I’ve been investing full-time since 2005. I was recently asked the above question and realized that a lot of investors aren’t familiar with how wholesaling works at a very fundamental level.
So, what is equity and how does it pertain to wholesaling?
Equity is the difference between what is owed and the value of the property. For example, if a house is worth $100,000 and you owe $80,000, you have $20,000 worth of equity.
How does that pertain in wholesaling? When you purchase a property, there needs to be A LOT of equity so that, when you sell it, your buyer can purchase from you, pay for rehab, and still have enough equity of their own left in the property to be able to sell at a profit.
For example, if the value is $100,000 and you buy at $50,000 – you sell at $60,000 for $10,000 profit. Your buyer spends another $20,000 to fix it up. Your buyer will have spent $80,000 total to purchase and rehab and still have $20,000 equity left. They can then sell at the $100,000 value and make a $20,000 profit.
Just an example, of course, (numbers are never that simple) but that gives you an idea of how equity works with wholesaling.
Do you wholesale?