The stock market is going gangbusters now and property values are at-or-near all-time highs in many markets across the country. What is the right investment strategy for those who don’t want to put all their money into equities and don’t want to pay through the nose for a property?
It turns out that the answer might be wholesale real estate. While this strategy, like every investment strategy, is not without its risk, an increasing number of industry insiders are turning to it to increase their returns.
If this sounds like something that could help you, then read on as here are some reasons why wholesale real estate is a hot investment strategy.
What is Wholesale Real Estate?
For those who don’t know, wholesale real estate is when a wholesaler puts a distressed home under contract with the purpose of reselling the property to another investor. Players in this market can either make money by wholesaling, or they purchase from a wholesaler, revitalize the property then resell it or hold it as a rental property.
According to Skystone USA, a leading wholesale real estate agency in Atlanta, the key to successfully wholesaling properties is to “find the deal that’s a perfect fit for you.” In many ways, this is not different from other types of investing as you will need to have a good idea of your criteria before even beginning to look at deals.
Keep in mind, wholesale is not “flipping”, at least not exclusively. Sure, there are times when you might need to rehab a property slightly before reselling it, but if you know what you are looking for, then you might be able to acquire the rights to a property, and sell it without needing to make any investment at all.
The key is to have the connections needed to find properties and potential buyers. In many ways, this is not dissimilar from options trading as you will need to know by the buyer and the seller to make the transaction work for you.
Why Does Wholesaling Work in Real Estate?
Unlock other markets where wholesalers are continuously being squeezed by direct-to-consumer distribution models, wholesale real estate thrives because the focus is on finding opportunities that are not available to the public.
This includes distressed properties, those tied up in bankruptcy, and even properties passing through probate. As for the latter, this can be hidden opportunity as the heirs might not want to hold the property and as such, you can swoop in and get it before it is publicly listed.
Besides residential properties, other sectors of interest include commercial properties and offices. These properties work because leaseholders might be in a position where they need to find a new tenant or risk facing penalties. Just keep in mind that if you want to wholesale commercial properties, you will need to know your customers.
Who Are Your Customers?
Remember, the key to making money in wholesale real estate is to know how to identify buyers and sellers. While it is a bit of a chicken and an egg problem, know who your buyers will be can help you define which properties to target.
One way to build connections with buyers is to join a real estate investment club or you can search property records to find out who are the most active investors in your area – you will know this because their names will continuously pop up in property records.
Once you have identified potential customers, you will want to network, network, network. This will help you to build a relationship with potentials buyers to the point where if they are not interested in a deal, they might refer you to someone they know.
Now that you have identified and started to build relationships with potential buyers you can start to hunt and peck for wholesale opportunities. This is important as you will need to have more than one opportunity to show an investor. In addition, this will give you a chance to refine your ability to pick the properties which can be quickly resold.
Keep in mind, investors are constantly being inundated with deals, as such you want to make sure the properties you have are strong candidates. This means that they are priced correctly, don’t require massive investment, and importantly are under your control.
The latter can be accomplished either by tendering an Assignment Contract or a Contract to Buy. In both cases, you will need to be able to offer a down payment, but an Assignment Contract means that you have the right to assign the purchase rights to another buyer. While a contract to buy means that you will need to close on the property before you can resell it.
Regardless of your approach, wholesale real estate is one of the best ways to find off-market opportunities, control the rights for the property and then profit from the sale.
Disclaimer: This content does not necessarily represent the views of IWB.