We've covered the basics, now its time to discuss some advanced wholesaling strategies. Join David and Mike as they discuss a recent deal and some of the offers they presented to the seller, let's call her Michelle. Always working toward a win-win scenario the hosts discuss several options to make a deal out of a skinny deal.
Mike: Alright guys, welcome back to the Discount Property Investor Podcast, today we are talking about advanced wholesale strategies. I wanted to say, thank you guys for joining us. You host Mike Slane joined by David Dodge.
David: Hey guys, how's it going?
Mike: Been a while since we have been on the air.
David: It has, it feels strange to do a podcast -- a couple of weeks.
Mike: If you haven't checked out a previous podcast, please go back and listen to them. The first 20 are really where we suggest you go back and start and checking out the freewholesalecourse.com, there we really talk about everything wholesaling, how to get started, we are going explain exactly what wholesaling is and how you can start wholesaling in your market. So today though we are going to talk about advanced topics. Dave do you wanna jump in and give us a little preview or a little taste of a couple of advanced strategies here?
David: Yeah absolutely I would be more than happy to. So, some of the advanced strategies and there are actually tons and tons of advanced strategies when it comes to doing deal and wholesaling and real estate. But some of the advanced strategies I thought we could talk about today, Mike are like buying properties subject to existing financing -- lease options, on deals doing sandwich lease options on deals, owner financing is a really great strategy that a lot of people are using in the real estate space. Especially those that are new and or don’t have alot of money, or people that are veterans to the game that don’t want to invest their money if the seller isn’t motivated enough, they can -- just get the seller to finance the property. So those are the three things that I wanted to touch on today. Again, there are lots of different strategies so we can always expand on these. Subject to lease option and owner financing are probably the three -- that are the most common, what do you think Mike? Should we add anything to that? Maybe joint ventures or --?
Mike: I was going to say, I would consider joint venturing -- again it is kind of an introductory strategy, but if you use it -- it can be a more advanced one as well. But then also reverse wholesaling. I think that was something when people first heard about it thought it would be really, really neat. It is not super complicated but it is kind of a different approach to wholesaling so it is worth mentioning.
David: Absolutely, I totally forgot about reverse wholesaling. We do a whole ton of it so it just comes second nature to me that’s why.
Mike: It is what you do after a certain point.
Mike: So let’s dive in then. I will talk about reverse wholesaling real quick while we are talking about it.
Mike: Reverse wholesaling is basically once you have built up a buyers list, or once you have a good relationship -- that is more accurate. Once you have a good relationship with a buyer, you know what their buying criteria is -- so you become an order taker essentially. So the -- end buyer says, hey this is really what I am looking for. We hear this probably -- at least once a week from buyers is -- I don’t have time to go out there and market for the deal and look at 100 houses and do all this stuff. They just don’t have time for it. They are in the business of buying it for rental or buying to rehab it. They just want someone to T up the deal for them.
David: Right, additionally on that same topic Mike, a lot of the buyers that would fit into the reverse wholesaling type of model, they are busy doing deals, they are busy rehabbing and they don’t even have time to look at all the e-mails we would send out if we are going to blast a property out too.
Mike: Yeah, absolutely.
David: So it definitely is a good thing to think about to because -- let’s say we have a buyer that buys in one particular zip code and we know their buying criteria, if the deal makes sense for them and we know that. Whenever we come across that kind of deal, we may not even -- we may not even want to waste our time marketing that property out. We might just say, hey let’s call Bob.
Mike: Pick up the phone and call him.
David: Let's call him, let’s get him out there, this sounds like something he would be all over, and if we can do it that way it's just -- simple and done, easy, quick.
Mike: So some of the advanced strategies -- it's funny because they can make your life a lot easier if you are doing this pretty consistently. So let's talk about something else then. Let’s -- what do you think? Joint venturing?
