Should rental property investors buy from real estate wholesalers?
Property wholesalers have developed somewhat of a reputation in the real estate industry. Many don’t understand what they really do. Others have had negative encounters with wholesalers. Yet, new studies show wholesale properties selling fast. What are investors to make of their actions? What makes a good or bad property wholesaler? Who should be purchasing properties from them? More importantly, what is ahead for the wholesaling industry?
What Do Real Estate Wholesalers Really Do?
Just like any other industry, wholesaling is about buying low, and selling at a discounted price. Costco is a great example of this particular business model. Property wholesalers focus on acquiring or contracting to buy homes and other forms of real estate at discounts, and provide a service to others by selling them on. This can be done at any scale, but obviously the premise of wholesaling is often volume. For some, this may be four deals a month. For others, it may be attempting to flip hundreds a year.
Why Wholesalers Aren’t Always Appreciated
While you might think that wholesalers ought to be among the most loved professionals in the real estate industry, this isn’t always the case. This is a result of three main issues:
- Misinformation or lack of knowledge
- Real estate investing gurus promoting other strategies
- Bad experiences with wholesalers
Some may criticize that wholesaling “isn’t real investing.” Buyers think they can save by going directly to sellers themselves, and that they have been offered poor deals by real estate wholesalers in the past.
It is true that wholesalers may not always have to invest their own money to buy these homes before reselling them. However, they do often invest great sums in sourcing them, and performing due diligence, as well as the services they provide. They also put in significant amounts of sweat equity through the work they do.
Some may have tried to cash in on the demand for wholesale properties and make a fast buck without offering much value. Some have tried to resell properties at or above market value, and haven’t done as much due diligence as they could. A few may have tried to serve up bad deals. This isn’t any different to any other industry or product.
There Are Great Wholesalers Out There
There are some very good wholesalers and real estate wholesaling companies.
Great real estate wholesalers:
- Work diligently to source great opportunities
- Have built connections and relationships that others don’t have
- Can be great information sources
- Can provide a steady stream of deals to other investors
- Can be more efficient at marketing and contracting on properties
- Provide access to discounted property deals
- Truly care about offering value and serving their clients
Who Should Buy Properties from Wholesalers?
The most obvious end buyer of wholesaler properties is rental property investors. However, they aren’t the only ones who can benefit, or that are buying them. Recent data shows that the majority of ‘flips’ are actually being sold to retail buyers and regular homeowners. This may include homes which have been purchased from wholesalers, by rehabbers – but no doubt also includes some direct wholesale properties as well.
Regular home buyers that don’t mind doing their own DIY renovations, or can find wholesale deals in great shape that just need a cosmetic makeover can save a lot. Similarly, rehabbers can leverage wholesalers as a consistent source of great deals on-demand. Often times, this can be far more reliable, efficient, and effective than attempting to market for deals. If you are a great handyman and presenter of finished properties, why not focus on that, and let someone else handle the hard work of finding discounted deals? The net cost of finding a deal may not be any different or better than attempting to master marketing. However, the speed and volume of deals that can be done when working with wholesalers can definitely go up.
Buy and hold rental property investors may find that wholesalers provide a valuable service, which allows them to focus on what they do best, and pursuing their main goals.
Who Should Sell their Properties to Wholesalers?
While some may wonder why they would want to sell their property to a wholesaler at a discount, there are actually many individuals and companies such a transaction can benefit. Wholesalers are often cash buyers that can move extremely fast to close on properties, and don’t have a problem acquiring distressed properties.
For property sellers, this means being able to get out of debt, and get cash in hand quickly. It can mean avoiding legal actions that would deplete their equity or take property from them. These speed and savings trade-offs more than justify selling to a wholesaler.
Some of those that should consider it include:
- Homeowners in foreclosure
- Those behind on mortgage payments or property taxes
- Owners that have been prevented from selling through other channels
- Those in charge of estate sales
- Lenders that have taken on property in foreclosure
- Sellers in divorce situations
- Anyone that needs a speedy sale
- Sellers wishing to save on the cost of marketing or fixing up their homes
As we move further into the new real estate growth period, expect wholesaling to become even more popular.
