Virtual wholesaling has become increasingly popular during the pandemic. But before you dive in, you need to know these 5 major problems! This training will make you a better wholesaler and you'll understand when to apply the technique of Virtual Wholesaling, and when not to:
Speaking out against virtual wholesaling is going against the grain of our industry. However, many of you need to hear this message so you can be more productive and make more money. Your primary focus should be to wholesale deals in your own backyard and therefore, NOT on virtual deals. This, of course, is a tough sell to many real estate investor because virtual wholesaling, where you never actually go see the property or meet the seller, is quite appealing these days.
Misguided Appeal of Virtual Wholesaling
Before we dive into the five problems of virtual wholesaling, let me share with you the misguided appeal of virtual wholesaling. This will help you understand why so many people are attracted to it and why you need to be careful about "drinking the Kool-Aid".
1.The Grass is Greener Mentality
Many people feel that their local area is not a good place to wholesale real estate. Are you one of those people? Do you think your area has little or no opportunity and that some other far away area has all the opportunities? If that’s you, you have what I call the, "Grass is greener mentality". The truth is, most of the time, the best deals are right in your own backyard. This is something you learn after you’ve been in this business a long time. Many beginners think that somewhere else is a better opportunity and eventually, they discover that it isn't.
2. Armchair Investing
Another aspect of why wholesaling virtually is so appealing is the concept of, "Armchair investing". The notion that you never have to get out of your chair, look at properties or meet with sellers is very attractive. Some are drawn to the idea of armchair investing because they think it is more efficient. But too many others, if they're being honest with themselves, want to be an armchair investors because of fear. They're scared of meeting with sellers and being face-to-face with buyers. They don't know what to say if the other person asks a question. They're introverted and they want to be in the business but away from it. Well, I have news for the fearful one...wholesaling is a people business and if you're scared of interacting with others, then you're not going to do well.
Armchair investing is very appealing, but it's usually because someone is afraid. Rarely is it because someone sees it as being more efficient. You might be pushing back right now saying that virtual wholesaling is a safe way to do business in 2021. However, there are other ways to social distance in real estate besides complete armchair investing.
3. Pie in the Sky Dreamers
Then there are those that are attracted to virtual wholesaling because they have that pie-in-the-sky dream of living anywhere they want and still making a fortune in real estate. They dream of lounging on a hammock on a tropical Caribbean island, while the cash pours in from virtual wholesaling. That's a seminar sales pitch, not a reality. In the real world, wholesaling requires you to be in the trenches doing real work.
Virtual Wholesaling Can Work
That said, even more complicated than these misguided appeals is the fact that virtual wholesaling does work! It is a productive strategy, in certain instances. There will be instances when you should do a virtual wholesale deal. But when should that be? And when should you avoid virtual wholesaling?
5 Problems of Virtual Wholesaling
Now let's look at 5 problems of virtual wholesaling. Understanding these problems will help you become a better wholesaler and differentiate when to do virtual wholesale deals and when not to.
Problem #1: You Are Blindfolded
The first major problem is that you're blindfolded: you can’t view the property in person, look at the comps in person, or drive around the area. That is a HUGE handicap and to better understand this handicap we need to expose a reality of this business that's rarely talked about. There are very few authentic home run deals in this business. Deals where you can get it under contract for an amount so low that you can flip it to another investor who will also make a profit. It’s a lot more difficult than ever before to be able to put an authentic home run together.
What's more prevalent is a seller trying to pawn off their bad deal to some sucker. Most of the time when you look under the hood of a seemingly good deal and do a full due diligence, you discover it's counterfeit. Often the deal has a flaw and that's why the seller is asking a low price. And remember, we're typically not dealing with properties that are listed with a real estate agent. This happens more with a seller trying to screw the next buyer down the line. A lot of the times sellers don't even want to fill out a property condition disclosure form because they won’t admit the problems they know exist.
