On this episode of the Note Closers Show, Scott discusses wholesaling notes, which is one of the easiest ways to make money in notes.
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It’s good to be back in the office after taking a couple of days to be in South LA in LA Live at the Content and Commerce Convention put on by DigitalMarketer. I really enjoyed going to that event. Any type of digital marketing conference that they put on, put on by DeAnna Rogers, my good friend and actually first ever assistant. It’s always nice to surround yourselves with thousands of other entrepreneurs who are like-minded. It’s great to pick each other’s brains, talk to people, “What are you doing?” meeting with vendors and literally learning things that can take your business to a whole different level. We’ve taken a couple of days off from filming the podcast on a regular basis and our Facebook Live streams with it. Just because I’m literally taking almost every section of that as best as I can and getting as much knowledge as I can actually absorb because a lot of times, there’s so much content given, it’s hard to realize what actions you need to take when you come back from an event like that.
One of the things that I do when I travel is I always take things out of what I’ve learned over the last couple of days and put it on paper on things that I’m going to implement. A couple of cool little websites that will help peak some traffic, people opting in or wanting more information or opting in for our videos and our webinars, some really cool stuff that I’m actually seeing a couple of people that I respect using that I didn’t know what it was until just this weekend. I will share those because I don’t want this to be little insider secrets of what we did. Lots of great stuff you’ll see some things going forward if you follow us on Facebook or LinkedIn.
Anytime I walk out of a marketing event like that, I always almost want to come back and just explode everything, really blow everything up and rebuild it. What’s great is the timing of that convention with us going the last four months of the year before too long is it allows us some time to ramp up into the beginning and changes of 2018. If you aren’t already planning your 2018, you should be. Some of you are like, “I haven’t even gotten close to my goals for 2017.” If you’re in that position, start now, start something, do something. Any type of momentum you can build now until the end of the year will help your 2018 be more successful. Don’t put off all the way until the beginning of the year or wait until your New Year’s resolutions. Quit putting off your dreams and start doing something.
What I wanted to start off today is share with you the very easiest way to make money in notes. It’s an easy way to do it, it’s just that it takes a little bit of work. Honestly, what’s easy to do, you actually don’t make as much money if you had the huevos to continue on. What am I talking about? I’m talking about wholesaling notes. Wholesaling notes is a very, very easy way to make money in notes. As we get into the last part of the year, it’s definitely a way to make some money as you’re dealing with hedge funds and other things that have stuff or inventory on their books that they want to move.
Let’s first talk about what wholesaling is. Wholesaling notes is only going to be effective in one or two ways. One, you’ve got a market because you’ve got to have a buyer’s list. Two, you’ve got to know what people want. What are they looking for? The third thing is you’ve got to have sources to move stuff with. Having a big buyer’s list with all the big database of buyers or network, it’s only good if you’ve got something to provide to them. When I first started the note business, that’s what I had to do because I didn’t have any capital and it was a downturn of 2007, 2008 where a lot of people didn’t understand note investing. They understood the fix and flip side, they understood rentals, but they didn’t always understand the note game.
I had to find buyers that want specific types of properties. I had to find buyers that wanted assets in really faster foreclosure states for the most part. I had to find assets that were extremely desirable and then help sell those assets with the due diligence aspect. I think that’s one thing that wholesalers really drop the ball on. They don’t work through the due diligence of an asset and understand why that asset’s attractive. A lot of people are like, “I got a deal for a sale. It’s 80% of assets value or 80% of ARV, and it needs $500 repair,” when that’s not the case at all. The best wholesalers are those people that not only have a big list but they also understand the deal, they sell the deal for its true components, not its theory but its realistic data, its realistic numbers, if that makes sense.
Wholesaling is also most effective when you can find assets below 50% of value. That’s the hardest part in today’s market. If you’re buying one-off notes, a lot of sellers are going to want stuff at 45%, 55%, or more percent of value. This is where it can take the work of reaching out to hedge funds and other banks. Why it’s most effective this time of the year, the last quarter of the year, because banks often have stuff on their books that they need to get rid of. Now they’re more willing to take a little bit less of a price because now they’re motivated to move it. Now they may want $0.50, $0.60 on the dollar now, if you can get them down to $0.50 or you find out that asset doesn’t move and you keep following up, following up, following up with it, and you get to the 1st of December, and you can close before December 27th or December 30th. December 29th will be the last Friday of the year, so if you can close prior to December 29th, they’re often to be motivated to work with you. We can’t complain, it’s getting a list of assets in, looking through it, finding a price, that point that makes sense, and then buying yourself some time to market to your database. You want to be at the 50% of value or less preferably.
