New to investing, need help starting out. Wholesaling best bet?

Question

Hello BP members, my name is Shawn Allen. I have recently became interested in real estate about a half a year ago. I haven't invested yet, mainly because I don't have the capital and I don't have the knowledge. Would wholesaling be a good start? Should I focus on just wholesaling while I begin my adventure? All feedback is appreciated.

Respectfully,
Shawn Allen

Nicholas Armstrong · Answer

@Ray Lai My mindset going into the Direct mail was to be as targeted as possible as to not waste any time. I valued quality over quantity because I was still working my J.O.B.

So while everyone I knew was mailing 1000 Pieces a week and getting 8-10 call backs I made the decision to figure out how I could mail 100 and get the same response rate or more in most cases ;)

As for lists I mail many different ones. But the one I have had the most success with is:

Absentee / Preforeclosures with 75-100% equity

I also add filters like min/max sq/ft and min/max bed/bath and age of home that I want to flip. That way when someone does call me I know it is a property I will most likely buy if the price is right. (Time = Money)

I see things all the time about how many pieces of mail you need to send a month to have a successful campaign and it's just simply not true. If people were willing to put in the work upfront and strategically mail yellow letters you'd be surprised at the call back rate.

I also give a TON of credit to my actual yellow letter product itself. I do everything in-house which gives me an advantage.

If you'd like anymore info on this shoot me a DM and we'll connect.

I'm actually about to put together a video tutorial on how I do my letters, I've taught 2 people in 2 different markets how I do my letters and they get the same response rate.

Nicholas Armstrong · Answer

@John Thedford As I said before, not as familiar with Florida's laws as I am with mine. Haha, But I do know several people in Florida that don't have any issues with it if they double close it to other investors. I think we're talking about two different wholesale processes?

Nicholas Armstrong · Answer

@John Thedford I agree with you there. Making sure you are operating legally is obviously  the biggest concern. My understanding of the law though, is that if you have vested interest in a property you have the right to advertise that said property. I have no idea if that holds true for every state, but I would assume in most places that law would hold true. I am almost positive that is the law in Florida? I could be wrong though and there may be some recent changes i'm not aware of. If you do anything @Shawn Allen do what this guy is telling you.. do NOT buy into the Guru thing. You can find much better advice on these forums than you ever will anywhere else.

As for the "act of deluding sellers into thinking you will buy the property when in reality you actually have zero intentions of doing so" I agree 100% and I think people need to take a hard look on the ethics of that process. As for saying that looking for a lender is a better way to start building income, I disagree. (Especially considering you are a lender) ;) just poking fun. I love my Lenders..

With all that said, this is my biggest point.

I think that as an investor that is just looking for a place to start, locating and evaluating SOLID deals is where anyone should start. If you have 100k to play with that's great! But if your lender is charging 12-18% and you don't know how to locate deals or even what a deal looks like you're losing money..

Start with a finding a solid deal, and money will follow. I guarantee it :)

As an example,

@Shawn Allen I think @Paul Choi was hinting that he was looking for a deal in your area.. Find him a deal and the money may follow!

Nicholas Armstrong · Answer

@Paul Choi Thanks! It was not the norm that's for sure, but as you said it happened out of much due diligence and strategy. Specifically 6 weeks of due diligence haha :)

Just as a disclaimer I am not a wholesaler by any means, but I do a very targeted yellow letter campaign that has worked great in my area for flips. Where I invest, I can only assume, is a completely different market than anywhere in California. So our numbers may differ because of that.

When I began my campaign, money and time was very limited. So I did the only realistic thing I could do, the minimum. List source requires a minimum of a $50 purchase and using the filters I used, it added up to about 300 addresses. Again, my target was extremely specific and I stuck to mailing 100 pieces a week pretty strategically. The material I purchased on Amazon and including postage it cost 54 cents/piece for my yellow letter campaign.

Before I was halfway through my first campaign I got my first deal, and since then I have bumped it up to about 300 per week. So including my $25 printer I had to buy, I was all in at $95. Which ended up yielding a 25k return. But here is a secret.. my call back % is almost 10X what most people's are. When I was sending 100 per week I would track my calls. Out of every 100 I would consistently hit 15-20 call backs every week. Some were just interested in finding out more information (Which can still lead to other leads) but most where actually in need of selling their home. This may seem somewhat unrealistic in some markets, but it is the product of knowing the market and being very strategic with my marketing investment.

