Beginner’s Guide to Finding Wholesale Real Estate
Many beginning real estate investors make the mistake of starting with foreclosures. Almost every new hunting dog I’ve ever trained asks me about foreclosures.com or some other foreclosure service.
You typically pay a monthly fee to use these services and then get a list of foreclosures in your area. The idea is that you find a “foreclosure settlement” and can make some money on it.
This approach is how I and many other people got started in this business. When I started I subscribed to “Real quest” which is over $300 a month for Palm Beach County Florida. I used to visit homeowners at their homes and talk to them about their foreclosure and how I could offer help. The most common scenario was a homeowner who wanted to avoid foreclosure and was willing to “abandon” the property.
The problem with this approach can be summed up as follows:
- Too much competition: I wasn’t the only one who knocked on your door.
- Too slow: someone got to them before me.
- Hostile and uncooperative landlords, wouldn’t you be if they were all banging on your door?
- Hard Sell – Approaching homeowners in foreclosure is a very aggressive tactic.
- Homeowners are often not home during the day because they work
An approach often overlooked by beginners is to use classified ads both online and offline.
Look for words like “owner financing”, “owner will take over”, “must sell”, “make an offer”, “any offer considered”, “handyman special”, “needs work”, “investor special”, etc. . You need to be looking for distressed sellers. When I first started looking at the classifieds, it took me less than a month to try this approach to find a wholesale deal. It was not one house but three houses that were located in Port St Lucie, Florida. All of these houses were for sale by a wholesaler who had signed a contract to buy all three houses and wanted to “flip” the contract.
The houses were worth around $140,000 but had suffered some roof damage from one of the hurricanes. I agreed to buy the houses for $95,000 each and after paying for the roof repair and basic cleaning I figured there would be about $90,000 in equity. We still own those houses and they have been great rentals.
You can also advertise your services to potential sellers by placing a classified ad in the newspaper. Simply place an ad that says “I BUY CASH HOMES” with your phone number. The phone will start ringing immediately and you may receive 3-5 calls per day.
You may find that this soft sell approach will work better for you. Homeowners will call you so psychologically that you are in the driver’s seat. They are calling you because they want your help. They want you to buy their house. It is up to you to decide if you want to or if it is feasible. You can write down the address and get the “comps” (comparable sales). Then you can give them a rough idea of what you could probably offer for the house (usually around 65% of the value after repair). At that point, the landlord will usually tell you that they are not interested (no deal) or ask you to come and take a look at their house (deal).
At that point, once you have the house under contract, you can decide whether or not you want to keep the house yourself or assign the contract to another buyer for a fee.
In addition to classified ads, I have found the following to be very useful:
- Magnets for cars – We buy houses for cash and your phone number
- Yard Signs – We Buy Houses For Cash And Your Phone Number
- Postal: mailed to your destination area or zip code
- Letters: mailed to your target area or zip code
- Attorneys – Contact local probate, foreclosure, bankruptcy and real estate attorneys
- Network – Title companies, mortgage brokers, wholesalers, anyone involved with real estate
- REIA – attend meetings hosted by your local Real Estate Investment Club and network with buyers and wholesalers
- Bird Dogs – Hire other people to do all of the above and pay a percentage on the deal or pay by the hour.
When you have salespeople coming to you, you are in complete control. You decide which offers are worth pursuing and which are not. You will not be dealing with hostile owners, but with people seeking your help. Be honest and understanding of their needs, and let them know if you can’t help them. Don’t let them think you’ll buy their house if you don’t.
You should also make sure you are aware of the new local laws, such as CS/HB 643 and CS/SB 992, which are part of Florida law as of October 1, 2008. If you buy a home from an owner in foreclosure and claim after the fact that they did not know that they will lose their house, then you will have a big problem. Make sure that any documents you intend to use are prepared or reviewed by an attorney.
Taking some of the steps I’ve mentioned above will mean spending some money on advertising and marketing. Distressed sellers won’t find you if you don’t advertise. Most beginners don’t want to take this first step. That’s the difference between finding a deal and not finding a deal. If you won $5,000 in an assignment fee, that would pay for a few years’ worth of all the old advertising. If you really want to be a real estate investor, then you should be prepared to spend some money advertising yourself and your services to prospective sellers in distress.