Ever have one of those great conversations that you secretly hoped would never end?
Yeah? Me too. (I love those, and I wish they weren't so rare...)
Fortunately, today’s lesson is a continuation of the insightful conversation we’ve been having with Cris Chico, regarding his wildly successful virtual wholesaling business.
In previous portions of this ongoing dialogue, Cris has explained his personal Step-by-Step Checklist for Virtual Wholesaling and provided us with an in-depth analysis of How to Build A Well-Oiled Virtual Wholesaling Team.
Accordingly, you may already know that Cris is one of the industry’s foremost experts on the art and science of virtual wholesaling. You may also recall that he runs an impressively efficient (and lucrative) operation from his armchair – which allows him to live a pretty sweet life in South Florida.
But here’s something you probably don’t know about Cris’ virtual wholesaling business: How he conducts his own special brand of market research. (And this is a vitally important piece of anybody’s virtual wholesaling puzzle.) In fact, Cris describes his ability to quickly evaluate potential real estate markets as “one of the biggest keys” to his impressive success in this business.
Yes, in order for you to kick-start your own virtual wholesaling operations, you too must learn how to identify profitable real estate markets – some of which may be located far away from your own personal armchair.
WARNING: This is not a joke. If you try to engage in virtual wholesaling without a healthy grasp of comprehensive market research, things will not go well for you. You absolutely must know what makes a certain wholesaling market “good” or “bad” – if you want to stay in this business for any significant amount of time. It is quite simply not optional.
Fortunately, Cris is an open book, and he has been more than happy to share his market selection methodology with us. In today’s lesson Cris explains his exact process for finding and choosing a new wholesaling market. As “The Godfather of Virtual Wholesaling”, Cris has essentially perfected this process, and now it’s time for you to learn the secrets of his success …
Virtual Wholesaling – Market Research 101
JP: Let’s jump right into the step-by-step of your Market Research process. Where do you suggest students start?
Cris: A lot of people ask me, “Hey, I’m interested in wholesaling… Should I start in my own market, or should I go into a different market?” and I always recommend that people to try to stay local, mainly because it’s a lot easier to deal with when getting started. Going to a virtual market does add another layer of complexity. I will say that it really depends on your real estate market.
I’ve found that my students typically experience a little more difficultly when wholesaling and executing the module in markets where price points are especially high. For example, in places like New York, Boston, and certain areas of California – where the price points are much higher. Of course, there is the potential to make a lot of money in these markets, but I have found that you might have to spend a little more on marketing to find the deals.
For beginners in this business, it can be difficult to find the cash needed to successfully execute a campaign in higher-priced markets. I usually recommend migrating toward markets where you can buy houses in the $15,000 to $20,000 range, and then up – still in a market where someone could easily buy a property, fix it up a little bit, and then rent the property out to make a decent profit.
And direct mail is my main method for marketing to both buyers and sellers alike, so no market is viable if I cannot get the necessary information and records in that market. Also, there needs to be a minimum number of buyers and sellers in the market.
Regarding the actual property selection, I look for data.
JP: When looking at a NEW market, what sort of data are you looking for, in order to determine if it’s a market in which you want to start investing?
Cris: A minimum of 300 buyers who have purchased in the last 3 to 4 months, and a minimum 2,000 to 4,000 sellers in the market.
JP: When you are saying “seller”, what exactly do you mean?
Cris: Regarding sellers, we are going after absentee owners of single-family houses, duplexes, triplexes, and quads, who have owned the property for more than ten years.
All of those prospects exist in any given market; the question is whether or not you can get to them. We use a data provider called Core Logic for most of our data needs. Core Logic is the provider of ListSouce.com, which provides several different types of lists for real estate investors.
You can sign-up for a free account with ListSource.com, where you can investigate whether there are at least 300 active buyers and at least 2,000 to 4,000 sellers in a certain market.
Just search for (i) absentee owners that have owned property for latest 10 years and (ii) absentee buyers that have purchased in the last 3 to 4 months.
JP: Do you find there are certain markets for which you simply cannot find data?
Yes, there are certain markets where you simply cannot get the data. In those cases, you have to go directly to the property appraiser’s office – and sometimes it’s feasible, but sometimes it’s not feasible.
There are also non-disclosure states such as Montana, Wyoming, Alaska, Idaho, Kansas, New Mexico North Dakota, Missouri, Nebraska, Louisiana, Texas, and Utah. Non-disclosure means these states do not allow certain information to be made available to the general public. For example, they do not have to disclosure what a property has sold for.
