Are you unsure of your exit strategy? Do you know when you bid on a property whether or not you plan on wholesaling the property, fixing and flipping the property or keeping it as a rental?
It is very important that you know BEFORE YOU BID what your exit strategy is.
I have seen a few issues with students this past week, where they were unsure of their exit strategy.
These students made an offer on a property, and once their offer was accepted they were unsure of what to do next. Or they were looking for a fix and flip and then they changed their minds and decided they wanted a rental.
This happens all of the time – especially to beginners. And it happens when you don’t have a clearly defined exit strategy. You need to know BEFORE YOU BID what your exit strategy is.
As a real estate investor, you need to know your exit strategy BEFORE you buy (or bid on a property). You need a clear and concise vision of what you are looking for and how you are going to find it. This very much relates to focus and goals and target markets. If you know what you are looking for then it is easy to find it.
If you are uncertain of what you are looking for then you won’t find it.
What about multiple exit strategies? Is it possible to have more than one exit strategy?
Yes it is. I have multiple exits on every property that I buy.
But at the end of the day only one exit strategy will matter.
Because when it comes time to put up the deposit, or when it comes time to close on the property, if you don’t have a clearly defined exit strategy then you will waiver. You will be unclear. You will not know what to do.
And there is no time for you to be unclear.
So BEFORE you start making offers, BEFORE you start bidding on properties or calling realtors with some script you downloaded off the internet, I need you to clearly define what your objective is.
Let’s look at a wholesaler as an example and define their objective and goal.
A wholesaler has a clearly defined objective. They want to wholesale (flip) a house to another investor for a profit. They DO NOT want to keep the property as a rental. They DO NOT want to fix and flip the property. They just want to flip the house for a profit to another investor. They have a clearly defined goal.
WHOLESALER GOAL – FLIP PROPERTIES TO OTHER INVESTORS FOR A PROFIT.
The above is a clearly defined goal. It has a purpose. It has a clear and concise vision. The exit strategy is defined BEFORE the wholesaler has bid on a single property. The wholesaler’s goal is their mission statement. When someone asks them what they do they can say with confidence “I flip properties to other investors for a profit”. That is their business model.
Why does a wholesaler only focus on wholesaling houses?
Maybe it’s because that is what they like and enjoy.
Or it could be because the wholesaler simply does not have enough money to make fixing and flipping or buying and holding a property a viable strategy (yet).
Or it could be because the wholesaler does not want to deal with borrowing money, contractors and tenants.
Or maybe the wholesaler wants to learn how to find deals and has decided to start out by wholesaling (which is the strategy that I recommend and also how I started out investing in real estate).
So a wholesaler could be wholesaling because they are broke and their are no other viable options
Or a wholesaler could be wholesaling because they are looking for a new income stream to replace the income from their job.
Or a wholesaler could be wholesaling because they can’t stand contractors and tenants.
Don’t make the mistake of thinking all wholesalers cannot close on a property.
Good wholesalers have seven figure bank accounts. Many of my wholesaling friends in my mastermind belong to this category. Some of them just don’t want to deal with fixing and flipping. Some have tried it and decided it’s not for them.
Some wholesalers just prefer to wholesale. And those wholesalers are the ones that have the most focus
They are not trying to do too many things. They are focusing on only ONE THING.
If you are a rehabber or landlord, then a wholesaler should be your best friend.
And if you are a wholesaler then you should be actively pursuing and meeting rehabbers and landlords and letting them know you can find them great deals. You are a deal finder. A property locator. A bird dog. A Wholesaler. It doesn’t matter what you call yourself. If investors want deals they come to you. That is what a wholesaler does.
So what’s a wholesalers objective?
TO FLIP PROPERTIES TO OTHER INVESTORS FOR A PROFIT
The wholesaler wants to flip the house to another buyer without putting up any money at all or by putting up the least amount of money possible.
A wholesaler who makes an offer on a property DOES NOT WANT to own the property as a rental and DOES NOT WANT to fix and flip the property. The goal of the wholesaler is very simple. Their intent, is very focused. They want to flip that house (or the contract) to someone else for a profit.
If the wholesaler finds a house for $100,000 they may be content to flip the house (or contract) to another investor for $110,000 for a quick $10,000 profit.
That is wholesaling. Once again, the wholesaler DOES NOT WANT to own the property as a rental or to fix and flip the property themselves. Because their goal and their focus is clear and concise, they will market the property to cash buyers and they will entertain the highest offer that they can get for the property in order to flip it as quickly as possible (and get paid)
A Wholesalers enemy is time.
As the days go by, the inspection period will be running and the wholesaler will be pressed by the realtor to put up the deposit. They will have to make a decision on whether or not they want to put up a deposit. Remember that once the inspection period is over, the deposit goes hard (meaning it’s not refundable). So putting up a deposit is always a risk. A good wholesaler knows when it is worthwhile to take that risk. A beginner has no idea. You see, if you don’t know how much a house is really worth, then how can you be so sure about putting up the deposit?
Ultimately the decision on whether or not the wholesaler puts up a deposit will depend on how good the deal is (meaning how much profit potential there is), how many cash buyers are potentially interested in the deal (from their marketing efforts), and the amount of the deposit (the lower the better).
