Is there a difference between conventional real estate flipping and real estate wholesaling? It’s not a huge difference, but yes. It’s much less risky as long as you keep in mind the word contingency. Learn more about the difference here
A real estate wholesaler never actually purchases a home. You won’t have to worry about repairs or renovation, acting as a sort of middleman in the process. One of the greatest benefits is that your investment capital will be more fluid, as the process completes in much less time than conventional flipping. The risk is minimized by having a contingency clause written into the contract.
What is a Contingency Clause?
A contingency clause is a contract provision that requires a specific event to take place in order for the contract to be considered valid. In the case of real estate wholesaling this is usually the selling of the contract. For example if the investor-buyer or the seller is unable for whatever reason to fulfill the requirements of the contingency clause, the original investor is released from the obligation to purchase. It’s a kind of escape clause for parties involved in the contract. As the investor, it allows you to cancel a deal if certain requirements are not met.
Here’s a possible scenario.
First of all, remember that a contingency clause can be inserted into a contract to benefit either buyer or seller. To protect the party most likely to be impacted, courts often require a good faith effort in contracts that contain contingency clauses. For example, a contingency clause may require the buyer to obtain financing before transfer of the deed.
There are several things to pay close attention to when writing a contingency clause. This is no time for either party to sign a contract without considering the consequences of the contingency.
Be sure the terms of a contract are being properly executed. A loosely worded clause may provide either party too much latitude. Clearly outline the condition(s) of the contingency clause, how it is to be fulfilled and which party is responsible for fulfilling it. Timing is important to note. The clause should provide a timeframe in which all conditions must be met. It should also note what happens if the condition is not met.
Real Estate Wholesaling is a low-risk process as long as you know what to do and how to do it. This is no time to learn by your mistakes. Doing so can lead to very expensive lessons. Going into anything without guidelines and training puts you at risk.