Reasons to be Cautious About Wholesaling

Wholesaling real estate is touted as a great way for anyone to quickly make money in real estate. Even if you have no capital, wholesaling is said to be a path to profit. It’s true that it’s possible to make money wholesaling real estate. But novices should beware that there are a lot of potential pitfalls. If you’re not aware of the dangers, chances are higher that you’ll end up regretting your decision to pursue wholesaling. Here are some reasons to be cautious:

Wholesaling is Heavily Regulated in Some States

Wholesaling is not technically illegal. However, some states heavily regulate activities related to wholesaling. You need to be very careful that you remain compliant to state regulations where you intend to wholesale. There’s also a lot of gray area when it comes to terms and laws. For instance, most states have legislated that anyone involved in brokering a property must be licensed. If you’re wholesaling, it could be argued that you’re acting as a broker. While it’s not cut and dried, you could incur a lot of legal fees in defending your position. Just do everything in your power to understand and abide by your state laws when wholesaling. Many experts recommend that you become licensed just to cover yourself.

Not All Cash Buyers Are Cash Buyers

In the world of wholesalers, there are a lot of wannabes. You may encounter a handful of cash buyers who don’t actually have the resources to make the deal you have intended for them. This kind of glitch can do more than damper your deal. It could put you in the hotseat for a property you can’t pay for. This kind of situation most often arises when you’re inexperienced or your buyer is someone you haven’t dealt with before. To prevent this kind of scenario from happening, make sure you have a big list of wholesale buyers in hand before you make a move. That way, if one ends up being a bust, you’ve got more to fall back on. Another option is to simply request proof of funds or financing from any wholesaler you’re banking a deal on. If they’re on the up and up, they won’t mind showing you their financials.

Wholesaling Isn’t For Newbies

A lot of people will tell you that wholesaling is the perfect way for newbies to get into real estate. That’s because it doesn’t cost money and doesn’t require a license. But it depends on the person. If you’re someone with little experience in real estate, you need to become educated before you should get into anything like wholesaling. Wholesaling is a great way to accidentally get yourself into a lot of trouble if you don’t know what you’re doing. Your best bet is to connect with another wholesaler who is willing to show you the ropes. A common relationship starter is to get with a wholesaler who is looking for properties where you’re located. You could be a bird dog and find eligible properties and get a cut of the profits for your efforts. But the real payoff will be what you learn from working closely with a wholesaler.

If you’re considering getting into wholesaling, make sure you know your state laws inside and out when it comes to real estate. Carefully vet your buyers and be willing to spend time learning all the ins and outs of the wholesaling side of real estate. Doing so will save you from a world of trouble.