Pros and Cons of Wholesaling Single Family Houses
Do you have an interest in real estate investing but you have no clue where to begin? Luckily, real estate investing has a lot of strategies. One such option is wholesaling properties. The beauty of wholesaling is that you can begin anytime. Even without a substantial amount of capital
Wholesaling property entails searching for a distressed property. These are properties that are mostly sold below the market value.
Afterward, you obtain ownership interest on the property by signing a contract with the owner. Then you aggressively search for a cash buyer, and sell the property at a profit before your contract with the owner of the property elapses.
Clearly, you have earned a profit without using any finances. You just need to be patient, determined, and smart. Alternatively, if you have some cash, instead of getting into a contract with the owner, you can buy the property, and then it at sell at profit.
There are a variety of properties to be wholesaled. One common type preferred by many investors is single-family houses.
A single-family house is a residential property that is built in its own parcel of land and is meant for use as a single-dwelling unit.
This includes duplexes, triplexes, and fourplexes. As much as they are a good niche to wholesale, they have their advantages and disadvantages.
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Pros of Wholesaling Single-Family Houses
#1: Fast realization of profits
The rate at which you realize your profits as a wholesaler in real estate investing depends on your capability of finding lowly priced homes and good buyers. It is easier to get a single-family house that is distressed than getting a multifamily house in a bad condition.
It is even much simpler to get a buyer for a single-family house because they are cheaper compared to other types. Wholesaling does not involve renovating a property or renting it. Once you get a buyer, you just transfer the ownership of the property and get paid in cash.
Because the process is uncomplicated, the moment you have a working system, you can close the deal in a few days or hours. The owner gets paid as per the contract. The remaining money is your profit. It is one of the quickest ways of making money within a short period of time.
#2: Minimized risks
In wholesaling single-family houses, an initial investment is not required because you don’t need to buy the property. Your main goal is to line up a buyer before your contract with the owner of the property expires. To protect yourself from liability in case things go wrong, it is advisable to include some clauses and contingencies in the contract. Apart from small marketing expenses, there is no risk of losing any substantial amount of money in wholesaling single-family houses.
Real estate markets tend to fluctuate. But because wholesaling single-family houses takes a short period, you are able to close a sale before the effects of market changes are felt. This too lowers your risk.
#3: Provides an opportunity to learn and grow
Wholesaling single-family homes is one way of getting into real estate investing without many hurdles. You can easily wholesale a good number of properties, within a short span. In the process, you have an opportunity to have a good working system in place. For example, you will have various avenues to get houses to wholesale. You can also build a network that can help you get buyers effortlessly.
With a base of operation in place, it is easy to advance from wholesaling single-family homes to multifamily homes. You still have the capability of graduating from not only wholesaling to renovating and flipping the houses to get more profits.
#4: Requires minimum capital to begin
A low credit score can hinder you from real estate investing. With wholesaling you don’t buy the property, you only acquire the rights to sell the property by signing a contract with the seller.
Assuming you don’t get to sign a contract, a wholesaler has another option of buying the property and then selling it to another investor. Because single-family homes are relatively cheap you can still win a deal by buying the home in cash and selling it as a profit. With single-family houses your options are unlimited.
Cons of wholesaling single-family homes
#1: Unpredictable incomes
With wholesaling, you don’t have guaranteed income. Once the house is sold, that income source is closed. The period between closing a deal and getting another one is also unknown. To get a consistent income you will have to sell several well-spaced single-family homes. Unlike multifamily houses, one successful closing can keep you going for some time.
#2: Dependent on availability of buyers
Developing a list of buyers takes time. Sometimes you might deal in areas where single-family homes are highly-priced. Depending on the contract signed with the seller, if you can’t find a buyer, then you will have to pay the seller.
#3: Small profit margins
With wholesaling single-family homes, one can make a profit of around $5000 per house. This profit amount is not much as compared to what a wholesaler dealing with multifamily houses can get. In order to achieve your financial freedom, you will need to assign contracts to multiple single-family houses simultaneously.
Wholesaling single-family homes is one of the best ways to start building your career in real estate investing. It is crucial to understand how the assignment of wholesale contracts works and have a ready list of buyers to enjoy short and profitable deals.
Be great today,
Nick Foy, Founder | Under30wealth.com
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