I get feedback from real estate agents and a few other investors all the time about our wholesale deals. The most frequent is “Who would buy this junk?” I guess your core thoughts are that only stupid people with too much money to spend and who definitely don’t know what they’re doing buy houses in bulk that need substantial work to be livable. These properties are affectionately known as “Junkers” in real estate investment jargon.
Actually, they might be right about some of these investors, but the successful investors keep coming back and buying junk over and over again because they make money from these properties.
There are three main exit strategies for investors to sell these properties, including:
1. Sell them to rehabbers who will repair the properties and sell them to the final buyers. Retail is where the highest profit margins are, but it requires money to buy the property, pay for rehabilitation and all maintenance costs until it is sold. Investors often borrow hard money or get partners to finance these deals.
2. Sell to Investors who want to own and maintain the properties for cash flow. Purchasing these properties requires cash or borrowed funds to buy and maintain, but should generate a higher net return than competitive investments such as certificates of deposit or the stock market.
3. Selling to other investors who turn the properties over to any of the previous buyers and make a relatively small profit. This method requires little or no money if done with a Contract Assignment to the ultimate buyer and using the ultimate buyer’s deposit as a down payment to the wholesaler. This is truly one of the no money, no risk, no credit deals being touted by real estate investors.
I looked at a large cross-section of closed wholesale deals to better see who the actual end-buyers were. I had to make some assumptions about some sales, but the overall tracking is the result of my research. These numbers are approximate and can vary greatly over a longer period of time and in regional parts of the country. This data represents 812 closed sales from those who purchased these wholesale offers:
Rehabilitators – 37%
Other Wholesalers (to resell the offers) – 40%
Owners (multi-family units) – 22%
Final buyers (to live in the property) – 1%
In short, there are ways to do real estate business with little or no money. Buyers are predominantly rehabbers, other wholesalers, and homeowners looking for investment properties. The important key for anyone doing wholesale sales is to build a powerful buyers list as quickly as possible and keep the list in two parts: niche buyers (contractors, rehabbers, other wholesalers, homeowners, etc.) and a list massive overall. Email all properties to your niche list and general list as you never know when an investor wants something different or someone will recommend a property for you.