Review of first full year of wholesaling

18 Replies

Like many, I started wholesaling as a first step towards real estate investing. I've been on BP since 2011 and in 2013 I finally decided to give it a try. I kept track of my progress here on BP early on, but I haven't posted anything for a while. Now - a little over a year later -I want to discuss how it's been going. 

To summarize my first year, I would say it was slightly above average. Let's talk cash first. I closed 2 deals - rather - WE closed 2 deals (my mentor/partner, my girlfriend/partner, and I). First deal netted us $14,000 and the second $18,000 for a total of $32,000. We split 50/50 with our mentor, so we made $16,000. Not too bad for our first year. Funny thing is we've been marketing all over northern NJ and the 2 deals we closed were within 2 miles of each other. I'll discuss the deals individually in a separate post. 

We also missed out on a couple of deals. 3 to be exact. I remember them well because I replay the scenarios over in my head to dissect exactly why they fell apart. One deal that still hurts is one that we actually did all by ourselves. We found the deal and a buyer, negotiated the price, and squeezed a $5k profit in for ourselves. The buyer didn't even want to do any inspections and was ready to close in a week!  We had the contract all signed and 2 days later received a letter from sellers attorney reneging the deal. Anyway, maybe I'll go into detail about each collapsed deal in a different post. 

What we've done right: automating systems wherever possible, invested heavily in marketing, improved negotiation tactics, improved deal analysis and running comps, taking internet marketing and SEO seriously, finding unique buyers, and developing a good "instinct" for what is a deal and what is not. 

What we can improve: networking, being more active in REI clubs, being more active on BP and other sites, negotiating still needs work, better system for organizing leads, expand marketing and get more creative.

Goals for 2014/2015: Double revenue, complete deals without mentor assistance, expand marketing, target different types of motivated sellers, grow our name and reputation in the RE community, and do more deals! 

In May 2014 we formed our LLC. It was so easy! After we did it I definitely felt silly for not having done it much earlier.

And as a matter of fact, as of today I am dropping 8 hours a week from my full time job, working 32 instead of 40. Those 8 hours are being dedicated to growing our business.

I have so much more to share about the experiences I've had starting out in real estate investing, I've learned so much this past year. For now I'll stop here, and end by saying that I've listened to a lot of podcasts & read a lot of books, but there is some serious "untold" stuff in wholesaling that no one is teaching, and it can only be learned thru experience. 

No disrespect, but you are not investing in real estate - you are dealing in real estate. It can be VERY profitable, and you can automate many aspects to make it more passive that it otherwise would be, but it is simply self-employment.  That $16k is taxable as ordinary income. If you do enough deals to make a living, you will also be on the hook for self-employment tax, and likely SS and Medicare taxes. (You can call 2 deals in one year a hobby). 

If you don't want to simply trade your current job for a self-employment job for the next ?? years, consider learning buy and hold and multi-family investing to develop passive income that will get you out of a job (or allow you to do whatever kind of work you'd like).

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Congradulations!  

Good start to your business.

Looking forward to hearing more about your deals and the experiences.  

You write well and do a good job explaining so I think you will be able to help a lot of people by laying out what your progress was/is like.

@Doug McLeod , I actually own a duplex I bought in 2011, and purchased it with some of my own money I saved up. I've invested around $5,000 in marketing for my wholesale business. As far as I'm concerned I AM an investor. So no disrespect, but you don't know what you're talking about.

A hobby? I doubt that anyone spending as much time, effort, and money doing what I'm doing would call it a hobby. Do me a favor and save your pedantic comments for someone else, I'm not interested. Thanks! 

Originally posted by @Silvio L.:

@Doug McLeod

A hobby? I doubt that anyone spending as much time, effort, and money doing what I'm doing would call it a hobby. Do me a favor and save your pedantic comments for someone else, I'm not interested. Thanks! 

Hey Silvio,

First off, great job taking action and having success, very impressive first year!!! I did want to say that I suspect Doug's comments were meant to be helpful more than pedantic or derogatory. He's correct that, unless you automate your systems or hire employees, you'll still need to put hours in to equal a payday. Rentals and notes/lending are more passive and I think that's the point he was trying to make (perhaps poorly?). I do understand you've invested in education, time and of course, money, however, the word "investor" generally conjures visions of owning an asset and holding for cash flow or appreciation. I would call you an investor as well, and I think Doug would too, he was just trying to broaden your horizons a bit. 

Regarding the "hobby" comment, I guess you don't know what you don't know and that's why you took great offense to it but, in reality, Doug is trying to give you a heads up in relation to taxes. As your wholesaling business becomes more successful, the IRS won't consider it a hobby and you'll have to start paying all sorts of fun extra taxes you're probably not even aware of at this point. For your sake, the longer wholesaling is a "hobby" for you (in the eyes of the gov'mt), the better!

