Newbies: Considering Wholesaling to Break into Real Estate? STOP! And Read This.

Newbies: Considering Wholesaling to Break into Real Estate? STOP! And Read This.

8 min read
Ben Leybovich Read More

I’ve known this kid for some time. His name is Stephen Barton, and we met for the first time in Lima, when he came down to the meet up I was hosting with a little known BP character by the name of Brandon Turner. I am mentioning Brandon’s name in an article yet again since I know he needs all of the free publicity he can get. (Don’t say I ain’t never done nothin’ for ya, bro.)

I received an email from Stephen a few days back, telling me his story, which added up to essentially expressing frustrations! We agreed that if he were able to put it in writing, I would help him get his message out on the BiggerPockets Blog since I felt the message was right on!

And with that, Stephen’s essay. Please enjoy, and learn from him.

How it All Started

Two years ago I took the plunge into real estate when I heard a radio announcement for a Fortune Builders event. The advertisement promised that if I was the 10th caller, I could win two tickets to attend.

I just happened to be on my way to school where I was studying business at a community college. I had injured my back from either being in the military or working various constructions jobs in my early twenties. I needed to find a better way to make money than doing physical labor, and school was just taking too long, while the bills were starting to pile up.

I, of course, won the two “free tickets,” and my wife and I were sold before we even arrived to the event. One big problem: Fortune Builders wanted $10,000 just to get started. We could not afford to pay $10,000 cash, and we were not going to take out more lines of credit just to make it happen, like the Fortune Builders staff was pushing everyone to do.

My wife had a full time job, and I had been on Social Security disability for my back. I needed to start bringing in some better income to support our household. It is really tough to live on $900 a month, but I made it work for years.

My wife and I formed our business and started marketing on Craigslist. We got a couple of leads from Craigslist, and one of them sounded pretty motivated. We ran the numbers, made an offer, and lo and behold — the seller accepted our offer.

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And Then the Panic Started…

Yikes! We didn’t have contracts. We didn’t have money to close on this deal. And we certainly didn’t have any cash buyers, either. What did we do now?!

I had just found Biggerpockets right around this same time. So, I started picking up the phone and calling anyone who would take my call. A couple of people spent some time talking to me, but one person was willing to take a look at my deal with me. Thank goodness! The best decision I could have made back then was to call BP people.

When this person I had found through BiggerPockets ran the numbers, he said that our offer to the seller of $105,000 was not bad if we were going to flip this deal, but with an ARV of $140,000, we needed to be closer to $91,000 in order to get our wholesale fee.

Related: Why Assigning Contracts Is One of the Worst Business Models for Real Estate Wholesalers

The seller agreed reluctantly to this price, and we were able to complete this deal by selling it to a seasoned investor, who paid around $101,000, all cash. In the end, after closing costs, we each made around $4,500.

This was enough to let me and my wife know that real estate was what we had to do. We knew we had to figure this out. And at the time, we truly thought wholesaling was the way to get there.

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The Reality Check

My wife and I got started doing this to simply have more income, period. We thought that wholesaling would be our “meal ticket,” but we have since realized that we are spending more in a month than we sometimes make.

To simply get started with marketing — just get onto Google’s radar, just to get your name out there — can be very expensive. Plus, you cannot “buy” your way onto Google’s page one. You have to “earn” the right to be on page one of any search. So, aside from money, it definitely takes time to gain a name in this business.

Everyone says, “Yeah, just wholesale your way to financial success.” They say, “You can make some money with wholesaling, and then use it to make down payments on cash-flowing rentals.” Be honest, how many times have you read this advice on BiggerPockets and elsewhere?

The reality is that precisely because of this mass mentality, pretty much everyone and their brother is doing the exact same thing you are trying desperately to do. Everyone is trying to get to the coveted first page in Google search. Everyone is sending letters to the same owners and making the same offers.

I am often approached by people much older than me who want to get into this because it just sounds “so easy” and because they, like us, are mislead into believing that wholesaling is a solution to something.

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The Truth of the Matter

As a wholesaler, you are sort of like an ambulance chaser. If you think I am wrong, talk to anyone who has ever sent out probate letters. Even if you just send letters to absentee owners, you have to deal with people screaming their heads off telling you to never send them a letter again or they will call the attorney general on you.

