There is no lack of real estate terminology out there to mull over and decipher. If you’re new to the real estate world, you may have wondered what wholesale real estate is, and how exactly it works.
What is wholesale real estate?
The dictionary definition of the word “wholesale” is “the selling of goods in large quantities to be retailed by others.”
In real estate, “retail” properties are sold on the Multiple Listing Service (MLS) through agents representing buyers and sellers. On the flip side, wholesale properties are usually sold to retailers or investors off-market, at a discount, and “in quantity.” The investors then use them to turn a profit. Some perspective: in the retail market, it’s pretty standard for a person to buy about one house every seven or so years, but it’s common for investors to buy one (or several) homes each month!
A real estate wholesaler, then, is a person who acquires properties at great deals and sells these properties at a slightly higher price than what they bought it for—still leaving lots of room for the investors to make a stellar return. It truly boils down to getting a cheap deal and then turning around and selling it for a quick profit. Simple!
A typical wholesaling scenario
A typical wholesaling scenario may look like this: the wholesaler has a house under contract for, say, $90,000, which she estimates requires $20,000 worth of repairs. But she knows it will sell for $150,000 once these repairs are complete. She finds an interested buyer at $100,000 by taking advantage of her investor network and then assigns the contract to the investor, who is newly in possession of a potentially very profitable fixer-upper. Without ever owning the home, the wholesaler makes a $10,000 profit. To limit risk as a wholesaler, it’s a good idea to add a contingency to the contract that allows for the wholesaler to back out if unable to find a buyer before the expected closing date.
Wholesaling vs flipping
Wholesaling is actually very similar to flipping, except for the fact that the timeframe is much shorter and no repairs are made to the home. Since the wholesaler never actually buys the home, wholesaling is much less risky than flipping, which can involve carrying costs or expenses related to renovations or repairs.
Bottom line: a wholesaler’s success depends heavily on their knowledge of the market and the quality of their network of investors. Indeed, it is all about forging the types of relationships that might lead to quick sales!
Good luck to all aspiring wholesalers!