Order of Operations When Starting Wholesaling

[Michael James Parsons]

Hey all! I was wondering if anyone can offer or suggest a kind of to-do list for a new wholesaler (like myself) to get to through the first deal? I realize there are many things involved, especially in the self-education side of things. What I'm looking for is what needs to be done before I engage a deal. (e.g. setting up an LLC, finding buyers, "power team" members etc.) From some of the books I've been reading, it seems like I need to make a full-blown office with a team of paid staff before I can even do anything... I'd appreciate your wisdom! -Mike

[Sam Alomari]

Hi @Michael James Parsons 

I'm not a wholesaler but here is my personal input:

I don't think you need to get a job in real estate for few years before you start. I suggest you enrich your experience by connecting with wholesalers and real estate investors. Attending meetup groups, read books, listen to many podcasts, and you'll be familiar with the business. It isn't rocket science!

I have been told recently by a very respected investor/flipper that the money follows the deal. If you have a great deal, you can sell it within hours! So I would focus on finding great deals and make sure you can make a good margin and still manage to make your investors happy! 

In any business, you are in the lead generation business. That's the most important single task that you should focus on. If you want to become a successful wholesaler, then you need to find discounted properties, and to find discounted properties, you need to talk to a many many people (leads), that will be very daunting, so think about automating your lead generation process.

Once you have an automated process, now you have a steady flow of leads pouring every day, you might need to set up automated phone system and ask them to leave a message. The point is,  you better score/rank them, talk to your qualified leads only. If you apply the 80/20 rule, 80% of your deals will come from 20% of your leads. Focus on finding who belongs to the 20% and call that seller.

Remember, you don't want to waste too much of your precious time on a call with a non-motivated seller.

Regarding setting up an LLC, I would set up an LLC only when I secure the first deal, it takes 10 minutes to setup and another 10 minutes to apply for EIN.

Like @Drew Byrd said, you won't receive tax benefits for operating under a single member LLC. You will be taxed as Sole Properioter so it's even worse than being taxed as W2 employe because your LLC will be responsible for the employer's portion of the payroll tax. However, you can deduct business expenses as a Sole Propertior/single member LLC but you can not do that as a W2 employee.

Despite the no tax advantage for single-member LLC, you still need it for at least 3 reasons:

1- Asset Protection, you will protect your personal assets (only if you treat LLC as a business). I heard a bad story about LLC veil pierced because the owner mixed personal with business expenses or treated personal expenses as business expenses. Just google (LLC Veil Piercing) for more information about the topic.

2- Separate business from personal expenses (separate bank account). Your CPA will be happy, and it's easier to track business profit/loss/expenses, etc.

3- You look professional and legit.

You don't need an office or paid employees to become a successful wholesaler. You need to be patient and good with people (buyers and sellers). I know very successful one-man show wholesalers and they are crushing it.

Best,

Sam