BiggerPockets

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

I've seen this exact article/blog/post somewhere else before but I can't remember where.

Great info! I hear people say find the property & you'll find a buyer, but I don't want to be the one who no one wants to do business with because I back out of deals simply because I didn't build a buyer's list first. Even if I have not done any investor deals yet would you suggest I create a business name & order some business cards to pass out to potential buyer's/investors at my local REIC? I have not signed up with one yet, but I am checking the 3 that I found from the resources posted here on BP. I just wish I knew upfront which club actually had a variety of members and how many members to help figure out which one to join.

Celeste

Point/Counterpoint!

The absolute best way to build a "quality" buyers list is by marketing an actual property. Some aspiring wholesalers are under the impression they need to begin building a buyers list before they can start making offers. First things first … deal then buyer. Besides, you already have plenty of buyers lists available to you. One good deal under contract will give you access to buyers lists which have taken years to develop. Money talks, and a good deal under contract is money in the bank. You just need to decide who you're going to share it with.

In other words, until you have a buyers list that can stand on its own, take your deal to another established wholesaler and split the profit. Not an exclusive agreement, though, you will maintain the right to sell on your own. With your concurrent marketing, your buyers list will grow quickly.

Gurus will give you all kinds of email collection techniques, but its quality of data over quantity. People who contact YOU as a result of marketing a property are buyers who are looking NOW! Marketing and advertising is how you build your buyers list, and you don't market something without a product.

Lets see now. One deal a month @5K is equal to 60K a year. That should put you in the 35% tax bracket not to mention the SE taxes. This could reduce your income to only 30K per year or 2.5K per month if you put away what you should for those taxes.

In other words you may be forgetting to include your expenses in your calculations. Best see a good CPA for how you might be affected when you add that income to any other income you might also have.

Slow down a little more and think things thru totally to the final conclusion so that you can include everything.

Most people who start doing this also have another job and forget that this income will be added to the other income at the end of the year. The regular job will only take out the taxes as if that is your only job at the lower tax rate so you will have to make up the difference between the lower tax rate and the higher tax rate from the income that the higher income self empolyment job produces. You will also be responsible for the employers share of social security taxes as well as those state taxes and liscensing fees and association fees and local (county) business taxes.

This is why I said go to a CPA for assistance in figuring out all those type of expenses, bucause you may be required to file quaterly or even monthly with proof of funds in a depository account.

But dont forget to read some of the great posts about the 50% rule in the beginning of the landlord section as it will give you a clue to some of the other expenses that you may want to think of such as interest expenses during the holding period before you can sell or assign a contract.

I am not saying to not do anything. Far from it. Jump in as soon as you can knowing that you will make some bad decisions in the beginning and be prepared for the consequences of them so you do not end up as one of the many who just disappear.

Originally posted by John Lydic

Point/Counterpoint!

The absolute best way to build a "quality" buyers list is by marketing an actual property. Some aspiring wholesalers are under the impression they need to begin building a buyers list before they can start making offers. First things first … deal then buyer. Besides, you already have plenty of buyers lists available to you. One good deal under contract will give you access to buyers lists which have taken years to develop. Money talks, and a good deal under contract is money in the bank. You just need to decide who you're going to share it with.

In other words, until you have a buyers list that can stand on its own, take your deal to another established wholesaler and split the profit. Not an exclusive agreement, though, you will maintain the right to sell on your own. With your concurrent marketing, your buyers list will grow quickly.

Gurus will give you all kinds of email collection techniques, but its quality of data over quantity. People who contact YOU as a result of marketing a property are buyers who are looking NOW! Marketing and advertising is how you build your buyers list, and you don't market something without a product.

From my experience a first time wholesaler would be setting themselves up for serious failure by randomly searching the market for a "Deal", then scrambling around trying to find a buyer for their deal as your suggesting.

This method is completely backward from my experience because:

#1 If you don't have a buyers list in place and your market is sizeable in the least, a first time wholesaler won't have a clue where to start.....By having a buyers list in place a first time wholesaler will at least have some direction to their efforts.

#2 By not having a buyers list in place an investor sets themselves up to make far less profit on a deal because they are beggars instead of choosers.

#3 Wholesaling is not a house business, it's a relationship business. 1 good house get's you paid once 1 good buyer gets you paid over and over. I have personally had 1 buyer pay me over $85,000 in fees.

I agree that a great way to get buyers is to have deals to give them. But after training hundreds of newbies from across America it just isn't realistic because of the confusion that "Just looking for a deal creates"....I have seen that method fail time and time again.

Just my 2 cents.
Eric Medemar

hi I have simple question
if you are making a list of how to find a buyer before you make a list of properties for sale
how do you get on the list of buyers
and also what or how do you give that criteria if you are looking at different areas
and trying to work out returns against value when value changes daily
yes its better to have buyer before you go looking for a seller
but for me there is not alot of difference with what I call a bird dogger as tehy do the same they are given a criteria and they then find a product to that requirement
what I want is a deal that stacks up on the numbers so we can buy
and we want as good if not better then our requirements and you don't get taht from a bird dogger
if there is a list or lister that will bring properties that are as good or better then our requirements and also wil bring to the table deals that are better anbd higher returns
then thats the list I want to be on.
finding product is not the issue its margin,return,value and growth
just selling a list or just giving a list is not alot of use to me
you do have to bring something else to the table
inside running and market knowledge.
also there are heaps of lists and there is heaps of product
yes you need to work with not only ad investor but investor group and syndicates
because they don't buy one house they buy multipuls.
a small syndicate of say 5 people will buy one house and then another and then another until it has min 5 houses in the group.
this is a very small number but a buyer group will buy 100 / 200 houses
and a buyer syndicate is the same they just buy 25 lots of 5 for the hundred houses and those 25 might be five states or 25 states and 5 in each.
I find real estate will sell a property to a group and never follow up on the next deal if you latch into a group network you can cut your commission but do volume.
but with most group if you are not willing to bring some thing to te table you will just sell 1 property as they will find someone else to bring some thing to the table.
for me you need to wrap the deal
you need to do as much as possible to assist the group to get to there goal.
and the list is but one part and not a big part so for me yes find the buyer but also find what they want and try to bring the deal but also the fries and add into it information and knowledge about the are,taxes, charges even an accountant or legal you work with
they may not use them but you have that in your tool box

I kinda agree with John (albeit, ima newbie and still have a relatively small buyer's list). To me, building a buyer's list first is a little like having shoppers lined up at your storefront door before you have a product to sell. But i definitely see the value in working to get buyer's on your list, but i also agree that money is going to be the greatest motivator for people to jump on your list rather than promises of such (and i dont feel comfortable with the whole "bait them with a fake property listing" thing that ive seen some other articles recommend.

Having said all that, i do work on my buyer's list, lol.

It's good to go out and look for deals but I think you should start look for buyers at the same time. Just because you don't have a deal in the works does not mean you can't find buyers. If your timid and hesitant to ask for a rehabber or landlord to add them to your buyers list then you'll come off as inexperienced.

Learn how Wholesaling works and be confident, then go find buyers. It's HOW you ask, not asking that is the problem with building a buyers list before you have deals. A good way to start is by saying "I'm adding to my buyers list and wondered if you would like me to call you the next time I have a truly great deal?" - or - "I've got a great marketing program in place and I'm coming across some great deals, would you like me to call you next time I get a great deal?"

There is no harm in asking. A true Investor actively seeking deals will be happy to have you add them to your list.

Jeff