If a wholesaler knows for a fact that their deal is a slam dunk home run for another investor who is looking for a fix and flip, then the wholesaler is likely to have many cash buyers interested in the property. If this is the case, the wholesaler will be more likely to to put up the deposit. The lower the amount of deposit required, the more likely the wholesaler will be willing to put up the deposit.
However, if the deal is marginal, no cash buyers are interested, or the deposit is high, then the wholesaler is more likely to want to walk away from the deal and cancel.
Being able to do this (walk away) without ruining the relationship with the listing agent is a whole topic in and of itself which I could write an entire book on.
Or in summary – blame it on your partner.
Now, if you are a beginner……
And you don’t know what you are doing….
And you are not sure if your deal is solid or not you are going to get yourself in trouble.
You are likely to either really upset the realtor and ruin the relationship with them, or lose the deal because you are unsure of what to do and don’t want to take any risk, or you will lose your deposit because you put it up (because the realtor told you to).
This all goes back to focus and goals and having a clearly defined objective.
Not being sure of your goals, being wishy washy on whether you want to wholesale, fix and flip or buy a rental will create issues for you.
In addition to dealing with whether or not you should put up with the deposit, dealing with the realtor who is hounding you and trying to find a cash buyer you will also be asking yourself “should I keep this as a rental”? “Should I fix and flip this property”? “Should I apply for a hard money loan”?
Not having a clear objective and trying to figure all of this out AFTER YOU HAVE WON THE BID will leave you feeling confused and unsure of what to do.
And if you have put up your deposit then you will be in a dilemma. You will have to make a decision. Your decision will put you in in between a rock and a hard place (not a good place to be).
So figure out your focus. Figure out your goal. And If your focus is to wholesale then remember that your goal is to:
FLIP PROPERTIES TO OTHER INVESTORS FOR A PROFIT
If your focus is to find a rental property then your focus is to find a rental property and focus on that and forget about wholesaling and fixing and flipping.
If your focus is to find a fix and flip and borrow hard money then get your finances in order, establish a relationship with a hard money lender, know the parameters of what they will loan you and then go out and look for that fix and flip.
If your focus is to wholesale, then put up the deposit if it’s a solid deal and walk away if it isn’t a solid deal.
What about scenarios where you don’t have an inspection period? Sometimes realtors will tell you that you have to waive inspections to get the property. Sometimes you will need to waive inspections to beat out other bidders. Many good wholesalers like myself do this on almost every single deal.
If you are bidding on some of the online auction sites there is NO INSPECTION PERIOD.
All of these sites below have no inspection period. If you don’t know what you are doing, if you cannot tell a good deal from a bad deal or if you don’t want to lose your deposit then you should not be bidding on these sites.
On the above sites there is NO INSPECTION PERIOD. That means there is no way out – no way to cancel. there is no ability to cancel and get your deposit back. If you win the bid your credit card will be charged and you will LOSE YOUR DEPOSIT unless you close on the property. And in addition to losing your deposit, they will also kick you off of their system.
Now if your focus was to find your first fix and flip, and you already have a relationship with a hard money lender and you know what they will lend, and you have the cash for the down payment, points, fees, repairs and interest costs and the house you bid on was a slam dunk, then you should have no problem putting up the deposit and moving forward with your fix and flip.
Do you see why having a clearly defined goal is so important BEFORE YOU BID?
If you know beforehand what your goal is, then you know what to do once you win that bid.
However if you don’t know beforehand what your goal is then you will go into panic mode once you win a bid.
Can you have multiple exit strategies?
I employ multiple exit strategies all of the time.
If I get a house under contract (or a student of mine does) then it is either a good rental with equity, a good fix and flip with equity, or not a deal at all. In other words it’s either a good rental, a good fix and flip or not a deal.
If it is a good rental or a good fix and flip then I am willing to close. That means that not only am I willing to put up the deposit but I will also buy the property and close on it with cash (even borrowed cash). That keeps relationships with realtors (and online bidding sites) in good standing. It also allows me to have more freedom to decide what to do next.
If I can wholesale that property I may choose to do so. I will put up the deposit and market the property to cash buyers and if I find a decent enough offer I will wholesale the house.
I routinely market properties that I have under contract – but the key thing to remember is this.
I am willing to close on all of them. And I close on all of the houses that I don’t wholesale since I would rather own the property myself and then choose whether or not I want to relist on the MLS, rehab the property myself, or sell it to another investor.
At the end of the day, the only thing that matters is knowing how to find and analyze deals. You cannot short change knowing whether a deal is a solid deal or not. That is where you should put your focus. You can’t wholesale, fix and flip or buy a rental if you don’t know basic things like After Repair Value (ARV), the comparable sales, repair estimates, what is listed on the MLS and what cash buyers are paying in that target market.
But if you know the above. If you are buying a house for $70,000 less than ARV and the repairs are only $15,000 then why would you not put up the deposit if you know that you could wholesale or make a good profit fixing and flipping the house (or keeping it as a rental).
And if your only objective is to wholesale then you will sometimes be pushed into a situation where you have to either lose the deal or put up the deposit. And if the deal is solid, you will sometimes have to take that risk and put up the deposit BEFORE you have a buyer. I don’t recommend to any of my new students that they do that until they have a very solid understanding of their market and what a cash investor would pay to buy that property.
If you are not sure of whether or not a deal is a good deal or not, then watch my webinar on wholesaling by clicking on the button below: