Wholesale in real estate, can certainly be a lucrative short-term real estate investment strategy for many. But beware the pitfalls that have taken down some investors – usually ones newer to the game. Avoiding four of the most costly mistakes can help you avoid becoming one of those mentioned above.
Error Number 1: Not Having a Grasp on Your Market
Purchasing the wrong house could sink you; not only that, but even buying the right house but in the wrong neighborhood might prevent you from being able to sell to a buyer. And if you can’t sell to an investor buyer, you are going to lose some or a lot of profits having to sell in the retail market. It is important to note that oftentimes, your most dependable buyer will be a rental property investor. Be aware of the neighborhoods that benefit them and that help build or maintain a strong rental market.
Blunder Number 2: Not Knowing Your Buyers
It should go without saying that in order to understand your buyer, you need to recognize their preferred neighborhoods, plus style and type of homes the investor buyer desires. How do you get this information? Build relationships with buyers and simply ask for it. Find out the size and features of rental homes your rental property buyer favor, and what neighborhoods they would like those houses to be in. Keep this information stored, updated and easily accessible so that you know what kind of properties you should be looking for.
Fault Number 3: Complacent in Your Buyer(s)
You’re doing great. You got off to a hot start. You’ve built a great buyer database; you’ve been asking all the right questions, so that you’re pursuing the best homes your buyers will want to purchase from you.
You may know where this is heading. Your first five or six deals go exceptionally well; you’re finding your rhythm. Activity is rising; the number of deals going on at the same time is up. It could be weeks, months or more, but one day after you buy up some houses, that frequent buyer tells you she’s no longer interested in that neighborhood. She’s now been attracted to a different area and a different price point. As mentioned in mistake number 2, always be updating your database. Keep in touch with your buyers, so you’re not assuming their needs.
Mistake Number 4: Too Comfortable With the Same Contractor
Unless you have a partnership with a specific contractor, you should generally keep your options open. Like with your buyers, build up a list of contractors and develop relationships with them to have them as backups to your current, favorite contractors. Even if you do your own general contracting, you may need to hire a subcontractor from time to time, and it would be in your best interest to have a few alternatives.
You may love the work John Doe and his crew does for you now, but if he has to replace a few members, or if he changes subcontractors, the quality of work or speed of completion could suffer; any of these could damage a relationship with a buyer. Don’t limit yourself to just one contractor.
Although there are other mistakes to avoid, avoiding these five can be a tremendous help to keep your business successful and bank account happy.