Wholesale real estate allows buyers to find properties for sale that someone else, the wholesaler, has secured a contract for prior to selling the property. This is a simple, easy way to buy real estate, but it varies from the traditional methods you're probably accustomed to already.
The wholesaler does all of the work, and he or she will sell the contract to buy the property to the buyer.
The idea is rather simple. A wholesaler wants to be able to invest in real estate, but these individuals often don't have the capital to invest. So, instead, they make their money by:
The wholesaler never exchanges money with anyone, but they sign a contract with an expiry date to buy the real estate. At the end of the process, the buyer purchases the contract, the wholesaler walks away with money from upselling the contract and the seller walks away with the agreed upon amount in the contract.
It's a great scenario for everyone involved.
You can cut out the wholesaler, but then you need to do a lot of work to find real estate to buy. Wholesalers alleviate these long hours spent trying to find properties to purchase.
And there's something else that wholesalers are now flocking to in an effort to make sales: marketplaces.
You can buy properties on wholesale marketplaces securing the same great deals, but you'll gain access to a much larger property inventory. There are a lot of benefits to wholesale real estate marketplaces.
When you join a marketplace, you'll find more inventory, and this is a good thing. You can work with a local wholesaler, but this means that the person is limited. There's only so much time in the day to secure contracts and properties.
And while this may suffice when you want properties in one area, it greatly limits the buyer and seller.
The amount of potential on a marketplace makes joining and/or listing a property on a marketplace a smart choice. You'll unlock a much larger inventory of properties which is going to help you find deals that you would have otherwise missed.
Forget the big name real estate portals that list all of the MLS listings. Sure, it's great to have a complete MLS listing in your area, but these are individuals that are looking for top dollar on their real estate.
And that's all well and good, but when investors are strapped for money, they need lower prices.
Wholesale marketplaces allow you to unlock lower prices in masses. You see, people that choose the wholesale route will:
Yes, the buyer may pay a slight premium on the contract, but overall, the prices are much lower. An agent selling a home for $200,000 will receive a $12,000 commission, on average. So, the seller will walk away with $188,000.
Sellers are able to place their homes at a lower value when working with a wholesaler.
You may be able to buy the same property for $193,000, or somewhere along those lines, with you saving money and the seller walking away with more money.
It makes sense because a wholesale property is just like buying from an owner directly, but someone else has done all of the leg work for you, so it works out in the end.
Remember how we were just talking about the MLS? Well, the MLS has so many properties and listings that they're often aggregated across the Internet. This means you'll find the same property across hundreds of real estate portals.
And this is a serious issue.
Homes are selling so quickly that inventory levels are low and prices are skyrocketing. You'll often find a property that you really like and find that the property is sold before you can even view it.
Everyone is looking at these traditional portals.
But, not as many people know about wholesale real estate marketplaces. When you choose to join these marketplaces, you're gaining access to exclusive listings. The person holding the contract is the one promoting the property, and they know that the average buyer doesn’t know about wholesaling.
So, these contract holders will go to the best marketplace and offset the property.
This helps buyers by offering:
If you don't want to be the one that has to fight over a property, wholesale marketplaces are the ideal choice. A wholesale marketplace will allow you exclusivity, and this means you'll gain access to some of the best real estate on the market.
You'll have first dibs on a property instead of trying to compete with millions of users.
But there must be some sort of catch right? All of this sounds too good to be true, right?
You'll have access to some of the best real estate options off of the market today, but you may need to pay for the right to take over the wholesalers contract. This is a minimal fee that is greatly offset by the buyer agreeing to a much lower value through the contract.
Wholesalers know that investors want deals, and they often haggle down the price of a property
So, even with the wholesaler fee, you'll walk away with a piece of real estate that's worth much more than you're paying even after considering all of the fees and commission involved. It's a great way to get into investing in real estate.
You'll even find properties that are low priced and great for new investors that often lack large capital and resources.
Wholesale real estate marketplaces are one of the bests ways I know to enter real estate investing without major resources to start investing.