No Substitute for Being There
Even if you get videos, pictures, an inspection, and an appraisal; none of these are as good as seeing the property yourself. You're still partially blindfold. In fact, I have a great video called Predicting Final Sales Price. In it I talk about how there's so much more to estimating what a property is going to resell for than just what the appraisal said, what an inspection report unearthed, or what a real estate agent told you. It requires skill, and when you are not at the property in person at least once, you are blindfolded. Now that the reality of this business is exposed, you can understand why you are blindfolded as a virtual wholesaler. In a virtual deal you're unable to see the fly in the ointment.
Problem #2: You’re Handcuffed
One of the things that’s taken away from you when you're virtual wholesaling is the most powerful tool for getting a deal under contract. Studies in real estate have shown that 70% of sellers work with the first person they met with, whether it be an agent or an investor. When you're virtual, you aren’t on the ground to show up. My mentor used to spend quite a bit of time with a gentleman by the name of Ray Danner. At the height of his career he was the third largest restauranteur in the world. And Ray Danner's axiom on business was this: 90% of success is just showing up. You're at the right place, the right time. When you are virtual, you can't show up.
Even if the seller isn’t there, we can go to the property and do a FaceTime with the seller. And what happens when we're there first, we get the deal. This is one of the ways that I teach my apprentices to beat out entrenched competition. One of the first tips they get is to show up first. As soon as you talk with the seller, do your quick evaluation so you can formulate an offer and get over there.
What's ironic about this is some of my more experienced apprentices get a lackadaisical and push off a meeting till the next day. When they lose one deal like that, they're instantly reminded of the power of showing up first and showing up best.
Problem #3: You are Gagged
You're unable to use the most powerful negotiating leverage you can have in a deal. The final number you agree on is almost never the original asking price. It's through negotiation that you create a great deal. When you're not able to be at the property in person, you are gagged because you can’t use the negotiating tool of going item by item, room by room to point out the problems. For example:
- This is a smaller bathroom than I thought from the pictures.
- Or this is a weird kitchen now that I'm in here in person.
- Oh boy, this problem is a lot more concerning than I thought it would be.
These are negotiating tools and when you're there in person, you're able to point these things. And if the seller's not there, we'll FaceTime and we'll walk through the house as if the seller was with us. It will still utilize this incredibly powerful tool of pointing out the problems. You can start to chip away at some of those preconceived notions the seller had and that's where the deal can be crafted. That's when your negotiations are really made.
Problem #4: Your Feet are Tied
You're not able to respond to issues and problems quickly because you're not on the ground. If a title company needs an original document, it will take a day or two because you need to overnight it. Sometimes you must be there to quickly get things accomplished. When you are not there locally and you are relying on someone else, your feet are tied.
What happens when you need to run interference because the investor you're trying to wholesale to is local and he’s connecting with the original seller? Now they're trying to get rid of you who's 2000 miles away. Being on the ground gives you speed. You can quickly react and respond to problems as they come up.
Problem #5: You’re Jailed
What this means is you're out of touch with what's going on locally. We have so much success in the model that we do. As a mentor I work with individual local apprentices I fund their deals and teach them exactly what to do. Because they're local, they build credibility and trust with the sellers. This helps get deals under contract, but it is also an asset when working with title companies, buyer's agents, and everyone else in the deal. They just have a feel for what's going on. And when you are not local, you're out of touch with what's going on there.
Keep Your Focus Local
Do these 5 problems mean you can never do a virtual wholesale deal? Not at all. It just means that your primary focus should always be on your local area - within 1 hour driving distance. This is where you want to focus most of your energy. Your primary objective is to be a local deal maker and then when the occasional virtual deal comes along, you do it.
The reality is this, there's competition everywhere. If you think there's less competition in Kansas than where you are in California, you're mistaken. You need every tool at your disposal with every advantage possible to beat out the competition to be successful. That’s exactly how and why we built the Apprentice Program with Freedom Mentor. If virtual wholesaling was so incredibly productive, I would have had a big office with hundreds of employees doing virtual deals all across America (and would have never taught anyone what I was doing). These 5 problems are why the model is fundamentally flawed, regardless of how much technology is added. Therefore, focus your wholesaling endeavors locally, only doing virtual deals when they come along, and you'll make more money and enjoy the process. So go out there, apply this wisdom, and have a more productive year with creative real estate investing!