50K per month wholesaling............and taking it to the next level!!

[The Investor]

Hello All,
         I have been wholesaling for 9 months in an area where retail values are about 65K-100K. I spend about 4K per month on direct mail. I have studied plenty of courses and am averaging about 6-8K per wholesale fee. I am doing about 2-3 flips per month. While I am doing ok, after taxes, after expenses, my net is really not where I would like it to be. I am not meaning to sound greedy but I hear some of investors doing 5-10 deals per month at 15-25K per deal seems amazing. I believe only half of what I am told because people tend to exaggerate. That being the case, I do believe people are doing it.
         I am a bit frustrated and would like to know if anyone can help me go to that next level. I sometimes think that I need to:

A) get into a market where retail values are in the 125-175K range which would yeild bigger assignment fees,
B) double my marketing campaigns,
C) hire an apprentice/partner to do more volume,
D) add another source of picking up deals (this can be more time consuming and don't know if it would be doable)

Please help everyone...........................I know that I am doing pretty good at this stage of the game but I can see that I need to have a bigger pipeline. If a deal or two falls out, I could be in the red. All your suggestions are welcomed!!

[Rich_in_CT]

Where are you located?  Who are you marketing to?

[The Investor]

Thanks for responding Rich.

I am wholesaling in FL and TX. Marketing to absentee owners only.

[Rich_in_CT]

SFH?  Multi?

[The Investor]

SFH

[Rich_in_CT]

Are you mostly turning them around to retail buyers or to rehabbers?  Have you considered having people in those markets look for vacants?

[propertymanager]

If a deal or two falls out, I could be in the red. All your suggestions are welcomed!!

...and that is the problem with wholesaling.  You must always be hustling if you want to eat.  Additionally, to a large extent, you are at the mercy of the market.  

In my opinion, wholesaling is almost always an entry level strategy.  People start with wholesaling to get some initial cash and then move on to a more traditional business model.  Maybe it's time that you graduate to something more substantial, such as rehabbing or rental properties.  While all businesses have their ups and downs, the rehabbing and rental property businesses are more stable than wholesaling and don't depend on doing such a large volume to stay afloat.

Good Luck,

Mike  

[Rich_in_CT]

Mike makes a good point.  Why not take some of that cash and put it into another stategy?

[The Investor]

Since I just got into to RE investing 9 months ago. This world is all new to me. After seeing all the ways to invest in RE, this is the quickest way to make money with very little hassle as well.

Yes Mike you are right, it is a hustle but everyone that I speak to who rehabs and does sub 2, all want to do what I am doing - wholesale. They tell me that rehabbing is very laborious and is a pain. I am in smaller markets with low retail value. I know of people in bigger markets where there average assignment fee is 20-30K. I may be answering my own question here and that is to go to those markets.

I do have a plan with all this wholesaling:

1) wholesale for fast capital (trying to make as much as possible)
2) along the way buy a few commercial properties to acquire monthly cashflow (ie. multifamily building of 8+ units, small strip malls, etc)
3) keep wholesaling yet living frugal and beating up the mortgages on the commercial pieces I acquire to increase the CASH FLOW.
4) then when my buildings gives me the desired cashflow, it doesn't matter if I wholsale anymore.
5) I am not planning on wholesaling forever but it is the springboard to financial freedom.

Thanks for your input and if you have anything for me, please let me know.

[PaulBroni]

FWIW, I know of several outfits here that are wholesale operations, and they are doing dozens of deals a month. I don't think that rehabs or rentals are necessarily "better" than wholesaling. Actually, if I could make $15K on a wholesale deal vs. $30K on a rehab, I'd probably prefer to wholesale and take less risk, especially if I could more than double my volume.

I'm pretty much a rehabber, and I still find that I am always scrambling to locate my next deal, so hustling each week is still part of the territory for me.

I am getting into rentals right now, though, specifically because the subprime market has fallen apart. All of those people who were going to get 80/20 loans with 550 FICOs to buy their house will now need to rent for a while longer, and I foresee that rents will increase in the next 12-24 months and tenants will be staying longer. Combined with the fact that 20% of the buyers for starter homes have evaporated with the subprime market, there will be pressure on prices at that level.

Hmmm...

1. Strong rental market
2. Weak starter home resale market
3. Low, low interest rates
------------------------------------
Equals: a great time to be a landlord!

Just MHO...

[Roger J]

The first thing that I'd suggest, if not already done, is find a good accountant to limit paying those taxes as much as possible.  I understand that wholesaling doesn't gain all of the tax benefits as holding does, but you need to know EVERYTHING that you can deduct is deducted.

If you're getting $6-8K on $80K average deals, then you're doing GREAT.  Finding more expensive homes, though, won't necessarily bring you more money.

