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Real estate wholesaling is a legal strategy that can enable people to become involved in real estate without dealing with some of the traditional aspects of buying a home. With real estate wholesaling, a wholesaler enters a contract with a seller and then works to find someone interested in purchasing the home. The wholesaler then enters a contract with a buyer at a higher purchase price than that of the seller, keeping the difference as profit.
Real estate wholesaling typically happens more with distressed properties. It’s an alternative to house flipping, where a buyer will actually perform renovations or additions in order to sell at a higher price.
Real estate wholesaling is a great investing strategy for those interested in short-term opportunities that can yield big profits. The name can be confusing as wholesaling is traditionally associated with selling large quantities of goods to a merchant who then sells those goods to consumers at higher prices. Real estate wholesaling is much different, despite the name.
The goal is to sell the home to a buyer before the contract that the wholesaler has with the seller closes. This is especially true as no money will be paid to the wholesaler by the seller until the wholesaler finds a buyer for the home.
It is much easier to get involved in real estate as a wholesaler than it is as an agent or broker. For one thing, you do not need a license to wholesale real estate. You simply need to be listed as the principal buyer in the transaction.
While you don’t need specialized licensing, it can be extremely beneficial to have knowledge of and experience in home buying and or selling. Many real estate wholesalers choose to obtain a real estate license to enjoy the benefits that come with it. Those with a real estate license have access to the MLS, where they can get property leads. It can also open doors to networking opportunities only available to those with a license.
Most wholesalers believe that real estate wholesaling is profitable. One benefit is the ability to cherry-pick the best deals that fit one’s long-term revenue plans and hold those while wholesaling other property. With great marketing, real estate wholesalers can generate strong leads, enabling them to wholesale a good amount and flip or invest in the rest. It can be a solid wealth-building activity for someone who is committed to making it work.
At the end of the day, just how profitable real estate wholesaling in depends on the wholesaler. There is no “typical” fee, though wholesalers must try to get the best deals for themselves. That means finding a large spread between the price the wholesaler pays for a property and the price at which it sells.
As mentioned earlier, a real estate license to start wholesaling is not required. However, many people find it helpful for the benefits. Accessing the MLS database can provide additional listings only available to real estate agents and brokers.
Additionally, licensed real estate agents have the benefit of the legal backing of the department of real estate in their state when they use the state-authorized contract to purchase real estate.
Networking and credibility are additional benefits. Licensed agents can build their wholesaling business and brand by being affiliated with a reputable brokerage. This will also open up access to additional agent listings.
There are a few schools of thought when considering the question “is wholesaling real estate ethical?” The first believes a deal is a deal and that wholesaling real estate is no different than wholesaling retail. In both cases, there is a middleman that charges more for the item than it cost in the first place.
The other school of thought believes that sellers should be given all of their options upfront. In some cases, the seller may be able to earn more for their property if they listed it on the MLS. Not all sellers know this out of the gate and wholesalers should at least give them the opportunity to understand this reality.
There are three types of wholesalers:
Merchant wholesalers include firms that purchase, take ownership of, store, and handle large quantities of products that they then resell in smaller quantities to other retailers or other wholesalers. Most specialize in certain types of products or customers, though they may differ in being either full-service or limited-service wholesalers. The latter may not offer a full suite of services, such as inventory storage, delivery, credit, market information, or sales.
Agents, brokers, and commission merchants do not take title to the goods in which they deal but are active participants in negotiating and other middlemen functions during buying and selling. They earn commissions on sales and purchases.
Manufacturer sales branches and offices are units that are owned and operated by manufacturers but are separate from the plants themselves. These are solely used to distribute the manufacture’s' own products at the wholesale level.