Welcome Back to the Discount Property Investor Podcast Episode number 9! Thank you for sharing your time with us today. In this episode, the hosts share with you what is wholesaling. David digs through his memory and describes his very 1st Wholesale deal! Learn how he put the deal together from start to finish and just how much he made!!! Mike’s memory is a little shorter and can’t remember what happened last week let alone the details of his first deal so he discusses his most recent transaction. Both are great case studies and there is a lot to learn from this episode. Remember you are in the marketing business and don’t be afraid to make offers!
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Welcome to the discount property investor podcast, where we show you how to buy real estate at a discount, so you can create wealth over time and income today. Our mission is to share what we have learned from the experience of others and help you make more money investing like a pro. We want to teach you how to create wealth by investing in real estate the discount investor way. Thanks for tuning in.
David: Welcome back, discount property investors, your hosts David Dodge and Mike Slane, check us out online at the discountpropertyinvestor.com and there is a link on there to the freewholesalecourse.com, again, that is freewholesalecourse.com.
Today we are going to be touching on some case studies. So we are going to be talking about some of our recent deals. Kind of break those deals down for you, talk about how we were able to get those deals and what we did to bring those deals to the finish line, how did get those closed and what we did and — Mike, you want to talk about yours?
Mike: Sure, I will go ahead and get started. So some real life examples. I — started about three years ago and — I started I would say pretty typical for a lot of investors working in rental areas. For whatever reason it seems that those areas a little bit easier to get motivated sellers or to find motivated sellers and since then, I have done — I don’t know
how many deals. A good number of deals — David: Thousands!
Mike: I don’t know about that, it’s only been three years or so, but I have done a number of deals. Every time it’s — you still have the same set of emotions I would say. The most recent one is one — they were still up In North County and this was a little bit nicer pocket [00:01:54.06 – inaudible] so one of the areas that has a little bit more desirable right now, we have a lot of activity up there from investors buying, prices are pretty strong. But the lead source, where did I get the lead? So we touched on the importance of doing multiple different types of marketing — this one came as a referral from someone in my BMI group, so he had referred me to this gentleman back in — March. He had done an introduction — I called him on the phone and said hey how’s it going? We just kind of chatted briefly —
David: So this was a free lead?
Mike: Essentially free yeah
Mike: So free essentially — he called me say yeah Ok I don’t know if they are quite ready to sell yet or not. It’s his parents’ house. So — nothing comes of it. About three weeks ago he calls me back and says hey, my parents have moved out and they are ready to sell. Are you still interested in buying the house? And to me of course I say I am an investor, I’m still interested it’s one of those things that’s funny because people kind of — they don’t know. This is your business this is what I do full time. So I said yeah, happy to meet you guys — when is good for you? He was off work, his parents are off, they have moved to somewhere else, he is trying to figure out the times, he said well — we could do today or meet — I’m not off work again — maybe like two weeks later. I said I am free this afternoon I can take some time for you this afternoon. So i met him up there that day. He drove his parents from their new apartment which is much closer to them, to the house. So I met all three of them up there. Although it was a very quick appointment — I still ran the comps and brought them with me. I had a contract pre-filled out, ready to go, ready to show them.
David: You were prepared?
Mike: Yeah, get prepared for the appointment — met them up there, walked through the house, just kind of told them my typical spiel which is, I am an investor, I buy cash, I am not really looking to make a — I can’t pay you the most money. As an investor I am going to turn this property, it is going to be a rental. That is really what I am looking to do. David: You had the advantages you said I am going to buy as is, I am going to pay cash and we are going to close fast. Mike: Right and they understood that they said, oh yeah we know the area is not quite as nice as it used to be. This is an older couple and they lived there for 40 or 50 years and they just couldn’t maintain the house so they moved into an apartment closer to their son. So — walked through the house with them — looked through everything, the house was in pretty good shape. So I wasn’t really able to beat them up over price on many things that needed repaired. Hard wood throughout –a lot of stuff needed updating. Kitchen super updated, the roof I think was ten years old — but it look pretty bad because of some weathering.
