A Guide to Building a Successful Wholesale Real Estate Strategy
This is the comprehensive guide to building a successful wholesale real estate strategy used by many of the country's most successful real estate investors.
Just starting or want to learn more about wholesaling real estate? This guide may not be the place. Instead, if you're just starting with wholesaling real estate, learn all the basics in our Complete Guide to Wholesale Real Estate Investing.
Done a few deals and want to scale your business? Let's dive in...
Big Picture: Strategy Helps You Scale Property Acquisition
Like any business, a clear strategy and process help scale growth. This isn't any different for real estate wholesalers.
Here at PropertyRadar, we've helped new and experienced real estate investors alike scale their real estate wholesaling, and we're here to help you take your wholesaling strategy to the next level as well.
The Complete Step-by-Step Guide to Wholesaling
Real estate wholesaling matches qualified buyers with property sellers for a finder's fee. Typically, wholesaling involves transacting a distressed property or real estate that otherwise needs to be sold quickly. Wholesaling doesn't always require capital, good credit, or even experience.
Depending on your geographic location and business model, you may not even need a real estate license to start wholesaling. However, given the nature of wholesaling, it's gained a reputation for being one of the quickest ways to turn a profit in the real estate industry.
Overall, there are several strategies you can implement to invest in real estate.
Step 1: Understand Real Estate Wholesaling Methods
There are several ways real estate wholesalers conduct transactions, so it's essential to determine which method you're best suited for.
This doesn't take long, and it's not complicated, but it's crucial.
That's because a clear wholesaling real estate strategy is the foundation of consistent and predictable growth.
Identifying and pursuing a particular type (or types) of wholesale investing is one of the most important decisions you can make for your wholesaling real estate business. Be sure to consider all your options.
Assign the Contract
Assigning the Contract happens in multiple steps by involving several parties
In real estate wholesaling, Assignment of Contract happens when a property owner agrees to a wholesale contract with a real estate investor, who then sells the right to buy the property to their potential buyers.
Upon selling the rights to the property to buyers, the contract assignment essentially binds the buyers to the wholesale investor's agreed-upon terms in the original purchase agreement (purchase price, etc.).
In this process, the real estate wholesaler's fees are laid out in the agreement, typically with a deposit coming when the original agreement is signed and after the final transaction closes.
Why you should Assign the Contract
Wholesale real estate investors prefer this strategy for a few reasons.
First, there's no credit check requirement associated with this method. Since the wholesale investor simply assigns a contract to their buyer, the investor is not subject to a credit check to make the deal happen.
This is particularly attractive for distressed properties since, often, owners of distressed properties are looking to offload their property quickly. If you have a qualified buyer and find a property that fits their needs, you can assign the contract to them and get a deal done fast.
Additionally, a wholesaler can expect to see profits relatively quickly if they assign the contract. With these types of wholesale property deals closing quickly, it's common to see a wholesaler close multiple property deals in a matter of weeks.
If your wholesaling business model is built around getting a property under contract and moving it quickly, you may want to prioritize the ability to assign the contract over other types of transactions.
Double Escrows consist of two closings at once
A Double Escrow deal happens when wholesale investors purchase a property to turn around and quickly sell.
Double escrow, also known as a "double closing," technically has two transactions completed separately.
Why you should use Double Escrow
Double escrow has many benefits that make it one of the most widely-used real estate wholesale transaction processes.
One of the reasons a Double Escrow wholesale deal is so popular is because the buyer and seller will never have to interact. Since each deal happens between an individual party (the seller and the buyer) and the wholesaler, the buyer and seller remain completely separate throughout without ever having an agreement.
This option provides a layer of separation investors may find attractive depending on how you're looking to structure your wholesaling business.
Step 2: Identify Which Strategy is Right For You
To decide which of the two wholesaling strategies is right for you, consider the following six questions:
Do you have cash on hand?
Depending on the real estate investing strategy you're looking to use, the role cash on hand plays can vary.
For instance, having cash on hand in a Double Escrow deal is not necessary to close the deal. If there's not enough cash readily available, wholesale investors may look to leverage other methods of financing, including:
- Hard Money
- Private Money
- Home Equity Lines of Credit
These are all options real estate wholesalers use when they may not have all the money they need. Before pursuing any of these options, consider the amount of money you'll need and which fits best for your wholesaling real estate business' financial situation.
