Wholesaling is a method of real estate investing in which you get a property under contract at below market value, then assign that contract to a cash buyer for a higher price. You don’t need to buy or renovate the home, and you collect a fee to put the seller and buyer together. It’s a low risk and highly scalable model to make money in real estate investing without credit or tons of cash. However, just because it is a simple concept does not mean it does not require planning and strategy.
Here are the eight integral aspects of every wholesaling business:
#1: A Customer Relationship Management (CRM) System
In wholesaling, good CRM starts with a good website. Your website will establish you as a reputable company and, with the right lead generation strategies, will soon be your main source of leads and deals.
Breaking Down the Language Barrier: When you hear the term “CRM system,” it includes the software or program that will link your website, which collects wholesale leads, to whatever process you use to follow up with leads, evaluate them, and make productive contact, which you’ll see more of in Step 2.
Building Your Budget: You can get a great CRM system for about $20 a month, but you will have to customize it extensively. A custom-built CRM will be much more expensive. You may also opt for middle ground by purchasing a pre-built CRM package off the shelf and customizing it.
#2: A Solid Screening Process
Wholesalers need properties under contract for a low enough price that they can sell them at a deep discount to other investors. Determine what price will snag you a fast sale in your market and how much profit you need to make on a deal to make the process work for you.
Building Your Budget: Time and again, I see wholesalers trying to do deals with only a few hundred dollars “cushion” built in for themselves. I won’t say not to do this, but I will say it is vitally important to your wholesale business success that your deals generate enough money to pay for your time and infrastructure.
#3: Persuasive, Practical Negotiation Tactics
Distressed sellers reach out for an emotion-based reason when they want to sell quickly. Some wholesalers call this their “internal pain point.” I believe it is more of an opportunity to craft a solution to solve that pain.
Breaking Down the Language Barrier: You will hear a lot of real estate investors talk about “rapport” with sellers. Essentially, this means that you must get the seller to like and trust you because you have a sympathetic ear and a solution to their problem.
Pro Tip: Use every viable lead you get early in the process to practice listening to sellers and building rapport.
#4: An Eye for Estimates
Ballpark renovation costs by asking questions about the home’s condition during your initial phone call. Later, you can complete a spreadsheet to calculate costs in detail.
Building Your Budget: Do not lowball repair estimates! Any investor who does due diligence on your deals will quickly identify you as a wholesaler whose numbers cannot be trusted if you do.
Pro Tip: Work with an experienced contractor or investor to make sure your estimates are on target.
#5: A Formal Valuation Equation
You can establish property value in multiple ways, but be consistent in both your methods and sources of information. For example, you might determine the value of a property by finding similar homes that recently sold (comps) and dividing the sales price by the square footage to establish a square-foot sales price. Then, use that number to establish a potential after-repair value (ARV) for your property.
Breaking Down the Language Barrier: Wholesalers use comparable properties, called “comps,” to give their buyers an idea of how much they might sell a property for after repairs.
Building Your Budget: When evaluating a deal, keep your overall wholesaling process in mind. Most wholesalers plan to make offers that will likely be around 70 percent of the ARV minus the cost of the needed repairs.
#6: Motivated Sellers
When you are starting out, your website may not generate the volume of leads you need. You may need to supplement with other options, including:
- bandit signs
- email blasts
Building Your Budget: If you have the funds, I recommend mailing postcards to targeted lists, such as homeowners with high equity. Save time by outsourcing the entire list-purchasing and -mailing process. The best lower-budget option for finding motivated sellers (and investors to purchase your deals) is probably bandit signs. These signs may be professionally printed or hand-lettered and should simply read “We Buy Houses” with your phone number or website.
#7: A Constantly Expanding List of Potential Buyers (Your “Investor List”)
Constantly build your buyers list and store it in the CRM system from Step 1. Find real estate agents and brokers who work with cash buyers already and telling them about your potential deals. They should be part of the list you contact whenever you have a truly valuable wholesale deal.
Breaking Down the Language Barrier: You will hear wholesalers talk about their “list” frequently. Usually, they mean a list of emails and phone numbers to which they distribute their deals.
Pro Tip: Be respectful of your list as you build and maintain it. Only send good deals with solid due diligence behind them. It only takes a few “rotten apples” for your list to start sending you straight to spam and sending your profits down the drain.
#8: An Effective, Efficient Closing
Once a buyer makes an acceptable offer, send the contracts to your title company to close. The company should handle nearly every aspect of the closing, although you will need to be on hand to sign any documents (some will allow you to do this virtually) and collect your assignment fee, which may range from a few thousand dollars to multiple thousands.
Breaking Down the Language Barrier: Assignment fees are that “cushion” we talked about earlier. As the person who initially located and vetted the deal, you deserve payment for your services! That payment comes in the form of an assignment fee when you assign the contract to another investor so they can complete the purchase of the property for the price you established with the buyer.