The world of real estate investing is ripe with opportunity. One of the best aspects of investing is that there are many ways to do it, and many ways to turn a profit. If house flipping is not your thing, you can get into the world of wholesaling. Simply put, wholesaling is the act of negotiating a deal with a seller and assigning the contract to an investor before the closing. For your efforts, you will earn a fee, or in some cases a piece of the profits after the end deal closes. While this sounds easy enough, it is difficult work. If not done right, you can spend years working with homeowners that never sell or even find yourself stuck with a property nobody wants. However, done correctly, wholesaling can be a great way to make money in the real estate industry.
Between bandit signs, new listings on the MLS, Craigslist and local contacts you make, you can find enough deals to quickly plant your wholesaling flag in the local area. Finding properties is typically not the issue-finding the right ones is. The most important thing for wholesalers to remember is that numbers will drive the deal. You have to buy low enough to leave enough fat on the table for investors to find the deal attractive. In some cases, this may mean making less than you anticipate or think you deserve. In others, it means walking away from the deal and moving on to the next one. What you never want to have happen is to have to move forward on a deal and close on a property that you have no interest in holding. All it takes is one or two bad decisions and you will end up taking a loss on properties you had no intention of ever buying.
There are many calculations and guides to help you break down the profitability of a property. The most common one is the 70% rule. With this rule, your max offer will be 70% of the after repair value (minus your wholesaling fee). Obviously, the importance of estimating the cost of any work and the impact on the future value will be critical. If you are not a contractor or have experience working on properties, you need to leave the estimating in the hands of professionals. One oversight or miscalculation can make all the difference between a quick, profitable sale and one that drags on forever. Numbers will guide everything that is done in the business, and especially on the wholesale side of investing.
Once you have your numbers in line, you can look to market and assign the property. Many new wholesalers will wait until they are close to the closing to start looking for buyers. Even though the closing may be weeks away, you can start building your buyers list and emailing information about the property as soon as you have a deal in place. You can build your buyers list in much the same way you started looking for new deals. Local real estate investment groups are a great way to find investors looking for deals. In addition, you can use social media, real estate websites, newspaper classified ads and local networking meetings to increase your buyers list. You should also have an up to date personal website with any new properties you want to display. Priority can be given to buyers that you have worked with in the past, but the sooner you can get your deal assigned, the quicker you can move on to the next one.
Everyone wants to make as much money as possible, but on the wholesaling side it may be better to build long term relationships. This can mean making a little less from deal to deal to increase your volume. If you do some minor work on certain properties and can make your investors lives easier, they will want to work with you again. By doing this, you can get your deals sold quicker and won’t have to worry about scurrying around at the 11th hour trying to find a buyer on a deal that you don’t want to buy. It will also increase your reputation as someone people want to work with. This will help if you have any aspirations of transitioning into other areas of the business.
Numbers drive the deals. It is important not to over exaggerate the potential profits or the ARV with deals you promote. This may benefit you on a deal or two, but over time investors will see that you are full of hot air and run from your deals. Investors talk within a community. If you establish a reputation as someone who sells a false bill of goods you are only shooting yourself in the foot. You can make your numbers on the top edge of the market, but if you go any further than that you are asking for trouble. Savvy investors will do their homework and will rely on their own numbers more than what you put in an email. Keep your numbers in line with reality if you want to be in the business for the long haul.
Wholesaling is a part of the business that can be done by anyone, but it takes a good sense of the numbers and a good feel for people. If you think about the business long term and try to take care of the investors that buy, you will develop lasting relationships and grow your business. If you are only in it for the quick buck, you will be greatly disappointed with the results.