Posted by Jonathan on April 11, 2007 at 20:19:56:
Ah c’mon Brian, put it to bed. Ask away and I will try to answer without giving away all my secrets but let it go man. It’s just not worth it.
Jonathan
Four keys to successful wholesaling - Posted by Jonathan
Posted by Jonathan on April 09, 2007 at 22:43:31:
Traveling around town, it seems that every street corner has a sign “I buy houses for cash, call…” It’s on the onramps of highways, in your neighborhood and even displayed on cars. Nowadays everyone wants to be an investor.
The easiest way to get started in real estate investing is by wholesaling. It requires little upfront investment and the least amount of risk. With the right resources in place, one can do quite well. So, the easiest way to get started is by wholesaling. For those that are not familiar with the term, the concept is fairly simple. You obtain a contract on a property for one price and assign it to an investor for a price higher than your contract price. For example, your get a property under contract for $200K and assign it to an investor for $210K. At closing, you receive your $10K assignment fee. You don?t take title to the property, there?s less financial risk and it’s easier than holding, renting or rehabbing.
Basically, wholesaling can be broken down into four few key components.
Marketing
Acquisitions
Research
Dispositions
Sounds easy? Sometimes they are and sometimes they are not. It requires attention to detail and careful planning. So let?s take a look at each one in more detail.
MARKETING
?How do you find your properties?? That is the single most important question everyone wants answered. There is no magic formula to marketing. What works for me in my area may not work for you in your area. You?ve got to experiment and find out what works for you. Most often it will cost you money and it all depends on how much you are willing to invest.
There are many ways to market and it all depends on your budget. Some strategies include flyers, foreclosure listings, auctions, MLS, realtors, bandit signs, TV, radio, billboards, car signs, geo-targeting marketing, and using other wholesalers. The list is endless and there are so many courses out there that analyze every segment in excruciating detail. The bottom line is you have to figure out what works for you in your market with the budget you set.
My partner and I spend about $15-20K in advertising per month and we use a combination of all of the above. I know other investors who spend $50K per month and do the same amount of deals as us or someone who spends $2K. The key to success is quantity, not quality. Yes, that?s right. Quantity rules and I will tell you why in acquisitions.
Lesson: Find what marketing strategies work in your area, experiment and set an advertising budget that won?t break your bank.
ACQUISITIONS
I hear from other investors on this board as well as others that they don?t pursue sellers. They set up 800 numbers with a recorded message. Some are too insecure to talk to sellers and focus almost entirely on marketing and don?t know what to do when they find a deal. It?s called analysis paralysis. Don?t worry, it?s normal. First deal I did, I almost downloaded in my pants from nerves. Now, I buy houses like most people shop for clothing at KMART.
To be successful at wholesaling, you?ve got to make the offer. I make 35-50 offers per week. Yes, that is correct and I am not exaggerating. In order to acquire 5-8 deals per month and pay our overhead, 2 deals a month go towards our overhead. The more offers you make, the greater the chances of landing the deal. The other major wholesalers follow the same rule. Quantity rules.
There is absolutely no way around it. You have got to make offers? and a lot of them.
There are few key ingredients to acquisitions ? quantity of offers made, a good 30-second sales pitch, honesty, integrity, and the ability to close the deal. You will also need a good standard RE contract and a good Assignment of Contract.
We receive way too many calls for me to visit every property so the properties I do visit, 9 out of 10 times I always walk with the signed contract in hand. Why? I am honest. I set expectations, offer generous terms, and I put the seller at ease. I never visit a property unless the seller accepts my offer subject to me seeing it.
Lesson: Engage sellers, make lots of offers. Be honest, be fair.
RESEARCH
Essential to your operation is the tools to research the property. Having access to the MLS as well as other subscription services that offer real value will help you determine FMV. I used blended comps from three different services including the MLS. We look at everything and remember determining FMV is open to interpretation and a very subjective process. You?ve got to look at the big picture and calculate many variables. Some are black and white like number of beds and baths and others are difficult to quantify like the subject being on a busy street but all the comps are on the side streets or comparing the subject a block away from a railroad to comps a quarter mile away even though it is still in the same sub-division. Basing your FMV price purely on the $$ per square foot is often does not work for the reasons I mentioned.
I know what you?re thinking. ?How can you make offers on properties you haven?t even seen?? Great question and the answer is I know my neck of the woods fairly well. I also use Google maps to get the aerials and on occasion when I visit a property and the price is off, I adjust the price as I negotiate with the seller. Usually works, like the time I initially offered $355K for the house but after visiting, my final offer was $305K. Seller took it and this one I closed last Friday and flipped it to another investor with a price tag of $335K. I made $30K at closing. Worst they can say is no so you?ve got to try.
Finally and most importantly, you also need to determine what percentage of ARV you need to be buying at determined by your research. For me, we buy properties between 60-70% of FMV depending on dollar amount of repairs needed. We usually flip properties between 68-75% of FMV. Again, every market is different and best way to find out what your spread is through other experienced wholesalers in your area.
My latest deal which I am closing 10 April is a good example. I picked up the property for $220K. FMV is $335K. I assigned it for $240K and will pick up $20K at the closing. 240K divided by 335K is 71% of FMV. The house requires less than $5K in rehab so it is a stellar deal for my buyer.
Lesson: Determine ARV % you need to buy at in your area. Determining FMV is subjective. Use several services to help with your research.
DISPOSITIONS
In other words, this is selling to investors. If you have only a few buyers on your list you are at a disadvantage. You need to focus a good percentage of your time on building your buyers list. This comes from networking at clubs, calling investors from their signs on the side of the roads, realtors, mortgage companies, title companies, etc.
The more investors you have, the greater the chance of you selling that property. Our list is in the thousands and we move every single property we acquire. There will be times, during your list building stage, where you get a great deal but have no investor willing to buy it. It happens and the best way to move the property is to work and partner with other wholesalers who have a large buyers list. Seek them out. Be their friend. Make money together.
I have wholesalers bring us their opportunities. They tell me the net price they want and if it makes sense, I add my fee on top and send it out to our investors. And, many times, when I send out one of my properties that I acquire, a wholesaler calls and has a buyer for the property and the strategy is reversed. It?s a win-win scenario.
Lesson: Build a substantial buyers list through networking. Partner with other wholesalers to move your properties.
Happy investing!
Jonathan
Not for the sake of being contrary, but . . . - Posted by Joe Kaiser
Posted by Joe Kaiser on April 13, 2007 at 14:27:52:
This is the old way of doing business, and while it may work well for
you, I doubt many of us here are willing to commit to $15k - $50k a
month in advertising for deals. I’m certainly not.
MARKETING
In fact, I remember the day I figured this out, cancelled my ads, and
instantly felt the pressure of having to do deals or perish completey
vanish. I was only paying $4k a month at that time (mostly classified
ads) but even that was too much.
Today, we don’t market at all.
Marketing puts the duty of finding me on the seller, and I can’t allow
for the possibility that he’s not clever enough to find me enter into the
equation. I know where he is (or likely to be) and I will get in contact
with him directly, one way or another.
We either do a deal or we don’t, but I don’t wonder if he’s seeing my
ads, my signs or my TV commercial because I know for a fact that he
and I made contact.
ACQUISITIONS
The last thing I want to do is spend time making offers that have a 3%
chance of succeeding. I can’t imagine making 50 such offers nor can I
imagine the poor agents wasting their time doing so on my behalf.
I don’t make any offers and learned long ago that in order to make
money, making offers was the wrong approach for me.
Instead, I meet with sellers and together we sit down and talk about
what they’re hoping to accomplish. If I can make that happen and
figure out a way to profit by doing so, we write it up. If not, we don’t.
As a result, I haven’t had an offer rejected for as long as I can
remember. My advise is to stop making offers and start making
money.
REASEARCH
While I agree with the concept of research, I disagree with MLS being
the place to do it. That to me makes no sense. The last thing I want to
do is enter a marketplace with every other investor in town and
somehow outwit them all. I’m just not that clever.
And, I’m not interested in doing ANY property specific research. None.
I’m simply looking for situations I know deals are likely to come from,
and will spend any researching time there. The facts about the
property are of zero interest to me and frankly, are the last things I
need to know for the time being.
DISPOSTITIONS
I don’t have a buyers list. Sure, I know a few guys who are always on
the lookout for deals, and I’ll send a deal or two their way, but when it
comes time for me to get a property sold, I’ll go straight to the MLS to
get it done. That exposes it to the marketplace and puts it within reach
of the other investors out there looking to make deals happen.
The MLS is the ultimate buyers list.
So, we disagree on a few things here, Jonathan. But if your approach is
working for you, it’s hard to argue otherwise. It’s a good approach and
one that’s worked for many years, (yes, I did it myself for a long time),
but it’s nothing I’d want to do today.
Joe
Re: Four keys to successful wholesaling - Posted by J. Gipson
Posted by J. Gipson on April 11, 2007 at 21:36:05:
Thank you so much for the info. You have made it more clear to me how to do wholesaling without making it confusing. I already have access to the MLS in my area and thanks to you and your keys for success, I am now ready to get out there and get to work!
