Flipping houses continues to entice many people as a great way to earn a supplemental income through real estate investment. However, lacking funds to back this financial venture deters many people from investing. Real estate wholesaling makes it possible to invest in real estate with minimal upfront costs. This option is appealing because it can be done with little or no money out of pocket. Work with a real estate attorney at our office to learn more about real estate wholesaling and to guide you through all your legal needs.
What is Real Estate Wholesaling?
A real estate wholesaler locates properties that are priced under current market value and finds investors to purchase the properties. Once the wholesaler finds a property, they can find an interested investor and act as an intermediary between the seller and investor. Wholesale real estate investors can purchase the property directly or the wholesaler can get the house under contract for well below market value and then sell the house to the investor. The focus here is on the latter scenario.
How do Wholesalers Make a Profit?
The best way to illustrate the wholesaler’s profits for a house they have under contract is through an example. The wholesaler has a property under contract for $80,000 and estimates the property will need $30,000 in repairs. However, once the repairs are made the house will sell for $160,000. The wholesaler finds an investor who is willing to pay $95,000 for the property. The wholesaler then assigns the contract to the buyer (the investor) and makes $15,000 profit which is the difference between the seller contract price and the price the investor agreed to pay. The buyer now has a profitable investment property and the wholesaler made a profit without ever having to own the house.
What Makes a Wholesaler Successful?
The use of assignment contracts allows the wholesaler to control the property through the closing period. The investor will need to make an earnest money deposit with the seller to show good faith. In order to limit risk, the wholesaler needs to make sure the purchase contract includes a contingency that allows the wholesaler to back out of the deal if a buyer is not ascertained by the expected closing date. The key skills required to be successful in real estate wholesaling are a complete understanding of property evaluation, renovation and repair costs, direct marketing, and negotiating. The wholesaler needs to develop a plan to locate both sellers and cash investors looking for a great investment. Cash investors are preferable because wholesale real estate transactions are performed quickly leaving no time available to secure a loan. In order to be successful, the wholesaler must have knowledge of the local real estate market and establish strong connections with investors to ensure quick sales.
Contact a Real Estate Attorney Today
A dedicated and hardworking wholesaler can establish a lucrative business with the proper foundation. Learning and understanding the real estate process is essential. Work with a Birmingham or Mobile real estate attorney to ensure all the legal groundwork is properly established. Entering into real estate contracts, understanding assignments, and enforcing contingency terms require the assistance of an experienced attorney. Contact Cloud, Willis & Ellis to guide you as you establish your real estate wholesale business. We use our invaluable knowledge of real estate law to help our clients’ flourish. Let us anticipate your legal needs so that you can focus on growing your thriving business.