A Beginners Guide To Wholesale Real Estate

For new investors who are making their way into the world of real estate, wholesaling is a key strategy. Even investors who do not have a sizable amount of capital on hand can still benefit from wholesaling. This strategy does not require very much experience either.

Those who are not familiar with this investment strategy will want to take a closer look at the following guide. Building a wholesaling business has never been easier. These tips and pointers are designed to further simplify things.

What’s Wholesale Real Estate?

This term is used to describe great real estate deals that are presented to various investors. The fee that is offered to those who present the deals is not quite the same as a finder’s fee but the principle is relatively similar. There is more paperwork, though. This step is designed to make the process as legal as possible.

The concept can be confusing to some. It is rather simple. Let’s say that John comes into a property that costs $50,000. He is told about the property by Jane. Jane wants to receive $50,000 for the property and draws up a contract with John, stating that the property must be sold to him (or someone else) for that price within a certain time period.

In the meantime, John contacts his buddy Tommy. Tommy is an experienced house flipper and the numbers are appetizing to him. He strikes a deal with John to purchase the property for $55,000. John then pays Jane for the property and pockets the additional cash. This is his wholesaler’s fee.

Related: Cost Segregation For Multifamily Investors: Why It Is Necessary

There are other ways for deals of this nature to be structured but this gives would be investors a general outline to work with. Now, it is time to move onto more challenging concepts….

Can We Wholesale Without Putting Money Down?

This is a more complicated query. While the original story might make some readers believe that they are able to make wholesale deals without money down, there is one element that was not mentioned. Making the sort of connections that allow flips to take place is not as easy as it looks.

Wholesaling is all about marketing. The top marketers are always going to have more success than those who sit around and wait for things to happen. Wholesaling can be done without money but there is no way for a real estate investor to be successful without putting in the time and effort.

What About The Legal Aspect?

There is a great deal of debate as to whether wholesaling is technically “legal”. The laws that govern these matters tend to be different from state to state. The research process is incredibly important. It is in the best interests of any investor to consult with an experienced attorney before making any sort of binding decision.

Those who argue against the legality of these deals believe that the wholesaler is essentially acting as a broker and lacks the proper licensing. On the other hand, those who argue for the legality of wholesaling say that these rules do not apply. They are merely selling the ownership of a contract and not an actual property.

Related: How To Finance Your First Flip: 3 Foolproof Methods

Some states may also not allow a buyer to market a property that they do not currently own. That is why a real estate investor will need to make sure that they are sitting down for a consultation with an experienced lawyer. The lawyer lets the investor know if they are on the wrong side of the law.

How To Remain On The Right Side of the Law

Fortunately, a wholesaler is able to remain on the right side of the law by taking a couple of crucial steps. It all starts by obtaining a broker’s license. There is no need to worry about the potential pitfalls from a legal standpoint if the correct licensing has been obtained. Sure, this step might be costly but it is well worth avoiding the typical legal hassles, right?

An investor should also be willing to purchase the property and sell it themselves. This allows the investor to sidestep any concerns associated with the lack of legality that comes with selling a contract for a property. These are the steps that a wholesaler takes when they want to be sure that their purchase is pure.

Make sure to check our wholesale property report – a new feature of our property software. We always add new features, to make our tool even better for our customers.