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Today this episode is going to be a “You Ask, We Answer!”. Mike and David answer your questions which is What is Wholesaling! You can learn a lot from this episode! Don’t forget to check this out!
Things that will cover in this episode:
- What is WHOLESALING?
- How Wholesaling works?
- Tips about Wholesaling
- 3 Pillars of Wholesaling
- Making Offers
- Following Up
SERVICES MENTIONED IN THIS EPISODE:
David: Good afternoon, Mike.
Mike: Good afternoon Dave.
David: How are you buddy?
Mike: Doing good man, excited to start talking about what is wholesaling. We’re going back to basics today and just going to talk a little bit about wholesaling in general. Hopefully cover run the gambit here, right?
David: That’s right, that’s right.
David: So what is wholesaling is our topic today. Man, we’ve been wholesaling for 5 years at this point.
Mike: About four, five years together.
David: Yeah, give or take man, it’s been a minute and we’ve done hundreds and hundreds of deals.
Mike: Yeah, I think we’ve done over 400 or 500 in our CRM.
David: I think it’s closer to 500, yeah.
Mike: Yeah, again, I don’t really keep track of it that closely. We’ve got it in our CRM, we can pull up that data but yeah we’ve done it hundreds of times so let’s just quickly define what it is that we’re doing, what is wholesaling Dave? Wholesaling to me, or at least the way that I define it, is buying a house at a really really good price and selling it at a good price. So again, you’re going to sell it at a- or you’re buying at a great price, sell it at a good price, and you as a wholesaler are kind of in the middle and you make a profit on the difference between those two prices. How would you define it?
David: So, I would say there’s a couple of things that I would add though. So, you don’t have to buy, that’s the beautiful thing about wholesaling. I would define wholesaling as a marketing business where you use contracts to control properties so then you can then sell them for profits without even having to buy. I know that’s kind of a muddy explanation/
Mike: Well, it is- it’s a little bit- and it’s very accurate, it’s just a little bit higher level so it’s a little bit more complicated for somebody who hasn’t done it before to maybe understand.
David: Yup, absolutely.
Mike: Cuz what Dave is getting at, and it’s very very true, is that we- when I say buy, I mean go and put a contract on a house. So, let’s use an example here, so we’ve got an AB seller or we’ve got a seller, we define it as a motivated seller. Let’s call him seller, so seller says hey, I’ve got this house and I really really really need to sell it, can you help me? You come in, you’re going to be wholesaler and wholesaler says, yes, I can buy it, I’m going to put it under contract for $50,000 and now I’m going to go do my due diligence and I’m going to get- bring it to the title company to find out if there’s any liens against it, etcetera etcetera. Then wholesaler says, okay well I don’t actually want to buy this house, but I know somebody else who does so they go to buyer, let’s call them buyer again, at the very end of the deal and they say hey, I would like to sell this house to you for 50 or say 60 thousand dollars. Okay, so wholesaler is buying it from seller for 50 thousand and they are selling it to buyer for 60 thousand dollars so that’s a 10 thousand dollar spread between those two properties, so-
David: I don’t know if that’s going to zoom in on that or not.
Mike: Well, give it a try. Okay, so you’ve got a spread on the house so then what Dave is talking about with the contracts and controlling it is as the wholesaler, I’m not actually going to go to the title company often times. I’m going to assign my interest in that contract to buyer, so buyer then just comes in with his 60 thousand to the title company and that assignment cost that buyer 10 thousand dollars and that fee went to you wholesaler. So, that’s kind of what Dave is saying and again, I just- I like to use the terminology buy even though it may not be accurate if you don’t- if you truly assign the contract, you’re not buying it. If you do go through and do a double close and buy it and sell it on the same day, you are buying it, so there is definitely a terminology thing there.
David: Yeah, absolutely. So, you’re buying and selling it, however, you don’t need any money and that’s one of the cool things about wholesaling is you can limit your risk to practically zero because you have a lot of outs in your contract for one, right? and for two, you can sell your contract to purchase. You don’t have to absolutely execute it, instead you can just sell it and get paid for it so that’s really what wholesaling is. Yes, you are buying and selling, but you’re using contracts to control it, so you don’t have to purchase. There you go, that’s the word, you don’t have to purchase it however, you can still buy it, right? and then you’re selling that contract or your double closing on it. So, that’s what wholesaling is in a nutshell, that’s kind of the way that we would define it. I would say the main things to understand and learn when it comes to wholesaling-
Mike: This is very important.
