Let’s imagine you have a house under contract. You’re excited, but nervous. It’s very important you close, not only because you want to make money for your efforts, but because you’ve taken on the responsibility to get the deal done.
The seller is relying on you and the last thing you want to do is cause them any problems.
This is one of the biggest fears, if not THE biggest fear of a new wholesaler. There are often several reasons for not being able to find a suitable buyer in time and I’m going to go over the main ones.
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1. Priced The Deal Too High
This first one is the main reason why people are not able to find a buyer for their wholesale deal. You’d better believe that your buyers are familiar with the the fact that we make our money when we buy. If they can’t get the house cheap enough, they will turn their nose up to it…and probably you if you offer up turds as deals all the time.
There are several reasons why you might be tempted or unknowingly offer up a wholesale deal at too high of a price. Let’s discuss some of the most common ones.
Overestimated the ARV
If you are working with limited information or invalid comparable sales (or, heaven forbid, are overly optimistic – like that would ever happen :)), and come up with an after repaired value (ARV) that is too high, you could inadvertently price the deal too high.
Avoid this by making sure that your comps are actually comparable and that the data is recent (within the last 3 months is best).
Also, wishful thinking caused by a desire to make more money on the deal is best left out of the picture. Don’t play games with yourself thinking that because your property has a nice wallpaper border around one of the bedrooms walls, you will be able to ask $5,000 more than was paid for other similar sold properties that didn’t have that incredibly cute border. It just doesn’t work that way. Sorry, I wish it did.
Underestimated the Repairs
This one is very common as well. I think this one is usually more from inexperience with rehabbing and determining repair costs than it is from wishful thinking.
I’m routinely amazed by the numbers given for the cost of repairs of some of the wholesale deals that come across my desk. I think I’ve gotten to the point where I just double what is mentioned for repairs.
Want to know the best way to get a grip on the what repairs are costing? Ask an experienced investor to show you. If you don’t know any or can’t get one to show you by taking them to lunch first, find a contractor. It’s important to find a contractor that has worked for other investors (house flippers, landlords, etc.). These guys will know what is typically paid for things. Investors usually pay less for their rehabs because they are often able to keep the contractor busy with work.
Of course, if you can’t find a contractor that has experience working with an investor, it can still benefit you. They will probably give you higher repair estimates. This will cause you to offer less for your deals and offer up better deals to your buyers. Your buyers will love you for this.
Asked Too Much For The Wholesale Fee
Don’t be greedy. Sometimes it’s tempting to ask for the world because you feel that you spent an eternity finding the deal.
Don’t let emotional reasoning affect your pricing. You want people begging your for more deals, not begging you to stop insulting their intelligence.
It can be difficult to push a deal out with a high price and then lower that price. Sometimes people would have bought at the lower price if it was priced that way from the beginning, but will ignore the price change and the deal altogether if lowered later.
Wholesaling is really all about building a reputation and relationships. Don’t forget that.
2. Didn’t Have Enough Buyers On Your List
It can be hard to find a willing and capable buyer when your list of buyers is small. You should always be working on building your buyers list from the very beginning. I’m talking about starting to build it as soon as you decide you are interested in wholesaling. Don’t wait.
There are a lot of ways to find buyers. Just off the top of my head, you could find them:
- at the courthouse steps (foreclosure auctions)
- from their advertising (bandit signs, phone book, newspaper ads, websites, etc)
- at your local REIA (real estate investor association) meeting
- here on Bigger Pockets
- by tracking down who bought investment properties with cash from the MLS
3. Didn’t Have The Right Buyers On Your List
If you don’t screen your buyers well enough, you could end up wasting a lot of time with people that love to kick tires but will never buy a house from you. Don’t play 101 questions with these buyers.
What you want are people that can pay cash, make decisions quickly and do their own due diligence. It also helps to find buyers that are interested in properties in areas that you are focusing on. Many investors don’t like certain areas of town. Find more of the investors that are looking for what you are selling (or going to be selling).
