Although the real estate market itself can often feel complicated, the idea at the heart of wholesale real estate investing is anything but. It involves finding desirable properties at discounted prices, at which point you sell them to other investors for a profit.
When you’re selling directly to other investors as opposed to the public, this approach brings with it a wide range of benefits that can’t be ignored. From a (relatively) low upfront capital requirement to the potential for quick profits, it’s easy to see why it has become a popular investment avenue for so many in recent memory. However, as is true with all forms of investing, there are certainly some potential disadvantages that you need to be aware of to fully make the most of what wholesale real estate has to offer.
The Advantages of Wholesale Real Estate: An Overview
As stated, one of the major points of attraction for wholesale real estate investing for many people is the low capital requirements compared to alternatives. By design, someone investing in wholesale real estate isn’t really “buying” a property. They’re more just acting as a link between a seller and a buyer.
So based on that, you don’t have to worry about having huge amounts of cash on hand (or the excellent credit score needed to receive loans). For this reason alone, many find it a great “entryway” into the larger world of real estate investing.
Naturally, this brings with it another one of the many benefits: the potential for making a fast profit on that initial investment. You don’t have to spend huge amounts of time getting your license, and you certainly don’t have to dump a large sum of money into a property to “fix it up” and get it ready for sale. So long as you have the property in question and a buyer lined up, all you need is to get your offer accepted. You could get paid in as little as a few weeks if the conditions are right.
But regardless of the size of your profit, one benefit of wholesale real estate that is certainly appealing has to do with the network of contacts you make along the way. From that perspective, wholesale real estate investing is unique because it allows you to meet people on both sides of the proverbial aisle – both sellers and buyers.
These are people that you can learn from and gain experience through. As you develop your skills and get more entrenched in the world of investing, these are also people you can turn to for assistance or guidance to create a mutually beneficial situation for everyone involved.
The Disadvantages of Wholesale Real Estate: Factors to Be Mindful Of
None of this is to say that success in terms of wholesale real estate is a foregone conclusion because there are certain risks involved. One of the biggest of them has to do with the risk of dealing with distressed properties by their very nature.
No, you don’t have to put a great deal of money into a property to fix it up – but someone eventually will. Depending on the property in question, it could be hard to find a buyer to make the whole scenario work. To help mitigate risk from this potential issue as much as possible, it’s always important to have a buyer in mind before you submit an offer on a property.
Should the offer get accepted and the buyer falls through, you’re not out any money. If you can’t find a buyer, at least you’ll know it ahead of time, and you’ll be able to walk away having lost little more than your time and energy.
Another potential downside for new investors, in particular, is the extensive market knowledge required to gain traction. For this type of strategy to work, you need to know the local markets like the back of your hand so that you can get to these opportunities before anyone else can. If the person who will eventually buy the property gets to the transaction before you do, they don’t need you at all.
Finally, understand that even though this is a unique approach to real estate investing, there are still universal skills that you’ll need to rely on – like your ability to negotiate as effectively as possible. Not only will you need to be able to negotiate the best price with the seller, but you’ll also have to turn around and do the same on the other side of the transaction.
Both sets of stars have to align for you to be able to maximize your own return on investment. That requires a keen ability to negotiate it, and if you don’t have it (or can’t develop it on the go), you may find that the results you’re after come a great deal slower than you would have liked.
In the End
Not all forms of investing are for everyone, and wholesale real estate is certainly not an exception to that. Those drawn to the potential for fast profits and the low capital requirements will likely do well, provided they have the strong negotiation skills required to make an impact. Others may be too risk-averse to dealing with distressed properties and will want to look elsewhere for the investment opportunities they seek.
Only by carefully considering both the advantages and the disadvantages will you be able to make a determination whether wholesale real estate investing is right for you. It’s not about entering into the market and hoping for the best – you want to make the most informed decision possible regarding the shape your financial future takes.