Categories
Wholesaling

3 Ways to Run Comps for Wholesale Deals

New investors are attracted to real estate wholesaling because it’s an investment strategy that doesn’t need a large amount of upfront capital. Moreover, wholesaling real estate helps newbies become more familiar with the industry and gain valuable negotiation skills.

So, if you’re one of those aspiring beginners, you’re in luck. This article will teach you an essential skill that every successful wholesaler perfects: running comps to price your wholesale deals correctly.

What are Real Estate Comps?

Comparable sales, or “comps”, refer to recently sold houses similar to the property you’re interested in wholesaling. They are similar in terms of:

  • Neighborhood or location
  • Property size (square footage)
  • Property condition and age
  • Property type (e.g., single-house home)
  • Property features (e.g., a garage, swimming pool, and number of rooms)

Real estate comps can either be calculated manually or with online tools, as we’ll discuss later on.

Why is Running Comps Important?

To understand the importance of running comps, we have to review a typical wholesaling process:

  1. A homeowner decides to sell their distressed home to avoid foreclosure.
  2. They approach a wholesaler (or the wholesaler approaches them), and the two of them decide to put the house under contract. The value the wholesaler typically pays is 60-70% of ARV (after repair value), minus the estimated repair costs (ERC)..
  3. After agreeing on the terms, the wholesaler finds an eager buyer to sell the contract at a higher price—that is, at or nearer to market value.
  4. The buyer checks out the house, runs the numbers, and sees that it’s a good deal. They will then  agree to purchase the property, and the wholesaler will assign the purchase contract to them.

The homeowner is glad to have sold their house; the buyer is thrilled to have acquired a profitable fixer-upper project. And, of course, the wholesaler is satisfied to have facilitated the transaction, since they pocket the difference as profit.

So, where do running comps come in?

Running comps is part of determining the ARV or the market value of a fully renovated home. This is important because it helps you price the property correctly.

If the price tag you put on a contract is incorrect, one of these two situations will likely happen: 

  • If you price it too high, it won’t attract or convince any buyers.
  • If you price it too low, it won’t give you the margin needed for a significant profit.

Instead, you need to figure out the ideal selling price for you to find motivated buyers and earn a decent wholesaling profit. With this goal in mind, let’s get into the details of how you can run comps yourself.

3 Ways to Run Comps for Wholesale Deals

We’ll show you three simple ways on how you can pull up comps on the internet. Then, once you’ve done your research, our advice is for you to drive by the comps to verify their details.

Method #1: Using the MLS

A multiple listing service (MLS) is an information database established by cooperating local real estate brokers to provide data on properties for sale. Only licensed real estate agents and brokers that pay a membership fee can access an MLS. That said, if you know somebody who can access one for you (or you’re a licensed individual yourself), it’ll offer you the most comprehensive list of properties in a specific area.

Here’s how you can use an MLS to run comps:

  1. Select your property type.
  2. Enter the address of the property you’re wholesaling.
  3. Define your radius. You can start with 0.5 miles and adjust according to property density (e.g., if there are too many properties within half a mile, narrow down the coverage).
  4. Change the “sold” parameter to sold within six months.
  5. Input the size range of your property (the parameter can be 300 square feet above and below the property you’re wholesaling).
  6. Plug in the city and zip code of the property. You don’t want to consider the properties in another city or state, even if they’re within the radius you’ve selected.
  7. Tap the “count” button, and the comps will show up.
  8. Pull up the map to see if any comps are near a feature or school, as they will likely jack up the ARV—even if they’re only a street away from your property.
  9. Assess the property condition and features of the comps, singling out the ones most similar to your home. Make sure to look around the neighborhood using Google Street View to match its location to yours.

Once you’ve narrowed it down to a couple of comps, you can send the results to yourself via email. 

Method #2: Using Real Estate Websites

If you can’t access the MLS, the next best thing is to use real estate websites. They may not be as exhaustive as an MLS, but they can certainly help in pulling up comps.

Start with these three websites:

  • Zillow: Plug in your property’s address, filter the results to recently sold in six months, find the location of where your property would be on Zillow’s map, and use the same criteria as the ones listed in the MLS process to find your comps.
  • Redfin: You can also pull comps on Redfin based on recently sold houses. They use the data that real estate agents use to estimate the “lowest published error rate” in the market. And, unlike other appraisal estimators, Redfin Estimate considers all the homes on the MLS for an accurate property market value.
  • Homesnap: Yet another option is the Homesnap app, which provides the ARV of the properties listed on their platform. The number they give is usually a mid-price between the highest and lowest value. Homesnap also gives additional information like school ratings, average days on the market, and market scores.

These are just three of the many real estate websites you can run comps in. Others include Trulia, Realtor.com, Property Shark, and RealQuest. It’s best to run comps on more than one of them, so your ARV is based on various properties listed on each website.

Method #3: Manual Calculation

Lastly, if you prefer to run comps yourself, here are the steps for you to do so:

  1. Look at the properties within 0.25 to 0.5 miles from the home you’re looking to wholesale.
  2. Find at least three comps of similar property size, type, and age. The more comps you find, the more accurate the results would be.
  3. Single out the homes that have sold in the last three to six months. The idea is to determine the average purchase price under current market conditions.
  4. With the comps you’ve identified, calculate their average price per square foot.
  5. Multiply the number by the square footage of your wholesaling property. Now you have your estimated ARV or fair market value.

Running comps manually does take more brainpower, but it’s always helpful to keep these steps in mind, even if you’re planning to run comps with online tools.

Conclusion

And there you have it! You now know how to run comps for a wholesaling deal. You can use any or a combination of these methods to identify the ideal price for a specific home—even if you’re not so familiar with the local area’s property values.

By knowing how to pull up comps three different ways, you can adapt to any situation whether the home is in a remote location, volatile market, or has the most unique of features. You’re now equipped to analyze and correctly price any wholesaling deals you come across for a successful investment.

We’ve also done another article on how to get started with wholesaling real estate, should you want to educate yourself further on the foundational pillars of the trade.

Do you have any other ways to run comps? Share with us below!

