There are more than a couple of ways to make money in the real estate industry. Having said that, the best investors know how to take advantage of every situation they are presented with. They also know not to have all of their eggs in one basket. You can always have a niche that you can comfortably make money, but you shouldn’t be so fixated on it that you blindly avoid other opportunities. While rehabbing may be your bread and butter, there are other methods of making money. Wholesaling, in particular, is a great way to get started in real estate investing. Considering its diversity, wholesaling can be a lucrative addition to any real estate business. If you haven’t considered it yet, maybe it is time that you give it a shot.
A wholesale deal is one in which an investor finds a motivated seller that is willing to sell the rights to negotiate on their property. The investor then finds a buyer who wants to buy the property at a markup of the wholesaler’s choosing, usually around $5,000-$1,000. When the deal closes, the wholesaler will sell to the investor at the higher price. The original seller is happy because they got out of the property and a bad situation. The wholesaler is happy because they got in and out of a deal, risk free and with a profit. The end investor is happy because they got a property that they didn’t have to market to find. They will eventually make money after the rehab. Everyone wins.
There is a large contingent of investors that believe rehabbing is the best way to make money in real estate. This is certainly a viable option, and one that can produce great profits, but it is far from the only way to do it. Wholesaling is also thought to be a method for new investors only. In reality, wholesaling can and should be done by anyone that has access to distressed sellers or simply has deals they don’t have a desire to work with. For as great as the profits on a rehab can be, there is also a lot that is required. You need to get the property at a low enough price where, with the right amount of work, you can still make money. For as many success stories we hear from flippers, there are also a few deals that turn out to be disasters. With wholesale deals, you can eliminate most of the risk and get more deals closed.
When you wholesale a deal, you do not need any of your own cash to get started. You may need some money to look at the title or to get started marketing, but you don’t need a large down payment or money for closing costs. This alone makes wholesaling a viable option for investors, old and new. Because of the minimal risk, you can afford to focus on volume and get more deals assigned to investors instead of having to deal with contractors and other parties that rehabs present. You also don’t need to have to wait three to six months to get your money. Even the most efficient flip deals take at least 30-60 days. In the same time, you can get two wholesale deals under contract and not have to worry about overseeing a job site or focusing on a budget.
Another benefit of dealing with wholesale deals is that you don’t have to worry about market fluctuations. You are dealing with investors that pay cash and not end buyers who are looking for perfectly finished products. If you price the market wrong on a rehab, you could be looking at much longer hold times and a reduction in the sales price. By wholesaling the deal and getting out of the way, you are no longer concerned with fluctuations.
There is something to be said for working smarter as opposed to working harder. There is certainly nothing wrong with hard work, but there are times when passing a deal off and making less is the right thing to do. Making $15,000 on one rehab is great, but if you spend every waking hour for 90 days to do so, it doesn’t leave much time to find the next deal. In those same 90 days, you can assign three contracts for $5000 apiece, and still have enough time to work on getting more deals and growing your business. You also will keep yourself sane if you let an occasional tricky rehab deal pass and opt to wholesale it. Instead of viewing this as leaving money on the table, you should look at it like you are maximizing your time to the fullest.
This doesn’t mean you should stop flipping properties and dive directly into wholesale. You should continue to do what you love. If this means flipping, stick with it. What you should do is be more selective in the deals you will work on. Even an 80/20 flip to wholesale ratio is better than not having any at all. A side benefit of wholesaling is that you will be able to grow your network with area investors. You never know when they may have a deal that isn’t right for them. The more diverse your real estate portfolio is, the easier the business will become.