Well, you who are connected in the real estate market must have already faced this doubt: what is real estate wholesaling?
That’s why I decided to write this article to clarify everything step by step.
First of all, we all want business opportunities, right?
In fact, there are many ways to make money with investments. Many people invest in shares on the stock market, others in funds, others are more conservative and prefer treasury bonds.
Anyway, it doesn’t matter the kind of investment, because each one has its pros and cons.
But what many don’t know is that it is 100% possible to find fantastic investments in the real estate market and profit from them. And the best: without investing 1 cent. Can you believe it?
Yes, it seems to be a lie, but it’s not. That’s basically what real estate wholesalers do.
I’ll show you how it works and the importance of this career. Check it out!
What is real estate wholesaling?
First, I want to talk about what is not real estate wholesaling.
After all, it is of utmost importance that you understand how this area of work works so that you can fully understand its importance.
So, first of all, real estate wholesaling has nothing to do with retail wholesaling. The latter does not really have the slightest correlation with the real estate market. Let me explain.
Companies that do retail wholesaling are those that sell certain products in an immense quantity to a retail store or to a person who in turn will sell those products at a much higher price than they paid for them.
For example, great examples of retail wholesaling businesses are: 4WholesaleUSA, BAOlink and Alibaba.com. These businesses offer products at a very inviting price – because they are sold wholesale -, allowing a profitable resale value.
This way, it is clear that non retail wholesaling has nothing to do with the real estate market.
But, after all, what is real estate wholesaling?
Basically, real estate wholesaler is the professional who promotes the sale of a property that often could not be sold by the owner, since it lacks the necessary network of contacts.
In this context, the real estate wholesaler signs a contract with the proper contingency clauses in order to sell the property at a price above that agreed with the owner.
Don’t you get it? All right, let me give you an example.
Example of what is real estate wholesaling
Okay, let’s imagine then that you are a wholesaler and you know someone who wants to sell his house, but he can’t do that, because he doesn’t have the money to make the necessary reforms to make it attractive.
There comes the wholesaler.This professional will talk to the owner who is interested in selling, but has no hope of doing it alone.
Thus, a fair price is established for the sale. Let’s say the wholesaler signed a contract with the owner of the property that the sale would be for $150,000.
Okay, that’s where the magic begins.
After signing the contract with all the important clauses to ensure the reliability of the business, the wholesaler takes advantage of its range of potential buyers who are investors as well.
In fact, they buy the property, make all the renovations and give the property a completely new finish. This adds a lot of value and makes them a profit.
Finally, here’s the wholesaler finds a buyer willing to invest $160,000 in the property. Bingo! 10,000 profit for the wholesaler!
This way, all sides make a profit, who sold, who bought, and the “whosaler”.
Have you now understood how the wholesaling process works within the real estate market?
Importance of Contingency Clause in real estate wholesaling
Well, let’s talk now about something that is extremely important for the wholesaling process to be done in a fully honest and fair way for both parties.
First of all, it is important to define what is a contingency clause. It’s actually quite simple. Check it out.
In that sense, a contingency clause is a point placed in the contract which, if not fulfilled, makes that negotiation impossible.
For example, these clauses are widely used in the financial market for cases of sellers who want to ensure that the buyer of the property will have enough capital to honor with the payment.
A contingency clause is then added to the negotiation contract which refers to the need to guarantee financing so that that signature is in fact valid.
In addition, the contingency clauses are of paramount importance when someone buying wants to make sure that the property does not have faults such as, for instance, termites, mold or even structural problems.
Thus, a contingency clause is added so that the contract is only valid from the endorsement of an appraiser who will check all those points of the property that may compromise the business.
But why are the contingency clauses so essential also when talking about real estate wholesaling?
Basically, because they are what will ensure that the business only happens if the values are respected.
That’s why the wholesaler establishes a contingency clause that ensures that the sale price of that property will be as agreed with the owner.
In addition, this clause adds a time limit for the wholesaler to complete the deal, meaning that if that time limit is extrapolated, the contract automatically has no more value.
What is the key to make real estate wholesaling?
Well, now that you understand what is real estate wholesaling, let’s see what the characteristics of a successful wholesaler are.
First of all, it is necessary to emphasize that this career is not at all simple, that is, it demands from the professional some prerequisites that not all people have.
In fact, the wholesaler is a professional who has an excellent relationship with the human being, that is, a person who relates very well with others.
In this sense, the essential part to make real estate wholesaling is to know how to listen to all sides. Through attentive listening, it is possible that the wholesaler knows exactly what the demands of both the seller and the buyer are.
Furthermore, the wholesaler is that professional who has a very wide network of contacts, because he acts as a facilitator between who wants to sell and who wants to buy.
So, this area is compounded by real estate market specialists that dominates not only the basic soft skills to have a good relationship with other people, but also has a vast network of connections with investors of this sector.
But, this is not enough.
Because the wholesaler is a born negotiator. If he doesn’t know how to establish a balanced proposal to the property owner, he makes the business impossible. Check it out.
If the proposal is much lower than the value thought by the owner, surely he will not sign the contract.
On the other hand, if the value is too high, the contract will be signed, however, it is unlikely that the wholesaler will find a buyer interested in closing the deal, since the profit of the investor would be compromised.
Therefore, this is one of the areas that should be more valued within the real estate market.
If you want to become a leading wholesaler you should consider the option of being a cash buyer.
That is, buy the properties without financing. This will certainly make the transaction much faster, less bureaucratic (closing is much less cumbersome), there is no need for appraisal and the best: it allows you to close deals at a much better price.
After all, being a cash buyer gives much more confidence to the seller, because he will have the money in hand without bureaucracy. This way, he will be able to settle debts or make other urgent payments.
So, a golden tip: consider being a cash buyer.
What are the main differences between flipping and wholesaling in the real estate market?
No, they are not synonyms. There are definitely clear differences between flipping and wholesaling in the real estate market. Come with me and I’ll show you.
Wholesalers don’t invest any pennies in renovations or changes in the property to be negotiated. They simply call who wants to sell and who wants to buy and make a profit from that negotiation.
But, on the other hand, the flippers often give an improvement on the property in order to get a higher valuation and therefore a higher profit.
However, there are the burden and the bonus.
In this sense, wholesaling negotiations are much more dynamic, that is, the process happens much faster.
Thus, although the profits of wholesalers within the real estate market may be lower than those of flippers, they are negotiations that end in a considerably shorter time.
In fact, both flippers and wholesaling make the real estate market environment much more powerful and socially interesting.
Therefore, it is vital that there are professionals in both areas. After all, these titles require different skill profiles, as we reported in the previous paragraph.
Want to know more? So, for you to understand all about flippers, we made this article here.
Finally, I hope you have understood what is real estate wholesaling.
This noble career allows already hopeless owners to sell their properties.
In addition, wholesalers, as we’ve seen, feed a whole chain of stakeholders who make a profit from the retirement and sale of properties.
In this way, we can say without fear of error that the wholesaler has the power to make the real estate market environment much more powerful and socially interesting, since it makes this process much more dynamic.
Thus, we at BR Capital USA want to connect all the links in the real estate market chain in the best possible way.
Which means, we want not only to create easy connections, but also to guarantee that the negotiations are fair, honest and noble for all the social sphere encompassed by this financial area.
Lastly, we are 100% available to help you within the real estate market! See you next time!