This seems to be a divisive topic that comes up on the Forums quite a bit, and there are good points from both sides of the aisle, but I thought I would weigh in. Note, for full disclosure: Before I flipped houses or acted as a real estate agent, I was a wholesaler, so this topic is somewhat close to my heart. In my opinion beginners can successfully break into wholesaling, but they must be properly prepared to do so. To help frame the right mindset, I created a few questions and talking points below to help you be introspective and analyze if it may be a good fit for you.
How to Analyze a Real Estate Deal
Deal analysis is one of the best ways to learn real estate investing and it comes down to fundamental comfort in estimating expenses, rents, and cash flow. This guide will give you the knowledge you need to begin analyzing properties with confidence.
Ready to Get Your Real Estate License?
Should you get your real estate license? In my opinion, yes. It is not legally required to wholesale, but it comes with many benefits. With that being said, are you willing to get yours? Not only will it help you gain more knowledge, but it will allow you to act as an agent for leads that are not well suited for wholesaling — namely, high equity properties that need repairs of some sort. As you will discover after marketing for long enough, a good portion of the leads fall into this category. It’s like trying to fit a square peg through a round hole; it doesn’t fit so don’t try to force it. Instead, offer the seller options and truly cater to their best interest. It’s a win-win and will allow you to close more deals you wouldn’t be able to otherwise. People always love options.
In addition, it will give you direct access to your local MLS. Being able to correctly estimate the ARV of a house is essential, and having accurate data will help you price your offers correctly.
Do Your Research
You will not have everything from A to Z figured out before you complete your first deal. Some of it you will only learn by taking action and tackling the problems as they arise. However, that does not mean that you prematurely start this process and hope for the best. You need to break it down and have a good understanding of what you need to do.
These are real people, families counting on you to perform. Sometimes there is a lot at stake for them. Do not make the mistake of trying to wing the whole process. You will bite off more than you can chew — and if you don’t perform, you can hurt these families in many ways and make this business look like the late night infomercials they see on television.
What does that mean for you? Understand what forms and contracts you will need. Are you willing to put in the time to do this?
Cultivating a Relationship With Buyers
Are you willing to put in the effort to cultivate a relationship with your buyers? I remember the first house I ever wholesaled. I was so nervous when I got my first contract, I couldn’t sleep at night due to anxiety. At the time I didn’t have a direct buyer for the house; I just knew the numbers well enough to know that it was a great deal. People always say get the deal first and the buyers will follow, which is true, but being in this position, especially when you are new, can be nerve wracking. Instead, what I would suggest looking back on it is to start cultivating meaningful relationships from the get-go with potential buyers.
Nowadays I literally have a handful of select buyers that probably buy 95 percent of the deals I lock up. I don’t have to mass blast emails, post on Craigslist or pitch houses in front of a local real estate club. Instead, when I pick up a house with a certain ARV in SW Fort Worth, I know exactly who I am calling after I get the contract. The reason I can do this is I have an ongoing relationship with my buyers. I know I can trust them and even tell them about deals before I get them under contract.
How Long Will You Commit to Spending Money Without Deals?
Are you comfortable continuing to spend money when you have no deals or leads? As I have talked about in previous posts, spending money when you are not getting any leads or deals is what separates the wheat from the chaff when it comes to real estate marketing. Too many people get started in this business, build a list and have unrealistic expectations when they send out their mailers. I tell people to have reasonable expectations — on a small to medium-sized budget, I tell people to be prepared to continue mailing for 6 months at least without closing on your first deal. Now, in all likelihood your first closing will likely come sooner than that — but it may not; it may come at 6.5 months or 7 months. There is nothing set in stone.
If you are only going to commit to a few mailings, you might as well go waste your money on something else, like a lottery ticket, because that is essentially what you are doing. You need to have a sustained marketing campaign that touches your list multiple times to convert the leads. Which brings me to my next point.
If you are disappointed by your own answers, that’s ok. Wholesaling can still be for you, but it’s better to have a realistic outlook on what to expect. If it’s not a good fit now, continue working toward it, and it can be in your future. Wholesaling has opened many doors for me in real estate, and that’s why I am so passionate about it.
Investors: What do YOU think? Is wholesaling a good avenue for newbies?
Leave your opinions below!