Real estate is one of the best ways for the average person to build wealth and transform their financial life. But for various reasons, it can be challenging to get started. That’s where wholesaling comes in. But some people may be confused about the rules around wholesaling, including whether you need a license to do it. So we’re here to sort out fact from fiction on this crucial and valuable topic.
What is Wholesaling and Wholesale Real Estate?
To understand wholesale real estate, let’s first break down a “typical” real estate transaction from a buyer’s perspective. First, you’ll wait and wait for the right home to come on the market. And once it does, rush there with every other interested investor and homebuyer in the area. You’ll likely be part of a competitive bidding process in many markets and end up paying more when you do get the property. Then, you’ll need to put up tens or even hundreds of thousands of dollars to purchase or finance the home. This requirement prevents many from even getting involved in real estate. Finally, you’ll generally spend weeks or even months in the closing process before you even own the property. This includes whether you plan to live in it, rent it, flip it, or otherwise use the place.
For the privilege of this hassle, you’ll also pay a hidden premium. This means the amount sellers inherently increase their price, knowing they’ll be paying a 5-6% commission to agents. Wholesaling solves so many of these problems. For example, instead of competing with buyers on the open market, wholesalers have the option of executing their own marketing via direct mail or other means to find potential sellers who haven’t listed their properties yet. This provides a vast, untapped source of leads that also eliminates bidding wars and overpaying.
Deals Exist to Help You Start
And if navigating the world off-market deals and supporting your own marketing efforts seems a bit daunting to you, no worries. The good news is that wholesalers can find great on-the-market deals on their own through MLS listings, as well as with real estate agents and brokers who help find and monetize deals for them. This way, you won’t have to worry about the hassle or financial investment of coordinating your own marketing efforts.
Rather than buying the property yourself and dealing with those hassles and costs, you’ll simply assign the contract to another, often pre-identified investor with the cash to complete a speedy purchase. In exchange, the wholesaler receives a premium for tracking down the lead and connecting the seller and eventual buyer. Over time, wholesalers develop relationships with end buyers and can often quickly link them up with deals they’d like. This speeds up the process for all involved.
In a wholesaling transaction, everyone wins. Homeowners don’t have to deal with making repairs or hosting strangers for open houses. Buyers don’t have to compete with others and can find hidden deals. At the same time, wholesalers can make a significant amount for their work with little investment other than their time and marketing expenses.
Do You Need a License to Buy Wholesale Real Estate?
There’s no real estate license required to wholesale real estate since, on a technical level, you’re not actually buying or selling the property. Instead, you’re selling the right to buy the property, which isn’t tightly regulated, unlike true real estate. Similarly, there are no laws preventing you from reaching out to homeowners to make them offers for their properties. This makes the acquisition side also completely legal.
Wholesaling Laws Can Vary By State and Locality
The key thing to understand about buying wholesale real estate is that the exact definition and nature of the transaction can vary from state to state. So before you start wholesaling, make sure you educate yourself on any local or state regulations to ensure things proceed smoothly for you, the seller, and the buyer.
Advantages of Wholesaling
We’ve already discussed some of the benefits of wholesaling. But one of the biggest ones is that it’s a perfect way for new real estate investors without much capital to get started. All you’ll need is a few hundred bucks for marketing, if applicable, and you can get started. Wholesaling for a few months or years can help you build up the cash to enter more traditional real estate investments. It also allows you to build crucial relationships with other investors, agents, contractors, and others you’ll need on your real estate journey.
In addition, it’s one of the lowest-risk forms of real estate investing. With a properly designed contract, you won’t be on the hook for buying the property even if you can’t find a buyer. Though you may lose some earnest money. Compare that to a traditional flip, where you may need to tie up tens of thousands in a deal that may ultimately go sideways.
Drawbacks to Wholesaling
Like any business or investment strategy, wholesaling isn’t perfect or suitable for everyone. Wholesaling requires great people skills and the willingness to chase down many potential leads that may not pan out without getting frustrated. You may also deal with hostile owners upset you’re trying to buy their home. In comparison to some forms of real estate investing, wholesaling is fairly active. This especially holds true when compared to things like traditional rental properties. Wholesalers need to put in a continual effort to market and build relationships. If they stop, so does their income!
Wholesale Real Estate: Great Deal, No License Required
As you see, wholesaling offers a unique way for involvement in the real estate industry. And the good news for new wholesalers is that no real estate license is required. As always, ensure you understand local laws and rules. But, you may be surprised how quickly you find yourself making deals!