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The 5 Reasons Why Newbie Investors Fail At Wholesaling

by Ken Corsini on June 13, 2014 · 4 comments

  
The 5 Reasons Why Newbie Investors Fail At Wholesaling

When it comes to real estate wholesaling it is very easy to fail if you are not fully prepared.

It isn’t something you can just jump into without careful planning and education. Contrary to what many info gurus will you tell you, getting rich overnight in wholesaling is not a likely scenario.

5 Reasons People End Up Failing at Being a Wholesaler

The following are the top 5 reasons people who start out wholesaling end up failing. If you avoid these mistakes, you’ll be on fast track to success. If you don’t… – well, just be prepared to not get very far.

1. No Marketing Plan

Many people that set out to invest in the wholesaling of real estate plan to do so with little or no money and fail to think through the process of how they are going to buy and sell effectively.

Related: Marketing Your Real Estate Investing Business: 7 Steps for Perfect Planning

You can’t just expect to find good deals and magically sell them without putting forth some significant amount of effort, money and time.

Starting out as a real estate wholesaler without having a thorough marketing plan is going to have you scratching your head and wondering what happened.

It’s important to put together a comprehensive marketing plan so that you know what direction you are headed in. This should be a campaign that will help you maximize your time and money to find motivated sellers as well as end buyers (investors).

A marketing campaign might consist of putting out flyers, computer advertising, sending letters, putting up signs and more (The BiggerPockets blog is a wealth of information pertaining to marketing). The bottom line is you cannot possibly succeed as a wholesaler unless you’ve got a strong marketing plan that is consistently being worked.

2. Information Overload Kills Productivity

With so much information on the internet about how to profit from real estate it can be challenging to know what to believe.

While there is a great deal of unreliable information being peddled regarding wholesaling, there are many legitimate strategies found around the internet that are very good.

Related: Avoiding Burnout: Goals are Great But …

This said, focusing on too many all at one time can be overwhelming and cause a lack of production. I think it’s prudent for a new investor to study and implement only a few strategies at a time.

If you find that a certain method isn’t effective, scrap it and move onto something else. It’s important to avoid getting bogged down in endless ebooks, podcasts, webinars, special reports, etc. …. at some point, you’ve just got to pull the trigger and start.

3. Technological Distractions

Technology has changed the way we do business in almost all types of business, and wholesalilng is no exception.

While this has its benefits, it can also be another way to waste time and money. If you have not gotten to the point in your wholesaling business where you are consistently producing income, purchasing expensive software and tools is probably not the best idea.

You can better use those finds to create and act on a well developed marketing plan to start bringing in deals. This is going to be more valuable initially than designing the best website, subscribing to over-the-top software, etc.

Realistically, there is nothing to organize until you are consistently producing seller leads and have a list of buyers to sell to.

4. No Ability To Negotiate and Close

One of the most important skills of a real estate wholesaler is the ability to negotiate. This doesn’t mean you need to be able to beat the lowest price out of the seller in order to profit. It means being able to communicate well enough with the seller to see where they are coming from, what they need out of the deal and work with that to strike a deal that is going to be beneficial to both of you.

Having hired multiple acquisition agents over the last several months, I have found that not everybody has the ability to negotiate and close a deal. Getting a seller to agree to an under-market price can be an art. It’s crucial that wholesalers practice and hone this skill to be successful in this business.

5. Poor Rehab Estimation and After Repaired Value (ARV)

Understanding how to accurately assess the money needed to rehab a property is crucial for a wholesaler.

Most new real estate investors don’t have the proper knowledge of construction to get these numbers right. It could be to your advantage to have someone on your team that can help you develop these numbers for each of your deals.

In addition to the rehab numbers you need to be able to determine the after repaired value or ARV of a given property. I think it’s always good to set an ARV as conservatively as possible when deciding on a deal. In real estate, it’s much safer to error on the side of underestimating potential values rather than overestimating.

Wholesaling real estate is definitely not rocket science, but it does need to be carefully thought out and run like any other business. It’s important to constantly hone your marketing plan, your negotating skills and your estimation/valuation of properties. Doing this should put you in the best position possible to grow and succeed as a wholesaler.

If your an experienced wholesaler, would you add anything to this list? 

Be sure to leave your comments below!

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{ 4 comments… read them below or add one }

Gary Bailey June 14, 2014 at 8:29 am

Great list Ken!
Another reason I see a lot of new wholesalers fail is that 1) they don’t have their paperwork in place that will easily enable them to transfer their interest in the property, and 2) they don’t have transactional lending in place to be able to close on the deal (even if they only need to hold it for a few hours).

To avoid this trap, you should get a recommendation for a good title company in your area that has experience working with wholesalers and then take some time to get all of your paperwork in place (and know what it says inside and out!!) including:
– Purchase contract
– Proof of funds
– Assignment (if you will be assigning the contract)
– Sales Side Contract (if you will be double closing and reselling to your buyer)

The second piece is the financing. You don’t want to be scrambling around the morning of the closing because you found out that the title company is going to want you to close on the deal using your own funds before selling it to your buyer. Search around for some local investors or hard money lenders in your area that provide transactional lending.

Good luck out there!

The day you pick up your first deal as a wholesaler can be both the most exciting and the most frightening day in your business. “I’ve got this great deal…..now what!?” Sometimes wholesaling can feel like a total catch-22: In order to get the buyers you’ve got to have deals to sell, but in order to get the deals you’ve got to have buyers to sell them to!

Reply

Ken Corsini June 16, 2014 at 3:37 pm

Gary – thanks for the post … this is spot on. Lots of new wholesalers don’t know what they heck they are doing with contracts … and also don’t have transactional funding in place when they find themselves unable to do a simultaneous closing.

Reply

Todd Hutcheson June 25, 2014 at 2:34 pm

Fear is the greatest reason. It causes lack of action.
You have to look at a minimum of 50 houses to be able to tell when you have a good one.
When you have a good deal and a good buyers list, most of the fear goes away.
Learn your market, get a great investor friendly title company, and get to know a pro who you can run your deals by to get their opinion.
I usually take a buyer with me to see a house, I then ask them what they will pay. My offer is below that and I have nothing to worry about. All fear is gone.

Reply

Nasar June 25, 2014 at 5:06 pm

I agree for the most part but I do think more people should just jump in. And not be a Seminar Junkie. I tell people to prepare for the process and the outcome will eventually happen.

Reply

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