One of the biggest rookie mistakes that I see newbie wholesalers make is that they want to start looking at real estate BEFORE they have any buyers....
Even when things were decent with our housing market I would never suggest doing that. But now that our market is plummeting faster than Chris Brown's career, you would be teetering on insanity to try wholesaling without a buyers list in place.
Here are some of the main underlying issues with not having a solid buyers list in place:
1. Since you don't have any buyers you don't have a clue what type of home to look for....Basically you end up pissing away your days "Looking for a deal". The bad part is that more often than not this leads to frustration and overwhelm, then the next step is quitting....Which sucks...I want to see you succeed.
2. Since you don't have any buyers your chances of being able to find one after a home is already under contract are slim to none....This leaves you in the compromising position of defaulting on your contracts....Yes, if you do things correctly you won't lose any money...But, each defaulted contract takes one more chunk out of your reputation as a wholesaler.
Believe me when I say, word travels fast about people who can't follow through....
3. Another problem is that your profits in many cases will be far lower than if you had buyers lined up....Reason being, if you have a home under contract and buyers are few then your going in as a beggar instead of a chooser...
4. Leverage....If you want to last in the wholesaling business or any business for that matter much of your success is going to hinge on leverage....
Leverage in the wholesaling business boils down to buyers. Think about it like this....If you find a spectacular deal on a home and you wholesale it to an end user you have one deal.
So basically one good house equals one deal done....If your lucky.
On the other hand 1 good investor might buy 20 homes from you....Meaning that 1 good investor could equal 20 deals done.
I had one investor that I worked with and over the course of 1 year I ended up making $85k from.....
Okay...I hope your convinced that finding buyer FIRST is a good thing...Now here a just a few of the ways to find them...
No I didn't share all of my secrets here...Because if I told you...Then I'd have to kill you....And it's really hard to succeed as a wholesaler if you were dead....
I am sure there are countless other places and ways to find buyers beyond what I am mentioning, so I will leave it up to other people to fill in the blanks that I have missed.
Keep in mind these are ways that I or my clients have actually used, so I know that they work because I have done it.
1. We Buy Houses Signs I call every single one of these signs that I see, I actually keep a note book full of numbers and info that I find out about these companies when I call.
I usually ask them whether they are still buying, what they are looking for, what percentage up FMV they are typically paying, and what areas of town they want to buy in.
While I have them on the phone I also ask them if they wholesale out any of their homes, if they do then I ask them to call me when they have something good. I tell them that if the deal is right I can close in less than 2 weeks with cash.(I can do this because I have other buyers already in place to buy their deals, sometimes these buyers could be other cash for your house buyers)
Here is a sample of a deal that I put together using this.
1. I called a we buy houses sign
2. Found out where they were looking
3. Put a home under contract for $52k in that area
4. Called them and let them know.
5. I signed a 6 month lease option with them for $64k
6. I closed the home.
7. The lease option started
8. He sold the home
9. We close this week, I make about $12,000 (I also made commission when I bought the house, because im a realtor)
10. He makes around $12k.
11. Were all happy.
2. Call realtors I call realtors and find out if they have any cash buyers that are looking to buy some wholesale deals. It varies on what I offer to pay them but typically I offer 10%-20% of my profit, or a flat 2-3% fee, each time the buyer they have given me buys a home. It creates a win- win, I get a buyer and they get paid whenever their buyer buys a home.
I offer the continuous pay because a realtors worst fear is that they give you a buyer and he buys from you, then when they have a good property to show their buyers they cant buy because they have already purchased from you.
If the realtors dont have cash buyers, I tell them that if they bump into any great deals, they should call me and if the deals good enough we can buy with cash and close in less than 2 weeks.( Often times you can use other realtors buyers to buy another realtors house and you can make money setting the two up)
An example of one of my clients deals that he ran this way.
