Wholesaler Mindset

This entry will be for me to attempt to express to the real estate investor community the wholesaler mindset. The first problem for most investors is the mindset of "if it is such a good deal then why are you selling it". This is the oldest concern in the world of real estate. Every real estate investor that is serious at all about our business will build a lead generation system. Once this system is up and running you will invariably have a problem at some point-You have more leads than you can work! This is how the wholesale business was born. Most investors will normally rehab to sell to homeowners as a source of income/capitol, and looking for those houses is why we have the lead generators set up. Once we have the leads coming we will hit the wall for the amount of rehabs that we can handle at one time, but he leads still come. When this happens industrious investors become wholesalers. I think that the wholesaler is the one of the most missunderstood person in the pantheon of real estate investing. I dissagree with most of the "guru's" out there that tell newbies to start out wholesaling. I think maybe bird dogging would be ok, but not wholesaling. My reasoning for that is fairly complex, but here goes;the most important part of wholesaling and being able to wholesale efficiently is pricing. This is what sells a house on the wholesale market. That being said, you must know the market very well to know what a house will be able to be sold for, which is where the pricing will come from.The next thing is the repairs of the property. You must have a certain amount of expertise to be able to estimate the repairs needed for a rehab. The repairs also will affect the amount that you will offer for a property, so if you do not understand this part of the equation then you will automatically set yourself up to fail. Lastly, for now is the networking side of the business. When you are getting going the hardest time to try to wholesale is when you do not have the contacts established to allow you to move a property. You will not have the contacts that will run out to a property and look at it to make you an offer if you do not have a reputation of being able to successfully find deals. Once you have built a list of investors this part becomes a lot easier, but it doesn't happen automatically. Whenever me or one of my buyers go out to look at a property we alwasy take into account the fact that if we are selling a house wholesale, the first concern is that you can get financing for your client that is interested, which means the house must come within a certain LTV. Usually that LTV will be 70% or less. That being said we have to buy below that number to make any money. So we start at the comparisons and figure out what it will sell for when it is rehabbed, then figure out what the rehab will cost, then back out the profit that we would like to make, and that leaves us with the purchase price that we will offer. A few other thoughts on wholesaling;Deals are found much easier by using a wholesaler. You must find a wholesaler that is going to mesh with what you like and what your personality is. This is a relationship if you are going to buy consistently from this person and you will not get along with everyone so choose wisely. Once real estate investors get the idea that wholesalers are not out to screw them, but to move their own inventory to the investor so they can make a profit, they will see the benifit that they bring to the table.As wholesalers we are like Wal Mart the low price leader. We buy low and sell low, much like when car dealers wholesale cars. Basically, if you are a newbie investor the best thing you can do to find your first few deals is make friends with your wholesalers in the area. They will do all of the leg work and searching to find the deals and you will pay them a fee for it, but you will get your houses and be in the business much faster than if you wait around for your poor version of advertising to get you a lead that you do not know how to work, and if you go out you will not be able to negotiate with because you are so nervous. Most wholesaler's bad deals will be better than what you can get on your own for the first year of your business. Here is one last thought on using a wholesaler in your business as a beginner, screw up potential! I understand the desire for capitol when starting this business, but it is a lot easier to cover mistakes when you are retailing. The profit margin is much higher and can compensate for your mistakes as a newbie. If you have 24k in spread for example, you can make a bunch of mistakes to come up with the 24k and still break even. Not what you would like, but at least it is not a loss. You are going to make mistakes, but make them when you see the numbers and they come from a pro, not from you as a newbie, possibly trying to force a deal where there is not one. So rely on your local wholesaler to help you get going, the good ones want to see you succeed, because you will buy more houses from them.