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David: All right guys, welcome back to the discount property investor podcast. David Dodge and Mike Slane both here today, coming today to talk to you about the importance of making offers, episode 179.

Mike: Alright alright. Dave, how are you man?

David: I'm doing good Mike.

Mike: Good.

David: I'm doing really good. This is the 4th podcast today.

Mike: That's too many podcasts.

David: The first three were all about wholesaling, marketing, motivated sellers, right? We didn't touch a whole lot on making offers in those episodes, but I'm glad we're talking about it now because making offers is so important, especially if you're new. You know, when it comes to wholesaling, you got to have something in your inventory to be able to sell to make a profit right? If you don't have control of any asset, it's very difficult to get to that fifth and sixth step of wholesaling, which is selling it and getting paid.

Mike: That's exactly right and I look at wholesaling- you have to look at wholesaling, your wholesaling business just like any other business. When you walk into the store or the doors of Walmart, if the store shelves are completely empty, if everything's barren, Walmart didn't make any offers on products, they didn't- they don't have any inventory, so they have nothing to sell. Guess what guys? That's you as a wholesaler if you don't make offers and get properties under contract. If you have nothing to sell, you're out of business.

David: You're out of business.

Mike: You're not making any money that week or that month or however long you don't have a property under contract. Get something under contract, that's the moral of the story.

David: It's simple. It really is, yeah. So, the amount of offers that you make is going to be correlated to the amount of deals that you're going to do. I mean, it's so simple. So, this is a numbers game, and we talk about that whenever we are talking about our marketing, right? We talk about that when we're talking about our appointments. We talk about that whenever we're negotiating, it's always a numbers game. Well, it's the same way with offers, right? So, if you send one offer a month and you have a 20% chance of your offer getting accepted on average, well it's gonna take you five months for you typically to get an offer, but if you're making five offers a week with that same average, you're gonna get it in a week, right?

Mike: Absolutely.

David: So, you know, here at our company, we make 3-5 offers every single day. Last night while I was laying on my couch, we had two team members that were working and I kept getting notifications of them making offers and it was the best notification to get cuz it's like, okay cool, someone is making an offer on a property. You know, the seller doesn't typically like our offer, right? But we make it anyway and we anchor low and we start to build rapport and then we go up from there, you know, it's very difficult to come down but going up is always easy, but by getting these offers over, it helps us with the numbers game which is what we're talking about.

Mike: And to me, an offer also helps you establish credibility. Like, I know that sounds kinda funny especially for a new wholesaler, but you got to think about uhh if this person gets 10 postcards, cuz again, you're probably not the only person in your city sending out postcards. So, let's say you're one of three or four people that actually answers the phone and shows up. Well, guess what? then of those 3 or 4 people, maybe one of them is new, maybe one of them is a pro. Well, the new guy- he probably isn't going to make an offer, he's gonna be scared, he's going to be double checking his numbers, triple checking his numbers, not gonna get that offer out in front of them, so put that offer out there. You're there to but the house, you have to make an offer to do that. Again, I think it's just- it's extremely important. I don't know, you just can't overemphasize that. Let's talk about maybe just the different ways that you can make offers.

David: Oh absolutely.

Mike: And what I really mean when I say make an offer, cuz what I really mean is get it in writing and put a full contract out there like, send a contract but that's not whole story, right?

David: Right, so we're gonna go look at 3 properties today Mike. You're going to go to one or two of those with me.

Mike: Yes sir.

