Wholesaling or Retailing: A Deal Analysis Approach
Many new investors who want to become real estate wholesalers get a little confused about the difference between wholesaling a property and retailing a property. So in this article I will be discussing some of the differences, as well as some of the pros and cons of each.
First, wholesaling properties is finding great deals, putting them under contract and then selling them, almost always to another real estate investor at a discount.
Retailing is usually selling properties, at full price, to an end buyer who will be living in the property. You can think of retailing as what most real estate agents and brokers typically do. There are exceptions to this rule, but the typical real estate agent is selling properties to someone, at very close to full retail price, so that they can live in the property.
There are also hybrid models that can be very attractive to wholesalers. Here’s how that might work. You, as a real estate wholesaler, are out searching for great deals for your real estate investor buyers list. To find deals for them, you really need to buy properties at pretty big discounts; when you do get great deals they will sell very quickly. What if you come across a deal that is not quite good enough for your real estate investors to jump on, but doesn’t need that much fix up so that it could be purchased by someone who is a little handy and wants to live in it? Well, you could get a contract or, better yet, an option to buy the property from the seller and then find a retail buyer to purchase the property for much closer to retail price.
If you want to retail properties, consider getting a real estate license where you have access to all the properties in the multiple listing service (MLS) to sell to retail buyers. You’ll earn a commission (that is usually smaller than a wholesale fee), but you won’t need to worry nearly as much about finding the truly great deals because your retail buyers are buying what they want to live in using their emotions as a guide. Investors, on the other hand, buy value in the form of equity (discounts) and cash flow.
However, I teach primarily wholesaling because an advantage to wholesaling is the value and ease of using a list of investor buyers to liquidate your deals. If you’ve been doing what I recommend – and shame on your if you have not -then you should be building your buyers list of investors from day 1 as a real estate wholesaler. That list is essentially insatiable for great real estate deals. If you have really, really great deals, and a decent sized buyers list, you will find people to buy them. If you are not getting action on your deals, then you are NOT finding great deals… you’re finding mediocre or poor deals. Great deals move fast.
I don’t think there is anything wrong with occasionally selling a mediocre wholesale deal at closer to retail to an owner occupant buyer, but focusing on building a great buyers list of investors and then spending your time finding truly great wholesale deals is a more profitable business model.
Until my next post,
James
P.S. Need help generating immediate cash flow as a real estate investor… many investors do and we provide specific strategies to do that for our Real Estate Investor Bronze Members.
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