I recently had a conversation with a local wholesaler. He had found a property here in San Antonio that he wanted to wholesale. So we got together to go look at the property. The property was decent so afterward, we sat down to discuss the deal. I walked him through how I look at deals. I told him what I was looking to spend and what I was looking to make. (The way I always look at it, the more educated a wholesaler is about the types of deals that I like to do, the better equipped they are going to be on the deals they bring me in the future.)
As we're talking, I asked him how his business was doing. He's been wholesaling for a couple of years now. He's by far one of my favorite wholesalers because he's very honest and is numbers are always good. He's always very accurate, very straightforward. He's one of the few people I know who wholesale correctly. With that being said, he tells me that he is struggling with his business. He's struggling to do more deals. We started to analyze his business and marketing plan to see where it could be improved.
But one of the biggest things that I saw that he was struggling with is what many wholesalers struggle with. It Is that wholesaling is really a stepping stone, not a destination.
It doesn't generate enough income. There are too many variables that are not in your control. Wholesaling is a stepping stone to becoming an investor. If done correctly, a savvy one.
I love wholesaling because that's where we started. And for us, wholesaling helped educate us on so many different opportunities. We learned different ways of structuring deals, understanding the market, understanding the neighborhoods, and understanding which strategies work in the market right now. Although we have gained experience and knowledge, that's all we got from wholesaling. Even though we had a really good wholesale business we had to switch our strategy in order to make more money and help our business grow.
Initially, what we did was lead management. We noticed that a lot of people were getting into real estate. Most of these people would go to a seminar or take a course from some guru and then start putting money into marketing without having the time or knowledge to know what to do next. Since we didn’t have the money for marketing but did have time and knowledge we would partner with these people. They did the marketing, and we took the phone calls, we negotiated the deals, we got them under contract, we would then wholesale the deal, and then split the profit with them.
We started to see that every deal, every wholesale is, a means to an end. Once you’re done with one deal you have to start looking for the next one continuously. You're pretty much fighting for pennies and eventually, it gets tiring.
We soon realized that you need a team, it's a lot to do by yourself.
I suspected I knew why this wholesaler didn’t want a team but I didn’t want to come out and say it.
The problem is most wholesalers are greedy. They want 100% of the deal. The problem is that you need to control 100% of the deal to make 100% of the deal.
When that's the case, it stops you from doing more deals.
This wholesaler is doing all the right things. He's doing phone calls and driving neighborhoods, he's doing marketing, he has to show the houses to his buyers, walk them through, go talk to the sellers, and a lot of times that work is a waste of time because it doesn’t always result in a closed deal. Your time should be spent on finding the next deal.
I explained to this wholesaler that if you have a team around you, somebody that's helping you do marketing, somebody that's helping you go show houses, somebody that's helping you with the buyers, you find a lot more time on your hands to do more deals. And I don't necessarily mean more wholesale deals. I mean more deals.
As a wholesaler, you have to take advantage of a hot market.
Right now, San Antonio is a really hot market. Not only should you have a team but be strategic about it. Leverage your skills and find partners who have what you lack.
For example, my wholesaler friend is great at finding great deals. But he knows nothing about flipping so he could find a great deal and partner with someone who does have flipping experience and learn from them. At first, you will split the profits. But, once you’ve partnered on enough deals than you can start doing them on your own.
It's not hard to make money. Right now anybody and everybody is making money in this market. That doesn’t mean they're doing it correctly, but they're still making money.
I'm not going to knock anybody for making money, but, there is a right way and a wrong way of making money.
By doing it the right way and partnering with people not only are you getting more deals but you start building your reputation, which is everything in real estate.
People need to know that you're a person that can handle deals, that you can handle flips because that's going to matter when you try to go and raise money to fund these deals and to make these flips. The percentages at which you raise this money makes all the difference.
If you're not doing it correctly and you don't have a good reputation, then the money you'll be able to borrow is more along the lines of hard money, and that gets expensive.
Or you may be borrowing it from private money lenders, but maybe they're charging you an arm and a leg because of your credibility isn't there.
So, in the end, being greedy will hurt you.
We had realized this and said, “okay, let's cut down our expenses as much as possible”. So we brought down all our bills, personal and business, and decided on a bare minimum amount we needed each month.
All we needed to do now was wholesale a few deals to keep the lights on. This allowed us to partner with others to flip the rest of the deals we had coming in.
At first, it was 50/50 splits. And yeah, 50/50 split suck because you're looking at all the profit you potentially could’ve made. On some deals, we actually ended up making less than if we had wholesaled them. But the experience that we got from these partnerships, I mean, holy crap, our business wouldn't be where it is if it wasn't for that experience.
To this day we do the same thing.
You must stop sacrificing your long-term success for short term profits.
The ultimate goal should be to become a much savvier investor, not just a wholesaler.
We’re in a hot market right now but when this market turns most wholesalers are going to be out of business because it's going to be harder to find deals and even harder to find buyers willing to just buy anything. Right now there’s a lot of people buying real estate because of its a hot market. A lot of these people are just throwing money around and buying any deals. That doesn’t make these people savvy investors.
