How much is enough for Wholesaling?

One of the most often thought of, but maybe not asked questions is, how much capital is enough to invest in Fix & Flips, Buy & Holds, and Wholesaling? This article we will try and answer that question. Lets start off first with analyzing some of the most basic numbers and then we can dive into some of the specifics.

Building a Network = $ —> $$ … Wholesaling has to be the easiest (financially speaking) entry door into the world of real estate investing. There are those who came out the gate running with a multi family apartment take down, a commercial strip reposition or a SFR fix and flip that netted them BIG dollars, however those are the exceptions not the rule. Many times and in many scenarios you will need capital to make money. Of the three most common investment methods, Fix&Flip, Buy&Hold and Wholesale, wholesaling requires the least amount of upfront capital, and really it boils down to how much effort you put into the task at hand. Wholesaling is primarily about building a network of real estate rehabbers, or long term investors and then sourcing the deals that fit within their parameters. You may have a rehabber that only wants 2 bedroom and 1 bath properties in specific parts of town. You may have a buy & Hold investor that is interested in properties specific to locations in their city for short term rentals. You may have a construction investor who is only looking for raw lad. Whatever the case you must be consistent and good at building an investor network. The costs of building a network are minimal, may be between $10 a month up to $100’s dollars a month. You may find you can do this without spending any money, but this should be part of your marketing budget. Finding high quality real estate investors who actually have cash or access to cash can easily and quickly be done by attending a local real estate investors meeting. These many times have some type of membership requirements but it is usually pretty affordable. Another way to be introduced to real estate investors is contact professionals who deal with them. These professionals could be Title companies, Realtors, and general contractors.

Marketing = $$ —> $$$ … When we say marketing for wholesalers we are primarily looking at print material, and digital material. This can include yellow post cards, bandit signs, newspaper ads, purchasing attendance tickets to industry trade shows, and on and on. The largest expense will be marketing but marketing for who? When we say marketing for wholesalers we are speaking specifically to the home owner, who needs to get out of their property because the asset or they are in a distressed situation. Commonly referred to in the investment world as the “4-D’s”, Death, Debt, Divorce, or Disaster. Finding these home owners and offering solutions to their problem will set you apart form the rest of the wholesalers in your market seeking the same deals. The costs for marketing to these two types of home owners can be a few hundred a month up to tens of thousands of dollars. The level of success and frequency that you would like to wholesale properties will eb directly related to your ability to market for these homeowners.

Operations = $ … Operating a wholesale business outside of marketing and networking is fairly small. You will want a legal entity to provide some asset protection, and tax advantages. You may or may not want to have an official company website and an official email. It really depends on how you are wanting to market yourself. A professional who delivers on what they say, you may want to look into getting a business email and website. A local raised investor who is down to earth and can related, may just a gmail or yahoo email account. We have seen it work many different ways for different people. It all boils down to what fits your personality and your strengths and weaknesses. Besides the entity, website, and email setup, you can use a google drive (free) to store pertinent property files, or you can go with a paid subscription service such as Dropbox, Box or other platform. Another aspect of operations is how to quickly determine property values. This is actually the primary concern and the biggest point of grief for newer wholesalers. Determining property values accurately can earn you a lot of profit, but done incorrectly can cost you money, lost deals, or even worse a bad reputation. So know your property values and negotiate accordingly! Here are some key metrics to stick to…
MAO = Maximum Allowable Offer. This is the absolute most that you would want to offer on a property;
As-Is Value = The value of the property in its current condition;
Construction/ Rehab cost = The amount that it will take to repair the property to get it at maximum market value;
Closing costs = These are the “costs” associated to wholesaling a property. many times these costs can be worked into the sale to your end buyer, but you will still want to know them;
Assessed Value = This is different than appraised value. Assed value is what the tax records say the taxable value on the property is. many times this amount will be less than even the As-Is value. know when and how to use this number;
Initial Offer = What the initial offer on the property should be. We have seen recommendations for 5 - 15% BELOW your maximum allowable offer to allow upwards negotiation with the property owner. This allows you to “give” them more that what you originally had offered and they feel its a win-win because they were able to negotiate a higher sale price;
With all these costs in mind you should be able to roughly determine your initial and ongoing costs for real estate investing as a wholesaler. Your initial will be just as much as your monthly ongoing and in reality your monthly ongoing should increase as you make more wholesales. We would recommend a starting monthly budget of between $250 - $1,000 with a quarterly budget of approximately $750 - $3,000. The more the better simply for the marketing aspect which will be your bread and butter. If you join a local real estate club and a few networking events, you may spend a monthly budget of $100. Add in badit signs at a min. you will easily spend another $150. If you are trying to generate more targeted marketing and purchase monthly mailers, newspaper ads, and digital ads you can easily spend upwards of $750+. The amount of success all depends on your ability to work harder than anyone else, as well as bring some capital to the table, even a little bit.

If you would like to know how Blue Bay Capital can help facilitate your actual purchase of the properties you plan on wholesaling and the different strategies involved please reach out below and lets have a conversation. We can help you scale your wholesaling business quickly and efficiently so that you can focus on the things that make you money!