How to Wholesale

How to Wholesale

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How to Wholesale............................................................................... 1
INTRODUCTION .......................................................................................... 3
WHOLESALING DEFINED ..................................................................... 3
Advantages and Disadvantages of Wholesaling ......................................... 4
Wholesaling Profit Centers ......................................................................... 5
Real Life Examples..................................................................................... 6
Wholesaling Profit Potential ....................................................................... 7
THE METHODOLOGY OF WHOLESALING ............................................ 8
Acquisition Phase............................................................................................ 8
Areas to Target............................................................................................ 8
Properties to Target..................................................................................... 9
Farming ..................................................................................................... 10
Locating and Attracting Prospects ............................................................ 14
Contacting Seller Prospects ...................................................................... 14
Attracting seller prospects......................................................................... 16
Profiling Prospects .................................................................................... 17
Estimating Market Value .......................................................................... 19
Estimating Repairs .................................................................................... 19
Constructing an Offer ............................................................................... 19
Presenting the Offer .................................................................................. 20
Filling out a Purchase Agreement............................................................. 22
Due Diligence Period................................................................................ 22
Exit Phase...................................................................................................... 23
Locating and Attracting Prospects ............................................................ 23
Contacting Buyer Prospects...................................................................... 24
Attracting buyer prospects ........................................................................ 24
Profiling Prospects .................................................................................... 25
Conducting Showings ............................................................................... 26
Providing Financing.................................................................................. 27
Negotiating with Buyers ........................................................................... 27
Transfer of Title (Closing) ........................................................................ 28
Follow Up ................................................................................................. 28
CONCLUSION............................................................................................. 29
APPENDICES .............................................................................................. 30
Common Questions New Wholesalers Ask.............................................. 30
Common Mistakes New Wholesalers Make............................................. 33
Real Estate Glossary, Wholesaler’s Edition ............................................. 35
Putting Your Business on Autopilot ......................................................... 38
Bootstrapping Your Business ................................................................... 40
The Importance of Education.................................................................... 41

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 How to Wholesale

INTRODUCTION

Welcome to the exciting and lucrative world of quick turn real estate. If you
are a person with an entrepreneurial spirit and a driving ambition to improve
yourself and achieve above average wealth it is not at all surprising that you
are attracted to a career in real estate. After all, the power of this industry to
change people’s lives and make wealthy individuals out of Average Joes is
legendary. However, real estate as traditionally practiced has a few
drawbacks for the highly ambitious individual, including substantial barriers
to entry and a long-term maturation process to generate substantial wealth.
This work is an examination of a non-traditional model of real estate
business that can not only be used to generate wealth very quickly, but that
has very few barriers to entry and is accessible by nearly anyone with the
desire and persistence. Wholesaling is the central strategy of quick turn real
estate, which is a model that relies on engineering and closing large numbers
of transactions quickly, rather than owning property for long periods of time.

WHOLESALING DEFINED

Wholesalers in any industry are the people who buy from manufacturers and
sell to retailers. In real estate wholesalers buy directly from a property
source and sell to rehabbers, landlords, or other investors. A few key
characteristics of wholesaling in real estate include the following:

• Properties are purchased directly from the source (i.e. the

property owner) and sold to investor clients.
• Properties are intended to be bought and sold quickly.
• Transactions may be done by assignment of contract, double
closing, or less frequently by cash or financing purchase.
• Properties involved are usually in need of work and purchased
at a steep discount for cash with no financing terms (i.e. all cash
to the seller at closing).

A business activity related to wholesaling is bird dogging. Bird dogging

essentially means finding leads for one or more investors and getting paid by
referral fee (or a per-lead fee). Whereas a wholesaler who finds a good deal
would make an offer, get the property under contract to purchase, perform a
fair amount of due diligence, and sell it by assignment or double closing to
another investor, a bird dog would perhaps collect some information about
the lead and then pass it on for the investor to follow up on and pay a referral

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fee if it turns into a deal and closes. The referral fee will vary with the bird
dog’s experience and relationship with the investor. It may be possible to do
fairly well, financially speaking, as a bird dog, if you have just a few solid
investors to work with and a reasonable amount of skill in finding leads and
collecting information like the owner’s name and contact info, repair costs,
and market value. However, bird dogging is mainly a transitional “earn as
you learn” way to make an entry into the real estate business, whereas
wholesaling is a full fledged business model with essentially unlimited profit
potential. Much of what can be said about finding deals and buyers applies
to both, however. The practice of wholesaling could even be considered to
include bird dogging, since it would be a rare wholesaler who would turn
down a referral fee for passing on a lead! Whether you consider yourself a
bird dog or a wholesaler at first is practically irrelevant, as long as you are
gaining valuable experience and moving in the direction of greater
autonomy and greater control over your own deals.

Advantages and Disadvantages of Wholesaling

There’s no doubt about it, wholesaling is one of the best starting points for a
career in real estate. Countless investors have begun as wholesalers only to
move on to other niches or to build an entire business around wholesaling.
Some of the main reasons are:

• Very little training is required to begin; this is a business that

you can learn as you go along.
• A wholesaling business can pay for itself very quickly. You
can start and run it on a shoestring budget if you are willing to
invest time, energy, and imagination instead.
• There is very little risk involved in wholesaling because you tie
up little to none of your own money and never have to
personally guarantee a loan or have your credit profile
examined for any reason whatsoever.
• A wholesaling business can generate quick lump sums of cash.
• You can work from wherever you choose, at home or in any
location.
• You only deal with professional buyers rather than selling to
the general public.
• A wholesaling business is scalable, meaning you can increase
the size of the business without increasing the amount of your

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personal labor involved. This means there is no ceiling on the

profit potential for a single individual in this business.
• You don’t have to do any repairs or work directly with
contractors (though you will want to be able to refer them to
your buyers).
• You operate as a principal in the transactions, meaning you
represent only yourself and nobody else, so there are no
licensing requirements or fiduciary responsibilities to clients
involved for a wholesaler. (Being a principal means you get
paid by assignment fee or by going on title; check your state
licensing laws regarding referral fees if you intend to get paid
on a referral basis.)

So, if wholesaling is so great, are there any disadvantages? Depending on

the business modality you choose to pursue as an entrepreneur, you may find
some or all of the following to be drawbacks:

• Your purchase prospects are limited to houses that can be

bought for a steep discount, almost always with repairs needed.
• You only get paid once from each deal you do; unlike with
certain methodologies such as lease options, there is no residual
income or back end profit, just a single paycheck up front and
then you are out of the deal.
• You will generally find it more difficult to work, i.e. to find
sellers and buyers, the higher priced the neighborhood is. This
means you can’t get by on three or four deals a year.
Wholesaling is a volume business. Think of doing three or four
deals per month, or better yet, per week.