David: Yeah joint venturing is obviously a great strategy. We do a ton of joint venturing, I don’t even know the percentage, somewhere between a third and a half of the deals that we do are joint venture deals. We don't have the mind-set that -- we don’t have the mind-set that anybody that is doing wholesaling and or -- doing anythingsimilar to what we do as acompetitor. Mike and I have an abundancemind-set -- we look at everybody in the field as a strategic partner. If they have a deal, we have may have buyers for it and vice versa. We may have a deal and they may have buyers for it. So we are essentially leveraging our competitor’s lists and or market efforts to get the deal done. Even if you have somebody in your market place for example that you would consider to be a competitor and you see that they are marketing a particular deal and you have a buyer for it; pick the phone and call that individual. Even if you have never spoke to them before, and just say hey, I got a buy for this, I am also a wholesaler, do you want to split this? Do you want to joint venture with me, some people call it JV. 9 times out 10 when we do it, really 10 times out of 10, never really had anybody say no. But they are gonna say yeah great let’s sell it, let’s move it. Wholesalers are all about quick cash so they are going to say, great -- bring a buyer into those deal and we will give 50% or 60% or 40% or whatever the split could be. Same thing on our end. If we are marketing on a deal and we have another wholesaler who calls us and says, hey we have a buyer for you deal -- great let’s split it, let’s just get it done and move onto the next one. So joint venturing is very important -- we do a ton of them.
Mike: Yeah so we have even developed a whole program just devoted to venturing with new wholesalers. Let’scowholesale.com, if you have deal in St Louis and you are struggling to sell it, come check it out, you can leverage our buyers list -- 9 times out 10 we will get your deal sold.
David: We offer 60% whenever we have another wholesaler that brings a deal to us. Just kind of sweetens the deal for them. The reason we don’t do 50:50 and we actually offer 60% in their favour where we only keep 40, is because we just want to do more deals. We want to do more volume, and it doesn’t really take a lot of effort for us to get the information about the deal -- send them over a joint venture agreement and then market that property out if we can still receive 40%.
Mike: That is one of our better ideas I think to. One of the ones I am more excited about. I can't tell you how many people have borrowed that idea from us in our market. I have seen a lot of people -- again, I think it is one of our better ideas; I am pretty excited about it.
Next topic though -- Dave, let’s kind of talk about a deal we were working on this week. The -- shoot I don't know the woman's name -- I think it was Michelle.
David: Yes, Michelle was her name.
Mike: So -- Dave and I went and looked at a property earlier this week and it was a real nice house. Typically when we are wholesaling we don't see houses this nice. It was a little two bedroom, one bath -- but it had a new roof, everything was painted within the last six to eight months. The woman was an excellent -- she kept her house pristine.
David: One of the cleanest houses I have been in a long time.
Mike: Not just the interior too, but exterior. She painted -- so the -- foundation around the outside of the house was all painted, dry locked, the basement was painted, everything. She was just very clean, she was a smoker, but she didn't smoke in her house. She went outside to smoke, it was just -- hardwood floors, everything recently re-finished.
David: Wasn't much we could to do to add value to the home.
Mike: Great house.
David: It was ready to go. If we bought the house today and she moved out tomorrow, we could put for rent or for sale sign in the house the next day.
Mike: So here's the problem; Michelle, she has this house and she had it listed. I guess the listing expired and she was trying to sell it. She was literally trying to sell it at what she owed on it. But that was not a wholesale deal, which was not a number that an investor is going to come in and pay cash for that house. So unfortunately we can’t do anything, it's almost a dead deal right?
Mike: So -- we are talking about advanced strategies so let's talk about some of the offers we presented to Michelle then.
David: Yeah so we actually gave her three different offers. Our cash offer on the home was about 10,000 less than what she owed. She didn't have any money to bring to closing, nor did she want to. So that offer didn't work for her, but we still told her on the phone -- we went on the appointment yesterday, then we came back to the office to kind of -- analyse the deal. So we probably should have done that prior but just didn't have time. We came back to the office; started analysing the deal, our cash offer was 10,000 less -- than what she owed.
Mike: I think that is a good point to make to though. Just because you know she owes 90, she went through her mortgage statements and told us, we know that's what she owed, she was down to the dollar --. Still make the offer that is less than what they owe because, you never know they might take it.
