SHOULD I INVEST IN WHOLESALE, RETAIL OR TURNKEY PROPERTIES?
June 5, 2012 By Larry Arth
As part of your real estate investing strategy, you will want to decide how you want to actually purchase properties, be it Wholesale, Retail or Turnkey. In addition, you also know to do your proper diligence and purchase in the correct locations that can provide you with the sustained returns you desire. For a quick overview of this concept please visit the Sustainable Cash Flow and Capital Growth article.
What Are The Differences Between Wholesale, Retail or Turnkey Properties?
Once you have found the best location for sustained returns, you will need to determine HOW you want to buy the properties. Do you wish to purchase them as a wholesale property, as a retail property or as a turnkey property? Let’s look at the differences as there tends to be confusion about the correct meaning of each term.
Wholesale Properties Short description:
Wholesale is the purchase of distressed property. Often the property will be in need of much repair and have title issues that need to be corrected prior to closing. These properties are bought cheap and often times VERY cheap. The tradeoff for the low prices is amount of work and risk you take in acquiring these properties
Who typically buys wholesale wholesale properties? Local investors with an understanding of the local market, title issues and with a desire to flip or maybe fix and flip for a profit. These are properties bought as a massive distress sale. The people who truly purchase a wholesale property spend hours sending out post cards to people with challenges as it relates to their ownership of the properties. These sellers tend to want to sell quickly.
Another way of acquiring properties wholesale is through court house steps, or being on the short list of a bank who wants to liquidate properties. Contrary to popular belief, buying property wholesale does indeed get you properties at a great price but requires much ongoing diligence, relationship building and being in the inner circle of the real estate world (many people call this the “good ole boys network”).
Buying wholesale is not for the person looking to buy 1 property or who occasionally wants to buy a property. This requires many ongoing relationships and keeping up with real estate laws, principals and having a great understanding of liens, encumbrances and clouds on the title. If you struggle to understand what this last sentence means, then you probably are not a wholesale type of investor because it takes A LOT of experience and much ongoing work to know your way around the wholesale market.
One last note about wholesale properties, to purchase wholesale you need to be present, know the area and personally view the property. You will want to personally assess the property as to condition and to establish the cost to bring the property to clean and marketable title.
Retail Properties Short description:
Retail properties are purchased from the seller (typically sold through the aid of a real estate professional). These sellers want to get fair market price for the property and the property is typically move in ready.
Who typically buys a retail property? Owner occupied minded people looking for a home or a second home. These properties are usually acquired by the person who is looking for the simplicity of buying a move in ready property without having to do any work with maybe the exception of personal decorating changes. Lifestyle and location near their favorite locations which they frequent such as restaurants, entertainment spots, beaches, and of course near where they may work.
Turnkey Properties Short description:
Turnkey properties are often sold below retail pricing after having been freshly rehabbed, rented with a lease in place, property management in place and a power team of insurance agents, service providers and tradesmen who offer economies of scale pricing based on the extensive network that has been established.
Who typically buys a turnkey property? Investors who are looking for a hands off passive investment. Typically investors who live out of the area, out of state or maybe out of the country. Investors who understand the benefit of investing in the right location and have an understanding of the wealth building principals. These investors are typically passive investors who are not interested in dealing with the day to day operations of real estate.
Turnkey properties typically are purchased originally by a wholesale investor. These wholesale investors usually have one of two exit strategies, either to sell retail (as identified above) or to sell as a turnkey property.
In a turnkey property, the wholesale buyer will typically make their profits through the service they provide. They carry the burden of the risk associated with some unknown circumstances, as they are not provided with a seller’s disclosure and have to perform their own due diligence to understand what clouds may be on the title that they need to clean. Although some wholesaler investors simply resell the properties to the next investor for the profit, many will convert the property to a retail or turnkey property.
Armed now with perfect clarity as to the true meaning of the three ways to purchase a property you can conclude which is the best strategy for your particular investment style.
Stay tuned for our next post: Turnkey Real Estate Properties – How To Find A Good One.
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