David: So rental grade?
Mike: Oh yeah absolutely. Still 10-15 years left in it. So we talked about everything, we talked about the house, we talked about the area and how it’s declined. Then we sat down at the little breakfast bar in the kitchen.
David: If you can — sit down with them at their home; sit down with them at the table.
Mike: Well the table is moved out.
David: Or the bar, whatever.
Mike: They were able to sit down, older couple. I went through the comps and said — here is where the market is at and this is basically what my offer is going to be. Then I took out my contract and I went through it with them, i used as a special sales contract because I think I mentioned before I am a licences realtor. So we do have to disclose that. Go through all that with them and told them that’s where my offer is at. I could kind of read them and I knew they were sold on it — but it was a house that they had lived in for 40 something years and they weren’t quite ready to pull the trigger that day. So I back off. I just said here is my contract, you guys go ahead and take this with you, when you guys are ready to sign I’m happy to come and meet you out here or meet you at your home. Whatever you would like to do and I left it at that.
David: But you left the contract with them
Mike: Left the contract with them for them to review, so they could call me and ask any questions. That was a big thing for them; they just wanted to feel comfortable. That was basically what I was pushing; I wasn’t going to try and be pushy and close it that day because — that is not what they needed.
David: People don’t want that.
Mike: Again, it’s different for everybody. Some — they understood their house was in an area that needed to sell, not necessarily for full retail, if they listed it they would have to fix some things up because it wasn’t retail ready. Closer to rental ready but not — retail ready and they understood that.
So left them — the son call me back a couple of days later and said hey — we are ready to go with your offer, my offer was 37, there was literally zero negotiations off them. 37 was pretty much the lowest sold comps in that area. That was just the number I used.
David: You just pulled the lowest comps?
Mike: The lowest comps.
David: So did you have to follow up with them or did they call you back, how did that work? So you go out obviously you meet them, you give them the contract, you show them the comps and — which I want to bring up a good point on this is — its not you versus them. It’s you and them versus the market. That is one thing I really want to stress is that — if you have the ability to run comps on MLS great — if you don’t use Zillo comps find what’s sold in the area, bring that with you, be prepared for these appointments, bring that with you. That way when you can sit down, assuming you can sit down with them. You can say listen folks; I am on your side here. You want to sell, I want to buy but we need to find that win win. By showing them the comps it’s not you just coming up there flashy being like I got cash I will buy your house.
Mike: You are making — one of the first things you learn is how to build rapport. I guess that is what I was dancing around was that I was trying to be on their side.
David: You want to show the comps therefore it’s you and then versus the market. Will the market bare what they are asking and — if not here is why.
Mike: Basically it’s here is what I can do. If the market said the property was worth 70,000 that’s what it would be. But the market says properties in this area sell for this amount and this is what I can pay you.
David: So then follow up, did they call you? Did you call them? How did that work?
Mike: Sure, follow up was probably two days later the son called me back. Said I think we are ready to go with you offer and I said ok great. What do you guys want to do? Do you want me to meet you at their place? I am happy to do that. They actually came out here to our office and sat down and they had a list of questions. Sat down right here and they had a list of questions about the contract and about closing. I just went over everything with them and said here is what we do, our title company is going to handle all that for us — no true objections to it. They — we signed the contract and that was it.
David: There wasn’t a whole lot of negotiation in this one? You said here is what the market will bare — I am willing to pay this — here is my offer — It was a couple of days later they said let’s do it. They come in they have a couple of questions which of course you answer. You sign, they sign — easy deal.
Mike: It was a motivated seller. I mean it was somebody who understood their property — was worth not very much, they needed to get rid of it and they were ready to have somebody make it easy for them so that’s what we did. House sold easy. Cash, we closed it quick, the closing was two weeks later.
David: Which is extremely quick.
Mike: Then the sale side of it, so as soon as we got it under contract — I had actually asked him, i forgot to mention this. I asked him to bring up a key so we can put a lockbox on it. I said I am going to have to have my contractor go through, just confirm my numbers then when we close we have the key there so you won’t have to worry about having to bring the key with you to closing and that sort of thing.
