Key Takeaways
- Starting a wholesaling business can be a great entry strategy for launching a career in real estate business.
- Wholesaling is defined as the reselling of goods from a seller to an end user for a profit.
- Pay attention to these essential tips for a successful real estate wholesaling business plan.
The concept of a wholesaling business may seem complicated at first, but it proves to be a great entry strategy for many real estate investors. Whether you are an established investor or a real estate newbie, refining and mastering your wholesaling business is a legitimate method of expanding your investment portfolio. Like any other type of real estate investing niche, wholesaling in real estate requires unique strategies, explored in the comprehensive guide below.
Wholesaling Business Definition
Before getting into the concept of wholesaling in real estate, it is necessary to understand the concept of a wholesaling business in any type of industry. Wholesaling occurs when a good is purchased by a reseller, often referred to as a ‘middleman,’ who then resells the same good to an end user. Wholesaling businesses are common in commercial industries when large volumes of components are produced. In this case, the wholesaler will purchase a component product in bulk, and resell it to a manufacturer that produces the end product. In the case of real estate, a wholesale business will usually purchase a property from a home seller, and will turn around and resell the property to a home buyer for a profit. Because a wholesaling business requires relatively less involvement compared to other types of investing niches, such as rehabs, it is considered a great way to get started in the real estate industry.
What Is Real Estate Wholesaling?
Real estate wholesaling is perhaps the most popular entry strategy investors use to familiarize themselves with the business. And while real estate wholesaling is relatively risk free, it requires plenty of due diligence and effort to see a healthy return. Wholesale deals will not just fall into your lap. You will have to go out and get them through your own effort. Like any other niche in the business, it takes knowledge of your local market and knowledge of the process. To be successful at real estate wholesaling, you can’t treat it as something you can do half-heartedly, or in your spare time without putting in the effort. The wholesale side of the business can be very profitable, but it takes as much time to master as anything else you do in real estate.
Does Real Estate Wholesaling Work?
Real estate wholesaling works for those who are willing to put in a great deal of sweat equity. The concept of wholesaling in real estate is the buying and selling of properties in a short amount of time, and is a great way to launch a real estate investing career because it is relatively inexpensive to get into. However, the wholesaling business can be challenging because investors must be able to identify properties being sold for well under market value, as well as be able to target cash buyers willing to purchase those properties. Investors who do not make much money in wholesaling usually are those who have trouble or do not invest enough effort in building good lead lists. However, investors who are willing to put in the necessary amount of sweat equity can enjoy a lucrative career in real estate wholesaling.
Essential Tips For A Successful Real Estate Wholesaling Business Plan
- Generate Leads: The most important quality of any successful wholesaler is their ability to generate leads. You can have a good grasp of the area and the process, but without incoming leads you won’t get very far. Fortunately, there are many different ways that you can get your phone to ring. Investors can utilize every resource from Craigslist to direct mail campaigns. Depending on your budget, you can find something in the middle that works for you. Branch out and market as many different ways as you can. You don’t need to spend a lot of money, but you do need to be consistent with everything you do.
Wholesaling is very much a numbers game: the more leads you have coming in, the higher chance you can turn a deal. Every new lead is an opportunity for a potential deal. It is important that you know which leads can turn into deals and which leads are going to eat up time. In most cases, the strength of any deal can be directly derived from the property and the location. This means that you need to have a good grasp on the market and which properties generate the greatest value. You should constantly be looking at what sold and what is currently on the market. Use every opportunity that comes your way to evaluate a property. This means going to open houses or even driving neighborhoods. When you wholesale, there has to be enough upside for you to get the property at your price point while still having an investor see value. If you don’t know the area, you will end up wasting time putting together deals that no investor really wants.
