myEmpirePROLet’s talk about how real estate wholesaling works.
Wholesaling Real Estate is essentially a real estate investment strategy.
A real estate investment strategy… but what is the meaning of wholesaling?
Wholesaling essentially is when you buy goods and services at a bulk price from a source that’s closer to the origination of the goods and services.
When you do that, especially goods, you tend to be able to find it at a cheaper price.
That creates room for you where you can have in-built equity, make some money and also, you can sell he rights to that equity.
Let me break it down into a very simple layman language here.
Wholesaling- let’s say for example… in the farm market or wholesaling market.
The wholesale market or farm market is a place that’s closer in source to the point of origination of the goods and services or products.
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And because of that, you’re able to save some money.
But once a retailer decides to purchase the goods and then sell to an end buyer, obviously they want to make profit too, right?
So due to to the fact that they want to make profit, they have to mark up the price of the goods and services or products.
And that’s what you call retail.
Traditionally speaking, wholesaling is a type of trade where you essentially buy the goods a lot lower than the price you will buy it from the regular open market.
In real estate it’s the same thing.
Instead of you going through a realtor who is essentially gonna make commissions,
…another reason to mark up the price.
So for a property that’s $400,000, a realtor is gonna make 3-5% commission on that–that’s about $20,000.
If the original source of the property is selling to you directly, they will be willing to sell for at least no more than ($400,000 minus the $20,000 commission that would have gone to a realtor)…
So that’s $380,000,
It’s a little bit deeper than that because again, why won’t somebody want to do all the work of selling it themselves?
Because it takes work to actually sell a property.
You have to stage the property, you have to make sure the property is in good condition,
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…and you have to be ready to show the property PLUS you also have to have good negotiation skills.
Those are the kinds of things that an agent, a real estate agent or realtor will bring to the table to represent the interest of the seller.
But if the seller has a house that needs work, then it becomes a question of,
…. “yeah, the house needs work. I don’t care. I just need to get rid of it”.
Those are the kind of deals that you can find for wholesale.
And by finding those deals, you’re not only just gonna pay $380,000 for a property that is actually worth $400,000 after repair, right?
So you’ll put in $25,000 of working on repairing it.
If you paid $200,000 for the actual acquisition, that’s $225,000 and if you sell it for $400,000.
That’s $175,000 in gross profit.
That’s the whole point of real estate wholesaling.
Actually, that’s the whole point of real estate investing.
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But as a wholesaler, the way it works in real estate is slightly different.
That price would be with respect to what you could potentially sell the property for at the end of the deal.
So let’s say you know that the price of the property after repair value is $400,000.
The way we do it is we find out what the 65% of that is, that’s essentially about $260,000.
Property needs about $25,000 worth of work, so that’s $260,000 minus $25,000.
And that’s basically about what?
$235,000 and you lock it up on the contract.
That’s a piece of paper that says this:
“You have the right to purchase this property within a period of time.”
…and then you basically take that piece of paper and sell your rights in exercising it to an end buyer.
It’s a Right.
There’s something called Equitable Interest in that property.
Basically, you can sell the rights to purchase that property to an end buyer for $10,000.
You just made $10,000, you didn’t have to come up with any money.
The end-buyer worries about the purchase of the property.
However, it took some kind of skill set to find the property in the first place.
And the idea is that you wanna find multiple properties like this and make a living just finding deals for end buyers.
That’s what wholesaling is.