Delivered February 6, 2021. Contributor: Melissa C.
To determine if property wholesaling is profitable for real estate investors by revealing pain points, problems to solve, desires, objections, immediate and long-term results from wholesaling, questions to answer, and competition in the market.
Profitability of Property Wholesaling
The average profit from wholesaling real estate properties ranges between $5,000-$10,000 per deal. While this might be minimal, it should take no more than a few weeks to wholesale a property.
There can be immediate profit in wholesaling houses. Instead of purchasing a home and selling it, a wholesaler contracts the house with a seller, and finds a party interested in buying the property. A wholesaler can make a profit by identifying properties being sold for under market value; they earn revenue through a wholesaling fee that is attached to the transaction — often a percentage of the overall property cost. An example — one finds a motivated seller who is willing to sell their property for $20,000, and after running comps to calculate the ARV (after repair value), it is determined the property could sell at retail for $85,000, and it will take $20,000 to rehab.
In 2019, the average gross profit made per home flip in the U.S. amounted to $62,900 U.S. dollars.
Wholesaling properties can be tricky to navigate and often comes with a hefty price tag- buy-and-hold investors are a lot different from rehab professionals, and use a different industry rule (2% Rule) stating if the monthly gross income is not at least 2% of the purchase price, then the deal is not worth pursuing (some markets operate at a 1% Rule).
Wholesaling requires a great deal of sweat equity- while relatively risk-free, wholesaling requires due diligence and much effort to see a healthy return- typical deals take 5-10 months to close.
Problems to Solve
The biggest problem is determining who to work with to sell properties and who the end buyers will be; typically real estate rehabbers and other types of investors prefer not to spend time identifying discounted properties or negotiating with sellers.
If you really want to make money in real estate, without saving the money and dealing with the purchase process, one can wholesale properties, but must understand it is a legal strategy used to one's advantage without having to make an offer to purchase or put down a down payment.
The goal in real estate wholesaling is to sell the home to an interested party before the contract with the original homeowner closes, meaning money exchanges hands between the wholesaler and the seller, not at least until a buyer is found by the wholesaler, and close the deal faster- 90% of the time, deals get closed during the follow-up process
To act as the middleman, and generate income by helping real estate investors find and close on potential deals. One can sign the documents with the seller and then in 15 minutes or so, sign the closing documents with the investor-buyer, selling them the property at a slightly higher cost.
Three desires of wholesaling properties is to earn profits in a shorter time frame, become immersed in the real estate industry, and be accessible to those with limited cash and credit. There is an equation that rehab professionals use called the 70% Rule- to flip a house, you need to purchase the property at 70% of the ARV.
Certain limitations are present when attempting to wholesale properties: income can be unpredictable, it is dependent on finding buyers, and a buyers list can be difficult to maintain. Of all the ways the ultra-rich made their fortunes, real estate outpaced every other method 3 to 1.
Real estate wholesalers, who incorporate technology into their workflows, tend to be able to process more information with accuracy, while also maintaining organization. Lead generation costs money that is not always available to wholesalers- average cost per lead in 2018 resulted in $88.82, while value of the lead reached $364.72 and cost to close $3511.19.
Immediate and Long-term Results
Real estate wholesaling is a short-term business strategy investors use to make big profits. For instance a seller desires to sell a house for $20,000 less than market value, then the wholesaler is on to a deal.
How to wholesale properties: In real estate wholesaling, a wholesaler contracts a home with a seller, then finds an interested party to buy it.
Is wholesaling profitable: One makes a profit by finding a buyer willing to purchase the home at a price higher than the amount agreed upon by the buyer. The difference in price—paid for by the buyer—is the profit, retained by the wholesaler. Wholesalers typically wait 7 to 30 days, or however long it takes to close from when they find a buyer.
Wholesaling real estate- who succeeds in the business: This method of wholesaling is best suited for people who want to get into the business, but do not have the finances to buy and sell houses. Wholesaling is not a 9-to-5 job where at the end of every two weeks, you get a check.
In 2020, Dallas was the U.S. market with the most increased return on investment from house flipping with a gross ROI of 38%.
In today's economy, 5% of wholesalers are driven to sell their property by giving it away for a very cheap price, or favorable terms.
The National Association of Reactors' 2019 report shows there is vast membership of 1.32 million people, with only 7% of buyers choosing to purchase a home directly from the seller.
There is abundant information available regarding the property wholesaling market; therefore, it will be beneficial to determine how one can be successful when wholesaling properties, and what role technology plays in that success. It will be necessary to provide details on the steps to locating and selling wholesale properties in the U.S.
We have briefly discussed the problems associated with wholesaling properties, and recommend continuing to further discuss these challenges and drivers affecting the market.
Only the project owner can select the next research path.