Why I chose to start a wholesaling business - the connection between the entrepreneur and the business model
Entrepreneur of the Week Daniel Nigeri # Post 2
So in December 2019, two years after graduating and about six months before the onset of the corona plague, I resigned from my job as a full-time engineer with the goal of starting a real estate business in the United States.
Sounds crazy right ?! 4 years of Sisyphean engineering studies at the Technion and after only two years in the job market I take a U-turn. Following the purchase of a property in the US that put some madness in my head of doing business with it. With the exception of my wife, who is the one who even pushed me to take this step (not just hearing a person get upset every night for many months), the reactions from the rest of those close to me were very skeptical.
You have to give it another chance, just started you will develop and connect to it, you just had a child born and need to support, how will you live on one salary? But only some of the responses I received. At that point in time at 29 I really did not find my place anymore in terms of career. So while I did not know what was good for me, but I did know where it was not good for me and it is no less important. This is exactly why I knew I had made the right decision for me on a personal level even if there is uncertainty in the decision about the future.
So after I left work it was clear to me that I needed to start a business and not look for investments. A business that will support me and my family on a regular basis. I also knew it was going to be around real estate in the US but I still did not know what exactly.
After examining the options available to me, I decided to examine in depth three models - flips, accompaniment and attracting investors for real estate investments in the US, and wholesaling. The goal was not to compare the profitability of the models. It was clear to me that it was possible to build a successful business around any of these models and I also met people who did it. The goal was to compare the models by looking at other parameters in order to make a decision about the business that suits me and my character because ultimately the entrepreneur is the spirit of the business (probably in the beginning there are no employees and partners) and if the entrepreneur does not like what he does then failure is really doomed.
So I looked at the pros and cons of each model by looking at different parameters and how they fit in with my character and what I bring to the table so I can make the right decision and I want to share with you (briefly?) The conclusions I reached and how I see things:
Accompanying and recruiting investors for investments:
The product - Nelden Investments in the United States.
The customer - "passive" investors, probably Israelis, considering my background and place of residence.
Risk - relatively low - initially mainly marketing and networking expenses in order to increase the pool of investors and the investment site. It is also possible for a long time to get along without employees, certainly if there are partners. There is a certain risk of damage to reputation even if you are honest people and do everything according to the book. A common example is when the property moves to an outside management company after the loan and then problems begin that cause the investor to be dissatisfied with the investment.
Attributes required of the entrepreneur - first and foremost to be a service and a sharp marketing person. In addition to sales, networking, patience, responsibility and a solid attitude (this is not about your money but about investors who believe in you).
Complexity - Medium - Good marketing and sales people will not have a hard time picking up a good array for locating and recruiting investors. The difficulties in growing a business (scaling) usually come from other places such as finding enough attractive deals for investors and maintaining product quality as the company grows, maintaining a good reputation that will continue to attract customers, and establishing a quality customer service system that will hold investors accountable and know how to handle their referrals. As the number of investments and investors increases.
Employees - does not require a large but quality team that speaks the language of investors with high capabilities of business development, customer service, marketing and sales (not simple at all and this is one of the main reasons in my opinion quite a few such businesses fail / want to make the leap and work in One man format show or partnership when the partners do all the work in the business).
Flips (single Famlis for residence):
The product - residential properties for Americans for sale in the market
The customer - buyers of American apartments - mainly families
Financial risk - high - involves a large financial investment whether equity or taking out loans. Flips have an element of uncertainty and many things can fail (usually because of the developer) and more rarely because of the asset. Add to that remote control management of a field renovation. There is no doubt that the risk to a novice entrepreneur is very high.
Traits required of the developer - resourcefulness, quick decision making, remote field personnel management, understanding of renovations, patience and high mental resilience, flexibility and the ability to deal with brakes on a regular basis.
