The main purpose of wholesaling real estate is to sell the home to an interested party before the contract with the original owner is closed. It simply means that there is no exchange of money between the wholesaler and the seller, at least until the wholesaler finds a buyer.
What is the Process of Wholesaling Real Estate?
Wholesaling real estate is similar to investing. Apart from this, the time frame is much shorter. Besides, no home repairs are done before the wholesaler sells it. A real estate wholesaler hires a local seller. He markets the home to potential buyers. Additionally, he assigns the contract to the buyer. The wholesaler makes a profit, which is the difference between the price contracted with the seller and the amount paid by the buyer. The goal in wholesaling real estate is to sell the home before the contract with the original seller is closed.
How Can You Make Money by Wholesaling Real Estate?
The wholesaler makes his money by charging the end buyer more than the house gets under contract. How much they earn depends largely on the wholesaler, the deal, and other factors. Some wholesalers can only make a couple of thousand dollars on each deal, while others can make up to $200,000 on a large multi-million-dollar deal. Therefore, we can say that earning money in wholesaling real estate depends on different factors. You need to consider them all.
Like most professions, there are those who work hard, work smart, and earn a lot of money, and those who don’t and fail. Real estate investors who are successful in wholesaling have systems for finding bargains and buyers. Wholesalers doing a lot of deals have established trade names and they’re well-known for their wholesaling techniques.
They also don’t handle everything on their own. They will have a procurement person, a contract manager, a salesperson, an accountant, etc. Wholesalers who do a lot of deals also spend a lot of money on real estate marketing, as well.
Some wholesalers will ship 10,000 to 20,000 pieces of mail each month. However, you may not earn money for months after you start. It takes time to market to sellers, gets them under contract, buys the home for the end buyers. You should know that real estate agents earn money differently from the wholesaling real estate process.
Wholesalers that are super successful didn’t do it overnight. If you are only playing a couple of hours each week in hopes of making $100,000 per year, you will be disappointed.
Where to Find Buyers for Wholesaling Real Estate?
Knowing where to find buyers for your properties is crucial because they are the people who will buy the property and make you money. These buyers will be found on real estate sites, marketing flyers and posters, and real estate investor groups.
Wholesalers often build their buyers’ list through a combination of networking and direct marketing. Eventually, building strong business relationships can lead to repeat business, helping to eliminate a lot of guesswork. Below are five strategies used by wholesalers to target cash buyers.
1- Craigslist
Craigslist has become a great resource for placing ads for wholesale deals, as well as identifying potential buyers. In the “Housing” section, browse the hundreds of “for sale” or “for rent” properties to identify owners who may be interested in a future wholesale deal.
2- Networking
Remember, networking with local real estate investors, landlords, and real estate agents can lead to meaningful encounters, as well as help you develop lasting business relationships.
You may want to become an active member of your local real estate investment club, where you can meet active cash buyers, a fellow investor who can introduce you to interested buyers, or even someone who wants to partner with you on a future project. Plus, connecting with real estate agents will help you gain access to recent cash sales lists.
You shouldn’t underestimate the power of social media for the real estate business. Instagram for the real estate business provides a great opportunity. You can find some sellers there. Thus, you need to have a great real estate Instagram tool. Realtormate is the best choice.
3- Lead Capture Forms
In this modern age, anyone looking to grow a successful business is expected to have an online presence. It’s easy to set up a lead capture form on your business website where visitors can submit their personal contact information. To increase traffic to your website, promote your brand through social media, blogging, advertising, and marketing.
4- Courthouse Auctions
Keep in mind that buyers must have all cash at courthouse auctions, so this is a straightforward approach. Visit courthouse auction sessions early and regularly to network with this group of active cash buyers. Don’t forget to hand out business cards and keep track of connections.
5- Hard Money Lenders
Keep in mind that not all cash buyers will have the full purchase price of property readily available. When that’s the case, they will often enlist the help of a hard money lender to help close a deal. Because of this, hard money lenders can be an excellent source for cash buyer referrals. In fact, their best interest is to help you, so that they can help you fund future deals in return.
Tips on Wholesaling Real Estate and Making a Profit
Being successful in wholesaling real estate requires more than just finding a property or a buyer. It involves a lot of processes and difficulties. Here are three important tricks to maximize your real estate wholesaling success.
1- Always Consider the Seller
Keep in mind that one of the key goals of wholesaling real estate is to purchase the property at the lowest possible price. But negotiating a favorable price can be challenging, even if a seller faces foreclosure. They may have other options to explore, including other wholesalers or cash buyers.
That is why it is extremely important to put yourself in the seller’s shoes when making your presentation. By explicitly communicating the wholesaling process and conveying that you understand its pain points, you will help your chances of reaching a deal.
2- Create an Exit Strategy
An exit strategy is how an investor plans to withdraw at the end of a deal and how he plans to make a profit. For a wholesaler, the typical exit strategy is to be able to quickly assign contracts to end buyers, for a wholesale fee.
To do this effectively, wholesalers must spend time routinely building and maintaining their list of wholesale buyers. The more buyers you have on your list, the greater chances that you will be able to deliver property.
As mentioned above, many wholesalers grow their list by attending network meetings and investment clubs; and they maintain these relationships by knowing the preferences of the buyer of each investor. Plus, monitoring regularly is a great way to know when investors on your list are actively looking to buy.
3- Know the Rules
Although it all depends on the jurisdiction where you live, wholesaling can be tricky. There are many rules and regulations that govern who is legally capable of making a commission. For example, in Maryland, only licensed real estate agents can earn a commission on a real estate transaction.
In that case, you can set up an LLC for the specific property and indicate that the buyer (you, the wholesaler) is that LLC “and its assignees.” This allows you to enter into a separate contract with an investor who will purchase the LLC and thus assign the contract to you.
Consider speaking with a qualified real estate attorney to learn how you can legally wholesale in your state before signing a contract with a seller. Also, make sure your contract has plenty of outs in case things go wrong, and you can’t find a buyer.
To sum up
Wholesaling real estate is not for everyone. It takes a lot of time, commitment, and patience. You also need to have excellent communication and marketing skills. In this article, we explained wholesaling real estate properly. Besides, we offered some tips to do it in the right way.