Is Wholesaling a Good Way to Start Investing in Real Estate

Article by: InvestFourMore

Many people present wholesaling as a great way to gain capital for investing in real estate. One of the toughest things about getting started investing in real estate is saving enough money to invest. There are ways to invest with little money down, but you are still going to need some money to buy properties. Wholesaling may be a way to get started investing in real estate without much money. Wholesaling may not make you rich, but it will teach you a lot about real estate investing. For more information on my real estate investing strategies and rental proprieties check out my complete guide to long-term rental properties.

What is wholesaling real estate?

Wholesaling real estate involves an investor buying a property or getting a property under contract and then selling the house or assigning the contract as quickly as possible. The investor may wholesale the property to another investor who will then fix up the property and rent it or flip it. The key to a successful wholesale deal is finding properties cheap enough that there is still room for a profit for the end buyer.

How can you find properties to wholesale?

There are many ways to find cheap properties, but you must find very cheap properties to wholesale them. A wholesaler has to leave enough room for them to make a profit and enough money for the end buyer to make a profit. Below you will find many ways to find cheap properties. Here is a great tool that can help you evaluate properties to wholesale.

Is it possible to wholesale properties off the MLS?

I find most of my properties off of MLS, but it is difficult to wholesale those houses. Most investors keep an eye on MLS properties so it is tough for wholesalers to buy properties cheap enough due to the competition. I think a wholesaler has to be very fast to get properties off of the MLS, much like myself when I buy properties. If you want to wholesale MLS properties, it may be smarter to get your real estate license and make a commission on these deals.

Wholesaling off market properties

I think a wholesalers biggest opportunity is to find off market properties. Off market properties are houses that are not listed for sale, but the owners want to sell. The owners may be too far away, too busy, or too beat down to list the homes with a real estate agent. The owners still want to sell the home, they just need the right person to find them and make an offer. I don’t go into a lot of details on finding off market properties, because I am not an expert on off market properties. How can you find properties that are not for sale, but the owners still want to sell?

• Attend REIA meetings: You may find investors or wholesalers with off market properties at REIA meetings. Meeting other wholesalers at the meetings won’t do a wholesaler much good unless it is an incredible deal. Investors looking to get rid of homes at the meetings may be a fantastic opportunity. You can also find buyers at REIA meetings, which is also very important to a wholesaler.
• Send direct mailings: I send out direct mailings and I have bought properties that were off market with my letters. I started my mailings this year and I think this will be a successful tactic given enough time and effort.  I send mailings to absentee owners and inherited owners. As a Realtor I can also list homes that may not work out a purchases, but I also have to disclose that I am a Realtor and I disclose I may be buying homes below market value. It is a double-edged sword, but is still think it is very advantageous to be an agent. I recently bought my first property through direct marketing and I will be the first to tell you I am not an expert yet at direct marketing.
• Advertising for off market properties: Many investors also advertise that they buy houses on billboards, with websites, with bandit signs and billboards. I have not tried these tactics yet, but I want to try a few of them. If anyone is wondering, I will not put any signs in my car; I love my cars too much.
• Websites: There are a few websites that market to off market sellers. When the website gets a lead they sell it to investors who pay to get those leads. I have never used these websites, but I know investors who have gotten deals from the sites.

Here is a great program that teaches the entire process of wholesaling properties.

It is not easy to become a successful wholesaler

The best tactics to get the best deals as a wholesaler are not easy to implement. It takes time an a lot of effort to buy homes off market. If it was easy, all investors would use these tactics, but it is difficult and very few investors try to market to off market sellers. If you want to be serious about investing in real estate and have little money; wholesaling is your way in. Market to sellers and you will get the best deals to wholesale as well as for yourself when you get enough money to start buying properties to hold or flip.