David: We had one two weeks ago where they brought thirty grand to the table.
Mike: Again, so that is a kind of advanced strategy, I know it sounds silly -- but if someone owes 100,000 and you offer 75 -- they might take it.
David: They might say screw it, let’s do it.
Mike: They can bring the money to the closing. So anyways --
David: Offer one was cash, offer two was -- subject to. I said listen, I want to help you out and I can't buy this house for what you owe because it is basically retail or close to it. There wasn't enough room for us to wholesale it. What she owed was a little under retail, but it just wasn't great, it wasn't a ton. So I said listen, I could buy this home from you subject to. I explained that to her, it was quite a process, but what that means is that I am going to take over the mortgage payments.
Lots of different ways you can do subject to deals, depending on your states there is different legalities -- some states you might not even be able to do this. Check with your local attorney or real estate professional to figure out if this is something you can do in your market. But in the St Louis Missouri market we can do these type of deals. I was telling her listen, we will take over your payments, we will close on the property -- the property will go from your name into your newly created LOC'S name -- however the mortgage will stay in your name. We are not assuming the loan; we are just going to start paying the loan. Ideally we are going to get a tenant buyer -- this is kind of a double advanced strategy because we were going to take over the loan subject to. Then we were going to sell the deal on a lease option. So we told her, her name is Michelle, we told her we are going to try to pay this loan off within three to five years but there are no guarantees there. But if you are at the point where you are about file bankruptcy - which she told us. This may be something you would consider. She was open to it, she wasn’t excited about it -- but she couldn’t afford to make the payments anymore and she just wanted to move into a small apartment down the road and pay half as much a month as what her mortgage payment was -- she was open to it. Not excited but open to it.
Mike: Subject to -- you did a great job describing it, but I feel like we should look for an expert and have somebody come on that really knows their stuff on that one and can give us even more info. Because even in the wholesaling community I do feel like that is a very niche area and there is not a lot of people doing that.
David: My buddy Jeff [00:13:32.26 - inaudible] does a ton of those.
Mike: Does he?
David: We will get him in. He does them exclusively, he has done like 20 of them.
Mike: There is a lot of different ways you can crack that egg or whatever it's called. So subject to typically what I think of is -- I am going to buy it then I am going to rent it out so I don’t have to go to the bank to finance it. I think that is the more typical -- acquiring properties without having to go to the lenders --
David: The lender is already in place, so there is a level of risk on the seller. Because they are going to keep the mortgage in their name and they are going to lose a little bit of control on the property.
Mike: Yeah there is so much about it, and I don't want to speak out of place but --
David: What it really comes down to is the level of motivation as it always does. If they are motivated enough and you can show them that you are a credible person or a credible company to help them -- it can be a good way.
Mike: So again, David and I prefer the quick cash in our business --
Mike: Because we are primarily a wholesale company first, that is our primary goal is to find a way to make money today.
David: It is the easiest way to do it to.
Mike: So again, we are coming up with advanced strategies to get the cash today, as opposed buying it subject to and really keeping it and holding it as a renting portfolio, because again -- as a company we have come together with that main goal. Again, it makes a lot of sense for a lot of new investors as well. Quickest way to cash.
David: Mike and I were even considering getting the property tied up within an agreement with subject to, but then at -- then wholesaling subject to agreement. So many ways to do these types of deals.
Mike: So the next one though, this is kind of my favourite. But again, I think that if we pushed, we probably could have acquired the property subject to.
David: I bet we could.
Mike: If we go back and were really hungry for it, I think we could probably do it -- but we are not super motivated, probably not the best situation. The third offer I think is the best deal for everybody, and that is the one -- again I think we are going to call back and try to get it tied up.
