Want to be a successful wholesaler?
There is certainly room in the marketplace for wholesalers who understand the need to serve their customers. However, all too often wholesalers misinterpret their role in the market and leave one of their customers high and dry. This leads to dead deals and a soiled reputation. To be a successful wholesale investor, it’s essential you understand the needs of your final customer — the cash buyer.
As a seasoned fix and flip investor, I’ve developed solid and specific criteria for taking on deals. It’s essential that wholesalers understand the criteria of their cash buyers. Failing to deliver what is demanded by your end buyer will lead to few, if any, closed wholesale deals.
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.
Start With the End in Mind
As is the case with any business venture, your success as a wholesaler depends on your ability to identify with your target customer and deliver the value they are seeking. Many wholesalers focus solely on their front-end customer, the motivated seller. They often neglect that a successful wholesale deal has two distinct and equally important customers:
- The front-end: Motivated seller
- The back-end: The cash buyer/real estate investor
If you fail to give value to each of your two customers, you will fail to execute the deal. Many wholesalers fall into the trap of investing a disproportionate amount of time delivering value to the motivated seller while neglecting the cash buyer.
Focus on Value Provided to the Market
As an entrepreneur, it’s essential to grasp the concept that your profits are directly related to the value you bring to the marketplace. Your business should solve problems for others. In return for solving these problems, you get paid.
Lets break down exactly how a wholesaler brings value to each customer:
Value Proposition: The Motivated Seller
A wholesaler brings value to the motivated seller by making available an alternative method to selling a home. Whereas the traditional means of selling a home (listing with a broker on the MLS) is associated with a longer time to sell, a wholesaler can help to bypass much of the hassle and paperwork so that the deal closes quickly.
The wholesaler also serves the purpose of handling the paperwork and coordinating with attorneys and title companies. Once an agreement is reached between a motivated seller and a wholesaler, the seller should have nothing left to do but circle a closing date on her calendar and receive her check.
As mentioned, the above is generally understood by current and aspiring wholesalers.
Value Proposition: The Cash Buyer
When it comes to a wholesaler’s back-end customer, value is provided by bringing a solid investment lead, negotiating the deal and handling the majority of the paperwork. The cash buyer is paying the wholesaler a fee for their service. Cash buyers are typically accustomed to finding their own leads and negotiating deals themselves. They understand the investment of time and resources required to execute solid investments. A wholesaler must make it explicitly clear that the fee they request is in exchange for the time and resources they have saved the cash buyer.
This is the part that often gets lost. Wholesalers are often so happy that they closed the motivated seller, they send off a blast email to their buyer list and consider it a job well done. But don’t forget you don’t get paid until you close the deal!
Let’s take a detailed look into what a cash buyer really wants from their wholesaler.
3 Money & Time-Saving Services Investors Desperately Need From Their Wholesalers
Remember, the wholesaler gets paid because he saved the cash buyer time and money. Simply sending out an email blast with an address and little to no context does not save the cash buyer time. In fact, these emails are often deleted and viewed as an impediment on time. Investors are extremely busy, and they do not want to spend time doing the wholesaler’s job.
Below are three attributes that real estate investors desperately need from their wholesalers
1. Thorough and Accurate Deal Analysis
One of the most time-consuming aspects of acquiring new real estate investments is performing the analysis and due diligence to accurately assess the potential value of the deal. This process is extremely frustrating for an investor due to the simple fact that most investments are not good deals. Many hours are expended sifting through deals and crunching numbers to find that perfect deal.
A wholesaler performing this analysis for the cash buyer is extremely valuable.
Obviously, this analysis is only useful to the investor provided that it is accurate and thorough. Below are some tips to help make sure your analysis meets the needs of your investor:
- Don’t inflate the After Repair Value (ARV). Successful investors will know when an ARV is overstated. Overstating an ARV estimate will diminish your credibility in the mind of your customer, making it more difficult for them to trust you on future deals.
