While often misunderstood, and grossly underestimated, real estate wholesaling has broken into the lead as the best way to make money in the property industry…
Busting through the myths, hyped up reality TV shows, and biased online real estate forum banter, the real math and data shows that wholesaling real estate trumps both fixing and flipping houses, and becoming an agent vying for that elusive Million Dollar Listing.
Seven ways that property wholesaling is different from other real estate investment, and income generating strategies:
Low cost business and knowledge barriers to entry
Can deliver positive returns in days versus months
Lowest risk form of real estate investing, basically flip without the risks
High potential for substantial transaction volumes
Be your own boss and flip properties any town in the U.S.
No need to take on long term debt, or use your own credit
Wholesaling holds the key valve for supplying all other players and professionals with their business
Like an Amazon, or Costco, real estate wholesaling involves buying low, and selling low while creating substantial volume and profit margin opportunities.
Some of the best examples of wholesaling in action, is through proven systems including The Ultimate Real Estate Cash Machine, The Wholesale Warrior, and ‘Find it, Bind it and Assign It’ designed by Sensei Gilliland, who has been recognized as the nation’s leading real estate expert by Real Estate Wealth Magazine.
It is often debated whether those interested in entering the real estate world should start by becoming Realtors first, or stick to sluggish but fashionable buy to rent, or rehabbing. Let’s see what the numbers say…
According to the RealtyTrac 2014 Home Flipping Report and coverage by the Wall St. Journal’s Market Watch investors flipping houses have been averaging over 30% returns.
Data compiler RealtyTrac’s data shows the average gross return on investment for flipping houses in the top 14 counties in the U.S. ranging from 32% to 83% in the first quarter of 2014[i]. Market Watch reports that even among the ’10 Worst Markets to Flip a Home’, those flipping houses in California were achieving 21% ROI, and $131,249 per deal[ii]. The average profit on flipping a single family house in Q1 2014 topped $55,500, each.
For those wholesaling houses without using any of their own money, or putting personal credit on the line, this spread between buying and selling prices is all profit.
Note: This doesn’t even begin to calculate annual or compounded lifetime returns from repeated flipping, and reusing capital.
Now contrast this with those property investors using their own cash or credit to purchase homes and fix them up and resell or rent them out. In comparison, even a 15% to 25% annual return appears to be miserable. Then take into account that these returns are paid out in minute rental checks, minus expenses, property management fees and maintenance costs. Meanwhile nest eggs and credit are online the line, tied up in sometimes liquid investments, which face a daily barrage of risks from natural disasters to crazy neighbors and tenants, to frivolous lawsuits.
Big data firm BuildZoom and Remodeling Magazine highlight how rapidly escalating building costs and price tags of around $55,000 just for a kitchen remodel can make rehabbing for profit cost prohibitive and less profitable. Then there is the need for extensive expertise.
Has anyone kept count of how many times Donald Trump, and his various exploits into various buy and hold real estate projects have ended up in bankruptcy court? Imagine the masses of untold stories of those amateurs that have rushed into fixing and flipping, or becoming landlords after watching a couple episodes of reality TV, and haven’t had multi-million dollar legal teams to minimize the tragic financial losses.
Many have considered becoming a licensed real estate agent, and Realtor as a stepping stone to increased incomes and profiting from the property industry. However, when breaking down the real figures it is clear that few Realtors really live like, or pocket the type of money the cast of Million Dollar Listing Los Angeles.
According to the National Association of Realtors’ (NAR) own 2014 Member Profile:
The average Realtor earned just $47,700 last year
The median gross income for Realtors in the business 2 years or less was just $8,500
78% to 86% of Realtors reported this as their only occupation
68% of Realtors worked on a split-commission basis
In other words; real estate agents remain employees, working for a boss instead of running their own real estate business. After extensive and expensive training, and testing (of which very little is of practical use in their field), Realtors on average make five figures less per year, than property wholesalers make in a single deal.
For the last two years NAR reports the average real estate agent was involved in just 12 transactions annually. RealtyTrac reports fix and flips completed in the first 3 months of 2014 took an average of 101 days to complete. In contrast wholesalers can turn properties in just a matter of days.
Real estate wholesalers also act as the gatekeepers for a significant percentage of house deals and listings. They are the suppliers of homes to flippers, and buy to rent landlords, as well as a source of substantial business for Realtors. In 2014 82% of houses flipped have been sold to owner occupant home buyers too.
Without the capital and credit limitations of other methods of engaging in the real estate market wholesalers are also able to turn far higher volumes of homes that Realtors and rehabbers. Imagine the figures associated with wholesaling just 4 properties per month. What about 10, or 30?