In real estate there seems to be a culture of do-it-yourself. There is a swagger amongst investors who will tell you they can do almost everything and anything in no time at all. Now, I’m sure you could learn how to be a lawyer at the public library but I think formal training might be of some value.
You can’t be all thing or all people in real estate. In the next few weeks I will write a post about forming a Master Mind Group but for now I want to give a special plug to wholesalers. I want to both convince investors to work with wholesalers (specifically rehabbers) and I want to help wholesalers add value to their services. The first step to any business is to learn the business and the next is to learn what you should delegate to others.
How to Invest in Real Estate While Working a Full-Time Job
Many investors think that they need to quit their job to get started in real estate. Not true! Many investors successfully build large portfolios over the years while enjoying the stability of their full-time job. If that’s something you are interested in, then this investor’s story of how he built a real estate business while keeping his 9-5 might be helpful.
Keep Your Friends Close and Your Wholesalers Closer
There is another cultural norm in real estate: if you can be cut out of a deal you will be. I don’t know how many times I’ve seen wholesalers, realtors, and mortgage brokers cut out of deals after performing significant services for which they were never paid. This is one reality that makes it very difficult for wholesalers to provide their best services. They have to spend almost as much time securing their position as they doing trying to get the deal done. Wholesalers don’t have the protections that realtors have. They’re actually a pretty skittish bunch. Cultivating a relationship of trust with your wholesaler will ensure they can give you the best service and increases the chance that you’ll get more good deals coming your way. The wholesaler/buyer team is much like a marriage. It can’t work very well if there isn’t trust or if only one partner is working on the relationship. In fact, I know many would-be wholesalers that leave the business because they bust the humps to find deals but then can’t find reliable end buyers. That is just a crying shame considering how rare the good deals. Help your wholesaler help you.
Value your Wholesaler
I’m sure you’ve heard the old saying, “you make your money when you buy a property.” Well that saying is true, very true. So if you find a human that has the rare ability to find and capture the elusive deal then you’ve got yourself a star player and you better move quickly to make him your franchise player.
A good deal finder can be priceless. It is hard to place a value on such a person in terms of how much time and money they might save you. But, here are some things to consider that might help you put your own value to such a person.
You make your money when you buy. Well once you’ve closed on a profitable deal the money is yours. It’s yours to capture or to loose and loose it you will if you’re not watching the details and managing the project. One poor design choice or overlooked deficiency could cost you a fortune. Diverting your attention from your deals in progress to find future deal could end up being very costly.
A lot of people say that you might be lucky to find one good deal for every 100 properties you look at. I think that is pretty close. How long does it take you to look through 100 properties? It takes me a couple weeks and I’ve become good enough at it to not have to actually visit all 100. I can screen out a good portion of properties before I actually visit them.
It takes a good day to drive around and hang up a thousand bandit signs. Not to mention the cost of the signs and the fact that so many people pull them down and throw them away. There is also a potential for getting a ticket by communities that has outlawed bandit signs.
Hours are lost talking to sellers who don’t have a deal and who may be less than 100% honest about their property.
There can be significant amounts of time and money spent in placing ads in newspapers and maintaining websites to attract sellers.
Wholesalers, Be Valuable
With all this said in favor of wholesalers I must also urge wholesalers to provide maximum value to their buyers. I get so many calls from wholesalers who say they have a great deal but the property is out of the MLS and the wholesaler doesn’t have anything in writing from the seller or even the foggiest idea of what the seller might accept. I would be ok with paying for the services of someone who eliminated 95 of the 100 homes and just brought me the 5 best deals. That is more along the lines of what I expect from a realtor. And that’s ok, but I would really pay for the person who eliminates 99 and brings me the deal on a silver platter.
In general when the wholesaler starts calling people on his buyer’s list he should have a property already under contract or very close to it. The property should meet the buyer’s criteria. You must take the time to know your buyer. If you just throw up prayers you’re going to waist your buyer’s time. Be reliable. When you say you have a deal, have a deal. If your buyer can’t define his or her criteria then move on. Time is a critical commodity for you just as it is for the real buyers out there who you need to go find.
A real good buyer will help the wholesaler by properly defining her desired buying criteria and her ability to close. This will help the wholesaler be more successful in his job. It allows the wholesaler to focus his search and gives him the confidence to move quickly to secure a good deal.
Be willing to take risk. Those who said there is no risk in wholesaling are setting you up for failure. You need to be willing to put down an attractive earnest money deposit on a good deal if you’re confident it is a good deal and that you have or can find a buyer for it. You probably don’t want to put down a big deposit on your first couple of deals. If you’re a beginner it’s ok to be risk averse until you learn the ropes.
I just spent all day today looking at two properties and writing offers on them. I don’t think I have much of a chance of getting either of them. I just sold the last property in my inventory last week and I’m eager to get going on the next project. I would like to have at least two going right now.
With the time I’ve spent in this business I feel that my greatest value in the process is in oversight, finance, management, and marketing, which is plenty and could hardly be considered specialization. These tasks are very time consuming so area canvassing for deals is an additional chore I don’t need. I am happy to pay a nice finders fee to any wholesaler who can feed me the deals.
You should be aware that there is just too much in this business to do everything yourself, or at least to do everything well. But there are also no absolutes in this business. Go find help but be very cautious when ever you let someone into your business.
Photo Credit: That Canadian Grrl via Flikr