Image courtesy of Ron Lach

Categories
Shortterm Rentals

Best Practices to Optimize Your Airbnb Listing

Wondering why your short-term rental on Airbnb isn’t performing as well as you hoped? 

You might think real estate knowledge is all you need to run a successful Airbnb, but there’s a lot more to it than that. The secret to having a highly-ranked listing and generating traffic on Airbnb is to use marketing skills, rather than real estate know-how.

But it’s not just about creating impressive listings with all the best features and amenities—you need to know how to rank well in search results. By doing so, more potential guests see your listing, and it’ll land you more bookings. And we all know more bookings mean higher profits.

So, to help you in this daunting task, we’ve listed the top ways to optimize your vacation rentals on Airbnb below. Use these ranking optimization techniques to get more people to choose your short-term rental units and see real results.

Tips for Higher Airbnb Ranking

In general, Airbnb recognizes good listings and rewards them with a higher search ranking. Airbnb does this because it wants the users (i.e. your guests) to have the best customer experience on their platform. After all, if they saw a dark basement suite with 2 stars review first, it wouldn’t reflect well on their own brand image.

As a host, your goal is to check off as much of these things as possible to have Airbnb rank your listing higher:

  • Ask for Positive Reviews: According to Airbnb host Nick Child’s data experiment, the average Guest Satisfaction score that shows up on the first page of search is a whopping 83.7%. This means that the more positive reviews you get, the more visible your rental will be.

So, provide your guests with the best experience and encourage them to leave a review after their stay. You want to have as many 5-star ratings as possible to appear on top.

  • Use Instant Book: Instant Book is a feature Airbnb has been pushing to make booking faster and easier for guests. More importantly, Airbnb confirmed that Instant Book is part of their search algorithm, and 50% of its bookings are via this channel.

Additionally, the Instant Book filter might be turned on by default for most guests. With the filter activated, guests will only see the listings that have Instant Book turned on. In other words, your rental might not show up if guests don’t turn off their Instant Book filter.

  • Respond Quickly: You’ll need to have a 90% or higher response rate to use Instant Book. This means that responding within 24 hours or less will boost your search ranking on the platform.
  • Hasten the Booking Process: Since Airbnb prioritizes ease and speed of booking, you should also gain their favor. The faster it is for a guest to finalize a booking with you, the more priority you’ll get on Airbnb’s search algorithm.

If you’re not sure how efficient your process is, evaluate how long it takes for you to finalize booking with a prospect. If they ask a lot of questions and can’t complete the booking within 24 hours, you need to improve your listing and hasten the process.

Improving your listing by adding all features and amenities offered (e.g., wifi, Netflix, cable, water heaters, etc.). That way you’ll reduce the time spent answering potential client clarifications.

  • Keep Booking Commitments: Because Airbnb prioritizes reliable hosts, you should only accept bookings you can commit to.b Every time you cancel or reject guests, Airbnb will see you as an unreliable host, decreasing your visibility on search pages.

One important thing is to ensure that your listing has all the details and considerations listed. That way, the only guests who’ll book with you are the one who agrees to your terms. It’ll be easier for you to accept them since expectations are all met.

  • Update Your Calendar Regularly: Airbnb checks if you’re updating your calendar regularly because they want guests to have an easy time booking a place. Don’t miss bookings when your unit is available, and remember to update it right away when a booking is confirmed.
  • Post Shareable Photos: We all know that good photos attract guests, but what you might not know is how important shareable images are—the types that guests can send to their friends before booking. The more they share your photos, the higher traffic you’ll get, which results in Airbnb prioritizing your listing on search.

Post photos that highlight the features of your listing, photos that aptly describe the place, and ultimately, have the highest chance of being added to the Wishlist feature or shared on social media.

Issues that Lower Your Airbnb Ranking

In contrast, Airbnb also sees “bad listings” and tries their best not to show these to their audience. Moreover, Airbnb also has some features that, when ignored, will lower your search visibility.

Make sure that you don’t do these things, or else you’re jeopardizing your ranking and preventing yourself from attracting guests:

  • Booking Cancellations & Rejections: As we said already, Airbnb wants to prioritize reliable hosts. This is the reason why they’re constantly pushing hosts to achieve the Superhost designation, and will deprioritize any hosts who have a high cancellation rate.

It’s difficult to stop guests from canceling. However, by updating your calendar and including all important details in your listing upfront, you can significantly reduce the chances of guests canceling a booking due to a myriad of reasons.

You also need to make sure you’re not rejecting guests because it will also make your rank go down. Every action you take on Airbnb factors is tracked and being factored into your performance.

  • Extra Charges: Extra service fees and additional security deposits will affect the amount of traffic your listing receives—especially if you’re charging more than other hosts. Once your booking rates drop, your search ranking will fall with it.
  • Too Strict: Flexibility is another factor to consider. While you might want to limit a guest’s stay to just a few days, like the weekend or weekdays, that excludes a lot of people. If you’re more flexible, you’ll appear in more searches. 

Summary

Use all our tips and tricks to optimize your short-term rental listing on Airbnb and help you generate more profits. When you’re a stellar host, your guests will thank you and appreciate it. While some see Airbnb as a means to make money, it’s also a way to provide others a lovely place to stay and create lasting memories when they visit.

Remember that it all boils down to providing a great experience for your guests. Impress them, and you’ll have plenty of people hoping to stay with you. 

Any other tips we’ve missed? Drop us a comment below on what’s worked for you with your Airbnb listing! 

Image courtesy of Andrea Davis

Categories
Flipping

Top 5 Mistakes Novice Flippers Overlook (And How to Overcome Them!)

Reality TV shows may paint a picture of how easy it is to flip a property, but the actual reality is much more complicated than that. Unfortunately, beginner real estate investors often jump into the business without knowing anything about real estate and how it works!

In a nutshell, house flipping is buying a distressed property that you repair and sell for a profit. It’s one of the best ways to earn money from real estate, whether you do it full-time or only as a side hustle. In fact, flippers can make up to $25,000 profit on a typical house in the City of Detroit (provided, of course, that you follow the right advice). 

