Referral-Based Investing, Part Two (Wholesalers)

In the first part of this article, we covered why it's much easier to find multiple deals from the same person, and how the satisfied sellers you have bought from only know so many people to refer to you. In this part, I'm going to go through some strategies to use to build relationships with the people who are in a position to refer more motivated sellers to you over time than anyone else – Wholesalers.

As you probably know, you can find some amazing deals from other investors in your area who sell them as-is, or assign a contract they have with a seller to you for a fee. Some of these guys are amazing at finding a large number of deals every month. Because having someone call you with a deal that they have already found, prescreened, and negotiated with, this is one of the easiest ways to find deals there is.

Become the first one they call.

But are you going to be the one they call as soon as they have a deal available (or at least one of the first few)? One challenge is that most wholesalers know other investors, and there are a few ways they could decide who to contact with a deal. They may have a small core few that they tell about deals, who they know can perform without jerking them around. If this is the case, you want to be one of those few (or the only one).

Many wholesalers have Investor Lists, too, which can range from 10-20 to hundreds of other investors in the area. They might contact their core investors first and then send it out to their whole Investors List a few days later. Your goal is to find out about the deal before it's announced to their entire list. You can do this by:

Getting into their group of core investors by proving that you have the funds and speed to close when they want, and that you're not going to be anal about everything or nickel and dime them. The easier you are to work with, the sooner you will tend to be contacted.

Being proactive and contacting them first before they tell the world about their deal. For example, if you send regular emails or follow-up frequently with the wholesalers you know, you might ask if they have any good deals in the works. They may be in the process of getting an offer accepted by a motivated seller, in which case you can pre-arrange for them to give you the chance to buy it as soon as they have it under contract. If nothing else, their incentive to do this is so they won't have to take calls from 10-20 other interested investors about it later on – this way is much easier for them.

Wholesalers who only accept the highest offer

Some wholesalers are a little more mercenary and will assign a deal to whoever will pay them the most – period. This stinks for you because, well, competition sucks, and you have to rush, rush, rush in order to see the house, make an offer, and get it assigned to you.

I don't know about you, but Rush = Hassle, and I prefer having less hassle in my life every day of the week. I don't like being part of a bidding war at all, and the chances of your offer getting accepted are slim, because there are usually other people on the wholesaler's Investor List who are willing to pay too much, or at least more than you.

The disadvantage to the wholesaler of doing it this way is that the people who are willing to pay the most are often peculiar, or nitpicky, or have to get bank financing, which takes 30 days to do if you're lucky. That's a long time to close (especially when a motivated seller is calling the wholesaler daily, asking when they'll get their money). You could point this out to the wholesalers you know, and mention that they'll have a faster and easier sale if they come to you first, rather than creating a mini-auction.

This may change their mind, or it may not. But keep asking them to notify you of deals, even if they only care about who will pay the most – you can always say, “This is the most I can offer” and see what happens. I'd rather have more leads brought to me than fewer. Who knows? The wholesaler may get burned a few times by novice investors who could not close, or who made the process miserable, and they start contacting only a select few about houses.

The Magic Formula for Getting Deals From Wholesalers

Here's a formula to keep in mind, to find more deals through wholesalers:

# of Wholesalers x Frequency of Contact x Depth of Relationship = # of Deals

The more you meet, the more will notify you of deals. The more you contact them, the more likely you are to find out about a deal of theirs before anyone else. The better you know them and the more they trust you, the more likely they will call you before anyone else. The great any of these three things are, the more deals you will do.