By Stefan Aarnio: author, coach, entrepreneur and award winning real estate investor
Just like the Jungle, there is a food chain of predators and prey in the Real Estate Investor world. There are organisms at the bottom of the food chain like plants and plant eating animals. The organisms at the bottom are plentiful in number and the food they eat is abundant in nature. As we progress up the food chain, the animals become more sophisticated, larger and more carnivorous. There are far less lions in the jungle than there are gazelles because it will take hundreds of gazelles to support a few lions. The world of real estate investing is exactly the same; most investors belong to the herd at the bottom of the pack. They make very little money investing in real estate and are just producing enough money to survive. Conversely, there are a few highly skilled lions in the real estate jungle that are constantly seeking opportunity. These lions look for weak gazelles that can no longer operate and are looking to acquire their properties at a discount. The jungle can support far less lions than gazelles because even the weak gazelles are hard to catch. Whether we are in the jungle in Africa or the real estate market in Winnipeg, Manitoba, there is always the top 1% and the bottom 99%.
Deal Broker – Wholesale – Direct Sales
Once you have established a steady lead flow from your bird dog business and you have built a significant database of other investors, it may be time to evolve the business to stage 2 and become a wholesaler. With every new skill you learn in Real Estate, your income will increase accordingly.
“Income rarely exceeds personal development” Jim Rohn
Wholesalers run a similar business to stage 1 bird dogs. They generate daily lead flow from signs or online classifieds but instead of selling the leads for $20-$100 a piece, wholesalers will contact the leads and negotiate a contract to purchase.
NEW SKILL: NEGOTIATION – The ability to negotiate is one of the most important skills for any real estate investor. There is no faster way to generate profit than to become a better negotiator. From my own experience, most of the profits on my deals come from my ability to negotiate my profit into the deal. Most deals don’t have any inherent profit in them, but when you become a proficient negotiator, you become able to maximize profit and opportunities as they come across your path.
Wholesalers make over 10 times the money that bird dogs do, depending on the market, a wholesaler can charge $2,000 to $10,000 per contract with an average of $5,000 per contract. Wholesale purchase contracts are worth exponentially more than leads because negotiating contracts is a high-skill game and also very time consuming. Your customers and other investors will always pay a premium to take over a pre-negotiated purchase contract when compared to the price of a fresh lead aka: name, address and phone number. A fresh lead is only worth $20 because the investor has to pick up the phone, qualify the lead, drive to the property and negotiate the contract. Savvy investors will pay premiums to eliminate the extra work and bring in a final contract.
If you are diligent as a wholesaler and sell one contract per month at $5,000 a piece, you can make up to $120,000 per year working part time. The money in wholesaling can be appealing to new investors looking to get into the game, but the real value lies in the relationships you build with senior real estate investors. The investors who buy your contracts slowly begin to love you because you bring them finished contracts that yield high returns with literally no effort. This relational capital and network is worth a fortune when you consider the lifetime value of the relationships.
One thing to keep in mind is that the investors who buy your contracts are still making more money than you. However, never forget the first rule of negotiation: “get what you want and get out”. Never count the other person’s money, count your own and resist the urge to become greedy. Always leave some profit on the table for the other side and build business relationships that will last for a lifetime.
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Stefan Aarnio, award winning real estate investor, entrepreneur, author and coach was recently inducted into the Rich Dad Hall of Fame. His book, “Money People Deal: The Fastest Way to Real Estate Wealth” is currently available on moneypeopledeal.com. To learn more about Stefan Aarnio please visit StefanAarnio.com