My call back ratio has decreased somewhat, to about an 8% call back rate now. But I am sending more letters in less specific targets. Probate lists are something I am testing as we speak.

@Shawn Allen Moral of the story is if you don't have much money to work with, then obviously more time will be needed to bag a deal. And, if you're like me, you don't mind spending an hour a day to send out some letters at least to get your first few deals. Once you actually start making money, then I suggest you outsource so you can focus on growth. The key to any direct mail campaign is to understand that you HAVE to be consistent with it. And yes I completely agree with @Paul Choi You have to invest some money into it. But just be sure you're being intentional and not throwing noodles at the wall to see what sticks.

If either of you wanted any more info on my DM process I'd love to help in any way.

Good luck!

Paul Choi · Answer

@Nicholas Armstrong Congrats on your success!  I agree that bagging a deal on the first mailer is not the norm but does happen with some good due diligence and strategy.

4 cents per letter is great but I think it might be misleading not to include postage costs.  I mean, you are spending money to buy postage right?  Unless you drive to each property and hand deliver it, then you have to include the cost of gas :)  My point is that it is important to sum up ALL costs, small and large, to assess ROI correctly.

When I said a wholesaler typically needs a couple of thousand dollars to start, I was speaking in general terms.  Here's a general breakdown:

- Targeted list (owner absentee, pre-forclosure, etc.) - Gotta get the list of seller from somewhere. Some go to Listsource, some have other sources.  Maybe past due tax bills from the County (cheaper but requires alot of time). That's a couple of hundred $$.

- mailing campaign - letters or postcards or whatever.  typically 40 cents to 70 cents each, including postage.  If your targeted list is lets say 500-1000 addresses, that's anywhere from $200- $700 for each mailing campaign.

- Most send out a mailer to that targeted list every few weeks. If we say once a month, that's a couple of thousand right there.

There are other posts in BP that show the average rates of return, such as for every 1000 mailers, you get around 40 calls, and from that 40 calls , you land 1 deal.  It's usually the 3rd to 5th mailer that yields a deal.

Of course this is generalizing here and costs can vary widely.  For example if you do alot of the leg work yourself, such as doing things in-house, you save money but not time.  Some have less time and spend more money as a trade off.  I follow the latter because I don't have much time.  I can identify 500 addresses that fit my criteria in a region, pick out a postcard or letter and have it all ordered and mailed in less than an hour.  Sure I spend 60 -70 cents per mailer including postage but I save time to work on other deals.  Gotta spend money to make money.

@Shawn Allen Good luck!

Brian Pulaski · Answer

@Shawn Allen if you have little to no experience, how do you plan to land the deal, and then market to investors? Do you know how to budget for the rehab needed, to determine the ARV, to create a scope of work that you can then price up and pass along the info to your end, cash buyers? How will you know you are landing a deal, unless you can review the deal yourself, make sure it has enough meat on the bone for the investor you sell it to, as well as enough meat on the bone for you to make money. Also what happens if you don't find a cash buyer, will you purchase the home, or will you leave a clause that you can back out of the contract if you can't find a buyer?

Antoine Martel · Answer

Learn as much as you possibly can. If you don't have enough capital to deploy then find someone who has capital who you can partner with on your project.

Ray Lai · Answer

Nick - those are some great response rates, thanks for sharing the #s - those are sexy haha. Was wondering if you could elaborate on "my target was extremely specific"? Also, what type of list were you mailing?

John Thedford · Answer

If they are marketing properties they do not own they are brokering. They have to do this under the cover of night because they know they are committing a crime. On the other hand, if someone purchases and then resells no license needed. "Wholesaling" is often a term used by unlicensed operators. I think "flipper" would be a better term to describe some of them. However, if they are licensed, they can call themselves anything they desire.

John Thedford · Answer

No sir. One cannot advertise properties they do not own in FL unless licensed. This has been expressly addressed in the statutes to put an end to unlicensed brokering. The relevant statute is 475.43. This may be the case in other states as well, and many are cracking down on operators skirting laws to broker without a license.