How to Wholesale Real Estate in 2022
Wholesaling real estate property in 2022 is challenging as well as exciting. With the real estate market on a rise, as recorded in the last two years, any investment in it is commercially successful. There is a lot of debate about real estate wholesaling in particular because it is not a very popular mode of investment. Here is what wholesaling real estate truly means, its dangers, positive factors, and ways to make a good dollar out of this mode of investment. Despite having its own set of trials, it sure can be a legitimate and feasible method of investment. Read on to learn more.
1: Real estate wholesaling: Meaning and viability
Real estate wholesaling is an often-misunderstood concept. It simply means that an individual who assumes the role of a wholesaler finds a property that is off-market and is to be sold at the price much less than the market rate. He draws up a contract with the seller and then allocates it to the end buyer. It is important to note that the wholesaler does not directly purchase any property but simply facilitates the deal between the two parties, as a middleman.
How do wholesalers earn their commission? At the end of every successful contract, the wholesaler is presented with a transaction fee which is a pre-decided percentage between the seller and the wholesaler which is also known as transaction fee. The catch here is that there is a debate concerning the legality of this exercise. Wholesalers have not licensed brokers and therefore their involvement in a sale deal is questioned from time to time. But it is also argued that they do not sell the house but only make sure that the contract drawn between the seller and the buyer is executed well, and accept fees for doing so. It is recommended to check the rules and regulations as drawn by the National Association of Realtors in your particular location. It is also recommended to take the help of a legal expert to understand all aspects regarding wholesaling and iron out discrepancies if any.
On the whole, it is viable and a good profit-making medium if only one is passionate about the field because this requires a lot of legwork, hard work, and contacts. There is a lot of research that goes into wholesaling real estate and even if an individual does not possess a real estate license, they need to have an in-depth knowledge of the local market, and inventory and have a ready buyers’ list.
2: House flipping Vs. Wholesaling
Sometimes, wholesaling is mixed up with flipping houses. It is not the same. While both wholesaling and flipping are exercises undertaken to earn profit without the intention of keeping the property, these are two very different concepts. While flipping a house, the investor buys the property and then makes repairs, and renovations, and finally sells the property to an end buyer. There is a lot of capital involved to flip a house and it is a long-term process. But wholesaling does not require much capital, except for marketing the property and one gets fees immediately after the sale contract is executed. Hence, it is a short-term exercise.
3: Steps of real estate wholesaling: How to wholesale real estate
When thinking of how to wholesale real estate, the wholesaler first looks for a property where the owner is ready to sell for far less price than the market value. This happens in a distress sale or some kind of emergency where the seller needs a cash buyer.
Next up, the wholesaler fixes a base price and gives a stipulated time in which he promises to sell the concerned property. A contract is assigned then by the wholesaler and the wholesaler strives to get an end buyer who gives a greater price than the pre-agreed upon rate between him and the seller. The wholesaler can thus the profits plus the transaction fee. The contract is the most important document in this deal because the wholesaler does not sell the house to the end buyer but only the contract. This technical legality saves the wholesaler from any further litigation.
The wholesaler might also go for double closing in some cases. In such instances, the wholesaler buys the property from the seller and then sells it off to an end buyer. Title ownership is transferred for a very brief time period to a wholesaler in this case.
The last step is of course closing. Here, the end buyer, wholesaler, and seller should be present for the deal. The wholesaler gets paid on the day of the closing.
4: Methods to maximize profits with wholesaling
Wholesaling might sound complicated but it sure is a legitimate way to make some money. Here is how.
A wholesaler needs to know the local market conditions in detail only then can they enter this field and hope to make a profit as an investor. It is also necessary to understand the nitty-gritties of the legal bindings before diving in as a wholesaler. Reading the fine print and being abreast with the latest real estate laws will keep any litigation at bay and will ensure a successful transaction.
From the sale point of view, it is necessary to procure data from the last six months to get an idea about the market in general and about buyer investors.
Using websites and technology
Make technology your friend if you really want to succeed as a wholesaler. MLS listings, real agent data, and FSBO websites are sources to find out properties and also buyers. A wholesaler’s cellular device should be well-equipped with all the latest applications and software to arrange, manage and optimize data.
It is also pertinent that the wholesaler has their own website and they invest some money in social media marketing. This is the best way to capture the attention of millennials and even the older generation as most people now go on the internet to buy, sell properties, or in general do their business.
Holistic buyer’s list
A buyer’s list is a wholesaler’s Holy Grail. It is important to be in touch with the buyers in the area and especially those who are into bulk buying. Scouting online for leads is helpful and being in contact with real estate agents will also lead to more buyer leads. Ideal Agent reviews suggest that they have great buyer leads.
Since a wholesaler is a middleman, he needs to be hundred percent transparent with all the parties only then will the transaction be successful. He needs to protect the seller's interest first and then get buyers involved in the deal. Trust building and maintaining relationships is a very important facet of being a successful wholesaler.
5: Merits and demerits of wholesaling
The first and foremost advantage of wholesaling is low investment and quick transactions. It also provides a great learning curve and gives the opportunity to connect with many people. If once aces the art of this type of real estate investment, it could be a side hustle as well as a full-time occupation.
One of the demerits of this vocation includes the uncertainty of the transaction. Not all leads materialize and there is a certain uncertainty in income. Also, there is a question of the legality of the whole situation. In some states is legal to be an investor like this without having a license and in some states, there is certain ambiguity surrounding this.