Wholesale is a popular niche for buying and selling real estate at a discount. Similar to home buying and selling, wholesale involves locating properties priced well below market value and selling them for a profit. Investors sell homes ‘as is’ and avoid the costly and time consuming repairs often associated with remodeling homes.
With wholesale, real estate investors often act as brokers by locating homeowners who need to sell their home quickly and connecting them with qualified buyers. Another form of wholesale involves buying bank portfolios consisting of multiple foreclosed properties. Investors can sell individual properties to private buyers or investors, or sell properties in bulk to investment groups.
When investors match buyers and sellers, there is no need to obtain financing. Instead, real estate wholesalers make a profit by closing sales. When investors buy bank portfolios they must qualify for bank financing or obtain financial backing from an investment group.
Most investors are into wholesale for quick money, which involves locating sellers and buyers. To generate proceeds from the sale, investors must participate in a four-step process.
The first step is to locate the owners who need to sell their property. This could include borrowers facing foreclosure or those who have gotten approval from their lender for a short sale.
It could also include people who filed for personal bankruptcy, but were unable to meet their payment plan and are now forced to sell their home. Other possibilities include homeowners who have a second home that they can no longer afford, or sellers who need to move due to employment or military service.
Once investors locate the property for sale, they begin negotiations with the seller. The goal is to get the property for the lowest possible price. Investors place the property under contract until a suitable buyer is found.
In order to get the highest profit margin, most investors look for distressed properties that require repairs. This can be accomplished by exploring foreclosed homes or ‘for sale by owner’ real estate.
Owners often reduce the sales price of FSBO property to attract a quick sale. Often, homeowners facing foreclosure will list their home as a FSBO to avoid foreclosure or to comply with real estate short sale agreements.
Short sales refer to properties that banks have agreed to accept for less than the full balance owed on the mortgage note. Borrowers can avoid foreclosure by selling their property at reduced rates. Sellers have a limited time to sell their property and must abide by the terms of their short sale contract. Offers to purchase short sale real estate must be submitted to the servicing lender.
The third step is to orchestrate the sale. The processes involved will depend on the type of sale involved.
Once the closing occurs and the property transfers are recorded through the court, the investors receive compensation from the party that contracted for the services. In most cases, the seller pays the wholesaler’s fee, but buyers sometimes cover transaction costs. Responsible parties are determined prior to entering into real estate contracts.
The Internet offers a wealth of wholesale real estate information and resources. Investors should consider joining online networking groups or participating in local real estate clubs to familiarize themselves with wholesale strategies.