Warning: Avoid Wholesale Blunders and Mistakes!Posted on February 28, 2014 by
I want you to be wealthy. I want you to make $5000 in the next 30 days. I know I can show you how. So every month, I explain how to navigate the very real possibilities in the real estate market. I encourage you to get out and beat the bushes for motivated sellers because I know they are out there and they are ready, willing, and able to sell to you.
This month I want to explain how you can avoid real estate ditches, potholes, and blunders. Believe me, I have found them through trial and error, and my experience can help you to avoid them.
The most common mistakes are:
- Not following your business model.
- Buying with someone else’s numbers.
- Buying from a control freak realtor.
3 Ways to Avoid These Mistakes
I. Follow Your Business Model
Your business model is the most important thing to stick to when buying or wholesaling a property. It should include
- How much money you want to make
- The area of town you’re interested in
- The type of buyer you need (owner occupant versus investor)
I have seen many investors, including myself, chasing after deals and spending money on marketing in a shotgun approach. This wastes time and money. The solution?
- Listen to the professionals who know the hot areas in the marketplace.
- Work in areas where you have a customer base who will purchase the property from you.
- If you are the wholesaler and you want to have repeat customers, sell properties that are a good value and worth the price. Unfortunately, there are plenty of examples of business transactions that ended in lawsuits, bad feelings, and lost wealth. Great buyers who consistently buy from you do not grow on trees. However, you can groom them by making them wealthy.
II. Buy With Your Numbers, Not Someone Else’s
When you are wholesaling, you typically do not need to do the due diligence on lot lines, condition, “as is,” “where is,” or “how is.” But you do have to know and verify rents, condo fees, judgments, liens, and anything else that deals with income or expenses.
If you are going to take title to the property (double close), it is your responsibility to do your own due diligence. Believing what the seller says is foolish. Typically, the seller feels that their property is worth more than the market will bear. The seller wants the maximum amount of money. They might overlook things that could be a major cost overrun.
It is your responsibility to verify rents by reviewing leases on sites like www.rentometer.com and www.realtor.com. Verify taxes on the County Tax Assessor’s website. Verify water with the local water supplier. Remember to do comparables that are within 1 mile and sold in the past six months.
III. Avoid Buying From a Realtor
As a long-time investor, I purchase only 10% of my properties from realtors. Here is why: the realtor’s job is to get the highest possible price so they can make the most commission. They want to do minimum work for maximum money. As investors, when we sell we want to pay a realtor’s fee because it is the marketing and speed of the transaction.
When buying from a realtor, the best idea is to close and then resell the property in a double close. Yes—you can sell a property under contract with a realtor and with a buyer at the same table—with the realtor sitting across from you. I have done it. When buying a “real estate owned” piece of property from a realtor, understand that the banks are going to require seasoning of title. The banks have remained firm on not allowing assignments on the properties that they are selling.
The problem is that when you place a realtor-marketed property under contract at the asking price and then add your wholesale fee on top, buyers will see you marketing the property at a higher price. Understand that everybody wants a great deal, including the buyer. If he can buy directly from the realtor and save your fee, what is his incentive to buy from you?
The solution? Buy at a discount. Then add your fee, making sure it is below the realtor’s asking price. When the property has been on the market for 90 -120 days and you offer what the realtor is asking, what makes you think you’re going to sell it for more? Don’t fall into this trap! When priced correctly, property will usually sell in fewer than 30 days.
Understand that I know some great realtors that I would love to refer to you. They know how to work with investors, find good values, and give great service. I have also met unprofessional realtors who demand that an assignment of a listed property is illegal. This is untrue. Typically, the realtor gets upset because you are driving traffic to them. They are doing all the work and not getting fully compensated. The realtor does not want to leave any money on the table. They’re looking out for their seller, and if the buyer makes money and the seller loses money, then the realtor risks his reputation.
As you can see, there is much to learn about avoiding pitfalls. It can be confusing, but that is what I am here for. Do you have questions? Concerns? Have you gotten a contract on a property that you would like to wholesale? Call me! I can be your guide around those potholes, those pitfalls, those blunders!