Essential Tips For A Successful Real Estate Wholesaling Business Plan
Once you’ve decided to pursue a career in wholesale real estate, the first thing you need to do is put together your business plan. Use this step-by-step guide to get started.
1. Generate Leads
One of the most important qualities of any successful wholesaler is their ability to produce leads. You may have a good grasp on your local market and the wholesaling process, but without incoming leads, you won’t get very far. Fortunately, there are many different ways you can get your phone to ring. From Craigslist to launching direct mail campaigns, investors should utilize every resource they can. Sourcing leads need not be expensive, but you do need to be consistent with everything you do. For more information, be sure to check out our guide on how to acquire high quality real estate leads.
2. Know The Numbers
Both sellers and buyers alike will be looking to negotiate deals with wholesalers who have fair, accurate numbers. This includes a fair purchase price based on comparable sales, the cost of repairs, and the after repair value (ARV) of the property. Note that the cost of repairs will be based on the condition of the property and how much work is needed. All of these numbers should be incorporated into your offer to the seller, and again to your end buyer. Remember, seasoned investors will be able to see right through you if you try to manipulate the numbers. You will need to find that sweet spot where the purchase price is mutually beneficial to the seller and the end buyer — while still ensuring there is enough remaining for your wholesaling fee. This can leave a narrow margin, which is why many wholesalers focus on volume and turnover rather than the profitability of each individual sale.
3. Build Your Buyers List
Having a large buyers list is great, but it’s even better to have a smaller, more dedicated list of clients whom with you’ve formed strong relationships. Every time you complete a transaction, you should take the time to find out what your buyer is looking for. If you know what your buyers want, you can look for specific properties and deals that fit their needs, thus helping you streamline your wholesale business. If you deliver good properties and good deals, you can be rest assured that your investors will want to work with you again.
Now, you may be wondering exactly how to find these buyers we have mentioned time and again. Use the following section as your guide to begin building your buyers list.
Disadvantages of wholesale real estate investing
How To Find Cash Buyers For Real Estate Wholesale Deals
Half of the battle of sustaining a successful wholesale business is finding seller leads, and the other half is building a solid list of cash buyers. Wholesalers typically build their buyers list through a combination of networking and direct marketing. Eventually, establishing strong business relationships can lead to repeat business, helping to take out a lot of the guesswork. Below are a few strategies used by wholesalers to target cash buyers:
Craigslist: Craigslist is a great resource for placing ads for wholesale deals, as well as identifying potential buyers. In the “Housing” section, peruse the hundreds of “for sale” or “for rent” properties to identify owners and landlords who may be interested in a future wholesale deal.
Networking: Networking with local real estate investors, landlords and real estate agents can lead you to meaningful encounters, as well as help you develop long-lasting business relationships. Become an active member of your local real estate investing club, where you may meet active cash buyers, a fellow investor who may introduce you to interested buyers, or even someone who wants to partner with you on a future project. In addition, connecting with real estate agents will help you gain access to lists of recent cash sales.
Lead Capture Forms: In this day and age, anyone hoping to develop a successful business is expected to have an online presence. It is easy to set up a lead capture form on your business website where visitors can submit their personal contact information. To increase traffic to your website, promote your brand through social media, blogging, advertising and marketing.
Courthouse Auctions: Buyers are required to have all cash at courthouse auctions, so this is a direct approach to finding cash buyers. Visit courthouse auction sessions early and regularly to network with this group of active cash buyers. Don’t forget to hand out business cards and to follow up with any connections made.
Hard Money Lenders: Not all cash buyers will actually have the total purchase price of a property readily available. When that is the case, they will often enlist the help of a hard money lender to help close a deal. Because of this, hard money lenders can be an excellent source of cash buyer referrals. Their best interest is to help you so that they can assist in the funding of future deals in return.
How To Maximize Your Profits In Real Estate Wholesaling
If you’ve already started your wholesale business, perhaps you are looking for some tips on how to maximize your returns. Here are five important tricks to maximize your real estate wholesaling goals:
1. Think About The Seller
Remember, one of the main goals of wholesale real estate is to get the property contracted under the lowest possible price. However, negotiating a favorable price can be a challenge, even if a seller is facing foreclosure. They may have other options to explore, including other wholesalers or cash buyers. That is why it is of utmost importance to put yourself in the seller’s shoes when making your presentation. By clearly communicating the wholesaling process, and conveying that you understand their pain points, you’ll help your chances of striking up a deal. For more help, you won’t want to miss our no-fail script for talking with motivated sellers.
