My twenty-two year old son asked me a question last night. He said, “Dad, if you were just starting out like me and wanted to get into real estate, what would you do?”
What a great question and I really had to think about it before I answered it. What I told him is not original to me. These ideas have been expressed much better by other authors before, but since the essence of creativity is selective borrowing, here is the advice I gave him.
I said the first thing I would do was become an expert in my target market.
– How long will it take? he asked.
Ah, youth – always so fleeting.
“Depends on how much time each week you can spare for it,” I replied, giving him another of the vague answers he was so used to.
Predictably, he groaned.
I went on to explain to him that if he really committed to following my advice, and if he committed to a minimum of 15 hours each week, he should become both competent and confident in about 3 months, which doesn’t seem like that long. The key is to look at tons of houses and ask tons of questions to the right people.
I told him that if I was just starting out, I would also find the right broker to work with. The right realtor will be able to connect you with many opportunities that you cannot find on your own and provide you with a list of foreclosed and vacant properties to view daily.”
“What would you do next?” he asked.
I said I would work on building a buyer list at the same time I studied my market.
“How would you do that?”
“I would find and join my local REIA (Real Estate Investors Association) group and attend every meeting. If my area didn’t have a REIA group, I would create one. This is the place to start finding, meeting and networking with real estate investors in your area. I would also read the newspaper ads for “Buy Houses” or “Buy Property” ads. These people are active buyers and should be added to your buyer list. Your goal is to have as long a list of buyers as possible, at least 50-100 names depending on the size of your area.”
“Why?” he asked me
“I’ll explain that in a minute.” said
He rolled his eyes. Talking to your son is like chatting with a nuclear physicist – every time you try to impress them with your knowledge, they make you feel like they can’t believe how long it took you to reach your childish conclusions.
I continued, determined to give my son the advice he was looking for.
“Then,” I said, “armed with a thorough knowledge of my market area and my list of active buyers, I would start making low offers on every foreclosed and vacant property I looked at.”
“Everyone?” I could see the doubt in his eyes.
“Well, close to any. Any house that your confidence level allows you to make an offer on.” I could see the next question.
“What do you mean?” he asked. So predictable.
“What I mean,” I continued, “is that the market knowledge you gather during your market research will give you a certain level of confidence. The more knowledge you have, the more your confidence will increase. When you first start making offers there will be many properties out there that will seem beyond your skill level, and if they seem that way, they probably are. You just won’t have enough confidence to make offers on these properties.
“However, as your knowledge grows over time, so will your confidence. Then those properties that scared you in the beginning will become less scary. Instead of seeing danger, you will see opportunity. Don’t worry about it because it’s a natural progression. As you take the time to learn the craft, the knowledge will come, as will the confidence. One follows the other, as summer follows spring.”
My son then asked, “But how do you determine how much to offer?”
I proceeded to explain to him my method of determining the exact amount to offer. Check out my article titled “Real Estate Investing – Is There One Magic Rule?”
“Got it,” my son said, nodding his head knowingly. “What next?”
“Okay,” I said. “What happens next is that most of your offers are rejected outright, a few may be rejected, and one in twenty to fifty will be accepted.”
“Is that all?” he asked puzzled.
“That’s all, but that’s okay,” I said. You can’t handle a whole bunch at once at the very beginning anyway. One or two are enough to get you started. What you do after that is very important.”
“What is this?” asked my son.
“Start advertising your fool from the head.” I replied. “You know that list of buyers you made? You call each one of them and tell them about the great deal you have and see who is interested. You put ads in the paper, signs on the property, and signs anywhere in the neighborhood that you can get away with. Create a flyer to hand out at your REIA meeting. Sell, sell, sell is the name of the game. Whatever it takes, find a buyer for this property BEFORE you close and take possession.”
“And what about the title work and all the legal stuff you have to do when you buy a house?” he asked. He’s smarter than I think he is.
“It’s just mechanics and I can teach you the mechanics as you go through each trade. What we’re talking about here is strategy. If you download this strategy, you can learn the mechanics.
“Okay,” he said, “how do I make money?” A very insightful question.
“Simple – the same way you make money from every product you sell. You are selling it for more than you paid for it. For example, let’s say you’re getting a house under contract for $40,000 that you’ve determined in advance to have an after-repair value (ARV) of $97,000 and needs about $12,000 in repairs. If it were me, I’d try to find a buyer in the $48,000 to $53,000 range. That way, your buyer will still have room to make their repairs and make a clean profit, and you’ll walk away with somewhere around $5,000 to $8,000 after taxes and fees.”
“Fees and taxes?” asked my son. A rude awakening.
“Yes, paid to your attorney, the broker, the title company and the government. Of course, you could do a simultaneous closing, and there are other ways to eliminate some or all of these fees, such as making your offers in the LLC’s name and then selling the LLC instead of the property, but again, we’re talking about mechanics, and that’s a topic for another discussion.” (And another article)
“How much would it be reasonable to earn doing this full time?” he asked. Shining light.
“There’s no reason a full-time wholesaler (wholesale is really what we’re talking about here) can’t make $5,000 to $10,000 a month or more. Not at first, of course, but after a few months or a year of consistent effort, the sky’s the limit.”
“Wow,” my son said, “I’ve never thought about it like that before. I’ve never had such a clear understanding of what wholesaling is. I think I can do this.”
I think he could too. For that matter, you can too. What is actually stopping you?
Now make more offers!