THE ROAD SO FARIn our previous guides, we have covered a lot. Before we get into Wholesaling Strategies: The Advance How-To Guide 301, let’s look back.
In Guide To Wholesaling Real Estate 101 we covered:
In Wholesale Everything: The Intermediate How-to Guide 201 we expanded on many areas. We also added:
In Wholesaling Strategies: The Advance How-To Guide 301 we are going to expand even further.
We will cover:
Before we get into the meat of this guide, we want to share something else with you.
Like we said in Guide To Wholesaling Real Estate 101, wholesaling is like driving for Uber. It won’t replace your day job but, it can supplement your income very nicely.
Learning to wholesale can help you monetize at any time. It will amaze you how many times you come across people in your network that needs to sell their homes. These leads can come from friends, family, or even co-workers.
Even though at PRYME Homes we buy most houses, we do sometimes come across deals that we simply can't buy. Sometimes deals just are not right for us.
So, we turn to wholesaling.
And because of our large network, we can do this very easily and quickly. This typically will put $2K to sometimes $10K+ in our pockets rather quickly (we’ve even made over $50,000! Tell you about this later).
We've worked with investors that have done over 15 deals while having a full-time job. Most of those were houses he kept personally as rentals. But, some of those were wholesales that he did just because he had the right network.
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In Guide To Wholesaling Real Estate 101, we covered some popular terms.
We wanted to expand a little more here.
In the last two guides, you learned about marketing and generating leads.
The reason we haven't gone deeper into negotiations is that you need to be really good at generating profitable deals first.
Many new investors get caught up on trying to be awesome negotiators without ever getting a lead. If you become awesome at lead-gen, then you will have time to perfect negotiations.
Also, we still strongly recommend partnering with savvy investors at first to learn quickly.
That being said. Let's get into negotiations.
Q: So, how do you negotiate without negotiating?
A: By not being a salesman!
A salesman doesn't care about the person they're selling too. All they care about is closing the deal. Even though we know that's why your there. You have to be ready to walk away if necessary.
By being prepared to walk away, it's hard to come off like a salesman.
Why be prepared to walk away?
If you're always willing to walk away then you can focus on making sure you not only get a great deal but also give the homeowner the best option.
The best way to not be a salesman is to think about the customer (seller) first.
You want to put their needs first. If you do this, they will see it and choose you over your competitor every day of the week.
You have to understand that homeowners have A LOT of options nowadays when it comes to selling their homes. So, high-pressure sales just don't work anymore. They need to feel comfortable with who they're doing business with.
The best negotiators that we've seen are the people that build rapport with the seller.
If you do this, then everything after becomes extremely easy.
Many investors, especially when they're new hate filling out contracts. Well, the good news is that when you build awesome rapport and don't just try to negotiate filling out contracts becomes easy. Because we've formed a good relationship and are transparent with the homeowner they’ve come to trust us and are happy to sign a contract.
So you think just because it's under contract that the "hard part" with the homeowner is over?
WRONG!
Getting the property under contract is just the beginning. You still have to make sure it clears title and closes.
This again, is why we say build rapport!
Many times the homeowner is very stressed when selling their house. This could be because they are struggling financially or because they have to deal with the move. Either way, they called you because they wanted an easy sale.
The issue is sometimes problems come up and if you didn't build enough rapport then the issues may be harder to resolve. You may need them to gather more documents, or maybe even have to change the terms of the contract. Sometimes we discover things in the title process that forces us to change our wholesaling strategy altogether.
We've seen many investors lose a great deal because they just negotiated a great price but never built rapport. Then, when an unexpected issue came up the homeowner got very upset and decided to go with another investor.
You wouldn't believe how many times we have bought houses where our offer was the lowest. But the homeowners felt much more comfortable with us than they did with the other investor offering more money.
Of course, this is not to say that price doesn't matter at all. Just don't go into a meeting thinking just about the numbers.
Think, problem solver.
That's what we are. We are problem solvers. If the homeowner didn't have any problems 9 out of 10 times they would just call up a local realtor and list it.
But, if they are calling you then they are looking for something a realtor can't offer and that's options!