But like any business, house flipping takes knowledge, planning, and hard work to be successful. Without the proper guidance, you’ll only lose your hard-earned cash. 

So, here are five common mistakes that novices overlook and how you can avoid them altogether.

#1 No Market Knowledge

There’s more to house flipping than what you may know. One of the biggest mistakes new flippers make is buying a property that falls within their budget but is unfortunately located in an undesirable market. As a result, they end up stuck with a home they don’t need, with all their savings tied to an undesirable property.

Solution: Work with an experienced, local real estate agent who knows the real estate market well and can show you the ropes. Experienced agents will know things such as current market prices, what buyers are looking for, and the latest trends in the neighborhood. Then, continue learning by talking to other investors and following real estate investment blogs (like this one!).

#2 Investing Too Much Time and Money

The whole point of house flipping is to earn a good return on investment. But that is impossible if you spend too much money upfront. Moreover, time is also of great essence in the flipping business. On average, it shouldn’t take you longer than 1-2 months to sell it. The longer a property stays on the market, the more you have to pay taxes and maintenance. This increases your capital expenditure and squashes your potential flipping profit.

Solution: Follow the industry’s 70% Rule, which says you should only pay a maximum of 70% property value minus the repairs. This rule is significant for new investors who don’t have extra money to cover a project that goes sour.

For example, let’s say the property value is $200,000 after $10,000 of repairs. In this situation, you should spend no more than $133,000 to purchase the home ($200,000 – $10,000 x .70 = $133,000). If you spend too much money, you won’t be able to sell it for a significant profit.

On top of this, ensure that you work with a professional contractor before you purchase the property. They can inspect the home for you and provide an accurate repair cost for your budget.

#3 Overestimating Your Skill and Knowledge

Are you tempted to save money and repair the distressed property yourself? Keep in mind that so many things can go wrong if you don’t have the necessary knowledge and experience. It only takes one bad swing of the hammer to do irreversible damages to the home!

Solution: Start slow and look for homes that require minimal repairs (remember the 70% rule). You can gradually take up more complicated projects as you increase your knowledge and experience. Alternatively, work with a licensed contractor to flip the home for you so you won’t have to update the wiring and plumbing on a 60-year-old house.

#4 Miscalculating Cost of Repair

This is the most common mistake! 

One thing that most of the flipping & improvement shows get right is the “unexpected repair”. The demo crew opens a wall that exposes dry rot, termites, a major plumbing issue, etc. 

Miscalculating the cost of repairs can make your expected profits disappear. 

Solution: Look for projects that don’t require much work and talk to a trusted contractor to help you bring the home up to suitable standards. Also, build in 10-20% Cost Overrun in your repair budget. Don’t go overboard!

#5 Overvaluing the House

Finally, one of the classic rookie mistakes is estimating your sales price at the highest price possible. While this does happen, and it’s great when it does, you’re better off being a bit more conservative on your estimated sales price. 

Solution: Consult your real estate agent to land on a realistic price based on market analysis and careful consideration of the competition.  

Conclusion 

Home flipping is still a lucrative gig, provided that you are willing to invest the time and effort. While the concept is as simple as selling for a profit as fast as you can, there are so many pitfalls that can derail your efforts and put you in a financially difficult spot. 

Instead, learn from the mistakes of others! Avoid the top five mistakes novice flippers make to become successful flippers without burning cash.

Need more help in flipping houses? Feel free to get in touch. I’m more than willing to help you in your journey to become a successful house flipper.

Image courtesy of Sebastian Herrmann

Categories
Wholesaling

How to Dominate Wholesaling Houses in Your Area

While you might be tempted to cover areas beyond your local real estate scene, it’s possible that you’re already sitting on a wholesaling goldmine—and you just didn’t know it!

Here are the signs of a market that’s ripe for a booming wholesaling business:

  • Overwhelming amount of cash purchases
  • Abnormally fast sales
  • Houses getting multiple offers
  • Escalation clauses (to avoid getting outbid)

If your local area has all these factors, you’re in a great place to become a wholesaler.

Read along to find out the two-prong strategy that will help you dominate your local real estate market and build a successful wholesaling empire—right where you live.

Search-Optimize Your Wholesaling Business

Aside from doing offline marketing, there is also a world of possibilities online. Not only are geographic boundaries removed, but the internet also enables you to effectively target and reach your audiences with SEO (search engine optimization) tools.

Check out these online marketing platforms for real estate wholesaling:

  • Wholesaling websites
  • MLS (Multiple Listing Service)
  • Online forums and auctions sites

All of these efforts hinge on the fact that we do practically everything online nowadays. Your customers are more likely than ever to search online for new properties.

Your goal is to be visible and easily accessible via an online search. This is where keyword research comes in. By knowing what keywords to target, you can also maximize your reach on search engines, gain valuable traffic, and generate qualified leads.

Do a simple test to see how your business currently ranks in search engines:

  1. Search “real estate wholesaler [location]” on Google.
  2. Look at the top results.

Does your name or business appear? Where do you rank versus your competitors? Who shows up before you do?

Well, you need to beat them.

Optimize your searchability by choosing keywords that your buyers will search for, then incorporate them in your blog posts, listings, and website.

Here are some keywords you can consider:

  • local real estate wholesalers
  • house wholesalers near me
  • local cash buyers in [area]
  • local house sellers in [city]

For in-depth SEO strategies and more information on how keywords work, you should also check out Reibar’s article on keywords that real estate investors should be targeting.

To boost your online presence further, you can also pay to get increased visibility in highly competitive markets. Paid advertising involves platforms such as Google AdWords and Facebook Ads.

Network to Outshine Your Competitors

Given the wholesaling potential of your area, you might be competing with a lot of other investors. It’s definitely not bad for business, but marketing will be a challenge.

In our article on the best places to find wholesaling deals[1] , we mentioned a couple of offline marketing methods such as:

  • Driving for Dollars
  • Bandit signs
  • Direct mail campaigns
  • Networking
  • Newspapers

All of these methods are effective in finding wholesaling deals, but networking is the most important strategy when trying to dominate a market.