Wholesale can be a flat fee: flat $1,000, $2,000, $5,000. It can also be a percentage: 1%, 2%, 3%. It varies on the asset by how much it will wholesale. What you don’t want to do is try to sell an asset that your wholesale fee is enormous, where it takes it above like 70% of value. You might as well just not do it because that’s a waste of time. “I’ve got to make $5,000.” The deal’s not going to hold $5,000. You’re lucky to get $1,000 or $2,000 as the wholesale fee. It’s better you get 100% of something versus 100% of nothing.
Condition red is if literally you have an asset under contract and you don’t have a buyer or you’re trying to wholesale it for a price that takes it out of the deal, where your wholesale fee is 30% or something like that. Don’t get me wrong, I have had wholesale fees that range from $500 to $100,000 before. $100,000 was a sixteen-unit apartment complex in LA a few years back. Normally it’s going to be like 1% to 3% point of the funding amount or a flat fee.
I have to give a big shout-out to Patty Ped of Pennsylvania. We helped Patty wholesale an asset, a second lien, out of Salt Lake City that she made $5,000 on. She was all worried about it. She found this asset that made sense as a second lien. I don’t buy seconds, but the great thing about it is she had it at such a good price. There was equity behind what she had under contract for and the buyer was willing to pay her $5,000 wholesale fee. Congrats to her, it was her first wholesale deal. She’s found a couple of deals, bought a couple of deals, and found something that had value to it to move. She marketed the asset to her database, provide the due diligence information direct from the bank, and it was a true win-win. The nice thing about it too, it was straight from the bank and the bank wouldn’t allow her to wholesale. That’s a rocky ledge you’ve got to be careful with where you’re balancing on.
A lot of banks don’t want to deal with brokers, they have their own brokers. What you have to do is you have to approach the bank that you’re buying for your own investment portfolio, and then what I like to do is to say, “This doesn’t meet our criteria but I have one of our investment partners who is interested in this. Do you mind if I send it over to him to take a look at?” A lot of times, as long as you’re upfront with people about that, you often have the new buyer or the person you’re moving it to sign a non-disclosure agreement, and if it doesn’t violate the bank’s interest, you’re okay. That’s a huge thing when you look at that. You want to make sure you’re not getting caught blasting these banks’ list out because that’s the easiest way to get blacklisted really, really fast. Also, don’t market yourself as another company. Market your own company. We’ve had people that we’re trying to market deals as us, as We Close Notes, and then I had the banks call me, “This guy’s marketing as he works for you.” I’m like, “No, he does not. Never been associated.” Not a smart thing to say you’re with We Close Notes or Inverse Asset or whatever.
If you can get a list of assets from a bank, it’s often easier to wholesale bank assets because they give you 30 to 45 days to close, whereas a hedge fund might have more assets that they’ll let you wholesale, but they want you to close faster. That’s why, as you get to the end of the year, a strategy that usually doesn’t work for most of the year comes into play.
The biggest thing that you can do is sometimes I’ll have hedge funds that send me lists that they want me to buy or they want me to help move. Oftentimes, we will put everything under an option agreement. Using options are a great way. Putting an option on a contract, putting an option on a piece of property. It’s the same thing with notes, you put an option on a note. Basically, what that option is, is what the price that the seller wants to sell the asset at. You’ve heard of exclusive options where you’re the only one that has that option for a week or 30 days. When I talk with the hedge funds, I often will talk to them, “You’ve got this list. I don’t want to buy the whole thing, but give me a non-exclusive option agreement.” They’re like, “What’s that?” You can’t do this with banks. Banks aren’t going to give you an option on a note. They’re definitely not going to give you a non-exclusive option on a note either.
What a non-exclusive option is, is when you have this seller, a hedge fund or private seller, give you the price of the asset and it allows you to go out and market it. They have the right to still sell it to somebody else, but using options agreement gives you the first right to refusal, so that if they do find a seller, they come back to you and you have the right to either match that price, beat it, or just say forget it and move on and take it off your board. Some hedge funds, they’ll send me lists, they’re like, “I got to move this stuff,” but they don’t have the list, they don’t have the database that we do, they don’t have the marketing skills, and sell for $10. We’ll have them sign an option agreement on the whole tape or a chunk of the assets, and they’ll give me the rock bottom price.
