Why Should You Buy From A Wholesaler?

Ok, this is another question that comes up all of the time in this business as well. Everyone gets into real estate and thinks they are going to be like the guru that they “learned” from and are going to start finding houses everywhere they look. Most of them think that they are going to go home and call a realtor and the realtor is going to say “hey I have a boat load of REO’s that are pennies on the dollar, let me show them to you”. When that doesn’t happen they get discouraged. Some of them do start to come around somewhat and try to figure it out, but a lot of them start to give up at the first no from a realtor. Ok, so while we are on the subject of realtors let’s go ahead and go there. Yes you can deal with realtors and be successful at it, just not with EVERY realtor. Most realtors do not like investors because of the low ball offers that we make them present. Others think that we are all shady, and cannot close or just want to get rich quick. You have to earn your place in the eyes of the realtor, and when you do you will get some deals that are good, you just have to keep the communication lines open and tell them what it is that you are looking for. Remember they only make money when you buy something from them, so they will shoot you deals if they think you will buy from them. So make them your friends, just realize it will take a special kind to sell you investment property, for example don’t go to the junior league mom that is a realtor and sells 400k houses to her friends, she won’t call you back about the junker in the hood that you want for your rental portfolio.So why should investors deal with a wholesaler? Well the first answer is because of the knowledge level from a pro that is in the business. But the next reason is because of the amount of work that goes into each house that is put under contract. Check out some numbers that I have observed in my business;We get over 120 leads per month, that being said, we buy a house every time we go on 8 appointments. It takes roughly 16-20 leads to generate those 8 appointments. How many people need to see our advertising to generate a lead? Wow, I don’t have all of the answers, but I do know that we have about a 2-3% response rate on our direct mail if that is any indication. This means we will mail 300-500 pieces of mail to get those calls, now sometimes it is better than that, but we like better. So now we have the lead, what goes on from there? Well we then have to pull comps on the property and see what the area around the house will bring. Once this is done we have to go to the appointment and drive the comps to see what houses are most like the subject property. once we have determined the appropriate comps for the house, we then meet with the seller. Now I don’t know what you think about sales but let’s talk about a serious sales job. Try telling a seller, that knows what the neighbor’s house across the street sold for (they think and theirs is always bigger or better right), that their 100k house needs to be sold to you for 55k or less. Now that is a sales job worth talking about……in another blog. Anyway, you have to sell yourself, your company, your ability to satisfy their needs, and a variety of other issues like when do they have to move etc. To say the least, this is a side of the business that has a heavy duty learning curve. I have always said that my buyers go on more appointments in a month than most investors will go on in a year, sometimes two! So they have an advantage over the “average” investor from a negotiating standpoint. While negotiating they also take into account the rehab side of the business, because to get a true value you must be able to figure out the amount of money to be spent on rehab. This gives you an as is value when subtracted from the ARV (after repair value). Now all investors differ from this point out, some want to be in a deal at 70%, some want as low as 50%, but we go off of what our buyer will pay us for the house to determine the amount to offer. To give you some idea of what we deal with, I have 2-3 full time buyers running in our program at all times going on 10 or more appointments a week at all times. We market for the leads, we look for deals, we go to the houses, negotiate with the seller, and provide a lot of information to the buyer. All of this before breakfast time….not really, but it sounded good. Now compare that with your garden variety investor that has a job. He works 8 hours or more per day, goes home and surfs the web looking for a deal and calling and emailing a variety of realtors. Next he finds the “new” listing that nobody else knows about(right?!?), and calls to set up an appointment to look at the house on the weekend. When he gets there he takes some pics and looks around then goes back home to think about it and get back to the realtor about an offer. He calls his brother in law that is a contractor (was unemployed last week) and gets a number after a day or so that will represent the amount it will cost him to rehab the house, and then calls the realtor. She informs him that he will need to give her earnest money and come put the offer on her contract (that does not even come close to applying to investment property, more on that later), which he does, but by the time they get the offer in, surprise they already have another offer that has been accepted, but his will be in second position. Wow, I am not sure why more investors don’t buy a lot of house this way!*As a side note let’s talk seriously about REO’s in the market. First, do you know your states foreclosure law? If not stop right now and go to the google search engine and find it asap. Most states have some portion of time between the notice and the sale, some are short timeframes some are longer, but there is time nonetheless. During this time the people that are getting foreclosed on will try to sell in most cases to avoid losing their houses without receiving anything. In most cases there are many investors out there that market to these people so they do have quite a few options. Next there are a gang of buyers at the steps of the courthouse that buy foreclosures as well (very dangerous, more on this topic at a later date). So, once a property gets to the REO listing side there are a bunch of REO agents that have lists of buyers that are there preferred clients that hear about the properties before anyone else. Now we get back to the “regular” investor. After all of these steps are complete and satisfied the property is on the MLS for the average armchair investor to buy. Wow, do you wonder why it is not as good of a deal as what the guru told you? All of these factors come together to mean that you will have a hard time making a deal out of these MLS properties. It doesn’t mean that you can’t, it just means that the deals are fewer and farther between, but it is a method of buying that you should track, but not your ONLY method or method of choice. That is my 2 cents on the MLS/REO situation in the market for now, but back to the topic at hand.*The seasoned investor that knows better will put his name out there with realtors by using them to sell their retail flips, and will get leads from time to time, but they have their friendly neighborhood wholesaler on speed dial. They go to lunch with them every other week or so, and talk to them on the phone on a regular basis. They make sure that the wholesaler knows what they want in a house and they keep in touch. Surprisingly once or twice a month they are able to buy a house in the area that they like, and at a price that is much better than what they have the skill to negotiate at this point in their career. Meanwhile they are fixing properties and renting and selling them like hotcakes. There will come a time where the investor will learn more about negotiations, and find properties, and maybe even not need the wholesaler as much, but they will still talk and do some deals together at least once in awhile, and every now and then the investor will buy a house from the wholesaler. I know this sounds a little like a fairy tale, but it happens day in and day out, to the tune of 60+ houses for me last year. We put more time into each deal than the investors ever can, and we give them sqft numbers, estimated rehab costs, comps, even potential rental amounts. Much much more than anyone else can provide in the market. We even do what we call eliminating the no’s. We will help our investors by referring them to our bankers and hard money lenders that we like to deal with. We will give them a list of contractors that we deal with as well. We will even help them learn about missing aspects of their education. Anything that may make them say no to the deal we take care of upfront. This stops the procrastination in your investor pool. Eventually you will have investors that “get it” and they will call you a lot, which helps because they will help you train your other investors, by taking the good deals FAST and leaving the procrastinators in the dust. It doesn’t take too long before your investors will start to move a lot faster after your deals. Once they understand that they can do a lot less work and still get deals, in fact better deals than what they can get themselves. They will start to use the wholesaler model a lot more.