Are you a budding real estate investor looking for ways to get started? Becoming a licensed real estate agent is the traditional path, but it can take several months to see significant returns. Flipping houses is a great way to profit quickly, but it requires extensive DIY skills, and funding all of the repairs out of your pocket can quickly become expensive. That’s where wholesaling comes into play.
Wholesaling in real estate is the process of finding and negotiating deals with property owners, then immediately selling those same properties to other investors. It’s a great way to get started in the industry with little money or experience. This post will go over what wholesaling is, a real-life example, and some tips for getting started. Keep reading to learn the basics of real estate wholesaling.
Wholesaling is About Buying Low and Selling High
Real estate wholesaling is a short-term business approach that investors use to make significant money by reselling homes. Real estate wholesaling is not the same as retail wholesaling, a method in which the wholesaler sells many items to a shop, which then repackages and sells them at a greater price.
In real estate, the wholesaler’s job is to identify homes that are being sold for less than their potential market value and find a third party that’s willing to buy them.
The wholesaler charges a buyer a higher price than the seller, keeping the difference as profit. While DIY home flippers are responsible for overseeing repairs and high-ROI home upgrades, wholesalers facilitate the relationship between the original seller and the buyer.
How Much Money Can You Make as a Real Estate Wholesaler?
If you’ve done your homework and thoroughly studied the real estate market you’re operating within, you can make sizable profits through wholesaling. The best part is that most investors can get started without much capital overhead. In best-case scenarios, the turnarounds can be quick, and you might receive a check in a month and a half or less.
Here’s an overview of what an ideal wholesaling experience might look like. For starters, wholesalers can get the best deals on inventory during a buyer’s market. In a buyer’s market, the number of houses for sale is greater than the number of purchasers seeking to buy one.
Suppose you meet a property owner that’s looking to quickly sell their house, which is valued at $200,000. Because they’re in a hurry to sell, you could be approved with a below-market offer of about $175,000.
After buying the house, that’s when the real work begins. Finding a buyer is the only way to profit, so maintaining relationships with other investors is the key to success. In this example, if you find a buyer willing to pay $190,000 for the house, your profit would be $15,000.
This scenario is ideal because it’s a “win” for all parties. The seller can quickly offload their property, the buyer gets a below-market deal on their new home, and you walk away with a profit.
What to Know About Wholesaling Before Getting Started
Wholesaling in real life isn’t always as easy as the example above. Wholesaling might be difficult depending on the real estate norms in your location. Rules and regulations dictate who can profit from real estate sales vary by state and city. In Maryland, for example, only licensed real estate agents are permitted by law to earn a commission from real estate sales.
In Pennsylvania, the rules offer a little more space for wholesalers to operate. Pennsylvania real estate regulations almost always require a valid real estate license for any party to purchase, sell, or exchange real estate. However, such a legal obligation does not apply to individuals attempting to sell an investment in real estate that they own.
In Philadelphia, if you want to acquire residential properties solely for resale, you’ll need a Residential Property Wholesaler License.
However, you don’t have to get this license if:
- You’re a licensed Pennsylvania attorney or realtor
- You’re planning to operate the property as a rental
- You’re a flipper making upgrades before selling the property at a higher price
Is Real Estate Wholesaling Right For You?
Is real estate wholesaling right for you? The answer to that question depends on your goals and the amount of risk you’re comfortable with. If you want to get started in real estate without extensive experience, wholesaling may be an excellent option for you. However, keep in mind that some risks are associated with this type of investing. It’s essential to do your research and understand the rules about real estate wholesaling before getting started. If you’re ready to give it a try, we encourage you to start small and build your business slowly. With hard work and a keen eye for quality relationships, you could soon be enjoying the benefits of wholesale investing.
