If you thought wholesaling real estate was dead, think again. Though many investors gave up on the business after the crunch of 2008, a new effort by the Federal Housing Authority to unload millions of foreclosures to private investors has given the market a much-needed kick. Urban properties that were left to crumble have value again. Young families are clamoring for a spot in master-developed communities. Cash is flowing.
For the smart real estate investor, that means it’s time to get back up on the horse. But listen – a few things have changed since wholesaling real estate was last in style. Renting a home is now more popular than owning one, which means that the days of rehabbing and reselling properties to end-users are over. Your biggest customers now will be mid- to large-scale owners who want to develop or rent out entire portions of neighborhoods. Simply put, the game is more focused on location than ever before.
If you’re a small-time real estate investor, you’ll be limited in terms of the number of moves you can make. Since the Fed has 250,000 foreclosures that it needs to unload, it plans to sell them way below market value – but in bundles of 10 or more.
Maybe you’re a great negotiator and you manage to pick up a set of $100,000 homes for $60,000 each. Great, but you’re still looking at a loan that exceeds half a million dollars. On top of that, most real estate companies and developers will prefer to do renovations and demolitions themselves – so don’t expect to increase your profit margins by slapping a coat of paint on your empty houses.
To make a profit wholesaling real estate in the current market, you’ll need a sharp eye and a lot of patience. If you live in an emerging market like Rochester or San Diego, find the foreclosures with the most potential and stake your claim before anyone else gets there. If you’re stuck out in the country, go to auctions and see where the major players are buying land. Buy a small patch of houses adjacent to a major forthcoming development and wait until the area catches on and grows. In the meantime, you can rent the properties out to defer the cost of your mortgage.
The game has changed. A bundle of houses is composed of individual properties, yes, but that bundle is also a section of the urban landscape, and that’s what’s important today. It’s a difficult switch to make. It takes time to begin to see the opportunities. But if you can change the way you think, you’ll be one wealthy real estate investor.