2. Be Transparent
Another component to building a successful real estate wholesaling business is transparency. This characteristic is important when trying to acquire wholesale deals, as honesty will always be the best policy for anything you do as an investor. As a wholesaler, you will need to explain your position, the risks associated, and what your intentions are. Sellers often want to work with people that they feel they can trust, regardless of price. This is why it’s important to answer questions directly and fully, even if they may not like the answer.
3. Have An Exit Strategy
An exit strategy is how an investor plans to remove themselves at the end of a deal, and how they plan to make their profit. For a wholesaler, the typical exit strategy is being able to quickly assign contracts to end buyers, for a wholesaling fee.
In order to do so effectively, wholesalers should dedicate time to routinely build and maintain their wholesale buyers list. The more buyers you have on your list, the greater the chance that you’ll be able to turn over a property. As previously mentioned, many wholesalers grow their list by attending networking and investment club meetings; and they maintain these relationships by getting to know each investor’s buyer preferences. In addition, following up regularly is a great way to know when investors on your list are actively looking to buy.
4. Keep Everyone Involved
One of the jobs of a real estate wholesaler is to keep everyone involved in what is going on throughout each deal. Even if you have a signed deal, you need to see things through to the closing. This means staying in contact with the seller while keeping the end buyer updated of the progress that has been made. This can be an anxious time for the seller and they’ll likely have plenty of questions along the way. Taking the time to keep your sellers and buyers informed and happy is not only good customer service, it’s another opportunity to build strong relationships that can lead to repeated business for you in the future.
5. Post-Closing Follow Up
Every deal you close should be treated as an opportunity to grow your real estate wholesaling business. After a transaction is completed, take the time to reach out or set up a meeting. Too often, wholesalers will close on a deal and move on without debriefing with everyone involved. Assuming you did your job and everyone is happy, they should want to work with you again in the future. All it takes is a quick email or text to keep your name fresh on everyone’s minds. Not doing so could equate to your leaving potential deals on the table.
Keep reading to find out two methods for effectively closing a wholesaling deal.
2 Methods For Closing The Deal In Wholesaling
In wholesale real estate, there are two main methods used for closing a deal. So far, we’ve discussed the assignment of a contract several times, but there is a second option: the double closing (also known as a double escrow). Let’s take a look at these two popular ways to close a wholesale deal.
Real Estate Wholesaling: Assigning The Contract
Assigning a contract is arguably the easiest way to wholesale real estate. Assigning a contract, as the name suggests, means that the wholesaler sells the contract, and not the property itself. While they don’t own the property, they control it by means of the contract. Subsequently, once the wholesaler assigns the contract for a subject property, an end buyer will assume the role of the buyer.
It is important to note that you must sign a contract to purchase a subject property during a wholesale deal, this is known as a purchase and sale agreement. Furthermore, make sure the contract does not prevent you from “assigning” or “selling the contract” to an end buyer. All contracts, by default, can be sold to another party (unless specifically stated otherwise within the contract).
It is important to understand that the assignment of a contract does not mean you are actually selling the property, nor will your name go on the title. You are simply assigning your rights within the contract to purchase the home and sell the rights to the end buyer for a profit. When it comes time for the buyer to purchase the property, make sure they send the deposit to the title agent or attorney that is handling the closing. Once the transaction is completed, you are awarded a “finders fee” for acting as the “middleman.” Of course, this is all contingent on the premise that every requirement is met in the purchase and sale agreement.
Real Estate Wholesaling: The Double Close
In some cases, a wholesaler may elect to conduct a double escrow, such as when the seller does not agree to an assignment of contract clause, or when it is not allowed by local regulations.
Otherwise known as a “simultaneous close,” a double closing is an equally profitable real estate wholesaling strategy. Essentially, the process of a double closing will witness the investor purchase the property and resell it at a later date. Depending on the particular scenario, the reselling of the subject property may land on the same day it was purchased or even 60 days later.
During a double close, your company will enter into a chain of title and is therefore considered the true owner of the property for a short period of time. Accordingly, the transition of property ownership officially transfers from the seller to you (A-B transaction). It is then up to you to find a buyer who will purchase the property for more than you paid for it (B-C transaction). While the execution of a double closing is not much different from a regular purchase, wholesalers should make sure that their lender allows this type of transaction.
Summary
Wholesale real estate presents itself as an excellent opportunity for beginners to enter the real estate investing arena, as it can require little to no capital, and is a great way to learn the ropes of the real estate industry. Some individuals like wholesaling so much that they make it their full-time careers. Either way, if you are driven, disciplined and organized, there is no limit to how much money you can make in your wholesaling career.
Have you ever successfully completed a wholesale deal? If so, what techniques did you use? Share your stories below: