How to Use Leverage to Maximize Your Wholesaling Profits
After you have a property and have begun shopping it around to the buyers, you will need to come up with wholesaling terms, especially deposits and asking prices. Much of the decision is based on current market prices; so, for example, if a property in a particular area is widely sought after by buyers in the area, you will be able to dictate a different price than if the property is in the middle of nowhere.
However, there is another element to wholesaling terms that is separate (but related) to demand, and that is leverage. The more leverage you have over prospective buyers, the more you can ask for.
While demand in a particular area is based on economic conditions, leverage is based on the number of buyers that you personally have interested in the property. It does not matter how many buyers there are in the world for that piece of property, what matters are the number of people that you personally have interested in the property you are dealing.
When you have leverage with your buyers, you can start to ask for slightly more exorbitant things – such as large, non-refundable down payments. You are also able to hold out on a buyer in order to get the actual value of the property you are dealing, rather than settling for a lower offer from a buyer that is trying to weasel their way out of paying the accurate property price.
At the same time, however, one must be wary about not having leverage. When you do have multiple buyers, you can afford to ask for amounts that a buyer may not be willing to pay in slow market areas. This means that buyers may easily get frustrated and walk away from the deal – but that doesn’t matter, because you have other buyers in this mix.
When you do not have multiple buyers you do not have that same leverage, even if the market for that area should be ripe with interested parties. Asking for something that could cause a buyer to walk away from the deal means that you lose one of the few individuals interested in completing the transaction. Obviously there is a high likelihood that if you have only one or two buyers, and one of those buyers walks away, your chances of completing the transaction are greatly diminished.
Deciding on your wholesaling terms is directly related to the amount of leverage you have over the buyers that you, personally, have interested in the property. The market is only one part of the mathematical equation.
As the creator of Virtual Wholesaling, Cris Chico is helping investors realize their dreams of financial freedom through his proven & guaranteed method of finding & flipping properties in hot markets (whether you live there or not).