What is the hardest part of wholesaling?

28 Replies

I am giving a speech to a group of investors/new wholesales and I wanted to get some case studies from outside sources.

I never found that finding deals or finding money was the hard part it was having to stress about if the end buyer was going to close or not.

What are your thoughts on this topic, what is the hardest part of wholesaling for you?

From the wholesalers in my market, I have noticed among them the hardest part is spending the money for things like direct mail campaigns and bandit signs.   There is no shortage of buyers in my market buy for the new wholesaler, spending the money is the hardest part for them. 

Yeah, that's a good one!

What I did was I would get sponsors, lenders, agents etc. and have them pay for the advertising.  They get their name out to my list and problem solved!

Also, another big move I made early on, connecting with every buyers agent in my area and ask them what their buyers are looking for.  I didn't ask for access to the list, names, numbers etc. I was now providing the agent with a service, which in return I got a portion of their commission if I procured a deal plus I would get my cut from the wholesale which wasn't very much $2-3K but each deal would GROSS $5-6K and most of time with no money out of pocket for any overhead.

Originally posted by @Curt Davis :

From the wholesalers in my market, I have noticed among them the hardest part is spending the money for things like direct mail campaigns and bandit signs.   There is no shortage of buyers in my market buy for the new wholesaler, spending the money is the hardest part for them. 

I can attest to that. I've been scouring the Internet and driving for $ for the last three weeks and I've had a few leads come from it   but I literally just broke down 10 min ago and bought a list. Now I gotta buy stamps, post cards or envelopes which will put me in it for almost a grand, knowing i still have to do 4-5+ more mailings after I do this first one.... But if it works for others, it's gotta work for me....right? 

FINDING MOTIVATED SELLERS is THE challenge for wholesalers.

This is a marketing challenge.  I always say, you may be able to  buy a house with no money, but you can't buy advertising with no money.  Successful wholesalers are really marketing people and contract negotiators.   Most marketing is pay to play.  Wholesalers will NOT build their business with free posts on Craigslist.

So, assuming they can pay for advertising, the issue becomes, what does it cost to generate a deal?  If I do a marketing campaign - AdWords or direct mail etc - my cost per lead could easily be $100.  The average wholesaler can close (get under contract) 1 deal out of 20 leads.  So their cost per DEAL is 20 x $100 or $2,000.

If they flip the house to a cash buyer for a $3,000 assignment fee, they'll say "I made $3,000 on that flip!".  Nope.  They made $3,000 revenue - $2,000 marketing cost = $1,000 profit.  All that work for $1,000.  Quickly they find that it's a crappy job and if they stop marketing the whole thing STOPS.

Now, there are some markets where wholesalers can make much larger assignment fees.  I know guys that can get $20K+ assignment fees in their market.  Well, I'd spend $2000 ALL DAY LONG to generate deals with $20K assignment fees.

The reality is, most wholesalers are much closer to $2K than $20K on their assignment fees.  The first key is to understand your cost per lead and cost per deal so you know if you have a profitable business.  The second key is to do more than just wholesaling - do the flips, get licensed and list properties, etc.  Wholesaling alone if often not a viable business in many markets.

When looking for sellers, why do wholesales look at the market value or even try to find deals at all?

What I did was connect with every listing agent in my area and they would bring me information directly to me.

They would list a home at $200K and tell me that they would take 180K and I already have buyers lined up to pay $190K so they think they are getting a deal.

I would give incentives to my agents for every $5K over my minimum I would pay them 10% so $500 every $5k.

The process works for me.  I learned early on that the big secret to wholesaling is access to information and relationships.  The rest falls into place.

While we are on the topic of wholesalers, I own four houses and four commercial buildings, yet I am getting at least one wholesaler letter per week, all inquiring about the same cape cod house that I own.  I don't know what the criteria is for these wholesalers, but they are all focusing on my one little cape cod house.  Go figure.

@Jeff McDermott .