Wholesaling Profit Centers

If you start out as a bird dog you are basically at the whim of your buyers, as
they generally have more leverage than you do to determine the amount of
the referral or lead fee they give you. You either get paid a set fee per lead
delivered, or you get a set percentage or dollar amount as a referral fee when
a deal closes. Your earnings are protected only by the quality you provide
and by your relationship with your investors. As I mentioned before, as a
wholesaler you can also collect referral fees to your heart’s content, which is
one profit center of this business. If you are doing your job well as a

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wholesaler you will know everybody in the business in your local market, so
you will be able to pass along deals that you don’t find worth pursuing but
know somebody else who might. The main profit center in wholesaling,
however, comes from the assignment fee you earn when you sell a property.
Typical assignment fees range from $3,000 to $20,000, but there are no set
rules. You might take an assignment fee of $500 in order to establish a good
relationship with a buyer, and you might take one of $50,000 if the
opportunity presents itself. (At least, I don’t expect you would turn this
down.)

Real Life Examples

Example 1

You get a lead for an inherited property owned by a brother and sister. You
estimate that the value of the property to a home buyer after it is fixed will
be about $50k, and that it will take about $15k to do the fixing. Based on
the wholesaling formula (see Constructing an Offer section) you calculate a
Maximum Allowable Offer (MAO) of $15k. You negotiate with the sellers
to purchase the property for $11k. Within a week you have a buyer willing
to pay $13k for the property. You sign the assignment agreement with your
buyer, send the contracts to the title company, and collect an assignment fee
of $2k when the transaction closes.

Example 2

You talk to a sweet old lady who agrees to sell you her house for $25k. She
says it’s in pretty good shape. Several of your investors look at it and all but
one say the foundation is damaged beyond repair. The remaining one offers
you $23k for the property. You say to the sweet old lady, “I know we
agreed to pay $25,000 for the house, but we’ve looked at the foundation and
I’m afraid it’s damaged much worse than we believed. The most we can pay
you is $20,000. Are you still interested?” The sweet old lady agrees, you
sign a new contract, sign an assignment agreement with your buyer, and
have the title company send you your check for $3k when the deal closes.

These two examples are illustrative of the types of situations that you will
typically encounter as a wholesaler. The amounts of cash involved are small
but can be adjusted upwards percentagewise in higher markets. Two
important points to be taken away from these examples are:

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• If you’re uncertain of the price to offer or how to calculate after

repaired value or repairs, just get a contract for the best price
you can get and let your buyers make offers. If the best offer
you get is lower than the price you contracted for, it’s not a
disaster, it just means that you renegotiate with your seller. If
you are working with flexible sellers like you should be they
will probably be reasonable.
• You don’t have to look at the house yourself. Think about it,
after 1) negotiating the lowest price you can with the seller you
can either 2) go look at the house yourself, then 3) let your
buyers look at it and accept the highest offer you get, or you can
just skip step 2 altogether and go straight to step 3. When you
embody this realization it is a major time saver. Look at houses
if you enjoy it or feel like you need to, but when you start to
feel like it’s a waste of your time don’t feel guilty about cutting
it out of your routine.

Wholesaling Profit Potential

Suppose you set out to design a wholesaling business capable of closing four
deals per month. Whatever market you are in it is reasonable and
conservative to suppose that over time your business will enjoy an average
profit of at least $2,000 per deal. This business would have an overhead of
under 10% and would nearly get you into the six-figure pre-tax income
bracket all by itself. If that’s not a large enough income to suit your aims,
take into account the fact that successful wholesalers in widespread markets
around the country typically report their average assignment fee to be
between $10,000 and $15,000. Then just consider that if you want to
increase your income, you simply increase your volume of business. The
profit potential of your business, assuming all other parts are functioning
optimally, is directly proportional to the number of qualified sellers and
buyers you are able to contact with your marketing. This is why it is often
said that wholesaling is not a real estate business, it is a marketing business.
Though at first you may not be able to make many offers due to time and/or
capital constraints, reinvesting your profits into marketing to bring you more
deals can lead to very rapid growth of your business. Just make sure you
keep your education and business infrastructure up to speed while you’re
doing it.

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THE METHODOLOGY OF WHOLESALING

The emphasis in wholesaling is on buying and selling. Hence the

functionality of the business can be broken down into two elements,
acquiring and exiting from properties.

Acquisition Phase

Real estate deals generally fall into two categories based on whether the
owner is distressed (i.e. due to job loss, divorce, etc.) or the property is
distressed (as in needing a lot of work). Deals that you target for your
wholesaling business will generally fall into the distressed property
category. The owner may be motivated, in the usual sense of being under
time pressure to sell, but some sellers will be flexible without being
particularly motivated. A flexible seller is someone who is not necessarily
under time pressure but is not dependent on getting the highest possible
price for their property and is willing to sell for a price that is attractive to an
investor. Many elderly people, heirs of inherited properties, and landlords
will fit this description. Let’s look in more detail at the types of distressed
properties you will be looking for and the types of areas you will be looking
for them in.

Areas to Target

First be aware that wholesaling takes place in every market in America and
in every price range. However, wholesaling is most common in low- to
middle-income markets. The advantage to working in a lower priced market
as a wholesaler is that motivated sellers and qualified buyers will be the
most plentiful. You can earn larger assignment fees from doing larger deals,
but larger deals are also much less common. Generally speaking,
wholesaling is easier the lower the price range you work with, until you get
into the “war zone”, which is the worst part of any city, with low values and
little growth. Low to middle income blue-collar neighborhoods are the most
productive farm areas for wholesalers. War zones and high-income
neighborhoods are both niche markets and tend to have a smaller buying
pool than moderate-income neighborhoods. Selling houses in either of these
types of areas requires specialty buyers. The advantages to having
connections with these types of buyers are that high end properties turn into
highly profitable deals, and distressed properties are VERY plentiful in war
zones.

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The neighborhood you select should be one you feel safe and comfortable in.
If a neighborhood is improving it will tend to be easier to find buyers and
less easy to find deals. If a neighborhood is tending downwards it will be a
little easier to find deals but not as easy to find buyers. You should have a
mind to who you will be selling to and who they will be selling or renting to.
While there are niche buyers in any market, markets with the most buyers,
both wholesale and retail, will be the easiest to sell in. Here are some of the
common characteristics of the best neighborhoods for wholesaling:

• Homes have two to four bedrooms, one to two bathrooms,

1,000 to 2,500 square feet
• Decent schools
• Occupied homes are fairly well maintained
• People who can qualify for a home loan would want to live
there
• Some abandoned and distressed properties are scattered
throughout
• A healthy mix of owner occupied and rental properties
• Rental rates run around 1% of the property value
• Reasonable growth potential

Properties to Target

As a wholesaler you will be constantly on the lookout for deals. It’s like
being a kid on an Easter egg hunt, or a detective on the case. Clues you are
looking for are anything that might potentially lead you to a flexible seller.
These are some of the things that should catch your eye:

• Tall grass
• Spray paint
• Piled up newspapers
• Neglected notices or fliers on the door
• Broken or boarded up windows
• Disconnected utilities
• Structural damage
• Fire damage
• Peeling paint
• Rotten wood

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• No curtains and bare rooms

You will want to be alert to these clues as well as others you might think of
or notice. There is actually an art to spotting prospect properties. Any time
a house is empty and neglected it is most likely a drain on someone’s
finances, so such properties often represent golden opportunities. The ideal
situation for wholesaling is a house that is vacant and accessible so your
buyers can inspect it freely, but very ugly houses may be candidates even if
they are occupied. A house does not have to be advertised for sale to be a
prospect. You should also pay attention to things like garage sales, estate
sales, and moving trucks to turn you on to potential leads. Once you start to
notice these types of properties automatically and can see the pretty house
hiding underneath the filth (if there is one) you will have developed a highly
profitable condition known as “investor’s goggles”. If you notice this
happening to you, take encouragement.

Farming

One of the best ways to gain experience if you are starting from ground zero
is to choose one or more neighborhoods as your farm area. Factors you
should consider are the comfort and convenience of spending a lot of time in
your farm area, but also the presence of deals and buyers. To select a farm
area you can drive through several parts of your city while paying special
attention to clues and signs of investment activity.

When you are considering the selection of your farm area, don’t be shy
about getting to know the neighborhood and the people in it. The more you
study and are familiar with the home values and available inventory in your
farm area the more easily you will be able to spot deals. Learn everything
you can about the area, including:

• the demographic make up

• the school system
• common amenities
• typical sizes and construction of homes
• ratio of rental properties to owner occupied properties
• the number of properties listed for sale and the average days on
market, or DOM, for listed properties
• average sale price per square foot for houses and land

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• anything else you can dig up or discover

While you are in the neighborhood notice how people tend to take care of
their lawns, what kinds of cars they tend to have, whether there seem to be a
lot of young families or a lot of retirement age folks. Do people tend to be at
home during the day or away at work? What sort of work do they tend to
do? Do the houses tend to be fenced? How many of them have garages?
How long have people lived in their homes? Are there a lot of new folks?
Are there signs of criminal activity or rampant drug use? Talking to people
you encounter in the area can be a good way to get a feel for the
neighborhood, so being outgoing and a good conversationalist will work to
your advantage. If you think this is a problem for you, you are going to have
to get around it one way or another anyway if you want to enjoy profound
success in any sort of business. You can also collect information from signs
for properties for sale and for rent in the area.

As well as getting to know your farm area, you want to get it to know you by
saturating it with your marketing message. You can advertise in your farm
area by direct mail in the form of postcards or letters, fliers or door hangers,
business cards given out to individuals, bandit signs or other outdoor
advertising, and notices posted on public bulletin boards (in Laundromats
and other local businesses, for example). In addition to advertising you can
actively work your farm area by regularly driving the streets, collecting
leads, placing your bandit signs and fliers, and networking (i.e. meeting
people). To work your farm area you should have the following kit
permanently stationed in your car:

• digital camera
• dry erase board
• clipboard
• business cards
• maps of the area
• spare markers, highlighters, pens, and batteries

Drive your farm area street by street, tracking your progress on the map with
a highlighter. Capture leads photographically with your digital camera,
using the dry erase board to record relevant info within the photograph.
Clues to look for include anything that might potentially lead you to a
flexible seller or a professional buyer, such as:

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• vacant or ugly properties

• FSBOs (for sale by owner)
• FRBOs (for rent by owner)
• FSBIs (for sale by investor)
• WE BUY HOUSES and other investor signs
• ongoing rehab projects
• ongoing construction projects or signs for builders

If you see ongoing rehab construction projects, walking up with some

business cards and introducing yourself can be a great way to build your
credibility and meet potential clients face to face. Here are some samples of
the types of leads you should capture:

abandoned property lead

for rent by owner lead

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for sale by owner lead

“we buy houses” lead

You can also use a clipboard for extra notes in case you need it, but
capturing leads photographically makes cataloging and referencing them
easier and is generally more reliable than writing them down. It also allows
you to have a picture of the house in front of you later when you are talking
with the seller, making it seem like you have a photographic memory: “Hi,
Mr. Jones, are you the owner of the house at 123 Elm street? That’s the
house with the green paint and the chain-link fence, right? Well I drove by
the property and it didn’t look like anybody was there. I couldn’t see much
except that the grass was tall and it looked like some shingles were falling
off the roof. I was wondering if the property might be for sale?” You can
gather even more information by photographing the houses on each side of
the lead you capture, or by talking to the neighbors to the left, to the right,
and across the street to find out if any of them know how to contact the
owner.

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Some neighborhoods will be more productive than others for certain types of
leads. It’s best to choose a farm area where you can capture at least 20 good
purchase leads on a typical day of driving, say for 2-4 hours. If you are
getting less than 10 leads per hour you are probably not using your time
optimally.

If you are handling your own farming and follow up, you should spend
enough time farming to generate plenty of leads to keep you busy, but don’t
spend so much time in the field that you neglect to follow up with all of your
leads on a regular and consistent basis. You may need to spend more time
driving neighborhoods at first to build up your database of leads, and less
later on as you are more busy with following up.

Locating and Attracting Prospects

For all ventures there are two basic ways to get in touch with your prospects.
You can either locate and contact them through their advertising or other
sources, or you can get them to locate and contact you through your
marketing. We will look at how both of these approaches can be applied to
wholesaling, starting with you contacting them first.

Contacting Seller Prospects

You can locate many sellers through their advertising in the classified ads or
other places. It is easy to make a prospect list by scanning the Sunday
classifieds for real estate for sale. Look for terms like “reduced price”,
“seller motivated”, “must sell” or similar clues. You should pay special
attention to ads that have been running for a long time. You can even use
classifieds that have been aged for three months to a year as a source of
prospects (readily available from your local library if you don’t have your
own), as well as lists of expired listings (available from a friendly real estate
agent).

In addition your farming will generate a list of seller prospects in the form of
abandoned property leads or properties that are otherwise not on the market
and not being advertised by the owner. The unique benefit of contacting
owners of properties that are not on the market is that you are not likely to
have much competition over a particular owner. Chances are you will be the
only investor they are talking with. There are at least three different ways of
contacting these types of owners, and probably more. One is to leave fliers

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on the doors of abandoned properties while you are farming stating that you
are interested in buying the property and asking the owner to contact you.
Another is to mail an envelope to the property address with the words “Do
Not Forward: Address Service Requested”. This will instruct the post office
to return a notice containing the previous occupant’s forwarding address,
where you can send another envelope or postcard containing your marketing
materials. Probably the most direct and productive way is to get the
property owner’s name from the county clerk’s office (most have online
property records nowadays), look up that person’s phone number, and call
them. There is a bit of skill and specialized technology required to find
people, but if you are not skilled in this art and don’t wish to become so, you
can hire this work out. One option is to use a local private eye who provides
this service; another is to use an online service like findtheseller.com, which
provides a skip tracing service tailored to real estate investors. Note that a
professional skip tracer will provide you with multiple phone numbers and
addresses for the person you are trying to contact as well as possibly
relatives and neighbors, but it is up to you to actually make contact with the
person. Sometimes you don’t have any luck learning anything until you
have contacted the third or fourth relative or neighbor. This is real estate
detective work at its finest. If you do want to do the database work yourself
there are online services such as NetDetective and Intellius that will provide
the information you need for a reasonable fee, which is cheaper than what a
professional skip tracer would charge to supply the information.

When you contact a prospective owner you should realize and be prepared
for the fact that most deals will not get made upon first contact. You should
look to establish a rapport with the seller first and to determine if there might
be a deal involved second. If you noticed there was a code violation notice
on the property, for example, don’t you think the owner would appreciate
being informed of it? You’re not looking to make a hard sell right off the
bat, you’re looking to make conversation and gather information, all of
which makes following up easier and more effective. Get the owner to talk
about what they plan to do with the property. Whatever the answer is, ask if
the owner might consider selling. If the answer is not affirmative for the
time being, try to get permission to call back and check later. Then add the
seller to your follow up list, including notes about the date and time of the
conversation and any notable details that were discussed. That way when
you can call back you can make it sound like you remember the conversation
perfectly: “So Mr. Jones, how is your daughter doing in college?” Also be
aware that some of the people you contact will be interested in buying

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property themselves. If you determine from your conversation that this

might be the case, treat them as a usual buyer prospect and add them to your
investor database.

Attracting seller prospects

There are many avenues of marketing available to real estate investors to

attract prospective sellers. Sellers who contact you first will be uniquely
qualified by having responded to an advertisement to sell their home. The
main avenues of marketing available are ads in publications, direct mail,
outdoor advertising, networking and referrals, and the Internet.

Ads

You can make use of all types of classified ads in printed publications,
including newspapers, magazines, bulletins, and newsletters. Most
publications will allow you to buy advertising space for larger ads as well,
but classifieds are a good place to start and possibly to stick with. Factors to
consider are a publication’s location, distribution area, and readership. You
want to find the publications that have the greatest pull with the types of
motivated sellers you’re targeting.

Direct mail

Direct mail is another marketing tool commonly used by real estate

investors. List brokers are businesses that provide lists of prospects based
on criteria you specify, including geographic location, home ownership,
mortgage balance, age, and any other you might think of. There are many
different ways to do mailings, including postcards or letters, handwritten or
typed, for example. Two consistent principles are to test different marketing
pieces constantly and select the ones that work best, and to send repeat
mailings to the same prospects. The response rate from direct mail will be
very low on the first mailing but will increase as you send multiple mailings
and the people get used to seeing your marketing pieces.

Outdoor Advertising

Many real estate investors use bandit signs to deliver their marketing
message, but you should keep your mind open for other ways to advertise

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out of doors, such as bench signs and car signs. Placing outdoor advertising
can be a great way to target your advertising to specific neighborhoods.

Networking

Networking basically means marketing by meeting people and encompasses

nearly everything you do that brings you in contact with people. Always
have business cards available, especially if you are networking actively by
attending a function such as a local real estate investor club meeting.
Networking can take place any time you are in the field or around people
and can also encompass such activities as going door-to-door and leaving
fliers or door hangers. Networking hinges on referrals, so tell everyone you
talk to about your active referral program whereby they can receive a fee for
referring you to an active buyer or seller. Also be generous about passing on
referrals, and this will help stimulate more to come your way.

The Internet

The Internet is a whole subject to itself and provides plenty of opportunity

for wholesalers to contact prospective clients. The main purpose for
mentioning it here is completeness. Just be aware that if you are not
informed about the many ways you can use the Internet to attract sellers then
you should go out of your way to become informed so that you can put this
powerful tool to work for you. An excellent place to start is with a Realnopoly
Membership.

Profiling Prospects

Your first contact with a seller should serve to allow you to determine
whether or not the deal is worth pursuing. You should aim to gather at least
the minimum information necessary to calculate an offer. You should also
aim to determine how flexible or motivated the seller is and the likelihood of
your offer being accepted. There is a bit of skill involved in discerning a
seller’s motivation level, but all it takes to develop this is practice talking to
sellers. There are a few signs that will usually give them away when you
come to recognize them, but just realize that a truly motivated seller will be
someone who is in need of your help and is willing to work with you
without resistance. You shouldn’t aim to convert an unmotivated seller into
a motivated one, just recognize the difference and spend as much time as

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possible with the motivated ones and as little time as possible with the
unmotivated ones.

The information you collect from the seller should include at least a rough
estimate of repairs and ARV. This will allow you to calculate an offer. You
should also find out how much money the seller really wants, which will
help you to determine the seller’s motivation. Ask the seller something
along the lines of “If I can pay cash and close fast, how much would you
have to get to even consider selling this property?” and follow up with
something like “Is that really the least you could accept?” With a little
practice, the answer to this question should allow you to determine whether
to spend more time on the phone with the seller or whether to put them on
your follow up list and move on to the next prospect. If the lead seems
worth pursuing then it is best to collect as much information as possible,
such as the following:

• Date
• Lead Source
• Owner’s name
• Owner’s phone #
• Owner’s fax number/email address
• Property address
• Type of property
• Beds/baths/garage spaces
• Size (sq. ft.)
• Lot size
• Construction type
• Year built
• Heating and A/C
• Repairs needed
• First mortgage balance and payment
• Second mortgage balance and payment
• Other liens against the property
• Rental income
• Reason for selling
• Other properties for sale

The information you gather should be relevant to your purposes. You

shouldn’t burden the seller with too many questions. Just get the basic

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information and whatever else you can, then move on. Either present your
offer or tell the seller you’ll follow up with them later and thank them for
their time.

Estimating Market Value

The primary way to estimate the market value, or ARV (after repaired
value), of a property is to look at close by recent comparable sales, or sales
comps. Licensed agents can get sales comps from the MLS (multiple listing
service), but if you do not have a source for these then there are other
services like realquest.com that will supply the information for a fee. As
you become familiar with your farm area you will develop a sense of
property values in the neighborhood and won’t always need to look at sales
comps for properties in your farm area. And of course you can always ask
the seller if they happen to have an appraisal on hand, which will happen
from time to time and can be used to inform your estimation of value.

Estimating Repairs

The first step is to get as much information as possible from the seller about
the condition of the property, but realize that this is not likely to be highly
accurate. If the seller can send you pictures of the property this will help,
but many won’t be able to. You can get a more accurate estimate by having
the property inspected yourself and filling out a repair cost worksheet
appropriate to your local market (you can get one of these from another
investor you are friends with). Whoever looks at the property (and it doesn’t
have to be you) should take photos of the exterior from all sides and of each
room, taking care to show needed repairs as well as possible. Pay particular
attention to the roof and foundation, then to cosmetic and functional items.
You don’t have to have an estimate accurate down to the last penny. As
long as you can tell the difference among a teardown, a gut job, and a fluff-
and-buff you’ll probably be okay.

