This week I went through a house sent to me by a wholesaler. In case you haven’t heard this term before, a wholesaler is someone who works with sellers and negotiates a purchase price for the property. The wholesaler will then find a buyer to purchase the property for an amount higher than the price they negotiated for the house with the seller. The difference between those two prices is the wholesaler’s profit. Usually, the buyer is someone who is going to either repair and hold the house as a rental or an investor who is going to fix and sell the house.
If you are researching different real estate investment strategies, you will likely come across wholesaling. As with any strategy, there is a learning curve and some unexpected events that may come up. Since wholesalers are not actually buying the properties that they are getting under contract, they are constantly looking for buyers (like house flippers).
While I get a dozen or more emails a week from wholesalers, in more than 10 years I have never purchased a house through a wholesaler. One of the reasons is that they have a different buying criterion than I use. They are buying in different areas and are looking for potential in a different way. While I am looking for space to add a master suite that may not even be on their radar.
Another area where there can be a difference is when it comes to the renovations. When I get an email there is typically a purchase price for the house, a renovation budget, and a resale. Often, the renovation budget is significantly lower than most projects I work on. This is a red flag for me. For example, the house I walked through this week said the repairs were $30,000.00. According to my estimates, it was closer to $80,000.00 so that’s a big difference.
As great as it can be to have access to off-market deals, at the end of the day it needs to work for you. Always do your own due diligence before you look at any property. Run your own numbers and make your own decision. Enlist a mentor or agent or their input if you are unsure or just starting out. It’s better to be conservative than the owner of a house that wasn’t really a deal.
Want to buy a property and renovate it?
I have a freebie checklist that will help you — 8 Things I look for When Purchasing a Home. Just click here to download it.
Love before and afters?
Looking to buy a house to renovate? Check out the fixer upper checklist to help you find the perfect house.
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