Wholesaling 101

Ok now I have an editor........well not officially, but my buddy Justin Anderson, who is a great real estate investor in his own right, edited my wholesale articles in to a couple of shorter snipits that I will include here as well.

Wholesaling 101

Wholesaling is the one of the most misunderstood segments in the pantheon of real estate investing. As wholesalers we are like Wal Mart the low price leader. We buy low and sell low. Basically, if you are a new 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 business much faster. There are 3 key things to look at when evaluating a wholesale deal:

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 effect 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.

3. Next 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 one of my buyers or I go out to look at a property we always 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. Obviously as a wholesaler, 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.
Wholesale Buyer Mindset

When you deal with investors during wholesale transactions it is imperative to build a relationship. As wholesalers, you have to be the eyes and ears on the street for the investors that you supply property to. That being said, you have to have some knowledge of the market so that you can supply the necessary information for your investors to make educated decisions about buying investment property. You become the “go to” for their real estate needs in the investment business. So the natural progression in this type of a situation is for you to get to know your buyers. I always call this “order taking”.

For example if I talk to “Joe Investor” on Monday and he tells me that he is looking for a house in West Mobile and he wants it to be a 3/2 that needs paint and carpet. On Tuesday I go on a lead on a house in West Mobile that is 3/2 and needs cosmetic updates, so I call Joe when I back out of the driveway with the contract in hand. I tell him about the house and the details and name my price. At this point there is a good chance I will sell the house to Joe because I have superior knowledge about what he is looking for. That is a very different situation than if I blast an email out to every single investor that I have ever met not knowing anything about what they want.

A few questions to ask yourself when dealing with investors in these types of situations;

What is the area that the investor buys in? Most of your investors will have areas that they like and areas that they do not. Most of them need education in this area as well, by having rentals of your own; you can give them some personal experience regarding good areas.

What type of houses do they like? Brick only, wood ok, siding etc.

What type of rehab is acceptable for the investor? Some investors are intimidated by certain types of rehab like roofing or foundation.

What is the pricing that is acceptable for your investor? As cheap as possible is not the right answer here.

How do they get their money? With lending being what it is nowadays this could be the most important part of your questions. A cash buyer will normally demand a better price than other investors, and there are certain lenders that have LTV(loan to value) limitations that will determine the price that you can charge that particular investor. Cash questions are imperative in the rehab projects, your buyer will need a certain amount of cash to start the rehab even if they have a loan, so this question, although touchy, is necessary.

Remember that your investors are like a book of business, and you must take care of them, so that they will buy from you repeatedly, not just once. You do this by building the trust that they have in you, and by being able to help them achieve their goals. This is not a one time sale and off you go on down the road, this is a service after the sale situation if there ever was one.