Flip the Script Episode 10: Real Estate Wholesaling: Insider Tips for Investors

Welcome to another episode of Flip the Script.Alongside investor and mentor extraordinaire, Deba Douglas.Jarret Sandler, happy to be with you.This is episode 10, or so they tell us.Uh, and we're gonna discuss wholesalers today, and wholesaling, and just how that, not like sailing in the water.But like, uh, I felt like I put the emphasis on sailing there a second ago.But, the role that a wholesaler plays in a real estate investor's journey, and what to know when working with a wholesaler.With the understanding that wholesalers and wholesale companies are all different.But- Yeah.uh, the reality is, at the end of the day, an investor needs to find inventory.Yeah.Uh, you can do that a number of ways, but one way is to investigate the inventory that a wholesaler might have.Yes.I will also say that I feel like wholesalers get a bad rap.They get a bad rap, because it's like they're chasing the dollar, and sometimes their ARVs is inflated and, but ultimately, when I go back and look at my years as being an investor, most of my best deals, they did come from a wholesaler.Now, you just have to partner with the right wholesaler, and you have to know what the integrity level is for that particular wholesaler, 'cause a lot of wholesalers are different, and they don't really, they're not really worried about the deal, they're just worried about closing the deal.And some of them are new, some of them are, you know, they're just jumping into the game, and they're just like, "Okay, they told me to go out and find people that want to buy these deals, and I don't even know the whole gimmick of what I'm doing."Um, so one, you have to be the person that knows what you're looking for.So, you have to figure out what your area of expert- expertise, what their comps are looking for, because the wholesaler's gonna sell you a dream.Every single time, they're gonna tell you, "It's gonna hit.It's gonna hit."But once you buy the deal and you go and do the rehab, and then when you're trying to list it on the market and it doesn't hit based on what this wholesaler told me, the wholesaler has moved on.So, it's your deal.So, at the end of the day, you have to remember that you are the boss and you have to make sure that those numbers make sense.Yeah, that's the first thing I tell people when I, wh- when- when someone tells me, "Hey, it's, you know, with a wholesaler, this company-" Mm-hmm.uh, and it's not someone I know or- or someone with whom I've worked, uh, or even if I have, if they haven't, I just, uh, my first piece of advice is, "Hey, you- you need to do your own due diligence."Mm-hmm.Right?It's great that they're telling you X, Y, and Z.Make sure that, in your research, you agree.Yes.Because a wholes- I feel like wholesalers are kind of like hard money lenders.There are a few bad ones out there.Mm-hmm.And they have an agenda, and it doesn't at all align with yours as an investor.And so, they will get you.Right.Uh, and, you know, we're- we're both fortunate, you from your perspective, me from mine, to work with some really good wholesalers.Absolutely.Uh, and, but, the- the way they can get, and- and- and the bad ones, the way they prey on you is they get you to sign a deal because they sell you a bag of goods and then- Yeah.you know, it doesn't, the numbers don't work out, it doesn't appraise, whatever it might be, and well, you have to back out and they get your earnest money, so they- Mm-hmm.make some money and then they go and sell it to the next person in line.Right?So, you just need to make sure the numbers make sense.The other thing I would say is, and- and- and you tell me, because you're great about this sort of thing, I feel like, as an investor, you need to establish a line of communication right away, and- and also establish boundaries- Yes.with the wholesaler when it comes to communication.Absolutely.So, I think a lot of people run into this situation where they let the wholesaler lead the deal.Yes, it's great that the wholesaler brought you the deal, but at the end of the day, it's not a real deal unless someone buys it.So, you have to remember that you have the autonomy to say, "Okay, I want to watch this, look at the property," and set your norms, especially if you're working with Longhorn, some of the norms that the wholesaler needs to be okay with is that, "I'm gonna send an appraiser out, so I need to make sure I have access to the property.I also need to have access to the property so that I have my general contractors to come out, just in case I'm not able to bring 'em the first time that I walk the property."You want to make sure you share that and you set those expectations with them very clearly.You also want to let the wholesaler know, "Hey, I'm using this particular hard money lender."Want to make sure they're a- agreeance with it and they understand who you're working with.A lot of wholesalers, they'll just kind of go through the flow and tell you what's going on, and then the biggest thing that I have seen lately, more than ever, more than ever, is look at the paperwork.Because the wholesaler can tell you a dream, and then when you sign the paperwork, it could be a totally different price.It could be a double close.It could be additional fees that you were not anticipating, and because you signed it, it's a legal document at that