6 Reasons New Wholesalers Fail to get the Deal

in #realestate2 years ago (edited)

Starting off as a wholesaler can be intimidating. Most beginners have no one to guide them or tell them what to do. The learning curve can be rough if you don't have a mentor to show you the ropes. Working on your own has many advantages, but it doesn't come without a price. Most of the new wholesalers that I come across are excited and full of enthusiasm - they've just been to a seminar and are filled to the brim with dreams of making money in real estate with no money down. They are eager to learn more and looking forward to closing that first deal so they cut put some of that sweet sweet money in their pockets.

In case you don't know what a real estate wholesaler is - it's an investor that tries to find a house at a screaming deal and get it under contract. Once they have a contract to buy the house - they sell the contract to another investor who has the money t buy the house and fix it up. The wholesaler can get anywhere from $5,000 - $20,000 per deal depending on how the numbers work out. Did you notice that the wholesaler did not have to buy the house themself? They simply found a good deal, locked it up under contract and then passed it on to another investor for a fee. This is the nature of wholesaling and is also the reason why so many newer investors are attracted to it.

Many of you are familiar with the bi-weekly investors meetup group that I host. We have over 600 local investors in my group and I talk to many of them all the time about the successes and challenges they are facing. I have also dealt with my own challenges and success. During the course of the last 2 1/2 years , I've heard a lot of the same stories. Stories about them not really knowing what to do first. What to do if they have an address to follow-up with? What to say to the homeowners? In short - they're excited - but a little lost. I'm not one to be a bubble buster and certainly never want to discourage anyone - but when they start telling me about their adventures in wholesaling, I know that they have maybe a 1 in 10 chance of sticking with it. I say this because I know many of them. I know the ones who have been around for a while and I know the ones who had to give up the ghost and go back to looking for a job. They've shared their stories with me and through this, I've learned what the successful wholesalers are doing and what mistakes the beginners are making.

While there are many more mistakes that could make this list, I have chosen to focus on the 6 biggest mistakes that stumble beginners the most.

1) No marketing plan

 

No time spent creating a budget or time frame. This is crucial if you want people to know you exist. Without marketing , you have no audience - and without money or a plan then you have no marketing. If you want to get anywhere - you need to have a plan of action - who are you going to target? What are you going to market to them? How are you going to communicate with them and what is you followup schedule? All of these are things that we don't like to think about, but are important to the success of our business - without clear direction - then we will just be going in circles chasing our tails without know what action to take, . with a plan , you have laid a series of steps that you intend to follow. Whether it works or not is another story - the point is to take acton and to be able to duplicate those actions until you achieve your goals.

SOLUTION:

Decide how much you can spend and for how long you can keep it up - Don't select a plan that doesn't allow you to market for at least 3 month's. Be sure that you are able to fund it for at least 3 months to get the most out of it. Many people give up after a month or two when they don't see any results -stick with it even if it seems like its not working but you need to keep working at it - remember that familiarity breeds trust. Decide who your target market is and then start thinking about how you plan to reach out to them. Be sure that your plan includes a follow-up schedule to make sure that you stay in front of your leads.

2) Analysis paralysis – indecision

With so many decisions to make, it's easy to get lost in the details. Confusion can lead to fear and fear can lead to inaction. We have a lot of information at our disposal and sometimes with so much data to sift through we can get weighed down and have a hard time seeing the forest through the trees. We like to make calculations to be sure that we are making the right decision - but we want to make sure that everything is just right before we actually pull the trigger. Sometimes we focus so much time on the "what-ifs" that we never pull the trigger at all. When you get to the point that you can't take action, this is known analysis paralysis.

SOLUTION:

Overcome fear with education. Learn about your local market by reading industry journals and keep an eye on the market to watch what's for sale –take notice of what sells fast and what sits. Study your contracts and make sure that you understand them thouroughly. By being better educated about your local market and the paperwork involved - it is easier for you to make a decision with more confidence. Work with a mentor to help you flesh out some of your blind spots until you really get the hang of things. Having someone who is experienced can boost your confidence as well as help you to make sure you stay on track. Also be sure to read more blogs about how successful real estate agents grow their business.

 

3) Bad rehab numbers / Poor ARV

Something else that can ruin a deal is using bad rehab numbers. This happens when you don't calculate the cost of repairs correctly or don't account for all the repairs that need to be done. This can kill a deal faster than a toupee in a hurricane. When you don't have the right numbers, and you present them to another investor - they are unlikely to bite on the deal. This is the best case scenario - worst case is they don't even want to look at your deals anymore. The other thing can really put a damper on things is having a poor ARV ( After Repair Value). This happens when you get bad comparables. When looking at recently sold homes, some investors don't take into account all the angles such as proximity to the target property and age, size or geographic factors such as being located next to train tracks or a liquor store. Just because some homes sold for a certain amount doesn't mean the house your looking at has the same features. This is also important for helping you calculate how much profit potential there is in the deal - you might just need to lower your own fee to make the deal work - after all - a bird in the hand is worth two in the bush.

