Real estate investing is a large umbrella containing several different income sources. Wholesale real estate is one of those avenues that can make you money and comes with the least amount of risk.
For those who are experienced in real estate investing or those who are new to the industry, wholesaling may be a great idea to look into. So what is wholesale real estate, and how do you get started? Continue reading below to learn more about this investment option and who you can contact for more information if you’re interested in selling your home for cash.
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What Is Wholesale Real Estate?
Wholesale real estate is an investment strategy that works best for real estate investors who constantly look for undervalued properties. Wholesalers first find properties and enter into a contract agreement with the homeowner who wishes to sell.
Once that is in place, the wholesaler finds a real estate investor interested in purchasing the property. Because they act as the middleman, the wholesaler charges the real estate investor a fee for finding the property.
How Does Real Estate Wholesale Work?
As mentioned earlier, the wholesaler starts a deal with a seller who wishes to sell their home due to foreclosure or because the property is distressed. These motivated sellers typically want to sell their homes as quickly as possible without fixing them up.
The wholesaler then looks for cash buyers interested in buying and fixing the property. When the wholesaler sells the contract, they receive a transaction fee known as a “spread.”
How To Get Into Wholesale Real Estate
To get into wholesale real estate, you must first set up your business. You can create an LLC in the state where you wish to do business. Each state has its own requirements for setting up an LLC, which come at a different price.
For example, if you want to start an LLC in Texas, the fee is $300.Once you have your LLC up and running, you can start the wholesaling process.
1. Find a Motivated Seller
The first step after forming your LLC is to find a motivated seller who wishes to sell their home quickly. Most motivated sellers have distressed properties or homes they inherited from an estate they have no interest in keeping.
These sellers typically wish to sell their homes quickly and don’t wish to go through the traditional means of selling a house because that process takes too long. It also requires them to go through inspections and appraisals, which they are most likely not willing to wait on.
When you find a homeowner ready to sell, making an offer below the property’s market value is recommended, so there is enough room to put the house under contract at a higher price. The difference between what you offer and how much you list the contract is your profit for the “finder’s fee.”How To Find a Motivated Seller
To find someone with a distressed property or with a piece of real estate that they wish to sell quickly, you will have to advertise yourself. You can market via direct mail, word of mouth, or social media channels. The more people know of your services, the more homes you can list for contracts.
2. Negotiate a deal
You must negotiate a deal with the homeowner when you find the right property. If you bid too high, you won’t be able to claim a profit when you sell the contract to a real estate investor.
On the other hand, if you bid too low, the seller may reject your offer. To make sure that you make a fair offer, make sure you do your research.
When negotiating, it is best to come across as friendly, professional, and courteous. You want the seller to trust you, so ensure you are honest with them and open about your business and experience.
If the seller lets you in their home, take your time and look over to see if there are any improvements the home needs. Making the seller aware of what improvements the home needs up front makes it easier for you to negotiate a lower offer.
3. Create a Wholesale Contract
With you and the seller in the agreement on the offer price, you will then need to draft up a wholesale contract. To create this agreement, you can do it on your own or enlist the help of a real estate attorney. If this is your first time doing this, you may want to reach out to an attorney to ensure that both parties understand the terms of the agreement.
4. Search for a Cash Buyer
Once you have the contract signed and you possess the home contract, you will need to find a real estate investor or another cash buyer to purchase the home. You may not know someone directly, but you may know someone who may have a person in mind.
Just like you used social media to find motivated sellers, you can use it to find the right buyers. There are also local real estate meetups you can take advantage of.
As you continue building up your business, you’ll eventually assemble a team of real estate investors who consistently come to you when they need to purchase properties. As long as you keep those relationships good, they can recommend you to other investors, further building your network.
5. Negotiate the Contract With Your Buyer
Just as you negotiated the offer to the seller, you will need to negotiate with your buyer about how much you wish to sell the contract for. You will also need to negotiate your transaction fee. You can create a standard fee you use across all agreements, or it can be something you expressly agreed to with the seller.
