As a real estate investor, wholesalers are a great source of potential deals for you. Whether you buy and hold, buy and flip or buy, hold then flip, wholesalers have been the source of some my most lucrative house flips.
But working with wholesalers is not as easy as you might think. Sadly, there are no wholesalers waiting outside your door when you go to work in the morning with a list of killer deals for you to grab.
To leverage wholesalers for your flips, buy and holds or whatever kind of real estate investing you do, you have to work it. And you have to work each wholesaler slightly differently than the next.
Although each wholesaler has their own unique personality and way in which they do business, as it turns out, there are really two kinds of wholesalers. But neither of them I deal with in the same way.
One size does NOT fit all wholesalers.
Here we teach you how to deal with each type so you can establish solid ongoing working relationships with a stable of solid wholesalers, but also get a little bit of extra effort out of them – effort which can be the difference between a home run deal and an epic fail…
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
The 2 Types of Wholesalers
When you want to use wholesalers you basically have two types:
1. Career Wholesalers
These are guys (I’ve never met a female one in my career – so I’m not being gender-biased here) who are seasoned real estate investors who have been wholesaling for some time. They run a serious, no frills business and know what they’re doing. They are not looking to move on to other things – rather, they wholesale real estate as their primary business. In some cases, they dabble in other kinds of real estate investing as well.
With this first group, you just work with them as best you can to build a solid relationship knowing they could be tremendous sources of deals for you. Because these kinds of wholesalers are usually well-financed and are not short on cash, they make take the best deals for themselves. And if they should.
When you’re learning to work with wholesalers, this group may be more challenging to work with at first – but are very good sources of new flips.
2. Ladder Climber Wholesalers
You’ll find that many wholesalers are beginner real estate investors short on cash and are using wholesaling as a means to get into other kinds of real estate investing. This group is either wholesaling for the sole purpose of creating enough cash to do purchases themselves or getting their feet wet in the real estate investing world, choosing to do a lower risk form of investing.
For this second group, you have two choices with them – you can either utilize them to simply get deals or and even better in my opinion is to use them to source deals but also forge mentorship kinds of relationships. I’ve done it both ways and they both work well.
How to Work With The Career Wholesaler
One of the best deals I ever got from it wasn’t from reciprocity at all. Instead, it was from a seasoned professional wholesaler who, suffice to say…had been around the block a few times.
This wholesaler had been in the business for a many years and it took me some time to get to know him. And it took him some time to get to know like and trust me as well – all of which is typical with the kind of wholesaler.
Here’s how I approached him:
- Build Rapport: Because they really know what they’re doing, it takes some time to develop a fair bit of rapport with this type of wholesaler. Relationship building often occur in “the meeting after the meeting” after your local REIA meeting – when you’re sharing a few beers and everyone is talking more freely. This wholesaler was sizing me up to see if I was as good and as trustworthy as some of my colleagues apparently had told him.
- Be Patient: It wasn’t the first month after knowing him that I got the deal – rather, it was after about five months or so of seeing him at meetings, chatting afterwards in the bar and the two of us just generally getting comfortable with each other. These kinds of relationships take time, so don’t get upset or anxious if nothing happens in the first month. For wholesalers who are really good, oftentimes its worth the wait. Real estate investing is a marathon – not a race.
- Get on “The A List”: With the wholesalers that are seasoned and are doing a lot of business, you’ll find that you may not be able to get on their “list” as an active purchaser or retailer investor for months. This is because they have most likely already their “go to” real estate investors already. Your job is to get on “the A list” and this does take time.
- Prepare For Rejection: When I first approached this wholesaler on a deal I knew he had, my offer was flat-out rejected. He knew he could get any of his other house flippers to buy it at the price he was asking. In this case, he was asking $60,000. I offered less – round $58,000 and he flat-out rejected my offer. At first, I was upset, but I realized that he probably had a good reason for it and I reworked my numbers to eventually get it.
- Be Creative and Flexible: Because the offer was $60,000 and no less, I had to get creative. So I tweaked a few things in my projections – still sticking to my 70% Rule and asked around to my contractors to see if I could work some kind of a partnership deal. After about 3 days, I figured out a creative way I could partner with my main contractor – then came back to him and offered him the full $60,000.
He took it, I paid it – and I ended up making over $22,000 net before taxes on the deal.
How Work With The Ladder Climber Wholesaler
In order to learn the real estate investing business, you have to start somewhere. And if you’re short on cash or perhaps a bit risk averse, wholesaling is a great way to get into house flipping. Think of it this way – instead of flipping houses, a wholesaler is flipping contracts.
