Wholesaling - Does It Really Work?

There have always been seminars on how to make money in real estate. There was buy and hold, flip and now wholesaling. Seems like there is always something going on in the world of real estate.

Is this all bad? No. Buying and holding real estate for rental income and future sales is a path to great wealth. Renovating homes to "flip" (sale) later also has made a lot of investors profitable.

Now the concept is wholesaling; Does it have the same guarantee of return that buy and hold and flipping has in the past?

Let me give you a definition for wholesaling real estate. It is when you purchase a property way below value and then sell it to an Investor at a slightly higher price. The difference between what you paid for the property and what the investor pays you is your profit. That is a wholesale deal.

Does it work? Yes. But typically when you read a book on the subject or attend a seminar there are some vital components of wholesaling left out (I wonder why? Maybe it is to get you to part with your money so the seminar company can make money off of classes and not wholesaling.

I am not saying you should not engage in this activity. What I am saying is know what you are getting into before you pay lots of money to learn something you may fail at.

1) Wholesaling only works when the price is right - an ideal wholesale deal looks like this; Property is worth $100,000 when repairs are done. If repairs will cost $20,000, you need to purchase the property for no more than $45,000. $45000 and $20000 equals $65000 which is the ideal % for a wholesale deal to work. If you pay $60000 or $70000 for the property and it needs $20000 in repairs to be worth $100000, no investor will touch it. There is not enough room to generate a profit for them.

2) Wholesaling only works when a seller is highly motivated- desperate is a better word. How many sellers will release their properties to you for 65% on the value? And many times will you need it at 35%-45% of the value to make sense.

Stores may spend 30-35% on items they sell when they purchase wholesale.Even with purchasing at that rate they don't make a killing when you add in the expenses necessary to sell those items. Houses are no different.

3) In some areas of the country it is just not realistic -I reside in California where it is almost impossible to find a property with a 10% cap rate. What this means is people expect a lot of money for their properties. Getting people in California, New York and some of the other major metropolitan cities to sell to you for pennies on the dollar is unrealistic.

Be very careful before you jump into wholesaling. Save your shirt.