Wholesale Real Estate Investing has gained popularity, especially here in the US. As banks have created a foreclosure buying frenzy, many have found interest in the wholesale real estate market place. Do not be fooled by the many people who sell information on wholesaling real estate. Truth be told, there is great deal of money to be made selling information on this topic and it is NOT as easy as it is portrayed.
To wholesale, you need to spend the time and money to create a massive list of would-be home sellers who need to sell very very quickly. You also need to build a list of would-be home buyers who want to buy the purchase contract for a larger fee than the wholesaler has it contracted for. Buy low and sell for a higher price sounds easy. The mechanics and diligence behind it is extremely time intense.
When you purchase the wholesale property as an end user or to use as a rental property, you have to insure you have a team in place to do quality work at an affordable price.
Here is the basic flow of a wholesale real estate transaction
If you were a wholesaler you would send hundreds of postcards to people who are in need of quick sales and try to convince them to sell their home incredible cheap to you. Once you find a person willing to do so, you put it under contract with a contingency of the approval of your partner. Meanwhile, you go to the large list that you have build of people who are interested in purchasing real estate cheap and try to assign the contract to them along with a mark up for your time spent on the deal (usually $10,000 to $20,000).
Wholesale Real Estate Example: you may go under contract for $20,000 to purchase a home that may be worth $80,000 after all rehab work was complete. You sell the contract to the next Buyer for $10,000. They give you $10,000 then close on the $20,000 contract that you assigned over to them. You are now out of the picture and the new buyer needs to find a rehab crew to rehab the home.
Witch position do you prefer to be the first buyer or the second buyer that needs to renovate the house. Or how about a third way? Watch the next post for an easier way to wholesale!