6. Assign the Contract
You must complete an “assignment of contract agreement” to transfer the contract you signed with the seller over to the buyer. The agreement states that you assign the contract to your investor for a certain agreed-upon amount.
The amount indicated in this new contract will differ from the amount agreed with the seller. This is because there is an added transaction fee.
Once the buyer agrees to the terms of the contract and they sign, they take possession of the home. You have no rights to the house.
7. Close the Sale
The final step is payment. This is where everyone signs the documents, and the deed gets transferred to the buyer. You don’t pay any money out of pocket.
Instead, the buyer takes care of the closing costs and the home’s purchase price. Your job is to pass on the funds received from the buyer to the seller, less your transaction fee.
Advantages and Disadvantages of Wholesale Real Estate
There are several advantages that come with getting into real estate wholesale. For example, you have the opportunity to receive the cash fast since you don’t necessarily take possession of the home.
Additional advantages of real estate wholesale:
- You don’t handle renovations to properties
- You can sell fast if you have a network of investors
- It does not cost a lot to get started
- Credit is not a factor
Although there are many significant advantages that come with wholesale real estate investing, there are a few disadvantages to keep in mind. For example, if you don’t have strong negotiating skills, you won’t be able to find a home seller willing to work with you. There is a chance you could go months without any income if you aren’t able to find properties or investors to purchase the properties from you.
Another disadvantage is the profit margin. You can receive a decent profit margin if you have a decent amount of properties to sell, but if you don’t, then you won’t have a high-profit margin like you would with other investment strategies.
Frequently Asked Questions About Wholesale Real Estate
Wholesale real estate is a great way to make money without taking any properties into your possession. This could be an excellent way for beginners to start. As with anything you start, there are some questions you may have. Below are the most common questions people ask about wholesale real estate.
Do You Need a Real Estate License?
You don’t need a real estate license to wholesale real estate because you are technically the home buyer. Your position in the sale is to either take ownership of the house or to buy it out and assign it to another buyer. You don’t represent either party because you are the buyer.
Should I Use a Real Estate Agent?
You don’t need to use a real estate agent if you wish to wholesale properties. As a matter of fact, it is better if you don’t involve an agent because they will most likely charge you a fee for their services. As a wholesaler, you are merely the middle person acting as a connection to a network of real estate investors who don’t have the resources or the time to find properties to purchase.
How Much Can I Make Wholesaling Properties?
Wholesalers make their money based on their “finders fee” or their “transaction fee,” whichever you put in the contract. On average, a wholesaler can make between $4,000 to $15,000 per home, depending on the verbiage on the contract.
Income can be sporadic because it depends on how many homes you wholesale. Not only do you have to find a home to sell, but you also must find the right buyer.
You may only sell a home or two each month or each quarter. It depends on your network and how good you are with negotiations.
How Do I Sell My Home?
If you are in the process of selling your home and you wish to sell it quickly, you can sell it directly to a cash buyer. Several real estate investors are ready to take a look at your home and offer you cash on the spot.
Even if your home needs a lot of repairs or it is a property you’ve inherited, you can sell it for cash to companies such as iBuyers. iBuyers use high-quality technology and big data to create a cash offer on your home.
The iBuyer will deduct those costs if your home requires repairs from your net proceeds. Once you agree to their terms, they will complete the sale, and you will have your money wired to you within a matter of days.
Should I Sell to an iBuyer?
The choice to sell your home to an iBuyer is up to you. Many clients who work with iBuyers enjoy the ease of the sale and how quickly they can close. The best part about working with these companies is the fact that you can choose your closing day. So if you wish to close within two days or sixty days, they can make it happen.
Sell Your Home for Cash
Wholesale real estate is an excellent way for beginners and experienced real estate investors to make money. Not only can you make fast cash if you’re able to find a motivated seller and an eager buyer, but you don’t have to spend a lot of money to get started.
Of course, there are a few disadvantages that come with wholesale real estate. For example, you could lose money instead of earning it if you don’t have good negotiation skills.
On the other hand, several resources are available if you’re a motivated seller ready to sell your home for cash. Submit your property’s information today to find out how much you could receive as an all-cash offer. Our team is here to answer any questions or concerns you may have.