The real estate market offers investors many different ways to make money - and real estate wholesaling is one of the smartest ways to break into real estate investing.
Some of these methods involve a significant financial investment upfront, flipping houses and land-lording are two of the most common examples.
But if you don’t have money stored away to buy and fix up a property, or if you have poor credit, there’s still a way to make a profit in the real estate market today: it’s called wholesaling. It allows you to minimize your risk and doesn’t tie up capital. But finding success in real estate wholesaling requires work, a solid understanding of this process, and learning the ‘ins & outs’ of a successful property deal.
Let's find out what everybody should know before getting into real estate wholesaling.
Wholesaling is when a real estate wholesaler sells a property to the main investment company or an individual at a wholesale price, which is less than the market value.
These properties are generally not publicly listed, which enables real estate investors to acquire these properties without competing with other property buyers.
The term “wholesale” refers to the lower price that a business pays for items, compared to the retail price that they sell to consumers. In the real estate industry, wholesaling works exactly the same way.
Real estate investors don’t pay full retail prices (what homebuyers pay) for their investment properties — it would leave no profit margin. So they look to buy real estate investments from wholesalers, at discounted prices.
For their part, real estate wholesalers never actually own any rental properties. They simply serve as the ‘middleman’ connecting low-price real estate contracts with the investors looking for good deals. And through this, they often earn a quick and pretty penny, which generally gives them a value profit equaling 5% to 7% of the total price of the real estate.
An ideal property for wholesaling is one in which you can negotiate a purchase price well below market value. The price has to be low enough to add the ‘finder’s fee’ and any necessary renovations costs and still be attractive enough of a price for an investor to buy and flip the property at market value and turn a decent profit.
Be it in Japan or elsewhere, real estate wholesaling is somewhat similar in its nature and manner. Let’s take a look at the requirements given below:
Real estate wholesaling isn't for everyone. It requires a lot of time, commitment, and patience. You also need to have great communication and marketing skills. And it doesn't hurt if you have a network of investors at your disposal who may be interested in buying the properties you wholesale.
So if we look through the wholesale procedure, you'll see the whole flow looks like this:
Finding the right kind of property is the first key to wholesaling. Homeowners who own distressed properties and are eager to sell, as noted in the example above, make great prospects. These properties can be very attractive to potential investors, especially if they are in the right location, come with already desirable features, and have the right price attached. Before you make an offer, you'll want to review what kinds of repairs or additions the home will need.
Knowing what kind of offer to make really helps. Go too low and you may scare off a potential seller. But if you go too high, you may not be able to find a buyer who is willing to take on the risk of buying and fixing up a distressed property.
The key to wholesaling is to add a contingency to the purchase contract that allows the wholesaler to back out of the deal if he is unable to find a buyer before the expected closing date. This limits the wholesaler's risk.
Once you find a buyer, you’ll need to agree on the sale price. A common reason why wholesalers fail to procure buyers is that they get overly greedy with their desired sale price and ultimately, struggle to find buyers who will agree to their terms. The sale price should still be well below market value if the property requires significant renovations and you’re selling to real estate investors. But in many cases, you may be selling to a final buyer at just below fair market value.
During this step of the real estate wholesaling process, you’ll need to transfer the contract to the new property buyer, or alternatively, you’ll need to schedule the double closing. Wholesalers look to profit five to ten thousand bucks per deal for aligning the buyer and seller. This is a profitable way to make money through real estate with little to no investment.
The entire process relies on the research and connections you establish, and you can expect that to take up more of your time than anything else. After that, all that’s left is a simple process of creating and fulfilling the contract. The most successful real estate wholesalers are organized professionals with large networks that also know the buyers’ specific needs, wants and what makes them decide to take the property.