Investment in stocks and bonds isn’t like real estate as you don’t need a lot of initial capital to invest in these two markets.
In the stock and bond markets, you can dive right in with as little as $100 and exit it whenever you like.
On the other hand, real estate is different as it takes time to buy and sell the property. But, there are some strategies in real estate where you don’t need capital to invest in real estate.
To discuss the strategy in detail, Graana.com, Pakistan’s smartest property portal, explains what is real estate wholesaling and how it works.
What Is Real Estate Wholesaling?
Real estate wholesaling is one of the legal strategies you can use to your advantage without making any downpayment or an offer to buy the property.
This strategy works best when you don’t have the money to invest in real estate. This short-term strategy allows you to make big profits without investing your money.
Contrary to what you guys think, real estate wholesaling is different to retail wholesaling. In the case of retail wholesaling, the wholesaler sells goods to the retailers who repackage the items and sells them at a higher price to the customers.
The wholesalers earn profit by selling the goods in large volumes to the retailers at a lower price.
On the other hand, the concept of real estate wholesaling is different. It doesn’t involve selling multiple properties to the customers at a lower price point.
In this strategy, the wholesaler contacts the seller and markets it to potential buyers. It is a whole different kettle of fish as the wholesaler contracts the home from the seller that is usually in distress. After contracting it, the wholesaler finds the interested party, willing to buy the property.
Purpose of Real Estate Wholesaling
The main goal of a real estate wholesaler is to make money. But, the question is how does the wholesaler make the money? Basically, the person sells the property to the buyer at a much higher price than the price agreed with the seller.
The difference between the sale price and the one agreed with the seller is the profit of the real estate wholesaler. Basically, the profit is paid by the buyer.
This business strategy is best suited for people who don’t have finances and want to dive right into the real estate business. If you have communication skills and are fairly great at dealing with people, wholesaling may be the right choice for you.
How to Succeed in Wholesaling
This strategy requires a lot of time, commitment and patience which is why it isn’t for everyone. You need to have marketing and communication skills to be successful in real estate wholesaling.
Plus, if you have a network of investors who are willing to buy any property then you will have great success in this strategy.
To succeed in wholesaling, you have to find the right property. You have to find sellers that are eager to sell the property at a lower price.
You need to find such properties that are in upscale locations and have all the desired features. These things can help in finding potential buyers easily. Before making any offer to the seller, review the property and check what kind of repairs the home needs.
These things can help you in making the right offer to both seller and buyer. If the price is too low, you may scare the seller. If the price is too high, you may not be able to find the buyer.
This is why it is important to add a contingency in the contract that allows the wholesaler to back out of the deal. This will limit the risk for the real estate wholesaler.
Real Estate Wholesaling vs. Flipping
In house flipping, the time you need to sell a house is more than that required in wholesaling because you need to make repairs and modifications to sell it at a profit.
On the other hand, in wholesaling, you aren’t making any repairs as the wholesaler doesn’t buy the property. This is why wholesaling is less costly and involves lower risk than house flipping.
In wholesaling, you don’t need any kind of initial capital to start the business. You are not buying the property, but just using your market knowledge and network to find the right buyer for homeowners who are looking to sell the property.
The house flipping strategy requires you to buy the property at a lower price, and then make repairs and pay for costs like taxes and utilities before selling it for profit.
The success in house flipping depends on the price of the property and how quickly you’re able to sell it. On the other hand, success in real estate wholesaling depends on the wholesaler network and the market knowledge he/she has.
Real estate wholesaling is worth it as it can help you to get familiarised with the industry. With some market knowledge, you can be successful in wholesaling and can use the profits to reinvest in other investment avenues.
For more information about real estate, follow the Graana blog.
