Can You Take A Minute and Tell Me About Wholesaling Real Estate?

Wholesaling real estate is a great way to make more than just a good living. For a variety of reasons, many real estate investors do not purchase properties directly from the former homeowner. I think you would be surprised by how many real estate investors that actually buy their properties through the wholesale process. At the very least wholesaling should be a part of every real estate investor’s arsenal. Don’t let a deal that you have worked hard to get pass you by profit wise because it doesn’t fit your criteria. Make money by wholesaling regularly.

The act or art (depending on who you talk to) of doing a wholesale real estate deal comes in two different flavors. But before we dive into that, let’s make sure we are all talking the same language. If you have heard or used expressions such as flipping, selling to investors, assigning a contract, rehab buyers, purchasers of fixers, etc., you are essentially talking about wholesaling a property. Simply put, wholesaling occurs when someone either buys or puts a property under contract and then sells it to another investor. The best profit opportunities come when a wholesaler puts a property under contract and then sells that contract to another investor before they actually have to come out of pocket with their own money or through the necessity of actually closing the transaction themselves.

Wholesalers generate their real estate income opportunities by finding motivated sellers, fixer-uppers, pre-foreclosures, bank owned properties and usually put it under contract (flavor 1). In some cases, they actually will purchase the property (flavor 2) because they have purchased the property for such a large discount, that the end investor won’t be making as much as the wholesaler. They then contact their “buyers list” of investors and sell them the rights to that contract by assigning the original contract to the investor.

Don’t get caught up in what the gurus tell you, finding properties from motivated sellers takes work. And they are compensated well for their efforts. Wholesalers typically make $5,000 - $10,000 per transaction. I have seen that figure go much higher though. Wholesalers deal in volume! Instead of making big profits from the sale of one house, a good wholesaler is willing to make moderate profits from many properties. They know and understand that the investor that is purchasing the property from them is likely to make more money, but they also don’t have the same risk level and so the compensation is reasonable to them.

A wholesaler’s ability to know market conditions in and around his or her area is critical. And they should also have some understanding of negotiating. Remember you aren’t just negotiating a great deal for yourself. You have to remember to insure that their will be adequate profit for the investor purchasing the property from you. Most rehabbers will want to earn at least a dollar of profit for every dollar they invest.

Among some real estate investors, wholesaling is viewed right next to used car salesman. That is because some wholesalers inflate ARV’s, underestimate rehab costs and take advantage of new investors in the market place. Let’s be clear there is no place for these types of individuals. And for the most part, those folks aren’t in the business that long. Real estate agents can also take an adversarial position because wholesalers act in the same manner as they do, but with far fewer constraints.

That being said, a reputable real estate wholesaler always has a steady supply of customers. Why such a different view? Great wholesalers develop a reputation for their approach for the comps they use (within a half a mile), repair estimates (legitimate, but not all knowing because you never know what you might uncover) and profit opportunity being close to reality.

You can find more information regarding wholesale real estate through your local real estate investment group, or find out the word on the internet by accessing one of the many real estate investment blogs.

John Panico is the author of this article. John is an active investor of properties throughout NE Georgia. He is the General Manager of Local Guys Equities, LLC, one of the fastest growing real estate investment companies in Georgia. John founded the NE GA Real Estate Buying & Investing Group and wholesales properties to real estate investors around the country. Feel free to contact John about selling your house or other information.