Constructing an Offer

The offer formula used in wholesaling is a very simple formula based on the
ARV and repairs:

Maximum Allowable Offer (MAO) = .65 × ARV – repairs

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In other words, this says that the maximum allowable offer is going to be
65% of the ARV, minus the repair costs. So, if a property had an ARV of
$100,000 and needed $15,000 worth of repairs to be made market ready, its
MAO would be $50,000. Where does this formula come from? The
industry standard loan to value ratio (LTV) for hard money is 65%. This
formula allows for the investor to purchase the property and complete the
repairs for no more than 65% of the ARV. This may make it sound as if the
investor stands to make a 35% profit, but in actuality the investor’s profit is
more likely to be 10% to 20% of the ARV, with the rest being absorbed by
closing costs when buying and selling, any down payment assistance given
to the end buyer, holding costs, agent fees, loan interest and points, and
repair overruns. Investors who are paying cash generally follow this
guideline as well, purchasing properties for between 55% and 65% of the
ARV. Note that this formula supplies you with a MAXIMUM allowable
offer, meaning that this is the price below which rehabbers and other
investor buyers will be interested in the property. That means that the offer
you make to the seller should be lower than this amount. How much lower
depends on circumstance, but obviously the lower your offer the more profit
you are building into the deal for yourself.

If the above discussion is confusing to you at first, just use 50% of the ARV
as a ballpark when making offers. So if the seller says that the house is
worth $100,000 and needs moderate repairs, offer $50,000. If the seller says
the repairs are heavy, offer 40%, or $40,000. This will usually get you close
enough.

Presenting the Offer

A good rule of thumb if you are just starting out is when making an all cash
offer the amount should embarrass you. If it doesn’t embarrass you it isn’t
low enough. Seriously, though, you need to develop a thick skin about this.
When a seller asks how much you think you can pay you shouldn’t hesitate
to give an honest answer, and you shouldn’t expect to do deals for free. If
you make too high of an offer you will at best get a marginal deal and a
marginal paycheck, and at worst you will get a contract that doesn’t go
anywhere. Either one is a waste of your time, not to mention the seller’s.
Promising more than you can deliver doesn’t do anybody any good.

When presenting your all cash offer it may or may not behoove you to bring
up the fact that you intend to perform an assignment of contract. It’s all a

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matter of the seller’s sophistication and priorities. There’s no reason it

should be made an issue of in any case. If the subject somehow comes up
you shouldn’t try to hide the fact that that’s how you do business, and if the
seller has a problem with it, either change tactics (such as using an option) or
politely decline to work with them if necessary. If the seller doesn’t bring it
up though, there’s no reason you should. Plenty of sellers wouldn’t even
understand the concept and are just happy knowing that they will be getting
a specified amount of cash on or before a specified date. Understand
however, that if you make a promise you can’t back up then you could have
a major impact on the seller’s life and finances. Never take any chances
without the seller’s knowledge. Let the seller know that your offer is
contingent upon inspecting the property, and make this explicit in the
agreement. If it seems like you are not going to be able to sell the property,
don’t put off letting the seller know this.

An alternative to a written purchase agreement is an option agreement,

which just gives you the option to purchase the property, and can be written
to give the seller leeway to withdraw as well. This might be a better
agreement to use with some sellers, especially those who are professional
buyers or landlords. Just sign the option agreement, market the property to
your buyers as usual, and when you have one ready to purchase and can set a
closing date fill out the purchase agreement with your seller and do the
assignment as usual.

It is important to be calm and collected when delivering offers. You want to

inspire trust and confidence with your voice and manner. Therefore if you
get the jitters when it comes to this part it might help to role play in a safe
environment until you can do it without breaking a sweat. Oftentimes you
will be making a verbal offer over the phone, in which case you should send
the written agreement, signed by you, immediately afterwards by fax or
email. If you are making the offer in person you should have two copies of
the agreement and be prepared to talk the seller through it if they have any
questions. If there are multiple owners they should all be present and sign at
the same time. This would also be a great time to get some sort of proof of
ownership, such as a copy of the deed, if possible.

One way to get around making offers verbally is to simply collect the
seller’s information, including a fax number or email address, then send your
offer afterwards in the form of a filled out and signed purchase agreement.
That way if they yell and cuss when they see it you won’t have to listen.

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You can send out lots of offers this way and basically forget them. You’ll
be surprised by some of the ones that come back.

Filling out a Purchase Agreement

There are just a few essential contract clauses for wholesaling. Your
wholesaling purchase agreements should include:

• Assignability: most contracts will automatically be assignable,

if not this needs to be written in; check your state laws for
specifics
• Purchase price: should specify the amount and cash or
financing
• Earnest money: should be $100
• Property accepted “as is”: the seller performs no repairs and
provides no disclosures
• Survey, title insurance, and other closing costs: can be
attributed either to the buyer or the seller
• Closing date: should be as far in the future as the seller will
allow, but the sooner it is the more enticing the offer will be;
two to four weeks is a good fast time frame
• Refund of title search costs: if the seller turns out to not have
clear title to the property then the seller agrees to pay for the
title search
• Contingent upon inspection: the buyer’s offer is contingent
upon a formal inspection of the property
• Sole remedy: in case of the buyer’s default the seller is entitled
to the earnest money as the sole remedy

Your contract may also contain any special provisions you desire, such as a
clause to allow the buyer access to the property for due diligence. You want
to avoid any kind of specific performance clause, which says that you can be
forced to buy the house. If you feel uncertain about anything have the
contract you intend to use checked by a real estate attorney or title company
in your local market.

Due Diligence Period

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The due diligence period occurs after you have a property under contract and
before you go to closing. This is where you check out everything you can
about the property, and if you find anything wrong that you weren’t
expecting then you get to lower the purchase price. If you were a full
service wholesaler you would do a thorough inspection of every property
before offering it to your buyers, perhaps including ordering a formal
inspection report, termite report, professional repair estimates, and appraisal.
The more information you provide to your buyers the more value you
provide as a wholesaler. However, you don’t have to be full service when
you’re starting out. Just make sure your buyers can have access to the
property to do their own due diligence.

The second component of due diligence, besides the physical state of the
property, is the title search. The seller’s unrestricted right to sell the
property must be verified before ownership can be transferred. This is
normally handled by a title insurance company or by a real estate attorney’s
office, depending on your state. The title company will do a thorough public
record search and guarantee that the title to the property is clear aside from
whatever clouds or encumbrances they find. If items turn up, whose
responsibility is it to get them cleared? Technically it’s the seller’s, but as a
matter of practicality it’s yours, if you want to get the deal done, though you
should at least be able to enlist the willing help of the seller. Some of the
problems you might encounter include unprobated wills, uncooperative
relatives on title, or involuntary liens. Some problems can be fixed easily,
some can’t. The title company will require an earnest money deposit to
initiate a title search. A full service wholesaler would have this done before
marketing the property, but you can market the property first and have your
buyer put down the earnest money instead of using your own funds.

Exit Phase

Locating and Attracting Prospects

When you have a deal under contract and ready to close ASAP your primary
marketing efforts should be towards your own buyers list. It’s always best
and fastest to deal with buyers you know or have had contact with before.
However, you should always be marketing broadly to increase the size of
your buyers list, in addition to getting to know and catering to your existing
buyers.

