Is Wholesaling the Best Way to Get Started in Real Estate? An Investor’s Analysis
So you have been absorbing everything you can find about real estate investing. Learning about how to fix and flip a property the right way. Trying to figure out and understand all the formulas to see if a property cash flows. Then you find out about this thing called Wholesaling.
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What isn’t there to like about wholesaling? It’s a quick way to make some money, and you don’t need a lot to get started. In other words, the barrier to entry is very low. Heck… this is what initially attracted me to the wholesaling as well.
Why I Started With Wholesaling
There was no doubt that I had a case of analysis paralysis when I got started on my quest to becoming a real estate investor. I am shy, quiet and a straight up introvert. Wholesaling is about dealing with PEOPLE — suffice it to say, I was going to have to fight a lot of mental roadblocks. It took me a long time to get over my personal hurdles.
What I figured out after doing all my “research” is that with wholesaling, I could take my time. I could overcome one fear at a time and slowly learn the business.
This is how I broke it down in my head:
- Pick a lead source (probate, absentee, forecloser, etc.)
- Send out direct mail (create the letter, buy supplies, figure out mail merge)
- Talk with sellers (learn how to build rapport, figure out their motivation)
- Figure out repair costs (learn what rehabbers and landlords are looking for)
- Make offers (negotiating tactics)
- Sign contracts (escape clauses, assignment verbiage, etc.)
- Find title company (learn about investor friendly title companies, title insurance, liens)
- Advertise my deal (marketing)
- Find buyer(s) (relationship building, selling, negotiating)
- Assign contract
- Collect money
Having this road map to get to my first deal helped me focus on one aspect at a time. I wouldn’t have gotten over the dreaded analysis paralysis without this step-to-step guide. This could be another article in itself.
Other Great Reasons I Figured Out Along the Way
Now that I’ve been a wholesaler for 5+ years, I can give you a few more reasons why wholesaling is a great way to get started.
You Get an Understanding of Real Estate Investing
Being a wholesaler is akin to being a jack of all trades. You will learn what it takes to find good deals, negotiate contracts, find buyers and learn how to close deals. Throughout the wholesaling process, you will come into contact with every piece of the puzzle that goes into acquiring an investment property.
You Learn Repair Costs
Think about it… your buyers are rehabbers and landlords. This requires you to learn the types of properties they are looking for and how much they will pay. A major factor in figuring out what they will pay is rehab costs.
After bringing some of these buyers through your properties, you WILL have a very good understanding of rehab costs. One of the natural roadblocks for getting into rehabbing houses has now been taken down.
You Build Relationships with Other Investors & Real Estate Professionals
There is no bigger advantage to starting out as a wholesaler than this! As a wholesaler, you need to know every investor, title company, realtor and lender out there in your target market. You can’t help but build relationships.
Wholesaling is all about who you know and how you can help each other — at least the successful wholesalers feel this way. There are plenty of deals out there for everyone to make some money.
The relationships you make while wholesaling will benefit you in all your future real estate dealings. Think about it…
- A wholesaler you met could sell you the perfect rehab project.
- The rehabber you sold your last property to can recommend a great contractor.
- The landlord you help find a rental could help you find great tenants for the new rental you bought.
I could go on and on and on about the benefits, but I think you get the idea.
You Learn How to Be Creative
As a wholesaler, you’ll quickly learn that every deal will present its own unique challenges that will threaten the deal. What I eventually learned is that you’ll need to be creative to work past some of these “deal killers.”
Here are some examples of what I’ve run into…
- Buyer backs out at the last minute.
- Seller drags out signing the papers because he is shopping your offer.
- One of your buyers discovers a huge repair that you missed. Now you are paying too much for the house.
- Your title agency goes out of business 2 weeks before closing.
The issues you run into will never cease to amaze you! In the end it all comes down to: People have their own agendas and those agendas will get in your way.
Bad Reasons to Start Out Wholesaling
Now, I wouldn’t be doing you justice if I only told you about reasons why you should start your investing career as a wholesaler. It’s not the right decision for everyone. Wholesaling really is hard work, and to be honest, it’s not really “investing” if you think about it.
To me, in the truest sense of the word, the only people investing in real estate are landlords. Wholesaling and rehabbing are basically just a full time job. In any event they are lumped into the investing world, so let’s continue with that in mind.
You Dream of a Quick Payday
Let me tell you how long it took from the time I sent out my first letters (to a surefire pre-foreclosure list) to my first deal — 36 months! You read that right, 3 years! It’s a good thing I didn’t give up. Many people get deals much, much quicker, but the possibility is there that it will take a LONG TIME to see that first check.
You Want Passive Income
Simply put, look someplace else. Wholesaling is all about the hustle and the hard work. Sure, some deals put money in your bank account in only a few days. But don’t forget about all the time, sweat and money you sunk into building up your lead pipeline to get that phone call that lead to that deal.
Wholesaling is all about keeping the momentum going. Going on vacation for 2 weeks could set you back 6 months! You basically have to eat, breath and live wholesaling.
You Think You Can Wholesale With Little or No Money
Yes, it’s possible to wholesale with no money, but it’s very very hard. Trust me, I try to spend as little money as possible because my wife only remembers the money I spend, not the money I make.
Sending out 500 letters per month (which is paltry) costs me roughly $3,600 per year. Most of the high volume wholesalers send out 10 times that per month… bringing costs to $36,000 per year!?!
Even bandit signs cost a lot of money if you do it right. If it’s approximately $2.50 per sign, and you order a couple hundred signs because you have to keep putting them out, it adds up fast. Order 1,000 signs in a year, and that’s $2,500.
I don’t know about you, but to me that’s a lot of money! There really is just no way around not spending cash. The cheapest thing for me so far has been creating a website.
Is Wholesaling Right for You?
In my opinion it is a GREAT way to get into the real estate investing industry. You can take your time and get your feet wet, all without risking your family’s livelihood. If you wholesale for a couple years first, you’ll definitely have developed many of the skills you’ll need to do a rehab project or even buy your first rental.
Why Did You Start Out With Wholesaling?
Tell me why you chose wholesaling as your investing strategy. I’d love to hear your story and your reasons. At the end of the day, it truly is a great starting off point. I don’t regret my decision at all, and I’m so grateful for all the relationships that I’ve built in the past 5+ years.
What about you? How did you start out in real estate? Do you think wholesaling is a good way to learn the industry?
Leave me a comment below, and let’s discuss!