5 Situations When It’s Best To Wholesale Real Estate
Maybe, you’ve heard about wholesale real estate and want to know when the best times are to implement this investing strategy?
In my opinion, having the ability to wholesale real estate is one of the best tools to have in your belt as an investor, especially for the fix & flipper!
In this article, I am covering 5 situations when it’s best to wholesale real estate.
For the sake of this article, I use “houses” as the piece of real estate we’ll be discussing for this strategy.
Because I’ve wholesaled a lot of houses over the years and am speaking from real life, first-hand experience!
Let’s dive right into it!
When Is It Best To Wholesale Real Estate? (5 Situations)
For context, Situations 1 & 2 are for the beginner that is new to wholesale real estate. Situations 3, 4 & 5 are more for the investor who is already fixing & flipping houses!
Here are 5 situations when it’s best to wholesale real estate:
Situation #1: You’re A Beginner And Just Getting Started In Real Estate!
If you’re a beginner and just getting started, then wholesale real estate can be the perfect entry point into the investing arena.
One reason being: you can wholesale real estate with little to no risk.
When you wholesale real estate the right way, you always want to include a “back out” clause in each and every contract so you’re never liable to actually buy the property.
This is important to understand because when you include a back out clause you’re able to back out of the deal if you need to!
A lot of beginners believe that “real estate is risky”…
Well, it’s only risky if you don’t know what you’re doing & do things like NOT include a back out clause in your contracts!
I’ve learned countless lessons from wholesaling real estate that would have literally costed me millions of dollars if I would have had to buy each property I got under contract…
By learning how to wholesale real estate wisely (and then by actually doing it), you’ll start making money while also learning priceless real estate lessons with little to no risk.
So, if you want to get into real estate investing, learn the ins-and-outs, and do it with little to no risk, wholesale real estate can be perfect for you as a beginner!
Situation 2: You Have Little To No Money To Begin Investing With.
If you have little to no money, then wholesale real estate is a great strategy for you.
I started to wholesale real estate 8+ years ago when I was tens of thousands in school debt and making $10/hr at a sandwich shop. Wholesaling got me out of this financial rut because I was able to make money when I didn’t even have any money to begin with.
The first wholesale real estate deal I completed brought in $22,000 of profit and I didn’t even have to spend $1 to make this happen!
See, in wholesale real estate we are selling the rights to the contract, and not the actual property. And, it doesn’t have to cost any money to get a property under contract and to wholesale it.
See, if you want to fix & flip property, or buy rental property, you’re going to have to raise capital to purchase the property or the money will have to come out of your own pocket! Fixing & flipping and buying & holding are both great real estate investment strategies – but, with wholesale real estate, no money has to leave your bank account.
So, don’t say “I can’t start real estate investing because I don’t any money!”
You can start to wholesale real estate today no matter what financial situation you’re in!
(If this is the first time you’re hearing about wholesale real estate, light bulbs are probably starting to go off in your head! Keep reading, it gets better!)
Situation 3: The House You Want To Fix & Flip Has Too Many Red Flags.
Alright, now let’s approach a few situations from the perspective of a fix & flipper.
So, what’s a fix & flipper?
It’s a person, or company, that buys real estate with the goal of renovating and reselling the property for a profit. Once again, we’ll use “houses” as the type of real estate we’re talking about here in this situation.
So, if you’re a fix & flipper who enjoys taking on renovation projects, then wholesale real estate can be perfect when you have a property you’re considering to flip, but has too many red flags.
What are some red flags while fixing & flipping?
Here are a few examples of red flags:
- Red Flag Example #1: The house has bad neighbors who have eye-sores for properties.
If you want to fix & flip a house and make it look brand new, then bad neighbors can be a red flag because it will be harder to sell the house once it’s completed. Think of a neighbor having an over-grown yard, a car being parked on the front lawn, and a neighbor not having a new paint job in 40 years. Red flag!
- Red Flag Example #2: The house is on a busy street.
Imagine being a first-time home buyer with two little kids that enjoy playing in the front yard. Now, imagine you find a house to buy except it’s located on a busy street where the speed limit is 45 miles per hour. Would you want your kids to play in front of your house now? (Heck no! I hope not!) This is what I mean as a “red flag” when fixing & flipping a house. This type of red flag will drastically reduce the pool of buyers wanting to buy your property once you’re ready to sell it after the renovation.
- Red Flag Example #3: The house has had a recent death in the property.
