Anyone Having Trouble getting started and need some guidence...Ask away!
Washington DC, Washington D.C. · Member since 2011 · 25 posts · 25 votes
I wholesale deals in the Washington DC, Maryland, Virginia, Market, I enjoy doing deals and helping others get started. Just wondering if anyone is running into roadblocks starting thier wholesaling business. Lets start a discussion
Even with an S-corp, this SET avoidance may or may not work, and may or may not matter.
If you make, say, $10K a year from your business, and a reasonable salary for the job you're doing would be $20K a year, then you won't get away with paying yourself $1 in salary and distributing the other $9,999 as dividends. The salary is subject to SET, but dividends are not.
OTOH, if you make $40K a year from your business, and a reasonable salary is $20K, you could distribute $20K as dividends and other $20K as salary and pay SET only on the $20K salary.
Yet another factor is there is a limit on the amount taxed for social security (the bigger portion of SET) of $110,100 in 2012. If you have a good day job, and make that much or more, you won't be paying the social security portion of SET on your RE income in any case.
My response in your other thread, Cara Smith was more general. New investors often get wrapped up in setting up LLCs, thinking up company names, building a "power team", designing business cards and other minutiae. Doing all that stuff makes you feel like you're accomplishing something. But it really doesn't mean squat. What matters is looking at properties and making offers. Get out there and buy something, or at least work toward making deals.
Jonathan E., if you're paying tax on your gross earnings, regardless of your entity structure, you need a new CPA.
Here's an article that explains it:
http://www.biggerpockets.com/renewsblog/2006/11/25/wholesaling-real-estate-basics/
Bruce Duval Did you have a mentor?
Kyle J. not officially. I never found anyone that would officially "mentor" me. I just learned from different people who had expertise in different areas. I still do. The best way to learn is to partner with someone and create value for thier business while watching what they do. Very few people will turn down help, very few people are creative enough or willing to do this. It works
Sounds like you're off to a good start Bruce, with that attitude, surround yourself with experts in their area and learn from them!
I see you're in DC, there is one place there that seems to be for sale I'd like to flip......I think you call it congress! LOL
First of all I would like to thank you for creating this thread!
I am starting to get the ball rolling and I seem to have a few pieces of the puzzle I am missing. I have a marketing plan in place. I am placing out bandit signs, running an ad in the local paper, using craigslist and hopefully sending out some yellow letters to absentee owners.
I have a few contracts I have found on the internet that other people have been using. I have read them over and everything looks good (to me). Should I have these reviewed by a lawyer? Would you mind emailing me the contracts you use?
It seems like I have read every book regarding wholesaling. I think I have over looked the process of after I have the contracts signed how does the closing process work? I live in Illinois, how do I know if I have to use a title company or an attorney to close the deal? I Have never bought a house so I am not familiar with the process I am young still, not that it's a bad thing. That is all I can think of now but I am sure by the time I hit submit I will have thought of more.
Bruce, that's great advice. I always tell newbie wholesalers, Stop spending money on courses that promise to drop dollars out of the sky. Consistent and targeted marketing drives leads and sales... Wholesaling is simple but not easy...
first of all its great to see somebody helping somebody out, and not be a jerk about a little "competition". I personally don't believe there is competition in this business, just a bunch of people scratching other peoples back.
That being said, I went on the rental list on craigslist in my Jacksonville, fl area and went down the list and emailed a BUNCH of people inquiring if any of them had any "problem" properties. needless to say ive gotten a few irate people emailing me back saying im the scum of the earth and that I should get a real job.
so im kind of thinking that my email didn't really send the right message, or maybe it was just him. My question is this(I hope it hasn't been asked): whats the best way to word an email of that nature? or a yellow letter? and when your direct mailing people, do you hand write the letters? by the sounds of it you have to send out a lot, not that im lazy because im not, but that's a lot of hand written letters. Would it be alright to type them up?
im sure ill have more questions but that's a good start. im sorry if its already been asked, its getting late, and I have a lot to read on here.
Thanks!
Hey Bruce, new to wholesaling I sent some posts out on a few forums here on bigger pockets and I was eventually steered here by Kyle J. Thank you Kyle. Here is a recent thread I posted as well as my initial question. From what I can see your the type of person that understands the true meaning of lending a helping hand. Thank you for that. Here is my most recent post and then I will submit my first one in a second thread. Thanks again.
Ideally I would eventually like to streamline my lead gen process and make it work for me instead of me working for it? Im aware and understand most pieces of the puzzle on what it takes to do this however Im novice on putting them together and fuzzy on some of the details. Supposedly a couple of guys that run Real Estate Tycoon will show you how and manage it for a fee but im not so sure. I have been trying to find some actual reviews on them and not just another back link to there material. Any one ever heard of them or anyone know of a cheap SEO/social/online marketing options that can deliver and wont drain the pocket book? Anyone know of any other web based resources that can identify bread and butter markets nationwide. I appreciate everyones help and feedback. Will be sure to share my findings as well. Im eager to fail because I know through failure I will no what NOT to do.
