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The Pros and Cons of Wholesaling Real Estate

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Wholesaling provides a great opportunity for those who have limited capital to get immersed in the real estate industry. If you learn how to wholesale correctly, you will have a distinct advantage to finding your own deals to purchase and you will have learned creative ways to go about funding properties you are able to get under contract.

So what is wholesaling exactly? In simple terms, wholesaling is the process of getting a property under contract and assigning that contract to a buyer at a higher price. Becoming a wholesaler requires a lot of sweat equity. In this piece, we’ll look at what wholesaling is, cover some of the pros and cons of investing in real estate as a wholesaler, and clear up some of the misconceptions people have about wholesaling.

Wholesaling in a nutshell

A simple way to understand the process of how a wholesaler could operate is to go through a hypothetical example of a wholesale transaction:

  • The wholesaler drives around and sees a house that is distressed and seems to have been abandoned.
  • The wholesaler jots down the address to look up the owner of the distressed property.
  • Once the wholesaler gets home, they use the local county tax website to look up the address to find the owner of the property.
  • Once they know who the property owner is, the wholesaler contacts the owner and finds out that the owner would like to sell the property for $60,000.
  • From the research the wholesaler has done and after some negotiation, the seller is willing to sell the property for $50,000.
  • The wholesaler now has the property under contract for $50,000.
  • Instead of buying the property himself, he contacts some of his cash buyers, who are willing to purchase the contract from the wholesaler for $55,000.
  • The wholesaler agrees and assigns the contract he has with the seller over to the cash buyer, and at closing, the seller gets their $50,000, the wholesaler gets $5,000, and the buyer has a property ready to fix and eventually flip for profit.

The wholesaler was essentially a middleman in the deal. He was able to get the house under contract for less than market value and then assign that contract to a buyer who can sell the property for much more after they fix up the place. The wholesaler was able to receive the spread of $5,000 because he was able to get the contract under market value.

What are some pros to wholesaling real estate?

The benefits of wholesaling can more or less be broken down into these three things:

1. Learning about the real estate industry

Someone interested in wholesaling will become quickly immersed in the real estate industry. If you start out working with people who have been successful and are utilizing the right resources, you can learn how to:

And this is only a partial list of what you’ll learn as a wholesaler. Once you do a few deals, you’ll also know what to look for and what to avoid.

2. Needing minimal capital to start

Wholesaling forces you to become creative when finding funds to acquire property to buy. Typically, most investors will buy with all cash or bank financing or use a hard money loan. If you don’t have the best of credit and have limited capital to put down for a down payment, it’s going to be a challenge to get a loan from the bank.

With wholesaling, you do not have to deal with those limitations to make money — you don’t have to have good credit or cash to assign a contract to another buyer. You just have to have the discipline and guidance and put in the sweat equity to earn capital at closing.

3. Earning a large sum of money in a short time frame

Once you have a system in place, you should be able to make more money in a shorter period of time because you should have the ability to get more properties under contract.

Typically, people who buy the homes assigned to them from wholesalers are fixing up the distressed properties. They would have to wait a few months going through the rehab process and then sell the home to see their profit. Wholesalers just have to wait 7 to 30 days, or however long it takes to close from when they find a buyer.

What are some cons of being a wholesaler?

Wholesaling real estate isn’t all sunshine and rainbows, though. It can be challenging work. Here are a few things that make it tough:

1. Not having a buyer

A buyer has to purchase the contract from the wholesaler for the wholesaler to be compensated. Typically, when a wholesaler gets a property under contract, the contract includes a date when the wholesaler should be able to find a buyer to close. The wholesaler usually gives earnest money to the seller to show seriousness and confidence that the wholesaler will be able to get the deal done. If the wholesaler gets the property under contract for a price that is too high or is greedy and attempts to increase their spread, buyers will be unwilling or unable to make a deal.