David: And we're gonna make 3 offers today so we're gonna put them in writing an=d send them over, the whole nine yards. So, typically when we make offers, we always try to send them in writing regardless if we make a verbal. I'll make verbal offers on the phone before I even see properties, but they'll typically have spreads. They'll typically be 50- 60% of maybe an estimate, something along those lines, to let them know that hey I am willing to buy but I need a discount, otherwise, you know, you can sell it on the retail market with an agent and it may or may not sell and it may or may not be quick and it may or may not be fun. But if you want to sell it to me at a discount, I'll happily make your life so incredibly easy and I'll give you an amazing amount of convenience by doing all the work for you and getting that deal done. So, we make offers verbally, we typically do that with a spread from the get-go. Next, we'll go out and we'll view the property and we'll maybe tighten that spread or give a fixed number on the appointment and then we always will send it in writing so we typically try to get the email address of the seller right in the beginning like when we first make contact and we say hey, thanks for calling, what's your name? what's your phone number in case we get disconnected and oh, if we're gonna send you an offer- cuz again, we always approach it like we're gonna buy. You know, we always say hey, we can't wait to come out and view your house and make an offer to buy it, or like when we're ending the call: Oh, I can't wait to do business with you and buy your house, without even knowing a whole lot about it. We always make it past tense like we've already done it and it helps solidify in their mind that you know, we're going to get this done for them, we're gonna solve this problem. So again, we make offers and spreads from the get-go, we'll maybe fine tune that offer on the appointment and then we always send it over in writing. I think it's very important to send your offers in writing because it helps you follow up with those individuals in the event that they don't accept that offer, and also like Mike said earlier, if there's competition, you know, when 10 people go walk through a property and you know, we're the only ones that send an offer- this doesn't happen a lot but you know,  we may get picked because of the fact that they see that we're capable and our offer might not even be the highest of those offers.

Mike: Well, and this is- I'm going to go all the way back to the whole credibility packet thing Dave. So, this is what is so powerful, my house that I actually live in, so it was a- it was a property that I know these guys were shopping the offer around and what I saw in the house after I closed on it was one other of the big investors here in town. Their credibility packet was a folder with their little brochure and their offer, you know, written in it or the contract written in it and mine, they're both in the drawer just sitting there. I mean, again, it's huge so who's going to win that deal? It's one of those two. It's one of the people who left something behind. They're not going with the other 3 or 4 or 5 that they interviewed over the 3 or 4 or 5 months that they were trying to shop this house.

David: That's right.

Mike: Again, cuz their motivation- if somebody inherits a house, let's just talk about somebody who inherits a house, they may not have a motivation that is: I need to sell, I need to sell, I need to sell this today, but they are the ideal motivated seller. They have a house, they want to sell it, they don't want to fix it up. There's a pretty good chance they're a motivated seller, so they are-

David: And every week they own it, the need increases a little bit because they have bills and it starts adding up.

Mike: That's excellent and I love that.

David: And that's really where it comes from, so they are motivated but they're not necessarily trying to sign today, right?

Mike: They don't know how motivated they are until they get that tax bill.

David: The tax bill is the big one.

Mike: Oh shoot, there's another 2-grand waving out the front pocket.

David: Yeah, insurance maybe not so bad, 5/6/7/800, utilities maybe 100 a month, 200 a month not crazy. When that 1800 tax bill comes though, it's like whoa, let me rethink why I'm having- why I'm owning a vacant house.

Mike: That $50,000 offer sounds way better than me paying another 2-

David: Way better. That's money in versus money out. And that's another thing that we always do guys, I'mma interrupt for one second Mike.

Mike: Go for it man.

David: On our follow-up is we ask the sellers, you know, are you getting tired of owning it yet? cuz we know they're paying taxes, we know they're paying insurance, we know they're paying utilities, and if it's rented, we know they're paying either a management company and/or for maintenance on the property. Owning properties is a headache if it's not done right, right?

Mike: It's expensive, yeah.

