While lesser known to the general public than its rehabbing and flipping counterparts, wholesaling is an equally attractive real estate investment strategy that deserves more attention. For what it’s worth, wholesaling is an excellent introduction to the housing sector and often serves as the gateway to more advanced exit strategies. It allows new investors to make money while building a solid foundation in the real estate investing industry.
That’s not to say wholesaling isn’t without its challenges. At its core, wholesaling is a real estate exit strategy that requires a mind for due diligence and a recurring time commitment, which leaves most people with one lingering question: Is wholesale real estate worth it?
Wholesaling is worth the time and effort required to execute a deal. According to Forbes, there may be no better time than today to start wholesaling. It has developed a reputation for its relatively low barrier of entry, short turnaround time, and promising return on investment (ROI).
If you want to learn how to get started wholesaling real estate but still have a few questions, we’ve developed this guide to teach you everything you need to know, including:
Wholesaling real estate is an effective investment strategy renowned for its ability to promote rapid wealth. It offers several advantages, including a quick turnaround time, minimal capital requirements, and a low entry barrier, making it an excellent starting point for individuals venturing into the industry for the first time.
Simply put, wholesalers connect sellers and potential buyers as a middleman, facilitating transactions that may not have otherwise occurred. They acquire the right to purchase a property at a discounted price and then transfer that right to an end buyer for a profit. The term "wholesaling" accurately describes the wholesalers' role in the real estate market: procuring investment properties below market value and transferring them to retailers (other investors) at fair prices.
When done well, the original property owner receives their proceeds from the sale, the end buyer secures a valuable investment opportunity, and the wholesaler earns a fee commensurate with their involvement. Overall, it creates a mutually beneficial scenario for all parties involved.
The process is involved, which begs the question: Is wholesale real estate worth it? Please keep reading to find out.
The proceeds from wholesaling are almost always worth the time and effort required to complete a deal. That said, it may help new investors to see why wholesaling is worth it. Here are five questions with answers that promote wholesaling for investors of every experience level:
Wholesaling properties can be very profitable. That’s not to say profits are guaranteed, but rather that investors who follow a proven system can make a very lucrative real estate business out of wholesaling properties regularly.
Wholesaling profits will vary dramatically from investor to investor and even state to state. However, the significant potential remains for anyone in any location. According to The Motley Fool, the average wholesaling real estate salary can range from $21,500 to $98,500. Salaries will vary depending on the amount of time wholesalers spend acting as intermediaries and the value of the homes they deal in. Still; wholesaling properties can be very profitable.
For context, the return on a typical wholesale deal is essentially infinite. That doesn’t mean profits are unending, but rather that the investor sacrificed none of their money to make a profit.
Read Also: Wholesale Real Estate Salary | The (ULTIMATE) Guide
Wholesaling real estate is legal if investors adhere to the local laws governing real estate transactions. In particular, investors must disclose that they are the principal buyer in a transaction and intend to sell their contractual rights to buy the home to another buyer.
It is important to note that the wholesaler isn’t buying the home. Instead, they need to enter into a bilateral purchase contract with the seller. The agreement must be transparent and identify the wholesaler's intentions to purchase an equitable interest in the subject property. That’s an important distinction; they aren’t buying a home but obtaining the rights to buy it.
Again, wholesaling is legal as long as investors follow the law. To ensure legality, investors should prioritize transparency and integrity. It is crucial for wholesalers to openly communicate their intentions, as the more transparent they are, the better. Above all else, consult a qualified real estate attorney or professional to confirm compliance before initiating a wholesale deal.
Is wholesale real estate worth it for new investors? After all, a beginner can start wholesaling real estate, regardless of their previous experience. It is widely considered a beginner strategy for several reasons, not the least of which include:
Read Also: Wholesaling Real Estate For Beginners
Investors do not need a license to wholesale real estate. Nonetheless, while a real estate license isn’t required, it may be helpful. With a license, wholesalers will gain access to an invaluable network of like-minded professionals and tools.
Wholesalers who are licensed real estate agents or Realtors will need to disclose their status and exercise even more transparency than those without a license.
Read Also: Can A Realtor Wholesale Property? The (ULTIMATE) Guide
In a perfect world, investors don’t need any money to wholesale properties. As previously discussed, most wholesale deals may transpire without the investor fronting any cash. An earnest money deposit may be necessary for some circumstances, but the capital requirements are much smaller than rehabbing and scaling rental property portfolios.
That said, not all sellers will assign contracts to unfamiliar end buyers. While relatively uncommon, some wholesalers may need to conduct what’s known as a “double close". As its name suggests, a double close will require the investor to make two independent transactions: buy the property themselves and sell it to the end buyer.
Doing so will coincide with many costs, the most expensive of which is purchasing the home. As a result, some wholesalers may need to come up with the purchase price to wholesale the deal.
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The ongoing debate between wholesaling vs. flipping houses is justified. Investors may choose one strategy over the other for several reasons. It is worth noting, however, that the wholesaling vs. flipping houses debate may be moot. If for nothing else, both strategies are incredibly viable and lucrative in any local market, so is wholesale real estate worth it? Choosing the suitable method comes down to personal preference.
To help make investors’ decisions easier, let’s look at three of the biggest factors that differentiate each strategy:
Let’s look at how the approach can differ from wholesaling to flipping houses.
Wholesaling involves finding motivated sellers (whether through direct mail, Craigslist, social media, or other means) and attempting to gain the right to buy their home at a specified price. The wholesaler does not try to buy the subject property from the homeowner but rather procures the right to do so.
Once the right to buy is solely theirs, they sell the right to an end buyer for a short-term wholesale fee. Throughout the process, the wholesaler acts as an intermediary, connecting sellers with buyers.