Im just getting started and starting out with wholesaling. I could use a seasoned mentor but in the mean time I need some help with these questions.
Are there any online tools or resources you look to identifying properties in bread and butter Nationwide markets/neighborhoods
What strategies do you typically use when locating properties for buyers?
Any tips on locating repair properties in bread and butter areas.
Douglas Rath, check with your local real estate investors association to see what the custom is in your state. As far as your email, I'd be interested to see what you put in it lol. You may be targeting the wrong people. I'd make sure that your targeting properties for sale in a lower price range ( #'s depend on your market). Look for motivation in whatever they post about the property. As far as the angry responses, Sometimes it happens don't be discouraged.
Randall Gillette welcome to wholesaling. This business is simple but its not easy, no matter what they tell you right before you spend $97. Im not supporting or bashing the product you mentioned (I bought it myself) and I think its a great supplement to your marketing program. But make no mistake, its not a substitute for direct mail marketing, referrals, networking and getting to know your market. Honestly I;d reccomend learning to wholesale in your backyard before trying to go national. One reason is, that in order to do a remote deal you have to instruct buyers, sellers, title companies, agents, property visits, etc blindly. It can be done but its much easier with experience. While the internet can be a great tool, wholesaling is not an online business. Just my thoughts......
i don't completely understand wholesaling but it seems VERY difficult. most sellers are underwater & if they had equity, they'd sell the house themselves.
if they can find a cash buyer, they still have to get the bank to approve the short sale.
correct me if I'm wrong but I would think that 99% of wholesalers never make a sale.
99% is a little steep Scott, but I do agree most people in business don't ever succeed because of 2 things.
1. Most people are not conditioned mentally to run a business. It takes organization, tough skin consistency, willingness to sacrifice, and alot of other characteristics most people don't have. Most people send out a few letters, put out a few signs, run into a few no's get cussed out and then quit. The truth is after you get things rolling it becomes alot easier.
Lack of Education
2. While many sellers are underwater smart wholesalers, learn marketing strategies that completly bypass them. I actulally don't talk to them that often. There are plenty of houses with equity, they were all bought before 2000 *hint.
The people we work with are trying to sell the house themselves, and they have no clue how to find a Cash Buyer. In fact most of the time the issue with the house is not about equity or foreclosure. Its about repairs. The best deals come from people who have a house that will cost them too much to repair and sell to a retail buyer. If your dealing with equity adjust your marketing.
A Few questions:
1. Do you set up an LLC or corporation before any investing is done?
2. Do you spend any money in wholesaling besides marketing?
3. Corollary to number 2: Can you get stuck in a wholesale?
4. What do you want in a wholesale property for it to be a viable investment? i.e. Do you really want that vacant beatup house out in the middle of nowhere?
Thought of another question in my sleep last night
what if you get a property under contract, you send the contract to the title company, and come to find out there are a few liens, what have you...its just not a clear clean title. what are the chances somebody will still buy it? what do you do? just let the contract lapse? try and get the seller to pay them off? can you re write a contract and offer less money to compensate?
Douglas Rath People will still buy the property as long as it makes number since. If liens come up you can negotiate the price lower with the seller to compensate for the lien. If that doesn't work out you can always try to work out the price of the lien with the lien holder.
Cara Smith I'd recommend doing a corporation for tax purposes.. with the s corp you get taxed on your NET not your GROSS. The majority of your expenses will be on marketing.. I know some investors who spend about 7k a month on direct mail.
@Jonathan E. I was told on another forum post that I shouldn't bother doing anything yet. I guess my ultimate question is , do I need to start a business before doing my first deals?
Here's the link http://www.biggerpockets.com/forums/93/topics/79907-new-to-investing
The benefit of the S-Corp (for many investors) isn't that you're taxed on the net instead of the gross -- this is true regardless of how you hold the property, as long as you itemize deductions -- but that you won't have to pay self-employment taxes on the entire amount of net income.
For most people starting out, they won't make enough money to save anything considerable on SE tax, though there may be other reasons to have a business entity (legal/asset protection reasons).
Even with an S-corp, this SET avoidance may or may not work, and may or may not matter.
If you make, say, $10K a year from your business, and a reasonable salary for the job you're doing would be $20K a year, then you won't get away with paying yourself $1 in salary and distributing the other $9,999 as dividends. The salary is subject to SET, but dividends are not.
