Many investors get into wholesaling, thinking it is easy. Yet, many of them fail to do it successfully. In this episode of Note Night in America, Scott Carson breaks down his three-step approach to wholesaling notes and successfully making money off of it. He shares how to create a list if you don’t already have one, the importance of knowing a deal from a dud, and how to protect your relationship with the deal source or seller. He then discusses when you should just use a wholesaling agreement or a double contract when closing. Follow Scott along in this great discussion as he lets you in on more than just knowledge and information but practical and applied wisdom to help you navigate the world of wholesaling.
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The 3-Step Process On Making Money Wholesaling Notes
I thought I’d do a topic on something that I’ve taken for granted in years, because when I brought up the topic and stuff I was like, “You haven’t talked about wholesaling notes in quite a while.” I’ve been getting a lot of questions. A lot of people are reaching out from webinars and videos that are out there talking about wholesaling. They’re wanting to get in the note business but they want to start wholesaling. I thought, “Let’s do a masterclass talking about our process for wholesaling so that people are doing it right versus doing it wrong.” I see a lot of people doing it wrong. Before we dive in, I’m glad to have each and every one of you here on the show. I’m always honored that you spend time with us.
I’m always glad to answer as many questions as I can from you. Moving on, if this is your first time, we do have about 30 new people registered for the first time. Welcome. We host these about every Monday night. I did hit the record button. It will be playable for you guys. I encourage you all to go to our WeCloseNotes.tv channel. That will take you directly to our YouTube channel. Make sure when you’re there to hit the subscribe button so that you get notifications of all our replays and podcast videos directly to your inbox. When you’re watching a video or anything, make sure to leave a review or a comment. I love to hear from you what you love or dislike, and see how we can do best.
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We do have a couple of events but I’ll say that stuff to the very end for you as we have some things coming up through November and December 2020. I want to get into the meat and potatoes I have about wholesaling notes. First of all, I’d love for you to share if you ever wholesale a piece of property, either wholesaling it yourself or you’ve bought it on a wholesale deal. Do me a favor, if you’re here live and you’re watching this, click on wholesale or WS in the chat roles. It gives wholesale one way or another. I would like to see who has experienced that here on the call.
What Is Wholesale?
First of all, let’s talk about what is wholesale because some people are like, “What is it exactly? I might have or have not done it.” Wholesaling is technically the definition of selling a vested interest. You have to have that property or asset under contract, and property or note to another investor for a flat fee or percentage. You’re not necessarily selling the property or note, you’re selling the contract or the vested interest in that property in some fashion. You’re selling off either for a flat fee or percentage of the funding amount. It’s either/or, there’s no right or wrong answer. It’s all depending on what the deal can hold and what you can get for it. How good of a negotiator you are? Getting it under a low ball, price and then upselling it to somebody else.
It’s simple. Get it under contract at the low price, you understand what you have, you sell it to somebody else who’s willing to pay you a fee above what you paid for it. The biggest thing is having something under contract. It’s may be an option. You pay $10 to have it under an option agreement. You make an offer at a low-ball price because you can flip it. It’s some sort of contracts to securing that property. A lot of investors out there try to wholesale something without putting it under contract.
That’s not an effective aspect because then you’re constantly trying to go back and forth. If you don’t know what the seller is, you’re taking bids that may be blind bids that may not be even accurate. You end up pissing off a lot of people, especially buyers who are making some offers, with the idea that you have it in under contract. If you don’t have it under contract, you can’t wholesale. That’s why in some states, you’re seeing more wholesalers having a hard time closing deals because they’re starting to outlaw wholesaling if you don’t have it under contract. All contracts can be assignable. That’s the thing. You can assign a contract in this nature. A lot of people get testy about that. Realtors have lift it. You weren’t going to see a wholesaler on the MLS.
It’s going to be most oftentimes properties that are off the MLS that aren’t listed with a realtor or note deals that aren’t from a major bank. It’s not saying you can’t wholesale a note from a bank especially if you know what the price is and you know they’re going to deal, but it all comes down to a couple of things. You have to have a vested interest. You got to know the value of that asset. You have to know the true value. I’m not just talking about comps. I’m talking about ROI, knowing the square footage, the rent rates, you need to know your due diligence when it comes to that.
You need to know the profit potential, not just the value but their rent rates or their return, but the profit potential of that deal through due diligence. What pisses me off about wholesalers a lot of times is they will throw spaghetti against the wall without doing any due diligence. They get a list from somebody, they blast it all out and say, “It’s three points on top of this like 45 plus 3 or 55 plus 3.” They didn’t do any due diligence on it. An effective wholesaler, somebody who understands it, is going to know exactly what they have in the deal, “I know that this property we’re $700,000. I have accounted for $375,000 but the market price to sell this as an investment would be roughly at $540,000, $0.70 on the dollar or $490,000, somewhere around there.” They know exactly what it can hold and what the market rate is for a lot of things. Effective wholesalers always leave plenty of meat on the bone for the end-buyer.
I’m sure many of you when somebody is saying, “It’s this and it’s a skinny deal.” There’s no meat left on the bone after repair costs. I’ve seen this happen time and time again. If somebody wants to make exactly $10,000 on a deal but the deal doesn’t buy what they have under contract for and what the deal would hold in the market value. $10,000 is not the profit, it’s more like $3,000 or $5,000. In some cases, the wholesalers are ignorant that they don’t understand what they have. They’re being greedy, that they’re going to get 100% of nothing. If they got smart, they can make something versus nothing. This is such one of the critical keys to being a real estate investor and a successful wholesaler. It’s knowing exactly what the hell you have and what you offer to the end-buyer. I’m leaving plenty of meat on the bone, but I’m creating a win-win here. Win for my buyers and a win for me as well. Everybody walks away happy.
It isn’t about trying to squeeze as much profit about the deal. It may be negotiating down a little bit and take a little bit less to do repeat business with that person or that wholesale buyer that’s buying the deals from everybody else. Let me give you a couple of sample wholesale deals that we’ve done. We’ve done a lot of wholesale deals. This is one thing I want to bring up here. Ladies and gentlemen, wholesaling is one of the biggest strategies that’s left off the table. I say off the table but I also mean it’s on the table. Let me clarify myself. A lot of wholesalers, a lot of people get in, they want to wholesale because they don’t have any money.