The good thing is that all competitive areas have an REIA or two in the community – Metro Detroit definitely does.

REIAs are a great place to start making your presence known—the goal is to establish your wholesaling business to outshine other wholesalers and be the go-to property supplier for the local area. REIAs give you access to a whole group of people for:

  • Building an active cash buyers list
  • Developing strong and reliable connections
  • Boasting your overflowing housing inventory

You can also team up with Bird Dogs or acquisitions managers who are interested in the local market. The more properties they bring you, the more inventory you have to sell to cash buyers.

Conclusion

The key to dominating your local wholesaling market is good marketing—both on-ground and online. By networking closely with the community and optimizing your online presence, you’ll set yourself up for long-term success wholesaling in any competitive space. Ultimately, you want to establish yourself as an expert—and building your credibility with a great online presence and consistent quality service is how you do this.

To succeed even in these uncertain times, go through our wholesaling trends and insights that have surfaced during the pandemic. Get a good grasp of the present and future of wholesaling real estate to dominate the business in your local area—and beyond.

Need help in beating your local competition? Get in touch with us! Our team is more than willing to help.

Image courtesy of Andrea Piacquadio


Categories
Landlords

Top 11 Amenities Renters Can’t Resist

Everyone hates going to the laundromat. Lugging a bag of dirty clothes to a laundromat even only 10 minutes away is the kind of hassle people want to avoid. And once you have the luxury of in-unit laundry, it’s hard to go back. 

When you’re trying to make a rental unit more appealing to potential tenants, you need to keep in mind what they’re looking for. For some tenants—it’s in-unit laundry. 

Every renter has a specific thing they want in a home, whether it’s granite countertops or hardwood floors. Whatever it is, highly-requested amenities are often deal-breakers. And these days, search filters on websites are getting increasingly specific.

When tenants search on popular real estate websites like Apartments.com, Zumper, RentCafe, or PadMapper, they have plenty of filters to choose from. As a landlord, you need to know exactly what makes your rental irresistible to potential renters. 

Writing an excellent listing and taking high-quality photos can help, sure, but the key to securing long-term tenants is by giving them a place with something no others have. They may even stretch their budget if it means they get to have the rental of their dreams.

So, without further ado, let’s dive into the top amenities renters just can’t resist.

11 Amenities and Features Renters are Searching For

These eleven items come from my experience running a property management company as well as data from industry-standard websites: Zumper and Apartments.com. In other words, you can be confident that these are the kind of features you want to use to attract interested renters.

  1. Air Conditioning: Heat and air conditioning come at the top of the list according to Statista. The law doesn’t require cooling systems, but many tenants want it. Not surprising given that a large part of the US gets hit with sweltering temperatures throughout the summer. After all, nobody wants to be stuck lying awake at night with loud fans blasting beside them.
  2. Central Heating System: On the flip side, many different regions of our country also deal with the coldest of winters. While all states require heating systems, they don’t require central heating—which is what most renters prefer, according to Zumper.
  3. Plenty of Parking Spaces: Another one of the most searched items is parking. Renters want to have a parking space reserved for them and others when they invite over company. Assigned parking is especially popular in urban areas where space is limited, and covered parking is sought-after in places that get rain or snow all year.
  4. Flexible Pet Policies: If there’s one thing we all have in common, it’s that we love our pets. Most of us have one, too, as a survey showed that 96% of Americans had pets before, and 72% of renters still have pets! If you’re not allowing pets into your rental, it may be time to reconsider.
  5. Dishwasher: As they say, the kitchen is the heart of every home. So what do renters look for in a rental? A dishwasher. It’s even the 5th most popular amenity according to the same 2021 survey from Statista. Even Zumper reports “dishwasher” is one of their top 10 most-searched terms.

By buying a mid-range dishwasher for even $500 to $1000, you can up the monthly rent by $50 or even $100 per month and make it back shortly—especially since a good dishwasher should last about 10 years. If your unit is on the smaller side, there are still options like countertop dishwashers that can attract tenants too. 

  1. Outdoor Spaces: Something that was a “nice-to-have” before is now a “must-have” after the pandemic. Zumper saw the search for “outdoor space” catapult by +143% after COVID-19 meant many of us were trapped indoors. Terms like “roof deck” and “balcony” also increased as people realized the importance of having accessible fresh air and open spaces.
  2. In-Unit Laundry Equipment: While others may argue that doing laundry is relaxing, Zumper data indicates that most renters want to turn an afternoon in the laundromat into a press-and-wait task at home. 

Having an in-unit washer and dryer in your unit makes their inevitable chores more convenient. It can even allow you to charge $100 more on rent! Especially when considering they cost anywhere from $300-$2,000 each, it’s logical that the rent will go up to cover the cost.

  1. Hardwood Floors: Nobody wants a carpet that reeks of pets or spilled liquids. They’re a pain to clean, and expensive when they need to be replaced. Instead, renters want beautiful hardwood floors that look better, last longer, and are easier to maintain than shag or wool.

Of course, if you’re going to splurge on flooring, you need to be sure you’re renting to tenants that will take care of it. Otherwise, you risk an even more expensive renovation. For C and D rental properties, this might not be the best choice.

  1. Furnished Homes: People hop from one city to another way more than before, which translates to a higher demand for furnished rentals. Not only is lugging furniture a hassle, but moving can cost up to $2,300—more than two month’s rent in the City of Detroit. 

If you do decide to go the furnished route, be sure to get it insured in case anything goes wrong. It also opens up the opportunity to charge far more if you accept short term renters, but it will still boost the price for long term rentals too. 

  1. Granite Countertops: While this is not a necessity, it’s a luxury that many enjoy. An updated kitchen is especially attractive to younger renters, since 76% of Millenials say that they enjoy cooking. Boosting the value and the appearance of the kitchen will help you stand out in a competitive rental market.
  2. Modern Appliances: If the toaster is old and broken or the microwave is stained or smells, it’s probably time to upgrade. Small changes like this can be a great way to subtly impress a potential tenant and help them justify their monthly payments. 