1. I called my client about a great HUD deal
2. He liked the deal and put the home under contract for $115k (I made a $4800 commission on the home when it closed so I was happy)
3. We had 60 days to close the HUD home so he started calling realtors
4. He found a realtor with a cash buyer that was willing to pay $122,000
5. We assigned the contract (this is a secret)
6. We went to closing and his buyer brought $122,000 cashiers check.
7. My buyer left with a check for $7,000 ( he used none of his own money, and I found him the house so he was happy)
8. I left with my $4800 commission
9. The realtor who brought the buyer took no commission but got a commitment from his buyer that he would list the home with him when he sold it.
3. Newspaper ads I dont personally use this one, I have clients who have had great success with it though. They simply place a small classified ad that reads "Looking for buyers to purchase homes at 50-70% of true value"
I have picked up endless buyers with this ad though "Free List of 45 foreclosed/distressed homes" call or visit www.$$$.com. The reason that I have had so much success with this ad is because anyone thinking of buying real estate would much rather get a free list of 45 then have to call each individual ad. You can have a local realtor put together a list of properties for you and email them to you if you cant find your own. Then take the list that they send you and email it out to people that respond to your ad. Keep in mind you dont really care about the list that you send, you care about getting the name, phone number, and buying qualifications of responding buyers.
A real life example.
1. I placed my free list ad
2. I got about 30 responses for the month
3. Found one buyer who has paid me over $75,000 in commisions over the next 3 years on deals I brought him.
These were realtor commissions, but if you can find a buyer who is taking the kind of action he was you could seriously line your pockets wholesaling to him.
4. HUD homes this is my own technique that I started using to get buyers just for my realtor purposes. Watch for a great deal on a HUD home or any great deal for that matter, then park outside for a few hours and talk to the people going to check out the home. Most of the areas investors will find there way to the property and you can give them your card and be sure to get there info. Tell them that you run into alot of deals and ask them if they would like you to give them a call when you run into something decent.
A personal example.
1. I went to look at a good HUD home that I was going to buy myself.
2. The neighbor came over and wanted to see the home while I was there.
3. I showed him the home and he ended up buying it from me.
4. I ended up making $2500 in commission on it.
If I were not a realtor, I would have simply talked to him and found out what he was willing to pay, then wrote up a wholesale contract, then put the home under contract with HUD, then played the spread.
This was my most recent deal, but I have picked up endless buyers for other homes while parked outside of HUD homes. I call it hunting for buyers. Its kind of like deer hunting with a bait pile. The home is the bait pile and the buyers are all coming to eat.
4. Talk to your current buyers buyer typically know other buyers, ask your buyers if they know of anyone else who is buying (let them know you will only call the referal if they are passing on the property). You also might offer to pay your buyer for a referall fee if one of there people end up buying a house from you. This technique also works great if you have a buyer that only wants to buy in a certain area, then you can call their referall if you have a home outside that area.
Personal example.
1. One of my buyers had too many homes and could not buy.
2. I asked him if he knew anyone else who might be interested.
3. He gave me the number to a cousin who was an even bigger investor
4. I ended up selling 3 homes to his cousin this year, and paid him a referal for each one.
5. Local REI meetings If you have a local investor club join it, if you dont then start one. It kind of speaks for itself that this is where many great buyers will be. Just be sure you know a fair bit about what you are doing before talking to very many people about potential deals. The last thing you want to do is burn alot of bridges by showing your new found buyers a bunch of crap.
6. Birddogs for buyers Outside of having bird dogs look for homes for you, you can also have them look for buyers for you. Give them your cards and have them hand them out to people they might meet that are looking to get into real estate investing.
7. Brochure Boxes Just like realtors use brochure boxes you can use them to. If you have a property to move leave a brochure box that talks minimally about the property that it is left at, always be sure to leave out pertitant info like price, sqft, or bed/baths. If you give all the info away then people will never call you about the property. Focus the brochure mainly on other potential deals in the area or say that you are looking for buyers for properties at 50-70%FMV.
8. Out of towner and landlords Many people sell themselves short when they are dialing for dollars. Typically people call or mail out of town owners and other landlords to see if they want to sell. The funny part is if they dont want to sell then there is a chance that they want to buy, so ask them if they arent selling, then would they like to buy some more, or if your mailing then include buying info on your mailer as well.
Good luck
Eric
