I have been a real estate agent and broker in Scottsdale, Arizona (Phoenix Metropolitan Market) for 14 years. Coupling this history with a similar timeline in the investment management field (Global Wealth Partners) – my perspective on real estate has always been heavily influenced with an investment management mindset; which has proven time and time again to be slightly different than the predominant ethos in the real estate industry.
The difference has been most apparent around my take on risk. I often seem to put more value and thought into advising my clients with a framework that will help strengthen their risk profile as the real estate market and stock market begin to give back; and that day always comes sooner than people think.
The retail investor mindset tends to have a short attention span but many of us all too vividly remember the moments leading up to the financial and real estate crisis of 2008.
Having said all this, the real estate industry this decade around comes with very different dynamics and those dynamics will be interesting to keep an eye on.
One particular trend that inevitably arises in an uptrending market is around wholesale real estate. A term you inevitably come across as you scour the internet for information and speak to people about real estate as an investment.
Before going any further, it may be useful to define what real estate wholesaling is.
Real estate wholesaling is when an individual or entity enters into an agreement to purchase a home (typically from a distressed seller) for a price well below market value and very quickly attempts to find an an interested buyer (typically an investor) and ‘assigns‘ the contract to that buyer before closing on the property.
The wholesale scenario is only possible when a real estate wholesaler is able to identify a seller before the seller brings the property to market [table this thought for a moment].
In many ways, from my perspective – it is difficult for me to see the value in this business model for sellers or even real estate investors.
Real estate ‘wholesaling’ is basically a real estate maneuver to capitalize on the arbitrage created between the circumstances of a distressed seller and the attention and awareness of a real estate investor. – Ramneek Mathur
Here is a central question to ask yourself when pondering this business model [mind you, there are many nuances to this topic].
- A distressed seller often needs to sell their home very quickly. I get that. But assuming time was not compromised, wouldn’t the highest possible price for the property be in the seller’s best interest? Wouldn’t that price come directly from a real estate investor?
From a higher point of view – it would be prudent for me to say players such as Opendoor, Zillow , Offerpad and others will continue to put considerable pressure on ‘wholesalers’ in the real estate industry and frankly – retail real estate investors as well.
In fact, in many ways, their business model strikes me as a fusion of the wholesaler’s business model and the investor real estate model – just with ‘deeper pockets’.
And while the true risk profile of these approaches become more evident in a stagnant / downward trending market; the true stress test for any strategy.
The remedy and antidote is often something new and even seasoned investors overlook when things are on the way down…
Cash Flow
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