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

[P.J. Bremner]

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 dollars

The 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]

@Robin Hall

KPI - Key Performance Indicator

In 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 calls

100 phone calls -> 25% appointment rate: 100 x 0.25 = 25 appointments

25 appointments -> 50% offer made rate: 25 x 0.5 = 12.5 offers

12.5 offers -> 25% contract rate: 12.5 x 0.25 = 3.125 contracts

3.125 contracts -> 75% deal close rate: 3.125 x 0.75 = 2.34 deals

So 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!