Wholesale Real Estate
Wholesale real estate is a property that is sold between investors. A middleman, the wholesaler, finds properties that will appeal to investors, gets them under contract and resells either the property or the contract. A wholesaler is different from a real estate bird dog in that he actually puts the property under contract; a bird dog is merely a property locator and lead generator.
Why Wholesale Real Estate Works For Different Types Of Investors
Why would anyone wholesale real estate? There are a number of reasons. For example, some investors don’t like to deal with tenants. They would rather flip deals to long term hold investors than handle property management. Or a wholesaler might not want to do rehab work. He’d rather let someone else do the work and make the larger profit; he just wants to get his fee and get on to the next deal.
Other investors see wholesaling real estate as just another income stream. When you are out looking at properties or talking to owners, you are going to come across many houses that don’t fit your particular buying parameters. Maybe the property is in an area that you don’t work in. Perhaps the property has a pool and you don’t like houses with pools. Maybe the deal is too big or too small. Whatever the reason, a deal that’s not good for you may very well be good for another investor. Many investors make a steady “extra” income of several thousand dollars a month from wholesaling real estate deals that they don’t want.
Probably the best reason to wholesale properties is because it is a way to quick cash. Especially for those just entering the business, wholesaling a few properties gives you a chance to learn the market, learn from other investors by seeing what they like to invest in and put aside some money so that you can start building a long-term portfolio.
Why Wholesale Real Estate Is Fast And Easy
Wholesaling real estate is a quick flip. Once you have a property under contract, speed is essential. You need to find your buyer for the property before your agreement runs out. How do you do this?
You need to have your buyers lined up before you contract for a house. By this I mean that you need to have a list of investors who are true buyers. You want people who buy one, two or more properties per month. You may have some buyers on your list who do not buy as frequently, but they are real players. What you are trying to avoid are the people who will waste your time by tying up you and the property and then not following through on the deal. There are a lot of people in real estate who are all talk, no action. Get to know the true players in your market.
Why Wholesale Real Estate Buyers Are Of Two Minds
You will have two different types of buyers: The investor who will fix up and hold a property in his portfolio as a rental unit and the retailer, who is looking to rehab a property and sell it to an end user. The investor who is going to buy and hold for his own portfolio has a little more wiggle room that the rehabber.
When you are negotiating for a property, keep in mind that the retail investor will have to put time and money into the property and is looking to make his profit sooner rather than later. You need to be able to estimate the retail sales price of a property, how much the rehab is going to cost in time and dollars and how much the rehabber likes to make on his properties. You also need to figure in your profit. Subtract all those figures from the retail price and you have the maximum allowable offer (MAO) that you can negotiate. You want to start your negotiations well below that figure.
The investor who is looking to add to his rental portfolio will also have to invest in fixing up the property, but his costs will probably be less because he is fixing for the rental market, not the retail market. Because he is holding the property, he has a longer period of time to make his money. However, the total monthly Principle, Interest, Taxes and Insurance (PITI) on the property has to be well below what the monthly rental income will be. Investors need properties that will cash flow.
Get to know your local investors and find out what they are looking for in the properties they purchase. In short time, you will find out why wholesale real estate is a such a steady and well-known market.