In the individual housing market, you have no doubt heard of wholesale sales. Naturally, this may evoke thoughts of houses standing on the high shelves of warehouses. What is wholesale real estate?
Investing in real estate can be carried out according to different strategies. The industry itself is huge and has many other asset classes, retention times, and business models that you can implement. When you are just starting out, you can look into single-family rentals, the BRRRR method, multi-family rentals, and commercial properties.
What is wholesale real estate?
Wholesaling is a nickname used to describe a type of real estate investment or transaction in which an investor buys and sells a share of a property without owning it.
The wholesaler has a direct relationship with merchants through various forms of marketing. They can then negotiate the terms of the sale in order to enter another market and sell at a profit.
Since the real estate market is tight, investors such as home owners find great value in working with wholesalers to source their next real estate investment.
Appointment Against. double closure
Wholesalers usually use double closing or contract assignment to sell property. An investor buys a dual property close and immediately sells it to the end buyer. Often, the title company waits until everything is signed and funded to complete both closes. The wholesaler assigns his share in the sales contract to the final buyer using the assignment model.
The benefits of wholesale
There are many benefits to wholesale sales as a real estate investor.
- Wholesale trading is a short-term strategy that an investor can benefit from quickly.
- Starting a wholesale business does not require a lot of capital.
- Wholesaling can be used to gain first hand experience in many aspects of real estate investing.
- Since wholesale is focused on acquiring real estate and selling quickly, investors can close more deals faster.
Cons of wholesale
- By selling real estate without holding it, wholesalers are missing out on one of the best ways to make a fortune in real estate.
- To be successful, the wholesaler must accurately identify ARVs and estimate rehabilitation costs to determine the value of the property. This can be a very difficult task for a new investor.
Wholesale Skills
Wholesale is sometimes seen as an entry-level real estate investment option. This is because it does not require a lot of capital to get into wholesale business. At a minimum level, the only requirement is to go out to potential sellers and get the real estate under the contract.
Of course, without understanding other aspects of real estate investing, it would be very easy to make a mistake and get a contract property at too high a price to make money on resale.
To be a wholesaler that can get a high percentage of closing table deals in the long run, you need a set of big picture skills, not just negotiating contracts with sellers. You need to see the end use and work backwards.
Marketing directly to sellers
When promoting directly to sellers as a wholesaler, you have many different ways to contact the seller. Some wholesalers focus on one or two channels, while others use a multi-channel marketing strategy.
Here are some of the most popular advertising channels used by wholesalers:
- Direct mail
- Cold calls
- Door to door marketing
- Advertising in social networks
- SEO
- radio advertising
- television advertising
- Billboards
Once you have contacted the seller, you should establish a rapport with them, figure out their problems, and see if you can help them solve them. Sometimes it’s as simple as finding out a specific price and closing by a certain date. Other times, their problems may require a little more creativity to make the deal go through.
Often sellers find themselves in a quandary. For example, they may face foreclosure, divorce, or other issues when they need to sell their property quickly.
Wholesalers need to be aware of the benefits of selling to a wholesaler rather than a realtor. These advantages are that the wholesaler can usually close quickly and buy the house as is without repairs or cleaning. In addition, properties sold to retail buyers usually have a long due diligence period.
How to start wholesale
There are two main aspects that need to be worked on in order to bring the wholesale trade to a high level. The first aspect is to start the flow of transactions. You can do this by running a marketing campaign for potential home sellers. The second aspect is to create a list of buyers. To build a list of buyers, you’ll identify active property investors in your area and see what properties they want to buy. Your job as a wholesaler is to find properties that meet the investor criteria you know.
How to make a list of buyers? There are several ways to do this. The first thing to know is that you don’t need to know every active real estate investor in your market. Two methods are to find local social media groups. Facebook groups are quite popular among real estate investors. Chances are there is a local wholesaler, real estate deal, or investment group in your area.
Another common way to build your buyer list is networking: offline, old school, face to face. This is a proven method that has worked for many wholesalers. The best way to get started is to find a local meeting or REIA meeting. When you attend these meetings, don’t just start by telling people you’re a wholesaler and asking if they’d like to be on your list. It is better to build relationships more gradually and authentically.
You need special skills to know and work as a wholesaler. One is to look for comparative sales or compositions and adjust the property. You need to understand the repair process and how a flipper can approach a deal. For properties that are best suited for rental, you need to understand the rent and potential cash flow.
Most wholesalers focus on private homes. However, because these properties are so competitive, many wholesalers have started selling duplexes and furplexes. Engaging with property management companies can be a great way to contract these apartment buildings. Why? Because they often know when property owners want to change their portfolios.
How to find wholesalers in your market
If you don’t want to become a wholesaler, but understand that wholesalers can be a good source of deals for real estate investment, finding wholesalers is essentially the same process as finding buyers as a wholesaler. You can attend local meetings and REIA meetings. You can also find local social media groups and join them.
Buying real estate from a wholesaler is a great option if you want to get into real estate by breaking into a house. Home burglary is the purchase of a house or apartment building as an investment and primary residence. This usually involves the purchase of a property which requires some work and wholesalers specialize in buying and selling this type of property.
Is wholesale trading illegal?
Whether wholesale is illegal depends on the specific wholesale methodology and the state in which you do business. Real estate laws vary from state to state.
Real estate transactions are strictly regulated at the state level. Most states have restrictions on what you can and cannot do without a real estate license. There are also rules for operating as a licensed real estate agent or brokerage.
However, a few things can confuse investors in any state. One of them is advertising that you have a property for sale, when you sell only the assignment of rights in the contract to purchase the property. Some states prohibit the assignment of contracts, making it much more profitable to double close or close and then sell the property.
What is wholesale
Wholesale is a play on words that combines wholesale and retail. Recently, it has become more popular and the retail market is hotter than ever.
Wholesale involves buying more cosmetically distressed property than generally poor. The investor then cleans up the trash and debris and does minimal cosmetic repairs such as new carpet or paint. The investor then lists the property in MLS to sell it to a pool of retail buyers.
Many wholesalers get into the wholesale trade by taking out hard cash loans. These types of loans are secured by the property itself and the strength of the business plan. Hard money lenders are in the business of issuing mortgages on investment properties.
Completion
Wholesale is the buying and selling of real estate to investors, not to retail homebuyers. Many investors use wholesale trading as an effective strategy in their investment portfolio. As an investor, a wholesaler can ensure a steady flow of properties for investment.
This article originally appeared on Wealth of Geeks.