You are not alone. Does that make you feel any better? Probably not! So, why are you having such a hard time wholesaling deals? What are you doing wrong? I wish it was a simple answer or a magical wand that I could wave to help you. However, I will go through a few key reasons why you are probably reducing your chances of having success wholesaling real estate over a few blog posts.
One of the biggest mistakes that I run across most often, is that new wholesalers do not know which properties to go after in different types of real estate cycles. What do I mean by real estate cycles? Basically, is it a sellers, buyers, or in between buyer and sellers market? I will define each below and the types of deals you NEED to look for as a wholesaler and even new Rehabbers in any area within the country.
- Sellers Market
- Less than 90 DOM, less than 6 months of inventory, and more than 3% appreciation
- Buyers Market
- More than 90 DOM, more than 6 months of inventory, and 3% or less appreciation
- Buyers/Sellers Market
- Whenever the metrics are between these or not all of the metrics have shifted to one side of the spectrum
These metrics are based on the reports most real estate agents will receive each quarter from their local Board of Realtors. It is the way that most real estate agents know whether it is a buyers, sellers or in between real estate cycle.
So that is all fine and dandy, but how does this apply or impact me being successful wholesaling? Well, you will want to focus on different scenarios in different cycles. I will outline those below.
- Sellers Market
- You MUST focus on distressed sellers AND distressed properties in this market to even get your offers considered and to keep your number of offers down. You will have an easier time getting a seller to say yes to your aggressive offer, if they have a need to sell now and their property doesn’t qualify for FHA or VA financing. Why? Well, if you look at that, you just narrowed down the potential buyers to a smaller number. Also, you will not be competing with full price/retail offers on this property. You can’t compete with that. You could be making 50-100 offers to get 1 accepted. I don’t know about you, but I want to make the least offers to get an offer accepted that meets my criteria. I am not about wasting time.
- Buyers Market
- You should focus on distressed sellers OR distressed properties in this market to get your offers considered and keep your number of offers down. If the market is slower than the seller needs to sell by, your aggressive offer could be considered even if the property is move in ready. It is often a time thing. However, if they have a property that does not qualify for FHA or VA financing, the seller has a fewer buyer options. They are stuck selling to a cash buyer or offering their own financing. In most cases, they just want to be done with the property.
So, if you are making the wrong offers, on the wrong property in the wrong real estate cycle, you will be getting a lot of rejection and not as many offers being accepted. Yes, it could cause you to not be seeing the success you want with your real estate wholesaling business. Your cash buyers (that are rehabbers) might be telling you that the margin is too slim, or there is not enough profit in the deal. What I just mentioned above, is one of the reasons why that might be the case. Stay tuned for the next part in this blog series. I will help you learn some of the other reasons why you might not be seeing the success you hope for in your wholesale real estate business or your new rehabbing real estate business.