They don’t want to buy anything because they’re too scared. They would rather wholesale. You still got to know your deal. You still got to break down the due diligence. You’re not doing a lot of backends but you still need to do a lot of the frontend due diligence like knowing the values and comps. What’s going on with that asset? Is it occupied? Is it vacant? How many repairs does it need if it’s an REO or vacant property? You need to know what your buyers are looking for as well. If you have a database of people but you don’t know what the hell they want you, you’re throwing email after email about a deal after deal, you can get burned out easy because you’re like, “This isn’t what I asked for. This isn’t anything I’m interested in. Please remove me from your list.” I’m removing myself from people’s lists at least once a week, if not twice a week. I’m like, “We connected. Now, you’re trying to pitch me on a deal that I’m not even interested.” I’m not buying anything or REOs out in the middle of Crook County. I’m not buying an REO out in Washington State. I want something that makes sense and it’s a true deal.
Here’s a great example in Orlando. I love South Florida. I made a lot of money wholesaling out in that neck of the woods, I made a lot of money in notes up at that neck of the woods. I was coming into town and I was going into Orlando. This goes a few years back. I’m giving you this example and this is something that everybody could do. I found a wholesaler. I was driving down the road and I saw a bandit sign. I picked up the phone and I called the guy on the other line. I left a message, “I am a real estate investor. What do you have?” He sent me three properties that he’s looking to wholesale to flip and we found this one property.
It’s a little three-bedroom, one bath brick home. The number is on it. It was worth $70,000. I could get it under contract for $35,000. I could get it at $0.50 on the dollar. It was a little outdated. My big thing when I asked the seller is like, “Is it rentable? Can somebody move into it? Could somebody rent it? How much work does it need?” He goes, “It needs to be updated. It needs about $10,000 to $15,000 in upgrades depending on what you end up using it for. If you turn it into a rental, about $5,000 to update a few features, some new appliances, and you can be rocking and rolling at roughly around $800 to $950 a month.”
I’m like, “Let’s put it under contract for $35,000. I’ll take it.” I haven’t asked to take it less than $35,000. They wouldn’t buy it. It’s still fine, $0.50 on the dollar, $35,000. It was an out-of-state owner who was a probate deal. Originally, it was his mom’s house. She passed away. He lived across the country. The seller and the property owner were motivated. The guy that I talked to had it under contract for less than $35,000. He was a wholesaler. I’m like, “That’s fine. You’re going to sell it to me and leave plenty of meat on the bone. Why not?” I marketed it to Meetup groups in Meetup.com around Orlando, Miami, Tampa, Southwest Florida and Jacksonville. I marketed it to five Meetup groups in the area.
I got it under contract. I took the exact pictures, flyer, changed some numbers, I market it out to the group for $45,000 and other places. I had quite a few interested parties because it’s a good return on investment, still well below. I finalized it at $40,000. I offered it for $45,000. Somebody was willing to fund in roughly less than 24 hours. They came over, take a look at the property and they were willing to fund it in 24 hours. I’m like, “Let’s do it.” They funded $40,000 into the escrow account. We wired $35,000 out to John. I kept the $5,000 for my profit. The buyer was happy because he got a great little investment property that he could put somebody into.
He valued his comps a little bit more so it could get somebody. He had extra carpet and some other appliances that he gets in for less than $5,000 to $10,000. It was still a great deal for him. A great deal for me. $5,000 profit in five days off of the bandit sign. The fact that I had a list, I knew how to market, and I found a deal that made sense. I signed a contract with John who was the wholesaler. He had it under contract. I signed two pieces of documents. I signed the contract with John and the seller that was buying it from me was an investor so we did a double contract. I took the contract that John gave me switching around a few dates, sold it to him for $40,000 and changed the numbers and closing dates.
Everybody was happy. When we closed, it was the money for mine. It funded the purchase with John to pay off the guy. It was almost a triple close but it was a good deal because John was a local realtor, local wholesaler and he knew the market. Kudos, it’s easily done. I take my $5,000 in five days and move on. He found some good deals. I found another two deals with John too that I sold each of those. One for $2,500 and the other ones for $4,000. All roughly in a seven-day period. I make $5,000 and $7,000. I made $12,000 in roughly a seven-day period by marketing and finding somebody who had some deals. You could all do the same thing if you want to.
This is a note wholesale deal. This was a nonperforming first-lien down in Cape Coral, Lehigh Acres, Florida. It was Lehigh Acres precisely. It was a good looking little property. That was the street view. I was like, “That’s a nice looking property.” This is a few years back but I wanted to give you some idea of it. I like buying in Southwest, Florida. I love that area, Cape Coral, Lehigh Acres. We’ve done our masterminds in Cape Coral. I think a lot of bang for the buck. The funny thing is I had a buddy of mine. The number is on this, the house was worth about $90,000 as it set. They were upside down. They owed $120,000 UPB. The fund already started the foreclosure process and the borrower had already moved out of the property.
It was a vacant property. The funny thing, I get a phone call from a friend of mine. You may know him. Robert Woods, previous host of the NoteMBA Podcast. It’s not around anymore but he is a student of ours. He was originally a deadbeat borrower of mine but we forgave him. He calls me up and said, “Scott, I know you’re a big fan of Lehigh Acres in Southwest, Florida.” He lived in Orlando. He’s like, “I got a note on the list here. I’m surprised you didn’t get the list because it was from a fund called RSI.” Robby knew that it’s Bill Bymel. He’s the fund manager. We’ve had him on the show before and he locked this up.
It was worth $90,000. He got it locked up for $45,000 from RSI. He’s like, “I’m a little strapped right now on other projects. I’ll be glad to wholesale this for a $5,000 fee.” I’m like, “Okay.” I had my realtor, Brent, go out and take a look at it. I talked to the legal and RSI. RSI confirmed everything. Robbie had in under contract. I said, “That’s fine. I’ll buy it from you for $50,000.” He’s like, “Do me a favor. How about you wire me the $5,000 or put it in escrow. You wire it to me the day that you fund from RSI. I’ll call Bill Bymel and tell him to put the contract in your name or that you’re buying the contract from me.” I’m like, “That’s totally fine.”
I trusted Robby and he trusted me. It was a win-win. He was happy. He made $5,000 for putting a deal in somebody else’s lap. The deal was good to him. He would have taken it down if he’d had time but he was a little strapped because he has some other deals going on. Bill Bymel didn’t care. Bill was happy making $45,000 on this deal because he got the deal. He bought it cheaper than anyone who goes through the foreclosure process. I walked out. I had the contract changed from NexGen Coastal which is Robby’s LLC to my LLC. I was able to sell it as an RER at the foreclosure auction about four months later at $85,000.
I ended up netting about $35,000 on it. $30,000 and some change. Robby made $5,000. Bill Bymel made how much he made, but it was a win-win-win across the board. The reason I bring this up is if you know what your list is looking for, if you know your contacts and what they like, dislike or what they’re looking for, I didn’t mind Robby made $5,000. He disclosed to me fully. If I wasn’t going to do the deal with them and pay him $5,000, he would have moved it to somebody else. I’m like, “I liked the deal. Let’s do it. Let’s move on.” If you have a relationship with your potential buyers, it’s a win-win across the board if you can make it happen. I’m like, “That’s fine. I don’t mind you making $5,000.”
That was me not checking my email. It was a $5,000 mistake by not calling the asset manager, not calling RSI, “What do you have in your books this month?” That was a $5,000 blunder and I didn’t mind paying for it because I would’ve rather get it than not get it. I ended up netting $35,000 on a $50,000 investment. What is that? That’s a 70% return. I did it in four months, 70 times 3 is roughly 210% annualized return to me. I don’t mind paying 5% for 210%. I’m a big proponent and I encourage you to ask questions as we get rocking and rolling through here. There’s a three-step approach to wholesaler that we teach.
Step One: Buyers’ List
It’s not hard. It’s these simple things to keep in mind when wholesaling. Step number one, you have to have a buyers list. You have to build your list of buyers. It could be local to you. There are a lot of people that deal with wholesaling deals in their backyard. It’s fine. I’ve got some buddies that do some big-time wholesaling nationally. My buddy, Joe McCall is in St. Louis, but he’s wholesaling properties all across the country site unseen. He’s built himself a buyers list or using social media to find buyers for deals. If you have an existing list, kudos to you. If you have no database, that’s okay. You can still build one relatively easy. You can create one and start working on it on a regular basis.
The second point is you’ve got to get a list of deals. Deals are what we’re talking about, not a list of properties or not all list of notes. We all know, depending on the price, there are either good deals, bad deals or no deals. It’s either a deal or a dud depending on pricing and due diligence. You need to get the list of deals of some sort. This is going to be coming from you getting a list off of a website, Watermark Exchange, Paperstac, Mass and Management, whatever. It’s getting to know those assets, looking at what they have available, and starting to dive into it. Start understanding what they have. What’s the value? What’s the price point? Getting the asset, the note, the property, whatever under contract of some sort with either a loan sale agreement or an option fee to tie it up for 7 to 10 days while you go out and find people.
You got to know that it’s a deal, not like, “There’s a property here.” In that last example, Robby knew that at $45,000 or $50,000, that property was still a deal. It was a deal for me based on our conversations and him knowing what I liked and vice versa. Under contract, it’s simple. We all know in the note world, you can often put notes in under contract without having to put up any earnest money or deposit money. Get it under contract until that contract offer all easy.
The third most important thing is protecting your relationships. People are like, “Wouldn’t it be this and wouldn’t it be that?” I’m like, “No, it’s to protect your relationship.” Protect you and the seller, whoever you’re buying it from. Also, it’s protecting the buyers from themselves sometimes. You always protect yourself with agreements whether it’s a one-page Wholesaling Fee Agreement. If you know that person and you’re trustworthy, you don’t worry about disclosing who the seller is or it’s a double closing where you take the seller’s contract made out to you. Replicate it by tweaking the names, the price amount, and the closing date a little bit earlier. You may do a double closing. Maybe you have the money wired to escrow versus wire it directly to the seller. One of the most important thing is you want to make it simple. KISS, Keep It Simple, Stupid, or in my words, as I say, Keep It Simple, Silly or Keep It Simple, Scott is a better thing.
The important thing is we got to have a list to start off with of some sort. As I said before, if you don’t have one, don’t worry, don’t flip out. It’s easy to build one. Let’s first talk about that. This is a big thing. You got to welcome yourself to the 21st century. You’ve got to use some CRM, Customer Relationship Management software or an email service provider. Mailchimp is a simple email service provider. It’s not a CRM. A CRM would be more like Infusionsoft, ClickFunnels, Podium or something like that. You got to have something to market to. You got to have something to get those emails to pyramid on there. There are things you can do with MailChimp and lists so you can work on it as a CRM initially if you’re tight on a budget. The big thing about MailChimp or anything is there’s some free version. Don’t do yourself a disservice in trying to squeeze with the free version. We had a student one time who was trying to reach out to asset managers and trying to wholesale. He would upload a list, send an email blast off, remove that list, and then upload another list to it. It was ineffective. That’s more work versus paying the $35 a month. Realize the cost of doing business. You’re going to have some marketing costs out there. We’ll talk about some ways of building a list. When you have a list, you got to know what the heck they’re looking for. Are they looking for Louisiana, Texas or California? Are they looking for performing notes? Are they looking for an ROI percentage or at least $15,000 in profit? What kind of buying scenarios are they looking for?
I’ll give you an example. I’ve got some buddies up in Columbus, Ohio that will buy in the hood. If they can buy that asset, that property, and the repair costs are less than $25,000 to get up to rentable, they’ll buy them all day long. They don’t care if a one-gun or two-gun alley, they’ll do it, but I know that about them. How do you get people to answer? You ask them questions, ladies and gentlemen. Many of you have gone through Note CAMP in the past with us and you see me ask a survey. What are you looking for? What is your top three-stage? Are you looking for performing, nonperforming, residential, commercial? What returns are you looking for? Do you have any money you’re looking to buy, to fund with or partner up with? Those are all important things to know about your list. I know that Rich and Joe Habbits in here don’t travel outside of Chicago too much. They liked Chicago. They liked staying home in Illinois. If we have something in Chicago that makes sense. I would send it to them. They’re probably looking for something that’s not going to be a heavy rehab.