David: Great way to do it.
Mike: They wrote down a four digit number on the contract and that was the number I put in the lockbox and I dropped off on that property. So — we are under contract, I then after they left thanked them. Send the title company the contract, opened up escrow. So from there it’s the sales side. This will fit one of our unique programs that we offer here called our buyers’ club. So we have partnered with a local R.E.I.A, hard money lender and a bank, where we can actually get some of the — students of the R.E.I.A properties that fit a certain criteria. David: It’s a model.
Mike: Exactly it’s a model so — we get properties for them for a certain percentage of the after repaired value and they are able to buy them with very little money out of pocket.
David: Little to none.
Mike: Little to no money out of pocket. So this one was like a 200% cash on cash return after the final financing— so we were T’ing up deals for them, almost a no brainer — same thing so we bring it to them, present it to them, little to no negotiation on that side as well. Just a quick — David: Well, whenever you are presenting a deal at a good to great value, there is little — not much room for negotiation. Obviously everyone is goin
g to want to negotiate but — if you can say hey I’m T’ng this up for you already. It’s got X amount of equity built in, I have already T’ed up the hard money lender and your exit with a thirty year fixed rate mortgage, and there is a little bit of competition there too. Mike: I was going to say that’s the other thing. So if they don’t want it, there is about four of five people right behind them that would sign for that deal. So again, we have kind of created our own market for some of these properties by doing that.
David: Let’s talk numbers.
Mike: Let’s talk number so purchase it for 37, sold it for 42, quick 5000. David: That’s a great deal.
Mike: The end buyer — we closed it two weeks later. They closed a week after that so we did have to fund it for about a week. But pretty simple.
David: Let me ask you this Mike. From the time that you had signed the A to B contract, meaning house sold easy, our company bought the property or took equitable interest by getting it under contract. From the seller — what was the time frame that it took to — put together and offering report, present it to — the buyers’ club which is something that we do at our company, and internal model program that have kind of built — to get the contract signed between [00:12:42.28 – inaudible] our company and the buyer. What kind of time frame are we looking at?
Mike: As we are still fleshing that out and Dave you have been a huge help creating that program. So on this particular deal I think it was three days before we had — got it sent out them and had a contract to sell.
David: So not a home run by any means but — I am sure everybody listening or watching could use an extra 5k. That is a good chunk of change so —
Mike: Its one of those things where sometimes you don’t realize this business is — very simple.
David: Very simple.
Mike: But sometimes it is hard.
David: There is a difference between simple and hard.
Mike: But this one was simple and easy. So if we can keep doing that, that’s what makes us happy.
David: Things can be simple in theory, but they require a lot of work.
Mike: I’d say wholesaling is one of those things where it is simple but there is a lot of work behind the scenes that needs to happen.
David: That’s a great deal Mike. Three days from acquisition to sale, we had to wet close that one. We had to fund it for a week, pay 37 and sold it for 42. So we had a $5000 profit. However we did have closing costs since we had to purchase it then sell it. So we probably paid — 700 give or take.
Mike: I think total profit to the company was — we brought home like 4. So about 500 for closing and about 500 for funding’s, something like that.
David: Oh yeah, because we had to borrow the money to buy it for a week. So net profit on that deal was 4000 gross was 5 so we cashed a cheque for 4000.
Mike: So yeah, again — 4000 is not a fortune, it’s a decent chunk of change and again for the amount of effort that you put into it. It’s better than you are going to get on your day job. David: The return on an investment for your hours of work is phenomenal.
Mike: Probably three or four hour’s total worth of work.
David: So we touched on the lead source that came from a — networking event. The negotiations were pretty simple on this one because you didn’t really have to follow up and negotiate or anything like that. You just say hey — here is what the market will bare, this is what I will pay. And you kind of backed off which is great. Then they came and said let’s do it.
