Happy Tuesday to you all this morning!
This morning I would like to provide a couple of tips to new or up and coming real estate wholesalers. This would likely apply to a lot of wholesalers with considerable experience as well.
In my opinion, to become a successful wholesaler with any longevity, it is a necessity to focus on volume and velocity rather than focusing on maximizing the profitability of a single deal. I know a lot of wholesalers and educators out there that will give examples of huge deals with huge profit margins and say it is a typical profit margin on a wholesale transaction. This isn’t the case in most scenarios, and even if it is, that wholesaler likely only does a handful of transactions per year. Although there will be an occasional deal that you will hit a home run with, if you do any substantial volume, the profitability of wholesale will vary widely.
I believe it is more important to focus on building long term relationships rather than making a huge margin on a handful of deals. Your client base is your life blood. You can have a huge database of investors who won’t buy your deals because there is not enough profitability in them, or you can move hundreds of properties per year by building up a small buyers list of real buyers who you feed a continuous stream of deals to that fight over themselves to buy your deals, because you are providing them with real value in the form of real deals.
I also believe that when analyzing a newly acquired property or contract, it is important to establish an acceptable wholesale margin for that deal and stick to it. Whether that margin is $500 or $50,000, it is important to keep in mind if it is marked up too much no one will buy it, and if it isn’t marked up enough, 100 people will be banging down your door to buy it.
There is the fine line which needs to be walked as a wholesaler when setting for price, however I feel very strongly that to play in this sand box you need to stick to your asking price. If you send out a deal at $110,000 and 20 people call within 15 minutes to buy it, you likely sent it out to low. You likely made a mistake setting your price. Learn from the mistake and move on to the next deal and apply the knowledge you gained on future deals. I don’t agree with some of the so called wholesalers who turn that situation into a bidding war. I will walk away from that wholesaler and that scenario every time, and I will not buy from them again. There is something extremely valuable in having a buyer who can move fast and commit fast. These are the buyers you want to be building a relationship with. Set your price and stick to it. Work on a first come first serve basis. If you turn it into a bidding war and multiple offer situation, you will very likely sell the deal however many of those buyers will not come back. If you give the deal to the first person who committed, you will create a sense of urgency and on the upcoming deals all those buyers and more will come back, and they will learn to move faster to commit and buy your deals. This creates the velocity and deal flow to build on.
Lastly, I suggest you don’t go hunting elephants and keep in mind how many work hours you put into a deal when you face a scenario that you may have to accept a small profit margin on a deal.
Chasing big deals is appealing however you will likely chase that deal for months with nothing to show for it. There is big money in big deals but they most take a lot of time especially if it is your first deal. Focusing solely on these transactions is short sighted and will result in large spans of time with no deal flow which means no income. It is interesting to me to watch new or even seasoned investors work to find a deal and they will only focus on big deals with big margins. I can’t tell you how many times I have talked with or chatted with a brand new wholesaler/investor who tells me they have never done one deal, yet a couple of weeks later they are blasting out some package of 119 homes for some ridiculous amount of money. Or…the wholesalers who constantly work on big priced homes to get big margins and fees. If you are in this business for any sustainable timeframe the big deals and the big margins will come, however they will likely fall in your lap with little effort when you are jamming through smaller deals.
If you want to build a sustainable, consistent, long term, profitable wholesaling business. Look for deals and pass those deals onto the most important aspect of your business…your buyers. Plain and simple. It doesn’t matter the price range and it doesn’t matter the margin. Work in volume and velocity. For every deal I wholesale, I rarely spend more than a full day of work on each property. In most cases I spend much less than that on each deal. However when I wholesale a property, the hourly rate I could allocate to each deal is astronomical. Keep this in mind when you have a deal that doesn’t seem to have enough margin. Focus on the law of averages not hitting that home run every time. If you have an opportunity to make a couple of hundred dollars on a deal which otherwise would be a dead deal, take the money and move on to the next. There will be deals you scrap your teeth on and then there will be deals you knock it out of the park. Focus on volume and turnover and don’t get hung up trying to hammer a deal through. It will hold you up from moving onto another deal that might be your biggest one yet.
I hope you find this informative. Have a great Tuesday!
Stayed tuned for tomorrow’s post regarding how to set your wholesale prices by reverse engineering the flipping equation!
John May
President
Win-Win TransACTIONs, Inc.
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