Is Wholesaling Really a Good First Step in Real Estate Investing?

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Is Wholesaling Really a Good First Step in Real Estate Investing?

September 23, 2015

By Tarek

A lot of people will tell you that you can dip your toes into real estate investing by starting out as a wholesaler. And, when you first look into it, it seems like a good idea. It’s a lot like flipping houses, but instead of doing all the rehab work and taking all the time to get the house in great shape, you just make a deal with a motivated seller and turn around and sell it to another investor.

Sure, you don’t make as much money on wholesale deals, but they also don’t take as much time or effort. Because you never take possession of the house, you basically just buy a contract for the house and then sell that contract immediately. Seems simple, right? Well, I’m here to tell you that wholesaling can be just as tricky as flipping houses. That’s not to say it’s not a good place to start for some people and some deals, but let’s take a closer look at what’s involved so you can make your own decision.

Don’t Try to Skip the Learning Curve

First, a lot of people think that they can start wholesaling instead of learning about real estate, marketing, rehab, and everything else involved with real estate investing. They think that this is a great way to start earning while you learn, but skipping the initial learning phase of becoming an investor (of any kind) is a terrible – and potentially very expensive – idea.

However, if you’ve taken the time to learn everything you need to know about flipping, but you’re still feeling a little bit hesitant, wholesaling can be a great move. If you’ve already learned how it works, how to talk to motivated sellers, and where to find funding, why not jump head first into wholesaling?
Well, according to Bigger Pockets one of my personal favorite real estate investment blogs (other than ours, of course), you can still get in over your head if you do this. Why? Well, first of all, when you were researching how to flip houses, did you look into finding interested investors to buy a property? Probably not.

Wholesaling seems really easy when you first look at it because it’s kind of a hands-off process. However, once you make a deal, you have to turn around and flip it fast if you want to see a profit. To do that, you need a list of flippers that you can contact who might be interested in buying the property. Your flipping homework didn’t require you to build an investor list because your job is to find leads, rehab your flips, and then sell them to buyers.

You Still Have to Estimate Rehab Costs and ARV

Of course, if you’re good at marketing and networking, building a buyer list might not be that difficult for you. In fact, it might be easier than the other part of the wholesaling equation: figuring out the values of your wholesales.

Whether you’re going to rehab and flip a property yourself or you just intend to wholesale it and move on, you still have to figure out an estimate for rehab costs and the after-repair value (ARV) of the property. Some experts recommend wholesaling as a first step in flipping houses because it gives you experience estimating those numbers without actually having to worry about going over your rehab budget during the flip.

In my experience, it’s better to gain your real estate investing skills on the job, doing the kind of investing that you want to get into. Wholesaling doesn’t make the kind of money for my family that I can get flipping houses, so Christina and I have always focused on the part of the market that helped us meet our goals.

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Tarek El Moussa

Tarek and Christina El Moussa have over a decade of professional real estate experience and have been featured in national print publications, online media outlets, and a popular real estate TV show. Tarek is known for his determination to get the job done and doing it right.