Do you have a need to keep buyers and sellers separate?
If the answer is "yes," you may want to consider transacting a wholesale real estate deal through Double Escrow. As mentioned before, the fact that two separate deals are happening with the wholesaler can keep the buyers and sellers separate through the entire process.
How much money do you need to make on your wholesale deals?
There are a few different philosophies that wholesalers will take advantage of depending on the goals of their wholesaling business model.
In some real estate wholesaling methodologies, investors prioritize a lower volume of deals yielding a significantly higher return on each transaction.
On the other hand, some wholesalers churn out a higher volume of deals for which each deal generates a lower return.
Both strategies have their benefits, so let's take a look at a few examples:
- Example 1: Lower Volume, High Return — Let's say you have a $100,000 wholesale deal. If you're looking to make a more significant return on your wholesale deal, you may look to sit on the property and make $50,000 on it 90 days later. If you do this once every 90 days, you may generate a profit of $200,000 on your initial investment over the year.
- Example 2: Higher Volume, Low Return — Let's say you start with a $100,000 wholesale deal. If you can flip this deal the same day, you may stand to make a smaller profit, perhaps $10,000.
You can do this once a week, and over a year, you may stand to generate a potential profit of $500,000.
With this method, your returns can skyrocket since you can put your money to work the next day. However, it's a much riskier method since each transaction may present its own challenges. Always be sure to weigh the pros and cons.
Do you have the ability to hold inventory?
Your ability to hold inventory will significantly influence your real estate investment strategy. In particular, with our two examples above, you may find it preferable to pursue a Higher Volume, Low Return strategy if you cannot hold inventory for long.
If you can hold inventory for an extended period, you may pursue the Lower Volume, High Return strategy in your process of real estate wholesaling.
What types of buyers are you looking to work with?
Buyer and Seller expectations play a significant role in closing deals.
For instance, if you have a buyer that expects 30% below market, you as the wholesaling real estate investor need to find a deal that's 35-40% below market to get a deal done and make an assignment fee on top of that.
However, it can be more challenging to find a steady pipeline of buyers this way.
Often in far-below market value deals, the buyer may not be able to get title insurance, a loan, or even get inspections done. As a result, few buyers can complete property deals this way, and buying and selling properties can be much riskier.
On the other hand, if you find a buyer willing to pay retail and only has a 10% margin, you're likely to be much more competitive in getting deals than if you have a buyer expecting significantly higher returns.
How quickly do you need to close the deal?
If your buyer needs to close a deal the same day, you may need to take other considerations, such as due diligence, into account.
Step 3: Build a Multichannel Marketing Strategy for your Wholesale Real Estate Business
Like all other forms of real estate investing, having a well-thought-out, properly executed multi-channel marketing strategy for wholesale real estate investing will help you find more (and better qualified) buyers and win more deals.
At a high level, multi-channel marketing is done by leveraging direct and indirect channels to educate prospects, spread awareness, and, ultimately, build a highly qualified buyers list. If done properly, you can dominate the local market and separate yourself from other real estate investors using cookie-cutter outreach to the same lists.
As you think about executing a multi-channel strategy, there are a few things you need to do to get started.
Determine Your Target Property Market
As a real estate wholesaler, you have several types of properties you can target. Investors should focus on areas in real estate which they have experience with or in which they can tap into data and insights that will help direct them to opportunities.
Some of the types of properties real estate wholesalers can target include:
- Vacant properties
- Bank Owned Property
- Short Sales
Knowing the local real estate market inside and out will work to your advantage. For example, if certain types of distressed properties are common in your area, are you willing to go toe-to-toe with another real estate wholesaler (perhaps even several)?
Or, is it a good idea for you to tap into a niche of distressed properties that may be underserved and are potentially more lucrative? Market education is critical.
Craft Personalized Messaging That Resonates
After you've identified which type of property market you're targeting, you can shift your focus to building out impactful messaging.
The concept of personalized messaging is nothing new, but executing it (and doing it at scale) is something that, if done right, can help you separate yourself from other real estate investors and wholesalers.
Guiding principles to create impactful messaging:
- Ensure your message is about your audience, not you.
- Leverage enhanced public real estate data to allude to specific traits other real estate investors aren't.
