What's going on YouTube? It's Matt Faircloth. My man, my partner in crime, on the road today,
Justin Fraser. Come on in Justin. How are you today, brother?
Hey, Matt. What's happening?
Who do we got today, Justin? Who's our guest? Come on into Mentorship Monday.
Today we have Sam. Sam come on in. Hey Sam.
What's up, man?
How's it going? Okay, so I'm a pretty new wholesaler. I started doing this a couple
of months ago, and basically I'm still having problems figuring out the ARV and the repair
costs. And I'm interested in wholesaling [inaudible 00:00:35] as well as doing what's called whole-tailing,
which is buying a property in a pretty good shape and then figuring out what the byproducts
would be so that [inaudible 00:00:50] can you help me with that?
Yeah. So you're what I hear is that, and I love that whole- tailing name. Whoever thought
of that, man, I hope they get a nickel every time somebody uses it, man it's a cool name.
Can we start by saying what not to do? Can maybe we start there?Because if I'm a buyer
and I am and have been for many years and I get a ton of wholesale deals and not as
much anymore because we're focusing, but for a long time and pretty much anytime, a wholesale,
except for Steve Chatto, by the way, who's leaving a comment. Would send me something
I pretty much would delete it because after the first few years you realize who is serious
and who is not. And for me, the quickest way to tell a good wholesaler is a wholesaler
that actually does the work. And the work is what you're describing here. How much does
it need and what is it going to sell for? Because if every time I got an email that
says, Oh, you know, it's a hundred K upside with $5,000 worth of work. It's like trash,
trash, trash. And so wholesalers has got a really bad reputation in that they're not
adding value, right? Cause, an email with those numbers, there's no value to me there
cause I don't believe it. There's no credibility. So for me the whole answer that Matt's going
to get into is going to predicate on how do you build trust and reliability. So that me
as a buyer, believe you, Sam, when you say I've got a deal for you,
I love that Justin, I think you nailed it on the head. The biggest thing I've seen wholesalers
do, Sam is they're going to come in and tell me that magically, I'm going to redo a kitchen
then a bathroom and repaint the house and fix a leaky roof and do some landscaping for
like 5,000 bucks. So there's just unrealistic repair numbers. And I get that unrealistic
repair numbers make your purchase number more palatable because then it's like, well, okay,
I guess I can give you 90 grand for that property. Put five grand into it and sell it for 140.
But the problem is your repair number is not right. So what I would do is number one, get
to understand rehab costs by talking to other investors and say, what's typical. What's
the average repair cost for a single family home. If you want to get more technical, you
can go dollars per square foot.
There's a book Jay Scott has out on bigger pockets. The book on estimating rehab costs.
It's a great book. I would consider picking that book up and learning rehab costs. Then
what you want to do Sam is, the easiest thing that you can do to determine the top line,
sell price of a property on what the end buyer in the market should be paying for it. Right?
And then, then you're going to back out the real rehab number back out, maybe a profit
figure. If they're going to do a flip or if they're going to do a rental, you know, maybe
some, some yield spread in there for a Burr strategy or something like that. So by the
way you said you're new. There's a lot of great books for you to be reading right there.
There's the Brrrr book from David Green and there's Jay Scott's book on estimating rehab
costs, read those two books and the best way that you can be the best vendor to investors,
to folks that want to buy rentals and stuff like that as a wholesaler is to get inside
their mindset. And those folks read those books too. You'll be a better wholesaling
vendor and get to the point where wholesalers are like my man, Steve Chatto, who could be
closing five to 10 deals in any given month as a wholesaler, right? That's great cashflow
as a vendor to investors, right? But the way he got there was by understanding the investor
mindset. That's why he's different than most other wholesalers. Now determining comps.
I like Zillow, Trulia, and Realtor.com. Realtor.com is probably a better one because Realtor.com
is directly tied into the MLS, Zillow and Trulia are too.
Those are almost as good as you getting direct MLS access, which you can get if you get your
real estate license. Now in New Jersey, getting a real estate license takes a whopping two
weeks. Where are you located?
I'm in Texas.
Oh, you're in Texas. You can look into it. I mean, and look into getting a license in
some states. The only reason I would do that is because you could have direct MLS access,
but Zillow and Trulia and Realtor.com actually give you pricing data for those markets, but
they don't give you as well as historical data. Meaning properties that are sold over
years and years, they do give past sales, but I find Zillow and Trulia ,I've been unable
to figure this out, but what they'll do is they'll show me anything that sold over the
last 10 years in a neighborhood. I don't want to see that. I want to see what's sold in
the last 180 days. You know, when I'm looking at a market and I find it hard to filter that.
