07 Aug Is Real Estate Wholesaling Worth It
When you’re an expert in only one area, uncertainty and an ever-evolving environment can feel scary. The real estate market constantly changes after all. And if you’re focused on wholesale and rehabs as your niche, this raises some questions. Is real estate wholesaling worth it? Will rehabs be as popular when the market dives or construction sinks? How hot is it now? And the ever-popular – should you try to become an expert in another niche, or is staying in your box the best thing for you?
With this line of thinking, you might be convinced that the most logical move is to focus on something else.
That’s not entirely true.
It’s still possible for you to stick to your bread and butter niche and make profitable deals despite the ever-changing real estate market. However, you need to gain the knowledge and skills that will enable you to spot good deals, throw away the bad ones, and make better overall decisions.
In terms of wholesale and rehab deals, you have a couple of things to consider to figure out if a deal is worth pursuing. And this article covers just that.
Three Things to Consider in Real Estate Wholesaling and Rehabs. Do These Types of Deals Fit in Your Bucket?
What does it mean to assign deals to different buckets? It’s pretty simple.
Let’s say a deal comes through the door. Maybe it’s a property or even just a property info sheet.
You look at it, analyze its terms, and start thinking.
Where does this go? Is it best as a wholesale deal? Is real estate wholesaling worth it? Or is it better as a rehab deal? Perhaps it’s best-suited for the subject to owner financing bucket.
In essence, you have to categorize deals accordingly using your knowledge in the niche and experience. Without finding the right bucket that fits, you won’t be able to tell if the deal will work for you going forward.
Will the Deal Give You 3 Paydays™?
Let’s say you do a wholesale or construction or even rehab deal. When that’s done, you get your profit from it.
But once that’s over, guess what?
There’s no second or third payment heading your way, and there’s no residual.
That means you’re practically on a job, not running a business, and you have to do the whole thing all over again.
The secret to making good deals is finding the ones that will eventually help you get off the treadmill.
And that’s the reason why we developed our 3 Paydays™ strategy – you buy and sell on terms that lead to three separate payments throughout the entire deal.
Here’s an easier way to understand how it works:
- Payday #1 – you get immediate profit since it’s the buyer’s down payment that’s not refundable
- Payday #2 – it deals with your monthly cash flow. This covers overheads and expenses to run your business.
- Payday #3 – it’s the cash out that has all the accrued principal pay down and your mark-up in price.
If a deal can generate these 3 Paydays™, then it’s one you’ll likely want to pursue.
Wholesale and rehab deals that don’t create these sources of income may force you to accept smaller checks. They can keep you on the treadmill and put you in a more competitive market.
Does the Financing Suit the Wholesale or Rehab Deal?
What type of financing do you have and does it make sense for the wholesale or rehab deal in front of you?
It’s one of the biggest questions you have to ask yourself before pulling the trigger.
Here are three examples of what you may have available:
- Owner financing
- Subject to existing financing
- Lease purchase
The first form of financing is particularly interesting and lucrative. Now, this can mean a bunch of different things.
In most cases, it involves the following structure: you’re buying a debt-free property. It’s free and clear with no mortgages or liens on it. At the same time, you’ll probably pay either retail price for it or at least close to it.
In essence, you will pay market value. But you’ll do it only if you get your desired term in return.
So, why is this type of financing good?
It’s hard to use it and not pull out six figures on your deal. If you think about it, it involves making payments against the market value price you gave while contending only with principle adjustments.
In contrast, the subject to existing financing deal means that you take over the seller’s mortgage, yet the mortgage stays in their name.
Meanwhile, a lease purchase deal means you’re dealing with a property as a rent-to-own – you’ll first be considered a tenant before you get to purchase the property. And it can be costly in the long run.
With owner financing, however, you can also get some pretty amazing deals.
Say you were to buy a home for $200,000 and $1,000 per month. The latter is a principal payment. Imagine getting four, five, or even six-year terms – this means you can get up to $12,000 a year in principal paydown.
And those figures can even be seen as conservative.
In fact, I know some real estate investors who used the owner financing method to get profits of $177,000 on a $177,000 purchase and $133,000 profit on a $183,000 buy.
These are just some examples of what’s achievable when you’re using a suitable module and deal structure.
The Real Estate Wholesale or Rehab Deal is Worth it if It’s Right
With all that in mind, should you stop doing wholesale and rehab deals?
Not necessarily.
They may not always be the hottest deals that come through. But if that’s your niche and that’s what you feel comfortable with, by all means, keep it up.
The only thing you have to realize is this – not all deals and terms are equal. Sometimes, you’ll find bad deals. Other times you might find the sale of a lifetime in your niche.
What you have to do is weigh all options accordingly.
See which bucket fits, if you can create 3 Paydays™ out of it, and if the financing suits the deal. Keep in mind that specific structures can dramatically increase the profitability of a deal.
So, why would you settle for anything less?
You don’t have to exit your niche if the market switches trends. But you should always do the research and figure out if a deal is genuinely profitable before moving forward.
If you’re still wondering “is real estate wholesaling is worth it?”, visit our blog for further information.
When you’re ready to learn how to do more five to six-figure deals, we’re here to help. Access the Quantum Leap System Home Study Program here and start getting the knowledge you need to replace or supplement your income through real estate.