How to Find Buyers for Your Wholesale Deals
by Vena Jones-Cox
Question:
This summer, I put a "junker" property under contract for $7,000. It had an after repair value of $45,000 and needed about $12,000 in work.
This seemed like a classic wholesale deal, but I could not find a buyer at $10,000 before my inspection period expired. I chickened-out and exercised a contingency to get out of the contract.
I'm very sure of my numbers, and I'm sure this would have been a great deal for someone at $10,000. That lost profit has been haunting me for months. What can I do next time?
Answer:
As I see it, you have two separate problems here:
· You don't have the resources to find a buyer quickly.
· You don't have any strategies for buying or controlling your great deal if you don't find a buyer right away.
Let's look at these problems one at a time:
Four reasons you can't find a buyer
If you offer a deal to a buyer to purchase and rehab a property for less than 50% of the value of the property, and you can't quickly find a buyer for that property, one of four things is happening:
The first is that the property is located in an area so bad that buyers don't want to deal with it.
If other buildings in the area are mostly boarded up, or the area is extremely unsafe or has a reputation for drug and gang activity, finding a buyer can be difficult even when the numbers work on paper.
The second possibility is that your estimates of the value or cost of repairs are badly wrong, and the deal is not as good as you think. You may have overlooked an incurable defect in the property itself that makes it significantly less valuable than your comparable properties.
Examples of this kind of defect might include a house sandwiched between industrial properties, a terrible floor plan, or it's the only concrete-block bungalow in a neighborhood of brick Tudors.
Fortunately, these mistakes don't usually hurt you in the long run because your potential buyers will quickly enlighten you as to the reality of the situation.
You then have the opportunity to enlighten the seller and renegotiate or get out of the contract through your inspection or partner approval clauses.
The third possibility is that you did not leave enough time in your inspection period to locate a buyer, allow him time to inspect the property, and make his decision. If you're working with the right kinds of buyers--that is, experienced investors and rehabbers with cash--it's not a particularly lengthy process. Still, a minimum of 10 to 15 days is a must.
The final and most likely possibility is that you have neglected the very important task of creating and maintaining a good buyer's list.
Build your list of potential buyers, a professional wholesaler does NOT depend on finding a buyer to make a profit on a particular property. Instead, he works hard to identify potential buyers before he's ever found a property to sell to them.
By networking with investors and rehabbers, learn who are cash buyers, which areas and types of properties they're looking for, their exit strategies, their requirements and pet peeves, and how fast they can close.
Gather this information and keep it where you can get to it when you need it--that is, when you have a deal to sell them. By having a list of potential buyers, and knowing it well, you'll probably know to whom you will sell the property before you even get it under contract.
At that point, it's simply a matter of calling the right people until you get the answer you want. Occasionally, you will have a great deal but no buyer despite your best efforts.
If you have the knowledge and resources to get these properties purchased or to get your closing date delayed, you can still make these deals fly.
Controlling your deal if you can't find a buyer right away
You might use a partner or private lender who can come up with the cash to close very quickly. Once you own or control the property, your exit strategies are no longer limited to a quick flip--you could retail the property or offer it for sale with owner financing.
Another strategy might be to negotiate short-term seller financing or a "split funds" deal where you pay part of the purchase price now and part in 90 days. In wholesaling, as with all of the real estate investing, knowledge is the key to profits.
About the author...
Reprinted from The Real Deal Newsletter with permission of Vena Jones-Cox. For a free 3 month trial subscription, call 800-230-3576 x 856 24 hours/day, or log on to www.therealestategoddess.com.
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