Is wholesaling a good start for me?

Question

I am just starting out in my real estate investment journey. I have been reading, researching, listening to podcasts and actively using bigger pockets for about a month now and I feel like I have gotten great information, but I am scared to start investing. I know that in order for me to really begin investing I am going to have to take that next step and start making deals, but i am unsure how exactly I should get started.

My plan is to start out wholesaling just to get my feet wet and get a feel for the business, and use the money I am able to save from wholesaling to do some house hacking and buy a duplex or triplex. My ultimate goal is to become a full time house flipper because I love the idea of taking a house that is run down and old and falling apart and turning it into something beautiful.

With all that being said, I am not exactly sure what the best way to get started wholesaling is. Should I find a home first and then begin to look for potential buyers? Should I find a buyer that is looking to flip a house first and then begin my hunt for finding a property? Or is wholesaling not even a good way to get started?

I would love any feedback that I could get from anyone that is currently wholesaling or has done some wholesaling in their career. Both success and not so successful stories so that I can know what to expect. I am just looking for some guidance before I get started.

Thanks! Dorian

Charles Moore · Answer

hi, @Dorian Redden!

I had the same thoughts and plans a few years ago to break into real estate - listened to podcasts, read books, even found a local mentor. However, I was still not prepared.

Looking back on it, here is what I learned:

1) Wholesaling is a 2nd job on top of one you currently have. It is crazy time intensive. You need to be willing to give up time you would have relaxing from the day job, and possibly time with family.

2) it's not cheap - buying mailing lists, envelopes, postage, a service to hand write your yellow letters...it adds up to thousands of dollars with a 1% chance of a successful deal for you. Plus any signage you make and put out.

3) it affects your taxes. Any profit you make from this is considered earned income by the IRS, just like your W-2 job. So your success increases your taxable income and the tax man can take more of it.

Articles have been written here on BP about why wholesaling may not be the best way for new folks to get started. I wish I had known about them years ago. Could have saved me time, money, and frustration.

Personally, I settled on the buy and hold strategy. More passive, more bang for the buck, and very tax-friendly - the IRS gives people more financial reward to be property investors than any other investment.

To incorporate your potential love of flipping, I might suggest finding distressed properties, fixing them up, then renting them out. Flipping them means the IRS can tax your profits like with wholesaling. You could use the BRRRR strategy described on BP, of house hack with an FHA loan with a 3.5% downpayment.

The money you use to pay for wholesaling marketing you can use toward a downpayment on your first rental project. Keep stashing away from your w-2 job, resell things on Craigslist/eBay/Amazon, sell crafts stuff on Etsy, rent out a spare room on AirBnB (if you own your own single family home), do some freelance tasks on Elance or Taskrabbit - all to accumulate funds for that first downpayment.

And all the while, attend some local REIA meetings to expand your network list.

Hope this helps!

Kenneth Barr · Answer

Hi Dorian there are two main ways to go about the actual wholesaling of an opportunity.

1. Though assignment of the contract - but, you need to be sure it's an assignable contract.

2. 'Double Close' which means you close with the seller, and then close with the buyer.  In many cases this can be done on the same day.

This all said, in most, if not all case, you will be selling the wholesale deal to another investor who will rehab it - so it needs to be a good deal for them tool.

With that in mind, it's a good idea to approach every opportunity as a rehab - with wholesaling as one exit strategy.  This way, when you evaluate the opportunity you have an idea of how much profit will be there - some for you as a wholesaler, but most of it for the buyer (investor) - since the buyer will be assuming most of the risk (managing contractors etc).

So.. as a general rule, we recommend approaching all opportunities with an eye toward rehabbing - then run then numbers, do the comps, and come up with what you feel your could earn as a profit if you rehabbed it.  From there, provide the details to your investor buyers and you'll have a much better chance of selling it, and everyone coming out as winners - the seller, you, and the person you wholesaled it too.

I hope this helps!

Brandon Beale · Answer

No Problem!

Dorian Redden · Answer

@Brandon Beale@Kenneth Barr@Chris Boyd@Chase Hancock@Charles MooreThanks so much! I really appreciate all of your feedback. I am definitely gonna start with finding a mentor and I will continue to save and search.

Brandon Beale · Answer

@Charles Moore

I love it! Well said!

Chris Boyd · Answer

Dorian,

Welcome to the BP community! The truth is wholesaling is great if you understand it's all marketing. Both strategies work if you do! Continue to gather all the information you can and then take massive action!!! All the best!!

Brandon Beale · Answer

I'm a newbie as well, and what I am told repeatedly is that if you find a truly good deal, the buyers will come. Honestly, the first thing you should do whether your wholesaling or otherwise, is start some kind of advertising to find deals, and that can cost money. But in the long run, if you make a good profit, that initial investment in advertising will seem minimal.

Now I may add one more thing. Start plunking as much of your money from a regular job as possible in a savings account. The best way to wholesale, in my opinion is to actually close on the property yourself before selling it. It can protect you from legal ramifications! In some states, mine for example, it is illegal to market a property for sale that you do not own. In West Virginia, It's considered brokering, which requires a liscense.

Best of luck in all your endeavors!

Brandon

Is wholesaling a good start for me?

Most Popular Reply