Real estate wholesaling is a business strategy similar to fix and flipping homes. However, there are some important differences between these two real estate investment strategies.
The basic idea is the same – you buy a Phoenix real estate property with the idea to sell it to someone else within a very short time period. That’s what makes these approaches so different from rentals, where you buy an investment property, prepare it for renting out, rent it to tenants for a few months or years or decades, and eventually sell it when the right time comes.
What makes real estate wholesaling so great is that you don’t deal with tenants or even fixing the property up.
The idea is that a real estate wholesaler gets a property under contract with the seller. That wholesaler then has equitable interest and markets the property contract as a Phoenix home for sale to potential buyers, and finally assigns the contract to a buyer before the contract period expires. The wholesaler then collects an assignment fee. An assignment fee is the difference between the price the wholesaler got it under contract and the price the new buyer is buying it for.
Real estate wholesaling is a great entryway into real estate. Most wholesalers don’t have or need a real estate license.
There are a few features of real estate wholesaling which make it perfect for people new to real estate investing.
1. Little Real Estate Training or Experience Required
In real estate wholesaling, you will obviously be making some important real estate moves and making strategic decisions. Since you are not buying a Phoenix home to turn it into a rental property to generate capital, you don’t have to worry about things like:
- Rental income
- Cash flow
- Real estate investment location
- Professional property management
- Property taxes
This minimizes the knowledge and skills necessary to be a real estate wholesaler. While you should have a working knowledge of the Phoenix real estate market or the state it is in, along with if it’s a buyer’s market or a seller’s market, real estate deals, real estate laws, etc., that’s just a fraction of what you would need to know if you were to be a landlord.
2. Real Estate Wholesaling Involves No Cash
This is somewhat true but not entirely.
In real estate wholesaling, either you will sacrifice time or money (or both) marketing the property. Marketing to Phoenix home sellers can be expensive. Some wholesalers spend $40-$50,000/month just in direct mail. On the contrary, door knocking and cold calling are always free. Regardless, you will need to market the property for sale or team up with another wholesaler who has the buyers.
3. No Need to Deal with Tenants
In general, beginner real estate investors are not likely to have the expertise to be a landlord. This makes real estate wholesaling a great opportunity for them. While they will be dealing with real estate properties, learning about the real estate business, and exploring the housing market, they will not need to complicate their life or tie up capital by being landlords.
4. No Stressing Over Repairs
This is one of the more attractive parts to wholesaling.
Fix and flipping can be a risky business that is subject to fluctuating market conditions. You may need to spend large amounts of money for the repairs needed to bring the property up to its optimal market value. You have to deal with hard money lenders and with contractors, who can both be very challenging. (That subject would have to be a whole another blog). Some people are not cut out for this but are good at getting properties under contract with their great people skills and marketing capabilities.
5. A Great Opportunity to Learn About the Phoenix Real Estate Business
Perhaps the most important reason for real estate wholesaling to be so appropriate for beginner investors is that it gives them an opportunity to learn.
As a real estate wholesaler…
You will gain experience in real estate property purchases and sales.
You will learn all about real estate marketing.
You will get exposed to the best real estate investment tools and real estate investing resources.
You will get to know the Phoenix real estate market.
You will also have a chance to start building your real estate network including other investors, real estate agents, brokers, real estate lawyers, bankers, accountants, professional property managers, sellers, buyers, and others.
Real estate wholesaling can get you great exposure to the world of real estate investing without getting stuck with a 30-year mortgage and a negative cash flow rental property.
A good book to read on this subject is If You Can’t Wholesale After This I’ve Got Nothing For You by Todd M Fleming. Also coaching and guru systems are a great help for real estate wholesaling beginners. I recommend people to Sean Terry and Justin Colby. Please do your due diligence before diving into a guru program as they can be expensive.
Corey Geary is a real estate agent and Phoenix real estate investor at Tru Realty. His expertise transcends traditional Phoenix real estate and he focuses on real estate investing and fix-and-flip strategies. Corey sees the potential in many less than desirable Phoenix homes for sale and is constantly looking to help transform them and sell them for top dollar. Corey leverages his Phoenix real estate company, Tru Realty to help bolster his portfolio and transactions. If you think you could benefit from Tru Realty’s support, fill out the contact form below.