Today’s REI Classroom Lesson
Jacci Konkle elaborates on why she prefers wholesaling to landlords and how it affects your repair cost.
REI Classroom Summary
Jacci also comments on how joining local REIAs can help you network and talk with landlords to get their cap rate.
Listen to this REI Classroom Lesson
Real Estate Investing Classroom Show Transcripts:
Mike: Welcome back to the FlipNerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. Now, let’s meet today’s expert host.
Jacci: Hi. I’m Jacci Konkle from Freedom, Wisconsin and I’m the owner and founder of the Appleton REIA, otherwise known as the Real Estate Investors Association in my area, and today I’m going to talk about how to get top dollar for your wholesales as the host of the REI Classroom.
Mike: This REI Classroom real estate lesson is sponsored by VirtualStaffNow.com.
Jacci: So as we look at wholesaling, a lot of people have the idea that you can’t make a lot of money and I know in my initial training, and I won’t name the company that we went through for some training in the beginning, they said that we couldn’t make more than $3,000 in a wholesale.
So my very first wholesale, I was able to have an offer and make $10,000. But because I had that in the back of my mind that I could only make $3,000 and that people would be mad if you were making too much when you wholesale, I actually went back to my buyer because I knew I was just signing it and he was going to see how much I was making, and I felt so guilty making $10,000, I lowered his price to me and only made $8,000.
After that I just thought how crazy is that? I should be able to make whatever I make because he’s a big boy and he made the offer to me of what would be a good price for him to buy it and it just happened to be $10,000 more than I had it under contract for it.
So ever since then, I’ve thrown that out the window and I’ve come up with even more ideas of how to make more money on your wholesales. And just last week, actually two weeks ago, I bought a property for $20,000 and one hour later, I sold it for $45,000. So I made $25,000 in a wholesale and literally all the work that I did is I went to the house and turned the key and let him in.
And so all you have to do is realize that people will make you an offer that works for them and if it’s good, it’s good. If you’re on the other end and your buying wholesales, let me tell you, do not get mad at that wholesaler. Make that wholesaler your best friend, even if they’re making twice as much as you’re making because your number works for you. Who cares what they make?
I made $16,000 wholesaling a property that I bought from a wholesaler who made $30,000 wholesaling it to me. I sold it to a rehabber who made $21,000 rehabbing it. We all won. Did I care that the wholesaler made $30,000 off of me? Not at all.
So here’s the trick. One of the ways that we found to make the most money on a wholesale is to sell to a landlord. And now you might have thought of that already but if you didn’t, you need to make more contacts and build your buyers list with landlords. A lot of landlords today are buying single family properties, which I know as a wholesaler, is probably the most of what you’re picking up.
I know I am, and they’re buying single family properties, number one because the renters take better care of it because it feels more like their home than an apartment does, or even a duplex, but also their endgame, their exit strategy. Maybe it’s only five years down the road and they’re waiting for our market to completely recover and home prices to soar, and they’re looking that they would be able to sell that to an owner occupant versus just selling it to another landlord down the road.
So number one, the top of this game is to know what their cap rate is. So go and visit or join your local REIA, mix and mingle. I know in my area, we have a REIA and then we also have an apartment association. Our REIA has more wholesalers and rehabbers. We do have landlords. There’s actually an apartment association. Wherever you are around the country, sometimes there are more landlords in your REIA. But get out in network, meet them. Find out what they’re looking for, for their cap rate. If you don’t know how to work a cap rate, YouTube it. Figure it out. It’s not that hard. It’s a little bit of math.
And once you know what their cap rate is, you can figure it out based on what the rents would be for that property that you’ve under contract. Keeping in mind that the rehab is a lot less when you’re rehabbing it to rent and some of them are rent-ready, versus selling it to a rehabber who has to get it ready for market and have it in tip-top shape, to sell it to an owner occupant as a flip.
So if you need help figuring out what the rents are in your area, I’m going to give you a website and that would be rentometer, like RENT-O-METER, rentometer.com. You can go there. You can put in the address and it will show you different rents for properties right around the property that you have. I know Zillow also has the rent Zestimate or whatever they call it. There are all kinds of different ways to find the rent.
Also just knowing your market. After you do this a few times you’d be able to walk into a house and say that will rent for x amount. And then having your buyers list with landlords, being able to push that property out to all of them right away, get them to come, make you offers, do an open house for like three to four hours. I know it sounds like a lot but you only have to do it once, get everybody to come.
They see everybody else is there. They’re bidding against each other. It’s the best way to get the top price. And if it doesn’t give you enough and you didn’t buy it yet, you could go back and renegotiate that price to make sure you’re making what you need to make or that you’re making anything if your offer was too low and these landlords or other investors are offering and it’s just not quite making where you need it to be.
So those are a couple of ideas. If there’s also an opportunity for you to talk with the seller and be able to have them hold back a note, that gets a really big response when you’re marketing to landlords because they have to have that 30% down if they’re financing it. Obviously, we like cash buyers better. But a lot of these landlords are just building big portfolios. They have to have that 30% down. If your seller is willing to hold back a note, that’s just going to win you extra points and you’ll be able to fly those right out.
So remember it’s all about cap rate. You need to know what those rents are. You need to do a little bit of different number sheet on what the repairs would be because as a rental, it doesn’t need as many updates and repairs as it does if you’re flipping it to an owner occupant. It doesn’t need to be quite as pretty.
So go ahead, get out there and do this and you’ll make a whole lot more money on your wholesales, and I guarantee you’re going to be hungry to do more deals.
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