It’s not going to be in the hood. It’s going to be easy. We can buy it, turn into a rental, keep it that way without having to do a lot of work because they’re both too busy guys. The same thing with Dick Hamilton here. He doesn’t want to do heavy rehabs. He’s looking for something that he can turn passive. If he can find a performing note that’s going to be a good return on investment, great. If he can make 12% after his funding cost, he’s happy. It all comes down to knowing what’s going on and you have to ask those questions, whether you’re asking them to opt-in and answer questions like a list opt-in that you can set in any of your email service providers or a survey, “Can you tell me what you’re looking for?” Just asking them or writing on a business card when you meet somebody, “What are you looking for? You’re looking for these types of deals, great.” Send an email out, “Can you tell me what you’re looking for?” Put it on a spreadsheet so you know who to reach out to when you have something that makes sense. If you don’t have a list, don’t flip out. Don’t go running scared. Halloween was the other night, not today.
If you don’t have a big database, that’s okay. You can target groups. If you’re in an area with real estate investment clubs, go join the real estate investment clubs, go talk with people, pass out some business cards. I always have a box of business cards if I’m going out networking in person somewhere. I created a virtual business card for my phone. If I’m doing something virtually, I can give them a link that they can opt-in to. You can go to meetup groups. You could jump on 33 meetup groups and be connected with 60,000-plus people. If you pick ten of your favorite cities and three of your biggest groups in those cities, these are a great way to build connections and maybe not have them opt-in immediately but you still got a way to reach out by posting to their discussion boards or their mailing lists or their topics hot buttons.
Those are some of the biggest things. Also attending local meetings, local events if there’s an expo going on or some real estate club or something like that, going and hanging out and just building a list. You could do it easily. You could do it also via social media. By creating it like I was working with a coaching student. He’s uploading and he’s creating his first Mailchimp email blast. I said, “Before you send it out, let’s create a list and put the top three states so that when you send it out to your general investor list, you can ask them, what states are they looking to invest in?”
When they answer it, then you’ll know some hot buttons to reach out to them, “I got some deals. You said Michigan. I got a list of notes in Michigan.” “I’m not interested in these, but I know somebody else might be.” That’s one of the biggest things that irritates me is I see people that get lists in and they’re like, “I’m not interested in any of those.” Don’t you think somebody else might be? “Jonathan Burton is in Baton Rouge and New Orleans. I know if I got anything in there, I’m going to send it to him to take a look at.” Jonathan, if it’s a win-win, he’s glad to pay me a fee. I’m glad to give him a break because it’s repeat business.
If I know somebody is up in Michigan, Detroit, Dearborn or that neck of the woods, I’m going to call my buddy Mike Jordan. Mike’s fine and would be making some money because he’s going to make some money in the backend. It’s all about knowing your relationships. If you don’t have a list, create something that people can opt-in to. Post it to LinkedIn groups, post into your LinkedIn feed, “If you’d like to get on my hot list for deals, click here and let me know your top three states. I won’t share your information, it’ll be for me as I have something important for you.” This is one of the most valuable things that people get scared of and they don’t do this. They sit here and when they get listed and they get all excited.
Everybody gets excited when they get deals in like a little puppy, “I got some deals in.” “What are you going to do?” “I don’t know. I got deals. I’m all excited about the deal.” Have you broken it down? Have you looked at it? Do you know who might be interested in these states? I know I can reach out to the Ellingtons if it’s something up in Baltimore that they can take a look at, or other parts of Maryland. You have to know your contacts, know your database and it comes from time. Maybe you need that spreadsheet out and say filter it by, “I saw some notes in Minnesota. Who’s interested in Minnesota? I don’t have anybody. There are some notes in here for Indiana. Who do I have in Indiana?” Let your list help you with your wholesaling stuff.
If you get a list in going to your database, who’s interested in what, and those are the ones that you may target first and foremost. I also like to take, if I get a list in what states have the most listed on here, and then that gives me the most amount of opportunities to wholesale especially for states that I’m not going to buy or deals that I’m not wanting, but there are other people out there. If I can see that I got a list of 65 assets and 20 of them are in Ohio and Michigan, and the rest are all spread out across the country. Ohio and Michigan is the first place I would start.
Step Two: Get Lists Of Deals
I would look on my list who is interested in those two states because that’s going to give me the most amount of opportunity. I’m not going to pick someone off-state where I don’t have anybody interested. I’m going to pick something that my list is telling me. My list has given me the orders and they’re telling me their interested. That’s the right way to go. Step number two, get lists of deals. We’ve talked about this a little bit already. Make sure you’ve got some deals. You have to evaluate the assets on the websites or the lists that you’re getting. Take the time to look at it. I got a listing and I had a property. I was looking immediately at the Texas properties and they had one in Corpus Christi, Texas. I grew up on the Gulf Coast down in Corpus Christi on Palmera Drive. My mom worked at Driscoll Children’s Hospital and Spohn Hospital. I know that area well. I immediately looked at that deal. I was like, “This doesn’t look too bad.”
I looked at the County Appraisal District and I was like, “The name is different on the spreadsheet versus what it is on the county.” That’s a big red flag. I got to know. I’m like, “No, that’s not going to make any sense for me to buy that deal because the fact is up. It’s probably gone to tax foreclosure.” Sure enough, it wasn’t a deal. It was a dud. The thing is you have to do some due diligence. You can’t blast it all out without doing some, otherwise, you’re going to look like an idiot for pitching crap that doesn’t make any sense. Two, if somebody does make an offering on it and then you find out that it looks shit or something like that, that’s an embarrassing thing. You don’t want to have that happen.
Know what you have. You may also, if you need a list of deals and there are wholesalers in your neck of the woods, maybe you reach out to fellow wholesalers or other sellers who’ve gotten a list in that maybe they’re looking at stuff like Bob Lynch on here loves Indiana. If he gets a list and he’s looking at Indiana for himself, but he may want to reach out to Dick and Richard’s stuff in Illinois. He may reach out and say, “Scott, do you have anything else?” I’m like, “Here’s a list of 44.” I don’t know what’s on the list. You want to declare that if you’re going to send a list out, “I just got this list in.” We’ll cover how to protect yourself here, “I don’t know the values on this.” If you’ve not done any due diligence on the lists, say it. “I don’t know any numbers on this, but I do know that the seller wants this. This roughly are these pricing points.”
