One of the things that I realized early on when I was evaluating different ways to make money, this is going back when I was just first getting started. When it comes to business there’s basically two business models: I can either put together a high volume business or I could put together a high ticket business, high volume or high ticket.
Now a high volume business is a business where I have a high volume of transactions and I have a high volume of activity by making small to modest profit per transaction, all right. Think of McDonald’s. McDonald’s just cranks. It’s all based on volume.
Now, an other type of business model is a high ticket business where I deal in high ticket items, high priced items, high ticket items. I make high profit per transaction but I have fewer activity, just a little bit of activity, so I’m doing fewer transactions per year.
All right, so then I – that’s true for any business. Then I was taught wholesaling early on. Early on I learned about this home business called wholesaling, putting property under contract and flipping to another buyer, making money. I said, that’s a neat model. I could do this getting started on a part-time basis. Let’s put together a business plan.
That business plan had the goal to be to make $100,000 in the first 12 months. Okay, well, to make $100,000 a year wholesaling, let’s look at that. Well, if I’m going to do it in houses, they had taught me I could expect to make $3000 to $5000 wholesaling houses. Let’s assume I make $5000 per house. That means I need to do 20 deals per year to make $100,000. That’s almost – I need to close almost two deals per month, one every couple weeks or so.
Wait a minute, I don’t have that kind of time. I’ve got a full-time job. I don’t have this kind of – that’s not going to work for me. It’s too much activity. So then I said, okay, wait a minute. Let me ask myself this question. What if instead of making $5000 per deal, what if I made $50,000 per deal? Well, I need to do two deals per year. And this is yet another reason that I got started in multifamily. That’s why my mentor pushed me in here. Remember making the bigger numbers to more quickly reach financial goals.
So that’s why I talk about doing larger deals. Now, let me ask you a question. Where do you think there’s less competition? Is there less competition in high volume or less competition in high ticket? High volume or high ticket?
Well, if you said high ticket, you are correct. There is less competition in high ticket and, again, why is that? Because it’s that extra zero. That extra zero in that $50,000 creates what I call the fear of the zeros. It intimidates a lot of people. People think they don’t understand how to do it. They think it’s complex. Sometimes they think it’s not – they’re not worthy of making that much money.
There’s all these different factors that have nothing to do with the facts and the facts are having done both small end and the high end, I can tell you from experience that the process of wholesaling a $50,000 junker to someone looking to buy a $50,000 junker is the same process of wholesaling an $11 million apartment complex to someone looking to buy an $11 million apartment complex. It’s different buyer profiles but it’s the same process and neither one requires your money.
So once you understand that, you’re now free to move into doing these larger deals where there’s less competition and there’s lesser activity and you get higher return on your time and bigger paydays.