Yeah, I know some of you just take that sort of criticism and you feed off of it. For me, I tend to take everything personally, because I actually care about helping people. I simply send out mailers, and I campaign online for the simple reason that there is might be a real need that I can alleviate. And, there really is!

However, to those of you newbies trying to get started doing wholesaling I say, really try to determine what you are really looking for.

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There is No Get Rich Quick Scheme

The reality of getting rich quick is that it’s just not a reality. Furthermore, if what you are looking for is stable, recurring income, how is wholesaling ever going to be that? I feel kind of stupid now; all of this seems so obvious. But wholesaling just sounded so good back then — we were sold, and we didn’t have someone to “check our reality” for us.

I believe anyone new to real estate investing should first ask themselves why. Why do you want to be in real estate? What kind of money do you want to make? Why? When do you need it by? Since we all have the same hours in the day, why study this and not that? Why wholesaling and not something else?

For my wife and I, we simply needed more money coming in each month. We needed stable, predictable income. Yet after two years as a wholesaler, I am realizing that the only thing I succeeded in creating was a full-time job!

Yes, a J.O.B. — or being slightly better off than broke. The hope of being able to start off doing deals on your own is not very realistic. The hope of making enough money for down payments on rentals is not very realistic either.

The reality is that there are just so many people wholesaling right now, in any market, in all markets. If you are looking to get started, you need to understand that while the idea of wholesaling can be exciting, it’s really hard work, and the work never stops. You will be taking calls from people who received a marketing piece from you, and they are mad. I have been threatened legally and physically. We have easily spent on average $2,000 per month for the last two years — that’s $48,000 of cold, hard cash just to remain in business.

Related: Hoarder House, Fallen Foundation & Drunken Neighbor: Why Wholesaling Isn’t as Easy as It Seems

Just think, this money could have been put into a nice down payment for a small multi-unit rental property, or in our area, that could have purchased two rental properties for cash outright. These could have rented for $600/month each, and that’s a very conservative estimate. Even going by 50 percent rule, that $48,000 could have gotten my wife and me $7,200 of cash flow — a cool 15% COC return!

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Conclusion

My wife and I formed our business because we wanted more stable income each month. Scratch that — we needed more stable income each month. We needed it like a fish needs water, and we thought that wholesaling would get us the money to buy rental properties. Now we have learned that we were sold by the gurus.

Here’s the funny thing, and it showcases how we can sometimes get tunnel-visioned and miss the forest for the trees. Throughout all of this journey, my wife and I have read every article and listened to every public podcast Ben has done, and both of us have always found ourselves drawn to the simplicity and common sense of his philosophy. And yet we were so committed to our ideal that we drowned the logic out!

One of the biggest ideas that Ben comes back to is “start with your why!” There are many ways to make money, but your end goal determines the most appropriate path for you.

I’ve heard many times Ben say, “If what you want is cash flow, why not get started right away?” In other words, if your goal is to start earning passive cash flow, why waste time wholesaling?

My wife and I were always aware of Ben’s philosophy, but chose to look the other way — until this month. We did our year-end, put numbers on paper, looked back at what we’d accomplished, and the reality hit us rather hard. We came up way short! Way short!

It was sort of depressing.

My wife and I talked, and we agreed, in retrospect, that had we just spent the last two years focusing less on the promise of fast cash and more on understanding the principles of cash flow investing and creative finance that have made Ben and so many others successful. Ben does such an a good job of teaching, we know we could have easily had more than a couple of units by now. And with those units, we would have had some recurring cash flow, some principal pay-down, and potentially some appreciation!

Related: An Investor Analyzes: Is Wholesaling a Good Way to Break Into Real Estate as a Newbie?

As I’ve heard Ben say more than once, including on that episode of the CardoneZone show, the beauty of income-producing real estate is that you don’t have to be the smartest guy in the room. Just doing OK deals can help us retire more securely over a period of time.

By contrast, I feel like to be truly successful at wholesaling, you have to become the best, and few people are ever able to get there. We are switching gears this month! It’s never too late to get started. We bought into the hype of wholesaling real estate, but now it’s time for some actual wealth-building.

I hope this helps some of you out there looking toward wholesaling as a means of making it in real estate!

Investors: What has your experience starting out been? Do you think wholesaling is a feasible way to break into the industry? Why or why not?

Let me know with a comment!

I’ve known this kid for some time. His name is Stephen Barton, and we met for the first time in Lima, when he came down to the meet up I […]