If that makes sense, great. If it doesn’t, it doesn’t make sense. Look at your grocery list, look at your list of buyers and they tell you what they’re looking for, go to the list. It’s a Christmas list here. I know that Bob Lynch wants some Indiana properties. I know that Rudy wants some stuff in San Antonio. Maybe he wants some stuff out in California or Arizona, out of his neck of the woods. If he sees something in his backyard, he’s going to jump on it. The most important thing you can, if you’ve got the time, is to do some initial due diligence, pull some values, know what the asset and the profit options are.
If it’s worth $100,000, if you’re pulling numbers and the consumer value is $100,000 and you’re making an offer at $50,000, that makes sense. Knowing what the rent rates are, knowing what the days on market are. That’s one of the biggest things about why we had JD Bates on talking about NoteProz. It’s pulling out that information that you can export directly into your spreadsheet and save you a lot of time. It’s automated but it’s the same thing as jumping on Zillow and truly trying to get a value. We know you’re not going to pay for BPOs and O&Es. That doesn’t make any sense but at least you can take a look if the names match up the title, how much in taxes are owed.
Knowing some of the different options, “This is an occupied asset. Based on the spreadsheet, the borrower has made six payments in the last two years or they haven’t made a payment in five years.” It’s something to keep in mind. The most important if you get a list of the deal, secure it, and put it under contract. Either put it on an option agreement for seven days if it’s not a bank or put it under a loan sale agreement with a two-week closing or something like that.
Here’s the biggest number that I like to look at. If it’s not saying you can’t make money above 60%, but for nonperforming assets or distressed REO, I got to be below 60% fair market value. My offering has got to be below UPB but it’s also got to be below 60% of the fair market value. It’s got to leave me some. If it’s a pristine asset, I proceed to over $50,000 in clean shape. I can’t be any higher than 60%. If somebody’s bringing me a one-off deal, I don’t want to go above 60% for the most part.
If I’m going to make this, I got to make sure that I can get this deal over, at least plenty of meat on the bone. If I do get it approved, the max I could offer would roughly be if I was wholesaling it, I’ve got to make sure there’s plenty of meat in the bone. The highest I would go is 65%. Anytime you get over to 65% or over 70% these days, it’s a harder pitch, it’s a harder sale. Investors like seeing deals. Something at $0.75 or $0.80 on the dollar is not a deal because they don’t trust you. Anything you start getting below 70%, below 65%, if you can get something under $40,000 and sell it at $60,000 kudos to you, you still have plenty of meat on the bone.
I’m not going to fault you for making a profit. You’ve sent me a deal that makes sense, it’s 60% or 55%. If you’re making 20%, that’s a beautiful thing. Don’t be like the investors out there like, “I got an interest at 65%, I want $10,000 minimum.” That $10,000 may put you at 75% or 70%, that’s not a deal anymore. You’re the problem at that point, make $1,000 versus trying to squeeze $10,000 on a deal that you’re not going to get. You could end up killing the deal. I’ve seen this happen time and time again. People are like, “I need to make $10,000.” “Why?” “I got $10,000 in bills.” You shouldn’t let what you have going on the back end in your own personal dictate what’s going on in the deal. That’s bad juju.
If the deal makes sense and it’s a phenomenal screaming deal and you start getting people that will screw with you like, “I don’t know. Can you come down?” Have the next mentality. This is the beautiful thing about having a list. If you don’t have a list and you’re beholden to one person and that person box at your price negotiates that down for you, what are you going to say? Yes or no. I am a big believer that you always have to have a backup to a backup, a backup funding source or backup buyer. Have the next mentality. If people around you are like, “You don’t want it that? I’m going to go to offer number 2 or 3.” That’s called the takeaway close. They teach you that in sales training. If somebody wants to skip back and forth and bitch and moan about the price, “Maybe it’s not right for you. I’ll call Steve. I’ll call John. I’ll call Rudy. I’ll call Rich or Joe out there. I’ll call Linda. I know Linda wants to close on a deal and this is a heck of a deal.”
Have that next mentality. Don’t be afraid to walk away because oftentimes it’s, “No. Okay. I will go ahead and do it and go from there.” One of the magical words that you may want to remember is this, “The deal is good enough to do myself if the price isn’t met. If you’re not going to match me on what I need to get this out of at night, I’m going to go do the deal myself.” That’s a sign of confidence, provided that you’ve done some due diligence. It’s not like, “The prices are good at these. I’m going to do the deal myself.” No, it’s not. You’re going to look like an idiot. If you know the numbers, know the background behind it, “The deal’s good enough. If you’re not going to give me my 10% or my 5% or what it might be, then I’m going to move on and do the deal myself.”
If you know the deal, don’t be afraid to do that and walk away, especially if you’ve got time to close. The biggest mistake I see is wholesalers don’t do any due diligence. They slap it against the wall. They’ve got these people that are buying stuff, and they’re finding things out along the way like, “The value is not here. It needs a lot more work, more than just $5,000.” As they get closer to closing the sellers, whoever they have encountered, “When are you going to close? Are we going to close this week?” Suddenly something pops up at the closing table or before, and I got to come back with my bids. That will piss sellers off faster than two shakes of a sheep’s tail, “What do you mean? You’ve had a week or two and you’re letting us know now that you needed to make your bid.” That’s one way to burn a relationship, it’s another way to get blacklisted and you don’t want to do that.
Step Three: Protect Your Relationships
Moving on here. Next step, number three. How to protect your relationships is one of the most important things you need to do. One of the most important things was if you’re dealing with somebody brand new, not initially, not when you’re asking them questions about what they’re looking, but if you do have a deal, I like to make people sign a nondisclosure agreement or a Non-Compete Non-Disclosure, NCND. Especially if I don’t know him from Adam, like Hakim. Hakim reaches out and I got a deal. I don’t need him to sign an NDA, NCND, we can have a verbal thing because I know and trust Hakim. We’re good. He’s my boy.