Complexity - High - Flips is a model that is much harder to grow with. This is mainly due to the entrepreneur's much dependence on quality and reliable professionals. An increase in the volume of transactions requires more professionals to work with on a regular basis. Entering new markets requires a good knowledge of the market and building new teams from scratch. Also as the volume increases there is also much more in the furrows to deal with on a daily level which makes the system very difficult and requires a very strong system.
Employees - The business is mostly based on the employment of contractors and independent agents per job / project and not direct employees of the business (except companies that employ project managers) so that there are almost no direct personnel expenses that do not depend on a specific project
Wholesale:
The product - assets for investors off the market
Customer - US real estate investors whether flippers or income-producing real estate investors.
Risk - Medium - involves a large investment in manpower, technological systems, databases, marketing expenses for locating assets. Monthly expenses can range from thousands of dollars a month to tens of thousands of dollars and more depending on the scale. The entrepreneur has control over the growth rate and the amount of money required to invest in the business. We for example took the time and did not run amok with expenses until we accumulated enough income. Today we spend tens of thousands of dollars a month when more than half of that goes to manpower.
Attributes required of the entrepreneur - excellent operational capabilities, technological approach, logic and system construction, order and organization, management and training of employees, patience, marketing and sales.
Complexity - relatively low - Overall wholesaling is a simple business in terms of its complexity (make no mistake it is not a quick way to make money and it requires daily sacrifice and record commitment) so it is a great model for replication and growth. The business mostly relies on technology and manpower a large part of which should not be too high quality (except acquisition people). The big advantage of the model is that it can be almost completely virtual, without space involvement, which makes it very easy to increase the volume and enter new areas. Once there is a system you can locate transactions in almost any area in the US using the same methods and with the same employees. The challenge in moving between markets is mainly a challenge of finding buyers for the properties and not finding the properties themselves - a completely solvable challenge if you have a good product (good deals). In addition there is also no matter of customer service.
The main challenge in performing scaling is employee training and retention.
Employees - Wholesaling is a business that is mostly based on manpower and it is the main challenge in the business and the main expense in the business. It is very important to give comprehensive training to employees and to adhere to clear work procedures that leave no room for doubt in order to achieve results and build a great business. Many entrepreneurs in the field invest most of their time in the personal development of acquisition and negotiation capabilities or the improvement of technological systems. It's great to start with but I think those same entrepreneurs miss the fact that in order to make something big out of this business you need employees and a lot.
So after researching in depth the three models for me the decision was simple.
Marketing and services were not my strong points (investor accompaniment). I do not like the first to this day and in the second I have actually improved a lot, especially in the last year that we started working with some investors. It is also important to note that at that time I did not feel confident enough to invest other people's money and sought to gain more practical experience.
As for flips, although today we do quite a bit but it grew out of the model of wholesaling with which we started.
At that time I still did not understand much about renovations and the idea of flipping a property from the other side of the world was too delusional and dangerous to me (even though I knew people who have been doing it for many years in an amazing way and it works for them).
On the other hand, I am a very operative person, love sales, I have always been enthusiastic about automation and process management in a consistent and systematic way, since I was a child I was good at motivating people and working within a team and have a very great affinity for technology.
I decided to set up a real estate company around a business model of wholesale and from that day until today I have dedicated myself to this company on an absolute level!
It was important for me to share with you the process of choosing the model of the business because I truly believe that devotion comes only that we love and are happy from our daily doing and with it also success. Choosing the business model of any business has a direct impact on our lives so it is important to choose according to what suits us and not according to what works for others.
In the next post I will share with you the processes we went through in building the companies with an emphasis on building a system from day one. Such a system that will allow us to copy our model to other markets in a simple way (just like McDonald's - it's good not to get carried away, but do you get the point?) and carry out a healthy scaling for the company without drowning in chaos.
Thanks to everyone for the encouraging comments on the first post! I hope you also enjoyed this post and if there are specific topics you would like me to write about, feel free to write them down in the comments. see you again tomorrow
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