David: So the other offer on the property -- so this is something I didn't even -- I haven't even -- said yet, I haven’t even mentioned yet. This particular property -- she actually had it sold for -- how much more Mike? 128 over 90 so it was -- about -- almost $40,000. So her original asking price to a -- buyer through the agent she was previously working with -- it was a first time home buyer, I would imagine that they had an FHA loan, I don't know that but I would imagine so. Anyway, they went and did inspections, in the inspection process they determined that the sewer lateral -- which is the pipe that takes all the waste water and waste out of the house and puts it into the sewer if you are not familiar -- goes under the concrete foundation in the basement and out to the sewer. Well that pipe had some issues, it had some cracks in a couple of different places, there was an offset. It wasn't backing up into the house --
Mike: She said she never had any problem with it --
David: She lived there for like 14 - 15 years --
Mike: Again, very nice a very upfront woman, so no reason not to believe her.
David: So there were issues with it though. So I don't know if the new buyer was worried about it or -- if their financing fell through or whatever. But it doesn’t matter -- what matters is they backed out the deal. She had gotten a quote from a local company to fix the sewer lateral. And of course when they came in they wanted to fix the plumbing in the entire house and they gave her a quote for like eleven grand.
Mike: That was to replace the stack itself, to dig up in the basement and -- here in St Louis we have basements, so they have to drill through the concrete, hammer through the concrete -- get the rock out and replace all the pipes down there. It is not an easy job. Her bid was like --
David: It was 11,000 -- then supposedly -- when the -- so her house the way it's sat there is a big concrete front porch on it. Supposedly there was an offset between the pipe and it was under the concrete -- front porch and it was a big porch. So they would have to have dug out underneath that -- it was going to be a big job. Eleven grand to me seems kind of high, we could have probably got it done --
Mike: We could have gotten it done for half.
David: Maybe half or a little bit over half, but a lot less than they had recommended. So -- anyway back to the point though. The other offer that we gave her -- it was really creative. We said, listen -- why don't we pay to get this sewer lateral fixed. So we will come in and spend 5-8, hopefully not 10 or 11 grand -- but maybe it is.
Mike: We talked to her; we said 11 because that was her bid.
David: That was her bid, we will come in, we will spend the money to fix your sewer lateral, obviously we will get the property, we will get some paperwork out there so we can’tnecessarily lose her that money or gift her that money. Then once we get it -- the pipe fixed in the basement, you list the property with us and we will just resell it. Essentially what we will do is split the deal 50:50. So we are going to get our money back, the mortgage company is going to get their money back, and any of the net profits we are going to give 50% to the seller and we are going to keep 50%.
Mike: She had sold it for a $40,000 profit, so say we put 10,000 into it; there is $30,000 to split. So we would make 15, she would make 15. It seems like -- I think that's the best situation. Again, -- we are always shooting for win:win. Again, it seems like the best situation there. It's a win for us because we are spending 10 to make 15 and it is probably quite quick cash -- the seller sells her house, doesn’t have to file for foreclosure, bankruptcy or whatever and she gets $15,000 which -- she is ready to walk away from. So again, it is really just a situation that -- then the new homeowner; they get a nice house with everything done right. So it is creating that win:win, that is the one I think we should try to pursue --
David: The one we are going to try and pursue. The reason is -- so -- whenever we have kind of given her these different examples -- she is like, why don't you guys just buy the house? Again, the deal is just kind of skinny or us if we did that. We could still probably make some money on it, but it's just kind of skinny and a lot more risk if we have to put up $100,000 to then try and make five or ten. If we did the lease option, we would do that -- I should say subject to on the front end, lease option on the back end. We -- that offer was for what she owed, so she would obviously make nothing. The third offer -- the reason it was the most win, win, win is because we would only have to put up 10 to essentially make 10 or 15. She wouldn’t walk with zero which was our first two options. Walk with 10 or 15 thousand on the third offer, and we would be putting a whole lot less money up, we wouldn't put up 100,000, we would put up ten. So in my opinion it created the biggest win, win:win. I think her issues is that she kind of pulled back was -- the mortgage was almost 800 a month and she was having trouble paying that. We even said, listen -- we will even help you pay the mortgage for two or three months until we get this sold or we will pay half of it or whatever.
So again, there are tons of different options on how you can get these deals done. If the seller doesn't originally like you cash offer, it doesn’t mean you still can’t do a deal with them, doesn’t mean you can't make a profit off the deal. And most important it doesn’t mean you still can't create that win:win.
