Is wholesale real estate an urban legend?

It happened on a beautiful Sunday afternoon about three months ago. John and Peter arrived at the poolside bar at the same time. They had both just attended a Wholesale Real Estate seminar. All John wanted was a relaxing drink. He had no idea what was coming…

As they drank, they struck up a conversation about their real estate investment projects. John revealed that he was a part-time real estate investor and that he had made about $4,000 on his first two transactions in the last six months. He was quite happy with his earnings, because they supplemented the income from his day job.

“That’s great! So have you thought about going full time?” Peter asked.

“I can’t afford it, man. I put twenty hours a week into my real estate endeavors. Even if I work full time, I’ll only make about $2,000 a month. That’s not enough,” John replied.

Peter was surprised…

He had been a full-time real estate investor for 3 years and never invested more than two hours a day. Although, her last month’s profit was $38,000. She knew that John had it all wrong. She couldn’t tame his curiosity, and Peter decided to dig a little deeper…

He said, “I don’t mean to be rude, but that’s a lot of hours for very little money. If you don’t mind asking me, what do you do in your real estate investment business?”

“You know, the standard stuff: mailing letters to absentee owners, putting up signs, driving for dollars, some free online ads. Pretty much everything everyone else is doing,” John replied.

Peter got the idea. He knew in an instant that John had succumbed to the popular, albeit erroneous, notion about investing in real estate. Being a retired community college teacher (he retired at 36), Peter urged him to tell John what he was doing wrong, just as he would a wayward student…

Real estate investor tales often sound as unbelievable and potentially “scam” as they are exciting and appealing to our fantasies of big rewards for small efforts. Are these just urban legends told among friends at poolside bars? Or is it true that you can find sellers who are willing to sell at deep discounts so you can “make a killing” selling such properties, or even just save a great deal of money when you purchase your next residence or investment property?

These stories seem to defy common sense, and even most licensed real estate agents will tell you that you get a good deal when an offer three to five percent below the MLS listing price is accepted.

The most pressing and obvious question that stands in the way of fully believing the tales of investing in real estate is, “Why would a seller take much less than he must know the property is worth?”

Here are some answers that may explain this and shed some light.

First of all, selling real estate is much more difficult and expensive than selling other asset classes, such as stocks or bonds. In a slow market, it can take a long time to get the “market value” of real estate.

The cost of sale ranges from eight to twelve percent of the sale price, which includes real estate commissions, transfer taxes, and escrow and title fees.

Then there is the condition of the property. It has to meet certain standards to fit conventional lending criteria for a retail buyer to obtain financing. If not, the chances of finding a retail buyer for the property are slim.

If a retail buyer can’t buy the property, “retail value” isn’t the right price to set in the first place, even if you make some adjustments for needed repairs.

This is where real estate investors can come in and create a real life experience of the urban legend. Helping sellers get off the ground and getting the property sold very quickly is often the key to success as a real estate investor.