Sometimes, to be a real estate investor, it might look like it’s a requirement to have a lot of knowledge about the real estate market and a ton of money. Even though for many existing jobs in the field, that is actually true, it’s not mandatory for every exit strategy. “If you’re new to the real estate business and don’t have any money – but you do have a lot of time –, then wholesaling is your best option,” assured Marlon Pleitez, real estate broker and a specialist in this strategy.
At Real Estate IQ, we invited Pleitez to host the webinar “Wholesaling for beginners.” There, he shared all the secrets to earn money without investing. And here, we have a summary of his presentation, which you can complement with this advice from real estate investor Sonia Medrano.
How does wholesaling work?
Pleitez defined this investing strategy as “selling your right to buy a property, assigning that right to a buyer for an extra cost on the initial purchase price.” And, in the process – that you can do without investing any capital – you’ll get a commission or profit. Hence, your work will consist of finding a property, put it under contract, and transfer that buying right to an investor.
There are three parties involved in wholesaling. On one side, it’s the seller – the one who has the right to sell a property (keep in mind that they don’t need to live on the property, they need to have the title). On the other, it’s the buyer who will buy the property through the buying right given by the wholesaler. And you – as a wholesaler – are in the middle of both parties, with the right to buy the property.
Pros and cons of wholesaling
This investing strategy has ups and downs, and Pleitez listed the following five pros and cons.
- You don’t need money to start wholesaling.
- You don’t need to pay commissions to agents involved in the buying and selling process.
- You don’t need a real estate agent’s license.
- You don’t need to have deep knowledge of the real estate market.
- You don’t have an excuse to start.
- You need to invest a lot of time.
- You need to talk to a lot of people.
- You need to know how to negotiate.
- You need to know a bit of real estate (to do some paperwork, for instance) and a bit of marketing, as well.
- You need to have an exit strategy (in case you can’t fulfill the contract terms).
Where to find properties to wholesale?
First of all, don’t forget that you can wholesale lands (like plots or acres) and residential, commercial, and multifamily properties. In order to find them, you can use free tools (like social media and the internet), rely on word to mouth (by letting people know you buy houses in cash), and even trust your eyes (and keeping them open to find properties in terrible shape or abandoned, for example).
Nonetheless, it might take a while for you to find an off market property with these strategies. Therefore, if you have a few bucks at your disposal, you can subscribe to an off market listing, like the ones we offer at Real Estate IQ!
There are many software options to make your wholesaler’s life easier. I’ve been using Real Estate IQ’s products for the last four years to find properties. In the first month of using them, I bought three properties and made money in the process.Marlon Pleitez, real estate broker.
Once you found an investing opportunity, it’s time to negotiate. In order to do it, the speaker advised attendees to introduce themselves not as someone who comes to take a property from the owner but to solve a problem instead. Moreover, he recommended not to lose touch with both buyers and sellers since most of the time, they’re people with whom you can seal more deals in the future.
Types of wholesaling
There are two types of wholesaling, according to your role and responsibility in the process. The most common one – and the one that Pleitez recommends to beginners – is the limited service. Here, you only need to sell your right to buy a property for a profit through a contract assignment. This document ensures that the buyer will take care of every obligation listed.
Although your commission may vary, typically, it goes from 10 to 30% of the ARV in family properties. However, the broker advised studying your numbers carefully. “You need to present the property to the investors in a way that they can see that, after the rehab and reselling, they will make a profit of at least 15 to 20%,” he explained.
Sometimes, you can come across an excellent offer in the market to get more than 30% profit. In this case, Pleitez recommended going for a full service. This strategy is advantageous in states where the local legislation doesn’t allow a bigger commission.
“You shouldn’t limit yourself to hand over the property from one party to other because in doing so, you will lose part of your profit. When you find this kind of opportunity, the best option is to buy the property yourself. To do it, you need to find experienced partners with money and contacts. Once you buy the house, you’ll need to wait about 30 days to put it back on the market for a higher price that includes the maximum amount of profit you can make,” the specialist concluded.
Disclaimer: The blog articles are intended for educational and informational purposes only. Nothing in the content is designed to be legal or financial advice.