Overcoming Wholesaling Challenges is a great episode playing off of last week's episode where we answer some of your nagging issues getting started. David and Mike sit down again to answer questions and provide solutions to you. Don't let the issue be a roadblock for you, go around it. Figure out a solution! Today we share some issues and solutions. Thanks for listening!.
Mike: Alright guys welcome back to the Discount Property Investor podcast. Today your host Mike Slane, joined with David Dodge.
David: Hey guys.
Mike: Welcome, David, what are we doing today? We are talking a little bit about overcoming challenges, right?
David: Wholesale challenges, yes. It's very similar to the most recent episode we have done about barrier busting. But it is focused on challenges what people are having with wholesaling specifically, and how they can overcome those challenges.
Mike: Great, so kind of a part two to last week. We published some questions we got from people, so we are going to do a similar format. We will look at the questions and try to reach out and answer those questions. One of our goals this year was to help as many new people get started in real estate investing as we can. That's what's happening right now; there is a ton of people getting into the real estate investing space because the market's hot. That's what I've seen, don't you feel like you have seen that?
Mike: I know it's difficult when you are in a specific thing to really see it from the outsider's perspective, but I really do feel like there is more and more people in the real estate investing space. Our goal is to help the new people. Learn from our mistakes and get started on the right foot.
David: That's right. Some of the biggest help I ever received was from coaches and mentors I had. So, a lot of this stuff that we are teaching-- it kind of relates back to challenges we have had in our careers, and our own day to day business.
Mike: Challenges we still have. Like the one last week, I know we talked about and will probably hit on at the end of the day, because it is a common theme; it's how do find that motivated seller? How do you find that-- I can't find a deal. Well that's a challenge that you always going to be looking for, that's half of real estate investing is looking for the next deal, or looking for the money for that deal. That's constantly what we're doing. The money for the deal could be your C buyer if you're wholesaling it. It could be the end buyer, or again if you're rehabbing it; finding the dollars to rehab it with. Are you using private money? Are you using hard money? Are you using your money? So again, it is a constant challenge, we're always facing it. We are learning new things. Hopefully challenging ourselves and going forward. So, let's do it, let's jump in, what do you think?
David: Alright so another one of the questions we received was, I'm going to read this, it's kind of a longer one. 'I want to thank you for taking the time out of your day to help us new guys in this business. My main concern is the fact I have spent thousands of dollars on marketing, just to come up with people who want to see what I will give them for their home. I realize that the motivated seller is only a small percentage of the people who actually want to sell their house. Been anxious to complete deals. I show up to the house only to be met with, "What do you think my house will sell for?" Kind of a letdown in my opinion. I need to learn how to filter out the tire kickers, focus and learn how to work, not deal with motivated sellers." Did I say that right, Mike? How to work, but not deal with the motivated sellers. So that's a very loaded question, let's break it down though.
Mike: There's plenty of things we can address. First off, it sounds like you are doing a lot of things right. It says you spent thousands of dollars on marketing. That is--.
David: Good work, keep it up.
Mike: That's fantastic. Again, when you don't have a lot of money, that can be a big investment.
David: A big challenge too.
Mike: Again, you could feel like-- I have spent thousands of dollars and haven't done anything, I’m failing. What do I do? I need to make money, I get it. So, the fact you have spent that money is great. The first thing I want to address is-- you spent a bunch of money and it sounds like you have got a lot of people calling you in, or calling in, going on appointments, so you are doing a lot of things right. What I would say is-- what we do here; we follow up until those people are motivated. So, you went out, you met a seller at their house, they said-- you determine that they are not motivated because they said, what do you think my house will sell for? So again, you are saying they are not motivated at that point. Well if that's true, again you have got a lead, you have this pipeline of leads rather.
David: They might not be motivated today, but they might be motivated in three months to three years or whatever.
Mike: Right, so you have this pipeline of leads now, that hopefully you can convert into closed deals. So again, I don't necessarily see a lot of what you have done as wrong, except maybe the way that you're approaching the fact that some of these people are not motivated today.