OTOH, if you make $40K a year from your business, and a reasonable salary is $20K, you could distribute $20K as dividends and other $20K as salary and pay SET only on the $20K salary.
Yet another factor is there is a limit on the amount taxed for social security (the bigger portion of SET) of $110,100 in 2012. If you have a good day job, and make that much or more, you won't be paying the social security portion of SET on your RE income in any case.
My response in your other thread, Cara Smith was more general. New investors often get wrapped up in setting up LLCs, thinking up company names, building a "power team", designing business cards and other minutiae. Doing all that stuff makes you feel like you're accomplishing something. But it really doesn't mean squat. What matters is looking at properties and making offers. Get out there and buy something, or at least work toward making deals.
Jonathan E., if you're paying tax on your gross earnings, regardless of your entity structure, you need a new CPA.
Cara Smith If you have the funds and you know you will be successful in real estate and will treat it like a 9-5 job then yes set up some type of entity. If not then try the business out and after your first deal or two set up shop. I would set up an s corp because of more tax breaks. The following are the factors that, in my experience, are most likely to lead an entrepreneur to form a corporation rather than an LLC:
An expectation that outside funding will be sought, especially from institutional investors (venture capitalists, in particular, tend to invest only in corporations). So after your first 1 or 2 deals make a loan from yourself to your business and charge an extremely high interest rate to yourself ;)
A desire to offer tax-advantageous equity ownership interests to employees and independent contractors (more straightforward to accomplish with a corporation than with an LLC). I have younger nephews on my payroll that get paid the max amount for lower tax rate. Also when you have employees you can cut yourself and nice tax free dividend... just make sure you have a few or more employees.
Prospective customers may feel that a corporation is more substantial and more "real" than an LLC (marketing and sales consideration).
Cara Smith Thanks for posting. No disrespect to any of the above comments but Cara the more time you waste trying to figure out S corps LLC's etc the longer its going to take you to get started doing what matters. Marketing to Sellers, and marketing to Buyers. Jon Holdman was totally right in his last paragraph. This is not something you need to worry about until after you get your feet wet. Your contracts and your knowledge of how to put deals together will protect you legally.
And you need not worry about how to manage dividends, Taxes, and employee wages until you actually have made some money. The main thing you have to battle in any new endeavor is fear. The more technical roadblocks you set up for yourself, the less likely you are to get started. Too many new folks waste time on setting up websites, buying courses, learning 4-5 strategies, building a power team, ordering materials, attending webinars etc..... These people dont make it. TRUST ME, I was almost one of them. People tell you to do all this stuff to fatten up thier couses so they can charge more money. Wholesaling is about marketing. Go get a list of high equity absentee owners in a zip code where Cash buyers are purchasing, and start a marketing campaign!
Cara Smith sorry for the delay here are your answers
1. NO
2. Not really, mabey gas, mabey an earnest money deposit(no more than $100 I rarely even use that much.)
3. Not if you have the proper out clauses in your contract, and you don't make the seller feel that the house is already sold as a done deal. I normally tell them that I use private funds to buy and that I have to get the appoval of my funding partners In order to complete the purchase. My clause is "subject to partners appoval". I let them know that we need to have a purchase agreement in place to let them (my cash buyers) know that we've agreed on price and that we are serious about the deal. If you don't get a buyer, your partners don't approve and the contract is null and void.
4. No, You want vancant beat up houses in the middle of everything. Find out where buyers are purchasing and find your houses there.
I have never had a seller ask me how I'm funding deal. Unless it was a institution/bank owned property. A motivated seller in a distressed situation doesn't care. I call them DON'T WANTERS..
True its rare, but I brought it up due to the person that asked a question. Though most don't care HOW you buy, all of them care IF you buy, and if you give the seller the impression that your going to personally close on the deal for sure. In the event that you don't get a buyer, or the process is delayed you potentially could open up a can of unneccesarry worms.
Sure you could say that if its a deal, then someone will buy it, and thats true to an extent, but in today's market buyers have so many choices from which to buy properties a good deal can go overlooked. Especially if your new (like the person I was answering the question for) and have a limited buyer's list.
In addition, in my experience it becomes a great negotiation strategy, because its your funding source's fault that you have to drop the price another 10K not yours. I know everyone might not agree with this but it works for me. It's allowed me to renegotiate lower prices without losing trust from my seller, eliminates sellers calling me every 2 days asking when will we close, eliminates the seller from ever asking me for earnest money upfront, and occasionally allows me to cancel contracts without argurment.
I also use a 7-10 day Inspection contingency to confirm my repair estimates in all my contracts. A tactic I use just in case I have to renegotiate a lower price. I have solid pocket buyers that I call immediately when I get a property under contract and they always get first looks. So, most of my killer deals I never blast out to my buyers list.