Why Should a Real Estate Investor Not Be Content With Just Wholesaling?

Posted on: January 13, 2011

Categories: Buy, Investors, Other Articles

Author: lbeam

3765816851 81eebdbb01 m Why Should a Real Estate Investor Not Be Content With Just Wholesaling? In psychology, the capacity to delay gratification is a manifestation of emotional maturity. This was demonstrated in a study where most younger children opted to immediately get the small candy rather than wait for a bigger one later. This may also be apparent in real estate investing, but the maturity in question is, to a greater extent, financial rather than emotional.

If you have been around the block buying, fixing and selling or renting out properties then chances are, you would carry a “Been there, done that!” stance when the discussion of wholesaling is broached. And most likely, flipping is where it all began for you.

For most newbies in the business, wholesaling opens the doorway to real estate investing because it allows one to quickly make profits, as in the small but readily available candy, even with little to no capitalization. This allows them to stash away funds for other future real estate investments. Seeking immediate gratification, in this case, is more of effecting some business sense rather than childishness. In contrast, rehabbing demands a substantial amount of capitalization to be on the safe side even with the profuse rehab loans made available by hard money lenders. Thus, this niche is not suited for newbies who are stretched for cash.

Benefits of Immediately Eating the Small Candy

“Hassle-Free” Real Estate Investing. In wholesaling, you typically buy and sell the property quickly without doing any improvements. This means you skip the hassle of computing for rehab costs, managing contractors, seeking funding for the repairs, dealing with problem tenants, evictions, malfunctioning toilets and other issues that rehabbers and landlords go through.

Little To No Capitalization Required. You may have heard of the no-money down real estate investing. Well, this may not be accurate. You may not have to shell out any amount, but still, you have to use other people’s money, the most common source of which is private money lenders. The point is that anyone can start this business even without the cash.

Less Risk. Since it is called “no-money-down investing,” you do not risk anything much when wholesaling save for your name. If things go wrong and you default, hard money lenders can just go after the property you are wholesaling.

Quick Cash. Here is the immediate gratification part. Because you make a quick sale, you quickly reap the profits. Part of which you can use to finance a new deal or accumulate for your long-term goal of establishing a passive steady stream of cash flow. One downside to flipping, however, is that you will not make as much money as when you rehab. Since you don’t do anything to improve the property, its value does not go up.

Preparing to Swallow the Bigger Candy Later

Real estate investing newbies must realize that wholesaling is better used as a short-term tactic in the business. While still flipping houses, start strategizing your long-term plans. The “little child” real estate investor in you would have matured by then. Would you be willing to let go of the ready-to-eat little candy in exchange for a bigger one that cannot be eaten immediately? Would you want to still be flipping houses for some immediate cash? Or would you rather wait a little while longer and slog away rehabbing handyman specials to rake in a heftier stash? How would you like to just be semi-passively collecting a steady stream of rental from your tenants? Instant cash, more cash that is not readily available or steady cash flow? Think about it.

 Why Should a Real Estate Investor Not Be Content With Just Wholesaling?
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