How to Profit in Real Estate Without Your Own Money

What if I told you that it was possible to make a profit investing in real estate without spending any money of your own? Too good to be true? Well, that depends on how much work you’re willing to put into it!

There are two main ways to make money from buying real estate. One is to obtain a property and rent it out for more money than it costs to obtain that property. The other way is to obtain a property that you can sell for a higher price than what you paid.

Usually, in order to deploy any of these methods, you would need a decent amount of capital. After all, real estate is a capital intensive business. Typically, you can go out to the marketplace, search for a great real estate invesement, and take out a mortgage to help you with the business. However, taking out a mortgage for an investment property usually requires a deposit of at least 25% of the property value as down payment.

How can you enter the real estate investment world without much capital? It is actually possible to buy and sell real estate property for a profit without coming up with any of your own cash at all. You can accomplish this by becoming a real estate wholesaler.

What is a Real Estate Wholesaler?

A real estate wholesaler creates a wholesaler contracts to buy property from a property owner. However, instead of buying the property himself, the wholesaler then find investors willing to take on that contract – for a profit. The key here is that money never changes hands between the wholesaler and the property seller until an investor is found. Once the interested investor is found, the wholesaler can sell the property under contract to the investor; and the wholesaler then profits the difference from the deal.

This is a very interesting model because there is already a pretty efficient way for owners to sell their properties through real estate brokers. So how is it possible for real estate wholesalers to get a piece of the pie? Unlike what the name suggests, real estate wholesalers are not similar to “retail wholesalers”. Retail wholesalers provide greatly reduced product pricing due to economies of scale. On the other hand, most real estate wholesalers are only working on a handful of properties at a time.

What Values Do Real Estate Wholesalers Add?

Why would a property owner choose to work with a real estate wholesaler? A property owner can certainly go through the traditional route of selling their property through a real estate brokerage. If the seller is confident, the owner can even list the property on various sites without a brokerage at all.

Why would an investor go through a real estate wholesaler when he can hire a brokerage or research on MLS? The investor can also do his own research to find properties for sale directly by owners.

There must be some value that real estate wholesaler is adding to both the property owner and the investor.

Situations to Where Wholesalers Add Value

For property owners, they may be using a particular real estate wholesaler because they learned to trust a particular wholesaler will get them the best deal for their property. The definition of the “best deal” may depend on the seller which is usually based on price or time-to-close.

For investors, they may also be using a particular real estate wholesaler because they trust this wholesaler to bring amazing investment opportunities that they themselves aren’t finding.

Below are just a couple reasons why working with a real estate wholesalers may be more appealing than standard broker agencies:

Readily Available Investors

Successful wholesalers typically have a long list of investor contacts all over the world that they can tap into; or at the very least they will say they do. The promise from wholesalers is that they can quickly find a buyer for the property owner; even if the buyer market is especially weak for their specific property or situation. There is typically a short time window baked into the wholesaler contract.

Properties Need a Lot of Work

It’s hard to sell a property that is in obvious need for heavy repair. On one hand, most buyers are looking for move-in ready homes and would not consider homes sold “as-is”. On the other hand, investors are also nervous and would try to negotiate for steep discounts on the home. An experienced wholesaler would be able to evaluate the property’s repair needs, and better position the property to investors. This would reduce the perceived investor risk, and thus increase the property value.

Distressed Properties

Distressed properties are homes on the brink of foreclosure or already owned by the bank. They are typically poorly cared for, and also in need a of a lot of work. Again, the risks associated with unknown repairs and poor property conditions would scare away standard homebuyers and investors. An experienced wholesaler would be able to market the property to get the best deal; and the investor would trust the wholesaler’s assesments.

Other special situations

There could be other situations where a wholesaler adds value in connecting the property owner and their network of investors. The property owner may not have thought about selling their home – which make the property an exclusive opportunity. The property could be a historic landmark or have particularly good land that needs to be marketed a certain way.