I’ve done this several times in the last couple of years, always ends up being the last quarter of the year. It is a phenomenal strategy if you really have to motivate the seller to move some stuff. Now, you basically have all the win-win of it; you get your low-bottom price, you’re not under contract to really have to close on these and you’re not going to owe a lot of money. One of the things I also like to do, depending on the seller of the assets, is I’ll often incentivize them after a specific point. That gets them working with me. I’ll give you an example. A couple of years ago, we had a fund. About $1.6 million in assets, that’s what the bid was, that’s what their rock-bottom price was. We put it under a non-disclosure option agreement for $10. I told them, “Give me 30 days to move a chunk of this. Give me a first right to refuse if we do end up selling them, and I’ll make you a deal. Anything that I can move $2,000 over your rock-bottom price, I’ll split those commissions with you. If it’s $2,000 or less, I keep the full $2,000 for my time.” If it’s over $2,000, what I’ll do is I’ll split that overage 75/25 with you.
If we made $3,000 on the wholesale agreement with a wholesale investor, I get the first $2,000, the final $1,000 commission, they got extra $250 and I got $750. They were very overjoyed for that. Literally, all of November, this happened right around the week before Thanksgiving, I was literally busting butt for a month and a half up until December 30th. I had moving about 30 assets. I made $150,000 in wholesale fees off of these assets because I just churned and burned. Some of them made $10,000. Some of them made $2,000. Some of them made $500 just to get it moved. It was a beautiful thing because I was able to sell them off one at a time. It gave me the flexibility. The hedge fund was willing to work with me. For $10, it was a very nice Christmas. If I’d been really smart, I would have funded that $10 with my self-directed IRA using options agreement on all these. I could have put all $150,000 in profits back into my IRA tax-free if it was a Roth or tax-deferred if it was a traditional. I needed the money at that point, that’s why I didn’t go back at my IRA. I could have done it right if it was $10 a half and then $10 on another half and just had some of it in my IRA and others not.
Wholesaling is really easy to do. It’s not a complicated process. What gets tricky is how do you get paid and how do you structure that? First things first, one, you have a contract from the bank or the hedge fund, from them to you, for the property or the note. Let’s say, Marcus from Vegas sees the marketing and property, and he wants to wholesale. He wants to buy that deal from me. I have two options. One, I can either do a double contract, another contract from me to Marcus. Let’s say I’m buying the asset at $50,000, I will just make the second contract to be $55,000 if I want to make a $5,000 wholesale fee, if it makes sense. If the asset is worth $100,000, that would make sense. I can do either a double contract, another contract where it’s the whole same thing. It’s just the party that changed. He signs that or he funds me, we go from there. I could have a counter. I would have to provide the due diligence files to him and share that stuff. You always make your wholesale buyers sign an NCND because you don’t want them going around you going direct to the source. That happens a lot with a traditional wholesale in real estate investing. People will find out the seller go knock on the borrower’s door or whoever tries to steal your wholesale deal. In notes it’s not that easy because it’s not the same players. A lot of times you don’t know who the actual note holder is or you don’t have access to those people, like you would a realtor or somebody else or a homeowner if you’re a wholesaler.
There are two ways. One, we do a double contract or we just do a flat wholesaling notes agreement. It’s one-page agreement that becomes part of the second contract that you have them sign, basically it’s a one-page agreement that refers to the contract, “You’re buying it not from me, you’re buying it from ABC Bank or ABC Funds. You’re paying $50,000 to the bank and then you’re going to pay $5,000 wholesale to me.” That’s usually one of the easiest ways. One thing to keep in mind is if you trust the people you’re working with, you worked with them before or you’ve traded with them, just do the one-page wholesale agreement. It’s the easiest thing. How do they fund that deal? They will send basically two wires. They’ll send a wire to the bank and then they’ll send a wire to you. What you do is you instruct the bank and say, “I need a change in the name on my contract or a change in who the assignments are going to be made out to. We need to make it out to Marcus Vegas instead of Scott Carson.”
What you could also do is you just set up an escrow account, especially if you’re dealing with somebody you’ve never dealt with before, and you have a sneaky feeling in your gut. What I would do then is set up an escrow account with a real estate attorney. A local real estate attorney can set one up for you for $500. It’s usually what they charge to do. It’s just basically they’re just controlling the money. Let’s say you don’t know Marcus or dealt with him before, he’s got a shady Vegas character. In that case, I would have a contract saying you’re buying it at $55,000 from me. He wires the money into the escrow account. We then take $50,000 of that money and wire it directly to the bank. The bank then provides the documentation to transfer documents, which we tell him what to do, “We need to change the information.” Then they ship those documents to us. Then we ship those documents directly to Marcus. We give all the information to Marcus’ service provider and his servicer where the documents go and we share that to the bank. Once that’s transferred over, then we take the $5,000 wholesale fee out of escrow.
