New wholeselling & Flipping business - Are we on the right track?

Question

Hi all!Thank you for taking the time to read this and chime in, your opinions and advice are welcomed and appreciated :)My business partner and I decided to start a wholesaling business in order to grow our flipping portfolio, but the deeper I go down the rabbit hole, the more I realize the wholesaling business could easily be THE business to focus on. Regardless, we will be doing both.We started out by getting a logo done (99designs did an EXCELLENT job in my opinion), building a web page, phone numbers and vmail setup, driving for dollars and we are sending out the first mailer this week. We plan to target: Absentee Landlord, NoD (Notice of Default), Building Code Violations and Tax Delinquencies. We have obtained contracts from other BP members who wholesale in SoCal and have a few title companies to use (we both are real estate agents as well).Our KPIs are as follows:- Mailers sent each month- Conversion rate from mailer to call- Conversion rate from call to appointment- Conversion rate from appointment to deal- Addresses obtained from driving for dollarsThe main focus will NOT be on getting deals done, but reaching out to more people. In my experience, the noobie investor/sales person/etc can keep up with the expert if he/she can solicit more clients. Skill level will eventually increase and conversion rates will rise, but the best focus is quantity in the beginning.Once we get a few deals under contract, we will cherry pick the flips that make the most sense for us based on experience level (what we can confidently handle) and profit margin. From there, we will be looking to expand and delegate tasks out to VA (virtual assistants), employees or partners.Let me know what you think, tips, advice, red flags, etc. Also, if there is anyone in the SoCal market who is already a wholesaler and/or flipper and would like to partner on a deal or two in the beginning, I am more than happy to split a deal and cut the learning curve significantly :)

P.J. Bremner · Answer

@Robin HallKPI - Key Performance IndicatorIn any business, you must watch your KPIs if you want to ensure you are being as efficient as possible. The reason you track these numbers is to diagnose areas where your process is broken. For example, if the industry standard for response rate is 5%, and you send 2,000 mailers and get only 20 responses, then your response rate is 20/2000 = 0.01 or 1%. This means that there must be something wrong with your mailer OR something wrong with your list because you are getting 1/5 of the responses that most people get. The overall goal is to stay within margins here. I'm going to use fake, arbitrary numbers here that are NOT accurate, but they will allow you to get an idea of how powerful KPIs are when you track them religiously.Response rate: 5%Appointment rate: 25% (when someone responds, you book an appointment to see their home)Offer made rate: 50% (when you show up to someone's home, you actually make an offer)Property under contract rate: 25% (Your offer is accepted)Deals closed rate: 75% (Your active contract is sold either to yourself to flip or to another investor)Using this structure, we can find out what to expect for every campaign we put together:2,000 mailers -> 5% response rate: 2,000 x 0.05 = 100 phone calls100 phone calls -> 25% appointment rate: 100 x 0.25 = 25 appointments25 appointments -> 50% offer made rate: 25 x 0.5 = 12.5 offers12.5 offers -> 25% contract rate: 12.5 x 0.25 = 3.125 contracts3.125 contracts -> 75% deal close rate: 3.125 x 0.75 = 2.34 dealsSo to sum it all up, every 2,000 mailers you send, you can expect to close a little more than 2 deals. If you find that you get 5% response rate, but you cannot close the appointments over the phone and your appointment rate is 10%, then you are throwing your money out the window and must invest in phone sales skills. If you have a lower contract rate, then you probably have issues with closing the deal in person and it would help to invest in closing techniques and skills. If you are contracting way above the average rate but closing far fewer of the deals you contract, then you probably are not structuring the deals properly and should go back and look at what numbers are not accurate. Is the ARV good? Rehab costs legit? Is your buyers list not extensive enough? If you do NOT FOLLOW YOUR KPIs, then you most likely will not succeed in the long run. Any success you have in the short term can be chalked up to getting lucky here and there (broken clock is right twice a day kinda thing). Just remember, no matter what business you go into, find out what KPIs you have to follow and NEVER let them out of your sight :)Also, knowing what to expect from each wholesale campaign will allow you to create projections for profits and let you know what to invest in order to get the desired returns. If you want to close at least 1 deal per month, then based on the numbers above, you should send no less than 1,000 per month. If the average deal nets you $10,000 then you can figure out what your overall profit would be. If it costs you $0.70 per customer (buying the list, sending the mailer, postage, etc.) then you can expect to spend $700 to earn $10,000 and your net profit without any of your own labor cost is $9,300. Personally, I would ALWAYS account for your own labor in this number so that you can plan your personal exit when you grow and replace yourself with an employee. That way, your business is already profitable WITH AN EMPLOYEE structured into the deal. So lets say you pay someone $10/hour and they spend 40 hours per week, 4.5 weeks per month to get you that 1 sale, you would have paid $1,800 in wages for your employee to get you the deal. Now your real net profit is $7,500. Not bad for doing 0 work!I hope this helps!!**Disclaimer** Any percentages given are not accurate to industry standard. If you are a wholesaler and know what is acceptable, please reply and help us noobs out!

Pratik P. · Answer

@P.J. BremnerI love the way you're thinking about KPI's and reverse engineering the numbers! Have you considered using a CRM like Podio to track your leads easier? They have a free version I think you should check out. It made my life much easier in terms of keeping track of my leads. How have the mailings been so far?

Drew Pak · Answer

Hello, I would love to hear more about your business as we are looking for properties in your area. We are primarily working out of the Bay Area and investing in properties in this area. So let me know what type of properties you might have available. We are looking for properties that are in the 100k-500K range. anywhere from Sacramento down to San jose. Let me know what your inventory is like and if you have time for a quick conversation. Cheers

P.J. Bremner · Answer

@Robin HallHere is the lead tracking spreadsheet I created in Google Sheets. It has room for 999 leads, can track all the important information for the client AND auto-calculates your KPIs for you as long as you keep the information updated. I am more than happy to give you a blank one to use for your own, let me know if that would help :) If you're not sure how anything is calculated, let me know and I can walk you through that as well. I made this spreadsheet in about 10 minutes so they are really simple to make once you get used to it and you can customize it however you like once you get the hang of it.

Robin Hall · Answer

Hello, I'm just about to send out my first direct mail campaign touching 2,000 prospects. So I hope we both are successful and we will be. I'm in the same boat. I want properties to flip myself or partner with other investors to flip. My question is what is KPI?

P.J. Bremner · Answer

Quick updated on this:We obtained our first list of prospective clients from listsource.com. We are targeting absentee owners with a specific amount of equity in the property. We initially were going to use a local printer for the mailers, but found them to be extremely unreliable so decided to spend a little more money and use yellowletters.com, which the service was extremely easy to use and they great customer service. We sent 2,557 mailers out to 4 local cities, they will be dropping in the next 2 - 3 days and we will be monitoring the response rate from there. Our KPIs look like this now:- Total Mailers sent- Response rate: Phone & Email/webpage- Appointment Set- Offers Made- Properties under contract- Deals closedAfter much debate on the forum under a different post, we have decided to focus mostly on deals WE CAN FUND and close ourselves -or- deals WE CAN PARTNER WITH. Last case scenario will be selling the deal to a flipper. The reason being, we want to make certain that any claims we give to the seller are legit and we have every intention of buying their property. We will NOT contract a property unless we have a buyer lined up or we put up a non-refundable earnest money deposit. We do this to avoid ethical issues most wholesalers run into AND to avoid lawsuits. If we cannot do our job, the seller keeps some cash for his/her time.Any experienced wholesalers care to give feedback or constructive criticism?

Max Maxwell · Answer

Bryce Anderson