David: Right, is you don’t need a lot of money, if any, right? because you’re using contracts to control property. That’s the main thing, but how do you do that? And this is where I’m going to pivot here, but that this business, the wholesaling business, is a marketing business.
Mike: That’s what I was going to say is very important.
Mike: Because it’s not necessarily about real estate investing at this point. At this point, you’re learning about real estate investing, you’re learning how to find deals and you’re learning how to find sellers or buyers rather. So, you’re learning both of those things but what you’re doing to accomplish that is marketing, so it is the marketing business and this is one of the things that I’ve always harped on this shit. It does not matter what business you’re in, you’re in the business of marketing. So again, the wholesaling business is a marketing business just like any other and our product is houses. So, you are finding- or discounted houses is your products, you’re finding deals on discounted properties. So Dave, that is a very important thing that a lot of people don’t quite understand when they come to us to start out. They say I thought I’m an investor, I’m trying to buy houses, it’s like yes you are, you have to know a lot about houses to do that, but you have to know even more about marketing and finding motivated sellers.
David: Absolutely, 100%.
Mike: Three pillars Dave, this is one of the things you always kind of talk about when it comes to wholesaling. Go into the three pillars, man. What are the three pillars of wholesaling?
David: So, there’s three pillars that I like to kinda look at when I’m talking about wholesaling and I like to look at them like a stool, you know, not pillars like you’d find out in front of a building, right? Instead, these are three pillars like a stool, right? So, if one of the three pillars or legs of your stool, you know were to be removed, that stool’s not going to stand up anymore. So, the stool represents the wholesaling business or your business. In order for your business to be successful and to make money and not fall over or go out of business, there’s three things that you have to do consistently and its really this simple when it comes to wholesaling. So the three pillars are: one, marketing, two, making offers and three, following up and it’s that simple. So, we’re going to break these down really quickly and talk about why each is so important, but again, we defined wholesaling, it’s buying and selling properties with little to none of your own money using contracts to control the property so you can buy it without purchasing it. I think we’ve defined that pretty good at this point, right? So, how do you do that? Well, that’s why- that’s where the three pillars come in, so how do you do that? Well, a) you understand that this is a marketing business not a real estate investing business. It pivots into a real estate investing business when you buy it to rent it out or to fix it up and flip it, but if your wholesaling, you’re not taking any risk therefore there’s not really an investment being made, it’s a marketing play. So, number one, the first pillar: marketing. You have to market to motivated sellers, that’s the first pillar, okay? Now, anything in real estate when it comes to buying a property, you always want to try to find a deal. You want to buy at a discount really, okay. So, let’s take a step back from wholesaling for just a minute. If you don’t have a deal on a property, the door for a fix and flip is closed to you. The door to add it to your rental portfolio without leaving a ton of money in it is closed to you. Wholesaling that deal is closed to you, right?
Mike: Oh, a 100%.
David: You can’t do anything.
David: You can’t do anything if you don’t have a deal, unless you’re paying cash, right? or you’re willing to leave a lot of money if not all of the money needed in it, okay? So, taking a step back from wholesaling for just a second.
Mike: That’s- we’re talking about creating wealth through real estate.
Mike: So the only way to do that like Dave said is having a good deal.
David: Having a deal.
Mike: Again, if you’re trying to- and Dave and I talk about this a lot, if you’re trying to park cash, it’s a totally different type of investing.
David: Absolutely. You’re investing at that point, you’re not marketing.
Mike: Right, so again if you’re trying to build wealth or create wealth, it’s totally different. You need to have good deals on these properties.
