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Pros and Cons of Wholesaling Real Estate

I got started with real estate back in 2006, before the recession.

I started with single-family houses. I signed up with a local mentor and he happened to be a wholesaler. He taught me marketing and negotiation tactics.

I took what he told me and started rehabbing houses. I also learned how to trade stocks and options, and I got into the restaurant business, which cost me my my shirt, but house-flipping was how I got started real estate,

I made a lot of money but it was very active. It required my presence and interaction.

I went to meetings and everyone was thinking single-family houses. There were few multifamily investors going to these real estate meetings. Single-family was the comfort zone. That’s why I got started with wholesale and rehabbing.

Real estate wholesaling is when a wholesaler sells a property on behalf of the owner for a profit.

The wholesaler doesn't purchase the property. Instead, the wholesaler and seller enter into a temporary contract.The owner gives the wholesaler the right to sell the property and keep the profit for themselves.

These are often distressed or off-market properties. The current owner no longer wants the property and is unwilling or unable to invest the time and effort required to prepare it for a typical sale, so they pay a wholesaler to find end buyers for them.

End buyers are typically real estate rehabbers.

When I got started, I did some lease options. I held a few of them and it was great, but it was not necessarily the best course and it certainly wasn’t the most direct.

My ultimate goal was financial freedom, but my immediate goal was to work for myself and be a real estate investor. I checked that box but discovered it wasn't really the lifestyle I was after.

The apartment building I owned kept sending me mailbox money (passive income,) while house flips, which made great money, required constant attention.

There are a lot of different ways you can get started in real estate and the fundamental question you have to ask yourself when choosing your strategy is, “What do I want?”

I know some wholesalers with huge businesses. They architected their business to be a passive lifestyle, but to do this with wholesaling, it has to be an intentional act. You have to achieve fairly large-scale to do it.

As with everything, there are pros and cons to real estate wholesaling.

Pros

• You can make money fairly quickly
• You will learn about the real estate industry
• It’s accessible even if you have limited cash

Cons

• Your income is unpredictable
• You have to always be finding buyers
• It’s not going to lead to financial freedom

 

You have to be clear about what you want and most people aren’t, just like I wasn’t in the beginning.

I was told I needed to start small and start slowly and I'm not sure that was the best advice. I believe that anyone can go multifamily right from the start, without spending months or years in the single-family house investing space.

You have to ask yourself what you really want and I think the answer to that question is, I want financial freedom. I want to be able to travel whenever I want.

Very few people retire off of single family house investing, and most – 98 percent – quietly do with multifamily.

My advice?

I would strongly urge you to skip the single-family investing and go right into multifamily.