In many states, you have to disclose that a person has died within the property grounds when you’re re-selling it. While some people may not care that someone has died in their property, there are a lot of people who do care! There will be less buyers who will want to purchase this property it’s done being flipped! Red flag alert!
I can go on and on about 100 more red flags, but I think you’re starting to get the point.
Instead of taking on a project that has these risky red flags, you can wholesale the house to another fix & flipper who wants to take on the risk.
You may be wondering: “Why would a company still want to fix & flip these properties even if it has ‘red flags’?”
Well, some real estate companies are more comfortable taking on risk than others. Some companies have less operating costs and will fix & flip houses that have thinner profit margins. These companies can build these red flags into their financial analysis and safely assume these risks. Even though it can be a risky deal for you – it can be a good deal for another.
In this situation, when you have a knot in your stomach because of red flags, it can be wise to wholesale the property!
It’s still a big win to make a $10,000 profit in a couple weeks by doing a wholesale rather than take on the risk of fixing & flipping a property to make a $30,000-$40,000 in the next 6 months!
Situation 4: The Property You Want To Fix & Flip Has A Large Renovation Budget.
As a fix & flipper, another great situation to wholesale real estate is when the property has a large renovation budget that you’re not comfortable with.
For example, let’s say you’re analyzing potential fix & flip property and it needs $100,000 in repairs to bring it up to current market trends. Well, in my experience, the renovation of a property will roughly take about a week for every $10,000 in repairs needed. This means, in this specific scenario, the renovation project would take about 10 weeks to complete.
Personally, I don’t necessarily like taking on renovation projects that take longer than 5 weeks because with a larger renovation budget (and longer hold time) comes more room for error. The more repairs needed on a property, the more change orders can happen. Thus, increasing the repair budget even more!
Also, the longer a renovation project takes, the longer you have to pay other expenses, such as: utility payments, interest payments, insurance payments, & more!
I enjoy taking on fix & flip projects that have repair budgets less than $50,000. They’re quicker & easier to finish on time opposed to properties with larger renovation budgets. Generally, I will wholesale a house that needs more than $50,000 in repairs, while aiming to at least make a $10,000+ profit as the wholesale fee.
Remember, the larger the renovation budget, the more risk that comes along with the deal. This is why having a property with a large renovation budget is a great situation to wholesale real estate!
Situation 5: You Have Too Many Projects Going On And It Wouldn’t Be Wise To Renovate Another.
If you fix & flip real estate, then you may know what it’s like to have over 20 projects going on at the same time…it can be little overwhelming, to say the least.
By having the option to wholesale a house you can have the relief of not having to take on another project while enjoying the benefits of quick profits, a quick close, and no extra time spent renovating the property!
And, by wholesaling the property you can now focus on your current projects at hand while using the wholesale profits to fund your operating expenses and marketing costs.
Let’s recap these 5 situations when it’s best to wholesale real estate:
1. Just Starting Out
Wholesale real estate is perfect when for the beginner who wants to learn real estate investing with little to no risk. Remember, you’re not actually buying the property when you wholesale the right way! Reduce your risk as much as possible by including a back out clause on each and every contract!
2. No Money
If you have little to no money, wholesale real estate is a great option. When done the right way, it doesn’t cost $1 to wholesale a property and receive profits. You can wholesale real estate quickly without having to break the bank – at all.
3. Too Many Red Flags
Wholesaling real estate can be perfect when you’re fixing & flipping a property with bad neighbors, when it’s on a busy street, or when there has been a recent death in the property. Unload the property quickly and focus your time on another project with less (or zero) red flags by the wholesale exit strategy!
4. Large Renovation Budget
Don’t feel like taking on a project with a $100,000 repair budget? Then, wholesale it!
You can wholesale this piece of property to another investor who is comfortable taking on the large renovation budget.
5. Too Many Projects
Ever hear of “The person who chases two rabbits, catches none?”
If your focus and resources are spread thin, taking on another fix & flip project may not be the best decision for you and your company.
This is a great situation to wholesale real estate so you can now focus on completing your current projects, and spend more time building your company!
In summary, for every real estate deal, you need to analyze the risk vs. reward with each exit strategy (i.e. wholesale, fix & flip, or buy & hold).
If you’re a fix & flipper, wholesale real estate can be a stellar investment strategy that allows you to profit on a deal without having to take on another project.
If you’re a fresh beginner, you now know of a great way to get started in real estate investing with little to no risk while using none of your own money!
I hope this article opened your eyes about wholesale real estate and how it is a phenomenal exit strategy for you in certain situations!
Cheers & Happy Investing!