I use the term investing loosely here, because real estate wholesaling is a form of flipping assets to create a capital gain. You may have seen shows on television of accredited investors flipping houses on the market. The shows cover some of the highlights of the process involved in flipping a real estate investment for a retail profit, including the impressive before/after photos and all the contractors needed to get the job done. Wholesaling is not so glamorous or exciting, but there is far less risk involved. This is the ideal real estate investment strategy for earning experience in the market and building investment capital that could be used towards other types of real estate deals, like flipping homes (which can come with many unforeseen overhead costs).
What Does a Wholesaler Do?
A real estate wholesaler is somebody who sells purchase contracts for distressed or discounted property that has the potential to fix and flip for a profit or lease, to third party buyers. They are the middlemen between sellers and buyers. The idea is that they are the individuals doing all the handshaking, hunting, and negotiating involved with these deals, then delivering them in a nice neat little package to busy cash investors. These investors could include but aren't limited to, doctors, lawyers, dentists, agents, and other Self-Employed/proprietary professionals that simply don’t have the time or desire to find these deals, but still understand the importance of parking some cash in real estate. Using the four asset classes to identify your income stream, wholesaling falls under the following asset classes:
· Employment
· Real Estate
· Paper
· Business
You are in all four, because you are a self-employed businessman selling/trading real estate contracts. The income counts as only one stream, and it is an earned form of capital gains. The wholesaler makes a capital gain on the difference in price between the buying contract with the seller and the assignment contract with the buyer.
Proposed Order of Operations
The step by step process of completing a real estate wholesale is quite lack luster in comparison to flipping a home, but for good reason. Wholesale deals are meant to be quick, with contracts lasting no longer than forty five to sixty days (very rare circumstances may warrant extensions), but all in all if the wholesaler hasn’t found a buyer by that time then it’s time to bow out of the deal. A wholesaler’s best practice is to be transparent about their intentions and be respectful of people’s time, while they follow the steps of executing deals:
1. Locate investment property
2. Negotiate a purchase/sale contract with the seller (including the “assigns” clause)
3. Find an investor for your deal
4. Fill the assignment of contract (2nd contract between you & buyer)
5. Close the deal with a title company and collect your finder’s fee
In Closing
This method of creating a real estate income stream is meant to be a simple and quick way to earn lump sums of capital that range anywhere from one thousand to twenty thousand dollars per deal. Some real estate wholesalers may suggest you pull off a double close if you wish to hide the amount of profit you are making from the deal or if the end buyer has a problem with the amount of your finder’s fee in an assignment of contract deal. I believe it would just be good business in the long run to take what you can get without coming off as unethical and keep an investor in your network, who you would have the potential to serve future deals too or get referrals from, rather than trying to capitalize on a deal you have very little skin involved with.
A real estate wholesaler is somebody who sells purchase contracts for distressed or discounted property that has the potential to fix and flip for a profit or lease, to third party buyers. They are the middlemen between sellers and buyers. The idea is that they are the individuals doing all the handshaking, hunting, and negotiating involved with these deals, then delivering them in a nice neat little package to busy cash investors. These investors could include but aren't limited to, doctors, lawyers, dentists, agents, and other Self-Employed/proprietary professionals that simply don’t have the time or desire to find these deals, but still understand the importance of parking some cash in real estate. Using the four asset classes to identify your income stream, wholesaling falls under the following asset classes:
· Employment
· Real Estate
· Paper
· Business
You are in all four, because you are a self-employed businessman selling/trading real estate contracts. The income counts as only one stream, and it is an earned form of capital gains. The wholesaler makes a capital gain on the difference in price between the buying contract with the seller and the assignment contract with the buyer.
Proposed Order of Operations
The step by step process of completing a real estate wholesale is quite lack luster in comparison to flipping a home, but for good reason. Wholesale deals are meant to be quick, with contracts lasting no longer than forty five to sixty days (very rare circumstances may warrant extensions), but all in all if the wholesaler hasn’t found a buyer by that time then it’s time to bow out of the deal. A wholesaler’s best practice is to be transparent about their intentions and be respectful of people’s time, while they follow the steps of executing deals:
1. Locate investment property
2. Negotiate a purchase/sale contract with the seller (including the “assigns” clause)
3. Find an investor for your deal
4. Fill the assignment of contract (2nd contract between you & buyer)
5. Close the deal with a title company and collect your finder’s fee
In Closing
This method of creating a real estate income stream is meant to be a simple and quick way to earn lump sums of capital that range anywhere from one thousand to twenty thousand dollars per deal. Some real estate wholesalers may suggest you pull off a double close if you wish to hide the amount of profit you are making from the deal or if the end buyer has a problem with the amount of your finder’s fee in an assignment of contract deal. I believe it would just be good business in the long run to take what you can get without coming off as unethical and keep an investor in your network, who you would have the potential to serve future deals too or get referrals from, rather than trying to capitalize on a deal you have very little skin involved with.
