Investor's Corner: Wholesaling Houses
As an Appleton-area Realtor, real estate investor, real estate coach, and founder of the Appleton REIA (Real Estate Investor's Association), I answer tons of questions about a myriad of topics relating to investing. And one of the most common is: "Should I get into wholesaling homes, or should I start flipping?"
This isn't surprising. Flipping has been popularized, glamorized, and publicized by media-savvy investors who have TV shows, book deals, and websites touting the fact that you can make money fast flipping houses. But flipping isn't the only way to make money in real estate.
That brings us to our wholesalers, who make their money by buying properties and selling them (usually as-is) immediately. While wholesaling isn't traditionally the best way to make large gains with one deal, if you can compensate with volume, there is certainly great money to be made.
Back to the question. Should you get into wholesaling or flipping if you want to invest in real estate ... what's my answer? Well, first, I like to make sure that people know the differences between wholesaling and flipping, so let's start there for today!
What is wholesaling?
"Wholesaling" a house is basically finding a property (usually distressed) at a discounted price, then selling it (in many cases to another investor who has designs on flipping it themselves). Like any type of investing, wholesaling can be wildly profitable, or can put you out of business before you even get started.
How can you make money wholesaling
Like any other business, wholesaling houses requires certain intangibles, including tenacity, perseverance, and patience. As I mentioned earlier, people who make good money wholesaling often do a large volume of deals- just see the characteristics in the previous sentence! Let's go over some of the additional factors that contribute to a successful career as person who wholesales houses.
1. A great network of contacts
Many successful wholesalers owe a lot of their success to their network of contacts. Like many people say, it's all about who you know! But how do you meet people who might have wholesaling leads for you? Go to your local REIA, talk to family and friends and express your desire to find properties, visit foreclosure auctions, and advertise! Marketing is KEY! You might even want to build your own website to build credibility among contacts, and hand out business cards whenever you can- you never know who might end up being a potential contact. The REIA and other networking are also critical for creating your network of buyers for your wholesale deals once you land them! You will want to be able to sell them fast!
2. Ability to recognize opportunity - and stay away when needed!
Sometimes being a good wholesaler means recognizing the difference between an opportunity, and an opportunity to get stuck with a property you can't move! Some of the usual factors that would apply to any investment property apply to wholesaling, such as whether the property is in a decent neighborhood, condition of the property, taxes, etc. Basically, you want to envision yourself in the shoes of the person who will be buying the house from you (again, probably an investor).
For example, many investors know that they can get their hands on properties with bad basements for a discounted price. Most people would turn around and run when faced with extensive water damage, mold problems, or extensive roofing issues- not wholesalers! These are the types of properties that can yield big results, and flippers know this. So, when wholesaling, you also need to think like a flipper and look for the diamond in the (very) rough!
3. Your reputation is everything!
As with any type of real estate investing (or any other business, for that matter), when you are wholesaling houses, always practice ethical behavior. In my own business, I like to always look for the "win-win" situations. As a wholesaler, if you can take a distressed property off the owners hands and get them out of a bad situation, that's a win. If you can sell it to an investor who will make money on the deal down the road, that's another win. And if you make money on the deal ... I call that a win-win-win situation!
Look for my article on flipping houses and how to do it right! If you're interested in finding out more about how to get into real estate investing, wholesaling, or flipping, check out the Appleton REIA at AppletonREIA.com, or stop by one of our meetings- newbies are free the first time.