- Know The Numbers: It is also smart to have an idea of the potential repair costs. If you over- or underestimate the cost of repairs even a little bit, you will have a bad deal. Most investors that buy wholesale properties will look to put some work in and quickly put the property back on the market. You can’t fool a seasoned investor by decreasing the cost of repairs or the condition of the property. If you know how much work is really needed, you should incorporate it into your offer. If you can’t get the homeowner or the bank to see your price, you need to move on to the next deal. You need to know the real numbers on the property before you make any offer and evaluate any deal.Getting the property at your price is a critical factor in every real estate wholesaling deal, but it is only one part of the equation. Once you get the property at your price, you need to find an end buyer. This means having a buyers list ready and forming as many relationships as possible. You can find buyers in every investment club meeting or every networking group you attend. They may be on real estate sites and local bandit signs too. The more buyers you have on your list, the greater the chance that you can quickly turn your property over. Wholesaling typically doesn’t offer the same returns as a typical rehab. Therefore, you need to turn your wholesale deals over as quickly as possible. This means having a solid list of ready and willing buyers.
- Build Your Buyers List: Having a deep buyers list is great, but it is better to have a smaller dedicated list of people you have worked with previously. Every time you complete a transaction, you should take the time and find out what your buyer is looking for. If you know what your buyers want, you can look for specific properties and deals and streamline your wholesale business. If you deliver good properties and good deals, you can be sure that your investors will want to work with you again. If you embellish the numbers and exaggerate the returns, you will find it hard for buyers to take you seriously.
How To Find Cash Buyers For Real Estate Wholesale Deals
Arguably, the trickiest aspect of building a successful wholesaling business is building a promising list of cash buyers. Investors will usually find cash buyers through a combination of networking and direct marketing, and over time, can develop long-lasting business relationships. Below are a few strategies used by wholesalers to target cash buyers:
- Craigslist: Craigslist is a great resource for placing ads for wholesale deals as well as to identify potential buyers. For listings, avoid placing fake real estate deals; rather, create a simple offer for future wholesale real estate deals that will provide great value for cash buyers. In the “Housing” section, peruse the hundreds of for sale or for rent properties to identify owners and landlords who may be interested in a future wholesale deal.
- Networking: Networking with local real estate investors, landlords and real estate agents can lead you to meaningful encounters, as well as help you develop long-lasting business relationships. Become an active member of your local real estate investing club, where you may meet active cash buyers, or meet a fellow investor who may introduce you to interested buyers or even want to partner with you on a future project. Connecting with real estate agents will help you gain access to lists of recent cash sales.
- Lead Capture Forms: In this day and age, anyone hoping to develop a successful business is expected to have an online presence. It is easy to set up a lead capture form on your business website, where visitors can submit their personal contact information. To increase traffic to your website, promote your brand through social media, blogging, advertising and marketing.
- Courthouse Auctions: Buyers are required to have all cash at courthouse auctions, so this is a direct approach to finding cash buyers. Visit courthouse auction sessions early and regularly to network this group of active cash buyers. Don’t forget to hand out business cards and to follow up with any connections made.
- Hard Money Lenders: Not all cash buyers will actually have the total purchase price of a property readily available, and when that is the case, they will often enlist the help of a hard money lender to help close a deal. Because of this, hard money lenders can be an excellent source of cash buyer referrals. Their best interest is to help you so that they can assist in the funding of future deals in return.
Cost of Starting A Real Estate Wholesale Business
According to real estate solutions company CT Homes LLC, the startup costs associated with launching a wholesaling business do not need to be excessively expensive. For starters, you will want to think about matters such as website hosting and design, a business phone line, mailing address, logos and branding materials, finance and accounting, and incorporation. However, you may notice that you can save on several of these items by doing them yourself or by tapping from existing resources. As your real estate wholesale business expands, you will then have the monetary flexibility to increase the quality and quantity of marketing and advertising campaigns.
Real estate wholesaling is a great way to earn money and learn the ins and outs of a great business, but it requires time and effort. This can be viewed as good practice in helping you generate leads, negotiate deals and work with fellow investors. There are some investors who focus exclusively on the wholesale side of the business, with great success might I add. If you focus on these areas and put the time in, you can quickly grow a successful wholesaling business.
Do you have unique success tips for those getting started in their wholesaling business? Feel free to share in the comments below:
