If you are reading this right now, I want you to keep one thing in mind… I planned on writing this as a success post, not a failure post, but either way is a lesson and any lesson is good to know if you are interested in succeeding yourself.
Let’s start off with the basics of what Real Estate Wholesaling is all about.
There are levels of Real Estate…
I am not an expert… Yet, but no one gets to be an expert by not trying so let me give you my explanation of each level in the real estate industry.
Investors – These are the going to be the people that every level of real estate want to have on their list, there is always going to be a reason to want to talk to someone with money. Real Estate Investors got to their status many ways, some worked their whole lives and then took the money they made and saved and buy property, some have money from selling house after house, or some are just rich by inheritance. The main thing you need to know about Real Estate Investors… They Buy Property.
Investors can buy property for a bunch of reasons… Rentals, Buy And Hold until the market rises, Buy Low Sell Higher. The main thing Real Estate Investors want to do with their money, is make more of it. Every Level Has A Reason To Talk To / Have On Their List At Least 1 Real Estate Investor Ready To Buy / Invest.
Agents – These are most likely the first people anyone who knows nothing about Real Estate thinks of. A Real Estate Agent works for a Real Estate Firm that has all their business credentials to run their business where anyone can bring a house to them, put it under contract and market it to a large amount of people. Most Real Estate Firms have fliers, websites, and advertisements just about anywhere.
The thing about Real Estate Agents is if you do sign a contract with the firm, they are going to make a percentage of whatever offer comes in and the owner decides to take, so if you wanted $100,000 for your home and the agent takes 5%, you are going to get roughly $95,000. Now if you wanted $100,000 and the only offer that comes in is $80,000 and you decide to take the offer and the agent still collects the 5%, this leaves you with roughly $76,000, more than $20,000 is lost from what you originally wanted, now this could be the market issue, or the real estate agent just isn’t good at their job, but the main concept is, no matter what, you will pay a percentage of the whole property sale to a real estate agent if you choose to work with a Real Estate Agent.
Flippers – Anytime you see a house that is run down or just looks like it needs to be remodeled, well that is exactly what Real Estate Flippers do. Now, there are a few kinds of flippers, there are flippers who start with a super cheap house, remodel it, sell it for profit, buy a little bit bigger house, remodel it, sell it for profit and so on and so on, eventually ending up with a pretty profit.
There are also Real Estate Investors who have a bunch of options in the flipping level of real estate. A Real Estate Investor can work with the flippers I just described above, where the investor buys the property but instead of doing the work themselves, they pay people who will do the work for them, or split a % of commission their way when the house sells.
Real Estate Flippers just like the rest need to have a better chance at selling their property after remodel, so this is where Real Estate Investors come into play. If a Flipper has connections to Investors, they will always have a better idea of their chances at flipping their property. A remodeled home is a great investment for an investor looking to buy rental property, higher rent for a newly remodeled home. Even if the investor wants to sell the property to someone else for a profit, as long as the flipper makes profit, the need to make money is met.
A Flipper also has the option to use a Real Estate Agent to sell their property… The main goal is profit, make that money… Who Doesnt Love Money?!
Wholesalers – Now this is where the fun is, where my first failure started, my first wholesale…
First, Let’s start off with what is a wholesaler’s job. A wholesaler is someone who wants to make money but doesn’t have the funds or want to spend the funds to buy a property. This is where you use someone else’s money to buy a property, but what you really need is good negotiation skills, the whole process of Real Estate Wholesales is negotiation!
A wholesaler needs a good combination of all the skills from the real estate levels above. From the agent perspective, a wholesaler needs good negotiation skills, from a flipper perspective, a wholesaler needs to be able to understand ARV (After Repair Value) and Cost of Repairs to get a good understanding of how much profit can be made, and of course a good wholesaler needs Real Estate Investors for their money!
