We can all point at Apple, Netflix and Amazon and talk about how much money they make, how great they are and how they will never lose. A lot of “experts” will point to these stocks and feel as though they have made some profound pick in telling you to buy what is big and healthy. I take the opposite approach. I am a contrarian, I buy what people hate. I buy it hard. I buy it all up. I make it great again.
Now you might hear this and think it is foolish. Why would you invest in something that isn’t a great stock or a great piece of property. This is because THAT is where all the returns are. This same strategy is true in real estate investing. It took me a while to feel it but I am convinced more and more that it is just good business to buy the bad and make it great again.
Here are FOUR reasons why wholesaling property is just like value investing and if you take the same approach you take investing in the stock market as you do investing in real estate you can make out-sized returns.
- Wholesalers look for problem properties, value investors look for problem companies
A lot of real estate wholesalers would be great stock market investors if they knew that their wholesaling skills are directly correlated with value investing. Wholesalers don’t look for the pretty property on the corner they look for the one with problems. The more problems the better. When a wholesaler or investor walks into a property and smell cat pee they smell money. The same is true for stocks.
What makes this difficult for stocks and some real estate markets is that they have a more public market. Stocks get slammed by “experts” who tell you not to buy. They tell you that the company is trash. They tell you that it is never going to come back. So investors avoid those stocks but in doing so they also miss out on massive returns.
When you hear things like this that is a sign to move in and move in rapidly. This bad news and bad press can be used as bargaining power. This bad news and press is what wholesalers tell sellers everyday with the knowledge that trouble wont last always. In stocks when you hear bad news this is just time to get a bargain price. The stock will fall and you swoop in for the buy low moment.
2. A value investor just like a wholesaler hears bad news and licks their lips because they know it is time to feast.
When I hear about a racist comment at Papa Johns or a health and safety issue at Chipotle I know it is time to eat. Not literally because Chipotle needs to handle that but I know it is just a matter of time before they get it all together.
The same is true for real estate. I will never forget when I mentioned to my mentor Al Williamson that I was looking at a property that had a murder on the front steps. He told me that is a buy ALL DAY. In real estate, like in stocks, the best deals come after BAD NEWS. Think about it, a flood, a divorce, a death a lost job, a murder, these are ALL times to get good deals in real estate and they all follow bad news. The same is true for stocks. When bad news comes that means there is money to be made for the savvy investor.
3. Wholesalers buy what the market hates, value investors buy what the market hates
When you invest at the top of the market you can only earn what the market gives you. This is that 12% ROI or the basic $100 a month cash flow from your turnkey rental. If you REALLY want to get abnormal sized returns like Buffet and Icahn you have to get in the mud. You have to buy Detroit at the low, you have to buy American Express on the brink of bankruptcy.
4. Wholesalers buy property for pennies on the dollar, value investors buy shares for pennies on the dollar
When you find that off market, beaten down property you can get it for pennies on the dollar. You can then add a few bucks, do nothing, or do a full rehab and make tens of thousands of dollars. For a lot of people this is a return that obliterates that which they would get in the stock market. This is because most people invest in the stock market differently than they invest in real estate. People compare apples to oranges.
People who make the stock market to real estate comparison often compare retail investing to value real estate investing. They find beaten down off market properties but they buy the stocks that their broker recommends. They buy the glamour stocks. This makes no sense and it is a terrible comparison.
How this applies to even more than stocks
What is important here is that this theory is no only applicable to stocks and real estate it is also applicable to businesses, employees, apartment complexes, land, cars, anything that you can get for a value price will ultimately create net worth and out-sized returns.
So the key here is that as an investor in the stock market you should be on the hunt for stocks with terrible news, with scandals, with falling earnings. You want to buy what people don’t want because this ensures that you will get a great price. On the other hand you want to sell what people love because this ensures you will get top dollar and you won’t lose out when that top value stock begins to erode away against the market.
Read everything, watch everything, talk to everybody
This lesson is not something you will get from reading one book. They will not teach you that. I personally have read over 100 personal finance books. What I am teaching on these days is a combination of strategies, theories and experience. I have bought the big sexy and lost. I have bought the crappy company and see a 35% return. I have looked at properties that sell at market with no margin. I have bought properties that are so cheap that mistakes and missteps are priced into the buy. Don’t just take the wholesale approach in regard to real estate. Take the wholesale approach with any asset you buy. You should always be on the search for distressed assets not turn key assets where everyone has eaten before it gets to you. Be the person that creates the opportunities not the person that waits for opportunities.
I encourage you to invest with us and join our partnership. We are doing a great work and if we keep up the pace we can be into twelve doors before the middle of next year. We are also going to buy a truck by midyear. If you want to form your own contact us for a consultation and we will walk you through the process.
If you are interested in investing with our club on either the stock or real estate side we would be happy to welcome you into the partnership. Email email@example.com today to join.
We have an amazing course that will teach you all you need to know about how the stock market works and you can find that here: https://www.udemy.com/what-they-didnt-teach-you-about-money/
Thanks for reading!
Be great, invest well,