David: Absolutely, love it. So, how do you find a deal so all those doors can open? That’s the beautiful thing about finding deals is that you can cherry-pick them if that’s your play. If you don’t even want to be a wholesaler, cool no problem, I get it but you still need to learn how to find a deal and that’s where wholesaling comes in. Its marketing, you got to learn how to market. So, the first pillar is marketing and the marketing that we do is marketing to motivated sellers typically or it can be blanket marketing but it’s- the intention of it though, the purpose is to find a deal, okay? Now, once you have a deal, you now have open doors, all the doors open for you. Look at this, you can wholesale it which is what Mike and I would probably prefer to do or you can keep it and fix it up, now there’s a margin to be made, there’s a profit cuz you got a deal, or you can add it to the rental portfolio maybe use an advanced strategy like the BRRRR strategy or go get a loan to where you don’t have to have a bunch of money in it, but again, you got to start with the deal. So, the marketing I think is the first most important thing to learn and understand and it’s the first pillar because if you don’t have a deal, nothing else matters and specifically when it comes to wholesaling. Mike started out, the first thing he said was you buy great and you sell good. You can’t sell good if you didn’t at least buy it good, right? So that simple spread in between is what you can make as a wholesale fee. You buy great, it’s worth 150, you pay 80 and you sell it to somebody else at 90, doesn’t matter with repairs or keep it simple, that’s a deal, right? But you left a lot of meat on the bone and it’s still a good deal at 90. You just got it at a great deal at 80, very simple. So, you know deals can fall into your lap, but it’s rare that that’s going to happen, so you got to get out and you have to market to these people to let them know that you have a service to offer them which is basically ten-thousand-foot view, we provide liquidity to the real estate market. That’s all we do as wholesalers, we trade convenience in exchange for a discount and we’re liquidity makers. It’s convenience, that’s it but you have to be able to tell these people that you have this convenience by marketing your message to them or trading your time to reach out to them directly, but that’s it, that’s marketing, that’s the first pillar. Mike, you want to talk about the second pillar?
Mike: Sure. The second pillar of wholesaling, making offers.
David: Love it, and this is as important as the first pillar. These all are equal, this is a stool. Look at it like a triangle, right?
Mike: You need all three.
David: If one of these stops or lags, your business will stop or lag.
Mike: Love it, 100%, so making offers, why is that one of the pillars of wholesaling? One of the three pillars in our world? Because if you’re not making offers, you are not going to get properties under contract, period. So, we have-
David: What good is the first pillar of marketing to motivated sellers if you don’t make any offers?
Mike: If you make zero offers, you are going to get zero properties under contract and you’re throwing away your marketing dollars.
Mike: You are not going to make any money.
David: So, do you guys realize that we skipped over like how to analyze a property and you know how to determine repairs? Those things aren’t important right now. We’re big picture, what this business is. Yes, you’re going to need to learn those things. We’re going to teach those things to you in future podcasts and courses and whatever else, right? But the pillars is were talking about today, so marketing’s number one, making offers, Mike go ahead. Number two.
Mike: Yeah, making offers. It’s that important to the business and what we mean by making offers, it doesn’t have to be a written contract every single time. Dave and I, we send text offers. Again, we go to a property or somebody calls in from our marketing efforts and they say here’s what I’ve got yada yada. We say, if it’s not one that we’re really that interested in, we’ll say okay well, what can you take for it? or what do you want for the property? and we’ll make an offer on the phone right then. So, we’ll say yeah, we could probably do about five to ten thousand on that one. So again, this is maybe one of our North City deals. Why would we give a range? Because we don’t know exactly what we can do. We’re making an offer, it’s a verbal offer to that person day one and if they are motivated five to ten thousand dollars doesn’t sound like a lot but if they’re motivated, that might be the right number for this not-so-great property, then it’s a deal that we might be able to make some money on. I know Dave, we just did a deal we bought for what was it? Like $4,000 and we sold for $8,000.
David: Yeah, 45 and 9.
Mike: 45- exactly, 4500 and 9. So again, if some- if you give a range like that, I can probably do three to five thousand on this house, then you know, you’re in the right ballpark if that person says okay yeah, that might work then say, okay I’ll drive out there but I’m not trying to drive out there if they’re not interested. So again, you have to make an offer to even get to that point so even though it was a house that we wouldn’t want, that we don’t even really want to go drive to, we’re still making offers on.
Mike: Because we would not have made that profit if we didn’t make that offer.
David: Yeah, so look at the big picture here. In order to make a profit, let’s just reverse engineer a successful wholesale deal, right? Reverse engineer, the last thing is taking the profit, well before that happens, you have to close on it with both a seller and a buyer, right? And before you do that, you have to find a buyer. Well, before you do that, you need a property from a motivated seller. So, nothing else can and will happen- it won’t happen if you don’t have a property under contract. So, how do you get a property under contract so you can then go sell it? You got to make an offer on it, right? So, we’ve just reverse engineered an entire deal. So, if you’re not making offers, it is impossible to do a wholesale deal. It’s that important. If you want to do a deal, you need to be making offers. If you want to do more deals, then you need to be making more offers, but it is truly that important that we labeled it a pillar of this business because again if you aren’t doing that, nothing else matters and if you’re doing a lot of marketing but not making offers, you’re just spinning your tires.