I think that I would also have to reconsider my marketing strategy somewhat.  Maybe others will disagree, but I don't think that you're getting a great return on your $4K a month.  Have you evaluated where your deals are actually coming from?  Could you cut your expenses on direct mail and still have the same number of deals?  If so, that would free up more money for you to try another advertising method or simply keep more in your pocket.

Finally, and you yourself touched on this point, the real problem with wholesaling (or rehabbing/retailing for that matter) is that as long as it's YOU doing it, it's a J-O-B.  That's right, a job.  If you don't go to work everyday and do deals, you don't get paid.  Essentially, you're still trading your time for money.  Yes, it's alot more than $10/hour, but it's still a trade.  If you were to get sick/hurt, your income would cease.

Most people who I know that actually do 8-10 deals or more a month have made their job into a business.  They have hired and trained other people to find, and wholesale, their properties for them.  At that point, they can focus on actually running a business rather than how to make the next deal work.  It sounds like that you may be at that point, if you wish to continue to wholesale.

Raj

[ericmedem]

Im not making 50k a month yet but Im doing OK. If I were in your shoes I would diversify my strategies a bit, I am doing a decent amount of flips (Ive closed 7 in 2007 for around 130k), I am not doing alot of wholesaling because I have found that my profits are much larger if I rehab myself.

I dont pick up a hammer, but I do have 6 full time guys working on my rehabs, and once you get your systems down decent you can accomplish alot in a very small amount of time 5-7 hours a week.  Depending on the amount of deals available in your market adding a few flips might not be a bad way to go. Our market in Michigan is one of the worst in the nation and I am still doing decent. If your avg wholesale commission is 7 k then you need to do 7 deals a month, which is very feasable if your market will bear it.  But you only need to do 2-3 flips a month to surpass 50k.  It would have been next to impossible in our market to make that flipping when things were "good" because the competition drives price up.

Also instead of hiring an an assistant or partner you could hire people to do EVERYTHING that you dont enjoy doing, so that you can focus solely on real estate investing.  This strategy has worked phenomenal for me.  I only do what I am good at finding deals, finding buyers and selliing. Nowdays I dont do anything that I dont want to, I can pay people to do everything.

As far as doubling your marketing, i am guessing that the law of diminishing returns will kick in eventually, I have never sent out a postcard, or anything for that matter.  I have people call me with deals solely from networking. So if your doing so well with mail, and I am doing OK with networking, then if you combined the 2 I bet you would do awesome. (though I'd say your doing great)

As far as wholesaling being a job, I would agree that it is a job if you dont love what your doing. Anything that you have to do, that you dont enjoy is a job.   Life and marriage can be a job if you dont enjoy it even though they may not pay.  I have tried to make wholesaling and selling real estate more enjoyable by getting fun things to drive, I know it sounds lame but you spend alot of time in the car as an investor or realtor.  I bought a convertible vette, and harley for the summer, and a lexus for the winter beater.  There has never been a single summer day driving around with my top down, doing what I love, that I have said "I hope I dont have to do this again tommorow" . 

Theres a saying "You are EXACTLY where you want to be".  Many would deny that they would want to be poor, overweight, broke or unemployed, but guess who got them there, yep that person in the mirror.  Your circumstances don't define you, but they do show exactly who you have chosen to be.

I think what Roger was refering to was a business, a good business should be duplicateable and function with or without you.  It would be difficult to wholesale homes without participating but there are ways to make it very easy.  Focus on a strong buyers list, once your good buyers list is in place you essentially become a property match maker.  Build a huge networks of contacts that know that your the "Go To" guy for buying real estate or at least you know people who can buy.

Because of networking I dont need to send mailers, or even many offers. Realtors and investors call me when they see a good deal coming.  I can either buy them myself for rehab, or wholesale, or sell them to other investors as an agent.

I would like to ad more but the babies waking up.

Eric Medemar

[njss]

Mike is right, only use wholesaling (active earned income) as a way to prime the pump but not as sole income.  use that dough to increase marketing and pwer-investing into other areas like lease-options, rentals (passive income).  you do less work, the money does the work.  Add in some tax liens and all together its called "the circle of wealth"

[mcintoshcopywriter]

i agree with the poster who said 4K on direct mail is a lot of money for your returns. my background is working in the ad agency biz. Granted the industry says 1% return on direct mail is good. I'm not a math whiz, but I am a communications expert. keep those direct mail pieces simple in terms of the message.

Make sure it's designed to give you credibility...as I'm sure you know, your audience probably has seen all kinds of direct mail junk. You want them to see yours and immediately have a connection of trust. So much of the crap I see in the 'We buy houses" genre just screams scam (even if it's on the up and up) or "I"m here to rob you blind"....typography, color choices, it all makes an impression in a split second. And that's all you got. Who does your design / marketing? Do they really know what they're doing? Marketing is a business just like real estate. There are people who know what they're doing and those who don't. 

Good luck.

[REI NOOBSTER]

4K on direct mail? What are you maling 8,000 letters a month?