As a real estate wholesaler, you are likely to come across a lot of properties that have the potential to become viable deals. It is worth noting, however, that while volume is typically something real estate wholesalers covet, it can become overwhelming—unproductive even—for those that aren’t prepared for it.
At some point, regardless of your experience, there simply aren’t enough hours in the day. That’s why you need a real estate wholesaler system to help you prequalify properties that are worth pursuing. Remember, not every property is worth your time. The last thing you want to do is waste time on a property that won’t help your bottom line when there are others with plenty of potential just around the proverbial corner.
Let’s take a look at everything you’ll need to know in order to make an informed decision on your next wholesale property.
Prior to embarking on your own wholesaling endeavors, it’s important to understand exactly what a real estate wholesaler does. Unlike their rehab counterparts, wholesalers don’t buy a property in order to restore and sell it at a later date. Instead, wholesalers tend to act as facilitators; people who connect sellers with buyers. That said, wholesalers will locate distressed homeowners and attempt to secure the rights to buy the home. That’s an important distinction to make, as most wholesalers aren’t trying to buy the home, but rather the rights to buy it. Otherwise known as an “assignment of contract” strategy, this wholesaling process gives wholesalers the right to buy the home. Once they have the right to buy the home, they contact other interested buyers to sell them their rights to buy the subject property. In connecting the new buyer with the original seller, the wholesaler stands to make a small profit.
Not surprisingly, the first stage of the real estate wholesaler deal evaluation system has to do with gathering the appropriate information. The critical information I encourage you to gather isn’t relegated solely to the property itself, but also the individual intent on selling it. So without further ado, let’s find out what exactly you need to know at this stage of the real estate wholesaler deal evaluation system:
For obvious reasons, it’s absolutely imperative that you collect all of the information on the seller if you intend to be a great wholesale real estate investor. In doing so, you will make facilitating future interactions a little easier, which can’t be underestimated. Remember, those in financial distress won’t always be easy to talk to — or even willing — so the more lines of communication you have, the better. Be sure to collect the following:
In the event you aren’t working directly with a seller, I would venture to guess your main point of contact will be with the respective Realtor. If that’s the case, be sure to collect their contact information as well. In fact, go ahead and collect their information even if you are working with the seller directly, as Realtors will oftentimes be more “in tune” with the situation and offer better information. Not unlike the seller, be sure to collect the Realtor’s:
Once you are confident you have all the information you will need to keep in contact with the selling party, proceed to gather information on the property itself. Don’t forget to collect any of the following parameters:
In addition to giving you a general idea of the property you are looking at, this info will play a vital role in the next stage: comparing it to similar properties in close proximity. And like always, don’t always take the seller’s word as truth. Mind due diligence and check all of the information against the property card and the property itself. While there is a good chance they are telling the truth, you can never be too cautious.
It’s important that you determine the current status of the property itself: Is it currently occupied by the owner, vacant, or serving as a rental property? In determining the status of the property, it’s entirely possible to uncover the seller’s true motivation, which will help you over the course of negotiations in the event that you decide to move forward with the home.
Owners currently living in the home tend to share a strong attachment with the property and are therefore going to let their emotions dictate a lot of their actions. Those that can anticipate certain responses will have an advantage. Only once you know the seller’s situation can you effectively negotiate at a later date; commit that to memory. Few things aid in the negotiation process more so than understanding the owner’s situation. Not only will it tell you how to approach each conversation, but it may shed some light on a few bargaining chips you never even knew were in play.
For instance, if you are dealing with a seller that needs to sell yesterday, perhaps you can offer them a faster closing. You can even offer to help them find a moving company. Whatever the case may be, figure out the best way to meet the seller’s needs and provide in the best way you can. Only those that can uncover their true needs will find the process to be a lot easier than most let on.
It’s absolutely imperative that you uncover whether or not the property you intend to purchase is listed with a real estate agent. It’s not that the listing information will make it any more or less difficult to acquire, but it does change your approach. If for nothing else, it helps to know if you will be dealing directly with an agent or a seller. Whatever the case may be, be sure to get the following information:
It should go without saying, but now is the time in which you should develop a feel for the overall condition of the property. You can’t know whether or not a deal is worth pursuing until you are comfortable moving forward with it. At this time, proceed to give photos of the property the “eye test.” Get a feel for the condition of the property and whether or not it needs extensive repairs. And while I know pictures can’t tell you everything, they can certainly tell you a lot. For the sake of this system, you simply want to determine whether or not the property is worth inquiring further. You can vet the state of the property further if you decide to move forward. For now, the property just needs to pass the eye test.
It’s worth noting that properties in poor condition are not a red-flag, but rather an investor’s best friend. While there are certainly extensive repairs that are worth avoiding, some of the best wholesale deals you will come across need work. In other words, don’t let a few minor repairs scare you away. Instead, use them as a bargaining chip. It’s only the extensive issues that you should avoid, not the least of which include foundation and title issues.
At this stage, be sure to identify the following:
Remember, these questions only need general answers at this point. You can’t possibly know the exact answers, but do your best ballpark them. The idea is to paint a better picture for yourself.
Any time you intend to invest in a property, it’s in your best interest to determine the seller’s equity share. Find out whether or not the seller has any equity in the home they intend to sell; their status will tell you a lot about how to proceed, or if you should continue pursuing the deal at all. Obviously, those sellers with little to no equity and current on their mortgage will be harder to work with, as there will be little room to move a deal in your favor. That said, as a real estate wholesaler, your job is to find those sellers that have little to no equity and are currently behind on their mortgage payments. To get a better idea of where your seller stands, ask the following questions:
It’s in your best interest to find out what the seller’s bottom-line price is before you make an offer. That said, I’ve saved the best for last: What is the least amount of money the seller is willing to accept? In addition to learning their lowest price point, ask the following:
Becoming a real estate wholesaler starts and ends with one thing: a decision. In order to wholesale real estate deals, investors simply need to make the decision to start doing so. If for nothing else, wholesaling is one of the best and easiest ways to start investing in real estate; there are no prerequisites—only that you take what you are doing seriously and mind due diligence. Other than that, there are a few steps prospective wholesalers should take to get started.
For starters, a good property wholesaler will need an in-depth knowledge of the local market. Your first task as a wholesaler should be to identify at least three neighborhoods in which you may conduct business. Take note of what you hope to achieve, and find out for yourself which neighborhood offers the path of least resistance.
Once you have an idea of what each market will offer, proceed to build a buyers list. That way you will already have interested buyers for your properties in the event you come across a wholesale deal. If you haven’t started already, compile a list of potential buyers that would be interested in any deals you come across. Otherwise known as a buyers list, the contacts you manage to accumulate should represent a contingent of people you would feel perfectly comfortable calling in the event you land a deal. This list will serve as your most valuable asset as a wholesaler, and is integral in getting started. After the buyers list is created—or at least started—all that’s left to do is market for properties.
I know this is a lot to digest as a real estate wholesaler, but I maintain that all the information you gather at this point will prove invaluable when it comes time to move forward with a deal. Take your time at this stage and be sure to ask the right questions. Otherwise, you may find yourself spending far too much time analyzing deals that aren’t even worth pursuing, or worse, making offers on properties that aren’t worth your time.