Justin, have you looked on the residential sites like that? Zillow, Trulia, realtor.com
as sources for pricing?
I think Zillow, you can get the historical data. It'll show you tax history and purchase
history on the individual properties. And again, the whole success of a wholesaler for
me is about accuracy of the information that you're providing. So I love what Matt said
about reading the books, and absolutely you should, because you need to have an idea of
what you're speaking about, but I would suggest taking it a step further. And if you want
to build a legit wholesaling business, why not partner with a contractor who can give
you real estimates? How valuable Matt would it be for you? If a wholesaler approaches
you with a full set of comps to support their ARB and a scope of work and a bid from a contractor
saying here's the kitchen, bathroom, etc. and this contractor will do it for $30,000.
Now I feel a lot more confident that this wholesaler has actually done their homework
and the numbers are more legitimate.
That's brilliant. I've actually never seen that done, but I [crosstalk 00:06:39] cannot
imagine the level of work, not the level of buying that you would get. That's not that
much work to get that. That's why I said the level of work, cause think how much work would
that be?
Well, if you've got a contractor willing to do the work, to reno. And they're willing
to come in and to bid it for you, to turn that over to an investor. So it's like a deal
on a silver platter. And eventually my guess is you want to wholesale it so you could eventually
build up some cash offers, start doing your own deals, right?
[inaudible 00:07:05](affirmative)
Okay. Got it. What better way to become a better long-term hold investor long-term than
to act as if, even when you're wholesaling, act as if you're going to buy it yourself.
So bring the contractor in, underwrite the deal as an owner and everything like that.
I think that's the mindset. Use those resources online like I said, and read those two books
that I suggested, use the bigger pockets calculators that they have. You can underwrite the deals
there too. So how about let's reality check. How's it going? What do you think?
Can I get the names of the books again?
Sure. It's the book on estimating rehab costs by Jay Scott and then there's the Brrrr strategy
it's B and then four R's, buy renovate, rent out, refinance, repeat Brrrr. It's a stupid
name, but it makes sense. It's the Brrrr strategy, okay?
Here's the tough thing about wholesaling is you got to know the sale exit price. You've
got to know what a good deal looks like on the buy side. You've got to be great at connecting
with people and these people that are going to sell you these houses. And then you've
got to have a really good idea on the renovation side. So I would suggest you assess all the
pieces of wholesaling, figure out what you're good at and what you have to bring someone
in on.
You know, I made an assumption that you don't know renovation costs, I think that's what
you asked about initially. So if you're good at finding the deals and the marketing, great.
And then find the pieces you're not great at and sub in and bring people in and you
got to find the right kind of contractor to do what I suggested before. But if they're
an investor or listen, if I get a bid from a contractor and I'm wholesaling this out,
I'm buying a wholesale house, I'm probably gonna use that contractor, right? So there
is incentive and you're not
Why would you?
Just getting someone to do the work out of the blue, there's incentive that they might
get that work.
Now some wholesalers are hearing this conversation going 'well, why would I go do all this work
for investors? You know? Well, so they'll gladly pay your five, 10 or $15,000 markup
on the property price, you know? And they'll come back to you over and over again cause
they'll know, Sam's the guy that goes and does a lot of homework for me And he tees
up the ball right there so I can just smack it out and grow my business. And eventually
you'll learn how to do what yourself.
And the reason I think I suggest that is because wholesaling is a crowded space. So just like
anything, that's very crowded, how are you going to differentiate yourself? How are you
going to stand out from the hundred other emails I get on Monday morning all listings,
sometimes even the same property, right? Or, the spam text message or email chains that
you get and how are you, Sam going to stand out? And I want you to stand out to your buyers.
What do you think Sam? Does this makes sense?
Yeah. It makes sense. [inaudible 00:09:55] You know, it's like different [inaudible 00:09:57]
you have different numbers, so I'm still not sure which [inaudible 00:10:00]
Well you know what Sam? You're not guaranteeing those prices. When those guys go in and say,
"yeah, it's going to cost 30 grand." That's just a price from a vendor. Other real estate
investors might look at this and say "I'm going to use my guy" and the big time real
estate investors, when I used to do a lot of single family homes and stuff like that,
they have an in-house crew. We used to have an in-house team that did all of our physical
renovations and all that. So just because you give them a bid from a vendor, doesn't
mean that they have to use that vendor. I mean, if the vendors never get any work out
of you, then they might stop giving you prices. So you might want to try and make sure they
get taken care of and all that. But I mean, it's a nice strategy. I like that.
You know, I know it's tough right now with COVID and I'm not sure where Texas is in all
of this, but find a wholesaler that's active and successful in your market. And see if
you can spend some time with them. Figure out how you can add value to their business
and gain something from it. So maybe they need you to drive houses and look at vacants,
or maybe they need you to meet an inspector or shadow a seller or do paperwork or whatever
a wholesaler might need. See if you can take some of that off their plate and sort of learn
from them by adding value to their business and then eventually you'll get more confident
with the numbers, you'll get confident in the neighborhoods and you'll start to see
how that's going and you'll be able to model your business after their business.
What I generally do is I look at five or six houses in the area and look at what the price
per foot that they sold for and find out the average multiplied by my subject property
size.
The question I have is, if there are two comps that are relatively the same square foot,
lot size, same bedrooms, bathrooms, same features, but one sold for 155K and one sold for 170K,
which one should I consider?
You got to figure out what that was. That's a great lesson to look at that and say, okay,
buyers aren't going to just pay an extra 20 grand for something. I would delve deep into
that listing and say, what did they do? Why? What was there, a finished basement? Was there
more land? Was there a pool in the backyard? Were the taxes cheap? This is a good learning
experience for you to dive in and find out what drove that price 20 more thousand dollars,
because here's the thing, whatever it was, if you can recreate that on another deal or
show investors that it's possible, that's 20 grand more in their pocket or yours, right?
And don't be afraid to call the realtor. Call the agent for the 175 thousand one or for
the 150 thousand one, and say, "Hey, I saw this other property that sold for so much
different of a price, help me understand why." The one for the 175 will gladly tell you why
it was.
And to that point, that's really great. So let's say it's all houses in a row, but one
had an extra half bath cause they take a closet and made a half bath. Well now you've got
the recipe right? Now you know okay, I can go down this line, add an extra half bath
and get an extra 20 grand for it and it only costs me $6,000 to do. And then you've got
that recipe. So, that's absolutely right. We're going to have to dig in on those numbers
and find out what the difference was. And that'll help you narrow down your focus and
be able for you to better project that ARV to your buyers.
And also Sam, only look at sold properties. Don't look at stuff that's asking. Cause you
could have people that just think that they can get an extra 30 grand for their house.
So it might be like right next door to the one that sold for 150, might be a house for
sale for 185. That doesn't mean they're going to get it and all of that. So I look more
at sold.
What's the value that you are bringing? Usually it's what Matt said, fast no hassle.
I did one wholesale deal in my life and it was a horder house. You couldn't walk in,
the smell and she just needed it gone. And we had it gone the next week, right? And that
was it. No hassle, no one walking through. It was an embarrassment thing. We just took
care of it. I gave her a price, she started talking to someone else. "Oh, maybe I can
get 11 or 12 or more." I'm like, 'fine, go with whatever you want.'
Take them through there.
I'm right there with the cash. No hassle. She called me a week later and said, "let's
go, let's do it. I know you're going to give it to me." And she got t``he cash and she
moved on. So I solved that problem for her. So figure out what value you're bringing to
that buyer. And every buyer might have a different criteria for reason why they want to sell
or they have to sell. You just have to listen as you're speaking to them and figure out
how what you're offering solves that problem.
Once I buy a property or once I'm already under contract, is that normally a few days
you have, before you can find a buyer, do you need to get [inaudible 00:14:52]
No, you should try and negotiate at least two to three weeks for yourself to try and
find a buyer. And you've got to find buyers that can close that fast. And the way you
protect yourself if you can't find a buyer is low deposit. Most wholesale contracts that
I see have the deposit being a hundred bucks. So if you can't find a buyer, you lose a hundred
bucks.
All right. Cool, Sam, thanks for being with us today, buddy.
Thanks Sam.
Justin man, that was good stuff. I haven't done many wholesale deals, but I still understand
the business, and for those of you guys watching, wholesale I mean in itself is a business.
It is a grind, but it can be extremely lucrative. So I recommend it for those of you guys that
are good system and process thinkers. All right, man,
Have a great and profitable week.