The Pros and Cons of Real Estate Wholesaling
For those who are willing to invest their time and are dedicated enough to learn the ropes, real estate wholesaling can be a great way to make a profit in a short timeframe. However, as with any venture, there are drawbacks as well as benefits. For some, real estate wholesaling can mean a new career with little money invested. But before getting started, one should consider the pros and cons.
Real Estate Wholesaling - The Pros
Making Money – If done correctly, there is the potential of making a lot of money, without having to actually put up any money of your own. Simply put, you offer to buy a house for a certain price. Your offer is accepted. You find a buyer and resell the property (via assignment or double closing) at a reasonable price and make a decent profit. So here’s a potential scenario: You find a motivated seller with a great house. You put the property under contract for $100,000 (you’ve done your research and know the home is worth at least $125,000 as is) and deposit some cash into escrow. You sell it to the buyer for $115,000 (your price must take into account the ARV). Closing (use your own attorney/title company) usually takes 30-45 days (if you have a buyer can close in half the time). You’ve just made $15,000 in a very short time frame and your buyer, and hopefully repeat customer, is happy. Congratulations, you’ve just negotiated a lucrative deal for all involved!
No Credit Involved - Even with no/bad credit you can participate in these types of real estate transactions. You aren’t the one who is actually buying the home. You are merely the conduit between the homeowner and an investor looking for the right property.
Learn About the Real Estate Market Quickly – If you’re thinking about getting involved in real estate investing, wholesaling is a great way to start. With the right guidance (mentor) you can quickly learn what to look for in deals, as well as what to avoid. Again, with proper guidance you can learn how to use your profit wisely and begin investing in real estate properties of your own (buy and hold/flipping, to name a few).
Real Estate Wholesaling - The Cons
Not Having a Buyer - Depending on how your contract is written, if you can’t find a buyer you may be liable to the homeowner for a small amount of money (deposited in escrow if that was part of the contract). Not only is this bad for your pocket book and reputation, but it can negatively affect the homeowner (and potential repeat customer) who could have found another buyer.
Keeping Up to Date on Potential Buyers - Anyone who is good at real estate wholesaling will tell you how important it is to get and keep all of your potential buyers in order. You need to know their preferences for types of property and areas, as well as their goals (rentals vs. flip). If your plan is to wholesale “anything to anyone” don’t be surprised if you develop a reputation for being “a junk yard wholesaler”. Also, you need to know your numbers. You want to provide your investor buyers with good deals AND get a decent assignment fee for yourself, not just one or the other but BOTH.
No Guaranteed Income - Unlike most traditional jobs, real estate wholesaling doesn’t deposit money into your account every two weeks. It also doesn’t give you retirement benefits or health coverage. So in order to be successful at wholesaling, you also need to be successful at money management and being able to put money aside for the lean times.
Determine if Real Estate Wholesaling is for You
In conclusion, while there’s the potential for making a lot of money wholesaling real estate, it does take a certain personality. You must be driven to get the deals, you must be organized to keep accurate records of potential buyers and the money you make and you must be disciplined enough to set aside money for taxes on your profits each year. If you have these qualities, there’s really no limit to the amount of money you can make, and it’s a great way to get into the real estate market for those who may not otherwise have the means to do it.