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What is Wholesaling and is it Right for You?

Posted by Ken Meyer on Tue, Nov 25, 2014

wholesaling in real estateYou've watched the reality shows where home buyers acquire a run-down property, invest to fix it up, and then flip the house by selling it for for a profit all in 30 days or less. This could be you someday, but flipping requires a great deal of investment capital to get started.

As someone who is new to real estate, you might not have built up the credit or bank account to meet the criteria. To get your foot in the door, you may want to consider wholesaling. You may be asking yourself, what is real estate wholesaling, and is it right for you? You may be surprised to learn that you are a whole lot closer to living your dream in house-flipping than you think.

Wholesaling Defined

In real estate wholesaling, you obtain a contract on a piece of property by making an offer on the home and having it accepted. You do this with little or no money down and with no intention of ever actually owning the house. Instead, you intend to assign that contract to another buyer before the closing date. This is allowed as a function of a clause within the original sale contract. The properties used in wholesaling are often distressed properties that can be acquired for a deal.

As a wholesaler, it's your responsibility to identify a buyer who will acquire the contract from you. This buyer will typically be an investor who will either pay in cash, utilize a credit line, or obtain a hard money loan to set the stage for a speedy closing. The investor will then, most likely, prepare the home for sale and flip it for a profit.

The wholesaler should avoid the intervention of a real estate agent, as the fees involved with this approach would make it difficult to earn a profit. The wholesaler's ability to earn a profit is in selling the contract for a higher price than they acquired it for, even if it's by a very small margin.

While you clearly want to generate a profit as a wholesaler, you also have to look at it as training ground for eventually flipping homes. The process of wholesaling will provide you with the experience and contacts that could create greater opportunities for you down the road.

Wholesaler Candidates

Basically, if you don't know many people in the real estate industry and you don't have a great deal of capital with which to invest, you are a candidate for wholesaling. You must be an individual who is willing to exert effort or networking by way of attending industry events and conferences so that you can meet investors to acquire your buyer contracts. You should be someone who is familiar with the real estate landscape, such as the Multiple Listing Service, or MLS, but not dependent on these sources alone.

Conclusion

Now that you know about wholesaling, if you think this is the approach you want to take on your path to flipping real estate, contact us today.

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