3. Get your cash much quicker
Wholesalers say you can get paid much faster than you would if you listed your home on the open market.
However, wholesale deals can actually take longer than normal transactions. The assignment contract gives the wholesaler an exclusive right to find a buyer for a specified time. If they don’t, they simply walk away. The seller just lost 30–45 days of marketing the property on the MLS where it would've been seen by thousands of buyers, many of whom have the cash to buy and are anxious to get started renovating the property!
So, what does all this mean for investors?
Should you buy an investment property from a wholesaler?
Wholesalers serve a niche market of "motivated sellers" who, for various reasons, don’t go through the traditional sales process of calling a local real estate agent and listing the home on the multiple listing service.
Wholesalers can bring houses to market that might otherwise go through foreclosure, a slow process that gives properties more time to deteriorate and become less valuable. So experienced wholesalers can tee up some good deals for investors interested in instant equity by doing a little repair and renovation to bring the property back to full market value.
As they fill this niche market, wholesalers are essentially selling real estate without a license. As an investor, you’re buying property from an individual not licensed to represent either the best interests of the seller or your best interests as the buyer.
In some states, selling real estate without a license is a felony. State governments require a real estate license and training in large part to protect the public from unscrupulous activity.
Using an assignment letter instead of a real estate sales contract, wholesalers have found a loophole to avoid the licensing requirement. They're just "assigning" a contract to a buyer, not doing the transaction themselves. A few states, including Illinois and Texas, have recently enacted legislation to close this loophole, but wholesaling isn't directly prohibited in most states.
With no real barriers to entry, wholesaling is pitched by some "gurus" as a lucrative side hustle to make thousands without investing any money of your own. This tends to attract beginners who lack real estate experience and knowledge. As an investor, you might be dealing with a novice, so make sure you dig deep to understand all aspects of the deal before you move forward.
Since wholesalers don’t have access to the historical data and analytics that agents have, it’s difficult for them to accurately estimate property market values. And, since their goal is to get as high a price as they can over what they’ve promised the seller they’d deliver, it’s in their best interest to overestimate the after repair value (ARV) of a property.
Investors should never rely on the numbers a wholesaler presents when they advertise the property. You must do a detailed analysis and proper due diligence before purchasing any property.
Particularly with real estate investments, where profit is made when you buy low and sell high, it’s all about the numbers. You need to accurately estimate current market values to ensure you don’t overpay when acquiring a property or overestimate the ARV you’ll be able to get when you sell it.
As a real estate investor, you’ll want to find the best deals you can. That includes vetting off-market properties (those not listed on the MLS) such as those wholesalers find.
While wholesalers can uncover deals worth looking at, the MLS is the largest source of distressed and as-is properties that are ready for purchase. Working with an agent lets you find and tour these properties. And since sellers typically pay commissions, it costs you nothing as an investor to be represented by a licensed agent.
Real estate agents tend to focus on a specific geographic area and client type. As an investor, it’s ideal to find an experienced investor-friendly agent who’s familiar with the unique aspects of investing in real estate and has a trusted network of go-to professionals they can recommend to help you get the property rent-ready.