Sometimes, especially when you’re dealing with somebody new, they don’t want to wire $55,000 to you right out of the blue. That gives them a level of comfort. You only make $4,500 instead of $5,000 because you’ve got a $500 fee to the attorney, but it’s well worth it to add that comfort level to your buyers. Oftentimes, the real estate attorney will double-check with who wired the funds in, they make sure it’s okay to release these funds to you, and that’s fine. What you don’t want to do is a lot of times, we’ve had this happen before and then plenty of people had this before, they set up agreements and the instructions relayed to the bank, everything’s supposed to be transferred to. The investor wires one wire for $50,000 and it gets transferred, but they don’t end up wiring the extra wholesale fee. That’s not a fun time to play in.
What you don’t want to do is introduce the seller to the bank where you have an agreement in place. I’ve seen this and this is what I call dirty pool, where your buyer gets introduced to the bank, and they stop dealing with you, they stop going through you, and then you don’t know what’s going on. If they don’t close, the bank gets pissed off at you because you provided a seller who was flaky and it looks bad on you. I don’t like to give up those relationships. You’ve got to go through me. It’s not a daisy chain. It’s only just one thing. I’m never going to deal one to a broker to a broker. That’s a long daisy chain. I have that happened a lot of times. That’s not a smart effective thing.
What you want to do when you’re buying assets from a wholesaler, or if you’re wholesaling notes, have that contract that shows from the seller to you. That’s an important thing. That’s why banks are a little bit easier to deal with on this because they’re used to giving 30 to 45 days to close. Hedge funds, they’re going to want you closing in three to seven days. It doesn’t make a lot of sense. Plus, it doesn’t make a lot of sense that way because you’ve got to move fast, unless you’ve got a list of investors ready and you know exactly what they want and you’re done with due diligence and you provided everything, that’s great. If you haven’t done that, trying to wholesale an asset isn’t going to be worth your time. You’ve got to find something that also gives you longer than seven days to be able to work your magic.
We got one question, “How do you come up with the number for your wholesale fee?”
I think the better the deal below 55%, the better. That’s really easy. The deal will make sense at $55,000, whether if it’s a note deal you’re going to foreclose. It’s occupied and doesn’t see a lot of repairs but needs a lot of repairs, so you’ve got to figure that into your number. I don’t usually like to be above $0.55 or $0.60 on the dollar, only if it’s almost an REO, almost a foreclosure phase. You’re getting a contract for $50,000, 55% of the value, then I would be selling it at 55% or 60% of the value. If you get a counter for $50,000, you’ll be selling it at 55%. That’s what I come up with. Some of it makes sense. If I get something for $25,000, I’m not going to turn around and try to sell it at $50,000. That’s just way too big a spread. Oftentimes, buyers want to buy stuff where you have it under contract for. They’re not going to be the happiest that you’re making such a huge chunk of money.
You’ve got to leave plenty of meat on the bone when it comes to your wholesaler buyer because that’s what you want them to close. You don’t want animosity to build up when they find out you’re making $50,000 on the deal. If it’s a bigger asset, that’s a different story. If let’s say, a $100,000 asset, you’re making $40,000 on wholesale fee, you probably need to shave it down some. It’s better to get a deal closed, make some money, and move on, versus trying to hit a home run out of the park. I actually see this happen all the time. There are some wholesalers that don’t ask for a low enough price when they add on a $5,000 or whatever to the top of it, and shoots it out of the park or boils it out of the water because it doesn’t make any sense. It doesn’t fall into a number that’s going to work for your end buyers.
Another question, “Are you upfront with the seller that you’re the note?”
Yes. I communicate, “This is the asset that I’m wholesaling. I have it under contract and I’m looking to wholesale it.” The biggest thing you’ve got to share is that you have the contract. A lot of people will sell that stuff and they won’t anything on the contract. This is why it’s important to be invested in the deal and understand the numbers and work through the due diligence aspect of it.
The biggest thing you’ve got to share is that you have the contract. A lot of people will sell that stuff and they won’t anything on the contract. This is why it’s important to be invested in the deal and understand the numbers and work through the due diligence aspect of it. Knowing true value, taking the second to have a realtor drive by a property or somebody go by a property, finding a recent photo online is really nice and helpful but it doesn’t always work. Calling to check the taxes. Calling to find out all the things that can go wrong with it is important because the last thing you want is your wholesale buyer coming back saying, “Here’s $4,000 in back taxes owed.” “Yeah, I knew that. That’s figure it into here.” The more you know about the deal, the more due diligence you’ve done yourself, the better it is to help wholesaling notes.
