Many are attracted to becoming a real estate investor because of the large margins you can make. Unlike the stock market, real estate is a physical asset, that while it may fluctuate, it retains intrinsic value.
When starting out, stick with wholesaling. Here are four reasons why you should before moving on to other forms of real estate investments.
Cost Effective Introduction
Wholesaling doesn’t require a mortgage loan from you, thus no credit check or a lot of cash is needed to become the wholesaler. You are effectively the middleman. This means you don’t need huge amounts of capital needed to actually “purchase” the real estate. There are times you don’t even need to put any capital down if you have a list of buyers and sellers already in line. Ultimately, you are able to make a quick buck for finding and introducing the eventual investor to the property.
Wholesalers can make anywhere from $3,000 to $5,000 from a transaction. Keep in mind this is with reduced investment risk while building all the other components of success. This is a quick and easy way to build your savings to be able to jump into other avenues of real estate investment.
Relationship Building
Real estate investing is often a team endeavor, especially as you begin. The more people you know and network with, the more you have your pulse on the local opportunities. As you build a list of buyers and sellers in wholesaling, you are building your reputation for understanding the good value and business savvy.
When you’re ready to step up and make a larger investment, you already have a group of potential partners who have access to capital you may not. Not only does this help in the purchase of properties, but their resources will also aid in rehabbing and later flipping the property with potential buyers already in your network. Spending time becoming a good wholesaler establishes solid business relationships.
Gaining Market Savvy
Investors like to play scenarios that help them understand risk better. When you wholesale, you move from fictional scenario to real life but without the same level of risk that the actual investor does. By working with both buyers and sellers, you develop a better understanding of where a property starts and the margins the final investors get when selling it.
It also helps you understand bigger market scenarios where slow markets make it easier for investors to negotiate better deals on distressed properties. You’ll also see when an investor chooses to rehab, hold and rent until market conditions improve. This strategy helps investors recoup the cost, get tax benefits and build equity in the property until a later point in time when they can sell for the desired profit.
Your Day Job
Few real estate investors start off doing it full time. While the lure of hundreds of thousands of dollars in profits is enticing, it is also intimidating. Learning about real estate investing in a practical way is much better than just reading books.
Wholesaling allows you to get this practical experience, meet the right people and not put your own mortgage on the line. Keep your day job, thus your steady income and work real estate wholesaling deals at night and on weekends. You can still find great opportunities without putting your entire financial future at risk.
Once you have mastered the art of wholesaling, you are better prepared to make your own investments in distressed properties, rehab them and flip them for profit. You’ll know the timelines for success and become a better negotiator when the dollars are bigger and your own