Re: should be reposted as… - Posted by Chris
Posted by Chris on April 11, 2007 at 17:48:00:
How a newbie gets started. With this post we shouldn’t get another “how do I get started?” question. I am a rehabber so seeing the other side is interesting, great post, a real contribution.
Re: Four keys to successful wholesaling - Posted by Natalie-VA
Posted by Natalie-VA on April 11, 2007 at 13:15:09:
Jonathan,
I appreciate you sharing your experience, but I just have to say that you guys work way too much! I say forget quantity and focus on quality. I’d rather spend less time doing bigger deals.
I also think that it’s not so easy to start out wholesaling. I know I’m backward, but I would never have been successful wholesaling if I hadn’t done the rehabbing first. It just worked better for me having been there.
Wholesaling doesn’t necessarily have to be assigning contracts. I’ve got better deals by closing, doing trashouts and then reselling at a wholesale price. I guess there’s more than one way to attack it.
Best wishes for your continued success.
–Natalie
Re: Four keys to successful wholesaling - Posted by Prodigy
Posted by Prodigy on April 11, 2007 at 12:52:35:
Hey Jonathan… I was reading in a previous post that you use an LLC for your wholesaling business. Why did you choose to use an LLC over an S-Corp.?
Re: Four keys to successful wholesaling - Posted by Prodigy
Posted by Prodigy on April 11, 2007 at 12:36:26:
Excellent!!! Thanks Jonathan… Very good stuff…
Re: Four keys to successful wholesaling - Posted by Lina
Posted by Lina on April 10, 2007 at 21:05:37:
Hi Jonathan,
I like reading your post and thank you for sharing your success story with us. I hope you won’t mind my asking you a question about the MLS. In your post you mentioned using the MLS to market your stuff and more. Can you tell me how to get access to the MLS?
You help is greatly appreciated!
Lina
Re: Four keys to successful wholesaling - Posted by Rusty
Posted by Rusty on April 10, 2007 at 20:36:24:
Great post…do you or anyone have any advice on researching comps? In the past I’ve had to rely on realtors to do the work for me…which is a drag. I don’t think there’s anyway around getting the MLS info, is there??? What do other of you do to reseach comps?
What are some good subscription services that you use, like Jonathan mentioned in his post?
Thanks!
Re: Four keys to successful wholesaling - Posted by Batman
Posted by Batman on April 10, 2007 at 12:57:57:
Thanks for being so forthcoming with info - this is good stuff.
I know sellers will do seemingly strange things when selling their properties, but I was curious to know why the seller you are closing with on April 10 decided to sell their property for so little, when it only needs $5K in work.
Thanks,
Batman
a few things i would add - Posted by lukeNC
Posted by lukeNC on April 10, 2007 at 07:50:09:
Be familiar with title searching and skip tracing:
– I used to be a title searcher back in the day for a number of attorneys back in the day and that really helped out with my foreclosure research. Skip tracing is something else that helped me in locating those hard-to-find sellers. These skills can really help you out, especially if you are in the foreclosure arena.
See it through:
Have a system in place for disposing of the property: Have your closing agent in place and ready to go, someone who understands assignments and double closings. In fact, you should have at least 10 buyers listed and my closing attorney all set up BEFORE I even started, in hindsight.
There’s no worse feeling than having a deal all ready to go and no one to close it with. How you find one: Review other known investors doing the same thing and see who they use. Check your county register of deeds, usually the closing attorney’s name will be on that deed. Even with assignments, its rare that someone will just pay you $30k without a closing agent and title insurance.
How to build a buyer’s list:
I would review recent foreclosure sales and write down the names of those who bid on the properties, depending on the area, there could be hundreds. Most of these guys have the money. Another thing I would do is research REO’s and note who was buying those. THEN, I’d find out who those investors were selling to, especially if they bought it and sold it in less than 2 or 3 months. 9 times out of 10, those buyers were the ones you wanted to get. Someone who doesnt need a monster deal, but a nice deal.
3 types of buyers:
1.) Cut-throat Investor: Needs great deals, and wont hesitate to take your dough. – stay away from this one. I once talked to a guy who said he buys only 50% of FMV, no more than that. Couldnt work with that guy.
2.)Moderate Investor: Still wants a good deal, but doesnt care what you make. Usually, this is a rehabber. My favorite kinda buyer. These types of buyers are really exploding. Everyone who watches “flip this house” and similar shows is one of these.