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Contacting Buyer Prospects

Many professional buyers will be easy to find because they market

themselves to the general public, but there are a few other tricks that you can
use to go directly to those who do not make themselves publicly known as
well. Here are some of the ways to reach out and make contact with
wholesale buyers:

• Call the numbers on the “We buy houses” signs in your farm
area.
• Attend meetings of your local investor groups and meet as
many people as you can. Be prepared to give out and collect
lots of business cards.
• Call the numbers from the “We buy houses” ads in your local
newspapers, and other ads in the “Real Estate Wanted” section.
• Attend foreclosure auctions and tax sales and network with as
many of the buyers there as you can (don’t forget the business
cards).
• Call ads for houses and apartments for rent.
• Call the numbers of houses you see for sale that are totally
rehabbed or advertised as “rent to own”.
• Ask agents, mortgage brokers, title officers, and other real
estate professionals to refer you to any active investors they
know. Tell them that you can bring them deals and they will
like the sound of that because it will probably mean more
business for them. Also send them referrals for the types of
clients they need whenever you can to initiate reciprocity.

Attracting Buyer Prospects

You can attract prospective buyers to contact you as well. Signs in your
farm area will attract buyers interested in the area you are working in.
“Handyman special, cheap, cash” or “Rehabber’s delight” and your phone
number are tried and true marketing messages for attracting investors. The
same message that you use on signs can be used in classifieds in print
publications or on the Internet. In addition there is a whole new world of
real estate investing online and it's at your fingertips.

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With buyers, sellers, investors, now turning to the internet as their #1 way to
look for houses, investments, services, and an immediate answer to their real
estate problem, this creates a unique opportunity for those in the know.

And by unique opportunity we mean the ability to generate thousands of real

estate buyer, seller, and investor leads for free using the Internet. To learn
about a complete content management and real estate lead generation system
that will allow you to tap this gold mine check out the Realnopoly Club.

Just 32 hours ago we launched a new cash investor lead website with our
Realnopoly system, spent 20 min and $0 marketing it on the internet, and
have 17 leads, totaling $6.8 million in cash, that we received for free.

Realnopoly is a complete content management system and lead generation

system for real estate investors, bird dogs, and wholesalers. It comes with 3
lead websites for buyers, sellers, and investors, website builder, lead
databases, tracking, mentoring, webinars, and more.

Profiling Prospects

Your buyers list is your most valuable asset as a wholesaler. You should
have a well-organized database of every investor or potential investor you
talk to, including as much information as possible. It isn’t necessary to get
every bit of information from every investor in the first conversation, but
stay in contact with all of your buyers on a regular basis by phone and/or
email and collect more information over time about their buying preferences,
financial situation, and how they do business. The more data you have on
your buyers the better off you will be. Also keep information in your
database on every other type of real estate professional that you come into
contact with that you might be able to refer some business to. The better
connected you are, the more people you will be able to help and hence the
more powerful you will be in your business. Mind this principle by making
actively growing your rolodex a priority. Types of professionals you
encounter besides other investors will include:

• real estate agents and brokers

• mortgage brokers and loan officers
• hard money lenders
• inspectors

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• contractors
• appraisers
• title companies
• real estate attorneys
• private money lenders
• note buyers
• property managers

These are all people you might be able to refer business to and who might be
able to refer business to you to express their gratitude.

Your buyers list should be growing automatically and all the time, even
before you have deals under contract. That’s right, you don’t have deals in
inventory to begin talking to buyers, just talk to them normally and let them
know that you’ll contact them when you have a deal for them to look at. An
automatic and cheap way to generate thousands of niche buyer leads across
the country is with a Realnopoly Membership. You can’t have too many buyers
on your list; just don’t spend so much time on it that you neglect to actually
spend time finding deals! Also realize that your set of active buyers will be
constantly fluctuating as different buyers change their priorities and
experience changes in their financial circumstances, so don’t spend so much
time finding deals that you neglect to update your buyers list. It’s a fine
balance to strike.

Your investor questionnaire should include information about the area, price
range, and type of property they are looking for, the amount of rehab they
are willing to handle (light, medium, or heavy), and their source of
financing. Some investors won’t know exactly what they’re looking for
until they see it, and most of these will never see it. It’s okay to have these
people on your list and notify them of new deals, but don’t let tire kickers
take up too much of your time. The best buyers will know exactly what they
want and when they see it they won’t hesitate to put down earnest money
and show a proof of funds available to close (POF). It’s best to work with
buyers who are actively buying properties on a consistent basis as much as
possible.

Conducting Showings

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If you are working with a house that is vacant and accessible then this will
be simply a matter of telling your investors how to get inside and letting
them check it out on their own time. If the house does not fit this category
then other options are to get a key from the seller or if that’s not possible to
coordinate showings with the seller. If your seller has to come unlock the
property for inspections and showings, it is best not to send a buyer
unaccompanied unless it’s someone that you trust and whom you know isn’t
interested in stealing your assignment fee. If someone has to be there to let
buyers in then you should only show it to the most interested and qualified
buyers and coordinate it so that they all come at once. There are generally
better uses of your time than running out to the property every time an
investor wants to take a look at it, although this can be a useful opportunity
to meet a new client face to face the first time you do business together.

Providing Financing

Your first preference should always be to work with cash buyers. However,
as your wholesaling business becomes more full service you will deal more
and more with buyers who need a little help with one thing or another,
including securing financing for their purchase. You should be able to assist
them by referring them to a mortgage broker or hard money lender you have
a relationship with. Any time you are working with a buyer who is using
financing you should try to have them work with a source you are familiar
with to minimize unknown factors. The added benefit is that if you send
them business they are likely to send you business in return.

Negotiating with Buyers

Your main source of leverage with your buyers will come from having
multiple backup offers. The more offers you receive the better position you
will be in. Once you receive a verbal offer from an investor the first thing
you should ask for is a POF. The POF may be a bank statement or a letter
from an account executive at a bank verifying that the buyer has funds
available to close. The next thing is to ask if there are any contingencies.
Only when there are funds available and no contingencies are you ready to
accept the seller’s offer. You should make it clear to your buyer up front
that the deal will be done by assignment. Once the investor’s purchase price
is agreed upon the amount of the assignment fee should not be an issue.
Simply send the investor the purchase agreement along with an assignment

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agreement. The amount of the contract price plus the assignment fee will
add up to what the investor agreed to pay.

Transfer of Title (Closing)

It’s best to close with familiar closers whenever possible. If you don’t
already have a relationship with a title company, you will need to develop
one. When it comes time to open title ask your buyer which title company
they prefer using, and there you go. Whenever you contact a title company
for the first time, you should have a contact person in mind and be able to
mention who referred you. Title companies like to do business with familiar
clients as well, and if you know somebody they have worked with before it
will go a long way towards getting you past the stranger barrier.

You can open title by calling the title company and retrieving the email
address and fax number of your contact person then sending them the
purchase agreement and assignment agreement. If your investor is putting
forth the earnest money then they can swing by the title company and sign
the assignment agreement at the same time as they write the check for the
earnest money. Once title is opened you should stay in touch with the title
company to monitor progress, but expect that it will take one to two weeks
to complete the title search.

When title is ready the title company will notify you, and you can schedule
the closing date with your seller and buyer. On the day of closing the buyer
must appear, sign, and bring a check, while the seller must appear, sign, and
pick up a check. You can have your proceeds wired into your bank account,
so you don’t have to show up at all, but you might want to just for the social
contact with your buyer.

Follow Up

Just as important as making sure the closing happens smoothly is following

up with all parties afterwards to make sure everyone is satisfied. If for some
reason there is a problem after closing there may or may not be anything you
can do about it, but you should still be aware of it even if it isn’t your fault
so that you will be able to improve the quality of your service. You might
consider placing follow up phone calls or sending thank you notes to the
buyer and seller.

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CONCLUSION

Each of us is an individual with unlimited potential and a calling to put our

talents to work in the world. If you feel that your calling is to be a
wholesaler then you will probably be a success in this business, not only
financially but intellectually, emotionally, spiritually, and in any other sense
you can think of. If you don’t feel so inspired that’s fine too, and I wish you
the best of luck in finding your life’s purpose. Either way my hope is that
you got something out of this work and that you will continue to make
pursuing your dreams a reality in your everyday life.

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APPENDICES

Common Questions New Wholesalers Ask

Q. Will I need earnest money?

A. No, but it can come in handy on occasion if you have it. Usually you
should sign contracts with $100 of earnest money unless there is some
compelling reason to use more, and you can let your buyer supply the
earnest money to the title company.

Q. Does this business require a real estate license?

A. Short answer: no. Long answer: every US citizen has the right to make
offers on properties and the right to assign contracts. As a wholesaler you
participate as a PRINCIPAL in the transaction, meaning that you are
involved directly, not as a representative of another party. A real estate
agent has a fiduciary responsibility to his or her clients, whereas a
wholesaler doesn’t claim to represent his or her buyers, only to bring them
good deals.

Q. How do I get access to properties to inspect them once I have them under
contract?

A. Generally speaking, you don’t have to. Someone will have to look at the
property, but it doesn’t have to be you. This is a good reason to work with
vacant, accessible properties. If you have to get the owner’s permission
each time you want to show the property to a prospective buyer it is more
tricky.

Q. What happens if I misestimate the repairs?

A. Nothing bad except that you get lower offers from your buyers than you
expected. Listen to your buyers’ feedback any time you show them a
property. Also make a habit of accounting for a margin of error in repair
costs.

Q. Will I be in default if I sign a contract and can’t close on it?

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A. Not if you have an appropriate contingency in your contract. Your seller

should understand that you have to look at the property (or have your buyers
look at it) before you can guarantee you will close. If you do run out of time
the seller may be willing to allow you to have more time to perform, or if not
the seller has a right to demand the earnest money as the only remedy. If
you are on good terms with the seller you should be able to handle this with
no hard feelings either way. Maintaining a good reputation and treating
people with integrity is your primary defense against being sued. Just don’t
be afraid that someone can force you to buy a house, because they can’t.

Q. What if I assign a property to a buyer who doesn’t perform?

A. You should be ready for this by always having a backup. Continue to

market each property until it closes and you have received the funds, and
even further if it continues to get you calls from new investors. Having
multiple backups gives you negotiating leverage with both the buyer and the
seller and allows you to change plans on short notice. However, you should
also be in tune with the financial situations of your buyers, and before you
do an assignment with an investor verify that they have the cash available to
close. They might show you a printed POF letter, or you might contact their
banker directly, or ask an escrow agent they have worked with if they have
closed previous transactions with cash.

Q. How do I protect myself from having my assignment fee stolen?

A. Stealing your assignment fee would mean that the buyer and the seller
collude to do the deal without you. While this is not as common as one
might guess, it does happen under the right circumstances. There are no
guarantees that people will be honest, but there are measures you can take to
look after your interests. Having an active, signed purchase agreement with
the seller is of primary importance. You can make this agreement a matter
of public record by recording an affidavit of contract, which will effectively
cloud the seller’s title, making it impossible for them to sell the property to
anyone without your consent. This should only be used when called for,
however. As always the most important factor is the human one.
Maintaining good relationships with your sellers and buyers and providing a
valuable service is your best defense. Staying in control of the deal is
important too. This means that you should be aware of everything that is
going on and be the one to coordinate and notify the other parties involved
about the closing process. And finally, treat everyone you meet with

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integrity and honor and these are likely to be returned to you, and keep
multiple deals active all the time so that you won’t be too dependent on the
outcome of any one deal. If you lose an assignment fee it shouldn’t be the
end of your world.

Q. What is a double closing?

A. A double closing is where you buy a property and sell it in the same day.
An assignment closing involves one purchase agreement between you and
the seller and an assignment agreement between you and the buyer. A
double closing involves two purchase agreements, one between you and the
seller and one between you and the buyer. A double closing will incur
closing costs for you, and you will be required to place down earnest money,
but the advantage is that it keeps the amount of your profit hidden from the
buyer and the seller in circumstances where revealing it would be
problematic. A double closing is appropriate when you are collecting a large
assignment fee from a single deal (over $10,000) and you are working with a
closer you are familiar with. If you have never done one before the best
thing is to ask your closer to walk you through it.

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Common Mistakes New Wholesalers Make

• Problem: You’re getting contracts but you’re not able to sell them.

• Solution: Listen to your buyers’ feedback. Ask if they are willing to

buy the property at any price. If not is it the area that is a turn off, the
type of property, the amount of repairs, or some other factor? Adjust
your buying strategy according to your buyers’ preferences. Also
make sure you are showing properties to as many buyers as possible.
For every buyer who wants a property there will be nine who don’t.

• Problem: You’re agreeing to pay too much.

• Solution: Make sure your first offer embarrasses you. It may take
some practice to be able to deliver realistic offers to sellers, but once
you get the hang of it you will be able to do it without batting an eye.

• Problem: Agents are getting in your way.

• Solution: If you want to work with agents there are plenty out there,
so look for one you can get along with. Or you could just make a
policy of not working with agents, which is what many wholesalers
do.

• Problem: You are worried too much about repair costs.

• Solution: Make sure your contract has an inspection contingency, and

make sure your seller understands this, then understand that the
repairs are your buyer’s problem. Just let your buyers make offers,
and if you have to renegotiate with the seller you won’t lose face
because you pointed out to begin with that you would have to verify
the repairs needed.

• Problem: You’re thinking that you have to have money to make

offers.

• Solution: Stop thinking that! You don’t have to have the money to
close to make offers. And in the wholesaling business you won’t have

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any money unless you are making offers. So don’t let this hold you
back. The more offers you make the more results you will see.

• Problem: You’re dealing with unmotivated sellers

• Solution: Pay attention to how you prescreen your sellers. You

should determine as quickly as possible which ones are not motivated
(most of them) and which ones are (a minority), and spend as little
time as possible with the former and as much time as possible with the
latter. Deal with the prospects, kick out the suspects.

• Problem: You’re not able to make enough offers.

• Solution: Increase your lead generation so that you can spend more
time making offers and negotiating, as this is where the majority of
profits will be created in your business. Assuming everything else is
equal, the more offers you make the greater your profits will be.

• Problem: You’re not following up the way you should be.

• Solution: Create an organized follow up system, such as a calendar or

tickler file, to keep track of everyone you talk with and systematize
your follow up. Most business is done only after repeated contacts, so
the follow up is where the fortune is.

• Problem: The offers you are getting are too low.

• Solution: Either renegotiate with the seller to lower the price, or

realize that you contracted too high with an unmotivated seller and
resolve to do better next time.

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Real Estate Glossary, Wholesaler’s Edition

After Repaired Value (ARV) – The market value of a property when it is

in move-in condition.

Agent – A licensed real estate professional, who has a fiduciary

responsibility to their client.

Assignment of contract – The act of assigning the rights granted by a

written agreement to a third party.

Assigmnent fee – Fee paid from the assignee to the assignor in exchange for
contractual rights.

Cash flow – Monthly income produced by a property.

Cash offer – offer for all cash; should be at or below 65% of value,
including repairs.

Civilians – Individuals involved in the real estate game who are not real
estate professionals.

CMA – Comparative Market Analysis prepared by an agent to show the

value of a subject property.

Contingency clause – clause in a contract that stipulates conditions for

buying; e.g. “Subject to inspection”, “Subject to approval by all board
members”.

Contract – Written agreement between parties sealed with signatures.

County detail report – Publicly available county property records

containing details and tax assessed value for real property in a given county.

Double closing – Buying and selling a property in the same day.

Due diligence – Physical inspection of a property and verification of critical

numbers: ARV, repairs, rental rate.

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Equity spread – the difference between the lowest price a seller will accept
and full market value of the property, accounting for repairs; the potential
profit for the investor

Farm – A neighborhood that you choose to target your marketing efforts in.

Handyman Special – A rehab project waiting for the right investor to come
along.

Hard money – Rehab financing; generally short-term, high-interest, non-

recourse, secured by property, 70% LTV or below.

Investor buyer – Buyer who buys professionally or for profit

LTV – Ratio of a loan to the value of the property securing it; a $70,000
loan on a $100,000 house would be 70% LTV.

MLS – Multiple Listing Service; listing service used exclusively by real

estate agents.

Motivated seller – Seller in a need-to-sell situation (job transfer, pending

foreclosure, divorce, etc), as opposed to want-to-sell (upsizing to larger
home, want to move to better school district, just seeing what we can get,
etc.)

Option offer – Option contract, gives you the right to buy, but not the
obligation. This is generally used as a marketing tool rather than with the
intent to purchase

POF – Proof of funds, shown by buyer to demonstrate ability to close.

Rehab – House that needs work.

Repairs – The cost of repairs necessary to make a home move-in ready.

Retail buyer – Buyer who buys to have a place to live.

Title – Ownership of property as established by public record.

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Turnaround time – Amount of time elapsed between finding the lead and
closing the deal.

Wholesaling – The art of buying cheap and selling to investors, or generally

any strategy that involves marketing contracts rather than taking ownership
of properties.

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Putting Your Business on Autopilot

The basic principle of automating any business is delegation. Delegation

can be practiced using people, technology, or services provided by other
businesses. Besides the traditional route of hiring full-time employees some
other options open for delegating are:

• working with partners

• working with freelancers or commission-paid employees
• virtual assistants
• part-time employees

The basic approach is to break your business processes up into independent

functions and then put systems in place to see to the carrying out of those
functions. For example, you could divide your working wholesaling
business into the following categories:

• marketing for sellers

• marketing for buyers
• screening prospects
• inspecting properties
• making offers and negotiating with sellers
• networking with buyers
• coordinating closings
• web site maintenance

When you are new in business chances are you will have to wear most or all
of these hats yourself, but as time passes and you gain experience you will
be able to delegate the ones you don’t enjoy doing and keep for yourself the
ones that are most satisfying. Negotiating with sellers is probably the main
profit creating activity, and networking with buyers is probably the next.

For access to a custom-made system designed to handle all of this for you,
check out the Realnopoly Club.

Another key element of automating your business is your referral program.

To encourage people to send you leads you should actively inform them that
you pay referral fees for sending you buyers or deals. You can also pay bird
dogs on a per-lead basis, say $5 to $15 per lead depending on how much

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information they supply. Bird dogs can be recruited from anywhere, the
only requirement is the ability to drive. You should encourage referrals to
come to you by sending referrals to others whenever you can, and you
should keep an organized system to keep track of your referrals and pay
referral fees promptly. A thank you note would be nice as well. Whatever
you do, don’t rely on your own memory to keep track of these if you want to
do a lot of business.

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Bootstrapping Your Business

Wholesaling is a business that can be started on a small scale and grown to

almost any size. You don’t have to be from a background of privilege to
enter this business, but you do have to have patience and persistence.
Starting small requires discipline, but there are no true barriers to entry into
this business and no limit to how large you can grow your income.

If you are using only free lead sources it might take you several months to
find a deal, especially if you are working part time. That’s okay as long as
you understand that you will find one eventually and don’t get discouraged.
Browse the Sunday classifieds, drive a neighborhood once a weekend, do an
internet search for motivated sellers, or purchase a mailing list and send out
50 mailings at a time. Persistence will net you a deal eventually. If you
want your business to grow quickly, you should not rely on it for your living
expenses at the beginning. When you do the first and second and third deal
you should reinvest as much of your profit as possible into your business in
order to increase your capacity to do deals, so that your fourth and fifth and
sixth deal will come more quickly and easily than your first three did.
Money that you invest into your business should first and foremost go into
marketing to increase the rate at which you pull in new buyers and sellers,
and second into the systems that will allow you to handle the increased
volume of leads. Marketing and infrastructure must proceed in lock step or
else your investment will be wasted. The end result of this process of
bootstrapping is a highly profitable business that runs itself and provides you
with freedom to do what you want with your time and money.

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The Importance of Education

The rule of riches is this: income follows personal growth. What this means
is that if you want to be bringing more money into your life than you are
right now, you have to become a different person than you currently are.
You will not go from a novice to a pro or from a pauper to a prince without
learning a lot and changing a lot as a person. Therefore, education and self-
development are the most important factors to being successful in business
and increasing your income.

Education is not just a temporary stage, it should be made a habitual part of

your ongoing business practices. The moment you stop learning your
business will stop growing, so ongoing education is key to your business’s
long term success. Some of the avenues available to you for continuing your
education in real estate and business principles include:

• You will talk to a lot of real estate professionals as a wholesaler.

Keep your ears open and your mind engaged every day to maintain
peak awareness.
• Work with other wholesalers and other investors. Partner up on deals
to gain experience or take someone more experienced than you as
your mentor.
• Attend local investor clubs, workshops, and meetings.
• Avail yourself of the many books, home study courses, webinars,
seminars, and boot camps produced by professionals in the real estate
education field.
• Sign up for email and paper newsletters and news services related to
real estate.
• Join online investor forums to network and take advantage of the
educational materials they provide.
• Keep educational tapes and cd’s on hand to listen to whenever you
can.
• Share whatever knowledge you have with others. As the ancient
Taoists said, “When one teaches, two learn”.

Your education and your personality together form the vehicle of your
success. Don’t let a limited self concept keep you from enjoying your full
potential. If you don’t think you have what it takes to accomplish your goals
then you simply must mold yourself into an individual who does.

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