Of course, sometimes things can go missing or be taken, so this will depend on the type of property and type of tenant. If you’re renting out a high-end apartment to working professionals, then it makes sense. But, if you’re renting a basement suite to university students, then you could skip this.

Conclusion

These eleven amenities mean you have plenty of ways to entice prospects into renting your property—and maybe even increase your profits.

Keep these home features in mind when you’re upgrading the rental, revamping advertising materials, or expanding your portfolio to include more properties. They’ll give you a far more competitive edge in the market and attract serious renters looking for a perfect match.

Any other highly-requested amenities we’ve missed? Comment them below!

Image courtesy of Patrick Perkins

Categories
Wholesaling

Which Type of Real Estate is Best?

The answer is, you can wholesale anything that has buyers!

That’s what makes things tricky.

There is a multitude of real estate property types you can potentially wholesale. But which one should you focus on? Which are more suited for the wholesaling technique?

Consider that the ultimate goal in a real estate wholesaling business is to generate profit by locating distressed properties that are owned by motivated sellers, putting their houses under contract, then assigning the contracts to buyers who want them. You don’t renovate or take ownership of the property. Instead, you find good deals, estimate repair costs and ARV, and collect a wholesaler fee when buyers sign purchase contracts.

Two crucial things here: the potential profit you can make from the properties, and the speed it takes to match them with buyers. The whole process should take only 30-45 days because the faster you close deals, the more successful you’ll be.

But which type of real estate should you focus on?

Single-Family Houses

SFHs are plentiful in all states. A quick search of US housing statistics shows that 60.3% of housing structures in the country are SFHs (1-unit, detached). This makes them familiar to most, including wholesalers, and the obvious preference of most buyers.

You can find plenty of distressed SFHs under market value. In places like the City of Detroit, which was hit hard by the housing crisis and has lots of blighted areas, foreclosure-related sales are common.

Here, you can scoop up distressed SFHs with minimal capital, but do people want to buy them? Especially in blighted neighborhoods? It’s all about location, location, location, so no matter how good some deals are, they’re probably not suited to wholesaling. You want to find sweet spot houses that are both affordable and marketable. Cheap, tear-down houses in undesirable neighborhoods are not marketable.

With single-family homes, you can typically seal 5-10 deals per month, each of them giving you $5,000-$10,000 in profit. This makes them the bread and butter of the wholesaling business. They’re easy to find and easy to earn from.

Mobile Homes

While mobile homes aren’t the most popular, there are wholesalers who swear by them.

Mobile homes are the third most popular (7.6%) housing structure in the US. Most of them are in the southern states: Florida, Texas, North Carolina, Georgia, South Carolina, and Alabama.

There will always be a market for a cost-efficient living, so it is possible to find buyers for mobile home wholesale contracts. You’ll experience less competition, a stable demand, and get your name is known in the market fast (the community of mobile homeowners is often close-knit).

In terms of margins, mobile homes are low. You’ll earn around $500-$2,000 as an assignment fee for most deals you find. (Though it’s not unheard of to make $30,000 in high-demand areas, those come rarely!) In general, it’s going to take at least 6 mobile home deals to equate to 1 SFH deal.

In terms of volume, there are fewer mobile homes than SFHs across the country, too. So it depends on how much leg work you’re prepared to do, and which properties are in higher demand in your area/the people on your buyers’ list.

Apartment Buildings (and Multi-family Homes)

Most beginners are intimidated by wholesaling multifamily properties, due to their size and difference in buyer criteria (versus the usual SFHs). Instead of basing the value on ARV, apartment buildings and MFHs depend on the net operating income (NOI) or cash flow that it will produce.

Apartment buildings range in units sizes from studio to 4-bedroom, and in building sizes from a few floors to dozens of stories. In general, they are most in-demand in metropolitan areas. Because of this, apartments are not as preferred in smaller towns as in big cities. Keep this in mind, as apartments that attract fewer tenants will have a smaller buyer base, taking more time and marketing costs to seal deals.

Larger properties and buildings also take a lot of time to analyze. You will spend more time on these deals than you will with smaller properties. This means you’ll have lower volumes, so will need to make more profit from a smaller number of deals, most likely.

Nevertheless, MFHs are still in demand today, due to how much income they can provide on a monthly basis. There is also ease of managing them and higher ROI per unit compared to SFHs.

Wholesaling one building can bring in five to seven figures per deal, making the higher time investment on your part potentially worthwhile. Higher prices, bigger profits! Just make sure you’re prepared to put in the legwork and find the right location to wholesale apartment buildings or MFHs.

Commercial Properties

Wholesaling commercial real estate includes office buildings, retail malls, warehouses, or buildings with mixed usage. You’ll be sealing deals with investors who are looking to make money from overhauling and repositioning the building to attract businesses or tenants, focusing on NOI instead of ARV (just like with MFHs).

The pros of wholesaling commercial properties are bigger profit margins, less competition, and easier financing.

Their values are usually in the millions of dollars, therefore, the assignment fee you’ll make will also be high. Most real estate agents are also more comfortable with residential properties, so there isn’t much competition in the field, allowing you to negotiate with investors.

The range you can earn from commercial properties is wide (a small office will vary greatly from a retail mall). But with the right connections and buyer’s criteria, most of them are also easily sourced. In fact, some have experienced a larger pool of distressed commercial properties out there than residential ones (if you count construction REO properties).

Vacant Land and Lots

Empty lands can be wholesaled, too. Parking lots, infill lots, demolished buildings, acreage, and lots that are great for building new structures are fairly easy to wholesale. Given their variety, buyers for land wholesale deals will also come in all shapes and sizes.

If there is a market for new construction in an area, there will be a demand for buildable lots. Some home investors, for example, are constantly on the lookout for new lots to build on. Wholesaling empty land that meets their criteria is as straightforward as it sounds. These potential markets can be found by searching for areas that have sold newly-built structures recently. Chances are, those are the areas where houses are being (and will continue to be) built. That’s where you should look to wholesale vacant lots.

Flipping vacant lots can mean a teardown (usually done where the land is more valuable than the house) or a cleanup. Once you turn the land around, selling it can be fast – if it’s in a desirable area. The margins are smaller than with SFHs, however, unless you’re dealing in larger, more expensive plots of land.