I encourage you to reread what Doug wrote and look it at from a standpoint of his trying to enlighten you, not disrespect you. Man you Jersey guys are tough :)

Troy

@Shaun Reilly  - What @Troy Sheets  said!  One of my co-workers recently commented about another co-worker (whom coworker #1 did not know personally) that this second coworker seemed to think himself a big shot. I told him, "Nah, he's just from New Jersey -they all come across that way."  LOL - again, no disrespect. And congrats on your successful wholesale deals and your duplex!

great work Silvio.  investing, dealing, trading in real estate, whatever you call it, it doesnt matter.  

hobbies are like crafting, bird watching or something else that's designed to occupy time and energy, but not make money. what you're doing is NOT a hobby, period, end of discussion.  

very good of you to recognize the weak spots.  have you outlined a plan to attack them?  what were the initial purchases prices for those two places in NJ?  i ask because those are some hefty profits.  

keep it up!

@Patrick Britton Thanks for the encouraging words! 

In terms of my weak areas my strategy revolves mostly around consistency. There are plenty of things I need to improve on but I think the key is to find time to work on all those things so they gradually but simultaneously improve over time. Otherwise I might find I'm really good in 1 area but severely lacking in another. Time management is an issue in and of itself so I'm working on that also. 

Deal #1 we got under contract for 61k and wholesaled for 75k, if I recall correctly. I posted some of the details about that deal about a year ago. 

Deal #2 was a 3 fam in a "hot" area in northern NJ right now. This one was easy in the sense that the seller's asking price was right where we wanted to be from a wholesale perspective. No negotiation necessary. We got it under contract for $100k and found a buyer the next day at $118k. Of course it wasn't all that simple but it worked out in the end so I'm grateful for that.

@Doug McLeod  Seems we've gotten off on the wrong foot. In my experience, starting a thought with the words "no disrespect" usually doesn't bode well. But in any case, perhaps you were trying to offer constructive feedback and positive advise with a look to the future of my business, which I do appreciate. However, the wording of your post didn't strike me as being positive. Perhaps you misinterpreted my post as gloating so you took it upon yourself to "bring me down to earth", but it seems to me discussing future tax implications was well beyond the scope of the topic I created. Furthermore, I believe anyone that has worked as hard I have would take offense to your "hobby" comment, whether they are from New Jersey or not. But I appreciate your feedback nonetheless! 

"Hobby" was purely meant in reference to tax implications. You may want to claim your profits this year as hobby income, if possible, rather than self-employment income. I see Washingtonians can misread intent as well. 

In Texas, "no disrespect, means "no disrespect", but it does indicate you might not like what comes next - though it is intended for your own good.  I'll try to be more gentle next time.   :-)

@Doug McLeod Point taken about hobby-income vs tax-income, but the phrasing of your point:

"You can call 2 deals in one year a hobby" 

Didn't do a great job of making that distinction. Perhaps with better wording the misunderstanding would have been avoided. Admittedly, I am not so knowledgeable in the tax arena so the term "hobby" did not strike me as a tax related term. 

I've learned something from you today - That hobby income exists! Something I did not know, so thank you for that information as I will now look into it a bit more.

I still maintain that I AM a real estate investor though, so to each his own on that one! :)

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@Silvio L.   congrats on your success.  I too just finished my first year as a real estate investor, and I am focused on wholesaling.  I have closed multiple deals and have invested a lot of time and money into marketing.  Similar to the way that buy and hold investors, invest time into managing tenants or property managers (because managing PMs can be a job) I spend my time and money on marketing for and managing relationships with sellers. 

It's not important whether or not your considered a real estate investor or whether or not it's a hobby.  You and I both know it's not a hobby.   What's important is that you are setting your goals and reaching them.  Congrats again and keep up the good work!

Congrats Silvio! 

May I ask how did you come across your mentor/partner?

I'm am still in my education mode, but I want to start taking action soon.

Thanks for sharing!

@Ben G.   Sounds like you've had a great first year. Congrats! Agree with everything you said. 

@Cass R. Smith    It's awesome that you have just jumped in and already have a deal lined up. Nice work! 

@Brian Lee   He was the real estate agent that helped me buy my first property. I got to know him and found out he was also a real estate investor. When I decided to finally start wholesaling, I gave him a call and he took me under his wing. It's all about networking and asking questions. 

@Hardley Dupont Like many others who start wholesaling, I do plan to branch out into other areas of real estate. I am definitely looking to continue with buy and holds for long term passive income, and I do want to try my hand at house flipping.  But what I truly would love to do, what I have a strong interest in, is buying mortgage notes. Something about the idea of "being the bank" is very attractive to me. But that's a whole other ball game so it'll take some time before I delve into that.