Wholesaling real estate is often a good entry point for new investors. When done right, investors never even own the real estate. They control it through a contract with an option to buy but not an obligation to buy.
While it doesn't take much cash to invest in wholesale real estate, it does take get up and go. The concept of wholesale real estate investing is for the new investor to find the very best deals on the market to flip to another investor for a profit. The best wholesale real estate model is about a birddog flipping distressed properties to rehab investors or landlords.
A typical wholesale real estate deal might be a house that will sell on the retail market for $110,000 that can be put under contract for $65,000. A rehabber is willing to buy the contract for $10,000, pay the $65,000 for the property, and invest $10,000 for improvements. Finally, the rehabber sells at retail for $110,000 to pocket a $25,000.
A wholesale real estate investor must be able to accurately evaluate the value of a property to be successful. Not only does he or she need to be able to value a distressed house, they need to know what the rehab will cost and what the property will retail for in the end. It's always about the numbers.
One of the most important tools needed by a wholesaler is a network of buyers (rehabbers or landlords). Typically, a wholesale real estate investor will become well acquainted with the types of houses and neighborhoods his or her best buyers are most interested in. With that criterion in mind, the wholesaler is always on the look out for deals his or her buyers are interested in.
A common technique used by wholesale real estate investors is called "driving for dollars". This involves driving neighborhoods looking for abandoned or neglected properties. When the wholesale real estate investor finds these properties, he or she uses the tax rolls to look up the owner of record. The investor then contacts the owner to ask if they are interested in selling for all cash. Finding the owner is often the challenge that earns the finder's fee because other investors don't want to put in the time and effort to find disinterested owners of run-down properties.
One important aspect of this wholesale real estate investment technique is it is low risk along with being low cost. Let's say the bargain sales price is $50,000. A wholesale real estate investor might offer to place the property under contract for 60 days for one percent of the sales price or $500 (it could easily be less). Now, the wholesale investor has 60 days to find a rehabber to assign the contract to. If the wholesale real estate investor is not able to find a buyer within 60 days, he's out the $500 but not obligated to purchase the property.
Real estate investing is all about the numbers. The wholesale real estate investor may not be able to make the $10,000 profit in the example. To move the house within 60 days he or she can always reduce their profit so that they don't lose the deal entirely and the $500 contract option.
Wholesale real estate is also about volume. Because a wholesale real estate investors doesn't hold the property for more than a few days or a week, he or she is always looking for the next deal. A wholesale real estate investor is essentially the buyer for other investors. That means the wholesale real estate investor has to be the early bird that gets the worm.
Author bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.