We talked about fishing for funding. We talked about putting a structured deal together. The thing that I went through on that webinar is something you could very simply do when your wholesaling too because it gives you a lot of information to give to your wholesale buyer. The less due diligence that they’ve got because you’ve done it all for him, put a nice, clean, pretty bow on that package so that they don’t have to really sit there and re-check everything. I always say, “Verify my numbers. If I tell you something, verify.” That’s why it’s important to run values, have a realtor pull CMA for you so you know the true value of the asset. What a lot of wholesalers do is they’ll list a property, “It’s worth $100,000 with the Zestimate.” That doesn’t make any sense. I saw somebody post on a property in Houston. They’re selling it for 85% of value. I’m like, “85% of value? That doesn’t exist.” It goes, “Landlords will buy it at $0.85 all day.” I’m like, “Good for you.” That’s a retail buyer. It’s not a wholesale buyer. You have to be careful and not try to take the whole turkey. You’ve got to leave plenty of leftovers for your buyers when it comes to the turkey of the deal.
Very simple, one-page wholesaling, it’s really easy or it’s a double contract like a double closing. They’ll wire money into your escrow, the realtor’s escrow account, usually I immediately wire the money out. I’ll give you a couple of examples. One of the first deals we did was with Capital One. It was on an eight-unit apartment complex in San Diego. The numbers on were really good. The bank actually provided a BPO showing the property being worth $699,000. Relatively BPO less than three months old. The borrower owed $548,000 plus. There was equity there. There’s $150,000 in equity above what they owed. The bank was motivated to get it sold. It’s one of the huge list of assets they had. We offered originally $350,000. They countered at $375,000. I didn’t argue on the $375,000 number. I said, “Done.” I knew what it was worth. I also knew that it wasn’t the biggest apartment complex as there were plenty of people I would want to jump on this one because I had buyers literally right around the property. The place that this was in San Diego is surrounded by a small six, eight, five, twelve-unit apartment complex. I could literally go to any owner in that strip area and sold this asset off if I wanted to.
What I did, we had it countered for $375,000. I run an ad on Craigslist and an email out to my database, “Here’s the view property, here’s the numbers $699,000, fully occupied. Here’s the market rent rates. Here’s the listing from the apartment complex. Here are some photos from the units where the landlord had showed photos previously before. We had somebody take street views on it. Here’s what it would be. We’re trying to sell this for $425,000. We’re trying to make a $50,000 wholesale fee on the deal. We had 30 days to close.” We run that ad. We’ve done a lot of due diligence before we went in our contract. When Capital One went to put the apartment in our contract, that’s when we started marketing. We had our contract. I didn’t have the funds in-house to fund that, although I wish I did, but I didn’t at the time.
I had an investor, Matt Harder, who was on my email database, reached out to me and said, “I’ve seen this asset. I’m in San Diego myself. I’m interested in learning more about it. What can you tell me?” I sent him the full due diligence packet. Everything I got from the bank as far as collateral file, BPOs, everything I sent over to him. I knew Matt. I’ve dealt with Matt before. I hadn’t bought assets with him but I’ve known him for a couple of years. I just told him, “We’re wholesaling this. I’m selling it for $425,000. It’s worth $699,000.” Matt came back to me about three days later and said, “We want to do this. We’re funding the money myself. I’ve got about $410,000. Would you be able to drop your price down by $15,000 to help make this work for us?” I said, “What’s the deal?” He’s putting up a chunk of money into investors. They were pulling their funds together to buy this asset. I was like, “When can you close on this number at $410,000 you’re telling me?” He goes, “I can close in three days.” I’m like, “Done.”
I sent him my copy of the contract from Capital One and the wholesale agreement for $35,000. I said, “Here you go.” He signed up for both of them. He was happy with them both. When I sent him the copy of the contract from Capital One, he had all the things to be filled out and so we went ahead, refilled it out for him. We went ahead and put an escrow account in place to make it simple. I think we signed everything on Thursday afternoon. Monday morning I walked in the office, I can remember the feeling of walking into my bank and my escrow account with seeing $410,000 standing there. I got up and danced a happy dance all day long. I don’t think my feet touched the floor that day. It was really, really nice.
We immediately went down to the bank. Funds were clear with the Capital One. We turned around and wired up $375,000 to Capital One. The $35,000 staying there was our wholesale fee, dancing happy at the bank. The bankers were like, “What did you do? Tell me what you do? You’ve got to talk to a couple of our investors. I know a couple in the real estate you need to talk to.” We kept the $35,000. Matt got the file transferred over to him from Capital One. He made out like a bandit as well. I think about eight months later, he was able to get the borrower to get him refinanced out at $548, so he made $138,000 for him and his two business partners. It was a win-win for him. That’s the one thing you have to realize. Could I probably sold it at the true $425,000 and made some more money? Yeah, I probably could have. I had somebody who was willing to do it and they could fund immediately. You’ve heard about Velocity Capital. I knew Matt. I trusted Matt. I’m like, “Let’s get it done.” Sure enough, he performed. We followed along with him on that after the sale. There was an assignment or two missing or error on the assignments trying to get things recorded so we got them redone. I think we get the assignment done three times but we helped facilitate that with him to just, “Let’s stay in the deal.”
