What is real estate wholesale?

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There are many different ways to invest in real estate, and each type of investment has advantages and disadvantages. You can choose to be a long-term landlord, invest in short-term rentals, REITs, or fix-and-flip homes. Wholesale real estate is another way to invest in real estate and it can be attractive to some people. In real estate wholesale, you usually identify potential investment properties and then quickly pass them on to another investor. In many cases, wholesale can be done with less out-of-pocket money than other types of investments, making it attractive to some people.

What is real estate wholesale?

In real estate investing, wholesale is typically defined as when an investor (commonly known as a wholesaler) signs a contract with a property owner and then sells or assigns that contract to another investor for a fee. Some rehabilitators and real estate investors prefer to focus on rehabilitation rather than their core business. They may not want to bother with finding deals or negotiating with sellers and would be willing to pay a small fee for someone else (a wholesaler) to get them profitable deals.

Wholesale may not be a passive real estate investment, but it can still be profitable if you are successful in finding and closing deals. To be successful in wholesale, you might want to be a self-starter and persistently research deals. You may also need to have good social skills as you will be negotiating with both the existing property owner and the potential downstream investors to whom you are delegating your contract.

How does wholesale real estate work?

Wholesale is a way for a real estate investor to act as an intermediary between a real estate owner looking to sell and an investor looking to buy. In many cases the owner may not be able to sell through traditional outlets because the property is in distress or abandoned. The wholesaler finds and identifies this type of property and negotiates a contract with the property owner.

In most cases, you will not actually complete your deed of sale and take ownership of the property on your behalf. Instead, you can do one of two other things. Either you award your contract directly after you have found your end customer (subject to a fee), or you carry out a so-called “double closing”. With a double deal, you complete your initial purchase and shortly thereafter complete the sale to your eventual end buyer. This can even happen later in the same day. That could mean you don’t have to come up with the money to buy the property or qualify for a mortgage.

Pros and cons of real estate wholesale

advantages

An advantage of this type of real estate investment is that it may be feasible with little money upfront and without a good credit history.
Can be done with limited experience or knowledge of all facets of real estate.
They may have less risk than other real estate investment methods because you may not have invested any money or your money.

Disadvantages

Finding good deals can be difficult.
Depending on your market, there can be extensive competition for a limited number of deals.
Wholesale requires active participation – if you don’t constantly find and close deals, you probably won’t make any money.
Your income can be unreliable and vary significantly from month to month.

How to start wholesale real estate

Before you start wholesale real estate, you should make sure you have the right mindset to be a successful wholesaler. While wholesale may not require a lot of upfront capital, if you are consistent, dedicated, and organized, you will likely be more successful. You may have to contact hundreds of sellers before you find even one offer.

When you’re ready to get started, the first thing to do is do some research about your local real estate market. Knowing how much property in different areas of your hometown is worth after repairs will play a big part in determining what makes a good deal and how much you can offer sellers. You could also network with rehabilitants and other investors in your area. Most investors have specific requirements for deals they are looking for. Understanding these will help you decide what a deal is or isn’t.

The final result

Wholesale can be a good place to start real estate investing if you are willing to put the time and effort into finding potential deals, meeting and negotiating with sellers, and being persistent and organized in following them up. In many cases, you can be a successful wholesaler with minimal upfront cash requirements and no good credit.

One downside to wholesale is that it’s a more active way of investing in real estate – if you’re not actively finding and closing deals, you’re not making any money. This is in contrast to other forms of real estate investing that can provide more passive income. If you’re looking to start investing in real estate, it’s good to explore different investment options so you can choose the one that best suits your specific situation.

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Dan Miller is a freelance writer and founder of PointsWithACrew.com, a website that helps families find free/cheap travel. His home base is in Cincinnati, but he tries to travel the world as much as possible with his wife and 6 children. More from Dan Miller