If you are interested in real estate investing, there are several opportunities to build a profitable business. However, most real estate strategies require a substantial amount of upfront capital to purchase and rehab a home. If you don’t want to put that kind of money on the line, then real estate wholesaling could be a great opportunity for you.
Real estate wholesaling is an opportunity for anyone to get started in real estate with no upfront costs. You won’t need to seek out financing or come up with a down payment when you pursue a real estate wholesaling strategy. But you will have the opportunity to earn a substantial amount of money.
Now that your interest is piqued, let’s take a closer look at the concept of real estate wholesaling and how you can make this strategy work for you.
What is real estate wholesaling?
Real estate wholesaling is a strategy to earn cash in the short term. Although you will not walk away with a property, you can use real estate wholesaling to make money in the realm of real estate.
The essential strategy of real estate wholesaling is to acquire a contract with a homeowner who wants to sell their property. Once under contract, you will find a buyer for the property. In order to be an effective real estate wholesaler, you’ll need to find a buyer for the property before the seller closes on the property.
The goal is to get the buyer under contract for a higher amount than you’ve contracted with the seller. With that, you can pocket the difference as a profit for your hand in the deal. But you will not have to put any money down on the house to enjoy that profit.
How to wholesale real estate
Real estate wholesaling can be an interesting opportunity. But it is important to point out that there is a lot of sweat equity involved in this process.
Although it would be nice to pocket the profit with minimal effort, real estate wholesaling requires time and energy. You’ll need to seek out potential properties to wholesale and then find a buyer to take the contract. With that, you’ll need to be comfortable doing a lot of footwork to successfully complete these types of real estate transactions.
In order to start wholesaling real estate, you’ll need to do your homework on the area. Once you have a better understanding of your local market, you can seek out potential properties. Generally, real estate wholesalers work with distressed property owners. With that, it can take time to find the right deals.
How is real estate wholesaling profitable?
If you are able to close wholesaling deals successfully, then the profits will be the difference in price between the buyer and the seller. For example, let’s say you contract a home with a seller for $100,000 and then find a buyer for the property at $125,000. At that point, you would be able to pocket the difference of $25,000.
The potential profits are especially enticing when you consider that you will not need any capital to start. Instead of completely sitting out of the real estate market until you have enough money for a down payment, you can get started without a stockpile of cash resources.
Beyond the potential for financial gain, you can also use real estate wholesaling to learn more about your local market. As you seek out buyers and sellers, you can build a professional network that could help you in the future.
Are there any drawbacks to real estate wholesaling?
As with all financial transactions, there are some drawbacks when it comes to real estate wholesaling. The major downside is that you will not have a guaranteed payoff for your work.
You can spend time seeking out properties but you may not find a suitable deal. Additionally, you may struggle to find buyers for the properties that you are able to get under contract with the seller. With that, you can spend hours on a deal without any reward. Deals fall through often which is something that you should be aware of before you get started.
With the ups and downs of the market, you should prepare yourself for an unpredictable income. In some months, you may successfully close a few lucrative deals. In others, you may not be able to pull a solid deal together.
An unpredictable income can be a deterrent if you are living paycheck to paycheck. But if you have the right foundations of your personal finances in order, then an unpredictable income may not be the end of the world.
If you are considering real estate wholesaling, then take a look at our complete personal finance guide. It will outline the steps you need to take to feel more comfortable with your financial situation. With a higher comfort level, you can allow for more flexibility in your career choices because the unpredictable income will not be an unnecessarily difficult burden.
How do I start wholesaling real estate?
If you want to take the plunge into real estate wholesaling, here’s what you need to do to get started.
Do your research
First and foremost, you need to do your research before going down this path. Take some time to learn more about your market and the rules surrounding real estate wholesaling in your state. Once you have a better understanding of the market, you’ll be better prepared to spot a good deal.
Network to find potential deals and buyers for those deals
As you start this journey, it is important to start building an expansive professional network. Although it may seem counter-intuitive, start by building your potential buyers list. When you find a potential deal, you will want to have potential buyers lined up to push the deal through.
You can build your network by joining local real estate groups, attending conferences that will attract real estate professionals, and taking the time to engage in your local community. As you build your network, take a genuine approach to help other investors. As a wholesaler, you’ll be most successful if you are in tune with what your buyer list wants.
Ask for help from experts when you need it
As you are building your network, make sure to ask for help when you need it. No one knows everything when they first start wholesaling. It is a good idea to seek out expert advice as you look to grow your business.
Build an online presence
Take some time to set up an attractive website and connect your social media channels. You want buyers and sellers to be comfortable working with you. A trustworthy internet presence is a good tool to accomplish that goal.
Try direct mailing
Direct mailing is one strategy to find potential deals. With this, you would send a mailer to properties that might be in distress. You can find addresses for an audience of potentially distressed homeowners and send a mailer. A few to look out for include properties that are caught up in probate, pre-foreclosures, tax defaults, evictions, and those with absentee owners.
Once you have a list of potential properties, you can send out the mailers. Try not to over send in a single month. If you have too many potential properties, the workload can become a burden.
Drive for dollars
In addition to direct mailing, you can start driving for dollars. In this strategy, you would take a drive around the area where you want to wholesale. As you drive around, look for properties that seem to be in a distressed state. A seemingly vacant property could turn into a great deal.
Once you find a potential property, you can leave a letter on their doorstep or use tax records to find the owner’s current address. After making contact with the owner, you can discuss the potential opportunity.
Stay flexible and keep learning
When you get started in real estate wholesaling, you will run into new questions every day. As you start to navigate the system more comfortably, continue working to improve your knowledge base. The more you learn about the local market and wholesaling strategies, the better chances you have of becoming a successful wholesaler.
The bottom line
Real estate wholesaling can be a great opportunity to get your feet wet in real estate without any cash on hand. Without the need for traditional financing and down payments, you won’t need a good credit score or cash in the bank to get started.
At some point, you may decide to take your wholesale earnings and move into different real estate investing strategies. The knowledge you gain as a wholesaler could make this transition more profitable.