Other Types of Wholesale Deals

There are many varieties of wholesale deals. Some people call them different things, and I will as well, but for my purposes, I call anything that is not a sale directly to a homeowner a wholesale deal. That being said we will talk about some differences in wholesale strategies and define some of them by different names such as they are, if for no other reason than to separate them out for conversation purposes. The main reason is so that we all call an orange an orange, and we all stop using the “f” word liberally to refer to everything we sell (you did know I meant flip right?). So to differentiate from here out I will call sales to homeowners Retails, now let’s get to wholesales.Ok, most of us understand the general term of wholesale, or least you should after the past week of me writing this blog. In broad terms anything that you sell to an investor (anyone who does not live in the property that they buy) is a wholesale deal, but is that all there is to it? Of course not. There are a couple of philosophies out there about wholesale deals, and the main differences between those philosophies have to do with closing strategies. There is one school of thought out there that says you should put everything you can under contract and shop the contracts until you sell them to an investor. This is a great strategy, but it has a couple of flaws; mainly that you (and your money/income) are dependent on someone else to be able to close. So for this strategy to work the first step is to contact all of the investors in the area that are buying houses, and figure out what it is that they are looking to buy. The problem that most new investors have is that they don’t have this knowledge base to do this, nor do they have the presence in the market to get away with it very often (remember that a blind squirrel finds a nut every once and awhile). Now let me say there is nothing wrong with hustling your butt off at anything, however you have to be realistic at some point. It takes a lot of time to be able to wholesale at a high level, or at least at a high enough level to make a living at it. That being said, if you are trying to get into this business on the side while at a job, it will consume you to do it right or you will not be able to devote enough time to be successful and you will soon crap out. I said all of that to say the standard wholesale deal may be harder than you think to get going, not impossible, but tough. So one way to do this is to get yourself a mentor, which is one thing I would suggest anyway, and be a bird dog of sorts. Once you latch on to this mentor you can go to him and let him know as you get properties and make your offer based on what he will tell you that he will pay for a particular house. Next side of this philosophy is to close out the houses first. There are a lot of wholesalers out there, most of the more successful ones, that say that you should be prepared to take down all of the houses that you put under contract. The reason for this is so that you have control of the property. Once you have control the options start to open up to you even more. You do not have to worry about somebody back dooring you on a property, or snaking your deal, or a seller selling it out from under you. All of this being said let’s get to the different strategies. First is wholetail; this is a strategy that involves taking down a house and cleaning it up really good and putting it on MLS to quick sell it. This strategy piggy backs on the HGTV shows that are out there. Everyone nowadays wants to flip this or that. When we take one of these houses down we then do all of the scary stuff, like foundation, or roofing. The other big component is to give it a good cleaning. This can be a pressure wash and a good elbow greased cleaning on the inside, and will normally involve a good trashing out of the house as well. Once it is cleaned out and back presentable you then put it on the MLS at an attractive price so that it will move very fast. Next we have what I like to call wholesale/fulltail, this is where we buy a property, fix the property, and get it rented out, then sell it to a armchair investor that is looking to get into the business. This will normally entail some owner financing in order to enable them to not have to bring money to the closing table. You can build a package for these new investors and you will be able to sell multiple properties at a time. In general any half-way decent mortgage guy at a bank or a brokerage can get a investor with a 620 or better score the ability to purchase 10 houses for investment purposes. That being said if you get your investors pre-qualified you can sell each investor 10 houses at a time. So the next question is how many can you buy and how many investors can you get? In order for this to work with most versions of financing you will have to sell your houses at about 80% LTV or so. The investor still have to be able to cash flow and in order to get the financing done you will need that type of a discount to prevent the investor from having to bring a lot of money to the table. SOMETIMES, I will even allow our investors to pull out 3-5% in the deal as well. Also, you can have a turnkey program for your investors as well. We love this strategy. In this program we sell the house to an investor (primarily an out of town investor) on a wholesale basis prior to rehab. At that point we manage the construction of the property for the investor, and then we manage the rental side for them as well. In this scenario everyone is happy. Again we have to make sure that the property is cost effective, and preferably under the 80% range so that they will not wind up with ANY cash stuck in the property. So at the end they have a cash flowing property in a city that they are not in so that it is completely passive. We normally advise them to purchase at least 10 over a 1 year timeframe. This gives them sufficient cash flow to justify the investment in what they have going on in this different town. This is a strategy that we have used to sell over 40 houses in a single year to only 5 or 6 investors. The last way that I will mention to make additional money in the wholesale business is by providing financing of your own for them, but I will do more on that tomorrow.