Many are attracted to becoming a real estate investor because of the large margins you can make. Unlike the stock market, real estate is a physical asset, that while it may fluctuate, it retains intrinsic value.
When starting out, stick with wholesaling, here are four reasons why you should before moving on to other forms of real estate investments.
Cost Effective Introduction
Wholesaling doesn’t require a mortgage loan from you, thus no credit check or a lot of cash is needed to become the wholesaler. You are effectively the middleman. This means you don’t need huge amounts of capital needed to actually “purchase” the real estate. There are times you don’t even need to put any capital down if you have a list of buyers and sellers already in line. Ultimately, you are able to make a quick buck for finding and introducing the eventual investor to the property.
Wholesalers can make anywhere from $3,000 to $50,000 from a transaction. Keep in mind this is with reduced investment risk while building all the other components of success. This is a quick and easy way to build your savings to be able to jump into other avenues of real estate investment.
Relationship Building
Real estate investing is often a team endeavor, especially as you begin. The more people you know and network with, the more you have your pulse on the local opportunities. As you build a list of buyers and sellers in wholesaling, you are building your reputation for understanding the good value and business savvy.
When you’re ready to step up and make a larger investment, you already have a group of potential partners who have access to capital you may not. Not only does this help in the purchase of properties, but their resources will also aid in rehabbing and later flipping the property with potential buyers already in your network. Spending time becoming a good wholesaler establishes solid business relationships.
Gaining Market Savvy
Investors like to play scenarios that help them understand risk better. When you wholesale, you move from fictional scenario to real life but without the same level of risk that the actual investor does. By working with both buyers and sellers, you develop a better understanding of where a property starts and the margins the final investors get when selling it.
It also helps you understand bigger market scenarios where slow markets make it easier for investors to negotiate better deals on distressed properties. You’ll also see when an investor chooses to rehab, hold and rent until market conditions improve. This strategy helps investors recoup the cost, get tax benefits and build equity in the property until a later point in time when they can sell for the desired profit.
The Case for Sticking with Wholesaling Before Moving into Other Types of Real Estate Investing
Wholesaling can be an ideal starting point for many aspiring real estate investors. Here’s why focusing on wholesaling first can be beneficial before transitioning into other forms of real estate investing:
Wholesaling real estate is a concept to be learned, and earned. There are certain steps almost every wholesale deal will follow, so knowing them will make life easier for you.
Other than the entry barrier of low capital requirements, you will also need to know what you can do with a property that you can’t wholesale. Or, you risk losing the deal.
Are there certain legal requirements, like an HOA or deed restrictions, you need to find these out before you sign up a seller.
By the way: other forms of investing can cost much more as an entry point than wholesaling.
1. Low Capital Requirement
Wholesaling requires minimal upfront capital. You don’t need to purchase properties outright; instead, you secure them under contract and then assign the contracts to other buyers for a fee. This makes it accessible to those without significant financial resources.
2. Risk Management
Since you’re not holding onto properties or investing significant amounts of your own money, the financial risk is relatively low. This makes wholesaling a safer entry point into the real estate market, allowing you to learn and make mistakes without the high stakes of owning property.
3. Market Knowledge and Networking
Wholesaling helps you develop a deep understanding of your local real estate market. You’ll learn how to identify undervalued properties, negotiate deals, and build a network of buyers, sellers, and other real estate professionals. This knowledge and network are invaluable when you eventually move into other types of investing.
You will also need to know what certain markets are currently selling for. If the subject property is on wetlands, can it still be sold?
Know what to do if the seller disappears before closing. These are all different problems that can, and will at some point, appear to you.
4. Quick Cash Flow
Wholesaling can generate quick cash flow, providing you with capital that you can later reinvest in other real estate ventures. This can be particularly beneficial if you’re starting with limited funds and need to build your financial base before tackling more capital-intensive investments.
5. Skill Development
Wholesaling hones essential real estate skills, including property valuation, negotiation, marketing, and deal analysis. These skills are transferable to other types of real estate investing, such as fix-and-flip, buy-and-hold, or commercial real estate.
6. Flexibility and Scalability
Wholesaling offers flexibility, allowing you to scale your operations up or down based on your goals and market conditions. This scalability can be advantageous as you build your experience and confidence in the real estate market.
7. Learning the Transaction Process
By wholesaling, you’ll gain hands-on experience with the real estate transaction process, including contracts, legal requirements, and closing procedures. This foundational knowledge will serve you well when you start dealing with more complex transactions in other types of real estate investing.
It is essential you learn some of these things before you begin to make cash offers.
8. Building a Buyer’s List
As a wholesaler, you’ll develop a robust list of cash buyers and investors who are always looking for deals. This network can be incredibly useful when you transition to other forms of investing, as you’ll have ready buyers for properties you might want to sell or partner with.
9. No Property Management Hassles
Wholesaling avoids the headaches of property management, tenant issues, and maintenance costs. This allows you to focus solely on finding and closing deals without the additional responsibilities that come with owning rental properties.
10. Proven Track Record
Establishing a successful track record in wholesaling can boost your credibility and make it easier to secure financing and partnerships for other real estate ventures. Demonstrating your ability to find and close profitable deals can attract investors and lenders when you’re ready to diversify your investment strategy.
Conclusion
Wholesaling provides a practical, low-risk, and educational entry point into real estate investing. By mastering wholesaling first, you can build the necessary skills, knowledge, and financial base to confidently expand into other types of real estate investments. This strategic approach can increase your chances of long-term success in the real estate market.