3.) Retail Buyer: Wants an OK deal but is not a sophisticated investor type. Wholesaling is almost impossible with this buyer, UNLESS you are willing to wait on your money. If I had the option of making $5k or $50k, I’d wait for the $50k even if it took 3 to 6 months with the retail buyer.
With your buyer’s list you should have an idea of what kind of properties they buy. I used to have them grouped. For instance, I had a very nice husband and wife team who would buy high end homes, those who bought run down homes, etc.
Have the mindset: Whenever I looked at a potential deal, I had my exit strategy in mind at all times. Most of my deals were pre-foreclosures. Big equity? I need to put some money up, where can I get that now. OR, this seller won’t do an assignment, which buyer can I do a double closing with? Etc. Etc.
The best books to buy about wholesaling: Flipping homes by Bronchick, Totally Dominate and Abandoned properties by Joe Kaiser.
I thought I knew everything until I bought these books.
Re: Four keys to successful wholesaling - Posted by Tim
Posted by Tim on April 10, 2007 at 07:23:47:
Jonathan,
I am not sure why you are willing to give up this info so readily and of your own free will but thank you.
It was very well written and full of useful information. I will be saving it in my archives.
Tim - VA
Re: Four keys to successful wholesaling - Posted by Jonathan
Posted by Jonathan on April 11, 2007 at 20:10:25:
When the concept that more is better, in other words, quantity over quality, it is to imply that as a wholesaler, we do not have the luxury of waiting for the phone to ring. We hustle and the only way to be successful as a wholesaler is to generate as much activity to produce the few results you need to succeed at it.
When I rehabbed (i’ve rehabbed over 100 properties), then I had the luxury of picking and choosing the projects for maximum gain.
So, the approach while sound for a wholesaler may be counter to that of a rehabber.
And I agree with you, the best wholesalers are the one who have done at least a few rehabs. They can better estimate repair costs, offer the property at a fair price and usually are more reputable then the newbies who try to put out wholesale deals at FMV.
Jonathan
Re: Four keys to successful wholesaling - Posted by Jonathan
Posted by Jonathan on April 11, 2007 at 20:12:44:
Tax benefits are better and my partner and I have our own companies under the LLC. You can also have unequal shares of the business unlike an S-corp which would need to be equal. If you talk to any accountant who specializes in real estate, they could explain it a lot better than I could.
Jonathan
Re: Four keys to successful wholesaling - Posted by Jonathan
Posted by Jonathan on April 11, 2007 at 20:15:19:
If you are not a realtor, you have three ways to get MLS access.
- Become a realtor and pay you yearly dues for access.
- Have a business partner who is a realtor, like me.
- Offer to pay a realtor half of his/her yearly dues in exchange for access. And, if you find a deal that does not work for you, tell the realtor you will refer the buyer to him/her. This worked well for me when I just started out.
Jonathan
Re: Four keys to successful wholesaling - Posted by Jonathan
Posted by Jonathan on April 11, 2007 at 20:18:34:
Offer to pay a realtor half his yearly dues in exchange for access to the MLS. And, if you find a deal that does not work for you, then refer the seller to your realtor. This worked well for me when I started out.
Having MLS access is essential. Other services I would recommend is www.realquest.com, although they can be a bit expensive. There’s also realist.com which is run by the same company as realquest. Comps of the last resort is zillow.com.
Jonathan
Re: Four keys to successful wholesaling - Posted by Chris
Posted by Chris on April 11, 2007 at 17:43:22:
I use real-info.com, it’s good and gives me an idea of fmv, however the info is a little dated, but will also give names of previous owners, tax info, etc.
Re: Four keys to successful wholesaling - Posted by Brian_wa
Posted by Brian_wa on April 11, 2007 at 12:30:18:
Don’t you know it’s not proper to ask Jonathan direct questions? You’ll soon be hearing from Curt Dalton, acusing you of being a parasite! This is a warning!
Brian_wawawa
Re: Four keys to successful wholesaling - Posted by Jonathan Mednick
Posted by Jonathan Mednick on April 10, 2007 at 18:05:00:
Hi there,
Sellers sell their property low for many reasons but keep in mind, this is a buyers market, not a sellers. There are fewer wholesalers out there for which they can contact and my sales approach is positioned in such a way as I lay out all the benefits of a cash transaction.
Of course, they can list it with a realtor and let it sit for 6 months and maybe find a buyer, who possibly, will get their bank financing approved. Or, they take less for cash, close quickly and make their problem go away.
BTW - I closed on this one this morning and walked with a $30K check in hand. Gotta love this business.
Jonathan