It’s been interesting to watch how many new wholesalers have entered my market just over the last year or so. I’m not really sure what to attribute it to, but there seems to be an influx of guys interested in playing in this space. Don’t get me wrong, I like the fact that there are more people out there uncovering good deals. That said, it is interesting to watch eager new wholesalers trying to get started, but not necessarily knowing how and where to apply their efforts.
My guess is many new wholesalers are fresh out of a weekend crash course, or perhaps they’ve purchased some coaching and have a checklist of things to do. Just here in the last week, I met a young student of one of the big real estate coaching organizations out there. I couldn’t help but love his enthusiasm, but was a little surprised at his lack of understanding behind the business (especially considering the hefty price-tag associated with the coaching).
Having seen some of his misconceptions about how to operate as a wholesaler, I thought it would be worthwhile to perhaps clarify a few aspects of this business for other aspiring wholesalers.
Are Joint Venture Agreements Necessary?
My guess is some of the courses out there teach their students to get JV agreements for any potential referral partners or buyers. While a referral fee agreement may be necessary in some relationships, a typical wholesaler doesn’t need something like this to cover all future transactions with a particular buyer or investor. As a wholesaler, you are in the business of finding a deal, taking control of it (typically by putting it under contract), and then finding a buyer at a price higher than what you could buy it for. As such, you are creating income by marking the property up above what you are paying for it. There really isn’t any reason to get universal agreements in place with all of your potential buyers.
In addition, every deal you put together as a wholesaler is going to look a little different. It’s very difficult to put agreements in place up front when the payouts are going to vary from deal to deal. Personally, I have relationships with other wholesalers in Atlanta and we work out different arrangements on almost every deal. Sometimes I buy a property from them, sometimes they help sell a property for me. It’s an ever-changing deal making process that would be very hard to pin down in any sort of one-size-fits-all JV agreement. That said, there is nothing wrong with outlining specific referrals or commissions on a per-deal basis and putting that in writing (in the purchase contract or a separate referral fee agreement)
Find a Unique Source of Inventory
In attempting to find properties that he could market to me, the aspiring wholesaler mentioned above, found himself an agent and started making offers on the MLS. In the same way that a blind squirrel occasionally stumbles over a nut, this may produce a property or two worth wholesaling. I explained to him that I (along with numerous other active real estate investors), am already scouring the MLS and probably had the beat on these properties before he did. I went on to discuss with him the way to really add value to other investors is to find the properties that nobody else is looking at or has access to.
Wholesalers that really make a name for themselves in a given market are the ones who have figured out how to drum up unlisted, unknown properties. Whether this is working FSBO’s, Craigslist, direct mail, etc., finding the off market properties is the best way to establish yourself as a wholesaler.
Starting out as a wholesaler may seem difficult at first, but it’s one of those businesses that grows and blossoms over time. Every month your buyers list gets a little bigger and so does your knowledge and acumen at finding properties to wholesale. I would encourage anybody that’s new or just getting into this business to employ the KISS mentality (Keep it simple stupid). Don’t bog yourself down with unnecessary agreements …. Just get out there and find the deals!