One of the most common methods of entry into the real estate investing business is through wholesaling. It requires limited capital and offers a fairly straightforward process. In a typical wholesale transaction the wholesaler connects a seller with an end buyer. When the contract is assigned the wholesaler steps out of the way and either collects a set fee or a small portion of the net profits. Doing this provides a risk free way to get started in real estate. While this sounds easy enough there are a few necessary steps that are needed ensure success. Here are five tips for how to get started in wholesaling.
- Market To The Right People. If you don’t market to the right people you will end up wasting time and money. Not every transaction makes for a good wholesale deal. The starting point for anyone interested in wholesaling is to market to the right people. You can’t just open the phone book and pick two hundred random addresses to send a letter to. You need to reach out to people who are motivated to sell to you at your price. Finding these people is often an overlooked expense. Between pre-forclosure, divorce, absentee owners and homeowners late on their mortgage there are plenty of ways to find the right list. Like any other kind of marketing the key is repetition. Simply sending one letter and waiting for your phone to ring is not going to work. You should be prepared to spend some money mailing your list at least a couple of times. By spending the time, and money, targeting the right people you will see a much greater return on your investment. As a wholesaler you are basically running a business. Most every business is reliant on marketing to generate revenue. Don’t just market, market to the right people.
- Find Good Deals. As your phone starts ringing the next step is to sift through the trash to find some treasure. As a wholesaler your goal is to present a deal that is attractive to an end investor. You need to factor in your fee and their profit into your equation. The deal needs to be attractive enough that you both can earn money when the property sells. This underscores the importance of marketing to the right people and finding good deals. There are many different examples of what a good deal could be. One of the most important aspects of a good deal is the timeframe. A homeowner facing foreclosure may be more apt to sell quicker than one going through a short sale. An out of town landlord may want to sell now before spending money to repair a needed item. There are a handful of useful percentages and formulas that can help determine exactly what a good deal is. This requires you to have at least an understanding of repair costs and knowledge of after repair value. Your goal is not just to find deals you see value in but those that your investors find attractive as well.
- Information And Application. Before you start any type of marketing you should have a plan in place for how you will handle call volume. Sending incoming calls to your voicemail is almost like throwing money away. Most callers are done on impulse and will not call back or answer return calls. Not only should you answer your phone but you should have an idea of what you are going to say when you do. You need to get as much information as you can from your initial communication. Your tone and attitude at this stage are critical. You should accept that there are going to be plenty of questions. This is a major decision for the seller and you need to make them feel comfortable with the process. This is almost as important as any numbers you talk about. After the initial call you should have an idea of what kind of deal you may have and they should feel comfortable in working with you.
- Negotiation. The goal with any real estate transaction is to get the best possible deal. With wholesaling it is essential. As we stated, your wholesale deals need to have more room for potential profit than any other type of deal. You need to be prepared to fight for every dollar you can. Be ready to support your offer with cost of repair estimates, comparable sales and any other perk that the seller may be interested in. If your offer is on the low side it may be met with shock and sometimes anger. It is your job to explain that their property may not hold the value they think. Often times there will be some back and forth negotiation. The better you are at getting your points across and negotiating the best deal the better deal you will end up having.
- Buyers List. Your ability to secure a deal is only beneficial if you can find an investor to assign it to. As you begin to market to sellers you should also begin building your buyers list. Every person you come in contact with at networking events and investment clubs is a potential buyer. Like anything else in real estate finding buyers is a numbers game. The more people on your list the greater chance you can assign your deal quickly. As you talk to potential buyers you should get an idea of what they desire in a property. Ask questions about price points, locations, condition and anything else that is appealing to them. Keep this information on a separate spreadsheet and when you find a property that fits reach out to them first. Do something every week to add names to your buyers list. You never know when you will need to use it.
Wholesaling is a great way to develop your real estate business. Use these five pointers as a guide to help you become a successful wholesaler.
