Wholesale Real Estate: A Beginner’s Guide

There are a variety of ways to invest in real estate – from rental properties to flipping houses. However, wholesale real estate can be just as profitable, and you never need to put a dollar down.

Real estate wholesaling is a legal practice you can use to make a profit by conducting real estate deals without ever purchasing a property.

If you’re a new investor who’s looking to give wholesale real estate a try, this article will outline the basics of what you need to know to get started.

What Is Wholesaling Real Estate?

Real estate wholesaling is a strategy in which a wholesaler obtains a contract on a property with its seller, and in turn sells the contract to an investor. Wholesalers start by looking for a discounted property to put under contract.

Real estate wholesalers will often look for distressed properties priced below market value. These properties usually need quite a bit of work, and the owner is often motivated to sell and isn’t interested in working with a real estate agent.

From there, the wholesaler will enter into a wholesale real estate contract and then reassign the contract to an end buyer for a higher price. This is known as a wholesale fee and usually costs 5% – 10% of the total property price.

If you’re interested in becoming a real estate investor but are worried you don’t have enough capital, wholesaling real estate may be a good option for you.

What Is An Example Of Wholesale Real Estate?

Real estate wholesaling may seem like a complex process, but it’s simpler than you might think. Here’s an example to help explain further.

A homeowner has a home they don’t believe they can sell because it’s fairly outdated. The homeowner may not have enough funds to repair the home, but never thought to sell it due to its need for restoration.

A wholesaler comes into the situation with an offer for the homeowner – to put the house under contract for $120,000. The wholesaler uses their network to find a potential investor to buy the home for $150,000. The investor takes on this contract as a profitable renovation project. In turn, the wholesaler makes $30,000 in profit legally without purchasing the property.

Pros And Cons Of Wholesaling Real Estate

Just like any other real estate investing strategy, there are pros and cons to wholesaling. Let’s look at some of the biggest benefits and drawbacks you need to know about.

Pros

• It’s a good entry point to getting started as a real estate investor.

• You have the opportunity to close real estate deals in any market, regardless of proximity.

• Very little capital is required to begin, so it’s a low-risk way to get started as an investor.

• There’s an opportunity to make a large profit over a short period of time.

Cons

• Wholesaling offers a lower profit margin compared to other real estate investments, like flipping.

• You’ll have to do quite a bit of research to find the right properties and cash buyers.

• It will take time to be successful and start earning a profit as a wholesaler.

• There’s unpredictability, as profit will depend on the availability of the market.

• You’ll rely on property owners feeling comfortable with the wholesale real estate strategy and investors who are open to buying.