Denise asked a question, “Is that 65% FMV? Is that the value of the home or the note?” FMV, Fair Market Value, that’s of the property, but we’re going to talk about maybe way overvalue. You don’t want to do the value of the note, the UPB. FMV, it says it right there, fair market value. If it was off the note, it would be 65% of UPB. If I don’t know and somebody reaches out to me for the first time, or they’ve opted in and they haven’t signed anything on before, I’ll share, “Bob, I know that you’re sitting in Indiana, I’ve got some couple of deals here.” I will send them the details minus the addresses.
I’ll send them a picture of the property as long as they don’t have the address saved. Say, “Here’s the couple of deals I’m working on.” They want to proceed and they want to make an offer. They want to go with it. “Great. I’m going to need you to sign an NDA, NCND with me.” If people balk at that, then you need to move on to somebody else because it’s not that big of a deal. An NCND is 2 to 3 pages. It simply says that you’re not going to disclose this. You’re not going to compete with me. You’re not going to go around me.
Mautrice asks a question, “I see a lot of bandit signs in ATL. Can I call them and ask what they’re looking for and add them to my list as a buyer?” You can do that, Mautrice. You know that if there’s a bandit sign, there’s an investor on the other side. What you don’t want is probably a property. If you’re dealing with notes, don’t be calling them. Don’t be listing some notes if you’re looking for a property. That’s one of the big mistakes I see note investors make. They don’t say it’s a note deal. People think it’s a piece of property and they got all excited about it. I’m like, “This is a note. You still have to go to the foreclosure process.”
NCND is a Non-Compete Non-Disclosure. If you’ve ever gone through my three-day virtual workshop, there is an NCND in the contracts. If you’re looking to move more property, but notes, you got to be careful about it. You may be, “I’ve got some note deals or distressed notes if you’re in a market that has a lot.” The reason you want to have people sign a Non-Compete Non-Disclosure is you don’t want them to take that list, the deal they got and blast out their database and try to wholesale it to somebody else. That creates a daisy chain. You don’t want that.
Another thing, here are a couple of things that when people reach out to me I know it’s a straight-up bullshit meter. Straight up, when I hear these words, “I’m a buyer’s mandate or I’m a buyer’s rep.” Bullshit you are. You’re in a daisy chain. I’ve never called somebody and said, “I’m a buyer’s mandate. I’m a buyer’s rep. I represent a buyer.” No, you don’t, sorry. If that’s the case, you’re not going to be dealing with piddly me on this one deal. If somebody calls you and tells you they’re a buyer’s mandate or buyer’s rep and they got $20 million a month to buy deals from, run the opposite directions, run scared because they’re a joker broker. They will blow up your deal because they would never follow through. They’re going to take your list and try to sell it to their list and that list.
If anybody comes to you who says, “I’m a buyer’s mandate or buyer’s rep or let’s get on a conference call with the buyer,” move and get the hell out of dodge. Move on to somebody who’s like, “I want to buy this for my own portfolio.” The big thing is if you’re going to be working on it with a relationship with somebody, you may also want to put in that Non-Compete Non-Disclosure. It’s like on this individual deal you’re going to buy this from me at this specific amount and anything else that you buy from the source, you’re going to pay me a flat fee going forward.
You’re going to pay me 1% or two points on whatever you fund going forward. That protects your relationship. You don’t want to have somebody pay you $5,000 and now they don’t go to you. They go to the direct source going forward. You lost out on potential fees. You would say, “You’re going to pay me a two-point fee to infinity and beyond.” You only want to make it, “Anything you buy in the next year or two,” the maximum people say is 3 or 5. I’m like, “It’s not going to happen, sorry. I don’t mind paying for a year or two-year, paying you a point or two points. Anything else I buy, I find doing that.”
If you find out who the seller was and you already had an existing relationship like, “I’m already direct. I don’t mind paying you on this one because I didn’t get this deal, but I’m already direct to Bob, Bill Bymel at RSI. I’m not going to pay you because I’m already direct to them.” You have to disclose that. I’m direct to them, you need a check, reach out to them. I don’t mind paying this fee on this deal and go on from there. If you don’t know who this person is, he calls me up and sees my post and meetup groups. He signs my NDA. He says, “I want to put this under contract.” Great. Provide that you can close. I’m going to need proof of funds.
You’re like, “Most of the time Scott, if you say somebody that’s with proof of funds and the LOI, it’s a joker broker.” That can be the case. I didn’t ask Hakim for an LOI. I said, “You want to fund on this deal, I need to make sure that you’ve got the goods. You’ve got the money to close this in the next 7 or 14 days.” I’ll take proof of funds. I’ll take a letter from your banker or a letter from your CPA that you have the funds to close. I’d prefer a statement of either your 401(k), retirement account, your checking or savings account. I need to see something that you’ve got the funds.
Don’t ever give up the full address of the property until you’ve got these things down. Otherwise, they can go around you and people will go around you in wholesaling. I’ve seen it done. Cutthroats and bastards. Pardon my French but wholesalers can be cutthroat because they’re trying to get around you. You got to secure things with a contract. The last thing you want to do is not having it under contract. If I’m going to send you over to go meet with a buyer and y don’t have it under contract, you can cut me out of the deal easily. If you’ve got an agreement with the seller to close on the 20th of the month, require your guy or whoever your buyer is to close at least three days, if not a week prior. Why? Because that extra 6, 7, 8 days in there is there for you in case this guy, gal, idiot or whoever it might be flake on you.
You could go to backup buyer, 2, 3 or 4 to get the thing closed and still save face. Always require your buyers to close before, not the day of but a week before. If they’re supposed to close on Friday, have them close the Friday before. That way, if they need an extra day or two, or they’re going to wire on Friday and the wire doesn’t hit your account by 4:00 and it does come Monday, then you’ll be fine. Wire four days ahead of time, this is one of the biggest things. “Let’s close on the 30th.” They’re like, “You got to get it in by 5:00 or 4:00. I can’t send a wire out.” Then you’ll look bad and you got to explain to your buyer or the person that you bought it from, “The seller need until Monday to close. The wire hasn’t hit my account yet.” You’ve had 30 days.