Not trying too be mean and from your perspective I can see where it makes sense (as a wholesaler). however:

"They would list a home at $200K and tell me that they would take 180K and I already have buyers lined up to pay $190K so they think they are getting a deal"

Any agent that is doing that needs to have their license removed. It is highly unethical and they are failing their client. Their duty and responsibility to their client is to be 100% in their best interest. Giving you information to allow you to make a low offer or put you into a better bargaining position for their property goes against that. 

Just my 2 cents.

I am a full time wholesaler in the Seattle market where wholesale fees easily avg $10,000 or more. In order to make a living off wholesaling (and Ideally get list-backs), you need VOLUME. In order to get volume, you need to mail out a TON of direct mail, door knock, etc. That means you get a ton of calls, have to go on a ton of appointments, do a ton of analysis & lock up deals. The MLS is a waste of time here except for a select few players who have all the cost savings in place to dominate. So, I think the hardest part of wholesaling, with a full-time wholesaling business, is keeping a good team in place as well as having a killer automated and well oiled system in place to handle the volume that is required to scale = make a living (we use Podio and it is AWESOME). It's actually easy to generate leads & get deals sold, but it's harder to scale the business and manage your team so you can generate & handle the volume. A 1 person business is very limiting in what you can accomplish. Also the key to winning in wholesaling is follow up with your leads, so you must have a very efficient way to manage your leads for easy follow up.

Originally posted by @Mike Cumbie :

@Jeff McDermott.

Not trying too be mean and from your perspective I can see where it makes sense (as a wholesaler). however:

"They would list a home at $200K and tell me that they would take 180K and I already have buyers lined up to pay $190K so they think they are getting a deal"

Any agent that is doing that needs to have their license removed. It is highly unethical and they are failing their client. Their duty and responsibility to their client is to be 100% in their best interest. Giving you information to allow you to make a low offer or put you into a better bargaining position for their property goes against that. 

Just my 2 cents.

 True! I should have added more detail.  The agent knows its over priced but took it at a higher price just to get the listing.  Thats what I meant

Originally posted by @Julie Clark :

I am a full time wholesaler in the Seattle market where wholesale fees easily avg $10,000 or more. In order to make a living off wholesaling (and Ideally get list-backs), you need VOLUME. In order to get volume, you need to mail out a TON of direct mail, door knock, etc. That means you get a ton of calls, have to go on a ton of appointments, do a ton of analysis & lock up deals. The MLS is a waste of time here except for a select few players who have all the cost savings in place to dominate. So, I think the hardest part of wholesaling, with a full-time wholesaling business, is keeping a good team in place as well as having a killer automated and well oiled system in place to handle the volume that is required to scale = make a living (we use Podio and it is AWESOME). It's actually easy to generate leads & get deals sold, but it's harder to scale the business and manage your team so you can generate & handle the volume. A 1 person business is very limiting in what you can accomplish. Also the key to winning in wholesaling is follow up with your leads, so you must have a very efficient way to manage your leads for easy follow up.

 Well said! Exactly how I end my sessions, build a team and automate!

I haven't completed a wholesale deal yet, but the reason I stopped trying was because I couldn't find a motivated seller. They're out there..but I couldn't find them. It seems very easy to find a buyer..at least in my market, but getting that motivated seller was tough. 

The hardest part for me was finding the right mentor and trainer to get me started in this business and knowing who was legit and who was a P.T. Barnum.

Once I found the right guy, it was easy.

I'm so glad you raised this post Jeff McDermott. IMHO, I think the hardest part is the mindset of the wholesaler. It should be treated as a business and not a hobby. It needs consistent action in every single part. Two factors are the number of hours one is willing to spend every day and one's monthly budget for prospecting.

The second hardest part is MARKETING - for both sellers and buyers - that of course depends on consistency and the market demographics. In a market where new businesses are opening and old ones booming, finding buyers may be easier and vice versa.

Finally, the mindset of the general populace also plays into it. An open-minded city is a perfect breeding ground for wholesaling success. On the flip side, if you operate in a market where the "real estate professionals" are stuck in their old ways, homeowners won't even look your way even if you offered them 200% x ARV! I've heard both sellers and realtors say "My realtor says it's illegal", "Hey, you can't do that here!", "I'm gonna take this to the Attorney General, you [email protected]%#&!e" LOL

But there's one thing that trumps all these challenges - a fanatical hunger for success (which most of us don't really have)

Just my two cents! LOL

Originally posted by @Jeff McDermott :

I am giving a speech to a group of investors/new wholesales and I wanted to get some case studies from outside sources.