Each property type has its pros and cons–and this list does not cover it all. At the end of the day, it boils down to what you want, how many deals you want to do, and how much you want to make off each deal.

If you’re looking for straightforward wholesaling, go for SFHs.

For beginners, start by understanding your market and building your buyer list. You can do this by joining local real estate investor clubs. It’s easier to find properties that match buyers’ criteria than getting stuck with properties that nobody is interested in, so make sure you research the level of demand in your area for each property type before getting started.

What are your preferred property types to wholesale? What are you curious to wholesale next?


the best thing a wholesaler can do is find a class C property in a Class B area. Second best option: find one very close to a B area.

Image courtesy of Rodney

Categories
Wholesaling

Top 5 Insights for Successfully Wholesaling Real Estate After a Year of COVID-19

Wholesaling real estate

Now that the global pandemic has been with us for a year, which trends started in 2020 that will continue to affect the real estate market in 2021? Particularly for wholesalers, what insights should you take away from the situation? How can you adjust and take advantage of new opportunities brought about by the lockdown? 

Being in a dynamic industry, where the only thing constant is change, the key to wholesaling success is to spot market trends early, extract relevant insights, and adjust the way you conduct your business.

In this article, you’ll find five important real estate trends for you to keep an eye on if you want to pivot with the landscape and remain successful in wholesaling real estate in 2021 and beyond.

5 Real Estate Trends and How it Affects Wholesalers

While the list below is by no means comprehensive, we see five important changes that happened in response to the global pandemic. Let’s discuss what they mean for wholesalers and the real estate industry as a whole.

1. Work-from-home is now mainstream.

With stay-at-home orders and social distancing rules, many office workers have been working remotely for nearly a year now, and most have settled into this new normal. What does this mean for wholesalers?

  • Many office leases are not being renewed.
  • People living in expensive homes close to offices are excited to relocate to the more affordable suburbs.
  • Vacation towns are now becoming an option for permanent residency. People are tired of big, populated cities and are seeking new places with more freedom and space on offer. 

Wholesaler Action: you may want to pay more attention to rural areas, where there is an increased demand from buyers—these are the areas that most office workers couldn’t consider prior to the pandemic, but now can. 

Don’t wait until the competition becomes fierce! Take the lead and meet the high demand before other investors swoop in.

2. People want an upgrade from their current home.

Working from home and having less social interaction with the outside world also means that people are investing more in their homes now. They want larger houses and backyards, more rooms and privacy, and bigger patios and storage spaces—especially if they have children. 

Families (and people of all ages) are now willing to invest serious money into creating a comfortable home, more than they ever were prior to COVID.

Wholesaler Action: This means that wholesalers need to pay heightened attention to the features of a home and think about whether or not they will be attractive to remote workers, homeschooled children, and folks who want plenty of leisure space when stuck on the property.

Think of the homeowner’s needs and preferences, many of which have evolved with the times. 

3. More people want to purchase homes.

After the record-breaking low-interest rates in 2020, the forecast for this year is still a relatively stable and low-interest rate. It doesn’t take a genius to see that we still have a long way to go before the economy improves, which means that interest rates are unlikely to move much higher within the year. Additionally, the Federal Reserve has declared that rates won’t be raised through 2023 to support economic recovery efforts.

For the real estate industry, lower rates mean lower payments, which means buyers can afford higher purchase prices. So, it’s an attractive time for people to buy a house (or two). Think about it this way: a $300k loan at 3% is almost the same mortgage payment as a $200k loan at 6%.

Wholesaler Action: For wholesalers, this means it’ll be harder to find and secure properties that are below market value. However, this also means that the properties you do acquire will sell quickly and for a higher price.

4. Housing inventory is low.

Due to COVID being easily transmitted, many people have put off selling their houses simply because they don’t want to have strangers in their homes. This increased competition within the housing market, with people snatching up the few available houses at lightning speed—even if they’re priced at top dollar.

Wholesaler Action: This makes it harder for wholesalers to secure deals at a discount, but it makes it easier to exit deals with a much higher profit due to larger spreads. In other words, it’s a good time to put in the extra time and energy in securing good deals and making up for it multiple times more at the exit.

5. The housing market likely won’t crash.

Contrary to what others might predict, due to the housing shortage and skyrocketing home prices, the possibility of a market crash is quite low for the moment. 

Unlike the infamous 2008 crash, this time around lenders did not allow homeowners to extract their equity via home equity loans or other methods. At the same time, appreciation and lenders doing smart loans have created incredible equity for homeowners. This means that, even with a struggling economy and high unemployment, it’s highly unlikely that we’ll see a wave of foreclosures.

For example, let’s say someone loses their job and can’t afford to pay their current mortgage payment anymore. However, they do have $200k in equity in their home. Will they walk away from their property and let it go to foreclosure? Or will they sell it and try to get as much of the equity out as they can? The obvious answer is to sell, of course!

Conclusion

When a door closes, a window opens—and early adopters will reap the most rewards.

As long as there are people who want to buy their own homes, there will always be wholesaling opportunities to assist the buying and selling process.

Choosing to not capitalize on the current situation out of fear is a losing strategy. As the famous saying by hockey Hall of Famer Wayne Gretzky goes, “You miss 100% of the shots you don’t take!”

So, keep searching for the right opportunities, and you’ll continue to be successful in any circumstances. Besides, real estate constantly fluctuates, even without a pandemic – so think of this as just another one of the industry’s lovely challenges. 

Any important wholesaling opportunities we missed?

Image courtesy of Alena

Categories
Shortterm Rentals

What to Do if You Have Negative Past Reviews?

The internet is full of critics, so it’s no surprise if you’ve got a couple of negative reviews for your short-term rental. This can feel like a low blow, especially if you’re doing everything you can to please your guests.

You might also experience more negative feedback if you’re catering to a higher-end clientele. They often have higher standards (the towels aren’t white enough! The oysters aren’t fresh!) and are, unfortunately, more vocal about it, as well.

However, a bad review is not the end of the world! What’s crucial is your response. Look at these as an opportunity to prove critics wrong, by showing them how good your customer service actually is. 

Here are some tips on how to handle negative reviews.

Calm Down Before Reacting

If a bad review gets you emotional, calm down first. Any rash reactions might “prove” the negative review right and scare potential guests away—whether your reply is posted publicly, or directly to the guest. Calming down will also allow you to strategically decide what course of action will give you the most positive result.

For STRs listed on Airbnb, here’s a technique: If you already suspect that your current guest will give you a negative review, remember that the review won’t be published until after two weeks, or after both of you submit reviews of each other. 

You won’t be able to read their review until it’s published, but you can delay it. Either skip your review entirely or wait until the two weeks is up before submitting your review. This will help because the reviews are posted in order of rental dates. By delaying a potentially negative review for two weeks, you give yourself time to get positive reviews from more recent guests—effectively pushing the negative review down the timeline.

Communicate and Apologize

Once you’ve calmed down, contact the guest directly. Though you can’t change the review they posted, at least you can show that you’re concerned about giving your guests the best experience. 

Offer your apologies and ask if there’s anything you can do to address the issues. In many cases, their reactions are due to a simple misunderstanding, which should be easy to resolve. 

Remember that most complaints are not a personal attack—it’s all just business, at the end of the day. But if the reviews are getting personal (and are justified), then take them as critiques for your own improvement. 

If the reviews are unjustifiable and/or unreasonable, then maybe the guest was just having a bad day. It still won’t hurt to offer a sincere apology, as hospitality is your job as an STR host. 

Keep Future Guests in Mind

Remember that all posts are public. Reviews that are posted on your listing can be seen by anybody on the internet. Even private reviews or responses can spread like wildfire to the guests’ circle of influence. 

So, when you’re replying to negative reviews, keep your future guests in mind. Your response should “reverse” or lessen the severity of the negative review, undoing the damage done to your reputation.

Keep your replies short and professional. Avoid being defensive or putting the blame on the guests, as these will only make you look hot-headed and immature. You want to show future guests that you’re an owner who’s mature, objective, and won’t lash out like a teenager if there’s a complaint. State facts, instead of feelings—explaining your side in the most objective way possible, without attacking the guest in any way.

These tips should help you handle any negative reviews you might encounter. However, it’s much better to avoid getting bad reviews in the first place. 

Take note of past complaints, and address those before accepting new guests. Are they upset because of a misleading description? Uncomfortable beds or faulty appliances? Lack of cleanliness or WiFi? You can significantly improve your services just by listening to your guests!

Steps to Remember:

  1. Breathe, calm down, and don’t take it personally.
  2. Think of the best strategy to handle the situation. Sometimes, this means ignoring a review—but only when the review is obviously biased or inaccurate. 
  3. Communicate directly and professionally with the guest.

Most people just want to know that they’re being heard. So, when you receive a negative review, assess the situation properly. Take all reasonable feedback as a chance to improve, and take all unreasonable complaints as a chance to show great hospitality and customer service—the real product you’re selling!

What’s your experience with getting bad reviews for your STR? Any tips for how to manage negative reviews? 

Image courtesy of Michael Burrows

Categories
Shortterm Rentals

How to Diversify Your Short-Term Rental Portfolio

Investing in short-term rentals (STRs) requires you to apply one of the main two schools of thought that exist when it comes to real estate investing in general:

  • Diversifying: Balancing risk and reward by spreading out investments across varied property types, locations, classes, and strategies.
  • Specializing: Focusing on investing in the same property type—repeating what you’ve found successful without spreading your resources too thin.

Both strategies are valid approaches to grow your portfolio. One focuses on horizontal expansion, while the other does it vertically. While investors tend to stick with one over the other, there is a way to have a hybrid—focusing on STR investments across different locations but keeping just to one specific asset class. Doing this can help you mitigate risks while focusing on one property type of your choice.

Before you set out to diversify your short-term rental portfolio, let’s look at the benefits of this approach.

Why You Need to Diversify Your STR Portfolio

There are two primary reasons why you need to diversify your STR portfolio: 

  1. To remain resilient in the market, especially with the unique rhythm of vacation rentals. Compared to long-term rentals that give consistent income year on year, the income generation of STRs is highly dependent on the season, the location, and their respective peak times.

A lake house will attract more guests in the summer, a log cabin near a ski resort will be profitable in the winter, and homes near Disneyland will be in high demand during school vacations.

  1. To meet the rising post-pandemic demand, where travelers are now seeking alternative accommodations to minimize human interaction and maximize flexibility.

In fact, the bookings’ reservation volume this year is now 400% higher than 2020 and 50% higher than 2019. With this increase in demand comes higher prices as well, where STRs are charging 20% more than they did last year.

As an STR investor, you want to protect your portfolio and capitalize on the growing demand—expanding your coverage to include rentals in other locations and of different class levels.

How to Diversify Your STR Portfolio

Now that we’ve discussed the benefits, let’s look at two ways you can diversify your portfolio. One way to diversify is opting to have STRs in multiple locations, which can bring more stability to your investments.

Diversifying By Geographical Location

While the STR demand in one city might be booming, another might be slowing down. By having investments in different locations, you can take advantage of a market’s natural ups and downs for a more stable and consistent revenue flow.

For example, take a look at how Big Bear Lake, South Lake Tahoe, Gulf Shores, and Sedona performed vastly differently over a two year period (thanks to seasonal demand, among other factors):

Source: AirDNA

If you have STRs in only one market, the success of your investments will completely be at the mercy of that market’s performance. Instead, consider spreading your investments across different geographical locations, so you’re not vulnerable to the same risks simultaneously.

In choosing where to spread your investments, AirDNA shares a list of different markets that covers the key factors of a successful STR investment:

  • Growing rental demand: Where the annual occupancy of rentals and listing growth rates are increasing. A good number means the STR and travel demand in the market is healthy.
  • Financial viability: Where you compare the home value to the average income of other STRs in the area (e.g., Airbnbs) to evaluate the rent-to-price ratio. The rule of thumb is to make sure that the monthly rent you can charge is at least 1% of the purchase price.
  • Increasing revenue growth: Where the income earned from STRs increases over time. You can calculate this by looking at the year-on-year change of revenue per available room (RevPAR) for the rentals that were booked in both time periods.

Here are some locations to consider, based on AirDNA’s top performers for these metrics:

Source: AirDNA

Diversifying By Asset Class

Generally, real estate asset classes are divided into four letter grades: A, B, C, and D. While these scores refer to property condition and neighborhood livability, it also describes the type of guests or tenants you’ll attract:

  • Class A properties: These are the most expensive and best-maintained homes in the market. They attract guests and tenants who can afford to live in luxury and enjoy the special features available in the property.
  • Class B properties: These are slightly smaller and more affordable than class A properties, but are still well-maintained. They attract those who want a pleasant place to stay without spending too much money.
  • Class C properties: These are reasonably maintained and decent homes. When times are tough, guests and tenants who used to stay in class A or B options might opt for class C instead.
  • Class D properties: These are older homes in areas that guests find less favorable to stay in. Aside from being in a more dangerous neighborhood, class D homes are likely far from shopping areas or grocery stores. Typically, they don’t make profitable STRs.

There are specific asset types to consider for Airbnbs as well. Properties are not divided into the same letter grades, but are categorized according to the type of guests they’ll attract:

  • Unique Stays: These are unusual but beautiful places to stay for a vacation. Whether it’s a yurt in the woods or a houseboat in a scenic lake, unique stays will attract guests looking to splurge on an adventure.
  • Entire Place: These are typically whole houses where guests have complete privacy to enjoy amenities and other activities exclusively.

Since these can be the likes of single-family homes, you can keep the letter grades in mind to diversify your “entire place” offers.

  • Private Room: These are single rooms in a bigger property. These listings attract guests who have no problem with shared spaces, such as kitchens and bathrooms. Travelers passing through the city or students on a budget tend to choose these.
  • Shared Room: These are similar to private rooms, except the guest can have another person sharing the room with them. These options often attract guests who are younger and more budget-conscious, like backpackers. 

The list is not exhaustive, but it shows how STRs are attractive to guests with varying budgets. Based on how guests generally respond to economic changes, it’s safe to assume that higher-class or luxurious properties would fare better in good economic times, while lower-class or budget ones will become necessary in tougher times.

The bottom line is you should consider the guests’ needs and preferences to diversify your STR portfolio and remain profitable in all parts of the market cycle.

Conclusion

The goal is to diversify your STR portfolio to appeal to a broader base, creating more stable revenue streams in your investment model. Doing so will help you weather market cycles and peak seasons, helping you meet the increasing demand for STRs in the post-pandemic world.

Any other tips on how to diversify a portfolio that’s focused on STR investments?

Image courtesy of Alexandr Podvalny

Categories
Landlords

Should Tenants Be Allowed to Make Home Improvements?

Nothing is worse than having a tenant who took “please feel at home” way too seriously.

While some tenants will only install their own wall decor or child safety latches on kitchen cabinets, some tenants make more permanent changes to the rental without your permission. This creates a whole lot of trouble—broken lease agreements, depleted security deposits, and costly restorations when they finally move out.

So, should tenants be allowed to make home improvements in any circumstances? Let’s look at some considerations.

Common Home Improvements to Expect from Tenants

Here are some examples of rental property alterations often done by tenants:

  • Painting the interior walls
  • Changing light fixtures
  • Changing appliances
  • Installing new locks on doors
  • Upgrading security systems
  • Changing the landscaping/garden

While these changes may be considered an actual improvement or upgrade to the property, you need to ask yourself the following questions before allowing them:

  • Will your tenants do a good job? They may not have the skill to carry out the project and may not adhere to safety or industry standards.
  • Who will pay for the improvements? They might expect a decrease in rent due to work done and materials used—even if the changes made are not up to par. 
  • Can you reverse the renovation? It’s possible that they deviate from the purpose of the original design (e.g., laminated floors are easier to clean than hardwood, simple landscaping is easier to maintain, etc.), which could require reversals in the future.
  • What does the lease state? Allowing them to break agreements might lead to them pushing their luck—further ignoring other clauses beyond just home improvements. 

You need to remember that your rental property is an investment—one that you should take ownership over, improve, and maintain according to your standards. Moreover, your tenants should see the importance of adhering to the contract and, ultimately, respecting you as their landlord.

What to Do If They’ve Done It Already

Should you discover that they’ve already made the improvements without authorization, here are three steps that landlords should do:

  1. Send a written notice of the home alteration, expressing your disappointment that they did not notify or seek permission before implementing the changes. Point out the specific lease clauses that they have violated.
  2. Warn the tenants that there should be no further changes done to the property without permission and that you’ll happily consider any changes they might still want to make.
  3. Outline the consequences of their action. This could range from just a fair warning to requesting that they reverse the renovation made—at their expense. If the alterations are extreme, you can deduct the cost from their security deposit upon Move-Out or proceed with eviction due to lease violation.

How to Prevent Tenants From Making Unauthorized Home Improvements

As they say, prevention is better than cure. So if unauthorized home improvements have been made by your tenants, make sure to review the lease agreements. Ensure that the following lease clauses are clearly stated:

  • Improvements that can only be done by the landlord or with landlord’s written permission
  • Improvements that can be done by either party
  • Consequences for alterations that devalues the property

Your goal is to create a space for tenants to freely improve their living conditions while being firm and clear with the boundaries. Even if you lucked out this time and the tenants did a great job improving the home, an unclear lease will open you to future problem alterations…and your luck may just run out.

Conclusion

Every rental property will need renovations and improvements from time to time. From repairing to re-flooring, landlords need to stay on top of their rental properties and make the necessary renovations when needed.

If your property can use a bit of work and you see that the tenants are capable of doing a good job, you should have no problems allowing them to improve the space. The bottom line is to make sure that they understand the boundaries and adhere to your lease agreements, and you should be good to go.

Do you allow your tenants to make home improvements? What are your non-negotiables? 

Image Courtesy of Polina Tankilevitch