Especially if you’re doing a double contract where you’re taking the existing contract and tweak it, make sure you put that closing date a couple of days beforehand. You might even require them and you’ll see this more on real estate deals. You won’t see this on note deals. I would require, if I’m flipping an REO or something like that, I’m going to require the buyer to put up a soft-money deposit. I need you to put up a $500 or $1,000 earnest money and you can deposit it with the title company. You’ve got seven days and after seven days that deposit goes hard. I don’t do that with note deals. It happens all the time on the property side.
If I had an REO and it says, “I need you to put up $1,000. Let me know that you’re serious.” I’ll do that. When does it go hard? It goes hard in seven days. I have until the sixth and what time? It goes hard Friday at 5:00. I have until 4:55 to call them and say, “I’m canceling this bid. I’ll cancel this deal because of this and this and get my money back. I’ll cancel this because my financing fell through. I want my earnest money back.” It’s totally fine. It happens all the time. Why don’t you get $7,000 earnest money? Because most people aren’t going to do that. You could ask for $7,000 in earnest money, but most people aren’t going to do that. The normal is a $1,000, $500. You could ask for it, it doesn’t mean you’re going to get it. What do you want? Do you want people to trust you? Do you want to go something against the grain?
There are two ways to close. We’ve talked about this briefly. The first way is a double closing. You don’t know that person. Remember you’ve got a contract, you’ve got a loan sale agreement. Let’s say I’m buying a note from ABC bank. I have a contract made out to Inverse Ventures, LLC. I’m going to take that contract with the closing dates and then I’m going to change it. I’m going to make it out. Let’s say Dick is buying that note from me and I’m set to close on the 30th, 30 days from ABC bank. I’m going to change it so that Dick is closing from me in 21 days. I’m going to change the name.
The seller isn’t ABC. The seller would be Inverse Ventures to Dick Hamilton, LLC. The price on the deal, wouldn’t be $50,000 that I’m buying it from ABC. It would be $55,000 or $60,000. I’ve adjusted the dates for the closing, the due diligence and earnest money, that kind of stuff. You got to change it up so you have a double contract. I’m going to have my real estate attorney set up an escrow account because then I’m going to have Dick wire the whole amount in. Let’s say I’m buying for $50,000 and Dick is buying it for me at $55,000. I’m going to have Dick wire into my escrow that $55,000. I’m then going to turn around and wire the $50,000 to ABC, keep the $5,000. I will then notify ABC bank. I’ll go, “ABC, I need you to not to make it out to Inverse Ventures. You need to make it out to Dick Hamilton, LLC.”
Sometimes they’ll do that. Other times, “No, you told us we got to go by the name of the contract.” They sent me the agreements that I can either fill out a quit claim deed or fill out another assignment of the mortgage if it’s a note deal. Dick is recording two contracts and returned to assignments and two deeds at the same time. If you know the person, you like and trust them, great. I’ll send over a one-page wholesaling agreement saying, “You’re agreeing to buy this note for me at $55,000. We have the original address under contract for $50,000 from ABC bank. Please see my attached contract with ABC bank. Here are my wiring instructions for you to send the $50,000. Here are the instructions for ABC bank. Here are the instructions for the instant wire.”
Here’s a big thing. You still are the go-between to get information and stuff like that. If you’ve ever had somebody wire funds in and they don’t wire you, you still have the right to go back to the bank because you have that option agreement. You got the contract. “Thank you for paying for that loan. You didn’t pay me my $5,000. I’m still direct to the bank on this. You bought an asset I’m going to keep because you tried to screw me. I would double my thing. You’re going to pay me $57,000 or $60,000. You pay me $10,000 versus $5,000 because you tried to screw me.” If somebody tries to screw you over, blacklist and take them off your list, never deal with them. It’s not a good thing. Most people, if you’re going to do the wholesaling fee agreement, you’ve known him, you trusted him, you may ask for references. I can trust him. It’s not that bad of a deal. Somebody is going to work hard to go around you. They’re going to be found out sooner enough in real estate and work their way out of it.
Here are some important details for effective wholesaling. You need a good real estate attorney or title company that will allow for you to set up an escrow account. Escrow accounts cost you about $500 or $250 to set up with a real estate attorney that can either do the contracts for you, do the closings. If there’s double closing, you need a real estate attorney. A lot of title companies aren’t going to do dry closings. They’re not going to do a double closing for you a lot these days, but a real estate attorney will.
The seller must be okay with you wholesaling. If they’re okay with you wholesaling or assigning the contract, kudos. If they’re not okay, then you need to go to the double close route. If you don’t want the bank knowing that you wholesaled or sold the property. You had it under contract for $375 and you sold it for $415, they might get a little butt hurt on that. You may need to do double closings and straight wire in, then double the paperwork. That’s okay. It’s not too difficult. Have constant communication with your buyers. Here’s the big thing. Check-in with them. What always worries me if we’re wholesaling assets, somebody’s going dark on us. If we don’t go 2 or 3 days without hearing from them, “How’s it going? We wanted to touch base. What’s going on? What’s the update? How’s your due diligence going? Did you pull your O&Es? How are your values?” That stuff. It’s being in constant communication with the buyers like, “How are we looking for closing next week or the week after? Are we still doing okay?” If your buyer walks, have a backup buyer ready to roll. This is what’s the most important key. Wholesaling is on the marketing side.
If you start marketing on meetup groups, people are going to say they’re interested. If you have something, this is what comes down to offering people. It’s like, “Whoever can wire in $1,000, you’re going to contract at these numbers,” get it. If somebody wires in $1,000 and then you have three other people are like, “Is this still available?” “I’m sorry, I’ve got it signed. I’ve got somebody beat you to the punch. How about if I put you in my backup offers? If this doesn’t fall through, I can call you immediately to fund. How does that sound?” What they’re going to say is, “Yes, please do.”