David: It's expensive if you don't- you know, properties are assets when they are rented and cash flowing, but when they're not rented and cash flowing, they're not assets, they're liabilities. So, even when we buy a property at a discount, a big discount and we're rehabbing that property, it's a liability the entire time. It only becomes an asset to us on the day that we close on it, sell it, and actually realize those profits. So, it's all about just making offers guys, you have to make a ton of offers, to be consistent with your offer making and it's a numbers game like we had started this podcast with you know. You want to go get a deal hanging bandit signs? You're going to have to hang hundreds of them, right? Same thing with mail, you're going to have to send hundreds or thousands of mail pieces. You know, you're going to have to be consistent and making offers is the same way, but I love following up with people, you know asking, you know, how much the tax bill was or you know, if paying the insurance and utilities every month is hurting them and again, we're here to offer a solution, but I also like following up with people that we've made an offer to cuz it just makes it so easy. People hate getting phone calls for something they're not wanting to deal with so you can just be very direct and to-the-point. Hey Mike, I haven't talked to you in 3 months. I remember going out looking at your house on Main Street, at the time you were asking 90, I offered 65. Has anything changed? Right? Mike's not going to hang up on me, he's going to say: wow, this guy didn't ask how my day was, he doesn't necessarily care, he's getting right to the point. I can answer yes or no or go from there and just keep it- make it direct, keep it simple, right? Be polite, but don't go out of your way to you know, chase a deal either. That's another thing that I talked about on our previous podcast, 80 20 principle, 20% of the deals are going to have 80% of the profits, so when you go chasing them, you're just eating that up. You're just wasting time, so you know, make offers, and just know that you are also- this is something that I want to bring up too Mike. Know that as an investor, as a wholesaler specifically, you are offering a crazy level of convenience to individuals, so you have to demand a discount. You can't go in and offer to close fast and pay cash and pay retail, you'll lose money every time.

Mike: Without an inspection, without- yeah.

David: You will lose money every time, so what I'm getting at here is know your value and when somebody isn't willing to trade you a discount on their property, don't go in and offer to close in 3 days and pay cash, maybe ask for 30 days or 60 days, right? Until they want to come down on their price. The amount of discount you get needs to be equal to the amount of convenience that you're offering these individuals. So, you know, we quit chasing deals about 2-3 years ago Mike.

Mike: It's funny because I feel lazier about it.

David: Probably do less deals in hindsight but we're also not chasing deals that make one or two grand for 30 hours of work.

Mike: Exactly.

David: And it's- to us, it's worth it.

Mike: Some of those deals are just such headaches too, when you're chasing it and really trying to push one to work, it's just not worth it.

David: It's not, you know, and sometimes it's not a win-win, whenever you overwork and get underpaid, it's a lose for you.

Mike: Exactly, it's a great way to look at it.

David: You might win, you know what I'm saying? You might win by getting the seller of a property sold and by finding a buyer a deal but if you're doing a ton of work, it's not a win for you if you're not getting paid appropriately.

Mike: Exactly.

David: So again, pull back on your level of convenience if the discount isn't there, how do you know? You make an offer and follow-up. It's that simple so make more offers.

Mike: That is the bottom line.

David: It's that simple, make more offers.

Mike: So, let's briefly talk about this because we've talked about it in the past on the Mao formula and this is how you determine your offer right?

David: Give it to me.

Mike: So, the MAO formula is your maximum allowable offer, and you calculate that out by taking your ARV, your after repair value, you multiply it by discount rate, we start with 70% or taking 30% off cuz you're gonna multiply that after repair value times 70% and then you're going to subtract out the repairs, then you're gonna subtract out your wholesale fee. So, let's start with a $100,000 house, let's say it needs 10,000 in repairs and we're gonna do $10,000 wholesale fee. Well, guess what that comes out to guys, $50,000.

David: Half.

Mike: Half. Dave, we talked about this, I think we were chatting with a student-

David: Talking about this morning [inaudible] different show, yup.

Mike: The offer, it's almost embarrassing but it almost always- like the quick math, the easy math, pull up his estimate, Zestimate’s are terrible, I get it guys. Pull up his estimate or whatever your MLS comes up with for the estimated value-

David: That's how I use a spread too, 50-60%

Mike: And cut that thing in half.