David: Yeah and maybe not motivated enough. So, let's try and break some of these questions down. The first question that was asked here is, I realized the motivated seller is only a small percentage of people that actually want to sell their house. So, Mike, you have kind of already addressed that. But also, in the event that you are spending money on marketing, spend it in a direction that has a higher percentage of motivated sellers. So as a perfect example, people that are dealing with death, divorce or children. Those a basically the three main reasons that people are buying or selling properties that may have motivation. Death, divorce or children. Either the children are moving in, moving out, being born or whatever the case is. Death, inherited properties, it's too much to handle, it's too big, it's too small, whatever. Then of course divorce, divorce is a reason for people to sell a lot too. So those are the three lists that I would say to target to get motivated sellers, versus doing like a money mailer or value mailer where you hit every door. Those people will be tire kickers.
Mike: That's a great point.
David: You are not focusing on motivation.
Mike: If you're doing every door to door direct--.
David: You are going to get a ton of tire kickers. So maybe tweak your marketing a little bit, that may help-- it may or may not help, but that's what I would do first and foremost, to get rid of as many tire kickers as possible. Focus that direct mail and pinpoint the people you would think have the highest level of motivation. The next question was, being anxious to complete deals, I show up at the house only to met with, what do you think my house will sell for? I love when they ask me that question because I just flip it around on them. What do you think it will sell for? I will usually already have an idea in my head, then they will tell me. 98 times out of 100 it's way high. But I will ask them, why do you think it will sell for that? But I love that they ask that question. This question should not be something that you are facing, and it lets you down. The next thing you say is that it is kind of a letdown. I love when they say, what do you think my house will sell for? I love it. Because then I will flip it around on them and say, what do you think it will sell for? I will present comps and say, well let's look at the market. Again, it's one of those where it's not me versus you. It is not me buyer versus you Mr. Seller. It's me and you versus the market. So, you got to buddy up with this person, create rapport. Become their friend in a short period of time. Work with them to figure out what that number is. So present comps to them, show them where it's at, show them the condition of those properties, then look at their property. Then start talking about what it's going to take to get that to those numbers. Also let them know people are not going to buy a property to break even, or lose money on it. So, if a property has an after-repair value of 100, but it needs 20 grand worth of work, that property is not worth $80,000 today. That is a big misconception that people thing, oh it needs 20 grand worth of work, it's worth 100, I will give it to you for 80. Why on earth would I buy a piece of property, put 20 grand into it and break even on it? It's not going to happen. You have to factor in those fees as well, those additional costs. But that is not necessarily a letdown in my opinion; I love that question.
Moving on, I need to learn how to filter out the target groups and focus and learn how to work, not deal with truly motivated sellers. So, a lot of this can actually be done on the phone in my opinion; it's filtering. So, when somebody calls you on the phone, and they have a property that they are looking to sell. The easiest way to determine their motivation is to ask them why they need to sell, then just shut up. Let them start talking, they are going to tell you if there is a death, a divorce or a child issue; they are going to tell you. This is why I need to sell, I am in a distressed situation and I need to sell.
Mike: 100%. It's the easiest thing, it really is just shut up.
David: If they say on the phone, well I am just kind of curious what it would sell for, I am not looking to sell today, my kid is in school and he is only a sophomore, so we have three more years. Well I am not going to waste time going out on that appointment.
Mike: One of the things you will come across pretty frequently is-- so you ask them, why do you want to sell? They will say, well you sent me the mail, so I am just kind of curious. We will say okay, or you could say, okay why did you call then?
David: What information are you looking to get out of me?
Mike: Right. I mean you could say, listen Zillow gives you a pretty good idea without looking at the house, without looking at it I could never tell you what your house is worth, you will have a better idea than I do.
David: That's so true.
Mike: Then again, if they are being a little but obtuse with you, you have to be a little obtuse with them too. It's that whole mirroring concept. You got to get on the same page. I am here to help you, but only if you want help.
David: Only if you want help, that's so true; I love that. So yeah that's basically-- I think we summed that one up pretty well. You can screen people that call on the phone to determine motivation. Just because they are not motivated today does not mean they won't be motivated later. So, don't waste time going on appointments for unmotivated sellers. But put them in your follow up system, don't ever throw that lead away; you paid for that lead. So, follow up in six months to a year if they are not motivated, but get their name and number. If they want you to make them an offer on the phone, there are tons of ways to make offers on the phone, to let people know that you are an investor, and you don't pay retail other than doing what I do, and tell them that I am an investor, I do not pay retail.
