Real estate investing is the process of building a portfolio of properties that produce passive income.
But to build a portfolio, you need to be able to purchase properties … and to purchase properties you need cash.
So what can someone without a ton of equity who’s just getting started in real estate do to earn the money for a down payment?
This real estate-adjacent technique is a low-risk way to quickly convert hustle and relationships to cold, hard cash. Listen in as we discuss the ins and outs of wholesaling with an industry veteran.
In this episode of The Real Estate Guys™ show you’ll hear from:
- Your wholesome host, Robert Helms
- His wholly absurd co-host, Russell Gray
- Educator and wholesaler Tom Krol
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What is wholesaling?
Wholesalers play an important role in the food chain of real estate.
Let’s start with a definition. A wholesaler is someone who finds properties and gets them under contract … but then finds a buyer to clinch the deal. The wholesaler gets a fee for doing the work of finding low-priced properties and getting them to buyers.
You may notice signs in your neighborhood that say something like, “We buy houses!” Probably a wholesaler.
It can be a brilliant way to go if you’re committed and excel at building relationships.
By building up pipelines of hard-to-find deals and committed buyers, you can make real money … fast.
Why does wholesaling work?
Tom Krol got his start in real estate by wholesaling.
Actually … he got his start in lawn-mowing, but then he got fired. His brother convinced him to try wholesaling, and he has never looked back.
Tom has now done hundreds of transactions. We sat down to chat with him about how YOU can get into the wholesaling business.
Wholesaling is “more like a pawnshop than a real estate business,” Tom says. That’s because your main task is to form relationships with homeowners who want to sell quickly.
When owners are selling, they can choose two out of three criteria … speed, price, and convenience.
Wholesalers are looking for sellers who are willing to give up a high price for a convenient, quick sale. “We’re the ‘this week’ guys,” Tom says.
People sell for different reasons … divorce, bankruptcy, job changes, disrepair. Another type of seller wholesalers look for are absentee landlords looking to get out of a property.
Wholesaling works because if you can find a discounted property, there will always be SOMEONE who has the cash and is willing to pay.
Finding sellers and buyers and valuating properties
“A common stumbling block for wholesalers is valuations,” Tom says. “I always suggest you just use your gut.”
He says most people have a good feel for what homes are worth in their market and what prices are good and bad.
Knowing the local market is helpful. “The best deals are in your backyard,” Tom says.
A good rule of thumb is to shoot for a selling price between 40 to 60 percent of the home’s valuation on Zillow or other property appraisal sites, although that will vary by area.
You get a feel for what will work over time, Tom says … but the key is finding a deal and jumping on it. Ultimately, a wholesaler’s job is to find and seal deals quickly.
Plus, you risk very little by mis-estimating a price for the home. Price a home too low, and you simply get more money. Price it too high, you just don’t get a contract. You’re not putting any money down yourself.
“What’s great about wholesaling is it produces a lot of cash in a short amount of time, and then it provides a pipeline of cherrypicked properties you can choose for your own portfolio,” Tom says.
What about finding buyers? Tom says as long as you can find consistently discounted properties, you’ll always be able to find a buyer.
“The art is just to get really good at finding discounted properties. You can then go into any room and someone will say yes.”
All you need is grit
From wholesaling, it’s very easy to make the transition to traditional real estate investing. Wholesaling allows you to accumulate cash … and find great properties on the way.
“What keeps people out of wholesaling is belief that homeowners don’t sell at a discount,” Tom says.
But that belief is a myth … if you have the tenacity, there will always be owners looking to sell quickly and conveniently.
Tom now teaches other folks how to wholesale. It takes a lot of work, a lot of persistence, grit, and determination to get started, he says.
And while it doesn’t cost a lot to get started, it does cost a bit … you have to spend the money to market yourself properly.
It’s a great business for people who are just getting started in real estate, or those who are already landlords or rehabbers and want to step up their game and find great deals.
And, if you’re starting from nothing, don’t worry. “Rock bottom is the strongest of foundations,” says Tom. You have nowhere to go but up if you really want it.
Tom has created a special report for our listeners on the five big things he wishes he had known when he was starting out in wholesaling. You can access that report here.
Now go out and make some equity happen!
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