Of course, you can still use ListSource to pull records, but you just won’t be able to pull comps and find sale prices for properties in non-disclosure states. In those states you may need to get MLS access.
A couple other things: The company that owns ListSouce.com is the same company that owns the software for RealQuest.com. RealQuest can be used to pull comps, and you can also use it to get property records. But don’t sign-up for a RealQuest account until you know which market(s) you want to go into.
JP: ListSouce.com and RealQuest are separate products owned by Core Logic. They pull from the same big pile of data, but ListSource is more for pulling lists and RealQuest is a subscription service for pulling comps.
Cris: Yes. Start with ListSource.com and make sure you want to be investing in a certain market; then get a RealQuest subscription for that market.
If you are in one of the non-disclosure states, then you are not able to use RealQuest to pull comps. You will want to gain MLS access to pull good comps there.
JP: What’s the quality of the comps in RealQuest, based on your experience, compared to what you might pull from the MLS?
Cris: RealQuest will give you more comps, because with the MLS, you are only getting realtor-sold properties. RealQuest will give you individual seller comps as well as the MLS comps.
For me, I find that even though I have both the MLS and RealQuest, I tend to use RealQuest more.
JP: Is the data in RealQuest current? And does it include everything that the MLS includes?
Cris: RealQuest does not include active sales, pending sales, and that sort of thing. RealQuest is very current; it updates its records at essentially the same time the market does. It’s usually about 30 days behind the MLS, but that could vary depending on the market you are in.
JP: It sounds like RealQuest is a great resource for non-licensed real estate Investors.
Cris: Yes. Personally, it’s that one tool that I would choose to keep, if I could only afford to keep one real estate tool.
JP: Don’t use Zillow, guys!
Cris: Now, let’s say we have selected a real estate market…
What do we do next?
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Download a list of buyers – the absentee owners who have purchased property during the last 3 to 4 months.
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Personally, I do a frequency analysis on each zip code, because I want to identify which zip code has the most transactions during the past few months. Which zip codes have the most investor activity?
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Target the zip code with the most sales.
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Conduct your own analysis to determine the average sales price for each zip code. I want bread-and-butter neighbors.
JP: Speaking of that you said earlier, you tend to target areas where you can pick up property for $10,000 to $15,000. That seems really low for many people. Even in my area, you can pick up property for that low, but it tends to be in crappy neighborhoods.
Cris: Let me clarify that. On the low end of the spectrum – for instance, in my market down here in Florida – most of the deals we are buying are in the $35,000 to $75,000 (or $80,000) range. We are then marking them up and selling them.
I do agree with you that you should stay away from the really really low end – the houses you can buy for like $5,000 or $6,000 – because there is so little room to make them up, and because you are dealing with the worst areas in that town.
JP: What do you think is the average range of retail values for the properties you are dealing with?
Cris: I would say in the $75,000 to $150,000 range.
JP: Perfect. Please proceed!
Cris: Okay. So I download my buyers list… Then I find which zip codes have the most investor activity… Then I find which zip codes have the best price for us… And then we handpick which of those zip codes are the best for us. And then I go to ListSouce.com for downloading a list of sellers to target.
Essentially, I am just playing a kind of matching game. I am looking finding the zip codes that have the most investors, and then I am looking in those same zip codes and finding sellers to target.
Again, I go after single-family houses, duplexes, triplexes, and quads. I don’t target multifamily properties, just because it’s a different buyer and “a different animal” all together. And I don’t do condos.
Once I download that list, I do some sifting and sorting and formatting… And then I have that list ready, to be distributed in one of my operation’s direct mail campaigns.
{Mogul Elite Members: Download and Listen to our conversation in the Power Pack Tools for this Lesson.}
Start Local – For most new real estate investors, it’s easier to get started in your own backyard. Begin the market research process for your own area, and see if your market is right for wholesaling.
Obtain the Necessary Data for Your Market – In order to determine if your market is great for wholesaling, it needs to have at least 300 active buyers and 2,000 to 4,000 sellers. Kick-start your search for this vital data by signing up for a free account with ListSource.com.
Drill Down in Your Market – Sort your Buyers data and find the 2 or 3 zip codes which have the most sales (and which represent a fair price point).
Target Absentee Owners – Purchase a list of absentee owners who have owned the property for at least 10 years. Mail to them!