David: Yeah, and by going in at 50-60%, you're giving them a range, right? So what would I do is let's say in this scenario, 100k ARV, Mike gave us the numbers, you know, I'm going to go in and I'mma say; listen, I'm typically buying houses in this neighborhood or in this part of town for 50-60 grand, there's a lot of other houses out there that I can pick up so if you're not willing to sell me yours at- you know, in that ballpark, then I don't really want to waste your time, thanks for calling. If they come back and they say: well, can you do 65 or even 70? It may work right? But if you wait for them to tell you what they're asking, it's typically going to be 90, 95. It's never ever been below what I'm willing to pay, ever so I don't even ask for their asking price necessarily anymore. Curious, but I just kind of go in with: here's what I'm willing to pay, am I in the ballpark? And if I'm in the ballpark, even if it's the low side of the ballpark, there's some level of motivation there and if I'm not in the ballpark, well then let's send them an offer anyway and let's follow up with them but let's not waste time setting an appointment and going out and building a rapport and doing all these things if we're not in the ballpark. Again, this comes back to convenience and discounts, why go do all that and offer convenience to someone who's not willing to give you a discount? It's simple, right? But again, we always are going to make that offer.

Mike: That's awesome.

David: That way when the VA's follow up or we follow-up or whoever's following up, they know who we are because they've received an offer from us and now, we have some talking points. Hey, you got our offer in the past, we're just calling to see if anything has changed, maybe we can even pay a little more than this, right? but again we're not going to pay 90 cents on the dollar. Start at 50-60, maybe we'll migrate up to 70 at- on the highest right? Depends on the repairs, right? But it just helps, you know, let people know where we're at.

Mike: Yeah, no it's a great strategy Dave and that way again, you're setting expectations, you're anchoring kind of like you mentioned before, you're anchoring your number low at again, that 50%, it's like holy smokes, I didn't know- I can't imagine selling my house at 50% of what it's worth, even though the thing needs 30 grand worth of work.

David: Right.

Mike: I mean, people don't really understand that yet-

David: They look at estimates and they don't incorporate the cost to sell or the cost to get that number.

Mike: And that's a big one guys, that's a big one worth-

David: Cost to sell alone could be 10%.

Mike: Worth discussing with sellers cuz again, an agent I mean, they're gonna- agent or agents rather, they're gonna knock 6% off the price right there. Then, if there's any seller concessions meaning they want something fixed after the inspection work, Dave's right it's 10%.

David: 1 or 2 more percent and then you have title fees, and you have to pay your taxes and your insurance, all these other bills, holding cost during that time. You're looking at typically 9 to 10% is the cost to sell a property. So, the problem that a lot of sellers have is that Mike, they see that number, they see that $100,000 ARV Zestimate, but they're not taking 10% off to sell it and they're not taking off the 30,000 in repairs.

Mike: Exactly.

David: Right? and then, so that 30,000 in repairs is 30 grand, that 10% is 10,000. That's 40,000 off, so even if they sold it at 60 grand, there's still no profit for the investor, so you have to take another 10% and that usually will get eaten up if you miscalculate your ARV or your repairs.

Mike: And that's what's cool and I like-

David: You gotta buy at a discount.

Mike: One of the things I like about Dave and our strategy, Dave says it very well, he's like: I understand I'm an investor and I have to make a profit. Like again, he very very clearly states that and again, people have to be okay with that, like they have to know that about you.

David: Well, I'd rather them know that now than after 3 appointments and conversations and then just to disappoint them to say: well, I can pay 50-60 and they're asking 90. It just doesn't make sense so I don't like to take the overly transparent approach, some may say it's a bold approach, but I just look at it like it's an honest approach. When a seller calls, I say hi, I'm Dave, thank you so much for calling. I appreciate your time, I'mma do everything I can to help you, okay? However, as an investor, I know that I have value and convenience, and I'm willing to trade it to you for a discount, and that's it, period. I don't pay retail is how I usually sum that up. I don't pay retail however, if you are willing to work with me, I can make your life very easy and we can do this and we can create that win-win, we can solve the problems that we need to solve together and we can create win-wins. It's simple, right? but at the end of the day, in order to get there, you got to send offers, you gotta communicate your offers. If your offer isn't embarrassing, it's probably too high. You guys have heard this before, but it rings so incredibly true.

