Episode #11 – Finding Your Niche Wholesaling Houses
Welcome to EarlToms podcast. Today I want to continue with a little bit of this Coronavirus but really give you an idea of how you could come out of this more successful than before the virus. Right now, what you’re spending and what you’re making is kind of amplified compared to typical markets and typical circumstances. It’s not necessarily a bad market right now but we have a lot of people with panic and uncertainty about what’s coming. We want to kind of focus in on helping you right now. Not necessarily for today, but for the long term.
When I originally got into real estate, what I was told is, even though I wanted to do commercial, I was always told that was not a good idea because everything with commercial is different. Unless I got the foundation of the principles involved in real estate I wasn’t going to be successful at all. If I started out in commercial I would always have questions. I wouldn’t be able to lay the foundation of understanding real estate if I went with commercial instead of residential. Everyone that mentored me said you need to start with residential, understand the reasons people do things,their motivations. Once you get that foundation, then you can move on to appraise commercial. That made a lot of sense to me. I didn’t like it because I didn’t make it as much money. In the long run, it benefited me because I was able to get that foundation that allowed me to be successful with residential and then be able to move on to commercial. Now if anyone asks me a question about a house or an office or something like that, typically I have the answer, or I know where to go find it. Whether it be what you wanted this house sell for or what do you think this office would lease for every month? What do you think the cap rate on it is? I know that now because I got the foundation in real estate that allowed me to grow and expand my knowledge of this business. What I want to talk about right now is doing pretty much the same thing with your wholesaling business.
Right now, you have an opportunity to really centralize your operation. I watch these different Facebook groups and YouTube videos. You have 1,000 people telling you 1,000 different ways of how to get a deal, what to do, what markets you should work in, should you only work in your markets, or virtual wholesale. Should you work tax deeds, occupied properties, traditional flips, section eight rentals, etc. There’s a plethora of things out there that you could that you could do to make money, but it goes back to what I was just saying. This is for getting your foundation to understand the reasons why your sellers act a certain way and why your buyers act a certain way. What we want to do is take the approach of maximizing your time, your effort, and your money. Instead of waking up one day and saying, I have a lot to do and then you come to the end of the day and you didn’t really get that much accomplished. You’re spinning your wheels trying to meet all of these needs from everybody instead of centralizing your operations and really finding your niche in this business. Your niche in this business is the most profitable that you will ever have. When you work all these different avenues, how you can make money? You’re not going to get a lot accomplished. You’re going to spend more money than you’re going to make because you’re not going to find that niche that you specialize in. It’s just not going to be beneficial to you in the long term. With this virus, what I’m actually recommending is for everyone to bootstrap their business. Take this time right now when everyone is nervous and doesn’t know what the future is going to hold, and figure out your niche. Whether that’s talking to other investors in the area, talking to your sellers, going to these investor meet ups if you’re able to have them in your market right now. Searching on Zillow, realtor.com, wherever you want to research your market to figure out where the open area is that no one really pays attention to? There’s an opportunity to make money in that area because what you can do is create a market. A lot of people go out and they think, this tax deed is $10,000, or this vacant house I’ve got a buyer for. If you’re constantly marketing to different property types and situations, you’re never going to have stability to know, this is what I do. This is what I’m good at. This is what makes me the most money. In a lot of ways, it helps you get more control over your business because you’re able to analyze a lot better. I had some of these companies that send out postcards for you and say, we’ve got all these people that we analyze by who’s responding. We take the people out that aren’t responding. They don’t care whether you’re trying to centralize your business because the more you can send out, the more money all these people are making, the more you stay confused, the more all these people will make off you. That’s the goal of all of these companies is to make money off of you instead of you making money off of them. Whenever you’re going to a market, if you’re already in it, you need to look for that door that’s open that no one is really paying attention to and focus on it. You create that market for your business. You don’t have to be an expert at everything. You only have to be an expert at one thing to make money. So go in these markets and whether it be vacant in a certain zip code, you’re going to wind up seeing your marketing dollars greatly reduce. If you’re spending $5,000 a month, but you’re only making $10,000 then you go with your niche in that market. Whatever you choose it to be your marketing dollars may go down to, say $2,000 but now you’re making $15,000 to $20,000 a month. That’s the goal of every business. Your goal is to spend the least amount of money that you can to make the most money.
One thing that I do is I get to know my buyers. That makes it so much easier for me to market because I’m not marketing for myself. I’m marketing specifically for my buyers. It’s the same thing as when I was appraising. A lot of people will say, this lender wants this value. This homeowner wants this value on their appraisal. I never did an appraisal in my entire career for anyone other than the underwriter because the underwriter had the final say on everything. When you have different lenders that require different things, you needed to be focused on what that underwriter is going to approve and what they were going to decline. If you couldn’t figure that out then you didn’t keep that business. You didn’t worry about making your lenders happy. You had to make the underwriter happy because if the underwriter was happy, now the lender, and the homeowner were happy because they got the loan. You find the root of the reason that everyone is going to be happy. Like I said, what I do is market specifically for my buyer’s criteria. I’ll send out the postcards. I’ll do the SEO. Sometimes I do Facebook ads, Google AdWords, or social media. There are thousands of avenues that can bring you leads networking with other investors. You become the expert in that niche so that any time another wholesaler, another investor has a property that fits your niche, you’re going to be the first person that they think of to be able to move that deal. When you’re looking at your marketing aspect of it, you have to say, five buyers, two buyers that you know are regular buyers that you’re going to be able to treat as your bread and butter buyers. That’s going to keep it stable every month for you. That’s why you don’t focus on buyers that show up once a month, once every three months. Don’t focus on them because they’re not going to keep your doors open.
Let’s have an example. Let’s say that you have a buyer that buys vacant houses because they’re going to turn around and rent between $50,000 and $100,000 on the purchase price, not necessarily including renovation, but they like to have a gross rent income, the yield of the return of 15%. You have to go through and figure out what’s that going to rent for. What that’s going to rent for is going to determine what you need to offer on that on that property. You’re going to have to make the offer then sell it to them. They’re going to have to do the renovation on top of that, and then they’re going to have to actually get the rent amount that you think it should rent for. Let’s say that you’ve got a house that you could get under contract for $50,000 that you think will rent for $1,500 but it needs $30,000 in renovation. Well, if you’re looking for a buyer, that wants a 10% return for easy numbers, the 1% rule. If you can get this house under contract for $50,000, they need 30,000 in renovation, that puts you in $80,000. You know their value because it’s going to rent for $1,500 is going to be $150,000. You can sell it to them for $70,000 or $90,000 because you’re still giving them a discount based on their 10% return buying criteria. If you sell it to them for $70,000 they’ve got $30,000 with the renovation to put in it, that puts them in at $100,000. That’s more than their 10% return. A lot of people call that the cap rate. It’s not actually a cap rate. It’s a return. You’re still providing business for them. If you look at it, I’m going to get a steak dinner this time. I’m going to sell it to them for $100,000. If you do that, that’s fine. I’m not telling you not to do it but at the same time selling something like that, you’re still making $20,000. If you can get it under contract for $50,000 and sell it for $70,000, $20,000 is a good payday. It paid your bills. To get greedy on it, that’s completely your call. Sometimes I do it. Sometimes I don’t. You need to make sure that you’re consistent. Regular buyers are given better deals because it will keep them coming back to you. They appreciate it. You’re not necessarily doing them a favor. A lot of ways you’re doing yourself a favor because you’re keeping the ball rolling with them and providing them the deals.
What I would tell everyone to do because it’s going to wind up being a little bit more cost effective is let’s take your website, for example. You have, sell your house fast, we buy houses on there as keywords. All those things on your website, whether you’re using a website that you created on your own or investorcarrot, some other other provider, maybe leadpropeller. I’m not telling you what to use, but it’s fine to have all those keywords in there. But let’s say that you have a seller that their parents have passed away and now they’ve got an estate. You’ve got someone going on Google right now that says, who buys houses in an estate? Most of these websites don’t address that. They’re not specific to that niche. So you can put blog articles on your website. You can get backlinks for that keyword. Now when that person types that in your the first result, the second result. You’re going to show up and get that lead. If you go on Facebook and you run an ad that say, we buy estate houses. You’re focused on that specific niche. Your cost per lead is going to go down. If you’re only mailing to estate leads, you’re not spending thousands of dollars just blanketing a market because you’re going straight for a specific seller. It may not seem rational but that’s what you’re doing.
When I pull my list I have a maximum value. I have a minimum assessed value because in my market if you don’t do that, you wind up getting these vacant lots. That’s not what I want. I used to get calls all the time from people have a lot to sell. Obviously the courthouse hasn’t been updated because I put in single family. Even though I put in single family these lot still show up because it’s still considered single family. You’re wasting money in that aspect. One thing that I found that no one else has noticed. I’m not sure why they haven’t noticed it, but if you go on propstream and pull a tax lien list. If you go through the results you get a lot that are not actual tax liens against the owner. The tenant or somebody that lives there uses that address to file their taxes every year with the IRS. Last year they decided they weren’t going to pay their taxes. Now the IRS comes in and puts a lien against that person and that residence because that’s the address that they listed on their last tax filing. You’re sending out these postcards to people that supposedly have a tax lien that have nothing to do with the owner. I don’t know why propstream puts that out there like that. For some reason, whenever you pull a list off propstream for taxes, you’re getting a lot of IRS liens for the people that live there that aren’t even owner. You’re wasting money by pulling those list and not going through and checking every single one of them. This data provider says we’re just going to be general and make everyone think we’ve got thousands of tax records for this market and half of them may not even be an actual property tax lien. Half may be whoever lives there just didn’t pay the IRS last year. The more specific you can be with your mailers and how you market, the more money you’re going to make. You’re going to turn into the expert of that niche in your market and you’re also going to be able to really hone in on your what you’re doing with your business because you’re going to stop going out every single day and spinning your wheels not getting anything accomplished. You’re blanketing everything thinking I’ve got all these deals. You’re putting houses under contract that you don’t have a buyer for, or that you think your buyer might buy. You should be limiting your criteria and your marketing to function only a specific niche. Now, every time you go to a property, you know what your buyer is going to pay. What they’re going to want out of that property. It’s the same thing we learned in school, practice, whatever – repetition starts to become normal.
When you’re looking at these houses for your buyers, you start thinking your buyer is not going to want this so I’m not gonna put it under contract or if I put it under contract, I have to put it under contract at a price that’s almost going to force my buyer to at least look it. If you’re going out and putting everything under contract, hoping you can sell it but you don’t have a buyer for it. So you put it on Zillow, Facebook, Facebook marketplace, blast in all these groups, or to your buyers list. You’re not going to have a lot of success doing that because you’re wasting your time. You’re wasting money and you’re really getting to that point where everyone starts to think that you’re just that person that puts everything under contract and hopes that they can get it sold. You’re not an expert. You’re not a professional in this business. When you become an expert you’re going to have the sellers and buyers almost ask you to sell them a property or buy their property. They’re going to know that you’re able to get the job done. That you’re going to be able to keep your word because you’re going to have the ability to talk knowledgeably about it instead of I don’t really know much about tax deeds. I don’t know that much about the houses that have tenants. I’ve got different buyers that’ll buy houses with tenants in them. Most buyers don’t have any kind of deduction for a tenant being in it but I do have a buyers, for example, that will take $1,000 off every month for the term remaining on the lease. That makes no sense to me whatsoever but if I know I’ve got a tenant that’s still got five months left on their lease, I know that I’m going to get $5,000 deducted off of what they would potentially pay for it. To get it sold I have to factor that in if it’s a house that specific buyer is going to purchase. If I go in with other buyers that don’t have that requirement then I know what fits. I keep it revolving and that repetition almost becomes second nature.
When you go to these houses, you can almost buy that house without even talking to the seller because you will have this confidence about you that I know I could do what what I’m telling you. I can do it because I’ve done it a couple 100 times. That’s the confidence. That part of real estate is very important because buyers and sellers both can smell out a weakness. Uncertainty. If you’re not confident in what you do in anything in your life, people can see that. It’s not just in this business. It’s an every day part of life that you have to have the confidence to go out and accomplish something. If you have doubt, if you second guess yourself, people are going to pick up on that. You’re not going to come across as sure of yourself. When you go to these houses and you are sure of yourself, the deals become easier to get under contract at the price you need them to be under contract for so that you can turn around and get them sold.
The same thing can be said about the house I had last month. One was $4,500 and the other was $250. I legitimately got a warranty deed on a house that already had some renovation on it so it wasn’t in terrible condition for $250 because I had confidence. They trusted the fact that I could get the deal closed and that I was helping them out. I still didn’t even spend $5,000 total purchase price on two houses. Now when I turn around and sell them after I get him renovated, that’s just more money for me. At the same time, I helped that seller out because of what was going on right now. The only reason I was able to do that is because I focused on my niche. That gives me confidence in my ability to do what I say. When you’re marketing, that’s where your focus should be, on something specific. In this business, you don’t make money when you sell a house. You make money when you buy it. If you don’t buy it the right way, you’re never going to sell it first of all, but if you don’t buy the right way, you’re going to make very little money. That’s why I’m telling everyone to go into your market, whatever market it may be and find a niche that doesn’t have a lot of competition in it but has a lot of activity or a decent amount of activity for buyers in that specific niche. You may be going into a Section 8 area. You may be going into an area that’s the suburbs where you’ve got a lot of people that are either flipping to a homeowner getting a mortgage or you’ve got a lot of people going in and buying so that they can turn around and rent it on the 1% rule. It doesn’t really matter what you choose but what you choose, you need to stick to it because that’s what’s going to maximize your ability in this business. It’s going to keep you from wasting money, help you bootstrap your business so that you can grow your business and phase in different steps.
Let’s say now that you’re going to work on just vacant houses. The houses almost falling over that haven’t had any activity or anybody in the house for a couple of years. Maybe now you’re going to move to occupied. You’re going to have the vacant houses that you’re still doing but now you move to the occupied properties. It’s also a good idea to look at certain zip codes that don’t have a lot of activity and market to those because you’re still going to have sellers in those markets that need to sell their house. They’re going to have the same circumstances of every other zip code in your in your area. There’s just not a lot of competition for another offer. That’s actually going to help you because they can’t compare offers. They can’t call a bunch of people and say, I’m just taking offers right now. You’re basically it for them. If they don’t make a deal with you, they’re stuck. That gives you leverage that you wouldn’t have otherwise. But if you’re going out and you’re just blanketing your market, you’re going to miss those opportunities because you’re spinning your wheels, answering phones, hiring acquisition managers, or playing on your CRM, things you don’t need to be doing because you’re not making money. You’re costing yourself money every single month instead of focusing in on that specific niche and being able to maximize your profits. Personally, I have three different numbers that come to my cell phone. I don’t let a voicemail answer any of them. I use podio. I have a lead come in, say, from the website or any other thing. It automatically creates a task and adds them to an email list that I use with activecampaign that will send them automated emails every 15, 30 days, asking if they’re still trying to sell their house if I don’t get that deal closed. Then I move them as I’m going with certain tags in there. This is open, it’s under contract, or it’s closed. I’m not making it more complicated than it has to be. All I need to do is give me a daily task function and move it down the pipeline. So if it’s active, under contract, closed, that’s the tags I use. I don’t use any other tags other than active, under contract, and closed. Once I send it out and I get it closed, they get an email right behind it. We accept five star Google reviews. Please help us and you’ll wind up getting you a five star Google Review. The only thing I did in activecampaign is mark closed for my tag and it automatically sends that out for me. I’m maximizing my time automating a lot of things because I’m able to function on a specific niche instead of blanketing all of these zip codes. All of these different property types, all of these different circumstances I’m not missing with the deals that have the highest profit margin in because I’m not out there fighting against all these other wholesalers and all these other investors. I’m targeting something that’s going to provide the most money for the least amount of time.
It’s important right now to take a step back. We all have extra time on our hands right now with the virus going around. Look at what your markets is doing. See if there is an avenue that doesn’t have a lot of attention. See if there’s a way that you can penetrate that specific circumstance in your market, whether it be a zip code, divorce, probate – heirs of properties with estates, vacant houses that were falling over. Any type of niche that you can find an opening in your market. Check it right now and see if you can become the expert in that specific niche. When we all go back to normal activity that niche is still going to be there. Now when everyone starts making money again, getting deals closed, they start coming across these properties. It may be in a different zip code. You know what you’re working. It fits the criteria for your buyer. You have that buyer so now you could make money and you didn’t have to spend a dollar. Becoming an expert in a specific niche makes you money every single day. You’re not the fly by night wholesaler that’s putting everything under contract, that’s listening to every guru out there that says do this or that. The gurus only want you to come back and spend money with them. They don’t care if you’re closing deals. They actually hope you’re not because you’re going to come back and spend more money with them trying to figure out why you’re not actually closing deals. The reason you’re not closing deals is because you’re spinning your wheels. You’re not focused on one specific niche to build your foundation and your knowledge of this business so that you can grow your business. It’s not a good idea to put this house on your contract and the next one that you go to say, I’m going to sub2 it, owner finance, etc. Forget all that. Do one thing and do one thing well. You’ll make the most money if you do it that way instead of just putting everything that you find on the contract in every possible way because that’s what they tell you to do. If you give somebody a choice, you’re not going to close that deal. Whether you’re going to buy a car or you’re going to negotiate with someone and say, here’s your cash option, here’s your financing option. Which one would you like? You don’t confuse the deal. You just gave them the leverage of that deal. Now they can say, this payment doesn’t add up to this purchase price or this purchase price doesn’t add up to this payment. You’re giving them ammunition to come back at you and you just killed your deal. You do one thing and one thing well. You will be successful in everything that you do, not just real estate.
Make sure you’re looking at what you’re markets doing, how you can target your SEO on Google. Whether you’re doing the mailers or ads on Facebook or Google. Whatever your marketing is target a specific message, target a specific seller and target a specific buyer. If you do that, you will be successful. While we we’ve got extra time on our hands because we can’t move around as freely as we would all like, do some research, learn some things, figure out whether you’re missing opportunities. Figure out whether there is an opportunity for you in your market that no one else has taken advantage of to exploit. Use this time that we have right now to be able to find new opportunities, new avenues of making money, and keeping the roof over your head. If anyone has any questions, feel free to ask them on EarlToms.com.
We kind of went on a man rant today but it’s necessary at certain times because I see everyone out there looking for the way to actually be successful in this business, whether it be watching the videos on YouTube or asking questions in different Facebook groups. There is so much information out there that is just not true. That that’s why I take the approach that I take in these podcasts to filter all of that BS right on out of this business. So take this time, find your opportunities, learn about a niche that you can exploit in your market, a certain circumstance, or a certain property type. Whatever it may be, find that avenue that no one else is focused on and keep pounding it. It’s not going to happen necessarily overnight but as you go, whether you’re listing something Zillow or the marketplace, they always say, If it’s a deal, the buyers are going to find you. That’s a fact. You may not have buyers for these properties that you’re going to look at right now. That’s fine. Put it under contract. Put it on the marketplace. Let that buyer come find you. It’s going to happen. If you do it the right way, it’s going to happen. You have to have the faith in what you’re doing. As long as you’re doing it in a professional way, doing it the right way, the buyers are going to find you. So will the sellers. Make sure that you’re learning your niche, everything that you can about it because that’s going to wind up helping you in your marketing, in your negotiation tactics with your sellers and your buyers. You’re going to be the expert. You’re going to know more than they know and it’s going to help you.
So with that we’re going to bring it to the close. I kind of rambled a little longer than I should have, and I apologize for it. But like I said, to me it’s important to get real information out there to everyone instead of do this, do that. That’s not going to work and just keep you coming back and spending money with different people. All of this that I give you this free. I’m not making any money off of this. I spent basically 30 minutes to an hour, once every two weeks bringing you this information. It’s basically time that I kill. I want to give back to this industry because it has been very good to me. It’s also been hard. I had to pay my dues. I hope everyone else is willing to pay their dues because if you do, you’ll be successful too. I appreciate everyone listening. We’ll be back in a couple weeks with a new episode. Thank you for listening.