Wholesaling real estate is an investment business, so asking how much you could make wholesaling real estate is like asking how much you can make with an investment in the stock market. It depends, doesn’t it?
There’s a whole range of factors that determine how much money you could make, not least of which is the time and effort you put in. While it’s true that you stand to make a substantial income from wholesaling property, it’s not something you can take for granted.
Running a successful wholesaling business depends on your ability to identify distressed properties, negotiate with sellers, and find cash buyers who will buy the properties you identified. You need to have a keen eye for promising properties and property values, a willingness to network and the ability to build a strong buyers list based on solid relationships.
How does wholesaling real estate work?
Wholesaling real estate is a short-term investment in property that doesn’t require a cash layout. All the wholesaler does, is facilitate the sale of a property to a third party after coming to an agreement with the seller. In other words, the wholesaler acts as a middleman between a seller and a property investor. The process works as follows.
- A wholesaler locates a distressed property priced below market value because it’s in a bad state of repair.
- The wholesaler then traces the homeowner and enters into an agreement to put the property under contract for a certain amount, say $90,000.
- The wholesaler doesn’t sell the property but finds a cash buyer or a real estate investor willing to buy the property at a higher price than the one agreed to with the seller.
- The wholesaler then assigns the agreement to sell the property to the new buyer, who takes over the right to buy the property.
- The wholesaler pockets the difference between the original price agreed with the owner and the higher price negotiated with the end buyer. Note: the wholesale isn’t selling the property itself, but the right to buy it, so the end buyer now has the right to buy the property.
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How much money can you make wholesaling property?
For the most part, the amount of money you make from wholesaling depends on a few different factors, but mostly on the amount of effort you put in. In most cases, the wholesale fee will largely depend on the area and the average value of properties in the area. For homes valued at $60K, the wholesale fee will be substantially less than a property in an area where homes are valued at $300K.
Typically, a wholesaler makes between $5,000 and $10,000 per deal with some wholesalers making as little as $500 and others making as much as $30,000 and more. Wholesalers who make $20,000 to $50,000 per month do not work on their own. They have several people working for them on different aspects of the business, including marketing, bookkeeping, acquisitions, contracts, and marketing. Between them, they move multiple properties per month. People making this kind of money also spend a lot on marketing, so don’t let anyone tell you that you don’t need any money to do property wholesaling. If you make one or two sales in a blue moon, maybe you don’t need much, but in the real world, you need to spend some to make some.
What can you realistically expect starting out as a wholesaler?
For someone starting out fresh, it will be necessary to build up a list of cash buyers and real estate investors, and building those relationships takes time. It is realistic to expect to close five to ten wholesale deals in the first year, which should make you anything from $25,000 to $50,000. Of course, you could make much more, but you could also make much less. You can make serious money wholesaling real estate, but it’s not guaranteed, and it won’t happen overnight.
What can a wholesaler do to earn the highest possible income?
Know your numbers
A crucial factor for a successful wholesaling business is thorough understanding of numbers, and never lying about those numbers. Numbers drive wholesaling deals: wholesalers have to contract a property for as low as possible otherwise cash buyers won’t give it a second look. More often than not, this may mean that you may make less than you counted on. In other cases, it might be best to just walk away from the deal. What you don’t want to do, is taking a loss on a property.
All of this boils down to the indisputable fact that wholesalers must be thoroughly adept at judging the profitability of the property and applying the 70% rule. According to this rule, which most successful wholesalers follow, the maxim offer to the seller will be 70% of the after-repair value minus the wholesaling fee. For this to work, you must be able to accurately estimate (1) the cost of renovations and (2) the impact of the renovations on the future value of the property.
The outcome of any wholesaling deal is a numbers game and the price of a miscalculation can be a deal that drags on or even disappears altogether.
Build a killer cash buyers list
Another equally important aspect of wholesaling is having a cash buyers list. If you have properties to sell but no one to sell them to, you have no business. The whole business of wholesaling is predicated on the idea of obtaining viable properties and moving them as soon as possible. A well-curated buyers list enables you to move properties fast and efficiently.
With a wholesale buyers list, you can have a potential buyer lined up as soon as you start negotiations with the seller, which takes stress and urgency out of the picture.
Focus on long-term relationships
Wholesaling real estate is as much about people as it is about property. A successful wholesaling business is built on strong long-term relationships. Some experts in the field go so far as to suggest that long-term relationships are more important than focusing on making money.
You can always choose to give priority to buyers that you have worked with before, but it’s important to keep on adding new investors to your list. Building strong relationships with them will give you an indication of the king of properties they are interested in so you can focus your efforts on those, which will ensure more success for you.
Honesty is the best policy
It’s important to build a good reputation. Never be tempted to exaggerate the potential profits cash buyers may earn. Cash buyers and property investors are savvy people who can work out the after- repair value of the property themselves. Investors talk among themselves and just one shady deal with one of them can damage your reputation.
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