Let's cover some of the different wholesaling strategies you can use when wholesaling a house.
These wholesaling strategies break down into two main options.
This is your most typical wholesaling strategy because it's the simplest.
I'm sure you can assume that CASH means exactly what it says. You're buying it CASH. This means no traditional financing.
This doesn't mean a suitcase with $100 bills.
You can by "CASH" by using an investment account, private money, or even hard money. We covered some of these terms in "Financing Terms" under "Learning the Lingo".
This where it gets fun.
Buying with terms can mean a lot of different things depending on the wholesaling strategy you’re using.
Let's cover the most popular "terms".
Buying a property "subject to" means you're buying it subject to its current financing.
What does this mean?
There are many times when a homeowner can't sell below a certain price because they have a bank loan. But, if the investor was to take over that loan then there might be a deal to be made.
When does this make sense?
Say the homeowner needs to sell fast! They owe $150,000 on the home to the bank.
The house is only worth $220,000 and it needs $15,000 in repairs. Now factor in 15% closing costs. This leaves the investor with a $13,750 profit after they pay for their money fees.
The majority of investors DO NOT use their own money. They borrow money from either private investors or hard money lenders.
In this scenario we're using 10% interest only loan for the $165,000 that they will need to buy it and fix it up.
$220,000 ARV (After Repair Value)
- 15% (closing costs)
- $15,000 (repairs)
- $8,250 (money borrowed at 10%)
- $150,000 (purchase price)
=$13,750 Profit.
This is a lot of risk for very little potential profit.
But if you can shrink that $8250 to say to justify the monthly mortgage payments of $750. Plus only bring the $15,000 in repairs instead of the full $165,000. Now you're investing $19,500 to make $17,500!
That's a much more attractive deal. At least to us.
Of course, keep in mind there are other fees and not all the numbers will be this even. But this is to simply give you an idea.
Similar to buying with Subject To but in this scenario the "bank" is the owner.
This works best when they own it free and clear. This way there is no underlying mortgage payment that they can't go below. You can essentially set it up where the buyer will put $5,000 down. They will then pay the remaining $120,000 at a 6% interest over the next 15 years.
Now you open it up for your buyer to come in and essentially buy this house for $5,000. Plus your wholesale fee of course.
This again is very attractive to many buyers.
It is also attractive to many homeowners. This pretty much becomes an investment for them that pays them monthly.
Either of the above scenarios can help a buyer do a wrap.
In Texas, WRAPS are very popular.
This means that you buy a house for either Subject To or Owner Finance. Then you turn around and WRAP it with a bigger loan and sell that to a retail buyer.
This works when you have many buyers that have the money, want a house, but can't qualify for a loan. So the investor steps in and becomes the bank for them. This is just like Owner Financing. The difference here is that the owner is the investor.
Regardless of which of these wholesaling strategies you use to contract it. Your buyer can WRAP it and make it a great deal.
This is very useful when you're dealing with sometimes lower price homes or low equity deals.
Sometimes you get a deal that doesn't have much of a profit spread but the homeowner is paying $600 per month. Then you see the rents are $1,100 per month. An Owner Finance Buyer will want to take those payments over. Then, sell it for a little higher but with financing. Capturing a $500 per month cash flow!
As a wholesaler, you need to become a mad scientist by understanding how to use different wholesaling strategies.
As times change and markets change so will the wholesaling strategies you use.
If you only stick to one wholesaling strategy and the market changes you will lose.
Like we said in the Guide To Wholesaling Real Estate 101 you don't become a wholesaler because of the money. You do it because it will lead you to become the best investor you can ever be.
Wholesaling is a gateway into the world of real estate investing. But, you must use it as one and NOT as a destination.
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We hope that you have been taking action while reading these guides.
Don't be afraid to fail.
Success consists of going from failure to failure without loss of enthusiasm. -Winston Churchill
Don't suffer from analysis paralysis. Instead, get out there and take MASSIVE ACTION. This will give you MASSIVE RESULTS. Which, will lead to a stronger belief in yourself and abilities.
We also extremely encourage you to ask for help from all of the investors you have met. While we do understand that this may mean you having to split deals. The experience and knowledge you get will be priceless!