If you are not aware of what wholesale real estate is, It is simply buying real estate far below market and then selling it below market to another investor who will do the renovation for resale or keep as a rental. It is the buy very low and sell low model. The wholesale model is one of my favorite parts of real estate investing and is still a major part of my business today. The trap that I am going to talk to you about has put me in a slump twice and I see it numerous times with my coaching clients.
Lets say that you are a wholesaler and you are doing well. You are selling from five to ten houses a month. When you started you built a long buyers list and would call every investor on every deal. After forty or fifty deals you notice that you are mostly selling to five or six investors. It is the same five or six every month. You are happy with this because it makes your business very easy. When you get a new deal you only have to make a couple of calls and its sold. Life is good. Wrong.
The problem with this is that before long you will see this pocket of investors as an indicator of the market and of property values. What will happen is that you will get a deal that makes sense to you and you will present it to your pocket investors. Each one of them will pass on it for one reason or another. Then you will start to second guess whether or not it was really a good deal. You will then either decide to rehab it yourself or walk away from it. You will then be left wondering what went wrong?
This is the problem. These five or six investors are professional investors just like you. They need to buy deep just like you. They are following the market very closely, Just like you. When you slowly stopped talking to rest of the investors on your list and stopped adding new investors because you didn’t need them, You lost touch with what the market will bear. There are plenty of weekend warriors out there who will be thrilled to make an extra ten thousand dollars as opposed to the thirty thousand required by the professionals. They may only do one or two deals a year but the margins will be far greater when you sell to them.
The trap that we get in is we want to please our regular buyers by giving them first shot at our new deals without first understanding that its the other investors that will pay the greater price. Do not however blast it out to an email list because many investors will not want it if everyone else has already seen it and passed on it. What you should do is call all the investors on your list and then when you have exhausted all of your high profit buyers then call on your professional investors. Be sure to read this again next time you are in slump and cannot figure out why.
Scott Jelinek is a Master Investor, Master Marketer, Entrepreneur, Author and Coach. He is the author of The Real Estate Investors Guide to Guerrilla Marketing which can be found at http://www.guerrillarealestatenow.com. You can sign up for his free newsletter at http://www.uglyscott.com
