From an investor’s perspective, there are many ways to generate an income. Investors select which investment to choose from a long list of investment options. A partial list includes Commodities, Stocks, Savings Accounts, Bonds, Insurance, Mutual Funds, Certificate of Deposits, and Mutual Funds. Each investment opportunity is defined by a combination of benefits and concerns. The information about the benefits and concerns of each investment product can be helpful to you, the investor, when deciding which investment option meets your investment goals & and matches your level of risk aversion. Wholesaling real estate is yet another way in which a businessperson generates profits and thus, income. Read on to review the mechanics of real estate wholesaling and, how to start wholesaling real estate.
How to Start Wholesaling Real Estate
The Goal of the Real Estate Wholesaler
The #1 goal of a real estate wholesaler, or any investor for that matter, is to turn a profit. The wholesale real estate transaction resembles a ‘flip transaction’, without a need for the renovation or repair. A Wholesale Real Estate transaction can be challenging because there is only a limited amount of time to get the deal done (even less time than a flip transaction). Real Estate Wholesaling is accomplished by –
- Entering into a home purchase contract as the buyer.
- Marketing your contracted home to other potential buyers.
- Generating a profit from the difference between the new buyers’ purchase price and the purchase price stated on the initial contract of sale. Don’t forget to include the costs of these financial transactions when calculating your true profit!
A real estate wholesaler hits an investment home run if the wholesale deal can be completed before the initial contract closes. If you’re learning how to start wholesaling real estate, be cognizant of the fact that professional real estate wholesalers request a contract contingency be added, that allows them to cancel the contract of sale, should a buyer not be located in the allotted time. This simple contingency mitigates a wholesaler’s risk significantly and should not be overlooked.
An Example of How a Real Estate Wholesale Transaction Unfolds
Here is how a typical real estate wholesale transaction works –
- A wholesaler has signed a contract to buy real property for $100,000. His experience/knowledge/intuition reveals that the subject property needs about $25,000 in repairs. When complete the home should sell for about $170,000.
- The real estate wholesaler’s profit is realized when he finds another buyer at a price that exceeds $100,000. The wholesaler could, for example, assign his rights to the original contract for $110,000 to savvy real estate contractor.
- The new owner now owns a profitable fixer-upper, which will generate a profit.
- The original real estate wholesaler earns $10,000 without even owning the subject property— if he or she can sell before the original contract requires a closing. In fact, the only costs incurred would be transaction fees, however, it is important to emphasize that the wholesaler would have needed financing (at least short-term) to cover the contract’s earnest money deposit if they ran short on time.
Know Your Target Market Before You Begin
In order to learn how to start wholesaling real estate, a real estate wholesaler must have a comprehensive understanding of the principles of real estate, real estate financing, transaction timings, and perhaps the most important factor — the market in which he or she is investing. Fortunately, there are a variety of ways to gain insightful data from –
- Industry Forums. — Some forums offer free information, others require membership, and still, others may charge a fee.
- Industry Reports. — These industry reports are remarkably helpful in defining and marketplace, but typically charge a fee to obtain the report.
- Free Government Reports issued by the U.S. Census Bureau American FactFinder Tool.
This information can be quite valuable as you begin to define the boundaries and characteristics of your target market. This highly detailed information reveals specific neighborhood, regional, state and federal trends. Take advantage of the wealth of information it provides.
Consult with a Mentor, Plan Your Steps, Then Take Action
While many business owners (and wholesaling real estate professionals) mistakenly choose to begin without a detailed business plan, they do so with great risk. Remember that a business plan fine-tunes a business owner’s or entrepreneur’s analytical thinking. This proves to be of great value throughout the first few years of business. A business plan allows a business owner to pinpoint the exact location the business holds within the business plan time frame. Are you ahead of schedule? In this way, a business plan operates as a motivational device. And for those who are unfamiliar with preparing a business plan but to want to learn how to start wholesaling real estate, SmallBiz (Powered by LegalShield and GoSmallBiz) offers a plethora of business services to support your business objective of real estate wholesaling. Consider SmallBiz’s available services–
- Unlimited legal consultations – a necessary service for real estate wholesalers who are new to the industry and need accurate legal advice.
- Business Plan Software and the use of their comprehensive library of legal forms. GoSmallBiz also offers a form wizard that allows business owners to generate their own industry related legal forms and documents.
- Website Building. This includes hosting and site templates.
- Unlimited Business Consultations Online. Access to expert business consultants and risk assessors you can speak to about wholesaling real estate before getting started.
- A Digital Marketing Dashboard.
- Customizable Email Marketing Campaigns. This also includes the storage of client information and sales leads.
- Human Resources Support Services.
- Training Modules Available Online.
- A free interactive downloadable app via the Apple App Store and Google Play.
Aspiring Real Estate Wholesalers who need in-depth expert help should check out the GoSmallBiz suite of business services and their no obligation, no contract, cancel anytime plan.
Financing Wholesale Real Estate Investments
While it is possible to learn how to start wholesaling real estate with very little cash/capital coming from an investor’s pocket, the possibility always exists that a wholesale deal hits the skids, with the wholesaler needing access to funding or liquid cash in a flash to remain solvent in rocky times. Financial analysis is a significant component of a real estate wholesaler’s business plan. And while a real estate wholesaler needs a lot less cash than a real estate flipper, quick access to funding is a must — if they want to be able to grab those sweetheart deals. The following financing products are a great fit for this objective –
- A Stated income Business Line of Credit
- Real Estate Investing Business Cards
- A No Income Verification Business Line of Credit
- A No Documentation Business Line of Credit
And for those with less than perfect credit who want to learn how to start wholesaling real estate, there is always hard money business loans for real estate.
Expected Wholesale Real Estate Expenses
Wholesale real estate investing is a business idea that typically requires a modest amount of capital to begin. Startup costs generally include –
- Establishing a legal business entity.
- Drawing up legal documents required for wholesale real estate transactions.
- Working with an expert to draft an accurate business plan w/ at least 3 years of financial projections.
- Setting up of business accounting methods and defining risk evaluation.
- Establishing a business website.
- Setting up a compliance calendar.
Some savvy real estate wholesalers can accomplish these simple objectives themselves. And in doing so, helps mitigate startup expenses. Others may need a professional services firm to assist and that’s where company’s like LegalShield offer the most value.
Marketing ideas and advertising are often critical to a real estate wholesaler’s success. SmallBiz (Powered by LegalShield and GoSmallBiz), for as little as $39/month, offers consulting services (often unlimited) in the areas of –
- Legal Advice.
- Press Releases.
- Website creation and maintenance.
- Email Campaigns.
- Digital Marketing Strategies.