The Advantages and Disadvantages of Buying Wholesale Property

Buying wholesale property prices has it’s negative side just as well as it’s positive side. The positive side is fairly obvious. Buying a property at pennies on the dollar is what it is all about. Well, what are the disadvantages?

It sounds great to be able to buy a $100,000 home for $30,000 doesn’t it? Well what if you had to buy a hundred homes to get such a deal? That’s 3 million dollars. Is it a good deal? Well yes it’s a good deal if you have $3,000,000 sitting around. These types of "bundles" are common in getting the lowest priced wholesale property. Big lending institutions design these bundles when they have a hard time selling properties individually or if they have too many properties on their hands at once. These bundles are out there especially in times like this current real estate recession.

If this isn’t a big enough obstacle it is likely that an investor will have to pay cash to get a wholesale property. Bundles are bidded on and are sold to the highest bidder. The bidder has to come up with the cash fairly quickly once the bid is won. Try getting a $3,0000,000 loan in time and it won’t happen. Lending institutions don’t even touch this sort of stuff and hard money lenders will charge an investor an arm and a leg. Also lending institutions will want a complete house to back up their loan to the investor. That brings me to my next point.

The quality of home you are buying with a wholesale property is less than whole often times. If you buy 1 wholesale property or 10 wholes properties, I can almost guarantee that the condition of the home will be less than average. There is a reason the property is being sold at wholesale prices. Usually the home has been sitting vacant for some time and will have been vandalized or burglarized. Often times the homes have been the home to tenants at sufferance. Basically people who saw the home was vacant for a long time and decided to move in without the owner knowing it. That is what you get with a wholesale buy.

So what are the advantages of buying property wholesale? Investors who can afford these types of buys will buy the homes for pennies on the dollar and then will get lucky with several of the homes. One third of the homes will be completely trashed, the second third will be ok and workable, and the final third will be pretty decent homes that have potential. The bulk buyers then turn around and sell the bad property for less than they paid for it probably. The medium homes the bulk buyer will sell to individual investors who can’t buy 100 properties at once but who would like to buy a wholesale property. The best homes they will likely sell on the open market for retail prices. It isn’t a bad gig for a big time investor who has the money and the energy to work such a deal. But often times it is the individual investor who makes out big on the profits without many of the risks.

I will briefly tell you why. The big time investor will likely get stuck with homes that will get condemned or that have clouds on title because the deed wasn’t transferred with a special warrant or something of the nature. The bad third we discussed above can be a huge liability. When the big time investor sells the property to the individual investor, the individual investor will make sure to get a "special warranty deed" or something of the nature. That will protect the individual investor from most liens and clouds on title. As far as condemnation is concerned, individual investors will need to make sure they are buying the wholesale home from a big time investor who is willing to guarantee the home.

Wether you are a one time buyer of wholesale property or if you are an investor who is buying bulk property you can make it big. By weighing the advantages and disadvantages an investor can determine what investments are worth purchasing and which ones are not worth the time.

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