Mike: You want to set that precedent very clearly and David does it all the time.
David: That's the first thing I tell people on the phone. But I frame it in a way that I can provide you a solution to your problem, but don't get the impression that I will be out there and paying retail. As an investor I am not in business to lose money, I have to make money on this. I am not trying to get rich on your single individual property, but again back to that formula; 100 minus 20 does not equal 80 in this case, it equals 70 or even 60 and sometimes 40.
Mike: That's a really good thing. I really like that, because I forget that too sometimes. You're out on the appointment and you’re like, here it is minus the repairs. Well that doesn't mean your offer is 80,000 like David said.
David: It doesn't work that way guys.
Mike: Listen, I’m and investor, I am here to make money. I am not here to buy at the retail price.
David: I tell them too-- didn't mean to interrupt you. I am looking for that win:win. So, in order for you to win and me to win, we have to come up with a solution that provides both of us an answer to our problem, right? So, if you are out in the field, and I do this all the time when I'm out in the field. I tell them, I am looking for the win:win, I'm an investor I don't pay retail. If I pay you what you're asking, I lose. Do you want me to lose? Is that why I’m here? I don't want you to lose. Let's shoot for that win:win. Let’s find a number that works for the both of us. Again, lots of questions in this one here.
Mike: I think you were kind of hitting on the right thing though for this person if you're listening. You have a great pipeline; you have these leads, hopefully you have them organized, if not they are in your phone. Scroll through your previous call history, figure it out, look up the address.
David: Create a follow-up system, guys.
Mike: And follow up with them.
David: Built a funnel and follow up.
Mike: I guarantee, just from that question, it sounds like you have probably got a lead in there that you could go close today. We worked on this with one of our students in the past, recently. Said, listen you have this pipeline, go close a deal. You need inventory, you have this pipeline, I guarantee you can put one of these properties under contract and get it sold.
David: We did that with one of our students a couple of weeks ago. He did like four deals in the next month.
Mike: Right, it's unbelievable. Again, you just need that kick in the pants saying, hey you are doing things right, except this. It is just this minor little tweak, and that's what I would say to you. When someone-- Dave you addressed it earlier when you're going there and you hear, what do you think my house is worth? Or what do you think it will sell for? Don't see that as a negative, thing of that as Ding! Ding! Ding! They don't know, or Ding! Ding! Ding! They want to sell their house still. Again, you have got someone who is interested in selling, that's a great thing. Look at it that way, approach the situation just slightly differently and I think you're really going to-- yeah catapult yourself into a little bit more of a successful situation.
David: Love it, let's move on here. I am scrolling through some of these questions. We have already answered a lot of these. A lot of people asking the same questions which is good because we have covered a lot of this. The next one I want to touch on is this one here, I am going to read it out loud here, guys. 'Gaining valuable experience. So, I am 18 years old and I am itching to get involved with real estate investing. However, I have small funds and little experience.' Well guess what? When we all started in this business we had small funds and little experience. You are not outside of the norm in this scenario. 'I am researching wholesaling, however I still have no idea how to form a contract with the homeowner that an investor will be happy with, as well as the laws and regulations around this.' So, in this scenario I would say we have free contracts, free purchase and sale contracts, and option contracts I believe in our free wholesale course.
David: Examples, right.
Mike: We are not attorneys, we are not lawyers, so we are not giving you legal advice. If you want something that is 100% compliant you are going to have to talk to a lawyer. If want something that is 100% whatever, you are going to have to talk to a lawyer.
David: Which is going to cost money.
Mike: Right, but here's the thing; you don't need to do that. Use a contract--
David: Do you know what I’m going to do, Mike? I am going to set a goal for myself. In the next month I am going to get a contract on a napkin.
Mike: Do it, that would be great.
David: And I’m going to close a deal with it, and we are going to do a case study on it.
Mike: Or a hand written one on a piece of paper is fine.