2. Income can be unpredictable

Wholesaling is not a 9-to-5 job where at the end of every two weeks, you get a check. There may be months when you have no income coming in. When you start your wholesaling business, you are responsible for being consistent and diligent with your finances until you complete your first assignment and close. Once this happens it would be smart to save a portion of that profit for a rainy day — or just in case it takes a few months to close another deal.

3. Negative stigma from bad apples

Some people look to become wholesalers without learning the ropes first, and they can do unethical things that shine a bad light on wholesalers in general. Things like advertising that you have a property for sale instead of advertising that you are selling your interest in a real estate contract can be the difference between a legal business deal and an illegal transaction.

Misconceptions people have about wholesaling

  1. You don’t need money to become a wholesaler. This is false. There are certain programs and marketing material you’ll need to start finding motivated sellers and other leads. Once you find those leads, you may need to pay for services that can help you find the contact information of the owner. Not to mention possibly paying a mentor to help guide you through your first deal. While it’s possible to stumble upon your first wholesale deal with zero dollars, it is highly unlikely.
  2. You need to have a real estate license or you must be a real estate agent to be able to wholesale houses. This is not true. You don’t need any kind of license to start wholesaling distressed property. All you need is a motivated seller, an assignment contract, a buyer looking for an investment property, and a quality real estate brokerage that can ensure you can close. It’s important to note that it is illegal to wholesale in Illinois, Oklahoma and Virginia.
  3. All wholesalers take advantage of people. While there are bad apples in the industry, there are many cases where a wholesaler is helping a family avoid foreclosure and bad credit by giving the seller a way out of a bad situation and the opportunity to have a couple thousand dollars to move to a new place.

Final thoughts

The most important thing to have as a real estate wholesaler is a contract or purchase agreement. This is what allows you to make a living. It may be worth it to make an investment and have a trusted real estate attorney draw up a purchase agreement that you can use to aid you in situations where someone might try to go behind your back and buy the home directly from the seller. This is especially important if you are able to lock up multiple wholesale properties at one time. If you don’t have the right contract signed, that deal will not happen.

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‘There is no new normal’: Worcester small business owner pivoted during COVID-19 and expects only more change after pandemic

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It took about eight minutes for the bank to reject Natalie Rodriguez’s application for a loan through the Small Business Administration.

Rodriguez opened Nuestra, a Puerto Rican inspired restaurant in Worcester, in January of 2020. When COVID-19 arrived months later she discovered Nuestra wasn’t eligible for the federal or state funding that thousands of other establishments received.

To qualify, restaurants were required to show payroll and salary for years before 2020. Those figures didn’t exist for a restaurant that weren’t open in 2019.

“[I was] determined and knew that ‘no’ is not an OK answer,” Rodriguez said. “A door may close but you may need to kick down another door.”

Rodriguez then applied for conventional loans only to be led to more closed doors. Less than 10 minutes after applying for an Economic Injury Disaster Loan, she received notice that her poor credit score resulted in her application being denied.

Rodriguez used the dead end with the SBA to create a new path for herself and Nuestra.

She not only learned how to improve her credit but wanted to ensure others didn’t have to follow her journey as an entrepreneur.

Rodriguez extended the “Nuestra” brand to include financial advising. She started Nuestra Financial in April of 2020.

“Now I’m helping others. I’ve been able to restore my credit,” Rodriguez said. “I’ve been able to help others restore their credit and be able to help them make a business themselves if they so choose. I’ve been able to survive.”

Without grants and other funding, Rodriguez managed to keep her restaurant open through funds generated from Nuestra Financial.

“I was very quiet about it in the beginning. I didn’t want people to be like, ‘Oh look at this girl, she just opened a restaurant in the middle of a pandemic,’ and talk smack,” Rodriguez said. “About a month or two later, a light bulb hit and I was like, nobody pays my bills but me. I needed to mind my own business and not worry about what other people thought.”

In creating Nuestra Financial, Rodriguez said she’s helped Worcester residents restore their credit and purchase new vehicles and homes.

Rodriguez said financial literacy is rarely taught to children in school and wasn’t something she learned. When a situation arises like a rejection notice for an economic disaster loan, many don’t know how to respond or where to find answers.

Rodriguez said she’s helped young and old people, along with those who have bad credit or no credit.

“We lack the confidence, including myself, because we weren’t taught,” Rodriguez said. “So if you don’t know something, you weren’t taught, you’re not going to be confident about it.”

Coming out of the pandemic, Rodriguez remains confident about both her businesses. Nuestra, the restaurant, while closed for daily service continues to provide catering services. Rodriguez is still preparing what the future holds for the restaurant but plans to announce an update soon.

As masks start to become less a part of daily routines, Rodriguez, as a small business owner, doesn’t envision many differences from this year to last.

So many aspects of life remain uncertain from rising food costs to a potential third booster for vaccines and whether the country will ever reach herd immunity for COVID-19.

The pandemic arrived with Rodriguez immediately pivoting. As it approaches its potential end, Rodriguez will continue to do what helped her to navigate it.

“I feel like there is no new normal just yet,” Rodriguez said. “I think we’re all just trying to adjust and pivot at the same time and getting creative. I think it’s where we all are.”

Related Content:

Owner of Worcester’s Nuestra restaurant, closing due to COVID impact, has something she’d like to say to Gov. Baker

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Columbus Mattress Wholesale moves to newer, larger Gahanna store

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More than four years back, Cathryn Clark’s boyfriend, Christopher Robbins, was on the hunt for a new mattress. He just couldn’t find one at an affordable  price. 

Clark, 29, and Robbins, 34, who are now engaged, were living in Franklinton, where they still live today.

They had no experience owning or operating a small business; Robbins worked as a retail assistant for SAS Retail Services while Clark worked as the communications director for two Methodist churches. 

But in 2017, Robbins, with Clark at his side, took the leap and opened Columbus Mattress Wholesale on the West Side, with the goal of  helping low-income consumers secure mattresses and other bedtime products.  

“We really wanted to bring a store to people that, you know, they weren’t paying an arm and leg, but they still could get a good night’s sleep,” Clark said.

Customers at Columbus Mattress Wholesale can pay cash or credit, for example, but the business also works with financing companies that serve people without credit scores, with bad credit or who are lower income. 

Last month, the business made a big move. It expanded from its original location on Harrisburg Pike to a store double the size at 435 Agler Road in Gahanna.

Clark said she and Robbins saw a need in the broader area, with many of their customers coming from outside the Hilltop, such as Linden.

Nestled between Dollar Tree and the Ohio BMV in Gahanna, the new storefront opened Memorial Day weekend and sells mattresses, bed bases, bed frames and pillows. Mattress prices range from under $100 to more than $1,000, depending on the size and brand, which includes some well-known names such as Serta, Beautyrest and Casper.

Clark said while she and Robbins originally sold solely Ohio-based brands, they’ve branched out to national brands as business has grown.

Columbus Mattress Wholesale also offers free same-day delivery on most orders from customers living in Columbus. 

Clark does a little bit of everything for the business, from running communications, to working on the sales floor, to managing the sales team, to ordering what they sell. 

She said a big mission for herself and Robbins, beyond doing business, is aiding the community.

“We’ve seen a lot of people struggle,” Clark said.

Clark said she and Robbins work to mentor other people who are hoping to open or currently own a small business. She added that the store starts employees at $17 per hour.

She and Robbins haven’t decided yet what they will do with the original location — which is currently closed — but said they might shift it into an accessory store.

[email protected]

@SarahEDon

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A Guide to Getting Mobile Deals with Bad Credit History

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You’re interested in a new mobile deal but there’s only one thing that’s stopping; you’ve got a bad credit history. Does that mean that your hopes of getting a new phone contract are crushed? Well, not exactly. In this article, you will learn how to get a mobile phone with no credit check required and how you can navigate the issue to get a great deal even with bad credit history.

Why is a bad credit history a big deal?

When taking a new phone contract, it means you’re entering into a financial agreement that requires you to make payments in monthly installments. As such, many providers of the service will want to ensure that they’re entering into an agreement with someone who will pay the agreed amount without violating the terms.

The best way for them to have that assurance is by looking into the credit history of the client. But does it necessarily mean that if you’ve got a bad credit history you can’t honor your side of the bargain in a phone contract? Of course not; which is why this article gives you the options you can pursue to end up landing a pretty impressive deal.

Although you might not find a deal that includes the latest devices in the market, you’ll not lack a relatively cheaper but functional option. For instance, if you’re a great fan of the iPhone, you might end up landing the iPhone XR instead of the latest release of iPhone 12. When the deal is cheaper, you stand higher chances of success as opposed to one that just dropped in the market and so it’s in high demand.

Another alternative is to find a contract that comes with a used handset as such tend to be less strict in terms of credit history requirements. That means you’re likely to pass the test of a contract with an already used gadget as opposed to that of a brand new phone.

Another alternative could be to go for SIM only deals especially if you already have an alternative source for a handset. Most of the providers won’t require you to sign any contract and so they’ll not look into your previous credit history. SIM only deals tend to be intensive on minutes, texts and data offers.

Networks that favor people with bad credit

There are networks that are more lenient to people with bad credit history than others. Major networks including Vodafone, O2 and EE usually come with strict requirements that might only frustrate you. The following are the alternatives you could consider looking into:

Smarty:The company offers SIM only plans that don’t require you to sign any contract. If you have an alternative handset, this could be a great alternative to consider as they won’t do a credit check on you. Their services and offers run on a monthly rolling basis which means you can walk away at any time in case you’re dissatisfied with the quality of service you’re getting. Their deals start at 2GB of data and unlimited texts and calls at a cost of £5 to unlimited calls, texts and data for £16.

Giffgaff:You won’t be subjected to a credit test here as well during sign up for one of the packages that the network offers. You’ll be required to sign up for a monthly bundle of your choice that’s inclusive of calls, data and texts. You can proceed with the same plan or switch to a new one after the month is gone. Most of their deals start at £8 a month.

VOXI:The network has numerous offers that operate on a 30-day rolling basis. They also won’t bother performing a credit check on you as it has no use in the first place. A bonus with this network is that they won’t include the social sites you frequent in their data charges.

Mobile phone to go with a SIM only deal

The SIM only deals we’ve highlighted above means that you’ll need to have a separate handset. In case you don’t have one already, you can take a separate mobile phone contract to go with your preferred SIM only deal. The other alternative is to buy one outright. But in case you don’t have money to make the purchase, you can always save up and buy when you’ve accumulated enough.

Some great smartphones that are classic and yet won’t put a huge wall in your pocket. Coveted brands such as iPhone and Samsung have great devices such as the Samsung Galaxy A52 5G that goes for £349 and the iPhone SE valued at £399. As you can see, with some savings, you should be able to get your hands on these gadgets and many others out there. And if you feel that these cost on the higher side, you can opt for refurbished phones. Refurbished phones refer to those handsets that have been used but have undergone intensive testing to ensure they still have got higher functionality.

When do credit checks apply?

Credit history is required by providers that have a mobile phone that requires a payment plan spanning several months or years. In most cases, the major network providers including EE, O2 and Vodafone will do a background check on your credit check before allowing you to sign up for their deals. Some factors that might make you have a poor credit rating is when you’ve missed several months’ payments, made late payments or placed too many credit applications concurrently.

Want to improve your credit rating?

The following are several steps you could consider to help you improve your credit rating. Most of these revolve around efficient management of your money, bills and other forms of payments.

  • Have a proper and functional bank account
  • Pay all your outgoing bills on or before the due dates
  • Ensure you’re registered on the electoral roll
  • Don’t share your account with a person with poor credit rating

That’s how you can work out things to get mobile deals even if your credit history isn’t a good one. But going forward, the best action plan would be to work towards improving your credit rating so that you can take advantage of the opportunities that come up in future.

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