point.'Cause most times, you won't see it until you're at the closing table looking at your HUD statement.What's the- the most important question that someone needs to ask when they're working with a wholesaler?If it's a double close, is there a lease back?Um, what's, you could ask, "What's the assignment?"Because you can ask them how much money they're gonna make.Um, sometimes it doesn't matter, but you can ask them- Is that negotiable in your experience?It is very negotiable.And I would even say, let's- let's say you get an email from a wholesaler and the price is 220 for a house.That's not the price that it has to be.Everything is up for negotiation.So, even though they say it's 220, if you go walk it and you realize like, "Hey, I probably need this at 205," go ahead and throw 205, because then they'll negotiate back with you and you may get the same deal for 210, instead of the 220 that they originally had it listed for.Yeah.Because, just for people who aren't sure why we're saying this, well, first of all, anything has a- a, you know, a price that can be adjusted, right?I mean, you go and sell, I, you sell your own house, you know- Right.you might want X for it and someone, you know, the- the market's gonna dictate, but they-They essentially purchase the property at a number- Right.and then they want to sell it at a greater number, and that's- Yes.how they make their money, right?Absolutely.That's, that is the act of wholesaling.And so, um, now, they can say no because they might have 17 other borrowers or investors who are lined up to- Mm-hmm.you know, get it at that listed- Right.number.But that's where- Yeah.you know, you, you kinda have to see what's out there and, uh, you know, what number makes sense.The one thing I would say from our perspective, wholesalers, uh, th- they, they all have different, uh, goals or, uh, incentives internally if, if they work for a company and maybe it's closing X amount of deals in a month or within the end of this week or whatever.Mm-hmm.And they're constantly pushing and pushing and pushing, and sometimes there's some threats, right?Not like illegal threats, but like, "Oh, we're gonna pull the deal if it's not done today"- Right."or whatever."Uh, I think what, what I have found, and this is a, a Debra trick, uh, I think we, we started doing this, but like, when I work on a, a deal with you or one of your mentees and a wholesaler, we all get on a text thread.Mm-hmm.So and, and that eliminates any finger pointing.Absolutely.That eliminates any, well, he said, she said.We're all there together.And I've noticed that since doing that, I'm not getting a lot of, "Oh, yeah, if you guys don't do this by yesterday," it's- Right.you know?And that's the one thing I think with a new investor, a wholesaler can sometimes strike some fear.Mm-hmm.Uh, and I'll be honest and, and maybe Joe Wholesaler doesn't love me saying this, a lot of times it's just a threat to light a fire.Yeah.But I have found that wholesalers, the good ones, as long as they know that you're moving the ball forward- Yeah.uh, and you communicate with them, it's a, it's a way, way easier process.Absolutely, 'cause at the end of the day, everyone just wants the deal to be closed.The wholesaler wants to close the deal, the end sale, them owner, the owner of the home, they just want to move on with their property.And you as the investor, you want the deal because you see the, you know, you see the opportunity of making money.And I think sometimes it's a ego, it's a power trip that goes into play with some of these wholesalers that we're like, "Hey, we all want the same thing.So you give a little bit, we'll give a little bit, and at the end of the day, we can both walk away and be happy."Yeah.Uh, anything else you've learned over the years in, in dealing with wholesalers?T- and tell me if I'm wrong.When we first started working together, you weren't sending me a lot of deals from wholesalers, but- Right.the landscape's kinda changed- Mm-hmm.and wholesalers are, I don't know that they have more of a market share, if that's- Yeah.even the right phrase, but, uh, as, as inventory availability ebbs and flows, wholesalers are a reliable source of inventory.Yes.They're a great reliability of just keeping the, the, the properties going.I mean, we buy properties from all over.We'll get them direct from the seller, um, we will get it on the MLS, we will get them from other referral partners, but I will say tried and true, whenever we're coming through a slump or we can't find anything personally, we always result back in going to wholesalers.And a lot of wholesalers we've worked with for such a long time that they will send us a deal before they send it out to the masses.And building your credibility.If you're a brand new investor, if you know you're gonna buy this property, stick to it and buy that property, because the world of this real estate community is very, very small.So, as soon as you back out of a deal, the next wholesaler, they're probably gonna find out about it and they're probably not gonna wanna work with you, especially if they have multiple people that are interested in that same property.Well, then let me ask you this.So, just to play the other side of that, what happens if you get into the deal and it's not th- it ends up not being the right deal?The appraisal comes back and it tells you a different