5 Ways To Become A Better Wholesaler
By JD Esajian on December 14, 2016
Wholesaling is a great way for new investors to get started in the real estate business with limited capital and experience. As a wholesaler you act as the bridge between the seller and buyer. You find discounted deals and pass them along to an end investor who ultimately purchases the property. For your work you are paid an agreed upon fee by the end buyer. This gives you the ability to get in and out of deals much quicker without the risks associated with rehabbing and flipping. As a new wholesaler not only can you earn on the deals you are involved in but you will also accelerate your learning curve. To be a good wholesaler there are a few areas you must know and excel in. Here are five critical areas for any new wholesaler.
- Math. Math is at the heart of almost everything you do in real estate. As a wholesaler math is the single most important factor in the deals you pursue. You need to have a firm grasp on what makes an attractive deal for an end buyer. Simply getting a deal at a discount does not necessarily make a good deal. You need to know the property taxes, carrying costs, rent information, after repair value and estimated cost of repairs. The better you understand the numbers the better you will be able to make your presentation to an end buyer. Any good investor will always do their own homework but if you aren’t confident in the numbers they may move on to something else. Knowing your numbers takes some knowledge on how the rehabbing process works but also just takes a little bit of legwork. The more you know about all of the numbers involved in the deal the better wholesaler you will be.
- Negotiation. A good wholesaler is also a skilled negotiator. As a wholesaler you need to walk the line between negotiating and still keeping a moral code. If selling with a real estate agent or modifying the loan makes more sense you need to steer the homeowner in this direction. On the deals that a quick sale works best you need to use your negotiation skills to tilt the deal in your favor. You need to remember that you need to get the deal at a price where it makes sense for an end investor to come in and still realize a profit. There are a few formulas that are used such as the 70% rule but formulas often only work on a case by case basis. Negotiation also has more to do with just the price. You may need the seller to act in your timeframe or agree to work with their lender. Doing this requires you to lean rather than push. Good negotiation allows you to access to more deals over the course of the year which directly impacts your bottom line.
- Lead Generation. While you don’t necessarily need capital to get started as a wholesaler it does accelerate the process. Capital backing will help you find ways to generate leads. You can be strong in several other areas of the business but if you don’t have leads to work on it won’t make a difference. Lead generation methods have changed dramatically over the years. With the increase in technology and social media you can reach more people without breaking the bank. However you can give your wholesaling business a quick jumpstart with direct marketing, bandit signs and low cost advertising. Each of these methods requires a capital contribution. Just like any other business you want to grow through networking and word of mouth. Attending local networking meetings and clubs can also provide a quick boost. Whatever methods you explore are up to you but you can’t dismiss the fact that lead generation is important for your wholesaling business.
- Market Knowledge. Not every deal that comes your way makes sense as a wholesaler. You need to focus on markets that investor’s desire. Not only do you need to pick the right markets but you need to know everything about them. Market demographics are often a good indicator of which way the market is headed. If the job market is poor and there has been an increase of foreclosures the market may take some time to recover. On the flip side if new housing permits have soared this could be an area that is ripe for recovery. Your knowledge of the market will play a part in your pitch to end investors as well as what kind of deals you pursue. Prior to any marketing campaign you should pick a few markets and make those your area of expertise.
- Integrity. People like to work with people they trust. This isn’t exactly breaking news but must be remembered at all times. Your reputation goes a long way in developing a solid network. By stating that every deal you pursue is a home run you will quickly lose credibility with end investors. The same goes with the homeowners you work with as well. As we mentioned there are times when a quick sale is not always the best alternative. If you do right by the homeowner they will tell someone which has a way of coming back to you at some point in the future. If you are someone who has morals and is trustworthy you may be surprised at just how many people want to work with you.
The wholesale side of the business is open to anyone who is interested however that doesn’t mean everyone will excel at it. The better you are at these five areas the better wholesaler you will be.