People are constantly looking for reasons why something won’t work in real estate investing. The good news is: Wholesaling — buying low and selling high — works. Wholesaling will work in our market, your market, and every other market. However, you need to learn your market and adapt the proper techniques in order to be successful.
There are several types of real estate markets. In any of these, to survive and profit as a flipper, you must buy at an appropriate discount, and then sell the property for a profit. Real estate markets are subject to fluctuations, but these fluctuations typically do not greatly influence the ability for the informed wholesaler to make a profit.
In fact, wholesaling can be the least risky way for a beginning investor to make a profit. This is simply because of the relatively short amount of time he or she will own the property. Unlike the stock and commodities markets, real estate markets don’t rise and fall rapidly. You need to understand how to market for potential wholesale deals because that is a big part of the equation.
Some basic strategies can be used successfully in virtually all market conditions in wholesaling properties to other investors.
First, become educated in your local market first by understanding how this process works. Learn about target neighborhoods. Enlist the aid of successful real estate professionals along the way. These professionals will help interpret market indicators, such as the average length of time houses are sitting on the market this month versus last month or last year. Armed with this type of information, you will be able to make good decisions.
How Do Rising Markets Affect Wholesaling? Many would-be wholesalers complain about the current high-priced, limited-supply markets that typically favor sellers. These markets can provide certain challenges to acquiring properties at below-market prices. However, once a property is secured at an attractive price, you have a great chance of success to sell it at a healthy profit. Inventory, defined as the number of properties offered for sale, is a good indicator of current market trends. If inventory is low because of building restrictions, market factors, or geography, then stable to high demand will lead to rising prices.
Be aware that there are also seasonal fluctuations in inventory. There are normally fewer listed properties in the winter months than in summer and a surge of listings in the spring. Some areas, such as resort destinations, follow strong seasonal trends. Generally, seasonal drops in inventory reflect the trend to market properties more aggressively in spring and summer months. These are when real estate markets are more active. But remember: Properties sell year-round if it as an attractive price to your end buyer.
What about Falling Markets? This type of market offers a great opportunity to the savvy wholesale investor. When property values are falling, inventory often rises. Then many sellers become highly motivated when their properties fail to sell quickly. Motivated sellers will do whatever it takes to sell their property. Whether sellers need to move from the area, are struggling financially or have other pressing reasons to sell, they may well accept a below-market offer.
Investors know that a weak market can offer extraordinary deals, although wholesalers need to proceed with caution. In a falling market, even a few months’ delay can turn a sound deal into a headache. It always pays to know the market and purchase the property at a price low enough to net an eventual profit, even if the market continues to fall. The common myth is that you can’t make money by flipping properties in a bad real estate market. In a bad real estate market, you can often buy “junker”.
How About Balanced Markets? Real estate markets are usually closer to being balanced than they are to being at either extreme. In a balanced market, prices are rising at or just above the pace of national inflation. Houses within the median price range for the metropolitan area will sell, on average, within 45- 60 days. While markets are constantly changing due to circumstances beyond anyone’s control, an equalizing effect exists in a free market economy. Within a particular market, houses will be selling better or worse in some pockets than in the metropolitan area as a whole. There is profit to be made in a balanced market, for a wholesale, following the buy-low/sell-high premise.
Remember, as soon as you have the market figured out, it will change. Experienced investors may have an advantage in seeing trends, but no one can foretell the future, and short turnaround deals usually involve the lowest amount of risk.
Finally, Have Multiple Exit Strategies. Sometimes, for a variety of reasons a wholesale property just won’t sell, so it makes sense to have a few other exit strategies. Could you rehab it yourself or bring in a partner to help you do so? Could you hire a contractor and add just a little fix-up and rent it out? Knowing how to market your property will increase your chances substantially. Having a trusted associate or better yet, a mentor in your corner will greatly increase your chances of success.
Attorney William ("Bill") Bronchick, host of Legalwiz.com, has authored six best-selling books and is sought nationwide for his 25+ years of real estate and legal knowledge. He has been interviewed by numerous media outlets, such as CNBC, TIME Magazine, USA Today, Investor Business Daily, Forbes, and the LA Times, to name a few. William Bronchick is the co-founder and past President of the Colorado Association of Real Estate Investors and the Executive Director and founder of the College of American Real Estate Investors. Click on the "About" link above for more information on William Bronchick.