If you haven’t read yet, marketing is the name of the game with real estate wholesaling. One question that is often asked is, how much should I spend for a good return? Well, wholesaler, here’s how to calculate marketing returns.
I will attempt to answer this questions, but it’s hard to quantify each market. What I mean is each market is different, and because of competition, the returns vary. However, I do know the most important thing about marketing for wholesale leads is to be consistent. A part of being consistent is to have a desired budget to spend on each campaign, so let’s start there.
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.
Setting the Framework
I will use direct mail as the framework for this discussion. I know there are many marketing strategies, such as online marketing strategies, cold calling, driving for dollars, and bandit signs, but in my opinion, direct mail is the easiest to quantify. If you have a different opinion on this, I definitely welcome comments below.I am still learning a lot about online marketing, so I can’t direct you as much on this topic. I’ll stick to direct mail, something I am very familiar with.
Although I am not sending 40,000 pieces a month, I am generating a good return from my initial investment. The reason why my initial investment is still generating leads is because I make sure to reinvest in my marketing. By reinvesting back into your business, this will ensure you have longevity.
One other thing I would like to add before we jump into numbers: Not only do you have to be consistent; you have to remain optimistic. It is easy to become discouraged when you have a less than anticipated response from your sellers. I will show you what I mean when we get to the numbers.
Wholesalers: Here’s How to Calculate Marketing Returns
We must remember marketing — and especially direct mail — is a numbers game. The more you push out, the more you will get in return. This is the reason why many experienced investors spend thousands of dollars on direct mail.
There are a few things you need to make sure you track when doing any marketing besides the obvious profits and losses. You need to track your response rate, close rate, average deal size, and contract to close timeframe. There are many tools you can use to track this data. There are also many affordable tools that can help you get started.
As I stated above, it is easy to become discouraged and distracted because if the phone is not ringing, there is an natural tendency to do something. I am guilty of this — I am a doer and if there is nothing to do, I find things to do in order to stay busy. This is not always good because busy does not equate to production.
So how do you calculate your returns? Normally, there is a 1% response rate when it comes to direct mail. If you send out 1,000 postcards/letters, expect to get 10 phone calls, and maybe of those 10 calls there is a deal. In my case, it takes 30 leads to produce a contract, so 1,000 mailers wouldn’t work in my case. In some markets, a 1% response rate is good, and in other markets, a 1% response rate is horrendous. Again, it depends on the market. We will use the national average of 1%.
Joanne has $3,000 to get started with marketing, and she is going to use it all for direct mail. Let’s assume Joanne is mailing postcards at $0.52 a piece. Joanne first needs to pull a list. She is going to pull the list with Rebogateway.com, which will cost $45 for a monthly subscription. Now she has $2,955 for mailers. Again, she is going to use the entire amount on postcards at $0.52 per mailing. So she is able to mail 5,700 pieces (we’ll use round numbers).
She mails to the list and receives 57 phone calls. In her experience, she lands a deal on every 30 quality leads. So this will constitute Joanne getting one deal from this mailing. Joanne also knows that on the average deal, she can net $12,000. So Joanne’s $3,000 investment can gross $12,000.
Joanne can then use the $12,000 minus any miscellaneous fees to reinvest in her business — and continue to increase the amount of mailers she can send out, which will increase the number of leads, then the number of closed deals.
The Joanne example is basically how I was able to get started. I started with an initial investment of $2,019.89, which resulted in just under 4,500 pieces, and I was able to close a deal that was $19,000 gross. The 4,500 pieces made my phone ring just under 30 times, which is under 1% (law of averages will result in a 1% response rate). Out of the 30 calls, there was one deal, and that one deal I was able to put under contract for $50,000. I then sold it for $69,000 via Craigslist. Not bad for my first independent deal.
Please let me clarify — this was not my first deal, but my first independent deal. I started bird dogging and doing acquisitions for a local investment company. What I learned from my experience with that company gave me the knowledge and the faith to step out and try it on my own. I do not want to give you any false impression or false hope that it’s quick money. I worked for two years using trial and error until I was able to go independent.
The opportunity is there if you use a little seed money to get started. You may have to sacrifice in other areas of your life to get started. The formula is the same, although in some markets, it may take longer for you to close the first deal. Still, if you’re consistent, you will see how these returns will consistently produce.
Be patient and know that there is a process you have to go through in order to see results. I almost gave up during the first two years. In the end, though, those years of trial and error were just dirt thrown on my seed of tenacity, perseverance, and daily positive confession. When the time came, my seed took root and began to materialize. Whatever you do, don’t give up, no matter how much dirt is on your seed — and remember, marketing is a numbers game.
What kind of marketing budget did you get started with as a wholesaler — and what kind of returns did you see?
Let me know your questions and comments below!