The real estate market produces a tremendous amount of long-term, secure wealth compared to most industries. Residential rental real estate alone accounts for roughly 15-18% of our GDP, either through direct rents and utilities paid or through the construction and renovation of new and existing units. Even at the lower end of the estimate, this represents the movement of roughly 3 trillion in assets. That completely outpaces the commercial real estate sector, which only represents about 1.1 trillion in assets.
How do property owners and investors tap into this kind of wealth potential? At The Peak Group, we use a number of acquisition strategies to add this kind of income-producing real estate to our collective portfolio of offerings. One of the less-well-known ways of investing with growth in mind is through the vehicle of real estate wholesaling.
Understanding the Real Estate Wholesaling Method
Typically, the term ‘wholesale’ refers to a business that obtains items at a lower price and then offloads them for a higher price to retailers. Real estate wholesaling is a similar premise and even incorporates elements of the popular fix-and-flip method on a grand scale.
In the traditional version of real estate wholesaling, the wholesaler acts as the contact between low-priced (and often undesirable) properties and large-scale buyers. The wholesaler makes their money through the spread between the seller’s contract price and the buyer’s purchase price.
Real estate wholesalers first need to locate sellers ready to sell their properties at a rate below the market value. A wholesaler may work alone or hire someone to find such properties on their behalf. These property finders are known as ‘bird dogs.’ Bird dogs are normally paid on a commission basis.
Once they locate a property or properties whose price is below the market value, they provide an offer to the seller who can either consent or negotiate for better terms. Both parties get into a purchase and sale agreement. If the wholesaler wishes to sell the contract to an investor, the agreement must have an assignment clause.
How The Peak Group Uses Real Estate Wholesaling Differently
Apart from being in bad shape physically, the types of properties that appeal to a wholesaler often have a looming foreclosure that makes it challenging for the seller to try and offload the property in a way that would pass the minimum specifications required by lenders.
Traditionally, a wholesaler’s goal isn’t to renovate the property but to pass it along to someone who will. That’s where The Peak Group steps in.
Rather than work with an outside wholesaler, vertical integration of multiple facets of the real estate industry into one combined unit allows us to purchase these distressed homes ourselves at an incredibly discounted rate. We have the marketing system in place to directly reach out to these motivated sellers, as well as access to county records to track properties headed towards foreclosure.
This not only frees the burdened property owner and meets their needs, but it also allows us to transform the property into a desirable rental at lower-than-market rates. Ultimately, this takes a piece of property that could potentially become a ‘zombie home‘ and gives it new life as desirable residential rental real estate ideal for workforce housing in the DFW area.
The advantage of this method beyond the savings is that we are directly responsible for the renovation history of the newly-updated rental property. We have control of the purchase and quality of repairs from start to finish—and this dedication to detail is why we are able to provide better returns for our investors.
Is Real Estate Wholesaling Legal in Texas?
Real estate wholesaling laws in Texas are governed by the Texas Occupations Code. While it is unnecessary to have a real estate license while engaging in this type of trading, we have the licensing and certifications we need through our vertically-integrated acquisition structure to bring any rental property from purchase to renter placement.
It’s a simple rule of economics that the less the money you pay for a product in bulk, the more the funds you can invest in the rehab process, which also means that there will be a higher return on investment. This allows us to produce high-quality rental housing from wholesale acquisitions that appeal specifically to the rental market in the DFW area—and better dividend yields for the investors we serve.
Real estate wholesaling is just one of the ways in which we add highly-successful, income-producing rental property assets to our portfolio for the Peak Housing REIT. Ready to learn more about the hands-free wealth you could be tapping into as an accredited investor? Create your own account to get started.