No matter what the situation, the wholesaler tends to get the business if he can show knowledge and expertise in packaging the property for investors. This service is usually lacking in most brokers.

Wholesalers must be able to represent deals most beneficial to both the property owner as well as potential investor. That’s not an easy task to do. However, that is also why the profit a wholesaler takes home would typically be greater than a standard broker commissions.

Advantages to Being a Real Estate Wholesaler

As mentioned in the beginning of the article. It costs almost no cash to start a real estate wholesaling business. Since the wholesaler never actually purchases the home himself, this hustle is a lot less risky than investing in real estate rental units or flipping houses. When you buy and hold real estate property for a period of time, you may need to renovate the property, as well as incur costs from mortgages, property tax, insurance, and other operational expenses.

Challenges to Being a Real Estate Wholesaler

The lucrative profits that come with a successful wholesale deal is offset by how challenging the hustle is. Real estate wholesaling is not for everyone. In order to find potential investment properties and collect a network of investors, it takes time, commitment, and patience. It is a hustle that requires a great deal of communication and marketing skills to make these deals go smoothly.

Some of the challenges are described below.

Unconventional Career Path

There isn’t a standardized path to be a real estate wholesaler as there is to become a real estate broker. Oftentimes, you get into the business by sheer grit and networking.

Short Timelines

All wholesale deals are meant to be quick. Within the wholesale contract, there is often a time window to find a suitable buyer of the property. If you fail to meet your obligations to your seller or your investor network, word will get around and it would be hard to source additional deals.

Pricing for the Wholesale Market

Since you are creating the deal in a vacuum, there is also less open market dynamics to pricing. Pricing your wholesale deal can be a delicate art. Price too low and you scare off potential sellers. However, price the property too high and you will not find an investor willing to take the risk. You also need to figure out what kind of profit margin you are hoping to gain.

Example of a Real Estate Wholesaling Deal

Being a real estate wholesaler is not easy, but the process is actually quite simple. Let’s walkthrough an example below.

Let’s assume a homeowner has a property that he doesn’t believe he’d be able to sell because it’s in really bad shape. The owner is unwilling or unable to fix the place up for sale, and can only sell it ‘as-is’. However, he also thinks that he’ll never get a fair price with it.

As a wholesaler, if you can identify such a homeowner, you can reach out to him and offer him a wholesaler contract. The contract will give the promise of being able to sell the home quickly, at a fair value.

Together, you and the homeowner agree that the property is worth $100,000, and you put that into the wholesaler contract. Next, you use your network of investors that are looking to fix up distressed properties. Because you are relatively familiar with the space, you can help project potential repair costs and final value of the home your investors can expect.

Assume you are able to find an opportunistic investor that would buy the home for $120,000, you then assign the contract to this investor to complete the deal. You profit the $20,000 difference without ever purchasing the home yourself.

As you can see, as the wholesaler, you never have to put up any of your own money. Once a deal is defined, the buyer pays the wholesaler, who pays the seller. The wholesaler then keeps any profit for himself.

Bottom Line

There are very few ways to build a real estate business without having access to intensive capital. Being a real estate wholesaler is one of the only ways to accomplish this.

A successful real estate wholesaler may become even more familiar with the real estate market than a broker or flipper. A real estate wholesaler needs to understand both how to identify distressed homes and how to renovate for profit. However, instead exposing himself to the risk and repairs, the wholesaler needs to know how to market the opportunity. The best way to market an opportunity is to know how investors think based on the expected risks and repairs.

If you have a strong desire to build a real estate business or investment portfolio, but don’t have a lot of cash on hand, this is definitely a the hustle to dive into. There are a lot of communities with both wholesalers and investors. Being a part of the strong, active network is critical. You need to be very tuned into the real estate market to identify and take advantage of great opportunities. This is true whether you are a wholesaler or an aspiring investor.