Mike: Yeah, you can help them, which is what we are shooting for.
David: So tis deal is still in process, this podcast probably won't publish for two or three weeks so hopefully by the time this publishes -- we will have this sewer lateral fixed and we will have an agreement with her and -- we will have it listed and --
Mike: We will keep you guys updated.
David: Keep you updated, exactly. So -- that was just an additional advanced strategy on ways you can do deals. Again, there are tons of ways you can do it, that one I think touched a little bit on subject to -- we were going to do a lease option on the back end. So let's talk about lease options, Mike.
Mike: Ok, yeah -- I am going to let you do that, man -- lease options -- honestly I have never done one.
David: So I have a couple of lease options going right now. They are -- I would consider them to be an advanced strategy -- I think the podcast number 24 ---
Mike: It is -- 24 Liquor and Lease options with Bob and Jimmy.
David: Yeah those guys are experts. They did like a 100 plus of these things going on right now. But essentially what a lease option is -- and you can do it on the front side, the A to B or you can do it on the back side, the B to C, it doesn’t really matter. Essentially you get a property that you are going to lease -- and or -- lease to somebody. You are going to get an option or give them an option to purchase that property at a later time. So the benefit of doing a lease option is there is a lot of pros and a lot of cons -- but the main pro with the lease option is that you can get paid in three different ways. You can get paid up front, paid monthly on a cash flow and you can get paid at the end. But additionally, you don’t really have to act a landlord on a lease options. Because all the day to day maintenance is typically the responsibility of the tenant. You could also call them a tenant buyer.
So that is one of those strategies that -- I think it is a lot more advanced, it is a lucrativestrategy, but again it comes down to level of motivation. If you are going into a seller and you say, listen Mr Seller I want to lease your property and have the option to buy -- typically they have to be pretty motivated to allow you to do that versus saying naw I want to sell it.
Mike: Again, since I am not an expert, not done a lot -- I see that -- again it was after speaking with Bob and Jimmy as more or an exit strategy than a purchase strategy for the lease option, which is why the subject to and selling lease option seem to make the most sense in our little example. It is another interesting way to do it.
Yeah that's all we have for you guys today. Again if you are a first time listener we appreciate you joining us and encourage you guys to check out the previous episodes. Go back and -- check out the basics of wholesaling, check out freewholesalecourse.com. There you have everything you need, all the tools to get started in investing. Dave do you want to wrap us up with a quote today?
David: I do, I want to do the quote, but before I do the quote, Mike I want to mention one thing real quick to -- we do a monthly gadget giveaway. And if you are a listener --
Mike: Yeah, that is a good point.
David: And -- you want to get entered into our monthly gadget giveaway -- we would really appreciate every review. The reviews are great way for us to reach a wider audience, that way we can help more people get an understanding of what wholesaling is and how to wholesale --
Mike: You got to do two things if you want to get entered though.
David: Right, so tell us, Mike -- what do you have to do to get entered?
Mike: First you have to enter -- leave us review on ITunes or Sticher. No big deal, then you have got to visit discountpropertyinvestorpodcast.com -- click on the top right, there is a gadget giveaway little icon. Click that and enter your information, that is how we tally who has entered a review for us.
David: We go in and verify that they have left a review for us and then we essentially put all those names in a bucket -- another great thing about the gadget giveaway is -- your name remains in the bucket until you win which is pretty cool. We give away a gadget at the end of every month. They are cool gadgets, so far we have given away Apple TV, we have given away an Alexa TAB, an IPad mini -- was the first one, right? So every month we are giving away a cool gadget, probably have some new stuff coming up here soon. But again, if you guys like the podcast, we would really appreciate a review and we want to award you guys for giving a review and enter you guys into that drawing. So check it out, discountpropertyinvestorpodcast.com.
So let’s end us out with a quote here guys. "Ambition is the path to success;persistence is the vehicle you arrive in."
Mike: Thanks for listening guys.
David: Thanks guys.