Updated: Feb 28, 2021
Have you set any wholesaling goals for the year? All real estate investors (really, everyone actually) should have big goals. And once you have goals, you need to figure out the steps to meet those goals.
But have you ever thought about what you should avoid doing in order to meet your goals?
I want to see you succeed. So I’ve put together 7 mistakes you should avoid as a wholesaler. If you can steer clear of these things, you’ll be well on your way to exceeding even your own expectations.
1. CONTRACTING THE PROPERTY AT TOO HIGH A PRICE
One of the most common mistakes I see new investors making is messing up on the numbers. The best thing you can do to avoid that is practice your numbers like crazy. There are two common numbers mistakes—the first is putting a wholesale property under contract at too high a price.
Everyone wants a deal. So if you’re asking too much for your wholesale property and it’s not a deal for a real estate investor, no investor is going to want it.
How do you make sure you’re offering a deal (for your area)? Find out what investors are paying.
In my area, investors are paying 65–70% of ARV (including their repair costs). That means my purchase price usually needs to be about 50% of ARV.
Let’s look at an example:
My Contract Price (50% of ARV): $100,000
My Profit: +$10,000
Investor Pays Me: $110,000
Investor’s Repairs Costs: +$30,000
Investor’s Final Cost: $140,000
That’s 70% of ARV, which is a deal most investors would do all day long. But what if you got a contract for the property for $120,000 and offered it to a real estate investor for $130,000?
My Contract Price (50% of ARV): $120,000
My Profit: +$10,000
Investor Pays Me: $130,000
Investor’s Repairs Costs: +$30,000
Investor’s Final Cost: $160,000
Of course, my profit still looks good, but now the real estate investor is looking at a deal where they are paying 80% of ARV. Plus we haven’t factored in closing costs and other expenses. After taking out those costs, they’re probably only going to make $10,000–$15,000. For an investor, that’s not a good-looking deal.
So practice your numbers. Get to know how to offer deals any investor would be crazy to pass up.
2. THINKING THE PROPERTY IS WORTH MORE THAN IT ACTUALLY IS
The second number mistake is coming up with an ARV that’s too high. Many new investors just haven’t mastered the process of running comps—and that’s so key to coming up with accurate numbers.
Your best friend for finding comps is the MLS. As you start wholesaling, it’s a great idea to have an inside track to the MLS. Maybe that’s where you’ve got a good friend or a family member who’s a realtor and can run comps for you.
Seriously, I know there are tools out there that get you a ballpark number, but you should rely on those when you can pair them with some experience. They’re ballpark numbers for a reason.
You can also become a realtor assistant to get MLS access or hire a realtor to show you how they go about figuring out what a property should sell for. Seriously, hire them—as in paying them for their time. These are great friends to have and keep happy.
You might also be able to work out an arrangement with a real estate investor who’s also a licensed realtor. You could give them the first shot at your wholesale deals. If you can find a person like this, pick their brain to learn how they run numbers—find out what specific things you need to know about your area.
Don’t go it alone.
3. WASTING TIME ON THINGS THAT DON’T MATTER
This is a universal truth—you shouldn’t be wasting time on anything that doesn’t make you money.
As a wholesaler, don’t go out on every appointment and look at every property. Of course, in the beginning, this might be a little tricky. But as you learn your numbers, you should be able to quickly figure out over the phone whether you and the seller are in the same ballpark price range (within $30,000 at the most). If you’re not, don’t waste your time going to see the property—it’s not likely to work out.
And don’t waste time in your marketing efforts. Don’t spend days making the perfect logo or wait until your business cards come in to do anything else. And definitely don’t waste time posting on social media… get out there and start looking for deals.
Deals are the lifeblood of your business. Find the deals. Meet with the motivated sellers. And you’ll be running a thriving business in no time.
4. ADVERTISING A PROPERTY YOU DON’T HAVE UNDER CONTRACT
One mistake I often see on social media is a wholesaler advertising a property they don’t actually have under contract. It’s not just a mistake—it’s illegal.
Don’t do it.
5. FORGETTING THE DISCLAIMERS
Related to #4, some states require that you advertise your contract, not the property you have a contract on. In other words, if you don’t own the property, you can’t advertise it for sale. Ohio is at the top of the list for its policy on this.
It’s not that you can’t advertise. You just have to disclose that you’re not the owner of the property, but you have the property under contract and you’re selling your interest in the contract.
Bottom line: disclose, disclose, disclose.
