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How Does Wholesale Real Estate Work

By Jamie Richardson | April 16, 2019

Wholesale real estate provides both new and experienced investors with profitable opportunities. As a real estate investor, you are always looking for more ways to increase your cash flow. If conducted properly and legally, wholesale real estate can boost your profits easily and quickly. Furthermore, you can gain insight into different markets and learn more about the real estate industry. By the end of this post, you will be able to answer the commonly asked question: "How does wholesale real estate work?"

Middle Person

To begin explaining wholesale real estate, you need to understand that a wholesaler's role is the middle man. As the middle man, you connect buyers with properties that they would be interested in purchasing. These buyers typically consist of fix and flip investors and long-term rental investors. The properties that such buyers look for are usually very cheap and need renovations. It is the middle man's job to find undervalued homes. Once you find one, you must buy it and sell it at a low price to buyers.

Finding Property With Potential

Since real estate wholesalers profit off of selling properties, finding the right properties is essential for success. If you already have experience as a real estate investor, this part of wholesale real estate should come easily to you. Those who are new to the real estate investment world might take their time finding properties to ensure that they have potential. If you purchase a property that does not have potential, buyers will not be interested in it for the price you need in order to make a profit. Put yourself in the shoes of a buyer when looking for properties to buy and resell. If you think that you could easily increase the value of a home, purchase it. Additionally, it is likely that an investor will see what you see and pay you the amount you want for the house. Wholesale real estate functions on potentially valuable properties.

Discovering Interested Investors

In order for wholesale real estate to operate in the investment world, interested investors are required. When wholesalers need to find investors, they use online resources. Typically, wholesalers visit their county's Property Appraiser site. There, they discover the names of active investors based on neighborhood. To begin sifting through the numerous names that appear on your screen, focus on private investors. Private investors are usually interested in purchasing nearby properties. To narrow down target options even further, wholesalers look for a strong buyers list that have previously purchased numerous properties within the area. If they did it before and profited, they are likely to purchase again. Wholesale real estate can only work if wholesalers can discover interested investors.

Financial Estimates

Similarly, wholesale real estate functions properly with financial estimates. This, too, is the wholesalers responsibility. If you are a wholesaler with a property under a $120,000 contract, you need to figure out how much necessary repairs would cost. Then, you need to determine how much the house's value will increase once renovations are complete. If the property's selling price can increase $80,000 after putting in just $20,000, investors will want to purchase it. Therefore, coming up with accurate financial estimates drives wholesale real estate.

Double Closing

Lastly, a major factor of wholesale real estate is double closing. Wholesalers do not want to use their own finances to purchase homes. To avoid gambling their own money, they double close. A double close, commonly referred to as "an assignment of contract", consists of a series of events. Upon double closing, a wholesaler has the title company acquire finances from the end investor. They then use that money to pay the seller that the wholesaler owes money to. To complete a double close, a wholesaler has to assign their contract with the seller to the end investor. As a result, the end investor essentially becomes the new buyer of the property. Real estate wholesalers can only profit through double closing.

If you are interested in becoming a real estate wholesaler, you need to understand how wholesale real estate works. Firstly, understand that you will be the middle man as the wholesaler. Before initiating a deal, find property that has potential and would attract investors. Then, discover investors through your county's Property Appraisal website. Once you have an undervalued property and potential investors, you need to calculate accurate financial estimates that will prove to investors that they can profit from purchasing the property you have a contract for. The last piece of the wholesale real estate puzzle is double closing. These are the major factors to how does wholesale real estate work.

Jamie is a 5-year freelance writer who enjoys real estate. He is currently a Realty Biz News Contributor.
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