I’ve only just recently written an article about the perils of wholesaling. I talked about a few things that are almost never talked about amongst people who wanted to start wholesaling. But if you want to get into something like wholesaling as a new real estate professional, I realize that it’s a good idea to also know a bit more about the subject. Straight off the bat, I’m going to state that anything you do in real estate is going to be tough. But since so many of you seem to think wholesaling is the easiest way to the top, let me tell you about some experiences many people I know in wholesaling have had to deal with.
Real estate is a ridiculously tough business, and many people are completely unprepared when it comes to starting out in it. This is for all those get-rich-quick guys out there who think of wholesaling as a magical way to the top. One of the most important reasons for people to go into wholesaling is the fact that they think it’s not going to require any investment. And sure, you’re basically trading nothing but contracts, so you technically don’t need the money up front, but don’t be mistaken. These contracts do have value, and that value is the risk you’re taking on by entering the wholesale market.
I’ve covered some of the issues before. There are legal issues, loads of paperwork, and hidden costs. In some states, a wholesaler doesn’t need a real estate license to do his thing; in other states, he does. So, get yourself covered. But I’m not talking about that today. Today, I want to talk about the day to day. There’s a reason I’m not into wholesaling, and these are exactly the things that keep me at bay.
How to Analyze a Real Estate Deal
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Nothing Comes Easily and Wholesaling is Time-Sensitive
Unlike with other real estate businesses, where the real estate agent or even a real estate investor would have quite some time to sell a property, wholesalers don’t have the luxury of waiting. As soon as they make an offer on a property and offer up a contract, wholesalers have started their own, entirely different track.
Time is of the essence and time is money, but for the wholesaler, time is also risk. The clock begins to tick as soon as the wholesaler has made an arrangement with the property seller. If you as a wholesaler can’t find a buyer in time, that’s it — all that hard work gone for nothing. When that contract end date hits, you’re going to need to do everything all over again. Now, I know some of you are thinking, “Good riddance, I don’t need a property that doesn’t sell!” But at some point, you’re going to want to get something out of it. And worst of all, because of that time pressure, you’d be inclined to just take the best offer you can get.
That’s right, with all that time pressure breathing down your neck, you’ll likely make less profit than you would as a real estate investor. Holding out for the right offer is pretty important in real estate, and you don’t want the need for a fast sell to become another reason for a buyer to negotiate a lower price. Remember, the key to negotiating is having options and not feeling pressured.
Sellers Often Back Out of Contracts
This is a big concern for most wholesalers. Imagine the disappointment after making a deal with a property seller, only to be confronted with the fact that they changed their mind for whatever reason. Sometimes, they’re legitimate reasons. Other times, they’re not.
You have invested time, effort. and, as you’ll find, sometimes even money to find the perfect buyer, but then, when the seller decides to bail, you’re stuck. Of course, you can sue for breach if a contract was signed; however, there is not much you can do after that. And frankly speaking, when you weigh the benefits against the cost, it is sometimes best to let things slide. You cannot make up for wasted time, and time is money. Not to mention the fact that you’ll lose face with your buyer, often someone you’d hoped to do business with in the future. Don’t forget that a lot of wholesalers in real estate have a relationship with their buyers and only have a handful of regulars.
Being able to manage people is immensely important. In real estate especially, your network is your net worth. So, with wholesaling, where everything depends on a contract, being able to manage people is probably one of the most important skills you can have. If that’s not you, don’t even think about getting started in this line of work.
There’s Always the Potential of Not Finding a Buyer
When you flip houses, there’s usually a construction part that comes into play. When you’re a real estate investor, you’ll manage renters. These people need to sell, of course, but they have other things to do as well. Not so when you’re wholesaling real estate. You’re entire job is to find product (properties) and to sell it. That’s it. Aside from all the paperwork involved, your entire job is to persuade people to either sell to you or buy from you. This simply means that the success of a wholesaler is completely dependent on their ability to get someone to buy.
If there is no buyer, there’s no money. It’s that simple. This also affects your reputation in the market. In other words, when you have a contract in place with a seller and you’re unable to make a sale, it damages your entire reputation in the market. That means that in order to make sure that you find the right buyers, you will need to market your property, advertise it everywhere, and research, research, research! Therefore, if you are not willing to first put in some time and learn about the business, this is not the venture for you.
Income is Never Guaranteed
Because of the nature of wholesaling properties, you’re completely dependent on your buyer and your seller to close the deal and not walk away. So, as a wholesaler, you are never guaranteed a stable income as you would if you were working in a traditional job. This means that you need to put in the extra effort, time, and work that will cause you to be successful.
Basically, with wholesaling, there’s no plan B. When you’ve bought a house to flip, there’s always something else you can do to make money off of the property. You could rent it out, for example. Or you could just wait for better times. Property investors without renters can always sell a property if they don’t find any renters. Not so for wholesalers. True, they don’t usually have a financial stake in the property, so all they’ve lost is their time. But that’s exactly it — there’s no getting it back. You’re not building value.
Establishing a Network of Investors Can Be Challenging
It could be that you have a good understanding of the process, but if you’re not connected with a decent network of potential investors or buyers, this makes your job as a wholesaler a lot harder. It’s much easier to get started if you already have an existing network. In fact, if you ask me, if you really want to get into real estate — and in this case, wholesaling — get a mentor. Get to know someone who can show you all there is to know about the business and introduce you to the right people.
If you don’t want to do this, don’t even get started. It would make a lot more sense to just go and get a real estate agent license instead. Getting a decent network of investors is easier for a real estate agent because they are able to access the MLS and have the ability to see listed properties. However, a wholesaler, especially one new to the market, will have a lot of work to do to even get to the same level.
Most beginners and people in general have a tendency to want something for nothing. Unfortunately, this is what many wholesalers expect from their experience. Most would-be wholesalers don’t take the time to research the buyers and the dealers. They often believe that wholesaling is easy and that it’s a quick way to make money and to get you into real estate.
On the contrary, exactly like other real estate options, wholesaling requires a lot of effort, focus, knowledge, and dedication. In fact, I’d say that wholesaling is more difficult to get into, especially if it’s not the way you’re built as a person. Real estate investing takes hard work and sacrifice; I’m sick and tired of seeing people think that taking the blue pill will make them a millionaire overnight. Work hard, be frugal, save money, and then start your real estate business.
Do you agree with this assessment of wholesaling? Why or why not?
Let’s talk in the comments section below!