There are a lot of people who want to get into real estate investing. There are a lot of people who recognize the promise of the market, who want to be their own boss, and use their skills to take control of their economic destiny. But, in my experience, some people are hesitant because they don’t feel confident in the “flip” part of “fix and flip”.
That’s where there’s good news: you can still be a wholesaler.
I’ve made a career out of wholesaling real estate. You need talent and drive to find leads, evaluate the deal, close, and sell. And, you have to be ready to work quickly. It’s a business that takes determination—and a lot of knowledge.
That knowledge isn’t always obvious or readily available for people starting out. But, there are ways that you can get it. This guide to wholesaling real estate for beginners is a jumping off point for what you need to know to compete in this field and some of the best ways to improve and build on that knowledge.
Wholesaling is turbocharged real estate. It’s a series of sprints. Here’s how to get to the starting line.
There’s so much more than just the cost of purchase plus rehab equation. When you really start to add up the cost to flip a house, you see that there are a lot of hidden expenses, all of which can eat into your bottom line.
When revenue exceeds expenses, you win. The only way it can do that is to understand the true costs. Here’s how you get the numbers right.
Wholesaling Real Estate for Beginners: What You Need to Know
The thing about wholesaling is that knowledge and experience build on itself. These aren’t exactly “steps” toward success; don’t think of them like a ladder. Think of these as the tools of the wholesaling real estate trade.
Here’s what you’ll need to develop a solid wholesaling foundation.
Solid Legal Advice
This is one of the most important places to start. Every state has different laws and regulations about wholesaling. Some want you to have a real estate broker’s license. Many restrict the number of houses you can buy without one. Some are OK with you acting as a broker and moving the contract. Others may want you to take actual possession of the house.
Not only are there a lot of overlapping regulations, but these are changing rapidly. Huge fines can drain your pocketbook if you don’t understand your local laws and run afoul of them.
So, research the laws. Check with your attorney. Make sure you are on the up-and-up. We are not offering any legal advice here, other than to say: don’t think you can be clever and skirt these laws.
Training and Education
At one point or another, we’ve all applied for a job that said you needed experience and the only way to get the experience was to get the job. That sort of applies here. Being able to know how to find houses, how to buy and sell them, and the ins and outs of the business comes with experience. But, of course, you don’t always have that experience when you need it the most.
The bottom-line is that you need training first. When you’re starting out on your own, you’re typically on your own for a while. That’s why so many people want to join established programs that give you training and education to help kickstart your experience.
Real estate investing training and education can include topics like:
- Finding leads
- Talking to distressed homeowners
- Evaluating a deal
- Figuring out the potential ROI
- Connecting with buyers
- Planing a long-term strategy
Here’s a pro tip for education: avoid gurus. They all have a billion-dollar system that promises to make you rich. But, how many people do you know who go to those things and are actually rich? Not many. Instead, it’s better to get training from people who are actually working in the field and know what today’s market is like. You want to work with someone who doesn’t pretend that you’re going to get rich quick but, instead, can guide you toward potential steady progress, year after year.
A Way to Get Leads
To say you need leads in real estate investing is like saying you need pads to play in the NFL. Sure, you can try without it—but you’re not going to last very long. Finding houses to buy and then sell is the key to everything you’re doing.
There are a lot of ways you can look for leads. These can include a range of strategies but they all have pluses and minuses. Let’s take a look.
- Free online searches, including Craigslist and Zillow
The free services have a lot of noise, but not a lot of signal. You’ll get lots of fake leads, people not sure if they really want to buy, and even some outright scams.
- Paid searches on Redfin and other subscription sites
Paying can be better, but of course you aren’t the only one paying for Redfin. Whatever you can see, so can anyone else ponying up.
- Inbound marketing by placing ads online, at bus stops, or on billboards
These seemingly “old-fashioned” ways of advertising still have the ability to generate quality leads. There just may be a slower turnaround when considering the steps involved—ad development, placement, lead generation.
- Joining an established franchise network
Working with an established franchise system might be the best way to wholesale houses full-time. You get the benefits of broader national marketing, which can turn into you getting qualified leads. You don’t necessarily have to put your face on a bus stop to get a phone call.
Getting leads is tied into training and education, as well. You have to understand how to evaluate a lead once you get it. Walking away from a lead that isn’t good is as important as jumping on one with promise.
Of course, getting the lead is just the first step of the process. What comes next is just as important.
Knowing How to Valuate a Potential Deal
Wholesaling real estate is such an interesting and complicated business. Your valuation has to take a few things into account.
- The price the potential seller is willing to sell at
- The price your buyer is willing to pay
- The cost of the work the buyer is going to put into the house
- The price the buyer looks to sell for
See, when you sell to a fix-and-flipper, they are making calculations as well. They are going to figure out what their spend is, what the market can bear, and how to make their target ROI.
