Advantages and Disadvantages of Wholesale Real Estate Investing

By Lee Escobar

One of the easiest ways to get into real estate investing is through wholesaling. This requires no cash outlay and does not even involve credit. Basically, the wholesaling process just involves finding property for sale at a discount and then finding a buyer willing to purchase immediately. Of course, the wholesaler quotes a higher price to the buyer. This provides a quick profit to the wholesaler as soon as the sale comes through.

The wholesaler does not need to put out money or use credit because he does not purchase the property that is for sale. He only puts it under contract. This means he has given an offer to buy at a certain price and the seller has accepted that price. The property is under contract for a certain agreed upon period of time within which the wholesaler has to be able to come up with the money, whether on his own or from a third party. The property is on hold during that time.

It would be a huge advantage for a wholesaler to first ensure that he already has a buyer who is actively seeking property to purchase. Only then should he look for property for sale at a discount, and put that under contract. It will then take very little time for the wholesaler to close the deal between the seller and the buyer and realize his profit.

Most wholesalers have a list of ready buyers who are also mostly real estate investors themselves. These buyers may be willing to take on even properties that need rehabilitation. They are ready to take on the costs and risks of rehabbing to be able to resell at a higher profit.

There are no risks involved in wholesale real estate investing. The wholesaler does not pay out any cash nor put up credit. The contract will simply be nullified if the time specified passes and the wholesaler still does not have a buyer. There is no need to rehabilitate or maintain the property. There are no management tasks to perform. Each deal is a one time deal that is quick and produces immediate income.

The disadvantage of wholesale real estate investing, though, is also the fact that each deal is a one time income generating transaction. There is no long term residual income to be expected from it. The wholesaler will have to repeat the process again and again to be able to produce income. This is why wholesale real estate investing is often used by investors only to earn enough to invest in enough rentals to produce long term wealth.

Despite the disadvantages of wholesale real estate investing, it has enough advantages to make it a powerful income generating tool. It is worthwhile to learn everything there is to know about the procedures and best practices of this real estate investing strategy to add to anyone's arsenal.

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Article Submitted On: January 21, 2011