Real estate investing is an attractive proposition for many people, but it also isn’t without its fair share of challenges.
For starters, many people just aren’t sure where to begin. Are the conditions of the market to the point where you should purchase a home, renovate it and “flip” it? Or should you consider purchasing for the purposes of renting to someone else? The answers to those questions depend on when – and where – you’re asking them.
Likewise, many people aren’t sure where to begin and even if they are, they may struggle to come up with the significant up-front capital investment necessary to get started.
Thankfully, to speak to that last point in particular, there is an option available that can help. It’s called wholesale real estate investing, and it involves putting a contract on a property that you then sell to another investor or customer. It’s a perfect way to flip properties with no money down, and it brings with it a wide array of additional benefits that cannot be ignored.
Why Invest in Real Estate? An Overview
But first, it’s important to come to a better understanding of why real estate investing is so popular in the first place.
According to one recent study, in January 2022 the median home price in the United States rose to an enormous $357,300. To say that the market is a strong one is, at this point, something of an understatement. Not only that, but the average house sits on the market for just 38 days – making investing a way to generate a relatively quick ROI if you’re following the right strategy.
Wholesale Real Estate Investing: Breaking Things Down
One of those strategies is wholesale real estate investing which, again, is a great way to get started with the process without requiring a significant upfront investment in order to do it.
In a lot of ways, wholesale investing is similar to the traditional practice of flipping houses. In both situations, you’re acquiring an asset with the express purpose of reselling it to someone else as quickly as you can for a profit. However, even house flipping tends to be more focused on the long-term. You’ll still likely have to put money into the home for modifications and improvements. You’ll be paying the mortgage for this entire time. You’ll need to eventually list the home on the market and hope that you find a buyer at that time, etc.
Wholesale investing is a bit different because you’re essentially acting as a middleman between a buyer and a seller. The process goes like this: you find a home that you’re interested in, and you put a contract on it. Then, you find a buyer who is interested in that home, and you sell the contract to them. To that end, think of yourself almost as something like a broker. The key difference is that real estate brokers are acting on behalf of their clients, whereas wholesalers are acting in their own interest as a buyer or seller.
There are a few major benefits of this. For starters, it is rare that purchase money exchanges hands between the “middleman” and the buyer or the seller in a wholesale situation. This is because, as a wholesaler, you’re not technically purchasing the home in question. Rather, your “job” is to bring the buyer and seller together. Once that has happened, the transaction itself proceeds more or less as normal.
But for the purposes of investment, perhaps the most important benefit of real estate wholesale investing comes by way of the fact that it is focused on short-term gains. Technically, you’re getting paid for the act of bringing two interested parties who may not have otherwise found themselves together. The money that you make is your return on investment, otherwise known as an assignment fee.
Finally, many enjoy wholesale real estate investing because it eliminates a lot of the potential risks that are commonly associated with more “traditional” investment strategies. Take house flipping, for example. You still have to purchase a home using the same mentality you would if you were living there – meaning that you need to focus on not just the house itself but the neighborhood, the school districts, the surrounding areas, etc. You need to put your own money, or borrowed money, into the house to renovate it and fix it up – a process that can take a fair amount of time depending on the current condition. Then, you need to hope the market is still strong when it comes time to sell, or you may have put too much money into the home, eating into your ROI. That is, if you’re able to quickly find a buyer.
With wholesale real estate investing, you don’t have to worry about any of these things. The seller and the buyer still play their roles – you’re simply an additional party who is working to bring them together. Because you’re not actually putting out any money, you have no money to lose – creating a perfect storm in the best possible way.
Additional Information About Real Estate Wholesale Investing
As stated, the biggest advantage of the real estate wholesale investing process is that it’s very easy to get started. Yes, you’ll still need to leverage a lot of the skills that you would use in other types of investing. You’ll need to be able to network to help find the perfect buyer for a property. You’ll need to be able to look at a home and quickly tell whether it is worth your time. You’ll need to be able to successfully negotiate the real estate contract so that both you and the seller make a profit on the deal.
But the good news is that if you do choose to pursue other types of real estate investing, these skills will absolutely carry over.
In the end, wholesale real estate investing is a great way to take advantage of current market conditions, to earn a tidy profit for yourself and to hone the types of skills that will serve you well for years to come.