Often, when you are new to real estate investing, and looking for the perfect place to start, wholesaling may come up in conversation. But what is real estate wholesaling, and how can it benefit you better as a new investor than normal real estate investing, which requires you to purchase a property?



Wholesaling, simply put, is an almost risk free way for you to get a contract on a property without actually buying it. Then you use your resources to find a buyer for the property before the contract ends. You then sell the home at a price that is slightly higher than the amount you got the contract for. The difference between what you get the contract for and what you sell it for will be your profit.

Wholesaling is ideal if you are looking for a way to generate a positive cash flow each month, as well as break ground in real estate by quickly turning properties. Admittedly, unlike real estate investing, wholesaling won't bring you a profit of $50,000 for a single deal in most cases, although it is a possibility. What wholesaling will do for you is provide you a fun, fast, and very easy way of turning a profit in real estate investing without any of the usual financial risks that are taken when you are purchasing a property. Think of it like paid training before you start out with your first big investment.

Steps Of Real Estate Wholesaling

You never own a property in wholesaling, and this is what makes it so successful. To begin with, you will start out building a solid equity foundation. Find a property that is stilled owned by a homeowner, and get it under contract. Usually, in a contract period, you have 30-60 days to close a sale of the property, as well as amend the contract to include the "and/or assigns after your name. Usually, you will put up as little as $10, and never more than $100 for the contract. Apart from your time, and some small advertising expenses, that is all you need to start off with in business as a wholesale investor.

Once you have your first contract, you then go out with the intention of getting the home noticed, place newspaper ads in all of the larger newspapers for maximum exposure. Words such as "Must sell, or ideal investment opportunity" are sure to get the attention of other potential investors. Usually, you will find that you get hundreds of calls from investors wanting to get a piece of the action. Make sure to take the name, and number of each person who calls. These people can't all buy the home, but next time you have a contract out on a property, you will have a huge resource of investors to start calling, so you can bypass advertising in newspapers for your next contract.

Once you have a buyer, it is time to assign your contract to the new buyer who is the one that will be closing the deal instead of you. Wholesaling is really about getting a home under contract, and finding a buyer who will close the contract on the home for a slightly higher price than you got it for.

The good thing about using wholesaling as a starting point for real estate investing is that you will be getting to know people in the real estate investment industry. This will give you the opportunity to learn from them, and go to them for advice. The important thing to remember is that some investors will be helpful while others may not be interested in helping you. Just don't take it personally. The same thing happens in almost every industry.

A Case Scenario In Wholesaling In Real Estate

Lets look at an example. You may find a distressed homeowner, who is facing foreclosure on his or her home. He or she need the house sold immediately to repay the bank, and you see this as an opportunity to gain a quick profit. The homeowner needs to pay the bank back $80,000 immediately before they foreclose. You look at current market values, and use your real estate knowledge to get a contract out on the property for $85,000. This gives the homeowner a $5,000 bonus, which is more than the bank would have done for him or her.

You call up your pool of investors, and get one of them to close the contract at $90,000. At this point, you have made a healthy profit of $5,000 for yourself, as well as $5,000 to sweeten the deal with the homeowner, and you are done. The buyer of the property may then go on to re-decorate the home, and sell it for $110,000, but they have taken on the mortgage, utility, insurance and all of the other associated costs, while you have only found the home to make your guaranteed $5,000 profit. You then move on to your next property, and repeat the process all over again.

You may wonder how many of these wholesale properties you can turn over in a month? The answer will depend on how many of these properties that you can find within a month and the pool of investors that you can get to close your deals for you. If you find 5 properties, and close them in a month at an average of $5,000 profit, you have made a staggering $25,000 profit for the month.

If you are serious about investing in real estate the traditional way, wholesaling is well worth considering. You are gaining a profit, by investing very little money, and taking the least possible risk. If your wholesale deal does fall through, the worst that can happen is that you will lose the $10 paid for the contract that you put on the home. While the risk is low, and the return isn't huge, you can make you some additional money to start investing with while gaining industry knowledge without taking too many risks.