting started.
Curate a buyers list for your area.
Secure a financing source that works best for you.
Begin searching for potential wholesaling properties.
Decide whether to sell the contract or work on a double closing.
Do Your Homework
As with anything else in the real estate industry, the more prepared you are the better. A great place to start is by familiarizing yourself with an overview of the wholesaling process. Then, it is a good idea to conduct the appropriate research on your local market. Get an idea of what home prices look like, where different neighborhoods are and what types of properties are available in your area. Doing your homework now will help build a strong foundation for your future wholesaling endeavors.
Work On Your Buyers List
Before investors start searching for their first wholesale deal, it is a good idea to get a buyers list in place. As a wholesaler, your sole purpose is to act as a middleman between sellers and buyers. That’s why it’s a good idea to know where to find buyers before you secure a property under contract. Building a strong buyers will help make sure you know where to take any deals you find.
There are several ways to build a buyers list including attending real estate events, networking, email marketing, and social media. Many successful wholesalers also rely on bandit signs, which are used to share your contact information throughout a given area. Remember, it is in your best interest to know who you are selling to before you ever find a deal.
Line Up The Capital
Another step to take before finding your first wholesale deal is to secure financing. Identifying a great property won’t help your business is you are unable to purchase the contract. Align your services with a private or hard money seller to get started. By doing so, you’ll be able to secure financing quickly and smoothly when your first deal comes around.
Find Wholesale Real Estate Deals
Once you are ready to find wholesaling deals, there are several strategies you can use. A great place to start is by searching for distressed properties in your market area. These are perfect because sellers are often eager to get rid of the property, and more often than not you can secure the deal for under market value. To find distressed properties you can search online real estate sites, like Zillow or Realtor.com, ask your network, or even look on Craigslist. You can also find distressed properties by searching public records in the area. Look for cases where someone has recently inherited a property or homeowners who are behind on payments.
Determine Your Exit Strategy
As a real estate wholesaler, there are two ways to profit from a deal: selling a contract and executing a double closing. Wholesalers who opt for selling a contract are simply matching up sellers with buyers without ever owning the property, and profiting from the process. This is the most common strategy in wholesaling. Wholesalers can also execute a double closing, which involves actually taking possession of the property. For investors, this means they will be responsible for all the costs associated with closing on the property. For this reason, investors will only utilize a double closing when they find a buyer willing to pay a lot more for the property. All in all, choosing the right strategy will depend on the wholesaling deal at hand.
How To Get Into Wholesale Real Estate: 4 Tips
If you want to become better at wholesaling real estate, here are a few universal tips I highly recommend trying out for yourself:
You Need To Market To Find Deals: You don’t necessarily need to break the bank when you get started in wholesale, but you do need to have capital on hand to find deals. Wholesale deals are different than the regular rehab deals you may find because there is an extra layer involved. There has to be enough meat on the bone to entice an end investor to buy it from you. For you to make a profit, you need to find deals at a low enough price point that makes sense for everyone. This may require you to spend money on marketing to find deals. You don’t need to roll out a full scale marketing campaign, but deals will not just fall into your lap. Between bandit signs, targeted marketing, and social media exposure, there are a handful of ways to search for properties without breaking the bank. Before you get going, you should accept that you need to spend some money to find deals.
Networking Is Critical: If you want to be successful in real estate, you need to put yourself out there. Whether you are wholesaling, flipping, or looking for rental properties, you need to increase your local exposure. This is especially critical when it comes to the wholesale side of the business. Good wholesale deals are hard to find. Some of the best ones will be through word of mouth from your personal contacts. Accumulating those contacts takes time and dedication, especially when building a fledging wholesale buyers list. Every local networking meeting or real estate investment club is an opportunity to increase your profile and meet new people. The more people you know in the business, the greater the chances that they may think of you the next time they have a specific deal. You should have business cards ready to hand out at all times. Some of the best contacts you make will often come from informal settings. Field trips for your children’s school, office projects, and even happy hours at your favorite bar can be a chance to talk about real estate. To find good wholesale deals, you need as many different options as possible.
Know Your Numbers: A common mistake that most new wholesalers make is not fully knowing and understanding the numbers. Think about the wholesale process for a minute. You need to acquire the property low enough where an end investor still sees potential. Depending on the property, there will most likely be a list of repairs and expenses that is required. If you are not an expert in repairs, you should leave that to a contractor or someone that knows what they are doing. Additionally, there are carrying costs that need to be paid for as long as the property is owned. Taxes, insurance, utilities, and other miscellaneous items will quickly add up after a few months. Finally, you need to have an idea of what comparable homes are going for in the area. Doing work and making improvements is great but it may not yield as large of a price increase as you may think. Even though you may think there is a large profit, after all is said and done, it may not be what your investors are looking for. Before you even make an offer, you need to know the numbers.
Convert Leads To Deals: Like anything else you do in real estate, you need to be able to take advantage of opportunities that come your way. Getting leads and talking to homeowners is great, but you need to turn those into deals. You need to dedicate time to learn how to talk to homeowners and what to say when you do. In most cases, they are selling because you can alleviate a problem for them. They are probably going to sell whether it is to you or someone else. How you talk to them, answer their questions, and deal with problems makes all the difference. Having your phone ring off the hook is great, but it doesn’t do you much good if you don’t close deals. Once you do close a deal or two, the process starts to become much easier. Until you get to that point, you need to go through a period of trial and error. It will take a while until you know just the right things to say to a homeowner. There will be an occasional lost lead along the way. After you figure out a routine and a method of converting deals, wholesaling will become that much easier.
Wholesaling is a great way to generate income and build a network in real estate. Before taking a leap of faith, spend some time learning the process. By researching your market and building a strong buyers list, you can help ensure your wholesaling efforts are successful. The best part is, investors who master this strategy will find it can jumpstart their real estate businesses.
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