When you are wholesaling, you don’t have huge profit margins. You have to balance between giving the seller a fair price and setting a price that ensures your buyer makes some upside too. It’s not easy.
There are a lot of gurus, and a lot of well-meaning people as well, who think there is a magic wholesaling formula. But the formula for wholesaling houses can lead you astray. A cut-and-dry formula doesn’t take into account things like the neighborhood, the current market, the economy, or anything else that can change prices.
There’s no single formula. There’s only the unique deal, every time. Having a tool to value the property is the best way to make sure that you neither overpay nor undersell. It’s the best way to meet those tight margins.
A Source of Financing
There are some people in this real estate investing industry who are so wealthy that they independently finance all their own projects, never borrowing a dime. Most of them are either on TV making their money by taking yours but, the great majority of us aren’t in that situation.
So, you’ll need a trusted source of financing. That generally isn’t going to come from a bank. Banks are slow and they don’t really understand our business. That’s why we use hard money lenders.
Hard money lenders are designed for fast-moving real estate professionals. They evaluate your deal and offer rates based on your experience, your credit, your available cash, the actual deal, and many other factors. But, not all hard money lenders are going to have the same judgement. Some lean more heavily on experience, some on credit, some on cash. For any given deal you could find 10 different rates. You have to find the one that works best for you.
Ideally, you would be able to compare all the valuations quickly and easily, instead of having to apply at 10 different places. There are systems that allow you to do just that. That way, you get the best rates.
A Closer’s Mentality
You have the lead. You’ve made a solid valuation. You think you can really make this work. All you have to do is get the seller to, well, sell.
What does that mean? Does that mean strong-arming them? Smooth-talking and getting them to sign on the dotted line? Any number of tricks that gurus can teach you?
I don’t think so. What it takes is honesty, openness, and fairness. Homeowners who are looking to sell quickly don’t want to be taken advantage of. They want cash, they want it fast, and they want a fair offer. They need to know that they are being treated with respect.
So do that. Explain your business, your numbers, and how this works out for everyone. There’s no real trick to it. But, getting better at it comes with experience and training. Just go into it with a fair deal in mind, then everyone wins.
A Network of Buyers
Wholesaling depends on speed to turn your wholesale house around quickly. Every day that you haven’t sold it means that you are paying holding costs. It won’t be passive income. You’re actively hoping to sell it—and quickly.
If you start looking for buyers after you’ve bought the house you’re already losing money. That’s why it is good to have a network of buyers. They can come from a lot of places, including:
- Real estate groups
- Word-of-mouth networks
- Working through a real estate agent
- Advertising on your own
- Being part of a network of franchisees
For my money, the best bet for finding buyers for your wholesale business is the last one. I like working with professionals. I like working with people who understand how a deal is supposed to be done and having access to a lot of people who are ready to buy.
It makes selling that much faster. And that gives my margin a little bit more room to breathe.
A Plan for All Contingencies
I’m writing this article about six months into a pandemic. If I had written it seven months ago, my list of “all contingencies” would have included things like economic downturn, bad weather, and unforeseen personal complications that impact your business. It wouldn’t have included the idea that you might not be able to physically go into houses for a few months.
And, that’s kind of the point. You can’t plan for all contingencies, so you need to set up your business to weather them. That doesn’t mean having a written plan for everything (“If an asteroid hits the ocean, then I’ll…”). It just means setting yourself up to expect the unexpected.
To me, that means joining a team that gives excellent support and has proven long-term resilience. It means getting support from people who can help you thrive in uncertain economic situations and putting yourself in a situation where you don’t have to stand alone during the toughest times.
The Best Opportunity for Wholesaling Real Estate
What I have looked for in life, and in my business, is independence without isolation. I want to be able to be my own boss and make my own decisions. That’s why I love being an independently owned and operated HomeVestors® franchisee.
See, as a franchisee, I get everything I need. I get:
- The benefits of the nationally-recognized and trusted “We Buy Ugly Houses®” marketing campaign)
- Proprietary valuation tools
- A hard-money lender portal that gives me multiple funding offers so I can choose the best one for my qualifying purchases
- A network of qualified professional buyers via DealVestors®™
- Education, training, and mentorship
That last one is especially important for beginners to begin wholesaling real estate. That’s what you need to set yourself up to run your business.
So, with HomeVestors® I am still independent. But I’m not alone. In tough times, I have marketing and support as my backup. In good times, I have additional wind in my sail.
This is a tough business. You have to move fast and work hard. Being a HomeVestors® franchisee is a great way to get off the blocks. If you want to kickstart your wholesaling real estate business, request information about becoming a franchisee today.