Property Wholesalers – Know Thy Market!

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One of the questions that I get asked most frequently from aspiring wholesalers is, “How do I know how much to offer on a property?”

Just use the magic Wholesaler Formula, right?

Most people are looking for a magic formula that you can just plug a few numbers into, and out will pop the correct answer..

While there are formulas that you can use as a guide to arrive at your offer amount, there is no cookie-cutter formula that will apply to all markets and all neighborhoods across the board.  In some areas you might be able to get away with contracting deals at 65-70% of market value  and wholesaling them for a profit, but in markets like mine (Tampa), you are going to need to be much lower.

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Great Deals Differ from Market to Market

If you want to be a successful wholesaler, you need to hit the streets and find out what constitutes a good deal in YOUR market.  This takes quite a bit of time and effort, but it is something that you need to do if you want to start contracting deals and getting them to the closing table.

When I first started making offers on REO properties with the intent to wholesale them, I hadn’t bothered to take the time to get to know what a good deal looked like in my market.  I was just shooting out low-ball offers and getting lots and lots of rejection as a result.

After making about 100 rejected offers (give or take), I decided to take the advice of a very successful wholesaler who I saw speak at a real estate boot camp.  His advice was to pick one neighborhood or zip code in my city, and to become an EXPERT at it.  His suggestion was to take a month or two and do nothing but study the activity in this one area until I was able to spot a deal from a mile away.

Focus on a Market and Become the Expert

Since my current method of shotgunning low-ball offers was not working, I decided to take his advice.

I spent the next few months studying the activity in this area…

I drove by the sold comps to get a better idea of what the investors were buying and how much they were paying for deals.  I called up all of the “For Rent” signs in the neighborhood and asked the landlords what prices they were willing to pay for rentals in this area.  I contacted all of the wholesalers who were selling deals in the neighborhood and asked them where I needed to be at with my numbers in order to sell a deal quickly.

After a month or so of studying this area, I started to get a very clear picture of what constituted a great deal.  I started making offers again, but this time, I was able to make them with confidence because I KNEW that if one of them got accepted, I had a good deal on my hands.  It wasn’t long before I started getting deals under contract and selling them to the buyers I found while I was out getting to know the neighborhood.

While it might seem much easier to just shoot out random, low-ball offers, I can tell you from experience that if you are willing to take the time to learn your market (even if it is just one neighborhood at a time),  you will start to see things with a new set of eyes.  It will take some time and effort on your part, but if you are willing to put in the work, I guarantee you it will be worth your while.  It was for me, anyway.

Photo Credit: http://www.flickr.com/photos/katmere/ / CC BY 2.0

About Author

Formerly a bartender, Steph Davis is now a full time wholesaler in Tampa, FL. If you'd like to get an idea of what it's really like out there in the trenches, head on over to her blog: FlipThisWholesaler.net!

6 Comments

  1. Pingback: Real Estate Investing Links for August 27th, 2009 - Lifestyles Unlimited

  2. Thanks Anthony.

    I think this is an area that is glossed over by many of the gurus, yet it is one of the most important things that need to be done when you are just starting out.

    Like I said in the article- things really started to “click” for me after I had taken the time to learn a few neighborhoods..

    Take care,
    Steph

  3. Stephani,

    Truer words have never been spoken. In my market — Los Angeles — zip codes, in of themselves, are a good start. However, going block by block is where things get interesting. The zip codes are so spread out here — L.A. is close to 400 square miles — that on one block you’re leaving your front door unlocked while five blocks over you’re being jacked for Junior’s diaper money.

    To summarize you, nothing beats getting out and beating the bushes. You just might find a great deal.

    Kudos for a wonderful article.

    Anthony

  4. The idea of knowing a neighborhood makes sense. So do you think its a better idea to target a slow neighborhood and get 65 of market value or go after a hot neighborhood and get 80-85 of market value.

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