A real estate wholesaler specializes in buying distressed or under-market value houses to re-sell to investors at a higher price. Unlike investors or flippers, Real Estate Wholesalers do not add physical value to the properties they buy, nor do they manage these properties for rental purposes.
What is real estate wholesaling? Real estate wholesaling is a method for some real estate buyers to make money quickly. While there is nothing inherently wrong with savvy investing, real estate wholesaling is mostly successful because it often means homeowners made less.
Wholesalers also help inflate the market because they do not add any tangible value to the properties they purchase. They also do not provide any kind of valuable services like property management either.
In 2019, an estimated 544,911 properties were sold off-market with an average wholesale fee of $17,200. That adds up to $10 billion in lost equity for homeowners that went straight to wholesalers.
In the past, homeowners distressed homes had few options for a cash sale if they weren’t able to make repairs. While wholesalers do provide another home sale option, they often work to pressure homeowners into selling before they can analyze all their options. The less competition to wholesalers the better for them at the cost to the homeowner.
How does real estate wholesaling work?
Here’s how a real estate wholesale process generally works.
- The real estate wholesaler finds a property for under market value, typically because the home is distressed or the seller is desperate for a quick sale.
- The real estate wholesaler makes an offer and then negotiates with the seller. When both parties agree on a price, the home is put under contract.
- The real estate wholesaler looks for a cash buyer or investor who may be interested in purchasing the contract rights so they can flip the house and make a profit.
- The contract is assigned to the investor at a higher price and the wholesaler keeps the difference. In other words, the investor gets the contract rights in exchange for a wholesale fee.
- The buyer closes on the home and the real estate wholesaler receives their cut, which is typically around $5,000 to $10,000 per deal.
Essentially a wholesaler works as a middle man in your home sale. Ultimately, wholesalers do not have any purpose to hold your property other than to sell it to an investor able to make the necessary repairs that truly increase the home’s value. Like any middle-man, wholesalers take an unnecessary portion of the profits from your home sale.
Are real estate wholesalers different from real estate agents?
Real estate agents represent homeowners and home buyers to facilitate a smooth and fair transaction. Again, wholesalers are simply middlemen they rarely provide any tangible service to the homeowner or value to the property itself. Realtors are paid on commission (typically 5-6% of a home sale). Wholesalers make money when homeowners and investors make less.
To become a realtor, one needs to have extensive training and a legal license to conduct real estate transactions. Wholesalers aren’t required to carry a real estate license.
Are real estate wholesalers different from real estate agents?
A real estate investor buys property under market value and generates future income by either providing new rental opportunities or by adding great value to the property in the form of extensive renovations and repairs.
Good investors are able to give the best deal for a distressed off-market property because they are able to make extreme repairs with better efficiency and scale. This ability means higher margins for the investor which also translates to more money to the original homeowner.
Investors provide all the transactional speed and efficiency of wholesalers but without the middleman. The work most investors put in to improving the quality of the properties they buy also provides better value to the health of the local housing market. Wholesalers work like investors but without providing the tangible value or putting in the hard work.
How is a real estate wholesaler different from an investor?
A real estate investor buys property under market value and generates future income by either providing new rental opportunities or by adding great value to the property in the form of extensive renovations and repairs.
Good investors are able to give the best deal for a distressed off-market property because they are able to make extreme repairs with better efficiency and scale. This ability means higher margins for the investor which also translates to more money to the original homeowner.
Investors provide all the transactional speed and efficiency of wholesalers but without the middleman. The work most investors put in to improving the quality of the properties they buy also provides better value to the health of the local housing market. Wholesalers work like investors but without providing the tangible value or putting in the hard work.
Why Homeowners Should be Cautious With Real Estate Wholesalers
Anyone with a distressed home in an ‘up-and-coming’ neighborhood can be a target of real estate wholesalers. An Atlanta investigation uncovered that elderly, low-income and inexperienced homeowners are most targeted by wholesalers. Any homeowner with less understanding or awareness of their home’s value or local market are prime targets.
Since investors have a plan in mind on how to add value through repairs and renovations, they often approach a transaction with the mindset of ‘how much can I pay for this house?’ Wholesalers mostly approach a transaction by analyzing how quickly they can make more money. Again, the real estate wholesaling strategy is successful at the cost to the homeowner.
What do Homeowners Need to Know about Real Estate Wholesalers Going Forward?
Its not like San Diego homeowners shouldn’t field offers for their house if they are interested in selling. With that said, you should be mindful of who is trying to buy your house. Remember even if a wholesaler has presented you a good offer, they are taking a portion of the profit you’d likely make working with an investor.
You could even consider fielding offers from real estate wholesalers to then drive a higher price with a reputable investor. After all, if you are selling your house, it never hurts to have multiple interested buyers to compete for your house.
What do Homeowners Need to Know about Real Estate Wholesalers Going Forward?
Acropolis Developments has been buying and renovating San Diego homes for over 15 years. We have built our company through the hard work we put into our properties, and the respect we have cultivated among the San Diego community and real estate industry.
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