SOLUTION:

Be sure to avoid bad rehab costs by taking a carpenter or handyman with you. I was asked at my last meetup if it's a good idea to take a home inspector with you during your initial walk-through. I responded that I think it is better to take a contractor or handyman with you to inspect the home - the reason being that while a home inspector might tell you what things need to be repaired, a contractor will tell you how much it will cost and how long it will take to do it. This is more important information since these are the numbers will need right away. If you take an inspector instead of a contractor - then you have to take that information to a contractor and ask for an estimate which they are usually very reluctant to give. Any contractor worth his weight is going to want to look at the project before throwing out any numbers - so save yourself the trouble and take your contractor with you on the first visit. After you have been through the process several times- you will start to get an idea of how much things cost and how long it takes.

To be sure you have good comps - Try to stay within 1/4 mile of your target property and don't go back further than 3 months of sales if you can help it. Be sure to use good comparisons - similar age, equal amount of bedrooms, square footage, and style. In order to understand if you have a good deal or not, you need to know what you can sell it for. Also take note of how long each type sits on the open market. Make sure you understand the market by watching the sales trends - see how much homes sell for before rehab, after rehab, and what high end rehabs get vs low end rehabs. Use this information to help you price it out properly. Fail to come up with a good resale number and your investor is not going to take your deal seriously.

 

4) Poor Followup

Consistent follow up is a cornerstone of sales and marketing. Leads need to see you a few time and know that you are serious. Sometimes their situation changes and they need to move faster than they thought they did. They could be more desperate and need to move quickly . You never know what is going on with your leads and if you're not talking to them, it's likely that someone else is. Unfortunately, most people give up after only 2 -3 contacts, yet most leads don't do business until 7 or more contacts on average.

 

SOLUTION:

Keep reaching out to your market - put follow-ups in your calendar and make them a priority. Don't give up – keep finding new reasons to reach out to them. Send them market updates, let them know if another house sold in the area. Offer to help them find another place to stay when they move. Get it out of your head that you are "bothering" them - you must always remember that you are providing a valuable service and helping them to pull their butt out of the sling. They may be facing foreclosure, or moving out of state, or need to settle up with family members in a probate sale - either way - they need you to move forward to the next step of their life. Step up and be their hero.

 

5) No network – can't move quickly enough

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You have no people in place to move the properties to and you don't have time to look for new buyers. You need to reach your network as soon as possible when you have a deal. Usually wholesalers are doing cash deals with very little closing time - typically 10 - 15 days at most. After all - you are offering cash - why would you need a standard 45 day closing? Part of your pitch to these sellers is that you can pay cash and close fast. Your buyers are going to need their own time to look at property, bring in their own contractors and run their own numbers. If you don't have a network already in place, then when you get a hot deal , you may not have time to find an interested buyer. Some say to find the deal and the network will come – but do you really want to spend precious time trying to locate buyers when you could already have a list of buyers ready to take action?

 

SOLUTION:

Go to more meetups – not just REAI but other professional organizations. Join groups that share similar interests as you do so you can connect on a deeper level. Be sure to have business cards and pass them out liberally. Make sure everyone in your sphere of influence knows what you do. Be sure to build up a buyers lists and add names to it regularly. Go to Bigger Pockets.com and reach out to investors – there are thousands of investors there looking for deals – add some of them to your network and put them on your buyers list.

6) Not enough meat in the deal

Sometimes a deal is just not a deal and you need to know when to walk away. After you run the numbers and do the comps - you might have a willing seller. but the deal may not make sense. This is where it helps to be creative - still, there comes a time when there just isn't enough meat in the deal. I once had an opportunity to get a house that was in foreclosure but there was so much money owed on it that even if I had gotten it for free - I still would have lost money on the deal. Know when to say when and avoid properties that are going to lose money for you in the end.

Solution:

Keep working at it and generate more leads

I hope that you found these tips helpful. Let me know what tips you have for locking up deals. As I said - this list could be much longer, but these are some of the biggest issues that plague most new wholesalers. I look forward to your comments

 
 


 
 

 

Please be sure to check out my others articles on real estate, investing , and cryptocurrency ( and some other random dog stuff)

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Great post. Tell me about your meet-ups. Are you in Fresno?

Thanks for asking -yes -I am in Fresno - I put together a meetup group close to 3 years ago and we get together every other week and talk about investment opportunities in Fresno - we also use it as a chance to get to meet other investors and potential future partners and line up funding for future projects. We have a lot of fun and have made some great partnerships. I've really grown my network by connecting with people who are interested in the same thing I am ..

any passive investors in that group? I am from Bay Area so active role would be difficult

yes - we have investors who are passive - people like doctors and lawyers who don't want to get too involved in the day to day operations - but like getting a rental check every month - most of the cash flowing deals right now require either all cash or a high down payment - If you have cash - there are some good deals to be found - trying to finance something is going to be more difficult in today's market.