Any Tips or Admonishments from experienced wholesalers?

[Timothy J Wagner]

Hello and good day to all who read this, my name is Timothy Wagner and I am a newly licensed real estate agent in the state of Texas. I would like to invest in real estate myself sometime soon but I need more capital. I've heard my colleagues mention wholesaling as a good way to build up capital fast, and I'm curious what you all have to say about it, any tips, advice, admonishments? Would you even recommend it in the first place? Thanks!

[Ke Nan Wang]

I have never been a wholesaler but I work with many wholesalers and are friends with a few wholesaler who run a successful wholesaling team in town so I might fit in the category of "I don't have to have eaten pork to have seen a pig run." 

In my opinion, many traits that would make a successful real estate agent can translate to being a successful wholesaler. Real estate agent transacts mostly retail properties where wholesalers mostly transact distress properties or vacant land. Their target buyers are flippers and investors. 

Here is the process (keep in mind, you can be the one person whom does these all, or outsource or have in house employees to do these):

1. Lead Gen: most successful wholesaler I know outsource lead generation. There are companies who will offer lead gen services at a far more efficiency than a single person. For instance, direct mailing. It may take a person average $0.5 material cost (card or paper and envelope, ink and postage) and plus whatever cost they view their labor cost is to send one mail out. And there are companies out there to help you send one mail out for $0.4-$0.5 and all you have to do is give them the parameters (zip code, city, etc.). They usually start out at 500 minimum per batch. Other lead gen methods are cold calling, social media, SEO (direct people who google "sell my house fast" to your website), signs and bill boards, and whatever methods you can use to let people know, YOU ARE BUYING PROPERTIES AT A DISCOUNT BUT WILL CLOSE FAST WITH CASH. The successful wholesalers I know spend about $10k to $30k a month to generate leads for their sales team to work the leads. Typically they need to do one or two deals a month just to breakeven from their marketing expenses. The successful ones do somewhere between 6 to 12 deals a month. 

2. Offer, the pitch. So once you get the lead, make contact with the lead, be prepare the lead can suck. Qualify the seller quickly on the phone and schedule an appointment to see the property. I think for someone who's starting out, that person can expect 12 to 1 appointment to closing conversion ratio and someone who's expert at it maybe 6-8 to 1 lead to closing ratio. You basically go see the properties, use the formula: ARV x 0.7 - improvement cost - assignment fee would be your offer. Now here is the battle, usually that number comes out to be around 30-40% of ARV. To many sellers, that could be a sticker shock. There are many scenarios can played out from here but a good wholesaler would negotiate respectfully and still stand firm on their ground. If it's unrealistic and not a good fit, they would not be hesitant to end the conversation on a good note and move on to the next lead/appointment. You would think, who in the right mind would take a 30-40% of ARV offer? The answer is more than you think. Many people are in all kinds of situation where some quick cash is way more important than hold on to a destress property that's not doing anything for them but causing pain.

3. Closing the transaction and exit. Once you and the seller sign a contract, now you have the options to either keep the property yourself, do flip or long term hold, or assign it to someone else if you don't have the capital to flip the property. You need to have a person to dispose the property for you, someone who has a connection to cash buyers and flippers. 

That covers the wholesaling process, besides sales skills, the successful wholesalers in town always value their reputation and relationship over anything else. This is not a regulated industry, so anybody can be a wholesaler. If a wholesaler screws around town, the big players will learn that very quickly and will stop dealing with the person. A good wholesaler that never runs out of buyers are the one who always disclose everything and do what they say. 

From my perspective as a potential buyer or a real estate agent who represents a buyer, what I am looking for from my wholesaler partners is that they bring me deals that fit our buy box consistently, always disclose everything they know and can close deals on time. The wholesaler usually understand construction and development so they know what potential issues we might run into for a property and they make sure to check those out for themselves or they let us know that this could be an issue. I typically let my wholesalers make $15k-20k assignment fee per property.