Wholesalers! If you were starting again. How would you?

Question

Hello!  I am getting started in real estate and after listening to a number of hours of the bigger pockets podcast, I am very interested in starting in wholesaling and then moving into other areas.  I am in the suburbs of Chicago and mostly interested in the Joliet area.

So as a new person who is literally putting one foot in the door, looking back, if you were me...at this moment...what is the one thing you would have told yourself; or done differently?

Thank you in advance for the help! :)

-Jason

Aaron Mikottis · Answer

Hi from Joliet!

If I were you in this moment I'd forget about wholesaling. (Sorry) Why is that?

To be a good wholesaler, you need to be an expert on:

- Finding Deals

- Negotiating with sellers

- Estimating ARV

- Estimating Repair Cost

- The specific market you are farming

- Finding end buyers

- The legal ins and outs of wholesaling in Illinois

In other words, you really need to have your act together as an investor before you will be very successful in this industry. Why would you start there? The market is already saturated with "wholesalers" who know nothing about repair costs, local markets, and inflate the ARV beyond reason while pitching "deals" that they have no legal right to. I assume that your heart is in the right place, so I ask...

Why not just become an expert on finding genuine deals in one market? Stick with me for one second...

I can hear you right now - the reason is MONEY. You can't afford to buy all the great properties that you are about the come across. But please take me seriously when I say that IT DOESN'T MATTER. If you can bring a real, good deal to an established investor and say, "Would you be interested in partnering with me on this property?" chances are extremely good that the answer will be a resounding YES.

All of a sudden, your financing problems are gone, you have an expert willing to show you the ropes and teach you the entire process from close to rehab to leasing up a tenant, and your risk is cut in half because you are sharing it with another party. Actually, your risk is cut by more than half because your partner knows what they are doing and will help you avoid red flags and bad deals. You are required to be an expert in only three areas instead of 7 (Knowing the market, finding deals, and negotiating with sellers) and you have already hit your end goal of owning an asset and making monthly passive income.

Why not start at the top of the food chain instead of the bottom? Access is easy if you can just provide value via a deal. As a side note, networking is extremely important regardless of what path you choose to take. I run a monthly Joliet specific meetup - I post events on BP and please find us on Facebook under "Joliet Real Estate Investors" - hope to meet you out there sometime!

Feel free to send me a message if you have any follow up questions.

Aaron

David Dachtera · Answer

@Jason Groh,

Both John and Aaron have made excellent points.

In order to bring great deals to investors who want them you must FIRST understand what makes "a great deal" great.

Too many are drawn to wholesaling lured by the idea of getting paid without having much to start with. This puts many inexperienced and uneducated people into positions which cause the local officials and legislators to seek ways to limit them and thwart their activities, which limits the entire REI industry.

It's just the system responding to the bad stuff, which it should.

How can you bring "a great deal" to an able investor if you yourself don't know what makes a deal "great"?

There is education out there to be had without gurus and without the BS, and you could even make back your tuition on your first wholesale deal.

Once you've learned how to find a great deal, you hold "the keys to the kingdom". Not only will a great deal be easily assignable (or re-salable, if you need to do the back-to-back closings thing where you are), once you have a great deal, others may come to you seeking to partner with you on your deal(s) or even seek out your expertise to help them find great deals. A great deal attracts money and other resources.

Do what everyone else does - try to wholesale without knowing what you're doing - and you'll get what everyone else gets. That's the definition of mediocrity.

Do what others won't do now and later on you'll be able to do what others won't have the opportunity to do.

My $0.02 ...

Joshua Martin · Answer

Not much, it seems to be going pretty well.

If you were starting out though, I'd recommend getting a RE license. I find it baffling that wholesalers don't do this. It adds massive credibility and legitimacy to your operation and allows you to give a seller many more options than a low ball cash offer (which cash offers have to be).

Good luck!

John K. · Answer

@Jason Groh

While I agree 100% that you shouldn't limit yourself to one exit strategy, I will try and answer your initial question.To really separate yourself from the other 10000 "wholesalers", you need to think professionally. The wholesalers that have a very successful business, have worked tirelessly to try and perfect every inch of their business. 1. They are data processing junkies. They never send out one piece of marketing, without a really good idea on how that campaign will work. They will never settle on one strategy. 2. They spend approx. 75% of their time doing nothing but marketing. 3. They have become experts at "listening", rather than talking. The art of buying houses comes down to solving a problem, you can find that problem if your mouth is moving. As the saying goes, "there is a reason we have 2 ears and 1 mouth".

4. They value networking like they value their own family. You never know when someone will call/email and say, "I have a lead".

5. They seek relationships with a few motivated realtors. Why?  There is nothing you can do starting out, that gives you instant credibility than a property accompanied by a professional CMA. On the flip side, there is nothing that destroys credibility faster than just providing 5 addresses and their LIST price, not SOLD price. Not to mention, this is another potential exit strategy for you, albeit less cash.

6. They invest in a quality camera and not try and take pictures on a cell phone. The pictures are the 1st impression of that house. There is nothing more frustrating to open up an email of pictures that you can't make anything out. There should be at least 35 pictures, depending on the size of the home. Those pictures should include everything that is wrong, not left out to be discovered on the walk through. Again, credibility.

7. They vet their buyers. Wholesaling properties is not about collecting emails, it's about collecting buyers. It's very frustrating for a cash buying investor to see the same property, with 5 different prices on it. Most of the time they will just opt out of your emails, at that point. Make sure you know you are sending out to actual buyers, not other "wholesalers".

8. You have a real exit strategy, for those properties that don't sell. I know the popular opinion is to just "tear up the contract" but it is certainly not morally correct. You may be causing a family serious stress by telling them you can sell it or you're going to buy it, only to walk. It's your reputation and all it takes is enough complaints on your facebook page or reviews on your website, to start undoing your hard work.

9. If you are going to offer repair numbers, make sure you know the general ballpark costs of these things. This is always a dangerous approach, because you can't accurately predict what someone else will pay to have repairs done.

10. Become a time expert. Find ways to increase your efficiency, or you will spend a lot of time doing nothing.

11. Pay attention to the chatter. This falls inline with marketing, but if you hear investors talking of a different location, you have to be there. Don't pigeon hole yourself to one market, because it's the largest in your region.

12. Don't be a fly on the wall. Attend meetings and glad hand with the movers and shakers. They may or may not receive you warmly, but bring a DEAL to that meeting. Make sure the package is complete with CMA and photos ready to load up from the cloud and dare them to say NO. There is a room full of investors, someone will bite.

At the end of the day it's about professionalism. If you maintain your morals and strong ethics, you will never have a shortage of buyers. As the saying goes, "If you have a really good deal, the buyers will find you!"

Best of Luck!John

Caleb Heimsoth · Answer

@Jason Groh I agree with Aaron.  I vote don’t be a wholesaler unless it’s a secondary thing like you looking for leads to flip or buy as rentals

Anthony Dooley · Answer

Don't start out as a wholesaler. Learn about different exit strategies, especially holding, in order to help different people in their situation. Wholesaling is fine, but it's only one exit.

Wholesalers! If you were starting again. How would you?

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