You might find a great deal on MLS, but chances are that all of the great deals will quickly pass. Oftentimes, realtors themselves will snatch up the best properties before you even get a chance to react.
And you're going to compete against a lot of investors – and people just like you – that are trying to find ways to make money in real estate.
There's a lot of money to be made, too.
Have you ever driven down a street and saw a home with the grass overgrown, windows boarded up and thought: this would be a great home with some work? If so, this is the concept behind the drive and find method.
There are homes, often homes that need just minor work to bring them back up to most people's standards, just rotting away.
Sometimes, the owner has died, and other times, the home was foreclosed or a bank owned the home and didn't do anything with it. There are a lot of reasons why some homes just sit there rotting away into a distant memory.
And there are opportunities to buy these properties.
The easiest method is to go to your local city hall and find out who owns the property. There should be public records on the property that will help you contact the right person who may own the property.
Again, you will need to do your research to find:
If the property looks like someone abandoned it, you might be able to buy it direct for pennies on the dollar. Oftentimes, someone is paying property tax and holding on to real estate that they don't want simply because they don't want to put the effort into selling it.
Marketplaces help connect you, an investor, with real estate owners who are selling their property. The idea is that these marketplaces will charge a small fee for you to view the properties, in some cases they may be free, and the owner sells the property directly.
Cash is king in the marketplace, and you can haggle to try and get a better deal.
There are marketplaces for everything, from land to real estate. You'll need to find these marketplaces for cities or states that you're interested in buying real estate. There are a few things to consider:
You'll want to do your due diligence when looking at any real estate on marketplaces. There are a lot of people who try to sell properties illegally on lower-end marketplaces, so make sure the marketplace you choose helps with the vetting process.
If you find a good marketplace, and there are a lot of them available, you'll be able to snag great deals month after month. Just remember that every seller is different, so if you try to haggle too much, you might miss out on a great deal in the long run.
Classified ads are dying – the ones in your local newspaper at least. People know that they can get a lot more traction online, and since Craigslist offers a cheap, fast way to post, people are flocking to the site.
There are a lot of ways you can go about using Craigslist:
A secret that I was told a long time ago is that a lot of small landlords are losing money on their investment. This is an opportunity for you to try and buy a property from a landlord. You might need to manage the property yourself or invest in improvements to make the property a viable revenue-generating option to add to your portfolio.
Simply contact the person who is listing the rental and asking if they would be interested in selling their property. It can't hurt to ask, and you'll find a lot of people willing to sell a property they're tired of running.
eBay is also an option, but I have had less luck with this method in recent years as more realtors flock to the site to add their listings.
You can choose to pay someone else to do the work for you. Wholesalers will work for you, finding deals or making deals with owners to sell their property. These individuals will then "sell" the contract to buy the real estate to you for a minor fee.
Oftentimes, the price is below market value and you'll find that wholesaling gives you the opportunity to find incredible deals.
The hardest part of the process is finding a good wholesaler.
It's easy to find a wholesaler who doesn't know what they're doing than it is to find someone that's a true expert and can scout out deals others don't even realize exist. You can even find wholesalers that will send potential deals right to your inbox.
It's an almost effortless way of finding the best deals possible.
Investors with limited funds and experience who want to get into real estate will find that there are a few options available. Land is a great option, and the right plot of land in the right location may prove to provide a substantial return on your investment.
But what is wholesale real estate?
This is a term that a lot of investors really don't understand, and it's leading to a lot of missed opportunities, too. Before we dive deeper into the subject, let's start with the basic definition of the term and work our way into a better understanding from there.
There are a few definitions of what a wholesaler really is, so you need to really determine what route you want to take. In real estate, wholesaling involves a person going out and finding real estate deals for investors.
This person doesn't work for free, and they charge a "fee" for finding a great investment.
In some scenarios, the finder may go and sign a contract with a potential seller that is valid for 21 days (just an example). The contract may allow the wholesaler or the investor to buy the property, within the term of the contract, for $100,000.
