Now that we’ve defined wholesale real estate and discussed how it works, you’re undoubtedly curious about the technique’s advantages. Below we check out the pros and cons of real estate wholesaling.
Three Advantages of Property Wholesaling
- Make more money in a shorter period
- Become involved in the real estate industry
- Available to those with limited cash and credit
Make Money In Less Time
Wholesaling may be a very lucrative career if you’ve done your homework and learned about the process. Wholesaling is ideal for people just getting into the market because it doesn’t require money or expertise. If your offer is accepted, closing the agreement and receiving your money in 30 to 45 days or less is entirely plausible.
Imagine this: You come upon a motivated seller who owns a home with an anticipated after-repair value (ARV) of $125,000. Your below-market offer of $110,000 is accepted, and you enter into a contract.
You find a buyer for $125,000 and complete the transaction with your attorney or title company. It means you’ve earned almost $15,000 in little time, and you and your buyer are better off due to the agreement.
Remember to add your buyer’s information to your buyer’s list, as they might want to do business with you in the future, assuming your first transaction goes well.
Learn About The Real Estate Market
Wholesaling is an excellent way for novices to quickly get involved in the real estate business. You may learn marketing, negotiation, organization, and obtaining proper legal documentation with the appropriate training and education.
In many ways, a wholesale agreement is similar to other real estate deals you’ll encounter throughout your investing career. With a few wholesale contracts under your belt, you’ll be familiar with the features to look for in agreements and the ones to avoid.
No Credit Involved And Little Cash Required
Wholesaling may be an effective option if you’ve been unable to invest in real estate due to a poor credit score or a lack of capital. Even with bad credit, you can join a wholesale agreement since you are not usually buying the property.
Instead, you’re assigning the purchase contract to an end buyer, who is the one that must go through credit checks and raise funds for the transaction. Wholesale real estate, on the other hand, has a few disadvantages. Next, let’s look at some of the drawbacks.
The Cons Of Wholesaling Real Estate
Investors should be aware that any exit strategy entails potential hazards and drawbacks, although most of the risks can be reduced. The following are some of the disadvantages associated with wholesale real estate investment that one should take into account:
- Income might be volatile.
- Dependent on finding investors
- It might be challenging to maintain a buyers list.
No Guaranteed Income
Wholesaling is not a nine-to-five job. Of course, there are advantages to working for yourself. However, you can’t bank on that reliable biweekly or monthly salary payment. No health benefits or retirement plans are offered as part of this business.
As a result, if you want to make real estate investment—particularly wholesaling—your full-time job, you must be the type of person who can control your finances. The greatest thing you can do is create a “rainy day” fund if a transaction does not go through as planned.
Difficulty Finding Buyers
Having a solid buyers list is critical to being a successful wholesaler. There can be no business without a buyer in the world of wholesale. Additionally, your risk is determined by the way your contract is structured.
If you can’t find a buyer, you might be required to repay your seller if you put down too little in escrow. It’s better to have potential purchasers on standby before making an offer to the seller.
The secret is to get the best possible terms in your contract. Your risk of losing money is significantly reduced if you do so. Furthermore, if word gets out that you can’t complete deals, future purchasers will be less inclined to work with you.
Maintaining An Organized Buyers List
Maintaining an active buyers list is half the battle of running a thriving wholesale business. After completing a few transactions, you should have a good list of buyers and numbers. However, it’s not just about having those connections. It’s all about comprehending each buyer’s varying tastes.
If you know “Buyer A” prefers turnkey rentals, you’ll only contact him if you discover one that meets his requirements—i.e., a property requiring less work and is in better condition than usual. If you’ve determined that “Buyer B” is a rehabilitationist, you should only offer properties that need major upgrading and have asking prices below market value.
Instead of emailing everyone on your buyer’s list with each property, only contact those you think will find significance in it. You will develop devoted consumers by staying on top of your contact list and customizing your offers to each customer’s preferences.