Property Wholesalers Vs Property Developers–A Comparison
Two of the most common sources that investors utilize to acquire properties are wholesalers and property developers. While both offer great deals on real estate, and have the ability to provide homes in bulk, there is a stark difference between the two. If you are a first time investor, how do you know which path to choose? Both options are popular in the real estate investment world, but if you aren’t educated in the capabilities of your source for properties, you can wind up in a very sticky situation.
Investment properties can be acquired in bulk, or as single home deals. Most often, the best deals come in packages, with homes that require renovations and city mandated upgrades. A good number of property developers will take care of the dirty work for you, and offer homes that have been renovated and tenanted. All that is required of the investor is the purchase of the performing investment property, and collection of future profits.
The way that property wholesalers work is through the assignment of a property title from one individual to another. In essence, they are looking for remarkable deals on real estate, and passing these deals (which are now marked up) on to other individuals. Wholesalers don’t often have much knowledge on the actual condition of the property they are offering, nor do they readily have boots on the ground to assess the property and provide an idea of what renovation work is required.
Wholesalers have the ability to provide homes through little or no personal capital, and because of this, they aren’t going to lose much if the deal falls through. Property developers often have a much deeper hand in the homes they offer, as they will usually own the properties offered.
Herein comes the most important difference between wholesalers and developers—wholesalers most often are middlemen between the seller and buyer of the property, while developers have put in extensive work to deem the property presentable. Most importantly, developers own and actually know details about the real estate they offer to investors—they believe in the property enough to invest in it.
Developers often work in specific locations, due to their regional proximity or contacts in the area, while wholesalers sometimes get all their information of a property through secondary sources.
Smart investors often develop relationships with their property source, be it a wholesaler or investor. While both can prove advantageous, a property developer has a much greater ability to customize a deal for the investor. Property developers often hold tens, sometimes hundreds, of properties, as opposed to wholesalers who don’t hold any at all. So while a wholesaler may have eyes on many different deals, a developer actually has a hand ready to move properties without delay.
Not intending to downplay the importance or delicacy of real estate wholesaling as a business, but wholesaling can be done by almost anyone, with little to no actual experience necessary. A good marketer can become a great wholesaler, with the right connections. Essentially, becoming a glorified real estate agent, without the certifications. It takes as much work as finding homes on the MLS, marking them up by a few thousand dollars, and offering them to buyers that they know are interested in the areas, or types of properties they have found.
Wholesalers are interested in quantity, and the movement of many deals, while property developers are more interested in higher quality deals, which will build relationships with successful investors.
Many people who have made it big in real estate started off with wholesaling, so the potential of the business is real. In the long run, property developers have a higher success rate in establishing passive income for their clients, as they produce performing rental properties that can produce income on day 1.