So, you’ve decided to get your feet wet in real estate investing by becoming a wholesaler. Wholesaling is a good way to start because you can generate cash quickly with very little risk or money up front. You can use the cash you generate from wholesaling to pay bills, save up for down payments for rentals, or take your family on a nice vacation.
But, not all wholesalers are successful. Many start with the intention of becoming successful, but ultimately fail and/or give up quickly, thinking that the strategy is not sound. Truth is, most people quit because they lack the necessary patience and discipline needed to start a new business; so, they skip from one business opportunity to another, looking for the “quick fix”. There is no quick fix – every business opportunity takes hard work, patience, and persistence. But, there are some common mistakes that new wholesalers often make that you can learn to avoid on your path to success. Below are the three most common ones. Call it, “Wholesaling Houses 101”
Mistake #1: Not Enough Data
Most beginner wholesalers give up because they find a few deals, then they get discouraged when they can’t get them sold. Getting rid of good deals is EASY, but you still have to sell a house to get it sold. Most wholesalers will email people on their buyer’s list some basic info and wonder why they get no bites. The most common reason is because they don’t give their potential buyers enough information to make a quick decision.
When you have a good deal to wholesale, make a good color flyer with all of the relevant data, such as:
- The comps for properties that have sold in the neighborhood
- A list of properties currently for sale in the neighborhood
- A map with directions to the property
- A detailed list of repairs with a contractor’s bid
- An inspection report (if you have done one)
- An analysis of what kind of profit can be made
- A list of hard-money lenders they can use to finance the deal
- A copy of their purchase contract for the property
- Pictures, pictures, pictures!!
- A link to a YouTube video showing your walk-through of the property
In short, make it EASY for an investor to quickly analyze the deal and make a decision. Don’t make assumptions like thinking the people you email your deal know the comps or can do the math quickly. Lay it all out for them!
Mistake #2: Focusing Too Much on Fixer Uppers
Most newbie wholesalers focus on fixer upper properties that can be sold to other investors who will fix and flip. The reality is that more investors are landlords and flippers in this market. Thus, why just focus on fixer uppers? Also keep an eye out for properties that would make good rentals. When presenting the information outlined above, include an analysis of what a buy, fix and rent scenario would look like. In many cases, the rehab budget will be a lot lower for a rental vs. a fix and flip. Give both scenarios in your flyer. Include rental comps and base the cash flow on what a refinance loan would factor into the equation at current market interest rates. Include the names of a few good mortgage brokers.
Mistake #3: Asking Too Much
Most wholesalers will mark up a property too much when broadcasting to their list, with the assumption that other investor will bargain them down on price. BIG MISTAKE! First, most people are too chicken to negotiate or they assume that the price you are asking is your bottom line. Second, you only have a short window to get the property resold, otherwise you will lose your earnest money on the contract. Instead, mark the deal up a little bit, and tell investors that the price is your bottom line. Don’t be afraid to share with others what you are paying for the property – they will appreciate your candor and that your markup is reasonable. And make sure you aren’t greedy about the markup – you shouldn’t expect to make more than a 2 to 4% markup on the price as your wholesale fee. In rare cases you can mark it up more, but the key to successful wholesaling is VOLUME. In the beginning, you should mark your deals up even less to get through the process and establish relationships with other investors.
With these tips in mind, give it some hard work, be patient, and make LOTS OF OFFERS! As Wayne Gretsky once said, “Every shot you don’t make isn’t a score”. Likewise, 100% of all offers not made are not accepted!