I was recently interviewed by Patrick Dague of http://www.getinvestorsnow.com/ on the topic of getting and developing private lenders for your real estate investment business. Patrick is doing some great stuff and highly encourage you to go to his site and get his free report titled “SEVEN THINGS YOU NEED TO KNOW TO GET INVESTORS FOR REAL ESTATE “.

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Posted by Peter Vekselman

When you buy from the wholesale market, you dont need to sell at retail to make a profit. You can sell to someone else that buys wholesale and still make a decent profit. The real estate wholesale market is not unlike any other wholesale market. In the supply chain from manufacturing to retail there are several wholesale transactions where each wholesaler makes a profit and leaves enough in the deal for the next person in the chain to profit.

The manufacturer creates the product and sells it to a national distributor that transports it to major distribution points across the country. The regional distributor sells wholesale to major retail stores and to other smaller business. Companies like Costco and Sams Club often buy from regional distributors and sell wholesale to other business that finally sell the products at the retail price. Its not unusual for there to be four wholesale transactions before the product is sold at the retail level.

There probably wont be four wholesale deals in the local real estate market but there can easily be three. A wholesale birddog that is earnestly scouting the market for the best deals. This is the investor that locks a house up under contract with no intention of making any repairs or improvements to the property. Nor do they intent to hold it or rent it. They want to turn around and sell it to a rehabber or landlord. Preferably without putting any of their own money into the deal. They want to purchase an option to buy from the distressed seller at the very lowest cost in the wholesale chain no earnest money, no obligation to buy. Then they want to assign their interest to another buyer.

Some wholesalers try to move the property directly to the retail market but that has several complications. First, the property has to be marketed as retail costly and time consuming. Second, most retail buyers dont understand complex real estate deals where the title is not coming from the person they are buying from. You could easily go through four or five willing buyers that back out when they see the complexity of the deal.

A quick sale not involving the investment of cash is more likely if it is purchased by another wholesale buyer that understands complex sales. Thats where rehabbers and landlords or another investor wanting to hold the property for a retail sale comes in. This is why a wholesaler needs a network of other wholesalers. Just like a national distributor sells again and again to the same regional distributors, the first person in the real estate wholesale chain sells to the same wholesale buyers again and again. And as a wholesaler, you leave profit in the deal for the next person in the supply chain.

The key is that each person in the chain needs to add value. The first wholesaler in the chain ads value by bird-dogging the best deals for sale. That becomes their specialty. The rehabber is busy working on or overseeing multiple remodeling projects and misses many of the opportunities that come and go on the market every day. And the landlord is busy dealing with tenants and doing maintenance work.

There is a place in the real estate wholesale chain for someone that is out bird-dogging deals. Just like the national distribution model, each segment of the real estate wholesaling handles a different volume of deals. The bird dog needs to close on five or six deals each month, passing them into the network, and taking a smaller cut on each. A good rehabber might be able to take one deal each month and a landlord probably will only take on one additional property every year or two.

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