(I decided to write this as a blog in Medium (awesome blog site for those interested in every subject on the planet), so I thought I would post it here as well. Part of my resolution to be more active on Bigger Pockets this year. I hope it's informative and please feel free to critique as well. Thanks.)
I will preface this by saying that I am not a real estate guru. I’m am just a regular real estate investor, like many of you reading this and I am just offering some free tips that I hope you find useful.
Obviously, the name of the game is closing deals and getting paid. I’m not going to talk about marketing, or finding leads or skip tracing or anything related to that. This is purely about what to do with the leads once you have them.
And remember — not every lead is going to result in an immediate contract. Some leads require time, some need creative solutions and some require finesse and most importantly they require follow up — build the relationship and the lead will become a deal. That’s not a guarantee, but it is your best bet.
So why are you having trouble turning leads into deals? Chances are it is because of one, two, three, four or even all five of these things…
Reason #1 — Your sellers aren’t truly motivated: This is a big one and a huge killer of any lead. You won’t close deals with tire kickers or sellers that don’t have any sense of urgency. That said — you must continue to follow up with “unmotivated” sellers. Follow up is the name of the game in this business.
Always find out the exact situation and the level of urgency. Always ask these two questions:
1. Why are you selling your house?
2. How soon do you need to sell your house?
Things like tax liens, divorce, financial hardship, relocation, inherited property — those are key words that indicate motivated sellers. Stay on these sellers, do your research, make the offer and get the property under control ASAP.
Reason #2 — Your repair estimates aren’t accurate: Cash buyers aren’t stupid. Let me repeat that — cash buyers aren’t stupid. It is absolutely critical to get repair estimates as accurate as possible. Buyers aren’t going to be fooled by shoddy estimates. They do their homework and they will pass on deals that aren’t assessed correctly. Do yourself a huge favor and get the repair estimates as accurate as possible. Not sure? Spend a $50 gift card on a legit, licensed contractor to walk the property with you and give you a professional estimate. If you are capable of doing the estimate yourself, make sure you have a decent printed checklist of the all of the possible repair items.
Reason #3 — You are making bad offers to sellers: If you make an offer to a seller that is too high, just to get a property under contract, you will have a tough time finding a buyer on the back end. I guarantee it. Don't make offers, assuming every single house is a deal. Get your numbers correct! Learn the area, get the repairs correct and get good comps. Using free online services are a sure fire way to get bad numbers. A good after repair value (ARV) number is very important. Make friends with a local realtor who can pull real comps for the best accuracy. If you can't get access to MLS, purchase software that gives you real time, accurate comps. This is a worthwhile investment in your business that will payoff down the road. Trust me — getting good comps is a huge advantage over lazy investors.
You will not survive in this business if you try to get everything for free. Often you get what you pay for. When you are finally ready to make your offer, be as close to the 70% rule as possible.
Trust me, your buyers are using the same formula. It’s a proven method. Sometimes, for cash flow properties, you can alter it a bit. But the 70% rule is solid. There’s good calculators available in various online real estate forums. Use them.
Bottom line: if it’s a deal for everyone involved, buyers will snap it up and it will close quickly.
Reason #4 — You don’t have enough qualified cash buyers: It may seem counter intuitive, but the most successful wholesalers build their buyers list first. Do this before making an offers or getting any properties under contract. Why? Because if you aren’t going to be the end buyer, you absolutely can’t close without a buyer on the back end bringing the cash. Do not do deals without an exit strategy. And I’ll assume your number one exit strategy is selling the contract to a cash buyer.
So where are the buyers? Well, they are in a lot of places. Local real estate investment groups and meet-ups are a good place to start. Get to as many of these meetings as possible, introduce yourself and find out where investors are buying, what types of properties they want and what location they want to buy in. Get their info, load it into your spreadsheet or CRM and start building your list. Other places to find buyers — various online list brokers (although these resources are not free and require a few tricks, plus direct mail or skip tracing), social media groups for investors, online real estate forums, meet up sites, local realtors (many work with cash buyers), title companies, real estate attorneys, general contractors. Get that list to 150+ before doing deals. Why? Because not every deal is suitable for every buyer, even if the numbers are perfect. You need to hit as many buyers as possible to assign deals quickly.
And make sure buyers are qualified. When you get a buyer to sign an assignment contract — your contract should state clearly that the assignment is not effective until a non-refundable Earnest Money Deposit (EMD) is in Escrow with the title company. You must protect yourself and getting an EMD usually ensures that a buyer will not back out of a deal. Especially, if you set it an amount that makes certain the buyer already has skin in the game. I generally ask for no less than $5,000 for all deals. Generally, a buyer who is serious will do that EMD immediately. If they don't, they probably aren't qualified or aren't serious.
You can’t close without a qualified cash buyer. It’s that simple.
Reason #5 — You are using improper legal documents: This is the one that gets overlooked. Getting a property under contract, assigning it to a buyer and closing with an attorney or title company all require solid legal documents. You can do two things here — take your chances with the free forms that are abundant on the internet or hire a real estate attorney, in your state, to draft the documents you need. The latter is not cheap. Real estate attorneys cost around $350 per hour and you are looking at 3–4 hours minimum. I made that investment in the very beginning and I can tell you it is worth it.
You can sometimes find good contracts online that have already been vetted by an attorney or used by other investors. But under no circumstances should you use a contract that hasn’t been properly vetted by an attorney in your state.
I use only three contracts in my business: sales contract, assignment of contract and joint venture (JV) agreement.
The JV agreement is an extremely valuable tool — I've used it to generate almost half of my business because partnering allows you to do more volume. The contract works because it protects everyone's interest in deals and it prevents other wholesalers from "stealing" deals or daisy chaining (pushing deals out to the public that aren't there's to push).
If you want to close more deals, in a reasonable amount of time, use documents that are acceptable to title companies and attorneys. You’re going to feel silly if you get all the way to the finish line, anticipating that $5,000 or $10,000 assignment fee, only to find out that your contracts and agreements are invalid.
So there it is — five reasons you aren’t closing deals and how to remedy the situation.
To summarize:
1. Find Truly Motivated Sellers
2. Get Accurate Repair Estimates
3. Make Good Offers
4. Build a List of Qualified Cash Buyers
5. Use Proper Legal Documents
My methods aren’t perfect, but I stick to these five basics as much as possible to ensure deals close, to keep my reputation intact and to put money in my bank account.
