The real estate industry is highly complex and can be really profitable if you know what you are doing, people with the right knowledge and connections can really excel in the real estate industry by providing services to people who want to buy and sell property. There are a number of ways in which a real estate agent can operate, some of which carry more risk than others, every method has its own pros and cons. One common way of operating in the real estate market is by making profits through commissions by selling other people’s property, this is what many middle men do.
Two popular ways of carrying out business deals related to real estate are flipping and wholesaling, flipping involves buying property from an owner and then either waiting for its value to appreciate or making further investments in it in order to increase the profit margin when the time to sell comes. Flipping can be highly profitable, however it also involves a lot of risk since the seller needs to buy property, invest in it and then rely on market forces to be favourable.
Real estate wholesaling is a lot like flipping, but there are a handful of differences that make it less risky; in wholesaling, the wholesaler does not need to actually own property in order to profit from it. Instead, the wholesaler finds a party wishing to sell their property, come up with an agreement on the amount with them and then advertise their property in the market at a higher price, the difference between the agreed upon price and the price at which the property is sold determines the wholesaler’s profit.
To make wholesaling more easier to understand, let’s take a look at an example; a real estate whole seller finds a willing seller in the market and after discussion and analysis, both parties agree on a price of $120,000. Now the wholesaler estimates that the property will need renovations of $10,000; this will be all the investment that the wholesaler makes in the business deal. They now begin marketing the property for $160,000 and when a buyer is found the property gets sold for $140,000, the original property owner gets $120,000 and the wholesaler makes a profit of $10,000.
Any viable real estate wholesaling business plan is based on string connections, in-depth knowledge of the market in which the deal is being made and contingency plans in place to safeguard the wholesaler. In wholesaling, success is parallel to being able to find buyers and closing deals as fast as possible, and should a wholesaler fail to do so, if they have the right contingencies in place then they should have nothing to risk at all other than any repair costs that they might have to take on.
A great thing about real estate wholesaling is that the wholesaler does not need large sums of money to make investments and that the rate of return is usually quite positive.