I know Matt was happy with the asset. He took his wife to Hawaii afterwards. He sent me a copy of the check from the closing table. He’s like, “Thanks. Let’s do some more.” That’s a great example of a wholesaling thing we do with somebody. I wholesale at other properties too where I didn’t trust the individual. They had to do a double contract. We recreated a contract from us to them. Basically it was the same wording, same exact contract I got from the bank, I just changed some things up. I changed the names around and the amount and provided that as a contract with the same reps and warranties that the existing contract had and that worked out really, really well.
We did one that was basically had it contract for $6,000. We sold it for $10,000, made $4,000 on it. Another one we bought it for $3,700, we sold it for $15,000, made $11,500 on it. That’s what I started doing initially. The beautiful thing is what I would do with those assets is once we would close, what did I do with those? I then advertise, “We just moved this apartment deal. We moved this duplex deal. We moved this strip mall.” I advertise these things on Facebook and LinkedIn and that led to more people coming to see the deals. That’s literally how I started to make a name for myself online on Facebook and LinkedIn, which is just sharing what I was doing, sharing the deals that I was closing.
Patty Ped shared an infographic, “They just moved this deal at 33% on UPB,” something like that if I remember correctly. A $5,000 will cover your monthly nut on what you need, your expenses, and everything pretty easy. Not only will you make $35,000, it will put you uneasy. Sometimes it’s seven months of money for you. What I’m trying to say is wholesaling notes is not difficult, you just have to differentiate yourself from all the other sleazeball wholesalers that are trying to put something on a contract. They’re just trying to throw as much stuff against the wall as they possibly can. Look at the assets, understand. What’s the rent rate? Is it occupied? Call the utility department. Check the taxes owed. Have a realtor drive-by and take a photo for you. It’s well-worth paying $50 to try to make $5,000. If the seller provides a BPO and O&E, great, phenomenal. That helps you out tremendously in the long run because it gives you more due diligence to add to your seller package.
At peak, I think we’re moving about one small apartment complex a month, two in Dallas, two in Houston, one in Charlotte, one in LA, one in Salt Lake City, one in Phoenix. It was a really good stretch there for awhile when Capital One was selling a lot of their assets off. We had exclusive access to this because we were one of 500 total investors that were on their note buyer’s list. We move one in Miami. We killed the deal in Miami. There’s a note dealer we’re getting rid a wholesale. This is funny. My asset manager that sends me the list said, “Scott, there’s one fallback into our lap. The seller didn’t close on and do it. It’s a 35-unit in Miami. Are you interested?” I’m like, “Yes, I’m interested.” Literally, we pulled photos online and we sent a realtor out there in the process. As we are starting to get interest on because we already had our apartment buyers in our other investor’s list, the realtor called me and said, “You don’t want this one, Scott.” I’m like, “What’s wrong?” He forwarded me a photo. It was literally a crack vogue. What I mean by crack vogue is all the windows are boarded up with crackheads hiding behind mattresses outside. They were posing on the corners. It was an ugly property.
I forwarded those photos directly over to the asset manager and literally about ten minutes later, the phone rings. I can tell they got me on speaker phone because I can hear people laughing in the background as they’re looking at the photos of the apartment complex. I called my buyers that were interested in those deals and I said, “This is not a deal.” He’s like, “No problem.” I was talking to the asset manager and she’s like, “How much money do I have to pay you to take this asset?” That would have been a really good thing to using options to just find somebody if I wanted to but I was like, “I don’t want to deal with it. That’s a difficult type of property.”
I see a lot of investors that get romanticized by the unique deal, the one-off deal. I met people that try to wholesale an 800-acre equestrian farm or some big commercial unfinished project. Those things just don’t make any money. If you’re spending your time wholesaling and you have no reserves, you’ve got to spend time in the bread and butter place: the single-family homes, a small duplex, a triplex, the small apartments. Those are the ones that are going to move the best for you. Those are the ones that are going to work the best.
At the Distressed Mortgage Expo with the Shark Tank that I was on, and I got to get a big shout-out to Jason Gray, Jason Gray brought up a two-story commercial building in Georgia. He was talking about how it was occupied. The numbers didn’t make sense because the hard money lender was trying to sell it off at par and it didn’t really make sense to move it based on the equity of the deal. If Jason stays with that asset, he may be able, as the loan matures here in December, if he stays with it, the hard money lender being may be more and more motivated to move it especially once it gets closer to December, being on it now works in default. At that point, that would be something that he wants to market out because there was interest in the property. You just got to get that price down to a point where it makes sense below what was owed because there was literally only about 49% of LTV of where the loan was at. It was an owner occupied too. The person that owned the property was a tenant and was a psychiatrist.
