November 23, 2016
By Alina Osmena
The wholesale of a property might sound easy. First, a wholesaler finds an unlisted house and he makes an offer to the homeowner. Next, the wholesaler estimates the cost and calculates potential profit, and then the wholesaler looks for a possible buyer for the unlisted house. Once he finds a buyer, the wholesaler assigns the contract to the buyer and the wholesaler makes a profit.
However, there are common real estate wholesale mistakes that are frequently made by wholesalers while preparing for a purchase, as well as before and after the wholesale process.
Wholesaling is not necessarily as risky as flipping houses, especially if the investor and the seller have stipulated in a contract that the investor is not obligated to purchase the house if it remains unsold, so there are wholesalers who assume that they do not need any reserve funds. When making a wholesale purchase, it is important to factor in any possible loss that can be rooted from an unsold property.
If the investor fails to sell the property that he bought from a wholesale deal, the investor will bear all the incidental costs related to the transaction.
The wholesale real estate is considered to be more successful if the wholesaler can assign the contract at a faster rate. One of the best wholesale investing tips that I can give you is to rely on the capacity of the investor to immediately pinpoint potential clients.
If the investor fails to create a list of possible buyers, it would appear as though the investor has no starting point. Finding a buyer, in the absence of a list, will take so much more time than when you already have a list of buyers that are just an e-mail or text blast away.
One of the more usual real estate wholesale mistakes is when the investor might have begun compiling a list of potential buyers, but his network is not wide enough. Each buyer is looking for something different and if there are only a limited number of clients on the investor’s contact, it is possible that no one would be interested in the property.
If the investor has an insufficient number of potential clients, this can lead to fewer offers and the investor might get stuck with an extremely low profit.
Read more about expanding your buyers list in here: How To Build A Massive Buyer's List
Another common real estate wholesale mistake that is committed is the lack of initiative in marketing a property. "If Mohammed will not go to the mountain, the mountain must come to Mohammed." The wholesaler must reach out to the clients if they have found a property that they want to sell. This way the potential buyers can take a look at the property and they can start making offers.
If the investor delays or forgets to send out information blasts to potential clients, your client list would not be of any use. Finding buyers who are willing to purchase a house is already a great challenge, so the investor really needs to make use of the technology afforded to him and reach out to the clients.
If you want to know more about making the most out of your leads, you can refer to this article: How To Make The Most Of Your Seller Leads
One mistake that novice wholesalers frequently commit is depending on the possibility of a sale of a single real estate property for too long. The trick to wholesaling is selling the property as quickly as the wholesaler can because the profit that the investor will be making is rather limited.
If the investor depends on just a single property for profit, it will be rather risky since they are betting all of their investment on only one possible source of income. Moreover, this can also lead to wastage of time and effort.
Since time is of the essence within the business of wholesaling, it is important to set a timeline or a goal for each property. The investor would need to plot out a realistic plan and budget in order to maximize the profits that they would be making once a deal is finally made. They should be able to look ahead and be certain that this sale can provide optimum benefits to all the parties involved.
If the investor did not set a timeline for the sale of the property, there would be no concrete plan for the investor to follow.
Even if the wholesaling process should be done in a timely manner, it is still important to inspect the property for any material damage. It might be appealing to the wholesale investor to find a house that is significantly lower than its market value, but if you factor in several of the hidden damages around the house, it might not be worth the price.
If the investor hurriedly tries to wholesale a property, they might fail to consider the sale from the eyes of a buyer and that is one of the many real estate wholesaling mistakes that you should be able to avoid. The buyer will look at a property and they will not only see the costs that are to be made upfront, but they will also immediately factor in any incidental costs that can pile up once they have made a final purchase.
Other wholesalers overestimate their capacity to sell a house, despite the reality that the property might be lacking in potential. In the wholesale business, the numbers you make and the amount that you shell out are very critical since there is very little room for profit. So, the investor should not purchase a property at a price that is more than the realistic amount of money that can be made.
If the investors overestimate their capacity in making a profit, there is a higher risk of facing a loss since they made a payment based on their capacity and not on an informed decision.
There could be defects that are concealed from the investor and these costs can potentially add up to the a higher repair cost. If the repair cost of the property is actually higher than what the investor has expected, the potential buyer would make a lower offer since the buyer would have to shell out more money for the restoration of the property.
Since the profit in the wholesaling of real estate is not expected to be very high, the investor has to stay away from additional costs. It is vital to make the sale on your own because any additional commission cost will just diminish your profit.
If the wholesale investor underestimates the incidental costs that can be incurred, the buyers will overestimate the cost so they can make a lower offer. The investor needs to be more realistic when it comes to the possible costs, to avoid settling for a lower profit and committing another one of the real estate wholesale mistakes.
Once the wholesale investor and homeowner have agreed on an asking price, it is time for the investor to price the property for a profit. It is important to factor in the ARV of the property, the repair cost, the holding and closing cost, and other miscellaneous costs when calculating for your realistic asking price.
When it comes to pricing the property there is a rule of thumb that the wholesale investor can probably follow. According to Tom Bukacek, “Generally, you will be able to sell a property to an end buyer at between 60-70% ARV. Therefore, you want to be able to find a property at 50 – 65% of Market Value.” (https://www.biggerpockets.com/blogs/1123/12410-pricing-a-wholesale-offer)
If the wholesale investor prices a property too high, there is a chance that no one would make an offer on the property or the investor will receive countless counteroffers. On the other hand, if the wholesale investor prices the property too low, he is at risk of facing a loss from the transaction.
Wholesalers are usually pressed for time, but it does not mean that they should settle for the first offer that comes their way. It is essential to entertain every offer on the property, but it is just as important to gauge which offer provides the most advantage for each of the parties involved in the transaction. If the wholesaler took time in inspecting a property, a legitimate buyer would also need some time to do the same.
If the investor jumps up on the first offer that comes their way, they might regret not waiting a short while for an even better deal.
In conclusion, the wholesale real estate business can be a profitable venture if the investor knows how to avoid the possible blunders that he can make along the way. It is important to be very cautious in avoiding these real estate wholesaling mistakes, since this will set you apart from other wholesale investors. It will also allow you to save more time and effort in your dealings and it can result to maximizing the money making possibilities in this business.
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Writer at AssetColumn.com
Full Time Licensed Real Estate Broker for over 5 years. Part Time Writer. I will discuss about the real estate learnings, along with proven tips and tricks of real estate experts, that I have acquired over the years through the articles that I will be posting exclusively on AssetColumn.
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