Mike They were very quiet and you want to pick up on that when you are meeting with people too. What type of person they are and they definitely — they wanted to talk about it themselves
David: They wanted an internal talk, they didn’t want you there when they were deciding if they were going to sell it to you or not
David: I am sure they liked you when they met you, because you came off as being on their side.
Mike: You are trying to help by presenting them with the — look this is where the markets at. I really — here is where it’s at, what do you think? Again, they wanted to think on their own, they did, they called me up and said they were ready to accept. So there was no haggling back and forth. That’s why we got a great deal; we were able to sell it for — id say a pretty great deal still. We don’t mark it up a lot for them
David: So the contract and negotiations were pretty straight forward that’s great. The type of closing was a double close — that was a double close on a different day. Weren’t able to line up the double closes up which would have eliminated us from having to gap fund, but on this particular deal we had to gap fund it no big deal.
Mike: Again part of the reason we do that though is because our motto, at house sold easy we want —
David: We want to make it easy for the seller.
David: So if they need to close on this day, then we will do that for them. It is going to cost us a little bit of extra money to make it — to make that happen but our company is house sold easy. Discount property investor is where we put our properties out. But out actual acquisition company is house sold easy. That’s great, you did it, you closed it and it was a win, win, win. It was a win for you and me because we were able to get a deal on a property; it was a win for the seller because they got to sell their home. They didn’t have to hire a real estate agent, they didn’t have to have inspectors come in there and picking the place apart. They didn’t have to pay any agent commissions. They didn’t have any seller concessions which means we would come back with our inspection report and say well you need to do this, this this and this and we need a better price. So they didn’t have to deal with any of that. Lastly we probably payed all their closing costs too so they didn’t have to worry about coming to the table with any money, or even having that money deducted from what they were going to receive. So it was a win on their end and we T’ed it up for our cash buyer investor who bought that property as a hard money lender in place, to get into it for little or nothing down. The hard money lends for the property and small rehab which probably needed a couple of grand to get it ready. They then exited it with a thirty year fixed rate mortgage, so it’s a win on their end. I don’t want to get into too much detail, but the point here is win, win, win. Everybody wins. It is a great deal and you did it super-fast, I’m impressed. Three days from start to finish on the contract side of the business. I know you were working on this a little bit longer; there were some delays here and there but — man three days that’s phenomenal.
Mike: It feels really good when you have your property sold quickly. I would say the time you swear the most is when you have a property under contract to purchase and you don’t have you buyer. So personally I am willing to take a little bit less to get it sold quickly.
David: I did one yesterday — just get it — yesterday i think we made two or three grand on a deal but it was a deal where I was really trying to help the seller out. Make a little extra money on the deal is always a great thing. But the guys kind of underwater in the home and he just wanted out so we were able to help him. That’s another thing, the two or three grand that’s great we will put it all back into marketing but — what’s really important is that we will get a testimonial from this guy. He will say Dave came out, was nice, he helped me and he saved the day. He got the deal done for me.
Mike: He might know somebody else who needs to sell a property and might hit a home run on that one and make ten grand, you never know. Dave — how about — do you want to do a case study?
David: As I mentioned in episode one — I’m fairly knew to wholesaling, I have only been doing wholesaling for — maybe a little over a year, probably right about a year actually. I — did talk about this in episode one, i tried to do wholesaling for two and a half to three months prior to doing a deal. Then i hired a coach and it totally changed the game for me. Within — the first month I did three deals. Within a week and a half I did my first deal. But I had been trying for three months on my own trying to absorb all of this information and — it all came down to me not simplifying it. I was — I just didn’t know what to do or where to start. When i hired a coach he was just like, send letters. Get out there do marketing, and I was doing a little bit of it but not enough.
Mike: It is really easy to over complicate things.