Finder fees may push this price to $105,000, but the property is really worth $155,000, so it's a great deal.
The wholesaler will then sign an "assignment contract" with the investor, who now has the right to buy the property. And the great news is that this contract didn't cost the wholesaling individual anything but their time.
So, as you can see from the definition, you can either:
1. - Find properties for investors and sell them a "contract" to the property, or
2. -Use a wholesaler to buy property for much less than it's worth.
As a buyer of properties, which we assume you will be, there is always some risk involved. You need to know the market values in the area for one, and you also need to know what the finder's fee will be, too.
Never purchase a property without some form of due diligence first. You have a lot of money riding on your investment, and it's unwise to jump in without learning more about the property. A few of the steps you may want to take are:
· - Investigate the property value for both the house and the land
· - Research the taxes in the area
· - Research the neighborhood
· - View the property if possible
Legal paperwork needs to be signed, the definition of a "broker" will dictate how much legal paperwork you need moving forward.
You'll find a lot of people stating that this practice is illegal, and the basis for this is that the "broker" or the seller of the property, the person who is finding it for you, may not be licensed. But there's also the argument that the finder is merely signing a contract over to you rather than brokering the deal.
If you're the finder, you may need to worry about these legalities or at least discuss your fears with a lawyer. Most lawyers will shower you with different opinions, and it may be just as easy to pay to become licensed.
But buyers will have different fears.
The key most important thing for you, as the buyer, is to:
· - Understand
the cost involved in a true renovation of the real estate purchased. -
· - Understand your current market and which homes, after the renovation, are selling for in the market.
If you plan on renting the property out, you can rely somewhat on the wholesaling individual who will often do a lot of this work on your behalf. There's also the consideration of funding. A lot of the deals need to close quickly, so you will want to either have cash available or be pre-approved for a mortgage.
Mortgage pre-approval is a great option for higher priced homes and will allow you to buy a home much faster even if it is a wholesale real estate property.
Buyers also need to be concerned about the contract being assignable. There are a lot of states that do not allow assignable contracts, and in this case, money should not be handed over to the finder until you're positive that the contract can be assigned to you.
A lawyer may need to be involved to ensure that the contract is legally binding and that your money is safe.
If you choose to find and "sell" the real estate contract, this is a great way to begin building a nest egg and make money on real estate. You will need to have no money to come to a contractual agreement with the seller, and if you find a buyer, you'll make money with almost 100% pure profit.
It's a win-win situation for the finder and the buyer of the property.
Sellers also come out ahead because the seller will be able to sell their home without the hefty realtor fee attached. When realtor fees are as much as 6%, the savings can equate to $6,000 on every $100,000 of real estate.
The finder doesn't spend a dime, but uses his connections or marketing to find a buyer who finds value in the property.
It's a great option to make money, and it's an option that a lot of investors are turning to. The real estate market has passed the pre-bubble level, and since prices are rising quickly, wholesale real estate has become a hot commodity.
In many areas where housing prices are rising much faster than the wages, it only makes sense to go the wholesale route.
You'll find land and homes on the wholesale real estate market, and the right deal can offer a substantial return on your investment. Just remember that you'll either need to work the land, wait on the land value to appreciate or choose a property that can be renovated and sold for a profit.
Cash is also king, and if you have cash as a buyer, you can act as both the buyer and the finder, eliminating fees in the process.
Land can be a great investment. After all, they aren’t making anymore. But buying land can be a challenging process, especially if you’re inexperienced. Just as there are risks when buying real estate, there are pitfalls that you should be aware of when investing in land. Here are four of the most common ones:
One of the biggest mistakes that land investors make is assuming a piece of property is suitable for building. In some cases, it costs more to prepare the land for development than the investment is worth.
One man from New York purchased an acre of land on top of the hill overlooking the golf course. He assumed it would be the perfect site to build his 4,700 square-foot dream house. So once construction began, he quickly found out that the hill property was on a man-made hill. This wound up costing him over $40,000 to excavate the land and find solid ground.
