Hack of Wk of 10/27 - How to be a Diligent Wholesaler

Wholesaling has a bad reputation in the real estate industry. It's swamped with graduates of "get-rich-quick-through-wholesaling" courses of the gurus. It has low barrier to entry because you get people with no money and no credit jumping in the industry and all they need to do to be called a wholesaler is get a bunch of business cards for $20 and say "I buy houses".

I know this to be the truth because that's how I started wholesaling. But, I quickly learned that to be successful at anything, you have to be diligent. The richest man who ever lived said "Have you seen a man diligent in his works? He will stand before Kings" - Proverbs 22:29

Why does a wholesaler need to be diligent? And what does it mean to be diligent?

A Wholesale Deal Where I Failed to Be Diligent

Recently, I came across a deal from another wholesaler. We did business before and I liked the fact that we made a lot of money on our first deal together. So, when he forwarded me a property, I did not question the numbers. I assumed his numbers are correct. He told me the rehab is $50,000 and I believed him.

BUT...it was a BIG mistake. Through my marketing efforts, I got 3 buyers to show up at the property all at the same time. As soon as 2 of them walked inside the house, they immediately turned around and left and they said that this house needed far more than $50,000 in repairs. The third buyer (who has bought several properties from me before) has the courtesy to tell me that this property needs $80,000 in work and the repair estimate I gave was way off.

I should have verified the numbers first before I marketed the property. I should have been more diligent. Now, I lost those 2 buyers...probably for good because they will always question my numbers because of the bad experience they had with that deal. The loss is incalculable. Needless to say, I pulled all my marketing campaigns on this property because the numbers don't make sense.

Why It Pays to Be Diligent

Good thing with that third buyer...who actually knew me before, he viewed this experience with this deal as an "outlier". It's a one-time mistake on my part and I will work my behind to ensure that this does not happen again. It really pays to be diligent because not only will you make money one time with that buyer...but if you're a good wholesaler and has given your buyer an awesome deal, he will buy from you again and again and again.

Here's a real life example of a diligent wholesale deal.

After Repair Value: $120,000 (as a 3-bedroom house)

Repairs: $30,000

Sales Price: $55,000

I made $11,000 from that wholesale deal. Our buyer renovated the property. He actually put in $50,000 into it because he opened the floor plan, added an additional bedroom (making it a 4-bedroom house) and added a lot more to the house than our original repair estimate. As a result of our rehabber-buyer's "diligence", the property actually appreciated in value and he was able to sell the property for $155,000. As a result, he made over $50,000 profit on it. Here are before and after pictures:

What Is Diligence?

Diligent can be translated as "skillful". To be diligent, you have to not just know what you're doing - you have to be really good at it. One of the problems with newbie wholesalers (or with the greedy and lazy ones) that gives wholesalers a bad name is that they overestimate the After Repair Value and they underestimate the repairs. Hence, just like what happened to the deal I described where I myself failed to be diligent, these newbie wholesalers can't sell their properties. Not only that, they lose something more important than money - their credibility!

How to Be a Diligent Wholesaler

Do you want to be a diligent wholesaler and separate yourself from the rest of your competition? 

Here's the "Hack" of the Week: get a detailed, itemized repair estimate from a licensed general contractor for the wholesale deal you're trying to sell. They can even use that contractor to get the property renovated (which is how you get that GC to give you his repair estimate and do it for free).

It's hard to argue with real numbers from a licensed expert. In my wholesale deals, I also give a Comparable Market Analysis from a licensed real estate agent as well. Lastly, I give a Cashflow Analysis on my properties as well to show how my properties will cashflow as rentals. I don't use artificially low numbers but realistic numbers.

Bottomline is this: to be a successful wholesaler, you got to be diligent and to do that, you have to KNOW your numbers and get those numbers from the experts. This extra step of getting the numbers from the experts will separate you from the other so-called wholesalers out there. And when you have a good reputation as a provider of good deals, you will make a TON of money as a diligent wholesaler!