David: That's what I mean basically. It could be ripped up it doesn't matter. But basically, just show how simple a contract can be. You only need a couple of things to make it legal. Basically, it's just signatures and dates, description of what's happening; it's that simple guys. But I’m going to do that just to help people that are having this example and this scenario, that are struggling with contracts, to show them that this is the easiest part of this business in my opinion. It is a one-page piece of paper. It could be on a napkin, take it to a title company with 100 bucks or $500 and I will buy that house from a napkin contract; it's that simple. Anything you want to touch on, on this, Mike?
Mike: Well you know you could have done that with is Bruce recently?
David: I could have.
Mike: Just thinking out loud. Just had a guy who is super motivated, really going to end up helping him out big time.
David: Going to help him out big time.
Mike: It's an exciting win:win for both parties involved. But yeah, I think you are overthinking it. What I kind of wanted to finish my thought which again, you need a lawyer to get it perfect, but take it to a title company. If you have a contract, again find a title company you're going to work with. Say, hey listen this is the contract I'm thinking about using, will this work for you guys?
David: Will you accept this?
Mike: 99% chance they are going to say yes.
David: If they don't they are going to tell you why and they are going to fix it for you or fix it right there. The title company is your best friend. If you haven't done deals yet, or you have only done a couple, you are new to the business, you have questions; hire a coach or a mentor, that would be my first solution to you. That's what I did, I have coaches and mentors to this day. We have a coach and mentorship program, so if you are looking for a coach or a mentor; reach out to us, me and Mike are here to help people. We love doing it, we love it. But beyond that we have a free course which is designed to help people get started. Last but not least, find a local title company, just walk in there and say, hey I am looking to start doing business. They are in business to serve you, they want your business. So, they are not going to be like, what do you need? Get out of here. They are going to say, great we would love your business, what can we do to help you? Ask them, you know what? Now you ask I am having trouble with contracts. Here is one I found online, will you accept it? Like Mike said. Nine times out of ten they are going to say yes, if they say no they are going to tell you why.
David: They can essentially be a coach to you in terms of contracts.
Mike: Again, I think that's a fear or whatever. It's a reason that you are scared of starting.
David: It's a reason, I love that.
Mike: An excuse rather.
David: An excuse.
Mike: Your excuse is--.
David: It's not a challenge, just an excuse.
Mike: Just an excuse, I don't know which contract to use that someone is going to be happy with. It doesn't matter if they're happy with it, just does it work? I mean again, nobody-- you are not making people happy with the contract.
David: The second part of this question is, 'I have researched wholesaling however I still have no idea how to form a contract from the homeowner.' But the second part is, 'an investor will be happy with.' Okay well you are an investor. Are you happy with the contract? just put yourself in those people's shoes. What makes somebody happy in a contract is different for each and every person. But most investors are going to want time. So, if your contract is going to close in three days; that is going to be very difficult to sell. If it's going to close in 30-45 days, it buys you time.
Mike: Great point.
David: Put yourself in the shoes of the investor. Inspection periods with CYA clauses to cover your ass is-- a must. So, put those in there, investors will like those. Having the ability to close down the road. We always put honor before. If we do a contract for 60 days out, but we sell it in a week, and that rehabber/investor needs their next project in a week; we can then close it in a week. So, we have honor before in front of our dates. We put those dates out 20/30/40/50/60 days. I wouldn't look at that as a challenge so much as an excuse. You're right, you nailed it, Mike.
Mike: Yeah, it's an easy one to overcome. Again, I get it, it is definitely-- there is some fear with that in writing a contract. Again, it sounds like this was a younger person, said they were 18.
David: The first one I did, I gave the seller $10 cash, because that's what the earnest money on the contract was. I didn't know, I had no idea. But you know what? I didn't care, I failed at that; I lost that ten bucks, I couldn't care less about that. But I didn't open escrow with the title company, a third-party escrow or earnest money company.
Mike: Let's talk about that. So what Dave should have done is take that contract and the earnest money to the title company, the escrow company.
David: Instead I gave it to the seller
, then I held that contract, not knowing I had to go open escrow. But I still helped him; I bought the house, it was a win:win. But I failed fast and I failed forward.
Mike: That's great though. It's going to happen, and if you do something similar--.