Although he eventually built his dream house, he wound up in litigation with the seller to recover these extra excavation costs. In the end, the extra costs and frustration were not worth it.
A situation such as this is not common. But it’s not unusual for inexperienced investors to purchase a piece of property that’s perfectly priced and perfectly located only to find out later on that the land is too difficult, too costly, or impossible to develop. Like any other investment, you need to research before committing to a purchase.
When it comes to buying land, you can never make assumptions. Always hire the right professionals to ensure that the property you’re considering is able to be developed in a cost-efficient way.
Zoning can also be an issue and prevent you from developing the land the way you want to. Depending on your investment goals, it may or may not be worth it to get the property rezoned.
One woman from Canada bought 50 acres of land in an area that was experiencing high growth. It was only a matter of time before developers came knocking on her door wanting to buy her property. The only problem? The land wasn’t zoned for housing development.
Over the next decade, she would go through the complicated task of rezoning and selling off her property (40 acres total). In this case, it was worth the effort as she cleared over $3 million before costs. But this is a rare outcome.
If you’re lucky enough to purchase land in an up-and-coming area, it may be worth it to go through the rezoning process. But unless the land offers a very lucrative opportunity, you’re better off looking for a piece of property that’s already zoned properly.
Just like with land preparation, you can’t assume that a piece of property is zoned for the type of construction you want to perform. The neighboring property may have a house built on it, but that house may only be permitted because it was built before the adoption of the new zoning law.
Before purchasing a piece of property, make sure that the zoning will permit you to develop the structure you want to. Even if you’re just holding onto the land, you want to ensure that the zoning of the land will attract buyers.
Additionally, you also want to know the land’s boundaries and any easements that may be present. Knowing who will have access to your property is very important, especially if you plan on developing the property yourself.
Environmental hazards can be a major pitfall when investing in land, and some investors don’t realize that their property is contaminated until it’s too late.
One trio of investors decided to invest in a property in a white-hot market. Their goal was to flip the land to a housing developer, and the developer would then be responsible for rezoning the land from industrial to residential.
What the trio didn’t realize was that the land was contaminated. At one time, an auto wrecker was in operation on the land. Hazardous waste and anti-oil drums were scattered all throughout the property. These environmental hazards made the land virtually impossible to sell.
Before purchasing a property, always have a professional come in to inspect the land and ensure that no environmental hazards are present. The three investors walked away with huge losses after being involved in a legal battle. You don’t want to make the same costly mistake.
You may find the perfect piece of property with a fantastic view, but unless the property has water, it’s virtually useless. If there’s no way to remove wastewater from the property, it will be costly to develop.
Investors often overlook the importance of properties having water and sewer access. Even if a septic tank can be installed with relative ease, it’s still important to ensure that the location of the septic tank won’t impede on the property’s development or contaminate drinking water.
Ideally, you want to find a piece of property that has water and sewer connections already available. If that’s not possible, you can find peace of mind in knowing that most land does have water somewhere under the surface. Finding and tapping into that water source, however, can be very costly. The cost will depend on how deep the well needs to be in the type of soil that will need to be drilled. Drilling through rock, for example, is more costly than drilling through sandy soil. Until a well digger can locate the water source, it’s impossible to know how much it will cost to dig a well.
Investing in land isn’t as simple as finding a great location and choosing a plot that’s priced just right. Finding out as much information as you can about the property will help you avoid these common pitfalls and make a smart investment decision. If you’re inexperience with land investing, considering getting help from professionals who can help make the process as simple as possible.
Should you pay cash for your real estate investment, or take out a loan? The age-old debate on whether to buy outright or leverage still rages on even today, and the truth is that the answer isn’t as black and white as you might think. Neither is the right or wrong way, and the method you choose will largely depend on how much you have to invest and how much you want to boost your returns.
We’re going to take a look at both sides of the argument to help you decide which is the right approach for you.
There are many investors who argue that cash is the way to go when investing in real estate. When you pay in cash, there’s no need to worry about securing a loan, and no need to worry about potentially defaulting if things don’t go as planned.