David: This business is so simple. So — back on topic my case study. I want to talk about my very first wholesale deal. Completed it about a year ago as of today and — it was a — multiple home deal actually. So i was doing a small rehab on one of my own rentals which — this wasn’t a wholesale lead per say it was a rehab that I was doing. My general contractor — he saw that I was getting into the business of buying and GC’s a great people to network with by the way. They work for investors so they know a lot of other investors so, he came to the job site one day, i stopped in and checked on the property and rehab. He said, Dave, I have a client who lives out of State. He has three houses, he is looking to liquidate these things, he is tired of dealing with the tenants, and they weren’t in the best part of town. He said call him, here’s his number, make him an offer. So I went back home I ran some [00:20:55.01 – inaudible] on these properties and I sent him an offer on all three of them. It was kind of like a package deal, however — it was three individual contracts. I didn’t want to get stuck buying all three if I was only able to sell one of two. I told him I said, listen I want to buy these but I need to do some due diligence. Here is my offer, I am going to do a 20 day inspection period, I need to get my contractors out there, I need to shop it to my partners. See if this offer will work.
So my very first deal, another wholesaler saw some of my Craigslist posts, I didn’t even have a buyers list at this point. I was still building my buyers list, I did some Craigslist posting — and I had e-mailed it out, maybe did a Facebook post on my own personal Facebook page. Another wholesaler in the market. His name is Justin, great guy, contact me and said, Dave, I can sell these all day, these two you have in this neighborhood. I got a buyer and we can do it. I said ok great; here is what I was asking. He didn’t even know what I was under contract for. I just said here is what I am kind of asking and — 50 50 man, let’s do it. You bring me a buyer to buy these and — we will split the profits 50 50. So he sent me a contract, maybe three or four days later. So I had been marketing these properties for probably a week and a half to two weeks. So about two weeks he sends me a contract from himself because he had one with his buyer. Ended up being for two of the three properties and there was a $24,000 spread on these deals. He didn’t even know that. He was probably hoping to make a couple of grand on each one. When I get the contract I was like oh man. I couldn’t believe it, I was like — ok let’s see if we can close. Maybe about a week and a half later we take — we had already sent the paperwork over to the title company and — I just assigned my contract to him. So that’s when he found o
ut there was a 24k spread in there and he went and closed the deal with the A to B and B to C same day. I had $12,000 wired the very next day into my account. First deal $12,000. It was a home run for me considering I had never done a deal before.
Mike: What’s great about Dave is fearless too. I think it is something we mentioned in a previous episode which is make offers. He didn’t make offers on one of the properties and — I am interested in this one, the nicest one. He said I will buy all three. So that confidence, just go get it. That’s good man.
David: I was really — thank you. I was really; I don’t know what the right word is for this. I was really surprised I should say. Whenever I sent over my offers — for all three properties that they were accepted immediately because they were literally like — 50% of the after repair value and they didn’t need a ton of work. The seller was just truly motivated. He lived out of State, he had these as rentals and he just didn’t want to deal with them anymore.
Mike: You said this was a letter then? The lead came from a letter?
David: No, a general contractor.
Mike: Oh my gosh, ok.
David: It was a general contractor so — we got these two done. He was already ecstatic with me, he was like Dave — this is great you just helped me out, I didn’t get a ton of money for them, but I don’t have to deal with paying taxes — he was just done. I think he got probably his money back out of what he invested, wasn’t much profit in it for him but he didn’t care he was just done.
So I got those two deals done — and then I had the third property. The third property took me about another month to find a cash buyer. I had to go back re-negotiate on that one. I probably made three or four thousand dollars on that one. Regardless, it was a win, win for everybody because I got paid in the middle, i helped him sell all three of these properties which he no longer wanted anything to do with. I helped another guy get two new rentals and another guy gets another rental and — just a win win.
Mike: That’s great.
David: Not a ton of negotiating on that. I think the level of motivation there — was so high that he just accepted my fair offer is what I thought but — they were pretty low.
Mike: If you look at the number then. It was three properties right? Of the three properties you probably made about $15,000? So around 5000 per property which is similar to mine. But yeah — well true and not true. You said your partner was made 12.