Mike: Well, I think Dave the three pillars come back to the fact that we’ve got- we’ve had our ups and downs in this business and every time that we see that we are in a slump or in a down, we’re not doing as well, it’s because we’re neglecting one of these three things.
David: That’s right.
Mike: We’re either not making enough- we’re not putting enough marketing out there.
David: Which is either efforts or a budget, it could be both.
Mike: We’re not making enough offers, or number three Dave, what are we not doing?
David: So, the last third final pillar is just following up, and there’s no like secret sauce to wholesaling. That’s the crazy thing. It’s these three things that are the most important. There is a lot of little things that we are going to cover in future podcasts.
Mike: Yeah, we absolutely can.
David: And what not, but these are the things that have to be done routinely, consistently, and persistently if you want to have a successful business and/or just want to do your first deal.
Mike: Yeah, this to me is like a back to basics on wholesaling, the three pillars. It is so simple, but it’s just it’s always where the system breaks down, it’s in one of these three things. You’re not marketing enough, you’re not making enough offers and you’re not following up with your previous contacts. Because again, if you spent money on marketing and again, you made an offer and they said ah nah. If you don’t follow up with that person 3 months later, 6 months later, 9 months later, 12 months later, you are never going to get that deal when their motivation level changes.
David: That’s right.
Mike: So again, it’s just- it’s the basics of I would say sales almost.
David: Well, another way- you know I said if you are doing marketing and you’re not making offers, you’re spinning your tires. I’m going to use that exact same analogy and I’m going to add it, now it’s number 3, so follow up. If you are marketing and making offers but not getting contracts and you’re not following up, you are also spinning your wheels, right? All three things need to happen. Now, Mike and I are in the Midwest, we’ve done 500 wholesale deals give or take over the last five years as you know, combined as a company and we have about 5 years of data. I would consider us to be experts having five years and 500 houses, so the data that we have is basically tells us that the average deal takes us four to six months. Now, it doesn’t mean that every deal takes that long, the average deal takes 4-6 months. The reason is because when we first make contact with the motivated sellers or seller, we always try to make the offer cuz it’s the other pillar, one of the pillars. We always make the offer, my VA made a couple offers this morning while I was on my way to work and he texted me said what do you think? I said, hey their too high but I’m just happy you made offers. I don’t even care that these are too high, you made them, this is amazing. I had five offers made before I even got to the office today, okay. So, you got to make those offers and you got to follow up but the purpose of what I’m getting at with the follow up is it takes us 4-6 months to close a wholesale deal typically. That’s the average, it’s a five-year average. Does a deal come in today that I can get an appointment for tomorrow and a contract by the end of the week and sold over the weekend? Absolutely, that’s come in, once, twice, sometimes three times a month, but we’re doing 10, 12 deals sometimes and the majority of them, 80/20 principle guys. 80% of those deals came in from follow-up over a 4-6 month period. So, follow up is our third and final pillar. All three of these are as important as the next, or the previous. Three things: marketing, making offers and following up. That’s really what wholesaling is, the simplest way to describe it. It’s marketing, finding motivated sellers, using contracts to control properties by making offers, and then you follow up to keep that relationship going to see if they’re more motivated later than they were when you originally talked to them, and motivation changes very rapidly and over time, you’re going to either call them or they’re going to call you back and say I’m ready and that offer you made me now seems a lot more reasonable than it did 4, 5, 6 months ago cuz I thought that it was worth more but I’ve come to my senses and I realize now that it’s not, so can we do this deal? And that’s it.
Mike: Guys, that is what is wholesaling. I think Dave, we left off one of the most fun parts of wholesaling which is cashing the check.
David: Cashing the check.
Mike: When you get paid, you get paid well in this business and that’s why we like wholesaling. It is a job, but it is a great high paying job. So again, if you’re interested in learning more, check out our free wholesale course, and you guys can get started there. Thank you so much for joining us today.
David: Signing off guys.
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