3 Tips for Wholesalers From an End Buyer’s Perspective
Over the last few weeks, I’ve gotten a handful of emails from various wholesalers with headlines such as the following:
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- CASH COW!!!
- UNBELIEVABLE FLIP OPPORTUNITY!!!
- 37% CAP RATE! MASSIVE PRICE REDUCTION!!!
- THIS DEAL IS SO GOOD IT CAN CURE CANCER, STOP GLOBAL WARMING AND DEFEAT ISIS ALL AT THE SAME TIME!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
OK, I made up the last one, but you get the idea.
First of all, enough with the caps. Second, one exclamation mark is enough. Third, if you’re being sold something that has a “37% Cap Rate,” you can pretty much guarantee that it lies on the intersection of Skid Row and War Zone. It’s also might be in need of a good ole demolition.
Wholesaling real estate is not an easy gig, and I feel comfortable saying that, even though I’m not a wholesaler. Instead, I’m the end buyer. And I think that gives me a very good perspective on wholesaling from an angle most wholesalers could benefit from: namely, what the people you are selling to are actually looking for. And I’ve seen the whole gamut, from very good wholesalers — to very, very bad ones.
Given the wide variety of quality I’ve seen, here are my top three recommendations for wholesalers who want to provide what end buyers like myself are looking for:
3 Recommendations for Wholesalers From an End Buyer
1. Focus on the Deal, Not Building Your Buyer’s List
Wholesalers actually require better deals than flippers or holders because there needs to be enough of a margin for both the wholesaler and the end buyer to profit. So finding great deals is easily the most important thing that a wholesaler does.
Unfortunately, I see some wholesalers putting too much of an emphasis on building as big a buyer’s list as they possibly can. And that’s all fine and good — to a point. It’s certainly important to network, and having a buyer’s list has its place, too. However, you can have a buyer’s list a mile long, but if you don’t have a good deal on your hands, it doesn’t really matter.
Many of the most successful wholesalers I’ve met actually post properties for sale on Craigslist and get them sold that way. Whether you decide to do that or not, the idea behind it does create a kind of litmus test. Whatever property you put under contract, you should be able to post on Craigslist and get the contract sold in a week or so. If you don’t think you can do that, you probably don’t have a good enough deal on your hands and need to go back to the negotiating table.
2. Narrow Your Buyers List
When I get an email from a wholesaler that is basically just a form letter with an advertisement attached, I sort of turn off. Occasionally, I see something that gathers my interest, but it’s rare. Usually, I just assume that it has been passed over already or that it’s going to get bid up by one of the many other people the email was addressed to.
It basically feels like being spammed.
There isn’t much more of a benefit to being on these lists than there is just glossing over the MLS. Yes, there are deals there (we get most of ours from offering in volume on REOs), but it’s mostly junk.
Furthermore, many end buyers are not particularly reliable. After we closed one wholesale deal, the wholesaler gave me a call to thank me for actually sticking by my word and closing the property on time because, as he said, “That was unusual.” Signing a contract with an end buyer who can’t close will often cost you the entire deal. And unfortunately, despite their best wishes, many end buyers just can’t arrange financing or get the money together or do whatever it takes to close. So, you want to only deal with reliable back-end buyers.
That same wholesaler later told me he was narrowing down his list of buyers to just the best buyers. I hear this a lot amongst successful wholesalers. As Sam Craven noted on the BiggerPockets Podcast Episode 33, “We have a buyers list of 990 people, I think, at this point, but 90% of our properties are sold to the same five or six people.” In other words, 0.5 percent of his list accounts for 90 percent of his sales. So, it’s not the size of your buyers list, but the quality of your key buyers.
Narrowing your buyers list does two things. First, you know these people can actually close. And second, from my perspective, I actually feel like I’m getting a good deal versus a piece of spam. This can further build solid relationships with end buyers. I’ve heard of wholesalers who pretty much sell everything they find to the same one or two people. That certainly makes the selling part of the business very easy.
And if your core group doesn’t bite, you can send out to the rest of the your buyers list and post it on Craigslist (or, once again, go back to the negotiating table).
3. Learn Rehab Costs
About six months ago, I visited a house a wholesaler had sent me that he said needed “$27,000 of repairs to make as good as new.” Sounded good to me, so I went to the property to analyze it myself. Once I got past $70,000, I stopped adding it up and started mulling over the cost of a bulldozer. Yes, completely gutting a 2,500 square foot house costs more than $27,000. For the wholesalers out there, don’t feel bad. I used to be terrible at estimating rehab expenses and still make my share of mistakes today.
At best, it’s an inexact science.
That being said, the estimates I get from wholesalers are, more often than not, wildly off, as the above example illustrates. And to exacerbate this problem, wholesalers don’t have a feedback mechanism since they usually don’t see how much the repairs end up costing, so many keep making the same mistakes over and over again.
Fortunately, there are a few things you can do to help remedy this. First, buy J. Scott’s book on estimating rehab expenses. Second, get a few bids (although don't abuse any contractor's time by using them too often without compensation). You should start to get an idea of what things cost. And always add a contingency (around 20 percent) because in every sizable rehab project there are always add-ons and change orders. Lastly, talk to end buyers like myself and ask what their projects usually cost. Even better, ask the buyer of one of your deals what it actually costs to do the rehab.
This process should hone your ability to estimate rehab expenses and provide end buyers with a better idea of what you are offering before they spend their time looking at any given deal.
And, let me tell you, that would be greatly appreciated on my side of things.
Wholesalers: What do you think of these suggestions? End Buyers: Would you add anything to this list?
Leave your thoughts and opinions below!