Top Three Reasons for Failure as a Wholesaler

Real estate wholesaling has become a really popular entry point for real estate investment. It’s logical, as there is a lot of media coverage and “guru” type articles out there about wholesaling with little or no out-of-pocket investment. You can make it work, but it isn’t a slam-dunk process. Normal best practices for any business are of course important. However, there are some special considerations, mainly because these are reasons given by failed wholesalers for their problems.
1. No plan: Like any business, you just can’t jump in without some type of plan. In the real estate wholesaling business the plan also involves activity to set up your supply line and customer base. It’s a marketing plan for both sides of your business, with necessary planning to locate inventory, and on the other side a plan for building a buyer list.

You can dig up a nice profit opportunity with a distressed seller, but if you don’t have one or more buyers in the wings, it’s of no use. So, it’s better to work on the buyer list aggressively from the first day, and once you have some potential buyers lined up, you can get more active in lining up potential property inventory.

2. Poor negotiation and/or closing skills: You can have a nice list of eager buyers, but most will probably be investors, and they’re going to be on top of the numbers they need to see before they’ll pull the trigger on a purchase. You’re dealing with savvy buyers who want a discount to current market value.

You must be able to negotiate with sellers to get the price down to a point where you can structure your profits to cover your risk and invested time and effort. If necessary, get some formalized instruction in negotiation techniques, as you need to maximize your profit on every deal. Working tight margins on multiple deals increases risk and works you to death without appropriate reward.

3. Inability to accurately calculate ARV and rehab costs: We’re back to those savvy investor buyers again. Even if you’re not doing any rehab, you’ll be selling those rough condition properties to someone who is. They’ll be experienced at cost estimation and determining ARV, After Repair Value, of the property. They’ll have a network of contractors and repair companies to help them in this regard as well.

As a wholesaler, poor rehab estimation ability can strip all of the profit out of a deal in a hurry. Just as important, you need to know what your customer can sell the property for once they’re done with the rehab. Getting all of these numbers right allows you to back up to the maximum price you can pay for a home to get the profit you want.
This is good information for anyone considering wholesaling, or even those who have begun and want to maximize profits while reducing risk.