How to get a contract on a house to wholesale

As a wholesaler you have two options; get under contract on a house or buy the house and sell it right away. Many MLS listings will require proof of funds or a prequal letter, which is another reason why it may be tough for wholesalers to buy off the MLS. Most REOs and HUD listings will not let you assign the contract, which means you will have to buy the home. If you are wholesaling because you don’t have money to buy an investment property, it may be tough to buy a home to wholesale off the MLS. If you are buying properties from off market sellers it will be easier to get a home under contract. The seller of an off market property will not require a prequal letter or proof of funds before signing a contract. Once you get a contract on the off market property you can assign the contract to another investor for a fee.

What does it mean to assign a contract?

Assigning a contract is a simple concept: the contract has a clause that allows it to be assigned. That means another person can step in and become the buyer without the seller’s permission. A wholesaler can actually sell the contract to another investor without buying the home. Anyone else can step in and be the buyer as long as they buy the home according to the terms of the contract.

How to use a double close to wholesale a house

When a wholesaler buys a home to sell immediately there are ways to buy the home without using their own money. I have never done this, but it is possible for investors to buy a home and then immediately sell it without using their own money. The first thing you need is a great title company that will do a double close. The seller sells the home to the wholesaler, the wholesaler then immediately sells the home to the end buyer and the title company uses the end buyers money to pay the original seller. Please check your state laws for to make sure this strategy is legal in your area.

How does a wholesaler find buyers?

Once a wholesaler finds a house to sell or assign, they need to find a buyer! Usually the margins are very tight on wholesale deals and there is not room to pay real estate commissions. The wholesaler must find their own buyers to make the most money on wholesale deals. A wholesaler must also close very quickly to be able to assign the contract or complete a double close within the contract time frames. As I mentioned earlier an REIA meeting is a great way to find investor buyers. You can also check recent sales to find who bought houses for cash as they are most likely investors. I just received a letter from a wholesaler who found me because I bought a house for cash. Try to hang out wherever investors who buy houses hang out: trustee sales, auctions and tax sales are all great places to find investors. You can also advertise to find buyers on Craigslist or the newspaper. Another way to find buyers is to look for recent cash sales on the MLS or in public records to see what investors are buying houses for cash in your area. Finding buyers is an extremely important part of wholesaling and often times a wholesalers biggest challenge. In some instances a wholesaler will use another wholesaler with more buyer contacts to help them sell houses.

Practicing real estate without a license

As a wholesaler you must take the title to the home or sell your interest in the home. You cannot bring a buyer and seller together and take a commission or any other type of fee. This would be considered brokering a real estate deal and you must have a license to do this. It is against the law to practice real estate without a license. It is also illegal in most states for a real estate agent to pay a referral fee to an non-licensed person. If you want to send a lead to a real estate agent who may list that house, you cannot get paid a percentage of the sale on that lead. There are some possibilities for getting paid on a per lead basis.

How Much Money can you make wholesaling real estate?

Some wholesalers will never do a deal and others do hundreds of deals a year. The money a wholesaler makes on each deal will vary greatly depending on the wholesaler and the property. Some wholesalers will make $2,000 on each deals, others will make $5,000 on each deal and some will make more than $10,000 on each deal. I know multiple wholesalers who are doing more than 5 wholesale deals a month and averaging over $5,000 per wholesale deal. There is definitely good money to be made wholesaling, but to do a lot of deals you have to spend money on marketing and have a great system. There will be many calls coming in from possible sellers and you have to be able to talk to those sellers quickly, determine if the price is right, get the home under contract and then find a buyer.

Conclusion

It takes hard work and time to become a successful wholesaler. It is not a get rich quick business, but it can be a way to get started if you have no capital and really want to invest in real estate. I think the biggest benefit to learning to wholesale, is it teaches you how to find a great deal. If you can find great deals, there will always be buyers willing to invest in them. If you are finding what you think are great deals, but no one will buy them, they may not be so great. Knowing the value of a property and repairs needed is very important to being able to wholesale.