David: If I had sat there and had the challenge or in this case the excuse of, well I don't know what to do, or maybe I will just kick the can down the road a little bit; I would never have gotten that deal and never be where I am today because of that. So, fail fast, fail forward; I love it. Where we at? We got about 19 minutes, we are going to answer one more here on this episode here. Anything that's popping out at you on this list here, Mike?
Mike: Coming up with funds at the bottom here.
David: Read it out, Mike.
Mike: So 'coming up with funds, then maybe guidance for the deal. What stuff to pick out for the house and finding contractors.' Okay so this one is more of a rehabber type question. I guess-- coming up with funds.
David: Let's break it down into two or three questions here. It's really multiple questions. So, the first part of this is coming up with funds, let's just start with that.
Mike: Okay two challenges. First off, if you don't have any money, and you are trying to get started in real estate investing, there is going to be a cost to acquiring money; so get used to it. The cost typically you likely to be working with a hard money lender, because it's much easier than working with the bank for this rehab type property. Again, if you are just getting started I am suspecting you are going to need to go look at hard money lenders in your area, try and find a hard money lender that's going to give you a loan based primarily on the asset, not necessarily on you or your experience. So, coming up with the funds-- again, start with hard money lenders. When you have gained a little experience, then you might be able to work with banks. The other option is private lenders. If you have friends, family that have money, and you are willing to approach them and say, I am doing some real estate investing, I would really love to partner with you on this deal. I would love to get started investing and I need to borrow some money. Again, if you are comfortable approaching your friends and family and doing that; go for it. Private money is going to be a little bit cheaper than hard money, and it is going to be a hell of a lot easier than getting a loan from the bank.
David: That is so true. I want to add one more than kind of circle back a little bit. You mentioned hard money. You had mentioned bank loans, which also incorporates lines of credit. You have to have some assets and or income to be able to work with banks, period. If you don't have income or assets they are not going to lend you. Hard money lenders are not hard to work with. Kind of a misconception with the word hard. It's not hard to get those loans. The hard part of hard money refers to a hard asset. So they are lending money on that asset or on that deal, not necessarily lending it to a person. A person is obviously going to have to back that loan. But at the same time it is being backed by the hard asset. So hard money is a great way to get started. If you find a deal, and it is a deal; no hard money lender will walk away from that. They will lend it because they are going to lend you money to make money on that. If you can't do that, they are going to take that asset back and they are going to make money on it. Basically you are finding them deals, and some of these hard money lenders out there cross their fingers that people don't-- they are okay with people not fulfilling those obligations, they take that property back and they just have a deal.
Mike: Don't worry about that.
Mike: Again, be aware of it. Make sure you are working with a reputable hard money lender, someone who has done deals in the real estate club. Get a recommendation on that.
David: So true. Bank loans, line of credit, hard money; we touched on those. Private funds, private funds is basically getting someone to lend you money to go buy a piece of real estate. As Mike mentioned earlier, those funds may have-- they may be a little bit more expensive than a bank loan. Typically its going to be less than hard money. But basically you are looking for that win:win. If you know a guy or a girl out there that has extra money in their IRA or just extra money in their checking account, and they want to make a return on it. Lend it to you for 8,10,12,14%, it could be any scenario. You then take that money, buy real estate, flip it, make money and you pay them back plus the interest. Private funds can be acquired from strangers at networking events, or they can be acquired from your brother, sister, Aunt Sue. It could be anybody.
Mike: We're talking about a one off. One-person lending for one property. Again, if you are going to get into anything with pooling money--.
David: Talk to an attorney, it's going to get more complicated. But last but not least, so those are the three we covered. I don't want to forget this; JV joint venture with another investor or wholesaler--.
Mike: Oh brilliant.
David: -- in your marketplace, so actually I know the person who asked this question. I met them about two weeks ago.
David: So I am going to speak to anybody that's listening or watching this episode that is in the St Louis area. If you find a deal and you don't have money; contact me. My office is in Brentwood. Walk in here and sit down. I will help you fund this deal if it is a deal. Joint venture with me or another investor or wholesaler in your market place, okay? Money is actually one of the easiest things to come up with when you have a deal. Deals sell themselves. It is not hard to get financing for a good deal if you have a good deal.
Mike: It still takes a little bit of time though.
