Transcription
This video is for those of you who are new to the wholesaling game and are kind of confused about where to start. I'm going to show you exactly how to get started wholesaling real estate. You don't need a license, no buying, no fixing, and you can do this in any city or state you want.
First, I'm going to explain what wholesaling is. All you need to do is find a distressed property with a motivated seller. Distressed properties are typically run-down, which means there are many motivations for the seller to sell quickly. They could be in pre-foreclosure, behind on their taxes, or have liens against their property. They may need cash quickly or might be dealing with a hoarder house and don’t want to put it on the market. There are many reasons why a seller would need to sell their property at a steep discount, just like someone might go to a pawn shop to get cash fast.
Once you locate those kinds of properties and motivated sellers, you negotiate with them and get the property under contract at a steep discount. This contract gives you equitable interest, meaning you, as a potential buyer, can either move forward to buy the property or sell your rights to buy the property to someone else for a profit. That’s exactly what we’re doing.
Once you have the contract, you’re going to market the contract, not the property. You’ll sell it to a cash buyer, typically a fix-and-flipper or someone looking to buy and hold. Once you find the cash buyer, you just sign the contract over to them for a profit.
Let’s say you got the property under contract for $100,000. You can market it up to $110,000 or $120,000, depending on how much you want to make. You just assign the contract over to this cash buyer for a profit—no buying, no fixing, and that’s how you get paid.
You want to understand the wholesaling formula so you know exactly what to offer the seller. The formula is ARV, which is after-repair value. What is the property worth after it’s fixed up? Then you minus thirty percent. Thirty percent is just a rule of thumb. You need to understand your market because some markets have higher demand and some have lower demand, which means there aren’t a lot of buyers in that area. Sometimes you might even have to get it lower than thirty percent, but typically, if you can get it under contract at a thirty percent discount minus repairs, you’re in a good position.
For example, if the property is worth $100,000 after it’s perfectly fixed up, you minus thirty percent, bringing it down to $70,000. If it needs $10,000 in repairs, that puts it at $60,000. If you want to make $10,000 on this wholesale deal, your max offer to the seller would have to be $50,000.
The best place for you to get started is to join your local REIA. In every state and city, there should be a local Real Estate Investor Association. This is where all the investors in the local market meet up and network. You need to start getting your name out there, building relationships, and making connections.
If you want to wholesale completely virtually in a different state, you can Google them. There are Facebook groups you can join to start networking with people online. Next, you need to figure out your target market. Typically, I recommend starting in your own backyard. Pick a city, a county, or even a zip code, but you want to start farming.
You don’t want to jump everywhere. When you first start out, pick a county with a population between 100,000 to 500,000. This way, you can zone in on your farm. If all the realtors in your local market know what you do and how to contact you, there will be more leads for you, and you’ll dominate that market.
Next, you need to determine your marketing strategies. Typically, you want to pick two to focus on. One could be driving for dollars. You can do this part-time or full-time. Every day, you can put out one or two hours, or every weekend, you can put out four to five hours driving around your city, looking for run-down houses. Driving for dollars is a great way to get started with very little to no capital.
The next strategy is SMS, which is sending out a bunch of text messages to random strangers, letting them know you’re interested in buying property and looking to make cash offers. One method that works really well for us is cold calling. You just get a list and call.
Next is sending out postcards or letters, which is called direct mail. This is typically a little more expensive; postcards cost about 50 cents each, while letters run about a dollar. This requires a bit more of a budget for marketing.
I also want to mention bandit signs. They can work depending on your city and state, and they’re pretty cheap, but it takes a lot of manpower to hang them up. In my area, you can hang them up on Friday nights, but you have to take them down by Sunday night. Some people leave them up, depending on whether they get fined or not.
You need to learn how to communicate and negotiate with the seller when you get on the phone. I think for a lot of you, this is probably your biggest weakness. You don’t know what to say, how to handle seller objections, or how to negotiate to get them to come down on price.
Check out some of my other videos on YouTube. Just type in "cold call role play," and you should find a bunch of videos where I actually get on the phone with you and teach you how to talk and negotiate. How good you are at negotiating will determine your success. Some of you need to talk to a thousand or five thousand people to get one deal because you’re just not good on the phone. Others are so good that they only need to talk to 100 or 500 people to get one property under contract.
Depending on how good you are at negotiating, that will also determine how big your wholesale fee or spread will be. It’s all about how low you can get the seller to come off on their price.
Next, I want to talk about the importance of networking and using social media. There are Facebook groups, Instagram, YouTube, Twitter, LinkedIn—so many different platforms where you can start networking and building your cash buyers list. Your cash buyers list doesn’t have to be just people who buy fix-and-flip properties; it can also include other wholesalers.
