Why Wholesaling is a Winning Strategy for the Novice Investor
The most common barrier to entry in real estate investing is simply having the starting capital. Full financing doesn’t exist in the hard money arena, and the best terms lenders offer are for the experienced investor. Capital is necessary to start investing in real estate. If a down payment, closing costs, and interest reserves aren’t liquid then wholesaling is the best method to start with. With wholesaling you can begin to build the capital and developing the skills needed to start flipping properties or building a rental portfolio for income.
Many real estate investors use wholesaling as a way to start investing in real estate with little risk exposure. It is a simple strategy where you get a fee for finding a good deal for another investor. There’s no need to qualify for funding, repairing the property, holding costs, and the time should be significantly shorter. It’s also repeatable which investors who only try to build portfolios find that they don’t have capital to repeat the process to grow the portfolio and often receive much less monthly income than expected when they’ve used financing for the acquisition. After acquisition also tenants are another added risk to the bottom line as they can damage the property, or not pay rent.
The initial capital for a wholesale is much less than of a flip or rental property. In a wholesale deal the investor only needs capital for a deposit on a contract. Since the contract will be assigned to the actual buyer, the wholesaler only needs to put down the deposit to get into contract. This could range from a few hundred to a few thousand depending on the property and market.
It’s often a necessity to start with wholesaling in order to build capital. However, it’s also practical for a novice investor who is trying to build the skills necessary to evolve into flipping and rental investments. These skills include: learning how to find and analyze a deal (you make your money when you buy the property), finding the buyer for the property, learning how to negotiate the offer, how to predict expectations of profit, and getting comfortable with contracts and assignments, are the main stepping stones to moving from a novice to an experienced real estate investor.