Don’t forget to disclose to the seller too. If you do that, you’ll save yourself any potential misunderstandings. In some states, title companies actually require the seller to sign off on the assigned contract.
Make sure you know what the rules are for your area. Talk to other investors, and if you have other questions, check with a real estate attorney.
6. GIVING YOUR EARNEST MONEY DIRECTLY TO THE SELLER
If you give your earnest money directly to the seller and then need to cancel your contract, you’ll never get your money back. If you instead give the earnest money to the title company and then need to cancel, you’re more likely to get your money back.
I don’t even ask the real estate investor who’s buying the property from me to write me a check directly. It’s good practice to do everything through the title company.
And even if you do go through the title company, there’s no guarantee you’ll get your money back if you cancel the contract. I had one situation where I had met with the seller and looked over the property with him. I put up $500 earnest money. Then I went back to the property with a business partner, and when we went into the crawlspace we discovered that part of the property was sitting on a wood foundation.
I knew that was going to be a huge repair cost, and I had put the property under contract for too much money. I went back to the seller and told him what happened, and I explained that our contract said the offer was contingent on inspection. I was also within the seven days the contract gave me to cancel.
But the seller argued with me. He got a little crazy and just kept insisting that he didn’t owe me the earnest money. He tried to blackmail me by threatening to badmouth my company online.
In the end, it wasn’t worth arguing with him to get the $500 back.
7. NOT VERIFYING A BUYER’S FUNDING SOURCE
Don’t forget to verify that your buyer has legit funds to close on a property. If you don’t, you could sign a contract with the buyer and then watch the deal fall through because the buyer didn’t actually have the money.
Your potential buyer might be trying to wholesale the property to someone else. They might be requesting a hard money loan but not actually get approved.
The best practice is not to sign a contract until you get proof of funds. Just require proof before signing, and then make sure you call and talk with the bank or funding source to make sure it’s legit before you sign.
8. LACK OF FUNDS
I have to bring this up first because A LOT and I mean a lot) of people that are just getting into the real estate business have a grand illusion that they can run their businesses without any money. This is so far from the truth that it’s not even funny.
Even if you’re doing everything YOURSELF, it costs money to be in business. Sure, there are methods that you can use to generate seller leads for free, but that isn’t sustainable and it certainly isn’t a business model. Automating your real estate business means utilizing software, technology, and OTHER PEOPLE to get things done for you. This means that it’s going to cost you money.
In addition to a marketing budget, you’ll also need an operating account that can afford to pay your team to take you to a place of automation. I’ve squeezed these expenses down to a MINIMUM, and continue to keep my expenses low. You can do the same thing. It’s not EXPENSIVE, per se, but it doesn’t have fees attached to it.
However, with a team and an automated business, you’re able to SCALE your business and do more than ever before. Your time can now be spent working ON your business instead of IN your business. Read this article about scaling your real estate business
9. LACK OF KNOWLEDGE
There’s a lot to learn when it comes to mastering a niche in the real estate niche. They say that it takes 5000 hours of working on something before you become an expert. That means if you work on your real estate business for 40 hours per week, it would take 2.5 years before you should even think about calling yourself an expert.
Now let’s add in a new element, which is automating the real estate business with a real estate investor's CRM. It’s an entirely new project to embrace. I’m not saying that you can’t come into the real estate space and automate your business right out of the gate. What I AM saying is that you should have some knowledge about closing deals, and have several (5-10) closed transactions under your belt before you think about automating.
It’s hard to automate something that either you don’t understand or that you’ve never done yourself. There are many real estate systems and processes that you need to have a lot of experience in. So if you’re new to the business AND want to get the real estate automation underway as soon as possible, just be prepared for some speed bumps. You can get over them, but be ready for the challenge of some real estate automation mistakes.
10. EXPECTATIONS SET TOO HIGH
Being in the coaching/mentor space that I’m in, I help a lot of real estate investors get their business off the ground, AND I help them automate their business with our CRM for real estate investors. I have initial consultations with all of them so that we can set some realistic expectations about their business.
This may be the most frustrating part for me, is that people have their expectations set too high. What I mean by that, is that they think that they can have everything up and running like a well-oiled machine in just a couple of weeks. This isn’t the case!
So what can you expect when it comes to automating your real estate business? You can certainly have all of the components in place, and the framework completed within 30 days. Then, it will take months of implementation, execution, and practice before you can go to sleep at night. Then your business and real estate flipping software are going to thrive without you