They’re doing the same thing you’re doing, building relationships and their cash buyers list. When you get a property under contract, you leverage their connections to get your deal sold. This is what we call a JV deal.
Let’s say you got a property under contract, and you’re going to make $20,000 on it. You find a partner who brings the buyer, and typically it’s a 50/50 split. You get the deal under contract, and they do the other half of the work to get your deal sold.
For those of you who need help getting your deals sold, I recently trained a VA who works eight hours a day helping my followers find cash buyers for their deals. If you have any deal under contract, email me with all the information, and we’ll help you find a cash buyer for your deal.
Now, talking about JVing, let’s say you don’t have a property under contract, but another wholesaler does. As you build your cash buyers list, you can reach out to them and say, “Hey, if you have any property under contract, I’d love to help you unload it and find a cash buyer.” You can bring a cash buyer to their deal without having to talk to the seller or spend any money on marketing.
You’re just connecting their buyer with their deal and getting a 50/50 split. This is another great way to get started in wholesaling without any money at all.
Once again, let’s say that you find a wholesaler who’s going to make $20,000 on that wholesale deal. You bring a cash buyer to them, and you get paid $10,000. Boom!
I also want to talk about title companies. Title companies are extremely important when it comes to getting your deal closed. If you deal with the wrong title company, they can really screw up your deal because they don’t know what they’re doing. Not every title company knows how to do assignment transactions.
When you talk to these title companies, don’t say, “Oh, I’m wholesaling this property.” Just say, “Hey, I got the property under contract. We do what’s called an assignment. Do you guys do that?” You want to find a good title company that you can work with.
In some states, like New York, it’s attorney-only states, so find an attorney who knows how to do these kinds of transactions. The fastest way to find a legit title company or attorney is by leveraging other people’s connections and networks.
Once again, ask people in your local REIA or on social media, “What title company or attorney do you use that knows how to do assignment transactions?” That’s the best way to know you’re working with the right one.
I wholesale completely virtually. I don’t meet the seller, I don’t see the property, and I don’t meet up with the cash buyer. I have a team of seven VAs that run my entire operation, from filtering leads to getting the property under contract to selling the deal—all done completely virtually.
When it comes to building a team for virtual wholesaling, you need what I call “foot on the ground.” This means you need someone to facilitate showings. This is extremely important because you can’t go there personally. Even if you’re building in your own market, you want to make sure your time isn’t consumed by showing properties.
Anyone can do this task; it’s not that hard. To build “foot on the ground,” typically you want to network and build relationships with some realtors in the area, other wholesalers, or maybe you have a friend or family member in that area who can help. I typically pay them between $50 to $100 because it only takes about an hour, depending on how far they have to drive to the property.
Now, you might ask whether you should find the seller first or the cash buyer first. The answer is you can do both. There’s no reason to do one or the other. Some people say once you find the deal, the cash buyer will come. But let me tell you, once you find the deal and nobody knows about it, and you don’t have a cash buyer list built up, you’ll have to grind and hustle to get that deal sold.
When you have a lot of eyeballs on your deals, you can create a bidding war. There are deals that won’t work for some investors, but if you build a big enough cash buyer list, it will work for someone. There are buyers willing to pay you retail value for the property, which means they’ll pay you more than what savvy investors would pay.
So make sure you build your cash buyer list as well. You can do both at the same time. Don’t wait until you get a property under contract to find your buyer. You want to do both.
When you have a property under contract, boom! You have a buyer in place for your deal. Some of you might wonder why not find the buyer first and work backward.
What happens is if you find the buyers first, they might say they want to invest in a particular area. You go and do all the farming, and when you get a deal, you bring it to that one buyer. Now you’re depending on just that one buyer in one area.
That limits your pool of buyers because everything you get goes directly to that one buyer. Instead, focus on finding deals while building your cash buyer list at the same time. When you have the deal, blast it out to the buyers—take it or leave it.
You can also put an ad on Craigslist, called a ghost ad, to attract buyers. Start commenting on social media, saying, “My partner and I are wholesalers in this area. We have properties under contract at steep discounts. Who would be interested?”
It doesn’t take much time—only about five minutes to put a post on social media. Start filling up your cash buyer list while you’re also working on getting leads coming in.
There’s no reason to do one or the other. You still have to market and work hard over time. As you build a more solid cash buyer list, once you get a property under contract, it will get sold quickly.
