Wholesale real estate investing has allowed many investors to break into their first few deals and establish themselves in the real estate market. Because of its unique characteristics, wholesaling lends itself readily to new investors who may not have the money to pursue more traditional real estate investments. But just what is wholesale real estate investing, and how does it work? Read on to find out!
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What Is Wholesale Real Estate Investing?
Put simply, wholesale real estate investing is the process of getting a purchase contract (also known as a Purchase & Sale Agreement) with an “assignment clause” on a home and then assigning that contract to a buyer. The process begins when a real estate investor acquires a wholesale real estate assignment contract from the owner of a particular piece of property. This contract authorizes the investor to sell, or assign, his or her option to buy the property to someone else for a price that reflects the purchase price of the home plus a profit for the wholesaler. The profits for each wholesale deal can vary, but $5,000 per property is far from unheard of. Generally, the final buyer will be another real estate investor who either intends to fix and flip the home or turn it into a rental property. By securing and then assigning the contract, the wholesaler gains the ability to sell the property without ever actually owning it.
Finding Wholesale Properties
Just as in any other type of investment, successful wholesale real estate investing starts with finding the right property at the right price. For a wholesale deal to be successful, it’s important to keep in mind that the final buyer will more than likely be an investor who is also looking to turn a profit on the property he or she is buying. In other words, the sale price on which you secure a contract must be low enough that it allows you to build in your profit on the deal while still leaving a worthwhile profit for the investor to whom you eventually assign the contract. To successfully identify such properties, it’s important to start with a good working knowledge of the market values in your area. Since the investor who buys the property may well plan on fixing and flipping it, it’s also crucial to know how much any necessary repairs will cost.
There are many ways to find the elusive properties that make great wholesale deals. One of the best ways to find properties that are suitable for wholesale real estate investing is to contact homeowners who are in pre-foreclosure proceedings. These owners are often highly motivated to sell their properties due to their financial circumstances, a fact which can be useful when it comes to getting the wholesale real estate assignment contract on the property at the right price. Direct mailing is often a good way to reach out to these homeowners, as well as other motivated sellers who may be looking for a way to quickly liquidate their properties.As primitive as it may sound, putting out signs in your local area is also a good way to generate possible wholesale real estate investing leads. This method allows you to connect with motivated sellers who may not easily be identifiable by other means. It’s also exceptionally cost-effective since the cost of any reasonable number of signs can be offset by as little as one successful wholesale closing. Since your municipality may have laws governing the use of roadside signs, be sure that you are aware of and compliant with all regulations that may apply to your advertising practices.
Though signs and direct mailing materials are still quite effective, it doesn’t do to overlook the power of more modern forms of advertising. Pay-per-click ads and social media marketing are quite effective for real estate professionals, including wholesale investors. By using these methods in combination with more traditional ones, you can expand your reach and find more potential properties.
Building a Buyer Network: The Other Side of the Marketing Coin
Finding the right property to wholesale can take quite a lot of time and effort. While you’re scouting properties trying to find your first suitable deal, however, you should also be connecting with the investors who may potentially buy the properties you find. Even if you haven’t gotten your first wholesale real estate assignment contract yet, it’s not too early to start building your buyer network. Local real estate investment club meetings can be excellent places to meet investors who are always looking for profitable properties. Just as social media can help you connect with sellers, sites such as LinkedIn can also provide you with potential buyer leads. When you connect with buyers, remember that your goal should be to build a lasting business relationship. While most sellers will only provide you with one property, buyers will likely be interested in multiple future wholesale offers.
Can You Turn Wholesaling Into a Full-time Income?
One of the most common questions about wholesale real estate investing is whether it can provide a full-time income. In short, the answer is a definitive yes. By building up a network of repeat buyers and creating systems that bring you leads on a regular basis, you can replace your full-time income through wholesaling alone. With that said, diversification can benefit you in real estate just as in any other form of investing. Once you’ve established yourself with wholesaling, it may be beneficial to you to use what you have learned to execute some fix-and-flip deals of your own. Selecting a few choice properties to hold onto as rentals can also be a good idea since it will produce a line of largely passive income.
Wholesaling is among the most cost-effective ways to get into real estate investing. If you have ever wanted to break into real estate but didn’t think you could afford it, wholesale real estate investing is something you should consider. Before you put together your first wholesale real estate assignment contract, though, be sure to familiarize yourself with the relevant laws and regulations of your state. In some states, you may need to obtain a broker’s license in order to conduct wholesale deals. If this is the case, don’t let it prevent you from starting your real estate investing career. A broker’s license will take some time, effort and money to obtain, but it can be an invaluable tool as you grow your business.