The real estate industry is big business in the United States. It contributes trillions of dollars to the economy and employs millions of citizens nationwide. Anyone that enters the real estate sector has the potential to earn a sizable income, prompting many people to consider this profession as a full or part-time gig. Though there are many opportunities in real estate, some of the most trendy options are real estate investing and wholesaling.
What Is Real Estate Investing?
A real estate investor is an individual who purchases properties to sell or rent them for profit. You can buy properties and make repairs to increase the resale or rental value or sell/rent real estate “as is.”
What is Real Estate Wholesaling?
A real estate wholesaler searches for sellers interested in selling their properties (typically distressed properties). They create a wholesale real estate contract in which they agree to sell the property for a specified amount within a predetermined time frame. The wholesaler then searches for buyers and sells the rights of the contract to the buyer for a fee.
Weighing Your Options
If you’re interested in getting into the real estate industry, you’re probably wondering which of these options would work best. Below is a look at the differences to help you narrow down your selections.
Upfront Costs
Real estate investors need a surplus of cash to purchase, renovate, market, and sell or rent properties. Your upfront costs could be $1,000 or more depending on the property price, renovation needs, contractor rates, advertising costs, etc.
Wholesalers can get started without any money. Since you’re not actually purchasing the property, you don’t have to worry about the initial purchase price, renovations, advertising, or closing costs.
Experience
The good news is that you can become a real estate investor or wholesaler without any prior experience, education, or licenses. However, investors typically need basic knowledge in finding real estate, assessing potential value, renovation and repairs, and how to market and sell properties. Investors that rent properties must also understand the local Landlord-Tenant laws and how to manage the upkeep and repairs of a property effectively. Of course, you could always outsource these tasks, but that will require more money upfront.
On the other hand, wholesalers only need to know where to find sellers and buyers (and, of course, drafting legally binding contracts).
Risks
The risks are likely the most significant difference between real estate investing and wholesaling. Investing in real estate comes with various risk factors. You could buy a property with more issues, costing you more money to repair. You could purchase a property, complete the renovations, place it on the market, and get no interested buyers. In some instances, real estate investors end up breaking even or selling at a loss. Landlords also have the potential issue of unreliable tenants that don’t pay or damage the property.
Wholesaling is a lot safer. As long as you comply with local real estate laws and draft iron-clad contracts, there isn’t much to worry about. There are instances when the buyer backs out of the agreement to buy, in which the wholesaler would need to have a backup buyer to avoid losing the contract. Ultimately, a wholesaler doesn’t lose any money by flipping real estate contracts, whereas investors can put a lot of money into a project and not see a profit.
Making A Decision
Deciding whether to become a real estate investor or wholesaler is entirely up to you. You can make a more informed decision by evaluating the pros and cons. Keep factors like knowledge, startup costs, credit, potential risks, and your availability (lifestyle). Some people decide to start as a wholesaler to get their feet wet and generate income before evolving into the real estate investment industry.
Profiting from real estate is a trend that doesn’t appear to be going away anytime soon. If you’re interested in generating significant profits, becoming a real estate investor or wholesaler is your best option. Before jumping into this business venture, use the information above to decide which path is right for you.