Whether you plan on flipping or renting the property, you can enjoy the benefits of not having to worry about a mortgage payment as you make repairs and get the house ready for sale or leasing. And remember, each upgrade you install will improve the value of the property. You also have 100% equity in the home, so if you need to in the future, you can take out a loan against the property.
Sellers are also attracted to buyers who want to pay cash, and you’ll have more leverage to negotiate a good deal. Buyers with cash don’t have to worry about being approved for a mortgage or loans falling through before closing. Closing can happen quickly as well, which is what sellers are after.
If you decide to rent the property, you can immediately begin generating a monthly cash flow and see a return on your investment more quickly than you thought possible.
Of course, you have to have the money on hand to buy a real estate property in cash. If you’re new to investing, you may not have that kind of money laying around in your bank account. In this case, your decision is already made for you – unless someone is generous enough to gift you the money you need.
And many argue that paying cash for the property, particularly if you plan on renting it, won’t give you as high of a return as taking out a loan will.
Savvy investors say you should always use other people’s money to make investments. And for the most part, they’re right. Some of the most successful flippers and rental property owners used loans to purchase real estate.
Because it requires less upfront cash. And the less money you have tied up in a property, the better.
Let’s say you purchase a property for $200,000, and you put 20% down on the mortgage. That’s a $40,000 investment – much smaller than paying $200,000 in cash. Because you are using less cash, you’ll see a higher cash on cash return.
If you’re renting out the property, your tenants are paying the mortgage for you. Again, you’re using someone else’s money to pay for the investment, albeit at a slower pace. Leveraging properties also gives you the opportunity to buy more houses.
Let’s say you have $100,000 in cash to invest. You can purchase three or four homes with that much money if you take mortgages out on each one. If you paid cash, you’d only be able to purchase one property – if that.
There’s also the added benefit of being able to enjoy tax benefits for each property you own. And the properties you buy may be in better condition or already come furnished with upgrades that allow you to resell at a higher price right away, or demand higher rent payments.
If you bought a $100,000 property outright, you’ll without a doubt need to put more money into fixing it. How many properties have you seen on the market selling for that cheap? Not many. And when you do, they’re usually in bad shape.
Of course, there are some drawbacks to using a mortgage to purchase your investment real estate properties.
If you plan on renting the property, you’ll need to consider the fact that you’ll need to pay a mortgage every month. The longer the property sits vacant, the more money you’ll lose. If you have a hard time finding reliable tenants that pay on time, you may wind up paying many of those monthly payments out of pocket.
And if you can’t keep a steady stream of tenants, you may wind up having to actually sell the property. While this is an extreme, last-case scenario, it is a possibility – and it happens more often than you think.
When you take out a mortgage, you’ll also earn less income each month than you would have if you had purchased the property outright.
Ultimately, the answer lies in your financial situation and your investment goals. If you don’t have the cash on hand to buy property outright, then a loan is your only option.
If you do have the cash, you may consider how taking out a loan will provide you with a higher cash on cash return, require less upfront capital and afford you the opportunity to purchase multiple properties at once.
Still, paying with cash feels less risky, even though it may technically be riskier to tie up your capital in a property. Nevertheless, you won’t have to worry about making a mortgage payment each month. And ultimately, you’d pay more for the home if you took out a loan because of interest.
Savvy investors will tell you to take out a loan – let someone else pay for your property while you reap the rewards. But if buying in cash feels like a better option for you and makes sense for your investment goals, there is absolutely nothing wrong with going this route.
Make sure to do your due diligence and take the time to weigh your options carefully before making a final decision. Either way, buying property will provide you with a nice return if you choose a desirable location.
Ask 20 real estate investors what the best real estate investment is, and you’ll receive a lot of different answers.
Buy land in high-population areas
Buy land near the ocean
Rent out properties
All of these investments can pan out and make you a lot of money. The issue is which is the best investment? Rental properties can be a worthwhile investment, and it can provide massive returns, but this is a long-term option.