- Follow the "Good Neighbor Marketing Pledge" to ensure your wholesaling real estate marketing is legal, honest, transparent, and easily identifiable.
Honing your message takes time, persistence, and a dedication to following a framework for experimentation. It's unlikely that the first message you use for outreach will be your most successful, so always be iterating to see what does and doesn't work for your audience.
Execute a Multi-Channel Outreach and Awareness Strategy
Implementing a multi-channel, also known as "omnichannel," marketing strategy for real estate wholesaling comes down to two things: the channels you use and how you use them.
Most Popular Marketing Channels For Wholesale Investors
Some of the most popular channels a real estate wholesaler can use to get started with their multi-channel outreach include:
- Direct Mail
- Online Ads (Search and Social Media)
- Phone Call
- Door knocking
Real estate wholesalers make a lasting impression on their potential buyer's lists by using these channels in the right way - in particular, in the right order.
A great way to get started is by using online ads to build impressions. Impressions over the long-term build brand familiarity and, most importantly, trust. Many wholesale investors prefer online ads since they're cheap per impression and can reach a wide audience in your local market.
Once your leads have seen your ads, you can move them to more personal channels like email and direct mail. Following up with a voicemail drop and cold call for an introduction allows you to put a voice to the name.
Qualify Your Buyers List to Identify Strong Leads
As you build out your potential buyers list, the next step is ensuring you have a process for identifying qualified and motivated buyers.
If you start wholesaling with the wrong buyer, it can be detrimental to your success as a real estate wholesaler. To ensure your buyers' qualifications align with your strategy, thoroughly vet them beforehand.
How to Find The Right Buyer
While most marketing channels can be effective in real estate, it often depends on your budget and effort and the way you leverage them.
Fortunately, some channels are more likely to succeed when used correctly and within a hyperlocal marketing strategy.
Less Expensive Methods to Find Potential Buyers
Posting Bandit Signs: Bandit Signs are a wholesaling staple - physical signage on telephone poles, roadsides, and lawns. Often, they'll say "I Buy Homes" or something similar. Wholesalers use bandit signs to target motivated sellers who need to sell homes in their local market and need money fast.
Driving For Dollars: A direct marketing tactic in wholesale real estate where you plan a driving route and travel to neighborhoods in person, scoping out off-market properties and turning them into lead lists. It's another long-standing wholesaling tactic that can reap significant benefits.
Networking to professionals and groups, including:
- Attorneys: Practices involving real estate like divorce, probate, personal injury, and estate planning.
- Contractors and service companies: Handypersons, home inspectors, pest control, and lawn care professionals may know owners who can't afford repairs.
- Cleaning companies specializing in fire, mold, and flood remediation may know owners who would rather sell than take on repairs.
- Local investor meetings are a great place to meet investor-friendly agents, contractors, property managers, etc.
- Bail bond agents may know properties needing a quick sale.
- Boards and commissions can give you insight into upcoming real estate projects, improvements, and zoning changes.
Attending Courthouse Auctions: sales of real estate property through a public auction. These are often centers of wholesaling action, so getting involved early in these is critical.
Leveraging Wholesaling real estate lists: Other wholesale investors will be doing this, so enhancing your data with a tool like PropertyRadar is an effective method for differentiating yourself.
Step 4: Define Your Process for Qualifying Buyers
As a real estate wholesaler, working with the right buyer is often one of the most critical elements for success. The primary objective is finding a qualified buyer and matching them to a motivated seller. Do your research before taking someone on as a buyer.
Step 5: Keep Your Buyer Pipeline Full
Since wholesalers don't receive the money from their finders or assignment fee until a deal is closed, keeping your pipeline full of active, qualified buyers is a must for every wholesale real estate investor.
One of the most important ways to keep your pipeline full of these types of buyers is to ensure that you avoid doing anything detrimental to the relationship. Focus on:
- Delivering deals that match your buyers' criteria
- Sending out real estate deals with as much information as possible (pictures, videos, etc.)
- Sharing realistic rehab estimates
- Pushing realistic valuations
- Including the most current, up-to-date comps
- Consistently being able to deliver a deal
Hear what Bill Allen and Mike Cantu have to say about Wholesaling in the Data Driven Real Estate Podcast