We have a question, “How long from start to finish does it take to sell that asset?”
Start to finish on the apartment complex in San Diego, I think we got the list and immediately started to focus on the San Diego one because we knew how hot that market was. I want to say about 45 days because it took us a little time going back and forth, understand due diligence on it, we got the bidding on it. I knew that I had 30 days to close, that helped out tremendously. I was able to close faster than 30 days, but literally I think it was about 30 days start to finish. About a week to review the assets, we got a contract offer in, they accepted our offer. It was the first ten days. As far as putting the package together and then marketing it out, it’s another week, week and a half for that. It helped that we had the timeframe to move some stuff. The wholesale will move pretty fast. You’ve got to deal with cash buyers. You’ve got to deal with people that are closing.
What you don’t want to do is waste your time with tire kickers. You will have that happen sometimes. What you want to do is make sure it’s filled with three people. This is where you see a lot of people come through with letters of intent and proof of funds. I don’t need a letter of intent from you. If you’re interested and can put this in our contract, I just know that you’re going to have the funding and close it probably faster. I make people sign a non-disclosure agreement that they agree that they’re not going to be blasting this out. If they do, I will blacklist them faster than anybody else out there. I will never do business with those people. They burned the bridge. That’s the important thing. Go ahead and have your people sign an NCND, a Non-Compete Non-Disclosure. That’s not worth much. You’re not going to take those people to court. Somebody was complaining about somebody who sent a non-compete non-disclosure where they were at one in a 300% fee because somebody violated that. That’s stupid. That’s a stupid clause in there. That’s going to kill your business more than it’s going to help you. Whenever I see stuff like that, I’m like, “Yeah.”
One thing you want to do in your non-compete non-disclosure agreements is make sure you get paid something for the entirety of that person. If you end up meeting directly, connecting directly to the bank, make sure you put a flat 3% fee off of the fund for the next two or three years. You’re not really going to see much after two, three years, sign off it. You can’t see lifetime of the relationship. That’s not going to happen, but two years, three years, that’s pretty normal. Be happy you’re making something instead of nothing. Honestly, if somebody really put some work with some stuff, they might find out who the lender is if they really do the work. Most people aren’t going to do those extra steps, tracking themselves down but just sign an NCND, put a flat fee on there per asset, per funding amount for a period of time and that’s a great relationship.
The thing you got to keep in mind is trust your gut. If something’s shady, if something just doesn’t sound good, just move on. Just don’t do business with shady people. If somebody is telling you one thing and you find out another thing, just don’t do it. If you find out people are lying or telling you half-truth, just don’t do business with those people. They’re going to do things in the long run that aren’t going to make it well for you. They’re going to end up burning a bridge. Most importantly, you don’t want them to make you look bad to your buyers on where they’re getting this list from because that’s the first thing, “You set me that jackass Jennifer. She didn’t fund. She’s a flake.” That’s where you’re like, “Hang on a second.” That’s why you’ve got to be very careful with who you direct to.
Wholesaling is great. The thing about wholesaling notes though is you leave a lot of money on the table. For those of you that are doing all the marketing that move a wholesale deal, if you just twist it one little bit instead of saying you’re wholesaling, you’re looking for funding partners on this, I’d be willing to bet you could guarantee you could fund this. At the same amounts that you’re getting a wholesale so you can get a wholesale management fee or an extra bit on the frontend so you can make some money and still stay in the deal in the long run. This is the hardest concept that we deal with the wholesalers. They don’t have the huevos. They don’t have the belief in their self. They’re like, “Oh, no. I don’t want to take the deal at long-term.” This is where they get scared. “No. I don’t want to do the deal. Just give me the $5,000.”
If you structure and just tweak it a little bit, change the mentality, because in a wholesale you’re looking for a funding partner, oftentimes you’ll be able to raise that capital and make things happen. A lot of realtors, a lot of wholesalers, they get in this business. They’re so busy. They take so many wholesale courses. They’ve been a realtor for so long that they’ll only value themselves to that three to six percentage points. You have to stand and say, “No, I’m not wholesaling on this. No, I’m not looking to sell this. I’m looking for a funding partner. Somebody come in and joint venture with me. I found the deal, I’ll do the work out. You provide the funding. You provide the capital. We’ll do the time and keep you involved.” That’s an easy thing to do. You just got to change it up a little bit. You’ve got to have some huevos to stand up and say, “No, I’m not wholesaling. I’m not selling to you.” I see realtors struggle with this like, “I’m only worth 6%.” No, you’re worth a whole a lot more.
