Real estate wholesaling often feels like an easy, guaranteed ticket to wealth and success. However, not everyone who gets into wholesaling experiences the financial freedom they were looking for.
Unfortunately, many new wholesalers fail as quickly as they start. Some don’t set up a good team, some don’t spend time understanding real estate law, and some just give up because it’s more difficult than they expected.
So whether you feel like you’re on the verge of failing now, or you’re preparing for the trying times you know will come from starting your own business, these are the five most common reasons why new wholesalers fail and lose money.
Reason #1: Investing money in the wrong places
Believe it or not, new wholesalers don’t usually lose a lot of money on bad real estate investments. Instead, they usually get carried away investing in themselves and their businesses.
This may seem counterintuitive because investing in yourself is one of the best things that you can do. However, when you over-invest in your education and team, you can run out of money without learning anything about wholesaling at all.
Unfortunately, many new wholesalers find a real estate course and immediately spend a significant amount of money on it. They believe that it will teach them a well-kept secret about landing multiple million-dollar real estate deals.
While they may learn some important tips and tricks from the course, they spend their entire budget on it. If you spend so much money on a course that you can’t afford to drive for dollars, you’re not investing wisely.
Another area where many wholesalers lose money is hiring before they’re ready. Some of the biggest wholesaling businesses in the world run off of callers and acquisition managers, but if you’re new to the business, you’re not ready for that step. Even once you’ve closed a deal or two, you’re probably not ready to hire a team.
In many ways, the early days of your wholesaling business are a solitary business venture. While you’ll network and occasionally joint venture with other investors, the responsibility of finding leads falls on you.
You also need to know how to do this work yourself if you plan on building a great team. Many wholesalers have been highly successful on their own but have failed when they hired a team because they didn’t have systems their team members could copy or they didn’t know wholesaling well enough to train an acquisitions manager.
Reason #2: Choosing the wrong real estate leads
Not all real estate leads are created equal. One of the worst mistakes a new wholesaler can make is thinking that any lead they get their hands on is worth pursuing.
In wholesale real estate, there are two primary ways to make this mistake: pursuing the wrong kind of leads and working with bad data.
Pursuing the wrong real estate leads
A mistake that a lot of new wholesalers make is trying to pursue every type of lead in the hopes of getting lucky and landing a massive deal. While some wholesalers do have this experience, it’s rare, and you shouldn’t expect it to happen to you.
Instead, you should pick a niche and master it. First, you should choose between properties experiencing financial distress and distressed properties. If you’re focusing on homes in financial distress, focus on one distress factor and learn everything you can about it. Over time, you’ll learn what factors to look for when generating leads, how to talk to property owners, and what offers to make.
Once you master one type of wholesale real estate lead, you’ll be ready to expand your business and focus on others. But if you try to pursue neglected properties, pre-foreclosures, tax defaults, and tired landlords all at the same time, you won’t develop the discipline, focus, and experience you need to scale.
Working with bad real estate data
Another area where new wholesalers fail is working with bad data. While there are a lot of options for skip tracing and real estate lead generation software, not all of them offer data you can trust.
As a real estate investor, your business will rely on property data and lead generation. If you don’t have data you can rely on, you’ll consistently find yourself calling wrong numbers, inquiring about properties that aren’t actually in financial distress, and getting to deals late. While cut-rate data might seem like a way to save money, it will frustrate you and set you back more than you know.
Reason 3: Not understanding real estate laws
Wholesaling real estate is legal, but you have to understand your state’s laws to avoid lawsuits and fines.
While this shouldn’t scare you away from wholesaling, it’s a pivotal point that you need to understand if you plan on buying from motivated sellers. The first thing to understand is your state’s wholesaling laws. Some states are stricter than others, so you should do your due diligence and research before you start wholesaling.
Along with studying the real estate laws in your state, it’s a great idea to consult with a real estate attorney to make sure you understand how the law works. While this may sound expensive, dealing with legal fees and even losing a lawsuit will be much more expensive than simply paying for legal advice.
Getting your real estate license is another great way to protect yourself and your business. Through the studying and exams involved in the process, you’ll learn how your state’s real estate laws work. You’ll also open up new business opportunities, because you’ll be able to market your deals to more people and even help sellers list on the MLS if they’re not interested in selling the property to you for a low purchase price.
Finally, you should document everything you do and stay organized. This will protect you if a motivated seller suddenly becomes angry or confused. If you’ve followed the law, documented your processes and kept your records where you can easily find them, you’ll protect yourself from lawsuits most of the time.
Reason 4: Failing to find cash buyers
Signing a contract on a wholesale deal and then losing it because you couldn’t find a buyer isn’t just embarrassing; it can also be illegal. However, if you fail to assign the contract before the closing date, you’ll either have to back out and lose your earnest money or complete the real estate transaction yourself.
Thankfully, you can easily avoid this problem by building a cash buyers list as soon as you start wholesaling. You can network with real estate agents, attend local real estate events, and even ask other cash buyers if they know anyone that’s interested in purchasing properties.
Reason 5: Not taking their real estate business seriously
The final most common reason that new wholesalers fail is they don’t take their businesses seriously.
While you’ll inevitably make mistakes and learn from them, if you treat your business like an experiment, you’re almost guaranteed to fail and lose money. The real estate industry is a serious place filled with risk. While wholesaling is one of the lowest-risk ways to get started, it still takes some money, and you can lose it if you’re not serious.
One of the most common ways this happens is when wholesalers don’t follow up on their leads. Many wholesalers will invest in a dialer or direct mail campaign, but when they don’t find success immediately, they move on to a new lead list, marketing strategy, or new real estate software.
Another way to lose money by not taking your business seriously is to pay for real estate education and then never use it. While you may be scared to start, the rewards are far greater than the risks, as long as you stay consistent and treat the real estate market with the respect it’s due.
Key takeaways
Building a wholesale real estate business is challenging. Even though it may seem like a low-risk path to millionaire status from the outside, there are several mistakes you can make that will cause you to lose money.
However, if you take the process seriously, you’ll avoid many of the mistakes new wholesalers make. Then you’ll be well on the path to building a life-changing wholesaling business and opening the door to financial independence.
