Why You Should Always Wholesale Real Estate
The idea of wholesaling real estate generally refers to finding a property, putting it under contract, and then assigning the contract to a new buyer. Perhaps the most overlooked component of wholesaling is the fact that to be an efficient wholesaler you have to be great at getting leads. It is this ability to obtain leads that provides all the leverage you need as a smart investor.
Consistently generating leads is an art form unto itself. The only thing I have learned, in the last 12 years as a wholesaler, is that the market is continually changing and I must change my strategy to continually find new potential customers.
For example, my local market is extremely “hot” with a small supply and high demand. So it’s not uncommon for insatiably hungry buyers to outbid potential homes. Please note that I am not talking about MLS listed properties. I’m talking about investor buyers bidding on potential wholesale deals that aren’t listed. However, the smart investor has to continually devise strategies to keep transactions flowing.
There was a time when all you had to do was send postcards and wait for the phone to ring “off the hook.” This is not true. I had to change my lead-acquisition campaigns (including direct marketing, knocking on doors, phone calls, etc.) and resort to strategies that I haven’t used in several years.
The next idea that is crucial today is to see possible exit strategies through so-called “lipstick reshapes”, full-blown renovations, expansions, “pop-tops” and even scrapes. Knowing these exit strategies can allow higher bid prices in hot markets and still maintain a proper business model. It is quite rare in my market that offers are accepted using the old formula of 65% ARV (after repaired value) minus expenses.
Once your lead acquisition campaigns are up and running and you have new leads, it is up to the savvy real estate investor to decide what the best exit strategy is for the prospect in question. For example, suppose you get a property in an area where the rising sale price is not very high relative to its purchase price. The question to ask is: Can the property undergo a lipstick rehab, which would be suitable for a rental property? Next, suppose you get a property in an area where there is a lot of gentrification. Can your offer price be accepted if the exit strategy is more inclined to a heavy revamp / expansion or a scratch?
Always remember that there really is no real estate activity nationwide. The activity in your backyard is the important thing.