Advice to Wholesalers / Deal Finders - Get Started Step by Step

[Tucker Cummings]

I see plenty of threads that bash wholesalers or people wanting to get started by finding their own deals. It's quite a shame that we respond to people who are inspired by capitalism and the American dream by treating them like their second class in real estate. Everyone starts somewhere, and people have forgotten that. So I'll make this thread/post in hopes of actually offering something constructive to anyone that wants to get started in finding their own deals. 

First, understand that wholesaling is THE HARDEST PART OF REAL ESTATE. That's why so few are actually successful at it. Unfortunately there are a lot of charlatans that make it seem easy. I'm not afraid to call them out, Max Maxwell & Sean Terry in particular comes to mind, who I think popularized and and social media-tized the business and made it seem easier than it is. I think if you want a good education, listen to the Carrot Podcast. They have the #1 Real Estate web hosting website, interview successful wholesalers across the country, talk about mindset and practical tactics for wholesaling/deal sourcing successfully. That out of the way, let's begin:

Step 1: Education

Before you get going, start listening to podcasts, read books and get on the BP forums. Ask questions to yourself and others, seek out answers. Good podcasts are the Carrot podcast with Trevor Mauch and the BP podcast. Good books are the BRRRR book by David Greene and the book on Flipping Houses by Jay Scott. These just help you understand the processes of real estate really well and get you thinking like an investor. You want to think like an investor, not a wholesaler. This will help you understand what your end buyer is looking for, so you know what's a good deal and what's not. This phase never really stops, you should always be educating and sharpening your skills.

Additionally it should be noted that this is the single most important step. Most of us that have been doing this a while have heard stories of wholesalers getting a preforeclosure locked up, promising to save the person from foreclosure. Turns out the wholesaler had no idea what they were doing, and the day before the foreclosure date, the wholesaler cancels the contract and walks away, having ruined somebody elses chances of keeping foreclosure off their record for 7 years. Don't be that person, get educated, build a solid business from the beginning.

Recommended Resources: Carrot Podcast, BiggerPockets Podcast, BRRRR by David Greene, Book on Flipping Houses by Jay Scott

Step 2: List Building & SkipTracing

There are two main ways you can start building a list of prospective motivated sellers. The first is by using a service like Propstream or Listsource. You would filter by certain demographics and property conditions, then download a list of properties that fit that criteria. The second way that you can build a list is by Driving For Dollars (D4$). The goal here is to drive around town and take note of properties that look like they need some love/rehab. Things like broken cars in the driveway, boarded up windows, tall grass, bad siding, tarps on roof, etc are all things to look for. Write down the address or use a service like BatchDriven or DealMachine to capture the property. Once you have your lists built, you'll do what's called skiptracing to find phone numbers and emails of your prospects. There are several services that do this, but I like to use BatchLeads.

Here are some lists you can target with Propstream: Out of State Landlords, Pre Foreclosures, Probates, Expired Listings, Divorces, Bankruptcy, Tax Liens

Recommended Resources: Propstream ($99/month), BatchDriven ($49/month), BatchLeads ($104/month, $0.14/skip trace, does both skip tracing, list building/stacking and texting for prospecting)

Step 3: Marketing

This is where you will start connecting with sellers. There are two main ways to do this, which can be broken down into further marketing methods. Those two methods would be active and passive marketing. Active marketing is time intensive, but usually lower cost. Passive marketing is higher cost, but low time needed. I highly recommend investing in passive marketing as soon as you're capable, as it will create more authority and allow you to scale. Use Carrot to build a website, start generating content and build a web presence. Use social media as well to drive traffic to your website. Passive marketing has three steps - 1) Drive Traffic to your website, 2) Convert to lead through a form capture, 3) Contact, discover, convert to deal. Passive marketing often has the biggest profits on your deals, because someone is in pain and they are seeking you out.

Passive Marketing: Search Engine Optimization (SEO), Google Pay Per Click (PPC), Facebook Ads Retargeting, Direct Mail, TV commercials, Radio Ads

Active Marketing on the other hand can be extremely difficult and go through boom and bust cycles. As soon as you stop prospecting, the deals stop coming in. It can be very tough and very demotivating to keep going. 

Active Marketing: Cold Calling, Cold Texting, Cold Emailing, Door Knocking

You don't have to use all of these methods, but a healthy mix is good to have. I do a lot of SEO/blog and video content, coupled with Google PPC, Facebook retargeting and I'll turn on a text campaign every so often when I want more deals.

NOTE: There are an increasing number of laws that prevent just anybody from sending out text blasts and cold calls. You should make sure whatever service you use is TCPA compliant and that you are obeying laws. Also, new laws coming into play allow only people with legitimate businesses to send text campaigns and require registry. You'll need an LLC and proof that you're doing business actively.

