What You Missed March 2017 General Meeting
by Rob Earhart
March 7, 2017
Vena started the conversation by asking, “Who is new in Real Estate? Is wholesaling legal in Florida?” “You need someone in the state house working for your profession. In Ohio they have been successful in keeping the stupid laws off the books.”
Vena warned, “Wholesalers should not say they have a house for sale if they have a contract, but should say they have a contract to sell to buy that house.” She further noted, “There are two things you can do to keep you from getting in trouble; you can get a license or you can buy the house before you sell it.” There are lenders who loan on houses so you can buy it and sell it the same day. They are called Transactional Funders and there are many around.
Do we make money by sitting in a room and learning how to do something? No, we must do something to make that money. “Would it be fair to say you came here to change your life? If you could wholesale a few houses, would that change your life?” Vena asked.
I just want you to take a step to see if it will work. Don’t just take notes and put those notes away. Even if you are doing it 5-10 hours a week to make $10,000 to $15,000, would that make your time worthwhile?
This is without managing tenants, fixing things, etc. We work with the people that do that. Landlords are the hardest people to convince to wholesale. They want to keep the properties and don’t want to pay the short-term taxes.
Vena proclaimed, “Out of the 50 or so people here, there will be 5 to 6 that really want to change their lives.”
My father had about 150 single-family homes, some smaller apartments, and that’s what I grew up with. We still could not get to Disneyland. When you have 150 rentals you are tied down and can only visit family.
I went to college and got my dream job away from landlording and my parents’ business. It did not last long and I went back to work for my dad. Then, Ron LeGrand came to town talking about how to buy and sell for profit. I went to his bootcamp and came back to start buying. I found that holding was not generating cash flow. If you held a property, you had to save for mortgages and repairs.
Now I have rentals but I use property managers and can afford them because I flip properties that give me the money needed for other things. My tenants are just a line on a spreadsheet.
“What changed? The first thing changed because I did what I was told to do,” she instructed. It did not take much time to flip houses because it takes a lot less time than rehabbing. At the point I realized I could do it over and over, I finally realized I could take time off without losing money.
Growing up, money seemed to be difficult to come by, according to my parents.
She asked, “If everyone knows about wholesaling, how come only five people are doing it?” Some excuses are: “can’t find the deals, just starting out, etc.? On Saturday, all we will talk about in the afternoon will be how to find the deals. All the good deals are off market, the MLS just won’t work,” exclaimed Vena.
What is wholesaling? Putting properties under contract, then selling your interest in the contract to a specific kind of person. Your buyer is another investor, not a retail buyer. It is done for a cash payment. In my business, the cash payment is paid up front, not at the closing.
You don’t need money to buy the house, and the only money you need would be earnest money if you deal with banks. Most of my sellers are direct sellers and they don’t care about earnest money.
Vena instructed, “Even if you do not go with me tonight, you will pay for your education one way or another. I have found that if I don’t pay someone for my education, it will cost even more.”
You have to understand who your buyer is, and who your seller is. You also must focus on the right properties, or they won’t sell. You need to do a correct evaluation of the property. You have to know what the property is worth so you will know if it’s a good deal.
Your buyer wants to know how much money they can make and they are not going to live there. They want to fix it up so someone else can live there. They look at a property to figure out how much they are going to make.
They are cash buyers. We can’t go to a bank because the properties are not in a good-enough condition to get a loan. You want to deal with experienced people so they know they are going to make money from your properties.
The hardest homes are the bread-and-butter and move-up properties. The ones that are less competitive are rental properties. Vena then depicted a 3/1 house, on a busy street, across from a gas station: not a good retail prospect but one with $35,000 in repairs, an after-repaired value of $135,000 and a cost of $60,000. “I sold the contract for $24,000 because there was enough left over that they are rewarded adequately for the rehab: a $134,000 property for $119,000. He ended up with a 13% cash-on-cash return.
Why would the seller, knowing it was worth more, sell it so low? The lady had inherited it from the person she was taking care of, not knowing it beforehand. The owner had installed a furnace in the middle of a bedroom. She had listed it for $110,000, but her boyfriend had moved into it and would not let anyone in to see it. She just wanted to get rid of the problem.
“I send postcards to expired listings explaining that I may be able to help without you having to pay more in fees,” said Vena. “She called and said she would sell it for $85,000. I offered her $60,000 but she said no, she would relist it. I called back in 30 days, she said no, then 30 days later, still no. Another 30 days she called and asked if the $60,000 was still valid. I said yes and we bought it.”
I buy houses with code violations or vacancies. You are looking for situations. You are not looking for sellers, but there has to be a story. Are you taking advantage of a seller if you tell them what you can do for them and have them say “yes”? No, and you cannot think that way.
There are some homes with more buyers: single-family homes and small multi-family. I had a 15-family unit that took a while to sell because the market was much smaller. What do investors in my area want?
The areas to avoid are war zones and luxury areas. The best areas are move ups, rentals, and first-time buyers.
Condition? It is going to range from outdated to horrible. The question is not if you want it but would someone else want it?
I bought a really bad house for $3,500 and sold the contract for $6,500. The buyer paid $10,000, put $40,000 in it and made $50,000. So, if you see a really nasty house, get the address, find the owner, and get it under contract.
The condition has to do with the state of the property, but mostly because of the circumstances of the seller. You must come up with an after-repaired value, not the Zestimate. You then need to come up with a defensible repair cost.
I always figure the after-repaired value times .75, less repair costs and wholesale fee will be your Maximum Allowable Offer. Offer good deals because if you stand up at a meeting like this and offer bad ones, the investors will just turn you off.
You tie up a property, get a purchase agreement and, if an agent is not involved, use the smallest contract you can find. It should be one page and have buyer, seller, what you want to buy it for and list all inspections. You want the inspections so you can bring prospective buyers by to check it out.
The second piece of paperwork is a purchase agreement for assignment, two to three pages long explaining that you have inspected it and come up with your own costs.
Then, the assignment is one paragraph long and just says you are assigning the purchase. The middle agreement is the one that the title company does not need to see. I get paid up front so the title company does not need to know how much you are making. It is outside the transaction and the information is not necessary for the closing.
Our topic on Saturday morning is how to start this to develop your own business.
Vena introduced her course, the “Real Estate Goddess Course.” It gives you the training to know where to buy, and how to structure a good offer to get good deals. The second guide is how to create a business plan, how to save on taxes, and systems and strategy on how to build a big business. All contracts, inspections, and scenarios. In addition, we’ll meet online for the next six months to train you how to rehab and screen so you will know how to structure a deal.
Vena closed with: “Wholesalers make about 5% of the median house price in your area. The bigger the numbers, the more you can make.”