Wholesaling is a simple concept, but most investors don’t succeed because they fail to educate themselves enough to pull one off. Wholesaling is simply tying up a deal, then reselling it to another investor for a fee or profit. But, as they say, “The devil is in the details”.
Here are 5 super practical tips for pulling off a wholesale deal:
- Build Your Backend List First. Too many wholesalers find a deal, then try to “shop” it by advertising on Craigslist or showing up with flyers at a local REIA meeting. You are bound to fail if you don’t FIRST build your backend list of potential buyers, find out what they are looking for, then go out and find deals they need. Do you think a wholesaler of clothes shows up at department stores to move merchandise? Of course not! They survey what retailers want, and they go find the products at wholesale prices cheaper than their customers are willing to pay. Follow their lead.
- Know How to Estimate Repairs. Most wholesalers are completely inept at estimating rehab repairs, and thus their numbers are off. There’s nothing worse for your reputation than telling another investor a wholesale house deal you have needs $20k of repairs, when in fact it needs $40k. Learn what things cost – labor and materials – and make a detailed list that you can show your backend buyers. Be conservative with your estimates. It’s better to be wrong on the high side than the low side. If possible, get a contractor bid or two to back up your assertions.
- Proof, Proof, Proof. Don’t just tell your backend buyers the house is worth $X fixed up. Since most wholesalers are either fibbing or just wrong about their resale values, most of your would-be backend buyers are VERY skeptical. Show them PROOF. Zillow is not proof, and neither is a real estate broker’s off-handed guesstimate. Provide multiple comparable sales information, with pictures, addresses, and detailed information.
- Put Your Bottom Line Up Front. Many wholesales mark up their profit margin too high when they are peddling their wholesale deal because they are either greedy, dumb or assume that their back-end buyers will negotiate. Wholesale offerings are one of the FEW instances where it makes sense to offer your bottom line up front. You have a limited deadline to move your wholesale deal, so don’t ask too much because you assume people will negotiate your price. Most people will pass on it because they are afraid to negotiate or they assume that you are not negotiable (and greedy). The key to wholesale deal success is SPEED, so offer your bottom line wholesale price up front, and say it’s not negotiable.
- Make It Easy for People to Say “YES!”. Like me, you probably get dozens of so-called “wholesale” deals in your email box. Most are just summary numbers with nothing to back it up, which requires us to do all the homework. And, since, in our experience, most of these deals are not real deals, we rarely take the time to do the necessary homework and pass on it. This being the case, make it EASY for someone to make a decision. Provide a flyer or link to a Dropbox folder or website with all the necessary information – comps, detailed repairs list, a copy of your purchase contract, a title search, recommended contractors and hard money lenders, photos, videos, a map to the property, etc. Don’t leave anything out, good news or bad. The more “bait” (information) you provide, the easier it will be for people to bite on your hook.