That’s right. Today I want to talk about a dirty word in real estate: Wholesaling. People either love it or they hate it.
Wholesalers are an intermediary who help manufacturers distribute products to retailers and other potential customers. But what does it mean exactly when you apply that term to real estate transactions? Let’s review some basics.
Wholesalers buy products from manufacturers, usually at a discount, and then resell them to other customers. Many wholesalers offer a variety of supplemental services that are beneficial to a manufacturer: marketing, analytics, warehousing, and merchandising. In some industries, like food service, a wholesaler’s profit margin may be less than 10% while in others, like luxury goods and electronics, the margin may be well over 100%.
Real estate wholesaling works similarly. It involves purchasing properties at a discount, and then selling them for a profit to other investors or traditional home buyers. The real estate wholesaler similarly acts as a middleman, buying properties from motivated homeowners who are willing to sell at a discount. The wholesaler then fills the role traditionally executed by a realtor: marketing the property and finding a buyer. Sometimes they make huge margins on the deal and other times it can be quite small.
However, these types of real estate transactions can be controversial.
The reasons for offering a property at a discount can fall into a wide spectrum. The owner may want to sell more quickly than a traditional transaction. Often wholesalers and their partners pay cash. The deals can happen in days instead of weeks. There can be deferred maintenance on the property that would disqualify it from being purchased with a traditional home loan. The owner may also be experiencing some type of financial or personal difficulty like divorce, job loss, foreclosure, and bankruptcy.
This is where people start to draw the line.
Critics of wholesaling claim the sellers are being taken advantage of by the buyer. That often the homeowner could net additional money using the more common process of submitting the property to a listing service like a local association of realtors or websites like Zillow and Trulia.
Wherever you land in the debate, wholesale real estate deals are happening all the time and likely to be around for the foreseeable future. They are especially common in popular real estate markets, like West Michigan, where many investors are chasing very few properties that are available for sale. Keep in mind, inventory is still at almost all-time lows.
According to recent statistics from the National Association of Realtors, approximately 11% of sellers find their buyers without listing a property for sale.
So how does real estate wholesaling impact you? Here are some things to consider as you evaluate your real estate goals for 2023:
Thinking about buying? One-tenth or more of the deals that may currently be available for sale are not on an MLS or other websites like ZIllow. Look for an agent who works regularly with investors and wholesalers to see what deals might be available that are not posted online.
Trying to sell? Inventory is still very, very low and often properties are still getting dozens of offers. If you’ve been having a hard time getting your property sold, it might be time to consider a wholesaler investor team to help you find a buyer for your property.
If you’d like to talk further or have questions about your particular circumstances, don’t hesitate to reach out to me. Let me know what you think about real estate wholesalers in the comments. Are they providing a valuable service? Or taking advantage?