David: So there was a $24,000 spread. But because he brought the buyer in — it was a 50 50 joint venture. If you are looking for a joint venture contract, go to the freewholesalecourse.com — we have some example contract on there. Yeah we just signed a joint venture. So the type of closing was a little strange on this one because — I assigned my contract to Justin, the other wholesaler in the market and he did a double close. So that was actually an assignment and double close. But for me — it was only an assignment. I assigned it to him; he double closed to A to B and the B to C same day. So he didn’t even have to come to the transaction with a penny, not a single dollar. And he used the C buyer’s money. There was $24,000 of net profit, we split that 12 and 12. So minis some closing costs I think I netted like 11500 or whatever. Then on the third house on that three house package which i did a couple of weeks later. That was just an assignment. I found a buyer I didn’t make a ton; I made three or four grand on it. But I just told him, i am all about transparency. So — this is where I’m at, I negotiated this price down one or two times already. I need to make at least this amount to make it worth my while. Take it or leave it and he said — he negotiated me down even more. Of course I was trying to make five or six. Hey said hey let’s say three grand. Did an assignment didn’t have to go to closing. He closed my A to B — because he had assigned it so there wasn’t even a C really he just assumed my B. Then that’s it. I get a check in the mail three of four days later from the title company.
Mike: I think that is a big thing with us to is — transparency. We do try to present — I mean. As honestly as possible what we are doing.
David: I wanted to keep that buyer. I didn’t meant to interrupt you Mike but — I would rather be transparent — and save that buy because again. This is when I was first starting I didn’t have a massive buyers list like we do today. Pretty good sized list. But in the beginning I maybe had ten or twenty guys that I met at R.E.I.A’s and meet up clubs. I didn’t want to burn that bridge
Mike: It’s not worth a thousand dollars on one deal if — this guy is going to come back and buy ten more properties from you.
David: And you don’t want to get a bad reputation. Maybe you burn that bridge — obviously never burn any bridges. But he is an investor out there in — the market. He is going to tell people to so. Not only did I make money, I T’d him up with a great deal. It was a win win. He still is on my buyers list. He still buys deals from me all the time. So it was a good — deal for everybody involved.
Mike: Great first deal, that’s awesome.
David: Two great case studies guys, we have pretty much walked you through one of Mike’s deals, my first deal. Talked about the lead source. Mike’s was a BNI from networking. Mine was networking too. It was actually from a contractor that was doing some work on — one of my deals guys so. Get out there, do some networking.
Action item for today. Again we are in the marketing business. I can stress this enough. Do marketing, do more marketing, if you are not already marketing, start doing marketing. This is a marketing business guys. So action item for today. Get out there, place some bandit signs, buy a list, and send some letters. If money is tight, hand write them. When if first started. i think I bought a list. The first list I bought was 99 names. A tiny baby list. 90 names and I hand wrote the letters. I remember my girlfriend, she was yelling at me wanting to go to dinner and I’m like nope I am going to write these letters and I wrote 90 letters and I mailed them out. I don’t even remember if I got a call off it or not. But — regardless do your marketing guys.
Mike: A second action item to. So if you haven’t done marketing, you can make an offer today. Call a real estate agent, make an offer today. Just get out there and start doing the business.
David: That is a great point Mike. Marketing is obviously key. But if you don’t have any resources at all, go to the library, get on the computer, pull up Zillo or Craigslist, find rentals in the area and call them.
Mike: No reason not to.
David: People who rent their property are going to put their contact number on there. Pick up the phone, call them, and make them an offer. Absolutely.
Mike: Or just made a friend. How did you buy this? How did you get started? I want to get started in real estate. Just get on the phone and start talking to people its important.
David: Absolutely. So next week guys we are going to talk about super charging your wholesale business with the freewholesalecourse.com. We are going to talk about what we are offering with this course. It is free, go to our website, freewholesalecourse.com — we are going to be talking about that next week. As far as today, if you need to reach me, David@discountpropertyinvestor.
Mike: You will find me at [email protected]
; send us an e-mail we are happy to help out. We will go ahead and end with a quote. “It is not how much money you make, but how much money your keep and how hard it works for you and how many generations you keep it for. ” Thanks for listening guys, have a great one.