Because you need no money to get started in wholesaling, it attracts a lot of new real state investors. So you deal with this group way differently than the first group.
I’ve found that taking new wholesalers under my wing and helping them learn the ropes helps me even more than them. So although helping these guys may seem like a selfless act, in full disclosure, it’s not. However, helping someone advance their career while helping your business in the process is a pretty sweet combination.
In fact, the acquisition manager we just hired at our company was a young wholesaler who was looking to move up towards acquisitions when I first met him. He ended up becoming my first house flipping one-on-one coaching student as well. Although I never intended it to work out this way, he is now working with us full-time on my house flipping team to source new house flip opportunities.
That relationship all was built by just being helpful and mentoring him to be successful as a wholesaler – which he still is to this day. As a form of gratitude, even though I never asked him directly, he would then come to me first when he had a deal that interesting.
In the case of our new property acquisition manager, I really didn’t have a “master plan” to mentor him to the point where he would become a part of my team full-time. Instead, it was a natural outcome that we will both now benefit from.
And for these kinds of wholesalers, my approach is completely different:
- Meet Lots of People: At REIA or any other kind of real estate investing meeting, you’ll meet all kinds of people from real estate agents to hard money guys and many wholesalers. Don’t leave once the formal meeting is over – stick around until the “meeting after the meeting” at the bar or lounge at the hotel where the meeting is.
- Be Nice to Everyone: At one REIA meeting I attended, a wholesaler came up to me and was really interested in my business. He was young, smart, ambitious and extremely interested in learning the business. I talked to him for 45 minutes at the meeting and then even more after at the meeting after the meeting in the bar. I did a deal with him the next month.
- Recognize Ambition: In the case of this wholesaler, he was new to the business, but had wholesaled a few homes and I could just tell he was really ambitious. He also worked at a full-time job and was dying to escape the 9 to 5. I loved his energy, his smart questions and I could tell he just had a spirit that would eventually make him super successful. He asked me for his card and I told him to call me any time.
- Say “Call Me” and Actually Mean It: Everyone gives out their business cards and says: “call me sometime”. Do they always mean it? If you say it, you have to actually mean it. With this guy, I did mean it. Sure enough, a few weeks later he called me and told me about a property he was working on in a town near me and asked me what I thought about it. That was the property we did the deal on.
- Help First, Then Ask: When I met this wholesaler at this point of time in my house flipping career, I simply didn’t get many calls from people looking for help. He talked to me about how he wanted to wholesale the deal to a rehabber. He had done his homework and knew the numbers including ARV, The 70% Rule and estima.ted rehab costs. He had financial models for the long-term buy and hold investor and scenarios for the house flipper. He knew his stuff, but he wasn’t sure how to structure the deal so he made money. I gave my recommendations over a number of phone calls which would benefit him and the buyer.
- Teach Them Your Formulas: I divulged to him how I evaluate a property using ARV, MAO, cost of repairs, the 70% Rule and all the other metrics I use. Although he already knew most of them, he didn’t know some of them. He asked me point-blank if I were him; how I would present this wholesale deal to a potential flipper? I taught him that using the formulas, he could get just about any investor interested…including me.
- Never Turn Away a Good Deal: At the time he approached me, I was already deep into two other deals – so I never even considered buying it myself. but once we worked the figures and formulas, the numbers were so good, I asked him to wholesale the property to me. And of course, he did.
- It Feels Good to Help: This has nothing to do with real estate investing – but I just liked this guy and really wanted him to succeed. And because the numbers looked so good – I knew we could both make money on this deal. Sometimes, it’s not all about the money.
In this deal, he ended up making just over $5,000 and I made nearly $30,000 net before taxes on the deal.
It was a total win-win-win all around. Everyone made money and everyone benefitted. He made a nice commission, I made a good chunk of change and the new owner got a fabulous place to live.
After that first deal, I ended up doing three more just like it with him.
Wholesalers can be a great for finding good deals, but each type of wholesaler requires a different approach. Don’t deal with both types in the same way, you simply can’t. But when you’re investing real estate, no matter what kind, your overall approach should be the same. Be honest, be open, build rapport and trust…and when you do all those good things, good things will happen to you as well.
If you come this far, then please leave a comment below! What do you think? Are there any methods YOU use to work well with wholesalers? Put your comment below or just ask me anything at all on wholesaling, house flipping or real estate investing!