You keep them in there. If you start seeing something goes wrong, that’s what I say, if you’re not going to communicate with me. If Rudy was going to buy a deal for me and I don’t hear from him for over a week and I reached out to him, I sent him an email, leave him a voice message, no texts, nothing, then something’s wrong. I’m going to say, “I need to hear from you by 5:00 today with a text and email or something, otherwise I’m going to cancel this contract for lack of communication on this because I don’t think you’re going to fund it. I’m going to go to the next person. I’m going to start calling my backup offers, get to them and get ready to rock and roll. Somebody’s going to close on this deal because it’s a good deal.”
Another thing to keep in mind is why you market. Everybody is a buyer and a funding source. If you have the most amazing deal, a gorgeous property, the numbers make sense and a buyer in place, still market the deal. One of the most important things is to tell the seller or the buyer, “This is a great deal. I know it’s a great deal. I’m still going to use it to market. I’m going to market it from backup offers. I know you can close, but it’s going to help me to get other buyers for other deals later on.” I tell them that’s part of it. I’m going to market it. I’m not going to disclose the address, but I can share the details and a photo of the property without any numbers or any addresses that will give the deal away. Always market it. When you’ve got a great deal, people will come out of the woodworks if you market it. You’ve then got a whole list of people that can reach out again and again, without having to do a lot of marketing.
One of the most effective things is you build a good list and take some time to know what’s going on in your deal, follow-up, see things and communicate with them. Your buyers’ list can fund deals for you on a regular basis. Another thing too, if you’re dealing with REOs or Real Estate Owned properties out there, and I don’t deal with a lot of REOs these days. One of the most effective things that I used to do in an area in Dallas, Houston, Austin or San Antonio, if I came across a great REO deal, I would send the details, the address, photos and everything to my local hard money guy, and get the property approved for financing.
That would be one thing I would use in my market, “This is a great deal. I already got it pre-approved in Longhorn Financing at these numbers. The finance and everything are done for you.” Step in and close on the deal. You’ve got financing in place for hard money. Some people are like, “Why wouldn’t you do it here?” I would do it. You don’t get it. My backup was to go ahead and fund the deal with Longhorn, but I would rather make $10,000 or $20,000 in a week versus it taking six months to do the deal and so on and make $40,000. What makes more sense on that? If I could make $20,000 fast, let’s do it. If that didn’t close that way and I’ve got to go the route of funding it with my funds or other people’s funds or our money, great. I market it like, “This one’s already got financing built-in.” Trust me, you’ll get more offers that way too. You might even reach out for hard money lenders these days. If they’ve got any projects they’ve had to take back because with the market being crazy like it is, we’ve been getting a lot of phone calls from hard money lenders asking if we’ll buy their notes at par. I’m like, “No. I’m not going to buy at par. I’m going to buy it at a discount.”
Here’s the thing. If you’re looking at notes, your nonperforming notes, the cheaper you get them, the higher amount in fees that you can charge. If you’re buying in bulk or going to negotiate something down, there are a lot of one-off buyers out there that you can get a pretty good percentage, a higher dollar amount. If you’re looking at wholesaling performing notes, which can be done, you’re not going to get a 10% fee on a performing note. It may be 1%, 2% of the funding amount as a wholesale fee or a flat fee like $500 or $1,000 as a wholesale fee. You’re not going to get a huge percentage. I’ve had performing notes. We’ll see a 1% to 2%, a lot of times, especially if I’m doing things. What I like to do is if I can see the performing notes and I know what the seller is looking at, I will then say, “If I’m buying this and the one I’m going to buy is a 20% cash-and-cash return on my numbers, what would the price be if I sold it at a 15% cash-and-cash return and what’s my difference in them too?”
It’s either a difference on a lump sum or some cashflow for twelve months. There are different ways to negotiate that. That’s a great strategy to look at. What’s that performing note selling at? If I had a bunch of people looking for 8% money and I had performing notes paying me 12%, I would arbitrage that all day long. Take a chunk and move on. Those are the biggest things. Create your list. You’ve got to have a list, know what your buyers want. Know what your deals are. You’ve got to have some deals, not duds. Protect you, protect your buyer and protect your deal. Those are the three biggest steps that you have to do. It’s not that difficult to do. You’ve got to put something together that you can collect people’s information. Either a spreadsheet, opt-in, a survey, something that you can look at on a regular basis. It’s pretty easy to set up, but knowing what your investors want or your contacts want, that’s your grocery list.
Go out. If you can see somebody who wants something in Indiana, Bob went looking for stuff in Indiana. If I go to Paperstac and I see a deal in Indiana and I can get it in a contract that makes sense, I’ll send the details to Bob. Pay me $5,000. If it makes sense, it makes sense. A reminder that we do have our calling banks list. We’ll be running from 1:00 to 5:00 PM. It’s a four-hour call blitz this time around. You get signed up for it. I’ll show you the replays the last months. You also get some other great thing, but we’ll be calling the servicing company, the business development people this month. We’re not calling mortgage bankers nor people off the borrower list. I’ll be calling servicing companies to track down their business development reps this time around. It’s a little bit different. It’s $59 still unless you’re part of the WCN crew, but $59 does include the replay to the four-hour call blitz.
You can see who I’m calling and everything like that. You can get signed up at CallingBanks.com or as I’ve said before, it is included with your WCN membership if you’re at $97 a month. If you’d like to get signed up and start saving some money over half of our costs for our monthly education, the monthly things, go to WCNMembership.com. For $97 a month, you get access to not only the Calling Banks but the Note Weekends, our three-day virtual workshops and other things along the way as well. Our next Note Weekend is November 21st. It’s from 9:00 to 5:00.
Our end of the year class Note Buying for Dummies Workshop is December 11th, 12th, and 13th. You can find out which banks or borrowers are on the naughty and nice list. That’s normally $599. Sign up for the WCN Membership at $97 a month and save a bunch of money before the end of the year is up. Put more money in your pocket to stuff your stockings. Hopefully, that was helpful and gave you a bit of an idea of what you need. As always, thanks for joining me. I’ll hopefully see you on the 21st or sooner on Note Weekend or Virtual Note Buying Workshop. Go out. Be safe out there. If you haven’t voted, get your vote in. It does count more so than anything for the local than it does national in a lot of cases. Go out, put some deals together. Make some money. We look forward to seeing you all at the top.
- WeCloseNotes.tv – YouTube
- NoteMBA Podcast
- Bill Bymel – Past episode
- JD Bates
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