Mike: It's really hard for people to do that when they're starting, to make an offer that they know someone isn't going to like. It is really hard, get over it.

David: Get over it.

Mike: Just get over it because quite frankly you're not going to make money if you can't make an offer that someone doesn't really like.

David: Absolutely, you got to get over it.

Mike: I mean, period. Again, they will not accept if it doesn't make sense for them in the long run.

David: Right.

Mike: So, yeah, they may not like it, they may say they're upset with it-

David: Which is going to be the same outcome, right? Is if you come in high and try to go down versus come in low and have you build to come up, they're still only going to accept what they're going to be able to accept.

Mike: That's great.

David: So, it just makes sense to come in and anchor lower and work your way up versus give them false expectations. Another thing is if you come in low and you're kind of far apart, you have other tools in your belt like option agreements or joint venture agreements to work with that seller or even refer to somebody else.

Mike: Great point.

David: You have so many other tools, right?

Mike: I love doing option-

David: But if you come in high, and then you try to negotiate down off of your inspections, it's just difficult and it basically creates animosity. I would prefer there never to be animosity and I would prefer me to come in with the approach of let me try to help you Mr. and Mrs. seller, here's what I'm willing to pay but you know, we're going to do inspections and these inspections may or may break the deal. I'mma tell them straight up, but if it does break the deal, they're already essentially hoping it's sold and maybe they're willing to either give me a slight break or more time. Often times, it's not price, it's time, for us as wholesalers. We just need a little bit more time to get our people through to get it sold. And again, if you are transparent from the beginning, you know, whenever somebody calls on the buyer side and says, I can't close today, you know, typically if you're a wholesaler you start panicking, panicking. You're like fuck, this is an explicit podcast, sorry about that but fuck, what do I do now? Right? Like, the seller thinks I'm closing, I haven't had that that feeling in like 2 or 3 years because- you're the same way Mike, we go in and we tell him hey, I'm going to bring in a partner, about 95 houses last year, right? I didn't need any of them, but I wanted them cuz I have the right price, but I did so many because I have so many partners so if one of my partners decides to change their mind, I'm going to go out and I'm going to find a new partner.

Mike: Well, that's what's great about-

David: That doesn't make me panic cuz I just tell them hey babe, they screwed me or us or whatever or they just aren't a good buyer but guess what? We typically get nonrefundable earnest money, and I don't ever keep it. I just give it back to the seller to buy another month or help pay the rent or whatever it is.

Mike: Exactly, it buys goodwill.

David: It buys goodwill, that's the one.

Mike: Two things I wanna hit on with Dave saying that is it's awesome to have partners in this business and again, your partners can be your end buyers but again, it's a great strategy to mention that up front. Again, being more candid with your seller because you can say listen, if you're young guy like Dave and I, especially when we were starting out, it's like I'm pretty young, I don't have money, I'm bringing partners like obviously look at me, you know, I couldn't buy a hundred houses by myself.

David: Yeah.

Mike: Like, who's got money for a hundred houses?

David: Barely buy up 2 or 3.

Mike: You know, so again, that's why I have partners and that's why it's easy to explain: hey I have partners that have more money than I do, they're gonna come in and help me buy this house, they're gonna help us get this deal closed. So again, it's great to be more candid upfront. Again, we like that strategy because again, it's just more honest. The other thing I wanted to mention on offers and kinda circling back to making offers, the importance of it is how cheap I am. I am super super frugal and the reason I bring this up is we spend a lot of money on marketing. So, Dave when we spend all this money on marketing if I don't have an offer put in writing or an offer sent on every person that calls the phone-

David: Yeah, you're throwing money into a fire.

Mike: Throwing money away. I'm just taking out 20's and lighting them on fire and I don't like to do that so I'm super cheap. To me, when you're spending money, especially as a new investor, that marketing money costs you, that is out of pocket dollars. Like, you are literally going to your day job, making money, and then putting it into your marketing efforts. It's not even coming from your business yet, you're spending money on that marketing and if you're not making offers on those leads that come in, you're throwing it away. Period.

David: Period. That's such a good point.

