When I first started wholesaling, I remember how nerve wracking it was to get my first few contracts. I would have trouble sleeping at night, and I would worry about the contract all hours of the day until it finally cleared the closing table and I could breathe out a sigh of relief. The reason for this is I took my contracts very seriously. Oftentimes these sellers you are working with are not in the best situation and relying on you to perform. And that leads me to the topic of today’s blog post, written specifically for those of you who want to wholesale real estate in some capacity. Your success in this niche industry depends on how well you treat your sellers.
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.
Bad Apples in Every Bunch
I think in general there are many good wholesalers who share the mentality of taking care of the sellers. But there are a few bad apples out there, just as there are in any industry, who will over-promise, lie, cheat, and do just about anything they can think of to lock a house up and couldn’t care less about what happens to the sellers. And oftentimes it’s me who has to come in after them to clean up the mess they left behind — only now the seller is much less trusting, worried and stressed out that their house didn’t sell.
There are wholesalers out there who are indifferent as to whether they perform on the contract or not, and it’s more common than you might think. “Oh well, didn’t get this one. Better exercise my option.” And it’s usually somebody like me who has to come in behind them and try to clean up the mess they left behind. Despite your best efforts and intentions, you might find yourself in a situation where you are unable to move a contract. In that sort of scenario, it is perfectly acceptable and legal to exercise your option. However, the point is some wholesalers do not care about their end sellers at all and will throw as many contracts to the wall as possible just to see what sticks without regard to the sellers who are counting on them.
If you want to know how to get started in this business on the right foot by taking care of your sellers, the ones trusting and relying on you to get this thing done, here is what I would recommend.
3 Ways Wholesalers Can Protect Their Sellers
Price it Right
Get the price right. More than half the battle is pricing the ARV correctly — if you do that along with a ballpark repair estimate and find the right buyer, it should move. If you overestimate or intentionally overprice it, you run the risk of running into a situation where you have no wiggle room to mark down the contract to the right price to sell it. I am always conservative with my ARVs and tend to estimate on the lower end of the spectrum that the comps are reporting.
Verify Your Buyers
As a wholesaler, you are not representing the sellers, but you still want to take care of them and ensure a deal seamless as possible. The other half of the puzzle is cultivating buyers that you can trust. This only comes through experience and doing deals together several times. But you want to get to the point where once you assign over a contract, you can just put that on the back burner in your mind because your buyer will take care of it.
If it is someone newer that you have not done business with yet, I would recommend that you verify your buyer’s funds. If they tell you they are paying in cash, ask for a bank statement. If they tell you they will be using a loan such as hard money, give their lender a call. It doesn’t have to be unpleasant; just ask them, “Hey, you know _____, right? Is he guaranteed for these funds and good to go?” That’s all it takes. It’s not a painful phone call to make, and it can save you a lot of trouble sometimes.
Don’t Try to Make a Killing on Every Deal
Don’t expect to hit a home run on every contract you get in terms of your assignment fee. This is a problem for many newer wholesalers who get lucky and hit a few big ones out of the park. Many times they go forward now expecting to milk every contract for as much as they think they can get out of it, even if the numbers don’t make sense and support it. Instead, I would rather new wholesalers have the interim goal of consistently closing on 2-3 houses a month with a modest assignment fee. If an opportunity presents itself where you can make more, go ahead, but don’t try and force outrageous assignment fees on every deal. Doing so can really screw the sellers and result in a contract that never makes it past the closing table.
Take these steps to heart, and you will be well on your way. Your success depends on your sellers’ level of success, so take care of them.
Wholesalers: What would you add to this list?
Leave a comment, and let me know!