The Profits & Perils of Wholesaling New Homes
Is there really money to be made in wholesaling new homes or is this a trap which could sabotage many real estate investors’ businesses?
For the last 12 months the media has been full of stories about how the new construction industry has been booming in the U.S. Builder confidence keeps on growing, permits and housing starts are up and many builders are reporting major surges in new orders and home sales. So does this suggest that there are big profits to be had from wholesaling new homes?
The Profit Potential of Wholesaling New Construction Properties
From Texas to Michigan to Florida, home building and new home sales have been booming. This includes new luxury single family home developments and plans for shiny new skyscraping condos.
Many builders have switched to a buyer financed model of construction, especially on condos, but other single family home builders have reported 60 to 70% lifts in revenues of mortgages as they push their own financing.
Many developers are reporting selling out massive percentages of units in very short periods and even lines of buyers at grand opening events, the like of which hasn’t been seen since the height of the last real estate boom.
The attraction for some investors is clear. Properties which are selling fast, look great and make for an easy sell and require no clean up or rehab, may sound like a good match for those wholesaling homes.
However, unless new phases are being released and staged pricing is promised at each new release, investors are buying at the top of the market, leaving little room for profit.
The Perils of Investing in New Construction Properties
While shiny new properties may be exciting to invest in, the lure can be a trap for many real estate investors. Remember you aren’t going to live there, so watch the numbers.
Often time initial sales figures are over hyped or even fixed by partners who reserve batches of units to enable builders to obtain financing and then pull out. So what happens if price increases don’t appear?
Certainly the resale potential for new properties in the current market are definitely restricted, as so many of these properties are overpriced. This is especially true when it comes to buying models. For those wholesaling homes, it leaves little to no room for other investors to profit, except perhaps those looking for buy and hold opportunities.
Getting stuck with one of these properties and bleeding holding costs without any hope of selling can be a major drain on an investment business and zap any other income coming in. Plus, investors must keep in mind that builders aren’t always investor friendly when business is good and they don’t need them anymore. If prices do rise dramatically when units are finished, builders will often look for any excuse to seize deposits and void contracts so that they can resell them for larger profits and they don’t mind paying their attorneys to fight off lawsuits if they end up netting more at the end of the day.
However, perhaps one sweet spot for those into wholesaling, especially in areas with numerous smaller custom builders, is flipping land and lots for them to build on.
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