Wholesaling real estate is often compared to flipping houses, but the strategies used are vastly different. With house flipping investors buy homes below market value, make required repairs, and sell the property for profit. With wholesaling, investors don’t need to buy the property or make expensive repairs.
There are a few ways to profit from wholesaling. Investors can act as a matchmaker by locating property owners who need to sell their real estate quickly and investors who have cash in hand. Some investors assume mortgage payments, than sell the property for profit. Others buy distressed properties for a fraction of their value and sell to individual buyers or investors.
When investors act as a matchmaker they earn a fee for bringing the parties together and closing the sale. They scout out distressed properties such as homes entering into foreclosure, real estate short sales, or run-down homes in need of extensive repairs. They then locate investors or rehabbers and mediate the property transfer.
Investors sometimes takeover mortgage loans using subject to contracts. This can be a gray-area as banks typically include a ‘due on sale’ clause in mortgage notes which require mortgagors to pay the loan in full when the property is sold. Before entering into subject to contracts, investors should consult with a real estate lawyer to ensure the transaction abides by state laws.
Some investors engage in wholesaling by purchasing bank portfolios which consist of multiple foreclosure properties. When investors buy homes in bulk they obtain wholesale prices. Banks typically bundle houses which have been dormant for several months. These properties usually require substantial repairs or renovations or are located in less-than-desirable neighborhoods. Therefore, investors will want to conduct due diligence to minimize financial risks.
The primary goal of wholesaling real estate is to buy the property at deeply discounted prices and sell for profit as quickly as possible. Investors typically scout out foreclosure houses sold through public auctions or bank owned properties. However, there are also opportunities for profit within the private sector.
One good source for locating potential wholesale properties is homeowners who have listed their property as ‘For Sale by Owner.’ FSBO properties typically have a lower sale price than those listed through real estate agents because sellers do not have to pay a commission.
Sellers oftentimes list their property as FBSO to avoid foreclosure. In many cases, sellers will be satisfied receiving enough money to pay off their mortgage note and walk away from the property.
Investors can learn how to succeed with wholesale properties by conducting online research, joining local real estate clubs, or networking with other investors through online forums. Taking time to become educated about this niche can help investors maximize their return on investment.
Wholesaling properties can reduce the challenges and costs normally associated with house flipping. Becoming a wholesale real estate investor can lead to a profitable business venture that offers winning solutions to all parties involved.
