The 7 Biggest Real Estate Wholesaling Challenges for 2020

2020 brought many unexpected challenges to the economy and daily life. Yet, the real estate market prevailed. In fact, the real estate industry not only survived 2020 intact, it thrived. Likewise, real estate investing remains a strong and promising path to wealth.

One of the quickest ways to make money in real estate is with wholesaling. This investment strategy allows the investor to make a profit without the risk of owning the property. The way wholesaling works is the investor enters a sales contract with a seller but then finds a different buyer to take over the contract. The wholesaler receives a fee for their role in connecting the new buyer to the seller.

Challenges with Wholesaling Real Estate

Real estate wholesaling did face challenges this year. Some of the challenges tie to the impact of the pandemic while others are ongoing. However, wholesaling remains a smart investment strategy and a good way for both seasoned and new investors to deepen an investment portfolio.

In recent years, the legality and validity of the wholesaling process as an investment strategy received scrutiny. We’ve found that investors can implement this strategy legally to create a solid business model if they apply wise information and procedures while following local laws.

1. Pandemic Restrictions and Regulation

Starting in March, many governments applied restrictions for in-person meetings. With wholesaling speed is essential. To make money, the deal needs to move quickly. Thankfully, it’s easy to transition wholesaling to a virtual wholesaling strategy that allows investors to work on deals remotely. With technology available today, investors can connect with buyers and sellers virtually.

2. Determining the Right Area

While real estate remained strong in general, not all geographic areas make strong wholesale markets. Market saturation hurts a wholesaling business and trying to find leads can feel frustrating. With the transition to virtual real estate investing, many investors found new and improved markets. After all, finding the right location is key to profitability. Often, medium sized cities with populations of 200,000 to 1 million offer more opportunities and less competition than major metropolitan areas.

3. Current Supply and Demand Trends

Supply and demand ebbs and flows. This creates challenges for investors tied to only one market. Currently, much of the country is experiencing low housing inventory and high demand. Look for markets with the right matrix for wholesaling. The Multiple Listing Service (MLS) offers data about market conditions. Two matrixes to consider include:

• - Number of days on the market
• - Volume of cash sales versus financed sales in the market

4. Identifying Quality Leads

Another key to success in wholesaling is finding plentiful leads to locate both properties and buyers. This becomes more challenging when you switch to virtual investing in a new market where you may not have a strong network.

We’ve found the best leads don’t come from purchased lists. With purchased lists, other investors can buy the same information. The property owners often become frustrated and confused when many investors have contacted them. For better results, create your own list by researching public databases and developing a network.

5. Marketing and Communication

Wholesaling is a numbers’ game, meaning you need to reach many leads to find the best deals. In general, you can expect one contract per 300 leads. With the pandemic, some marketing strategies have changed. For example, cancellations of in-person events have limited connections to leads. Yet, with an organized and effective system you can reach leads and track data using virtual marketing methods. Find the best marketing channels to reach your target market, like social media, dialer calls, direct mail or online communication.

6. Understanding the Art of Wholesaling

For investors shifting to wholesaling for the first time, it’s critical to have the right knowledge to execute wholesaling deals correctly. When you put a property under contract, you become an “owner per contract”. You aren’t selling the property because you are not the owner. Instead, you are selling the contract.

To keep the deal legal and ethical, you must make the proper disclosures. Ensure you have an accurate contract with the right disclosures. Otherwise, you risk legal consequences and damage to your reputation. Creating wins for all parties helps build a positive reputation that opens more doors in the future.

7. Follow the Law

Each state has specific laws that govern real estate transactions, including wholesaling. Failure to follow the local laws may result in fines and legal fees. Seek guidance from a real estate attorney if you have questions. It is much cheaper in the long run to follow the rules.

Put Wholesaling to Work for You

In a time when many people face financial uncertainty, real estate investing offers a smart way to create long-term and short-term profits. The real estate wholesaling strategy produces a way to make money quickly with less upfront cash.