4. Didn’t Approach Your Buyers Correctly
What I mean by this is that it is very important to treat the very serious buyers with extra courtesy. The ‘very’ serious buyers are the guys that do make decisions quickly, pay cash, usually only ask for price, address and lockbox code, and have a history (or capability) of buying a lot of houses.
These investors are usually busy and will simply ignore an email that looks as though it was a mass email blast. They just don’t have time to run out and look at stuff that has the potential to have a lot of competition. Sometimes, I just feel that if it was an awesome deal, they probably already called their serious buyers and are now just sending it out to their list. If they didn’t want it, I probably don’t want it either. I understand how flawed that thinking is, but it’s just what happens when we get busy and tired of chasing after deals that are likely to be bid up by other investors. We want to know that we have dibs and that it is a good deal that is worth spending time on.
Treat your VIPs correctly by calling them individually and giving them 12-24 hours exclusive access to the deal. If they don’t want it, you will call the next one down your list. Once you’ve exhausted this short list, then send out the email. If you have a small group of so-so investors, you might want to send individual emails that are personalized to them, even if you are sending several of the emails one after the other.
5. Didn’t Handle Access To The Property Correctly
If you don’t have a way for your buyers to see the property you are asking them to buy, you are going to have a tougher time getting someone to want it. It’s important to be able to give access to as many investors as possible.
This can be a problem when someone is living at the house. You will want to get as many pictures, or some video, of the house to show your potential buyers. If someone is very serious, you would then schedule with who lives there to view the property again. This is usually done by having the potential buyer represent himself as a contractor or a business associate.
6. Demanded Too Much Non-Refundable Earnest Money
…paid directly to you. I’ve read some training where people advise wholesalers to demand a large amount ($2,000 or more) in non-refundable earnest money, paid directly to the wholesaler. The reason given is that if it is non-refundable, the wholesaler (you) will get it no matter what.
The problem comes from when the deal doesn’t close for reasons outside of the buyer’s control. He/she would then have to get you to pay back the earnest money and a lot of people just don’t want to deal with that hassle.
Just have the non-refundable earnest money paid to the title company if you are asking for a lot.
7. Didn’t Give Yourself Long Enough
It’s best to get as much time as you can from the seller to be able to close the deal. If you are going around promising a 3 day closing and don’t already have someone interested in the deal, you are going to have a lot of trouble getting the deal done.
Try to get 4 weeks if you can. You don’t want to be continuously going back to the seller making excuses to get the closing extended.
8. Didn’t Market the Property Hard Enough
If your buyers list doesn’t respond to the deal, you’re going to need to market it to find a buyer. You should be marketing it anyway so that you can be building your list. Nothing builds lists quite like having inventory.
Plaster that deal up everywhere. Stick bandit signs all over the area where the house is (if legal in your area.) Of course, if you don’t want the sellers to know what you are doing, you don’t want to include the address on the sign.
You could also put some ads on craigslist.org, push the deal at your local REIA, put an ad in the major and smaller newspapers in your area. Get creative. Maybe a publicity stunt… that would probably just be embarrassing.
9. Didn’t Start Pushing It Immediately
As soon as the seller signs the contract and you have it safely receipted at the title company, you need to start your blitz to get it sold. Don’t wait until Monday if you get the deal signed up Saturday morning (unless you are worried someone will try to steal the deal from you because you haven’t receipted it at the title company yet).
Time is of the essence. Use it wisely. You have to be careful because you might find it harder to find a buyer than you thought. Days crossed off the calendar already can’t help you.
Knowing that these 9 reasons are the main causes of not being able to find a buyer for you wholesale deal, I hope you are able to prepare yourself so that it will never happen to you.
We all want to be able to sleep soundly at night and that is much easier done when we know that sellers can count on us to do what we’ve promised.
Sleep well, my friends.