Wednesday, August 17, 2011
Working with Cash Buyers
As so many new investors are interested in wholesaling, this article focuses on working with cash buyers and investors.
Some wholesalers (or “bird dogs,” as they are also known) have a Buyer questionnaire or spreadsheet identifying the criteria that their cash buyers need or want in a property. Having a detailed list of specifications, the wholesaler can negotiate in confidence with a seller, knowing that there is already a buyer lined up (assuming, of course, that the price is right).
Use your real estate investor association to network with investors who are already buying a large number of properties. Who is buying? And what are they buying?
Here are some of the questions you might want to know from these buyers, if they are focused on residential properties:
What cities, markets, or neighborhoods are of interest?
What are the demographics of those markets?
What are the minimum number of bedrooms and bathrooms they will consider?
Minimum square footage?
Any style of architecture they particularly want, or don’t want?
Age and condition of the house?
Any deal killers? (eg. Busy streets, power lines, foundation issues, etc.)
Any required amenities? (eg. Basements, garages, etc.)
If they are buying commercial property, here are some of the questions a wholesaler may need to know:
Local or out-of-state markets?
What type of commercial properties? Class A, B or C?
Minimum/maximum units or square feet?
Lowest acceptable CAP rate?
Minimum building age and/or amenities?
Demographic preference if any (i.e. rural vs. urban)?
What does the wholesaler do for the buyer?
Some wholesalers just provide leads, and the buyer does all the negotiation with a seller. Some wholesalers begin discussion with a seller, then let the buyer take over when a promising prospect seems apparent. The best wholesalers will handle all negotiations, get the property under contract, and then assign the contract to their cash buyer. Any model can work. Start wherever you are most comfortable, and discuss the details of your business arrangement with a buyer you can trust. Make sure your buyer will honor the commitment to compensate you for the work you have done. An assignment contract usually prevents a buyer from cutting the wholesaler out of the deal.
Where else can I find cash buyers?
Aside from your real estate association, anywhere that cash is required to buy a house! Check out the foreclosure auctions and other auctions. Chat with people you see bidding. Guru Tony Youngs suggests mentioning to them that you might be interested in buying that house they just successfully bid upon!
Pass out business cards and flyers on any properties you are trying to wholesale.
Network, network, network!
So how many cash buyers would a wholesaler need to get started?
Probably just one or two serious cash buyers can keep a wholesaler pretty busy. It is always nice to have more, but once you start finding really good deals, you will find it easy to expand your cash buyer list. A good deal for a cash buyer has everything to do with price.
So how does a wholesaler determine a good price to negotiate with a seller? Stay tuned to this blog for a future focus on Pricing It Right, which will help the wholesaler negotiate with confidence!