You’ve read the term, “He who has the gold makes the rules.” In most of these cases, he who has the gold, the gold isn’t the cash. The gold is actually the deal. The gold is that six-unit apartment complex or that first lien non-performing that you’ve been on a contract for $0.45 on the dollar. That’s the real gold. In an era where there is plenty of capital, and we all know there’s plenty of private capital out there, deals become the real currency. Not the cash that you have. If you go out and network at Quest IRA events or you go out and network at different networking clubs or REI clubs and meetings, things like that, they’ll raise a capital. You just got to share what you’ve got. You’ve got to open your mouth.
The best wholesalers are the ones that talk the most too. If you’re introverted and quiet, you don’t share, it’s going to be really hard for you to make some money, to make things happen. Wholesaling notes is not a hard thing to do. It’s easy to do. The most difficult thing in this line of work right now is find the deals that fall in below that $0.50, $0.60 cents on the dollar aspect of this. Another thing that you might look at doing, I don’t really call this wholesaling but it’s very similar to that. If you’re dealing with private investors that are wanting to make 8% to 10%, you’ve got somebody who’s got an IRA, they’re happy with 10%, and you find the deal, a performing contract for deed that’s paying 15%. Somebody only wants to make 10% and you find somebody who’s paying 15%. You could structure that deal where they fund that deal at the amount for the 10% but you arbitrage it so that they’re funding the whole thing so you’re making 5% off their money. That is an easy way to set up deals where you’re still making them happy and you’re getting a little bit over because the deal makes sense. The deal makes sense with that numbers. Buying something at 15%, they’re happy at 10%, great. You pay him the 10%, you keep the 5% for yourself. Basically that’s an infinite return of investment, because you’re lending your money in the deal.
I probably just opened another whole can of Pandora’s box there. You’re like, “What?” That’s an important thing to do too. Find cheap money. Go out and find deals that’s paying at 12% to 15%. There are plenty of re-performers out there, sellers selling re-performing notes at somewhere between that 12% to 15% range. If you can find somebody who wants 8% to 10% of their money in an IRA that they can’t touch, that’s a great way to step in. Structure the deal and have it done. What you would do in that case, you’d have them joint venture with you on the deal, where they finance for the cashflow to come back. You’re basically buying it at $20,000, maybe they’re funding $25,000. That amount coming out of the $25,000 is paying that 15%, but they’re happy with 10%, then you’re going to keep that difference.
As always, if you would like to get more information on our Fast Track or Note Mastermind training, feel free to email me at Scott@WeCloseNotes.com. I’ll get in the phone with you or put you in touch with our VP of Operations, Stephanie Goodman, who handles the boarding process for that. Lots of great little perks for the Fast Track and Note Mastermind. Reach out to us because we would like to go through that there for you. We get excited when we have this because we know that people will be closing new assets. They’re going out and changing their lives buying deals. I’m excited because we’ve got a list of assets for them to look at that they can bid on. We’ll work through those deals in the class to help them identify things. We’ll go through the different deal structuring with them. I’ll actually get them on the dry erase board here and they’ll have to break down deals and understand the mentality of where the exit strategies fit into their business, if the deals make sense or don’t make sense.
If you’re listening on iTunes, please do me a favor, if you love this episode, leave a review. This is the first in the series of episodes on the different ways to make money in notes. Wholesaling is the easiest way. It’s also one of the nine or ten exit strategies that you can do with notes. We will be going through each individual strategy as a whole going through it. Don’t forget guys and gals, we’re about a few weeks out from the next Note CAMP. We’re really excited about the line-up. We got some great stuff lined up for Note Camp 4.0. It’s going to be a phenomenal event for those that are all opting in, great. Once again remember, if you use the special code PODCAST at NoteCamp.live, they’ll give you a special discount off of the price. I can’t tell you how much. You just need to go sign up for it. We have lots of great stuff for that.
One thing that we will be doing here shortly is we’ll have some live call-ins discussing exit strategies and some things like that, so stay tuned. If you’re listening on iTunes or Stitcher or one of the podcast and you’d like to get involve or have a topic that you’d like for us to discuss, feel free, shoot me an email at Scott@WeCloseNotes.com and we’ll be glad to take a look at your topic, and maybe even get you on live and have you pick our brains or us pick for your brains. That’s all I’ve got for this episode. We’ll see you at the top.
- Capital One
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- Distressed Mortgage Expo
- Quest IRA
- Fast Track
- Note Mastermind
- Content and Commerce Convention