Case Study: Use Case

If you are a real estate investor, then you know that finding deals is one of the hardest aspects of investing.  And, when you do find a deal or hear of a deal from a wholesaler then you know you better act fast.

 

Investing invokes a necessity to act quickly, but cautiously.  This is a difficult balance to achieve.

 

In today’s markets, a lot of the best deals can be found by being at the top of a wholesaler’s buyer’s list.  They are the ones expending all of their energies finding deals.  Of course, wholesalers should be able to help investors make decisions on properties by accurately representing their numbers, but unfortunately, this has not been a consistent trend.

 

On the other end, competition is becoming fiercer with regards to demand for construction resources.  According to the National Real Estate Investor, construction prices are rising and labor shortages are rampant.

 

If you’ve experienced difficulty finding reliable contractors, then maybe you should check your hiring methods.  Contractors receive requests constantly for walkthroughs in order to analyze deals and have to apply their precious time efficiently, which means they like to know what the deal involves before they even commit to coming to the property.

Real estate, like any other business, is a relationship business that is based on developing trust and friendships.  According to the Center for Economic and Community Development,

“The role and importance of trust in all your engagement efforts cannot be under-estimated or under-valued. Without a purposeful and consistent effort to foster trust and build strong relationships at every step of the way, even the best-designed and thoughtful engagement processes will almost certainly either fail or fall far short of the success you seek to achieve.”

 

For Wholesalers, trust can be developed by accurately portraying rehab projects for potential deals to investors. And Landlords/Flippers can increase their likelihood to land the best contractors by adding value to the contractors by using Nailed-It’s Scope of Work in order to entice the most reliable contractors by saving them time.

 

As an example of the power of Nailed-It, I will show how it can be used by a Wholesaler to improve their ability to flip contracts to Flippers/Landlords.

 

Here’s what you’ll see when you first open Nailed-It.

 

 

First, we will discuss why wholesalers have generated a bad reputation.  We agree, that in general, wholesalers as a whole often can and probably should be ignored.

 

Why? 

 

Because wholesaling has become synonymous with gurus and get-rich-quick schemes.  National gurus have flooded markets with under-prepared, under-financed, and over-ambitious “wholesalers” which skew the view of the population as a whole.

 

Under-preparation reveals itself with ridiculous repair estimates.  We all know what I’m talking about.  In order to do some research for this, I just did a quick search on Reddit – specifically the real estate investing forums, and I found this:

 

 

A few notes:

  • Wholesaler Rehab Estimate in the final line: $10-15k
  • Experienced Real Estate Investor Rehab Estimate in the last line of second to the last paragraph: $55-58k

 

With experience, and at the cost of potential profit, experienced real estate investors are able to analyze a property and determine an estimated rehab cost by accessing their memories and past experiences.

 

Let’s take a quick look at how quickly we can estimate some of those costs above.

 

For newbies, and especially newbies fresh out of a traveling national real estate investing conference, it is much easier to use Rules of Thumb.

 

Specifically, the $/Sq. Ft Rehab rule, which uses a table like this to estimate rehab costs. Heck, even a lot of season investors use mental charts like the one below.

 

 

This strategy allows for Wholesalers to make an offer on every property that they come in contact with.  Even if they have zero experience and have never seen the property, wholesalers are able to “estimate” rehab costs utilizing this strategy.

 

The subjectivity of the above table can change a rehab estimate from one of your local investors significantly.  Imagine a local wholesaler who is just starting.  They have to determine if this is a small rehab or a mid-level rehab in order to make their offer.

 

Of course, they want this to be a “Small Rehab” because that way they can offer more money and probably get their first deal!  Think about it, if they chose “Small Rehab” and the property actually required a “Mid-Level” Rehab then for a 2000 sq. ft. home, this estimate is off by $20,000.  And the gurus actually teach this stuff!

 

This is where investors enter the picture.  Investors take one look at the property and know that they picked the wrong estimate above because most investors have experience and can roughly estimate rehab costs, but the wholesaler’s estimate may be off by as much as $20,000!

 

So what should investors do?  Avoid wholesalers all together?  That doesn’t make too much sense because great wholesalers make themselves a lot of money and increase profits for Landlords/Flippers.

 

How?

 

By consistently presenting investors with great deals that are ACTUAL great deals complete with accurate and detailed data, you can save an enormous amount of time looking for your next investments.  Especially in competitive seller’s markets, it is vital to find great wholesalers.  They spend all of their time looking for deals, so it is vital that investors find them.

 

Pareto’s Principle is a mathematically significant theorem that 80% of results stem from 20% of causes.  In business, you may have heard of this as the 80/20 rule, and therefore recognize that 20% of your efforts are responsible for 80% of your profits.

 

If you specialize in rehabbing homes consider this, should you be spending more time looking for investment properties or should you be managing and growing your rehabbing business while working in conjunction with a local investor who is focusing on finding and selling discounted properties?  Being able to trust that the data you are presented by local wholesalers is accurate.

 

So in order for you to exponentially grow your business, you’ll have to find good wholesalers.  Good wholesalers will find discounted properties, with accurate data.  The data that you care most about should be their rehab estimate because this estimate is the hardest to predict with the most variability.  Most wholesalers are able to obtain relatively accurate comparables due to the rise of websites like Zillow, Redfin, and Realtor.com.

 

As we showed above, inexperienced wholesalers and even some experienced wholesalers may struggle estimating rehab costs because remember their focus is finding motivated sellers, not fixing properties.  So again, the question remains – how do you know that you are being given accurate estimations for rehab costs?

 

Nailed-It: Mobile First, Fast, Accurate Rehab Calculator

 

Remember back to our story above with the wholesaler who estimated the rehab costs at $15k, while the investor found it closer to $58k?  We decided to check the real estate investors numbers and later on, upon reading the thread further, we discovered that he did indeed spend $58k.

 

Based off of his description of the property, this was the work that was required.

 

We ran the property thru Nailed-It for fun.  Our results:

 

 

The detailed breakdown was as follows:

 

 

When you see a report run from Nailed-It, you will know that this wholesaler has responsibly decided to estimate rehab costs in a professional manner.  Utilization of Nailed-It standardizes the communication between all parties of a real estate investment: the wholesaler, the investor, and the contractor.

 

Of course, at this point, we’d recommend that you check the numbers!  You never know if the wholesaler missed some necessary rehab during their walkthrough. Visit the property (make sure you check out our Mastering the Walkthru Guide, which includes pictures of things you and even your inspector may overlook) and utilize Nailed-It to accurately, quickly and simply estimate rehab costs and generate your SOW.

 

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