story.Yeah.Maybe you did kinda take a, a little bit of bait, whatever it might be.Uh, what, uh, like, uh, how do you balance the, "Well, I don't wanna, I don't want my reputation to be smeared"?Yeah."I, I wanna present a strong, reliable front, but I also can't just dive into this deal and lose X dollars on it."Yes, that is true, and we've had that happen.I would say we had this happen this year where the appraiser came back a little bit lower than we anticipated, and so I sat with my mentee and I said, "Hey, these are our situation.We could either move forward, but just know if we move forward, there's a high possibility that you could lose money.Or we go ahead and lose our $5,000 and I'd rather you lose $5,000 today than lose even more on the back end."And there's ways that I could go and present this to the wholesaler and say, "Hey, you expected it to appraise at this price.We expect it to appraise at this price, but unfortunately this is where we are.Can you guys negotiate the price with us?"Is, if they say no, "Is there a way that we can have that $5,000 just in y'all's account and we will look for another property that you guys are wholesaling?"I've had that- And are they receptive to that?and they're very receptive to that.Because I think the biggest thing, like you mentioned, it's just communicating.Yeah.Just letting them know, "Hey, our intention was not to back out, but unfortunately we are here, but we're trying to come up with a plan to resolve it."And that's, I think that intention's a really important word here.I think where I get frustrated in dealing with anyone a part of the process is when they don't take time to think about what our intention is.Yeah.Our intention as a lender is to get deals from start to finish.Always.Right.Now, it's not at the expense of our borrower.Yeah.Right?That's a part of, you know, I, I, I, I wish I could say all other lenders did this.They don't, but that is a big part of what we do, is we want to make sure our borrowers in positions to succeed.But the, the thing that always bugs me is when emotions get in the way and people- Yes.lose sight of intentions.You as a borrower, your intention is to just, you want a good deal.Mm-hmm.I shouldn't, I shouldn't, like, lose sight of the fact that if you're worried that this is gonna be a deal that loses money, then you're gonna be unsure, right?Right.Right.A wholesaler, they want, they want to move inventory.Right?I know what their goals are.Sometimes maybe a wholesaler forgets that a lender's also kind of wanting to close the deal too.Yes.Right?And, and there are other circumstances, factors that come into play that, uh, maybe slow it down by half a day, a day, whatever.Stuff that's out of both of our- Right.Reach.you know, areas of control, reach.But I think intention is huge, and when you combine the intention with the communication, if that is not enough to have an honest, fair conversation with someone- Mm-hmm.then maybe that's not the right person.Absolutely.And it's okay to walk away from a deal.And there are wholesalers that, they don't know that I don't like them.They'll never know.Yeah.But if they do send me a deal, I may not really look at the deal because I really just don't want to go down that road with you, because every time I work with you, it's a headache.Yeah.But again, no one would know that, but it's just depending on the relationship.And just build positive relationships with people.Be nice to people.You never know what people are going through.The wholesaler may be having a rough day, just argued with his wife or something else going on.Just give people a little bit of grace, 'cause we all want the same thing.We're gonna have a wholesaler on, I think, in a future episode.Yes.Just to, to hear it from their perspective.But if a wholesaler's listening right now, from your lens as a buyer, but also as a, a mentor to buyers, whatAnd, and I, I, I feel like there are always new wholesalers that, you know, it's aWhat would you say, like, "Hey, work in with us.Here's a piece of advice."Or, "Here's something that you should consider that might help you as a wholesaler."Yeah.I usually tell every wholesaler that is kind of like, "Uh, I've heard about you, but I don't know how, you know, serious you guys are as buyers."I always tell the wholesaler that my mentee's gonna buy this property.If something falls by the loop side or by the wayside and we're not able to, they're not able to perform, I will step in personally and buy this property.And that relieves a lot of their stress, because they know I'm a- Hmm.avid investor.They know, hey, I'm looking at the numbers too, and I think that gives them a little bit of peace.Like, "Okay, we're gonna do this."All right, I like that.Anything else?Any final thoughts on this?Um, I just need better deals.Get me a deal 75% of the ARV minus repairs and I will buy it today.All right.Wholesalers, if you're listening or watching, send Debba your deals and we'll get it funded on our end here at Longhorn Investments.All right, there you go.Episode 10, right?Episode 10?Episode 10.We've reached double digits.We did it.Woo!Flip the script, Debba Douglas, Jared Sandler.You can reach out to Deb on Instagram.She's tagged Debba Flips Texas.You can email me, jsandler@longhorninvestments.com or send me, uh, an Instagram message as well.Thanks so much for being with us.Uh, we'll talk to you next time.