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.