5 Essential Items To Get Your Wholesaling Business Off The Ground
By Paul Esajian on March 19, 2018
There are many successful real estate investors who got their start by wholesaling. A good wholesaler can not only find deals and generate revenue, but they will establish valuable contacts they will use throughout their investing career. There is much confusion outside the business as to what a wholesaler does. Simply put, a wholesaler finds deals, usually from distressed properties, gets the seller to agree on a price and assigns the contract over to an end investor. For their efforts they are typically paid a finder’s fee from the end investor or in some cases a percentage of the profits. This allows them to move from deal to deal without having to worry about rehab delays or issues with the property. Wholesaling is a great way to break into the business without much overhead or capital. Here are five essential items to every wholesaler needs to get their business off the ground.
- Lead generation. Like any other aspect of the business everything starts with lead generation. You need to find deals with enough profit margin to make appealing to an end investor. As we stated, typically most wholesale deals come from distressed homeowners. These are homeowners who are dealing with a foreclosure, divorce, sudden loss of income or any other need to sell quickly. You can find these homeowners through foreclosure lists at town hall or by networking with a divorce attorney. If you have capital you can purchase delinquent mortgage lists and market to these homeowners. There are also ways of finding leads through networking groups, social media and word of mouth. One of the biggest mistakes new wholesalers make is thinking that deals will just fall on their laps. It is not enough to find deals you need to find quality deals that are appealing to end investors.
- Seller negotiation. In a perfect world you will be flooded with a handful of new leads every week. Even the best wholesalers are only able to convert a small percentage of leads into actual deals. One of the things that separates average wholesalers from great ones is their ability to negotiate. Your ability to negotiate directly impacts how appealing a deal is to an end investor. You can get the seller to agree on a price but if end buyers don’t like it you won’t make the transaction happen. As a negotiator you walk the fine line between getting your seller to see the value your way without pushing them too much that they consider walking away. Doing this takes more than a few minutes at the property and some numbers on a napkin. In a way you need to act like an attorney and build your case with concrete numbers and data. It is not enough to have a motivated seller you may need to hold their hand throughout the process. Not every wholesaler has the patience and persistence to deal with homeowners, but it is an essential part of the job.
- Numbers and comps. It is almost impossible to negotiate with a homeowner without knowing all the numbers associated with the transaction. Start by having an idea of what is owed in relation to the approximate property value. If the amount owed is less than the value, the property would have to be a short sale to move forward. This takes an added set of criteria to make the deal happen. You would now need lender approval and a slew of documents from the homeowner. It also tacks on anywhere from 30 days to six months, or more, to the process. Even without a short sale you should have an idea of what properties in the area are selling for. You can use this information in your presentation to get to the price you want. It is also a good idea to know what upgrades and improvements are needed and how much they will cost. The more information you have on the property and the market the better chance a homeowner will see things your way.
- Contract information. When you make an offer on a wholesale property you need to know how to submit the contract. A wholesaler is simply a middleman between buyer and end investor. With that, you need to make sure everything you do on the contract is above board and legal in every way. Before you do anything else you need to sit down with an attorney and talk about how to write up a contract. Most wholesale provisions are straightforward, but you need to know how to explain it to the homeowner, so they are comfortable. The minute they lose trust in you, they will start to look elsewhere.
- End buyers. The final step in the wholesale process is finding an end buyer. This should start well before you have an accepted offer in place. You should constantly be looking for end investors in your market who can close quickly and easily. They can be found in local networking groups, real estate investment clubs, social media pages and personal contacts. The greater your pool of end buyers is the broader your property search can be. You can close more deals and in turn work with more people. You should never be in a situation where you have a good deal but don’t have an end buyer to assign it to.
Wholesaling is more than just a quick way to enter the business. For a handful of wholesalers this is their preferred, primary source of income. Anyone can wholesale but not everyone will be successful at it. Use these five tips to start wholesaling today.