Last week I wrote a blog about what to expect when bidding on REO properties. For many new investors, bidding on REOs seems like the quickest and easiest way to buy an investment property. However, with competition from other investors on the rise, it has become increasingly difficult to buy an REO at the right price. As an alternative, some investors consider buying at the courthouse steps, but quickly find this method of acquisition too daunting (i.e. bringing all cash to the auction, buying a property without inspecting it, potential title issues, etc).
For an investor who simply doesn’t have the time to bid on 20 different REO’s or the means to buy at the courthouse steps, finding a good wholesaler can be a great alternative. In real estate, a wholesaler is typically somebody who is doing the legwork to find good deals to sell to other investors at a wholesale price. There are a number of different strategies that wholesalers may use to earn a fee for finding a deal. Most wholesalers will actually line up an end investor to buy the property without the wholesaler ever taking title or owning the property at all. In exchange, the wholesaler is usually able to build in a fee of $2,000 to $10,000 dollars depending upon the deal and the price point of the property. As an investor, I have no problem paying a small fee to subcontract the work of finding a good property for me – as long as the numbers still make sense.
One acquisition strategy that I have not spent a lot of time pursuing is short sales. I see other investors advertising for distressed sellers all of the time and I simply haven’t had the desire to compete for these leads. However, I will occasionally buy a short sale that a wholesaler has found and negotiated. Advertising and qualifying short sale leads can be costly and time-consuming. I am perfectly willing to allow somebody else to earn a small fee in exchange for doing this legwork.
In the end, buying an investment property still boils down to whether or not the numbers make sense. You can just as easily overpay for an REO property as you can from a wholesaler. Be careful not to assume that paying a small fee to a wholesaler automatically means you didn’t get a good deal. There are plenty of good potential investments properties on the market right now; some that can be purchased through an REO agent and some that come through a wholesaler. Whatever your strategy, don’t miss out on a great opportunity to buy real estate!