Mike: So, make offers on your leads.

David: Guys, this is a numbers game, said it twice now. It's the same with marketing, it's the same with appointments, it's the same with follow ups and it's the same with offers. The more offers you make, the more offers will get accepted.

Mike: That teach us life man.

David: It is just life, it's a numbers game, right? And the more accepted offers you get, the more closed deals you're gonna get. The accepted offer isn't the end, it's really like, you know halfway.

Mike: I called it the beginning of the conversation.

David: It's the beginning of the conversation, really, I mean, with the negotiation aspect but of the whole wholesale deal aspect, you know, AB BC, you're halfway there. Then you gotta go out and you gotta sell that deal, right? So, you just- you gotta make offers. If you're not making any offers, you're not gonna do any deals and you know, one of the things that really upsets me is when people go and they hire coaches and they pay money for education, and then they just buy more education, right? and they just keep thinking they need to know more. You know, start putting your money in the marketing. I'm not saying don't hire a coach, I have a coach, I do coaching, Mike does it as well, we love doing it, but you know, putting your money into marketing is really where the deals are going to get done, you know analysis paralysis is a real thing. People spend 30 40 50 grand on mentorships, and they haven't made a freaking offer.

Mike: Yeah, it's crazy.

David: It's terrible to me I mean, it's just incredible.

Mike: One of my favorite things to say before someone kinda hijacked it and took it to their program which we didn't end on good terms but one of my favorite things was buy houses, not courses. That was one of my favorite sayings because again, you don't need to spend $20,000 on a national gurus coaching program to be successful. Again, yes it might make sense for you and depending on where your business is, maybe that $20,000 coaching program is the next level up and they're valuable, but you don't need to do it to get in real estate. You can go to a local club, get knowledge there, apply that knowledge like Dave said, spend it on marketing, put it in your business, boom.

David: Yup and you're going to learn a lot of lessons the hard way anyway, so why wait to spend 50 grand on coaching to then go spend 5 on marketing and sale 30 times before you get one, but it's gonna happen, right? So, fail fast, fail forward. I mean, it's simple, just like that and it doesn't mean you're gonna fail, but if you do, take it as a learning experience, it's not a bad thing.

Mike: Here's the thing guys, you just got to get used to failing too.

David: Yeah, you got to get used to getting told to F off when you're cold calling people. You just have to get used to getting laughed at when you make offers to people. It's going to happen.

Mike: Laughed at, cussed at or whatever.

David: Yeah, but you know, I mean if you do it- if you approach a right, you're not going to create enemies, you're not going to create animosity, you're just gonna- you know, you may have the bad apple in there, right? but it's gonna happen and it’s okay right? This is how we get paid, this is how we do deals. We do a lot of it, consistency is the message here. The podcast is called making offers, right? and the importance of making offers, right? I think what it really comes down to though is the first thing we talked about Mike, you can't sell something you don't have.

Mike: Boom.

David: Inventory and that's really it. It's inventory and making offers allows you to build your inventory. And if you don't want to wholesale, fine, keep them for rentals, fix and flip them yourself, lease option them, do whatever it is that you do, right? But you still have to have a property under contract to do any and all of those things. So, if you are new to real estate and you are struggling to do deals, I can almost guarantee you that I can pinpoint your problem right here and now, and that is that you aren't making enough offers. You make enough, you're going to stumble on a deal. It just happens.

Mike: It does.

David: The harder I work, the luckier I get. You've heard that before. It's just experience though, that's it. That's all it is, right? The more you do it, the better you get at it. So, I don't want to beat a dead horse, make more offers. It's so incredibly simple. This is a numbers game. If you're not doing deals, it's probably because you're not making offers or enough of them and I challenge you to sit down and write down every time you make an offer and tally it up and at the end of the week or the end of the month, look at that and then the next week or month, try to double it. Literally, double it right? and that's it. If you do that, you will do deals.

Mike: Alright.

David: Anything you want to end up the show with Mike?

Mike: Make more offers.

David: Signing off.

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