Is Wholesaling Really Such a Great Idea?

I’ve talked about wholesaling a few different times on this blog, but usually just in little asides or as a small part of a larger subject. Today, though, I want to focus completely on this unique part of the real estate industry, because it’s an important one that seems to be gaining more traction among investors.

But just because something is popular among some people, it doesn’t mean it’s necessarily a good idea, does it?

With wholesaling, this couldn’t be more true. This type of niche real estate investment can be tricky, and it’s a fast-paced game that many investors aren’t good at playing. It involves a quick transfer of the contract on a property for sale, moving from the seller to the wholesaler, who then turns it over as soon as possible to another buyer/investor. The quicker this transfer happens, the better the deal for the wholesaler.

This fast pace is attractive to many investors, as are a few of the other distinctive aspects that come with wholesaling. It can be done with little or no capital investment on the wholesaler’s part, there’s not a ton of risk that comes with it, and it can be a good way to get your foot in the door AND make some cash doing it.

But, there are also a few notable reasons NOT to get into wholesaling. For starters, you may need to jump through a lot of hoops to get going. Some states require wholesalers to have a real estate license, and there are also legal issues, hidden fees and lots and lots of paperwork. If this alone doesn’t turn you off of wholesaling and to a more traditional form of property investment, consider these other reasons:

• It’s a lot more work than you think. Some would-be investors get into wholesaling because they think it’s an easy way to turn a deal and make a quick buck. I’ve got news for these folks: you’re wrong. Wholesaling takes a lot of time, dedication, and determination, and the deals don’t just drop into your lap. You’ve got to hunt them down, move fast to get properties under contract, and then move even faster to sell them to another investor before the contract is up.
• You may not find a buyer. Sometimes, no one is interested in your property. Then what? Well, you’re out all that time and effort you put into it, and that translates into lost profits. Plus, your reputation can take a hit, and in this business, your rep is everything.
• A seller can back out of a contract. Another factor that can hurt your reputation – and your bottom line – is that there’s no guarantee the seller will follow through on the deal. Even if a property is under contract, the seller is within their rights to back out. Sure, you could sue them for breach of contract, but more often than not, it’s just not worth the hassle.
• Your success is largely dependent on your networking abilities. In the wholesaling biz, it’s all about who you know. Your marketing and networking skills have to be on point if you’re going to find success as a wholesaler. The best wholesalers are the ones who have a group of regulars, or repeat investors with whom they’ve built a solid professional relationship. If you don’t have this or the ability to build this network, you’re already behind.

All of these factors can be neatly summed up with one statement: with wholesaling, there is no guarantee you’re going to make money. Income isn’t steady, and your success isn’t tied to a piece of real property – it’s all on you and your skills and abilities as a wholesaler. However, when you invest in real estate the old-fashioned way (i.e., buy-and-hold or flipping), you’ve got a tangible asset with a very high likelihood of making you money, whether it’s now or down the road.

So is wholesaling really such a great idea? Maybe. But then again, maybe not. I prefer something with a bit more guarantee, but if you understand the wholesaling game and are willing to play by its rules, you might just carve out your own little real estate niche.