When you first start out, the bigger your cash buyer list, the better. Now, let’s talk about earnest money deposits. Typically, when we get a property under contract, I automatically put down $250. When I first started, it was $100. There were times I put down $10 as an earnest money deposit.
Typically, if you don’t bring it up, most sellers don’t know or don’t ask for a deposit amount. Sellers who know about earnest money deposits usually have listed properties with an agent or are agents themselves.
Most sellers you deal with directly don’t really ask; they just want to know the price you agreed on and the closing date. When it comes to the buyer, you want them to put down as much as possible. You want them to have skin in the game.
If they back out or have cold feet, you get that money, which pays for your time, and you can use it to buy more time with the seller. When dealing with buyers, we typically want a minimum of $5,000 as a non-refundable deposit. The most I’ve ever gotten a buyer to put down is $25,000 on a $700,000 property.
Even if you deal with properties on the market through an agent, they typically require a one percent deposit to show you’re a serious buyer. If your buyer only puts down $500 or nothing at all, they can wake up the next day and say they don’t want it anymore.
Now you’re out of time and didn’t get paid for all the time the buyers wasted. Make sure you get paid. Don’t mess around with $500 or $1,000. If it’s a serious buyer, why would it matter if they put down $5,000 or $25,000 when they’re buying a property worth $500,000?
This money goes toward the purchase price, so it shouldn’t matter if they’re a serious buyer. Don’t mess around with someone who’s pretending to be a buyer.
Now, let’s talk about closing time. Typically, when we get a property under contract with the seller, we want to get as much time on that contract as possible. I typically aim for at least 45 to 60 days, sometimes even more. The more time you have, the more time you have to find your buyers.
If you put yourself in a tight time frame, you’ll just get whoever comes first, and that’s usually not the one paying you the most for your deal. Most sellers consider a 30 to 45-day closing fast because they know if they were to list the property with an agent, it typically takes three to four months to close.
If you come in and say, “We can close in 30 to 40 days or sooner,” that’s fast for them. There are times when sellers say they need to close in 15 to 20 days. I would say I’d be okay with that if I already have a buyer in place for the deal or if I’m going to move forward to buy the property myself.
But you don’t want to put yourself in that position if you don’t have to. I see some of you are so quick to close with the seller that you’re the one putting yourself in that position. You tell the seller, “Hey, we can close in 10 days,” just to get them to drop their price.
Unless they ask, you should say, “30 to 45 days or sooner—would that work for you?” Most of the time, that’s a fast closing for a seller. If they say they need it faster, just tell them, “We’ve done deals where we can close in 7 to 15 days, but I prefer to under-promise and over-deliver. We want to make sure the title is clear and all the paperwork is done correctly so we don’t have to go back and fix a mess later.”
When you say that, sellers often respond positively because they want the transaction to be done right.
When it comes to the cash buyer, you want them to close as quickly as possible. Until you get that money in your hands or that check in your bank, there’s no way to tell if the deal will close. I’ve had deals blow up on the day of closing.
So make sure when you get a buyer, you ask how quickly they can close once the title is clear. If they’re a legit buyer, they’ll say they can close as quickly as the title is clear. Some buyers might say they need at least 15 days because they’re getting a hard money loan, which takes about 15 days to process.
If any buyer tells you they need 30 to 45 days to close, they’re typically not a legit buyer. They might be another wholesaler trying to tie you up in a contract to sell the deal to different buyers.
It’s rare for a buyer to need 30 days to close unless they have to sell another property to get the funds. You need to make sure your buyer can provide proof. If they’re playing games with you, you’re stuck with them, and you lose out on potential buyers.
When they can’t proceed, you try to come back to this buyer, but they’ve already bought another property and are out of cash. You don’t want to be in that position, my friend.
That’s pretty much it. I hope this video adds a lot of value to you. For those of you who need help building, growing, scaling, and automating your wholesaling operations—whether you’re new or experienced and trying to get to the next level—go ahead and book a call with my team.
Go to KingKong.com, book a call, and let’s see how we can help you out. I’ve been in the game for about 12 years now. We wholesale completely virtually. I don’t meet the seller, I don’t see the property, and I don’t deal with the cash buyer.
I have a team of seven VAs that run my entire wholesaling operation, from lead management to purchase management to transactional coordination, getting the deal sold—all done through the phone.
If you want to build something similar, you can travel. I went to Vietnam for a month, and my business was still operating and making money. Once you have a system and a team in place, it allows you to buy back your time so you can do what you love and enjoy.
For me, it’s creating content like this and helping those of you who are getting into the game or trying to scale up. I wish you all the best on your journey. Until next time, take care, and let’s go get this money!