I never found that finding deals or finding money was the hard part it was having to stress about if the end buyer was going to close or not.

What are your thoughts on this topic, what is the hardest part of wholesaling for you?

Jeff

 This would be my list if I was speaking again.

1:   First find buyers by attending as many local real estate meetings as possible.

A : find exactly where they are buying and why.

2: Find and Focus on certain areas only to start. I looked within a 10 blocks radius in my hometown ( when I first started. Maybe 1000 or so houses I looked at those blocks. Keep in mind we are small town.

3: Learn everything about those areas.

a) High, and  low rents for those areas.

b) Sales prices high, and low and why?

c) There should be people rehabbing in area (Talk them, ask to walk some of the houses) Learn how much rehab per house  that area . It will help down the road. Remember that one area I might add 30k per house and another are it might be 15k.

d) You will not become the expert over night. Instead be the eyes and ears of the potential buyers. this is great way to get started.

e) My wholesale deals started to include both an inspection, and along with two contractor repair costs. With comps (BPOS) in some areas.

Regardless of what you are doing your mindset of being successful and not stopping (keep on doing your work). Promise this is not a simple thing like most make it out to be. Hard work, determination, and getting out there is the key. Attending meetings and networking with like minded individuals also helps. 

Bare with me just rambling now too much coffee...

Alex

Originally posted by @Judy P.:

While we are on the topic of wholesalers, I own four houses and four commercial buildings, yet I am getting at least one wholesaler letter per week, all inquiring about the same cape cod house that I own.  I don't know what the criteria is for these wholesalers, but they are all focusing on my one little cape cod house.  Go figure.

Judy a lot of times the big gurus tell new investors to find search for cash buyers in the area. For example we purchased 102 unit in Gaffney Sc. Cash on a weekly basis we would get at least two wholesalers post cards or fliers in mail.

Just my two cents why you get the flyers...

Alex

Originally posted by @Jeff McDermott :

Yeah, that's a good one!

What I did was I would get sponsors, lenders, agents etc. and have them pay for the advertising.  They get their name out to my list and problem solved!

Also, another big move I made early on, connecting with every buyers agent in my area and ask them what their buyers are looking for.  I didn't ask for access to the list, names, numbers etc. I was now providing the agent with a service, which in return I got a portion of their commission if I procured a deal plus I would get my cut from the wholesale which wasn't very much $2-3K but each deal would GROSS $5-6K and most of time with no money out of pocket for any overhead.

 Jeff, would you mind explaining your arrangement with realtors in a little more detail? Sounds really interesting. I'm about to get into the wholesaling market with a friend in the Seattle market. We are looking heavily at partnering with other wholesalers and other real estate professional and agents. 

the most valuable commodity to me is information and when working in the real estate industry who has access to real time data more than realtors?

They have everything you need. Buyers, sellers, pocket listings, they will spend their own time and money to market and find what you need.

Originally posted by @Austin Davis :
Originally posted by @Jeff McDermott:

Yeah, that's a good one!

What I did was I would get sponsors, lenders, agents etc. and have them pay for the advertising.  They get their name out to my list and problem solved!

Also, another big move I made early on, connecting with every buyers agent in my area and ask them what their buyers are looking for.  I didn't ask for access to the list, names, numbers etc. I was now providing the agent with a service, which in return I got a portion of their commission if I procured a deal plus I would get my cut from the wholesale which wasn't very much $2-3K but each deal would GROSS $5-6K and most of time with no money out of pocket for any overhead.

 Jeff, would you mind explaining your arrangement with realtors in a little more detail? Sounds really interesting. I'm about to get into the wholesaling market with a friend in the Seattle market. We are looking heavily at partnering with other wholesalers and other real estate professional and agents. 

 Austin, if you're looking to get into the Seattle wholesale market, you might want to contact @Julie Clark . She is a full time wholesaler/investor who also runs a REI group.