- Be conservative with repair costs and include a contingency (at least 5%-10%). To expand on the repair estimate, be sure to understand the quality and style of your cash buyers’ rehab. Some fix and flip investors like to touch everything in a property. Others work to save and/or refurbish anything that is close to salvageable. Don’t tell a cash buyer a property “needs lipstick” when you know that specific investor guts every house they buy.
- Know the investor’s target market. Wholesalers often ask their buyers the markets and neighborhoods they are interested in. Keep this information in mind and use it! Don’t send an investor a property in a neighborhood that they explicitly said they plan to avoid.
- Make a well-organized and professional presentation. A simple copy/paste of an ugly Excel document does not cut it! Imagine you are submitting a proposal to a bank or a private lender. The document should be in PDF format, include clear details of the property and display pictures (not everyone can open Excel documents; you can offer a supplemental Excel document if requested).
Keep in mind that all real estate investors differ in the qualitative and quantitative characteristics they like to see in each deal. Investors will also differ in how they prefer to have information presented. Remain agile and open to change as you present your deals to cash buyers. Accept feedback and be willing to alter your deal proposal so that it better suites your customer.
2. Transparency With the Seller
Dealing with motivated sellers is often a delicate and difficult process. It is an unfortunate fact that wholesalers are often associated with unethical business practices. It may not be fair, but it’s true. It’s common for sellers to feel that they are the victims of some sort of scam. Legitimate real estate investors understand that wholesalers offer an ethical and extremely valuable service to these motivated sellers.
To be a successful wholesaler, you must make your cash buyers confident that you have the trust and understanding of the seller.
One surefire way to gain and keep up the trust of the seller is to be completely honest and transparent throughout the entire process. Many wholesalers feel the need to hide the fact that they will assign a deal to another investor for profit. They think this will set off red flags for the seller and kill the deal. This could be the case if the issue isn’t dealt with head on at the onset of the deal.
I am a firm believer that your seller should know that you or your company does not intend to close on the property. Clearly explain how you work with other investors to find good deals.
Not only will this strategy eliminate the potential for altercations at the closing table, it will also help with the common issue of gaining continued access to the property for your cash buyers. The seller will understand that other investors need to see the property, and therefore arrangements should be made for access. If the seller is unhappy with your process, thank them for their time and wish them luck selling their property on the open market.
It’s a lot easier to face these difficult issues head-on. You will maintain the integrity of your business and that of your cash-buyer. The last thing a cash buyer wants is to get roped into a dispute at closing.
3. A Seamless Closing
A wholesaler should have documentation well-organized and ready for a smooth closing. Nothing is more frustrating than engaging in a real estate deal where contracts and documents are scattered about in multiple emails and differing formats. Additionally, all the required attorneys and other closing parties should be coordinated by the wholesaler.
Here are some practical tips to keep your deal clean and on the path to a quick and seamless closing:
- Use fillable PDF forms. Do not stoop to the stone age strategy of printing forms, filling in with ink, then scanning and distributing for signatures. It’s 2016 — Technology exists to complete all forms electronically and distribute to all necessary parties for signature. The only exception should be the case wherein the seller is uncomfortable signing electronically. Some sellers are a bit older, and it’s understandable that they are a bit wary of the new technology.
- Organize and store documents in the cloud. Use a free service like Dropbox or Google Drive to create a well-organized closing folder. This folder should have all relevant documents related to the deal. To whatever degree possible, try to make sure all documents are in PDF format. This is the most uniform file format. Nobody should have an issue accessing and opening documents.
- Communicate and stick to the closing timeline. We all use some form of calendar. Set dates and create appointments so that time is not lost with uncoordinated parties.
Good wholesalers offer a tremendous amount of value to the real estate investing industry. A wholesaler is in a unique position to serve both a motivated seller and a real estate investor. It’s essential that a wholesaler focuses on providing value to both their customers. This will help to establish a favorable reputation that will undoubtedly lead to a recurring flow of profitable deals.
Investors: Anything you’d add to this list? Wholesalers: Do you perform the above services? Any other essential tasks you’d add?
Let’s talk in the comments section below!