Once the market turns and these types of buyers are gone, the only ones left... the savvy investors will not be buying these marginal deals anymore. They're going to want deals with a lot of meat on the bone because the market's tough and they don't want to take that kind of risk. They rather sit on their capital then invests in a bad deal. So it's going to become really hard for you to make ends meet at that point.
But, if you take advantage of this market right now and you sacrifice some of your short term profits and you start building strategic relationships you will make it. By strategic relationships I mean try to find people that you know are going to teach you to share their resources. There are people out there that will split the deal with you but they won’t share their experience or knowledge because they’re scared of you becoming their "competition". And that doesn’t help you.
We share everything with everybody. We share our process, our papers or documents. We share everything because, at the end of the day, one thing many of you don't take into consideration is how much work it takes to be a successful investor.
A lot of people say, “well you just got to work smarter”. Bullshit!
You've got to work smarter and harder if you want to succeed in real estate. It takes a lot of freaking work to do this and it takes a team to do this. You are not going to wholesale houses, flip houses and rent houses all by yourself. If you try you're going to have a lot of that's going to fall between the cracks.
Instead, partner with people, bring it to somebody else, let them handle the other half of the job or the other third of the job, whatever it is. As they're doing that you can keep doing what you do best.
We don't generate our own deals. We don't do marketing, we don't do anything. We buy from wholesalers, we partner with people. We have referrals. A lot of investors bring us deals. Our contractors bring us deals. That's how we run our business now.
We realized marketing costs money and it takes a lot of time, which we don't have. We focus on what we do have and what we are good at. And what we are really good at is monetizing on deals. We're really good at flipping them, making sure the numbers are right, managing all the contractors, making sure everything's getting done correctly.
As we go forward and continue to grow our business we continue to look for partnerships. We know there's somebody out there that knows more than us in a particular field and can dedicate their time while we dedicate our time to doing what we do best.
Now, although I think being greedy is why most wholesalers struggle there is something else I need to mention. Another thing I'm noticing a lot lately is that people are selling properties that are complete dog shit.
The other day someone tried to sell us a piece of land because they know that we're building houses. I looked at it and I was interested, but there was something about it that didn’t seem right. It had already been listed on the market and it never sold. I thought that was really weird. “Why didn’t it sell?”, I said to myself.
I ran very quick research and realized that it was in a flood plain. Houses in flood plains are very tough to sell. Very tough to move. I've spoken to many, many real estate agents who have said if they know that the house in a floodplain, they won't even take their buyers to see it. I also found out that they're not allowing houses being built in certain types of flood zones.
So I reached out to the wholesaler and said, “hey look, I was interested, but the house is in a floodplain, so even if you give it to me for free, it's not worth the headache".
What happened next blew my mind! Well... sort of.
To me that says a lot about that wholesaler. It says he doesn't care what he’s selling or to who he sells it too. And you might say, “well the investor(buyer) should do their own due diligence” and while that may be true pushing a shit deal that somebody else is going to get fucked over on is just not the way to do business.
Another example; a wholesaler brought us a deal and he also had another buyer in mind, and I had told him that it wasn’t a clear cut deal but doable if you have a savvy investor. He told me the other buyer was NOT a very savvy investor. I told him to be careful if he's not a savvy investor because if he screws up in any way, it leaves a sour taste in their mouth every time they say your name because they got the deal from you. I told him with these risks involved, just make sure that this buyer has the capital there. If anything goes wrong, they can at least take care of it. The wholesaler said he knew the buyer did not have the capital. I told him that was risky.
You should never buy anything and be out of money because you never know what the hell can go wrong.
This wholesaler had a choice to make. Find another buyer or sell the deal to this buyer anyway and risk burning a buyer. He made the RIGHT choice and found a savvier investor for the deal which did mean less money for the wholesaler.
There are some people that will risk burning a buyer just to make some money. They don’t care. I'm not judging. I do think you're a piece of shit if you do that, but I'm not judging. But one thing that I try to tell people to take care of your name, take care of your brand.
Reputation is everything in real estate. It’s a small community and word of mouth is everything. We’ve actually turned down buyers from buying deals we knew they couldn’t handle.
We once had a wholesale deal that we were struggling to move. (We were new and didn't realize the deal was in a terrible area). But, we actually had someone we met that wanted to buy a deal and we told him no because of the risks involved. He insisted on buying it even though he understood the risks but we still refused.
We walked away from an easy $10,000. We REALLY needed that money back then.
But, you know what? Today he is one of our best partners and biggest lenders. And he continues to refer us to his friends. We took care of him and educated him and our reputation grew from there. Now we can raise money quickly, we can find deals, we can find partners and we're making more money.
You just have to sacrifice that short term profit for real long-term success and it will be long. It will take time, it will be hard, but it will be there. Why? Because no one else is willing to do it.
We all know the wholesalers that are supposedly "killing it" on Facebook. All because you see them everywhere at these fucking 10x seminars and all these douchebag conferences that they go to and they're usually the ones that are just hyping up real estate. They're not doing anything productive, they do it all to show off. They're the ones that are going to be hurting when this market turns because they're wholesaling garbage deals and not building a real business.
So if you want to build a long-term business, great relationships, be able to raise your own funds, be able to flip properties and do actual investments, then sacrifice your short term profits. Partner with people, and be smart who you wholesale to. Be patient and bring people on your team...partner!partner! partner!