David: It does. I don't want to mislead.
Mike: Let's just talk on what we just did.
Mike: So one of the guys in our office had someone back out of one of his deals.
David: This is great. Today is Friday, we are recording this on Friday, this happened on Wednesday afternoon. So go ahead, I just want to put it out there.
Mike: So he had his buyer-- was unable to get approved so backed out of this deal. He had to either purchase this property of walk away from it today.
David: Within two days of bringing it to us.
Mike: Within 48 hours he had to come up with the property to buy the deal, or he had to walk away from it. We said we are interested, we will take a look. We ran down, looked at the property. It looks like a fantastic deal on paper, we got our fingers crossed, we are closing on it today, we will again hopefully make some money together.
David: Yeah, it's a great solution to getting funds fast. Other investors have lines of credit. Other wholesalers like us, we have lines of credit, we can walk in the bank and pull it out the same day. So you know, in the event you are needing money to fund a deal, and you don't want to go the hard money route, the private fund route, or you don't have the ability to get lines of credit, or your own bank loan; go work with other investors that have all three of those abilities like we do.
Mike: Give us more than three days though please. Going back to the previous one, the more time the better.
David: But you could put me in any market in the nation at this point, and I could start sending out mail with no money. Obviously, I have to have some money to market it. But I could basically find a deal, then I could go find another investor in that same city that I could JV and fund that deal for me or sell it straight to them. It is actually pretty easy to do that.
Mike: As long as it's a deal.
David: As long as it's a deal. That's so true. Did we cover that one in full for the most part? I forget where it was. What stuff to pick out the house and finding contractors. So I think this is-- stuff to pick out of the house, how do you define that, Mike?
Mike: I think this is someone looking for rehabbing advice. That one, again I think that is a lot of personal preference. My advice would be that you are trying to market to the masses. Don't pick out that has a more specific taste. So again, we call it 'Greige' it is like the beige of grey we put in every house, pretty much grey paint, white time. Just simple classic, classy stuff.
David: Because the masses will walk in there, a majority of people will agree it looks clean and nice. We are not putting up pink paint that one in a thousand people are going to like.
Mike: Or zebra, leopard carpet or something. Nothing wrong with that, but again it's a specific--.
David: Most people won't like it though.
Mike: So that is basically what you're doing when you are rehabbing houses is taking something that is kind of specific, or outdated; you are kind of updating it to today's modern standards. What would a new homebuilder build? But maybe just a bit more style than that. So again, we use mostly stainless or chrome, brushed nickel finishes. Again it depends on the area. I would suggest looking at other houses that have sold around that one. Kind of use them for some styling tips.
David: Finding contractors; we kind of touched on this on the last episode on one of those questions. Network and trial & error, guys. Network with other investors that either have crews, work with construction companies. Get feedback from them on what they are paying, how that process worked. Then also trial & error. You can find people that will do good work but they're slow, or they're expensive. Then again you can find people that don't do great work but get done really quick, and they're cheap. So it's like pick what your need is for that particular deal, that particular neighborhood and that particular property.
Mike: Sure, there are some great sites out there too that help you find contractors. One of the classics is Craigslist. You can always post on there. Thumbtack.
David: Thumbtack is a good one. There is a ton of them. Just go into Google and type contractor.
Mike: Just because you're trying to be an investor, doesn't mean that you are always trying to find the cheapest contractor. That doesn’t equate to the best job or the best situation for you.
David: So the purpose of the episode, overcoming wholesaling challenges. A lot of the things that I'm reading here-- they are challenges to other people, but to me they kind of sound like excuses. I am not trying to upset any of the listeners that we answered you question particularly, but a lot of these are not necessarily hard challenges to overcome. You just don't know, people are ignorant in the true definition of that word, meaning they just don’t know.
Mike: Absolutely and again, it is a challenge for you, we are not downplaying that. It is a challenge for you. But is an excuse in your brain, so you have click it over to say, hey that's something I can't do that. You have to bust through. It is something you can overcome; all of these are easy to overcome obstacles. You are ready to do it and that's all there is to it, guys.
David: Alright, Mike!
Mike: Let's do it!
David: Good deal, thanks for listening, guys. We will catch you on the next episode.