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2020 has been a year full of challenges! Thankfully, the real estate market continued to perform well across the country despite these challenges. At a time when women are bearing much of the impact of the changes brought on by 2020, women real estate investors continue to succeed.
Real estate wholesaling persisted this year as a profitable real estate investing strategy. This investment strategy allows the investor to make a profit without ever taking possession of the property. The investor enters a sales contract with a seller but then finds a different buyer to take over the contract. Wholesaling deals usually move quicker and offer investors a chance for fast cash.
However, in 2020 investors did face a few common wholesaling real estate challenges. In recent years, the wholesaling process created questions about the legality and validity of this investment strategy. With the right information, guidance and flexibility, wise and determined investors can implement this strategy legally to create a solid business model.
1. Restrictions and Regulation
In response to the pandemic, governments applied restrictions for in-person meetings. This created problems for wholesalers that need to move quickly to close deals. Thankfully, virtual wholesaling allows investors to work on deals remotely. This opened the door for many investors to expand their wholesaling business to new markets.
2. Choosing the Right Area
Frequently, real estate investors complain about market saturation. Looking for leads in a saturated market wastes time and money. Finding the right location is key. One current trend for real estate wholesaling is to focus on small to medium size cities with populations of 200,000 to 1 million. These often offer more opportunities and less competition than major metropolitan areas.
3. Local Supply and Demand Trends
Take the time to understand the supply and demand trends in each market. Use online tools like the Multiple Listing Service (MLS) for clues about market conditions. Two useful property matrixes include:
- Number of days on the market for properties
- Volume of cash sales versus financed sales in the market
4. Quality Leads
You need leads in wholesaling, both to find properties and to find buyers. The best leads are the ones you find versus purchasing lists. With purchased lists, multiple investors also have the information for these highly targeted leads. The property owners often become frustrated and less willing to talk because so many investors have reached out.
A better way is to do the groundwork to find quality leads. Look at public databases, scout neighborhoods and talk to your network. You’ll find better results. Remember to be respectful and explain the benefits of wholesaling to the seller.
5. Marketing and Communication
The bottom line is wholesaling is a numbers’ game. You need many different leads to find the best deals. Measuring results matters for your marketing strategy. You should expect specific results based on the number of leads. As a rule of thumb, plan to gain at least one contract per 300 leads. This allows you to budget your marketing dollars and evaluate the effectiveness of your marketing strategy.
Create an organized and effective system to run through your leads and data. You want to hit every lead, which means you must maximize your effort. Keep in mind that people’s preferences for how they want to receive information changes over time. Find the best marketing channels to reach your target market, like social media, dialer calls, direct mail or online communication.
6. Understand Wholesaling
You can’t execute wholesaling deals correctly if you don’t fully understand what wholesaling is. With wholesaling, you sell the contract not the property. It’s very important to understand that when you put a property under contract, you become an “owner per contract” and your transaction is about the contract, not the property.
This creates challenges and confusion if you do not make proper disclosures. You must write an accurate contract with the right disclosures for the deal to be legal and viable for wholesaling. Otherwise, you risk legal consequences and damage to your reputation. Real estate is a relationship business and your long-term reputation is more important than closing one deal.
7. Know the Law
Each state has different laws governing real estate transactions. This includes laws and regulations for wholesaling. Don’t lose money on fines or legal fees. Take the time to research and understand the guidelines for each state that you operate in. Also, it is much better to seek the guidance of a real estate attorney upfront versus fighting legal issues if you break the rules.
Learn More About Real Estate Wholesaling
At REIW, we provide women investors with the information and tools you need to succeed in real estate investing. Check out our webinar on wholesaling to learn more about how to put wholesaling to work for you while avoiding the challenges.
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