Flipping houses, on the other end of the spectrum, may also be an option, but it’s a costly option, too. You’ll come across unreliable contractors and estimates almost always go above, which end up costing you more money in the long run.
For long-term profitability – think retirement – I believe rental properties may be the best real estate investment.
Let’s see why.
You’ve worked hard. Days, months and years of your life have been spent working for the moment you can finally do something you’ve always wanted to do: invest in your future. But this isn’t just another investment or a contribution to a 401(k); this is an investment in real estate – a tangible item.
Real estate can be passed down to future generations, and land is something that is becoming less and less available.
And you can profit immensely from these investments, too. What many people don’t understand about this type of investment is:
You Own the Property: You own the land and the home. If something goes wrong or you need cash faster, you can sell the property (hopefully for a profit). A lot of investments aren’t tangible, but with a home, you can live in it if times get rough, or sell it.
Monthly Income: You can make money on a monthly basis. But just because you’re charging $1,200 a month for rent doesn’t mean you’ll see even a quarter of that (more on this below).
Long-Term Potential: Risks are far less with a rental property because you’ll make money and have an asset that can be sold in the future. The goal is to either wait until the mortgage is paid off and sell for a massive profit, or reap the benefits from monthly rent payments when the mortgage is paid off.
In terms of financing, you’ll also be able to take out traditional loans in an effort to invest in real estate. Financing will allow you to be able to invest without a huge upfront payment, as seen with land purchase, for example.
The biggest misconception about rental properties is that you’ll be able to keep all of the monthly income for yourself. You’ve set your monthly rental price at $1,200, and if you keep every last cent for yourself, it will go into foreclosure or become rundown and condemned eventually.
There are a lot of costs involved:
Mortgage: If you purchased a $200,000 home, put 5% down and have an interest rate of 4%, you’ll end up with a mortgage of $954. Then you have to consider homeowner’s insurance and property taxes, too.
Association Fees: If a townhouse or condo is chosen, you’ll also need to consider any association fees attached. This can be $50 or $300+ a month – a big fee.
Repairs: Planning on selling the rental in the future? It needs to be in tip-top shape for you to sell at an acceptable price. Repairs will be needed – it’s not the responsibility of the tenant.
So, you may want to put away $200 a month for repairs (this money shouldn’t be touched), and with a $954 mortgage, you’ll be spending $1,154 a month in expenses on the extremely low end. We’re not even considering property taxes, which range greatly from one state and city to the next.
In an ideal world, you’ll charge a rate that allows for a profit at the end of every month – I recommend it.
But if you choose the wrong market, you’ll be paying off your mortgage only. There isn’t anything wrong with this either. Home prices can appreciate in price from 100% - 300%+, depending on where you live and the rate of growth in your city. So, your $200,000 house may be worth $400,000 or even $600,000 or more, according to statistics from 1970 – 2000.
If this is the case, you’ll have a massive payout at the end of your 30-year mortgage that someone else paid for – your tenant.
But your monthly returns can be nil. The idea behind a rental property is to either produce monthly income, in which case you’ll want to pay off the house or put a large down payment down, or to wait it out and sell it at the end of your mortgage when you’ll reap all of the profits.
People also do tricky things, like take equity out of the home to buy more rentals and make even more money.
So, as you can see, rental properties aren’t an automatic cash magnet, but they can be extremely profitable in the long-term. You’ll need to sit down and determine all of the costs associated with the rental before making your purchase. Maybe your area also has high rental prices – rental prices are up across the country – so you can demand higher rent to get a higher monthly income, too.
There is a lot to consider, and rental properties can be a lot of work with a large return, too.
When done right, you will find that rental properties are the least risky and provide the highest long-term return.
But a sound real estate portfolio is wise, too. This will be a portfolio that has fixer uppers waiting to be flipped, rental homes appreciating in value, and raw land that is leased or appreciating in value, too.
If you can find a home well below market value, you can also rent it for a few years before selling it for a profit, too. There are endless possibilities with real estate.