Not unlike wholesaling, flippers attempt to find motivated sellers (usually at risk of foreclosure) with on- or off-market properties. Instead of obtaining the rights to buy the homes, flippers close on the property and take over ownership. Once they own the house, flippers will initiate renovations to restore it to its after-repair value (ARV) and attempt to resell it for a higher price.
Read Also: Finding Motivated Seller Leads: Free & Paid Tactics
The entry requirements for each strategy are different, so let’s break them down for new investors.
Wholesaling has fewer entry requirements than flipping. Whether it’s capital or experience, the barrier to entry in wholesaling is much lower than fixing and flipping. For the most part, new wholesalers focus on finding motivated sellers and building a network of cash buyers.
Flipping houses is much more capital-intensive and requires more knowledge and “know-how” of its respective industry. Therefore, starting out requires investors to find private and hard money lenders and the deals they desire. At the same time, investors will be expected to learn the ins and out of an entire industry,
The potential returns of each strategy are unique and worth learning about.
Wholesaling returns are generally lower than flipping returns. Due to their relatively risk-averse nature and quick turnaround times, wholesales tend to net investors within 5% – 10% of the end buyer’s purchase price.
That said, while returns per deal may be lower, the speed at which a contract may be completed is incredibly attractive. Today’s best wholesalers can complete deals quickly, sometimes in as little as a few days. As a result, returns can scale rapidly over years and decades.
Flipping houses, on the other hand, typically offer a higher return. According to ATTOM Data Solutions' latest Home Flipping Report, the average home flipped as recently as last year generated an average gross profit of $67,900, translating into a 26.9% return on investment.
Of course, the higher returns aren’t without their risk. In particular, flipping homes exposes investors to much more risk (like unexpected closing costs or unforced and costly mistakes) than wholesaling homes.
Read Also: Flipping Houses Salary: How Much Do House Flippers Make?
Wholesaling real estate is widely considered one of the best exit strategies in the housing sector. However, not unlike every other investment strategy, wholesaling has both positive and negative characteristics. Let’s look at each so investors can decide if wholesaling real estate is worth it.
The pros of wholesaling real estate include, but are not limited to, the following:
The cons of wholesaling real estate include, but are not limited to, the following:
Aspiring wholesalers are advised to work with an experienced mentor. Learning from someone who is already an accomplished wholesaler can simultaneously mitigate risk, increase profits and instill invaluable confidence in new investors. That said, not all mentors are created equal; some are inherently better than others.
Thankfully, Real Estate Skills has a Pro Wholesaler VIP Program that can mentor new investors with the industry's highest quality knowledge, resources, and support.
Ready to start wholesaling real estate? Join Alex Martinez at his FREE training to learn how to get started with house-flipping and wholesaling!
Here’s a look at some of the most frequently asked questions investors may reference to determine for themselves if wholesaling real estate is worth it:
A typical real estate salary doesn’t exist. While the Motley Fool article referenced earlier suggests the average wholesaler can make an annual salary somewhere in the neighborhood of $21,500 to $98,500, the truth is that wages will vary dramatically depending on the state and individual investor.
It is standard practice for wholesalers to charge end buyers about 5% – 10% of the acquisition price. Other wholesalers, however, may charge a flat fee, ranging anywhere from $10,000 – $15,000. Case in point: salaries depend entirely on unique circumstances and the variables associated with every successful real estate deal.
A wholesale real estate contract, also known as an assignment contract or a purchase agreement, is the foundation of every wholesale deal. Wholesalers will use these contracts to outline the terms and conditions of an agreement between a wholesaler (assignor) and a property seller (assignee).
More specifically, however, wholesale real estate contracts are used by wholesalers to acquire the right to buy a home legally, also establishing the wholesaler's right to assign the contract to another buyer for a small profit.
Download our free wholesale contract PDFs now, and gain the confidence to proceed with your transactions smoothly and efficiently.
How hard is wholesaling real estate? To answer that question, it’s important to note that the term “hard” is relative. On the one hand, wholesaling is considered the most straightforward real estate investing strategy—at least when compared to rehabbing and rental properties.
On the other hand, wholesaling requires a lot of hard work to execute regularly and successfully. To wholesale properties, real estate investors must know everything from local laws and regulations to how to find motivated sellers and build cash home buyers lists. Ironically enough, when investors put in the hard work upfront, wholesaling becomes much more accessible.
Anyone asking themselves, “Is wholesale real estate worth it” should know that they will get out as much as they put in. That said, real estate wholesaling can be a side hustle. It is entirely possible to wholesale real estate in addition to a regular nine-to-five. However, investors treating it as a side hustle will only make returns relative to their involvement.
The short answer is “yes.” It is theoretically possible to become a millionaire from wholesaling. However, as previously discussed, wholesaling generally offers less money per deal than its counterparts. Rehabbing, for example, typically provides a higher return on investment but comes with more risk. Therefore, while wholesaling can make someone a millionaire, there may be better ways.
Is real estate wholesaling worth it? It’s a question many curious and aspiring investors have asked themselves. For years, they have seen others succeed in wholesaling houses and wonder if it’s their time to jump in. Instead of sitting on the sidelines waiting for an answer, it may be better to get started today because wholesaling real estate is only worth it to those who take action. A wholesaling business can be incredibly lucrative for those who approach the world of real estate investing with a sound plan and mind for due diligence.
How do I start wholesaling real estate? At Real Estate Skills, our team of experts is ready to provide you with the tools you need for wholesaling. We're committed to providing the knowledge, resources, and support you need to make wholesaling worthwhile. So avoid common mistakes and maximize your returns by leveraging our expertise.
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