Regardless of what part of the real estate industry you enter, you’ll always face your fair share of challenges. Rental properties, for example, are a great long-term investment and can be a way to generate a viable recurring income. Sometimes, they’re not quite as passive as you’d like, as you’re constantly dealing with vacancies, potential tenant issues, renovations, and more.
Yet, at the same time, it doesn’t have to be this way. Wholesale real estate can be a viable way to sidestep most (if not all) of these rental challenges by quickly transferring properties. This can help eliminate landlord responsibilities like maintenance and tenant management entirely.
Of course, the chasm between a traditional real estate transaction and a wholesale real estate transaction is a deep one, indeed. Only by understanding the intricacies of each one will you be able to turn your rental headaches into profitable deals in the most effective way possible.
An Alternative Approach to Rental Investment
To better understand how wholesaling can be a potential alternative to your rental investing experience, you first need to understand how wholesale real estate generally works.
In a traditional real estate transaction, you’re either a buyer looking for a seller or vice versa. In wholesale real estate, you’re something else – a “middleman” looking for both simultaneously.
First, you find a property that appeals to both you and your investment strategy. You negotiate a contract with the seller, then find a buyer and assign the contract to them for a higher price. The difference between those two numbers is what you get to pocket as a profit.
Everyone wins: a seller offloads a piece of property, and a buyer has a new one to do whatever they please. As the connection between the two, you also get to make a tidy profit without actually having much invested in the physical home itself one way or the other.
It sounds straightforward, but wholesale real estate is a way to directly address many of those factors people don’t like about rental properties. Case in point: the high cost of entry. If you’re buying a property to rent yourself, you not only have to purchase the home or apartment complex, but you must also address any major maintenance issues to get it ready for renters.
With wholesale real estate, you don’t have to deal with any of that. Remember that you’re not actually assuming ownership of the property. You’re merely negotiating a contract to purchase the property that you will then eventually sign over to someone else. Any modifications or maintenance-related issues are the buyer’s eventual problem – not yours. But you still get to benefit from how lucrative investment properties can be.
Along the same lines, this also helps to mitigate risk as much as possible – especially in the increasingly fickle rental market. Because you’re not actually taking ownership of the property, your own portfolio is less exposed to sudden market fluctuations. You don’t have to worry about price depreciation or anything of that nature. Once you’ve found a buyer and the transaction is complete, you’ve held up your end of the bargain – your short-term gain could potentially become someone else’s long-term headache at that point.
One clear example of that has to do with long-term tenant viability. Just because a particular area is popular among renters today doesn’t mean that this will be true forever. Likewise, certain areas may be known for high vacancy rates or they may have other issues attracting renters in the first place. As a wholesale real estate professional, none of these are things you have to worry about.
Additional Considerations About Wholesale Real Estate
Many professionals are also attracted to wholesale real estate over buy-and-hold rental investment because it’s a great way to quickly turn a profit. When you’re actually purchasing a property to rent it out yourself, turning a true profit (once all expenses are considered) could take years. With wholesale real estate, you can make a quick profit and move on to the next opportunity.
That liquidity and flexibility also allow investors to capitalize on more opportunities than ever before. It’s no secret that rental properties take a significant amount of time to “get right.” There’s a reason why most people hire dedicated property management companies to take care of their day-to-day operations. That’s how time-consuming it is.
With wholesale real estate, you can get in, make your profit, get out, and move on – maximizing your returns along the way.
Because you’re dealing with a higher volume of transactions due to the accelerated time, you’re also getting what is essentially a master class in the real estate industry in general. If every transaction is a lesson to be learned, it would be like cramming four years’ worth of college into a semester or two. You’ll quickly learn lessons (and make mistakes) that would take others a much more extended time to match. This will help hone your instincts and develop your experience to give yourself a true competitive advantage.
Unlike the lengthy (and sometimes uncertain) rental income timeline, wholesale real estate offers almost immediate profits by focusing on a quick property turnover. It’s one of the reasons why savvy investors make wholesale real estate a part of their larger risk diversification strategy. Wholesaling mitigates the uncertainty that things like the constant search for long-term, stable tenants bring with it.
This is why embracing wholesale real estate is something you should certainly consider. It helps to unlock both liquidity and flexibility in equal measure. This helps investors capitalize on more opportunities than ever before, as opposed to being forced to watch them pass by as they deal with many of the headaches that rental properties are historically known for.
If you could make one strategic move that would A) eliminate a lot of the hassles associated with traditional rental investments and B) maximize your returns at the same time, you would obviously take it. For so many, wholesale real estate is that move, and with benefits like those outlined above, it’s easy to see why.