Recommended Resources: Carrot.com (website - $199/month (worth it)), BatchLeads - ($108/month - texting & skip tracing), Google PPC ($1500/month), FB Retargeting ($3/day), BatchDialer ($139/month - cold call dialer)

Step 4 - Analyze Deals and Make Offers
So you started prospecting and have some leads coming in. Now you need to analyze and make offers. Analyzing deals starts with the end in mind. Comp your properties/leads by looking at what comparable properties have sold for in the area. Use 0.5 mile radius, past 3 months, same bed/bath and +/- 10% sq. ft. You should get 3-5 comps for a property, if you don't, go further back in time another 3 months. Repeat until you have your properties. I don't recommend changing the characteristics of the property to comp, as these can be wildly different and make your comps inaccurate. Also, make sure you are staying within your target neighborhood - don't cross double yellow lines on the road.

Taking all your comps into account, multiply the square footage of your target property by the average price per square foot of your comps. For example, you have a 1200 square foot house, your comps say that people are paying $100/sq. ft. your after repair value is (ARV) is $120,000.

Next you need to have a discount factor in what most people are looking for in these deals. IN today's market, it's super competitive and people are willing to leave a little money in the deal for rentals or take lower margins for flips. I multiply the ARV by 84%. So in our example, $120,000 x 0.84 = $100,800. But it doesn't stop there..

The next step is to factor in a repair factor. I do a quick and dirty square footage factor based on the level of rehab the property needs. I'm not a contractor, and don't intend to be. You just need to be in a rough ballpark. If it's just paint and floors, multiply sq. ft. by $8. Paint, floors, fixtures, extra cosmetics - $15/sq. ft. Paint, floors, fixutres, extra cosmetics and 1 capex (roof, HVAC, siding, etc.) - $22.50/sq. ft. Paint, floors, fixutres, extra cosmetics and 2 capex (roof, HVAC, siding, etc.) - $30/sq. ft. And if it's a full gut - $35/sq. ft. Whatever you come up with you will subtract this from your last number after the discount factor.

So back to our example again, let's say you need the extra cosmetics ($15/sf): $120,000 x 0.84 = $100,800 - ($15 x 1200) = $82,800

And lastly, factor in your minimum wholesale fee. I use $5,000 and will subtract this from the previous number. This will produce your Maximum Allowable Offer (MAO).

Last time to this equation: 

$120,000 x 0.84 = $100,800 - ($15 x 1200) = $82,800 - $5,000 = $72,800. 

If you can't negotiate down to your MAO, cut your losses and move on.

Once you have the deal under contract, go ahead and send the purchase agreement to a reputable title company to make sure you don't have anything going on with the property that will need to be rectified prior to selling. Ex-spouses, inheritance documents, other weird stuff are all things that can get cleared up in title.

Step 5: Finding Cash Buyers and Disposition

Congrats! You've got a deal and now you can assign or sell the contract. Remember, you are not selling a property, you are assigning your equity away in a contract. Now you need to find someone who will buy the deal.

The easiest way you can do this is buy pulling a list of cash buyers by using Propstream. The same way you pulled a list and skiptraced in step 2, you will do here. Look for people making cash purchases of property in the past year. Some will be homeowners, many will be investors. Skiptrace them and start calling, texting and emailing them with your deal.

You can also put it on Facebook in investor groups in your area to generate interest and capture more potential future buyers. You can also use Redfin, realtor.com and zillow to find agents in the area that might represent cash buyers. Once you get contact information, log it in a spreadsheet and use them for future deals. 

After you've got the contract assigned to a buyer, you'll send the contract to title and you'll be ready to close!

Step 6: Close and Revenue Distribution

Deal is closed, you got your assignment check in the mail! Congrats on the first deal done. DO NOT blow all your funds on something stupid like a boat or dranks at the club. Take some profit and reinvest appropriately. A great book on this is called Profit First by Mike Michalowitz. Here is how I recommend breaking it up for a $5000 deal:

• 25% - Taxes ($1,250)
• 20% - Owner Income ($1,000)
• 30% - Marketing & Operating ($1500)
• Variable - Operating Expenses (dependent on your scale, pays for your software and services)
• Remaining - Savings/Rainy Day Fund - build to 6 months expenses in cash. 

From there, rinse and repeat. Please know this is a tough business, it's not as easy as it seems. It's hyper competitive and is a price determined business with a low barrier to entry... which makes a poor business in the long term. That said, it's great to get you started. If you have no money, you'll have to go the more time intensive route of driving for dollars and prospecting. It can be very demanding and long hours to get that first deal. But if you get one deal and reinvest appropriately, you can scale and start keeping deals for yourself.

I hope this helps and is constructive! Good luck on finding deals!