For those who are wondering whether wholesale houses are better than REO properties, then this post is must-read for you. In this post, we’ll help you evaluate both options so that you can make an informed investment decision.
Wholesale Houses vs. REO Properties—How are They Different?
Wholesale houses are distressed or undervalued properties owned by the original homeowners. On the other hand, REO properties are houses that have undergone the foreclosure process after the owner defaulted on the mortgage. Also, these properties have failed to attract potential buyers at the foreclosure auction and are thus owned by a bank.
Is Real Estate Wholesaling Better Than REO Buying?
Both of these investment properties come with their own set of pros and cons. However, if you’re new to the real estate industry, then wholesale houses are definitely a better option. There are many reasons why we would advise you to opt for wholesale houses. These include:
No Cash is required for Wholesaling Houses
When it comes to wholesaling houses, no cash or capital is needed. These properties are contracted not bought by wholesalers. As a wholesaler, you need to find a potential cash buyer. This cash buyer should be willing to offer a higher price than the amount you’ve agreed upon with the seller.
Competition is Aggressive for REO Properties
Seasoned property investors mostly seek REO properties. Thus, the competition is quite aggressive for REO houses. However, when you opt for real estate wholesaling, you don’t have to compete with other investors.
Banks Sell REO Houses As-Is
Although both wholesale and REO houses are sold as-is, the drawback of REO properties is that these houses often require extensive repairs. Furthermore, fixing these repairs can be extremely costly for investors with a limited budget, thereby affecting their ROIs negatively.
But if you opt for wholesale houses, you will be better off. This is because you don’t have to invest in any repairs or replacements. The property is sold ‘as-is’ to the cash buyer who invests in the repair work, not you. Wholesalers can close the deal and make profits on the price difference.
REOs Require a Pre-Approval Letter
When buying REOs, you need to make sure that your financing is in place before you make an offer. In other words, you may have to provide a pre-approval letter with your offer. This may be difficult for those with no credit or a bad credit score. When wholesaling houses, your credit score doesn’t matter. Even if you have no credit or a bad score, you can still tap the benefits of real estate wholesaling. Put simply, no pre-approval letter is needed. So, if you want to earn through real estate but can’t invest big, then wholesaling houses is a better option.