Depending on your skills and experience, either you will have to go on the hunt or find a way for the hunt to find you. What I am saying is you need a way to find houses that need to be sold, either the owner doesn’t want to fix it, the owner doesn’t know what to do with it, the owner wants to move away, any reason the owner wants to sell their property is reason enough to try a wholesale pitch. Profit is profit and it depends on if you are willing to work for a couple hundred dollars or wait out for the one deal that can make you ten thousand dollars. Either way, you can make money with a wholesale if you can agree on a price with the owner and get a well written purchase agreement signed.
Now once your purchase agreement is signed, you can go on with searching for a buyer that would like to take that purchase agreement out of your hands and into theirs so they can pay the owner of the property the agreed price on the purchase agreement contract and pay you the difference in the price you agreed on and the purchase agreement price.
I said a wholesaler needs to be able to negotiate… They Need To Be Able To Negotiate! From the start of the wholesale process you have to negotiate and agree on a price with the owner of the property, the lower you can get the price, the more room you leave yourself for profit. After owner negotiation, you need to be able to either negotiate a way to advertise your contact or figure out a way to spread the word yourself, if you have investors, you should be talking to them as soon as you get your contract signed. You should have some idea of what the house is worth and how much work it will take to sell at a certain price.
Once you have your numbers in your head, you need your investors to agree with you, they want to make money too so they will try to get the property for a low price also, this is where you need to be ready for the choice, how much do you want to make. If you have a contract set at $40,000 for a home that will take $40,000 to repair and sell for $120,000, you need to figure out how much your investor wants to make. With these numbers, $80,000 would leave room for $40,000 profit, if your investor is looking to make $35,000 you can set your assignment fee at $5,000.
Alright so Let’s run by this again, $40,000 signed purchase agreement that you sell to your investor for $5,000. The investor pays you $5,000 through a separate contract, assignment of contract, where you will have the written amount signed by both you and your investor. The original purchase agreement is now the investors and the title transfer process can start and the investor will pay the agreed $40,000 to the original owner. These numbers are all hypothetical…
Let Me Tell You About My First Wholesale Failure!
Okay, January 2018, I learn about wholesaling property with other people’s money. I find several homes in my town that are run down with nobody living in them. I wrote a letter with my intentions, my phone number and an offer to each of the addresses associated with each run down address from the county assessors’ website. I recieved a voicemail in March regarding my letter and wanted to talk, I offered $9,000 for a burned down house and they countered back with $10,000, and we agreed. I sent my purchase agreement in the mail with highlighted areas where she needed to sign and it was back in my hands by the end of April.
I was working with another wholesaler who is also a flipper and an investor and we got a marketing letter made up and sent to his list of investors, I was going to split profit 50/50 with him but no one ended up coming through, I went to my own title company in town to find out if they deal with assignment of contract (Some Title Companies Don’t), mine happened to be fine with it and we walked through the process. I was then comfortable to sell this house on my own.
Long story short, I found a buyer who lived right next door but didn’t want to pay anywhere near $15,000 ($5,000 assignment fee to me), I was able to renegotiate the contract to $5,000 because, I forgot to mention, I had until June 1st to get this property sold or it would enter foreclosure. May twenty-something, last couple days before it was too late and I had the buyer in the title company, all the paperwork laid out and I was ready for this to be my success story, my first property sold for profit with someone else’s money…
Well, the woman at the title company I was working with did one last deep check for any liens on the property… Turns out there was a $17,000 small business association loan left unpaid that needed to be paid before the property could be sold. The buyer wasn’t going to pay that even if there was still time, which there wasn’t. I called the owner to ask about the loan, she said it was true and I apologized for not being able to help.
Well there it is, my story of how I failed at selling my first wholesale property. I’m glad I was able to fail instead of never trying at all. A successful sale would have been awesome but it is what it is!
I’m an internet marketer with a background in motorcycle mechanics that worked with salmon hatcheries for two seasons that is now involved in real estate, if you want to know more about my story and what I do, check out my About Me Page!
I hope you enjoyed my story of how my first wholesale turned failure. If you have any questions or want to leave a comment to how to help anyone in the real estate field get better at what they do, feel free to do so below!
Because Honestly… Who Doesnt Love Money?
Thanks For Reading,
CEO Of WhoDoesntLoveMoney.com