Not everyone agrees that wholesaling or selling real estate is really invest I have to agree that in the truest sense, wholesaling is probably not an investment.
Investing has more to do with creating cash flows or earnings over time, from existing assets or existing capital automatically, as a result of owning or controlling the assets.
Wholesaling is to real estate what day trading is to the stock markets, it’s a way to make money, create big profits, generate big windfalls, and build big bank accounts. In most cases, it is not a passive method of growing your assets and wealth over time.
Basically, wholesaling involves locating a home priced well below market value, taking the investment under your control (via a contract or option), and then immediately selling your contract for a fee or the property for profit.
You make money in wholesaling by negotiating a great investment opportunity with a seller and then turning the investment over for a profit to a buyer, who, if you do it right, you already have waiting for the investment you found and traded.
Here is an example:
You find a property worth… $100,000
You negotiate a purchase price of… $65,000
You have a buyer who will give you… $75,000
Your profit = $10,000
Because wholesale, like day trading, is a job. Each transaction is its own paycheck. Buy low, sell high (higher), move on. That said, you probably don’t want to trade your regular job for a house-swapping job unless you’re highly experienced in the trade.
Smart investors who use wholesale to make money often follow this formula:
1. Profit from a wholesale transaction – deposit in the bank
2. Profit from another wholesale – make another deposit
3. Benefit from a third wholesale sale: bank this too
4. Take a large percentage of your earnings and buy a property and then keep it, to create passive income from it; cash flow, appreciation, etc.
However, real estate markets follow cycles like the rest of the economy. As of this writing, the nation’s real estate market has definitely become a “Buyers’ Market.”
In some markets, this can make finding wholesale homes much easier because there is excess inventory on hand and home prices are falling. The challenge, however, is making sure you have a buyer lined up before you go out and negotiate it.
Unless you have your own financial resources, it is critical that you have a buyer or exit strategy in place before negotiating any wholesale opportunity.
The three steps to success as a real estate investor, regardless of the method you use, are:
1. Control ownership
2. SELL the property (or get a Tenant)
3. Buy the property
