Episode #7: Part 1, Relationship Wholesaling
Episode Summary
Listen to the episode on iTunes
In this episode, host Jeff opens up a two-part discussion about Relationship Wholesaling–the Thoughtful Real Estate Entrepreneur’s approach to wholesaling real estate. Jeff discusses what Relationship Wholesaling is, how it fits into the Triple-Threat Acquisition Strategy, how it differs from the common Lowbrow approach to wholesaling, how Relationship Wholesalers work with Sellers and other key ingredients to being successful in Relationship Wholesaling.
Links and References in the Episode
Getting Things Done: The Art of Stress-Free Productivity
Free PDF Guide: 5 Critical Mistakes That Make Most Real Estate Investors Accidentally Lowbrow
We’ve created a free PDF guide just for listeners of the Sleaze-Free Real Estate Investing Podcast, called “5 Critical Mistakes That Make Most Real Estate Investors Accidentally Lowbrow.”
For instant access to the PDF, just go to http://Pod.thoughtfulRE.com
Music Credits
The theme song is an excerpt of “No More” off the album “Golden Era” by Forest For The Trees. You can check them out on Amazon, iTunes, and Spotify.
Full Episode Transcript
This is Jeff from the Thoughtful Real Estate Entrepreneur. Welcome to episode number seven of Sleaze-Free Real Estate Investing. A show for those of us who never felt at home in the We Buy Houses crowd. In this show, we take a stand against what we call the lowbrow approach the mainstream guru seminar, distressed seller approach that ends up giving real estate investors a slimy reputation. Instead, we discussed the strategies, tactics and philosophies that we call the thoughtful way. And enlightened approach to real estate entrepreneurship that focuses on constantly sharpening the sophisticated real estate entrepreneurs, three most critical capabilities, seller relations, skills, deal architecture, skills, and the opportunity vision. When all three of these capabilities are successfully in motion, then you can make an excellent living today and build long term wealth, while creating value for everybody that you touch along the way. And it doesn’t get much better than then there are show notes for today’s episode at thoughtfulre.com/E7. Please do yourself a favor and do us a favor as well by hitting the subscribe button in your podcast app. And then that way, of course, you’ll know every time we release a new episode, and you’ll get it right away. In the last episode, we discuss something that we call the Triple Threat acquisition strategy. And that is our way of assessing three different options with every deal the option to buy a property and hold on to it for the long term to buy it and resell it, or to refer it or assign it otherwise known as wholesaling it to somebody else. So we’ve been presenting these episodes in a certain order for a reason. And they’re kind of cumulative in nature. So go back and take a listen to that one, if you haven’t already, because today, in our main course, we’re going to be discussing Relationship Wholesaling, which is going to build off the Triple Threat acquisition strategy quite a bit. But first, before we get started with that, as always a little bit of food for thought. Because after all, as thoughtful real estate entrepreneurs, we like to feed our minds with things to think about. Thinking is our strength thinking can be our kryptonite, as well. And here’s what we’re thinking on today. This is what I call the concept of staying level. So you’re going to get some good vulnerability from me here. This is something I think about a lot. It’s something I struggle with. And at the moment, it’s also very much on my mind as well. You know, in entrepreneurship, there are always ups and downs. And that’s probably really obvious. I’ve been a full time entrepreneur since 2003. So that’s 16 years, as of the time I’m recording this. And I certainly found in my own experience, and witnessed with all my my peers, and colleagues over the years that it’s really easy to have your sense of self identity become really tied to your business. And even if it’s not your whole sense of self identity, it can easily at least be your kind of emotional state and your sense of self worth. You know, when businesses up. When cashes in the bank, when you’ve gotten a couple of great wins, you just did a great deal, you feel really good about yourself, you feel really good for understandable reasons. And you absolutely should, you should be celebrating your wins. But you feel maybe like a better person, when those things are going well. On the other hand, when it’s down businesses and going as well, maybe you’re low on cash, maybe it’s been a while since you had a win. And you start to feel down about yourself. So you feel like you’re actually less of a person in those cases. And this is a really dangerous cycle. That’s what I’m always kind of working to make sure that I am breaking. And this is what I call staying level. So instead of all the ups and the downs, and the highs and the lows, I would like to sort of stay more level all the time. I can tell you with certainty after after doing this entrepreneurship thing for so long, that step one is just simply having the self awareness to even identify that this is going on. So if you can step outside yourself and realize that you are allowing yourself to be subjected to these highs and lows, that certainly the first most important step, step two courses, figuring out how to resolve that issue after you’ve identified it. And that’s that’s a different topic. And it’s it’s not easy. But here’s some things that I am thinking about a lot as I work on that exact thing myself. There’s a great book by David Allen called Getting Things Done. It’s a book on productivity. Some people might say time management. But one of the things he mentions in the book is this visual. And he says, you know, if you throw a rock into a pond, you get a ripple where the rock lands in the water. And he said, what’s interesting is if you notice water always reacts the same way, when the rock is thrown into it, water doesn’t sometimes overreact. It doesn’t sometimes under react, it just reacts. And I think that is important metaphor for how we should have our mind speed. You know, when, when a challenge or an opportunity or anything gets logged into our pond, that is our mind that we just react. We don’t overreact. We don’t under react, we just simply react or you know, you might say you actually you respond more than react. But the point is that you don’t let it control you more than you want it to control you. You just handle things as they come up. Another thought a few years ago, a couple years ago, we were at a an awesome, basically reunion for people that have gone through an amazing program that my coach Greg puts on called power players. And power players is a very intense real estate and human relations negotiation seminar. And so we were in, in Cabo in Mexico. And we’re having this reunion, it was late in the evening, one night, and we’re having a deep discussion about a poem, a poem by Kipling, and the poem is called if, and I will put links to this stuff in the show notes so you can find it as well. And the poem, if is where Kipling is writing to his son, and he’s, he’s basically saying, son, if you can manage to do all of these things in your life, if you can manage to balance these different dynamics of these different tensions in your life, that you will have a great and successful life and one of the stanzas it says this is four lines, it says, If you can dream, and not make dreams, your master, if you can think not make thoughts your name, if you can meet with triumph, and disaster, and treat those two impostors just the same. It’s these last two lines, especially that I really think about a lot. If you can meet with triumph and disaster and treat those two impostors just the same. It’s really powerful when you when you think about it, because it’s like saying that, when things are going great. That is just as much of an illusion as when things are going badly. And if you can treat both of them the same way, and let either of them rile you up or pump you up or bring you down, but not let your water overreact, so to speak, then that’s really important. And, you know, we think a lot about like, not letting the lows get us down. But it’s also important to think about not letting the highs let us get over hyped about ourselves. And if we can stay more level if we can treat triumph and disaster as the two imposters that they both are, that is really, really important. And another one I’m thinking about now, I just came across this, you know, me, my guests on Facebook or Instagram, it was a quote by Mr. Ali. And it says two things define you, your patients when you have nothing, and your attitude when you have everything. And I feel like that concept the message is conveyed in that is very much the same as what I’m trying to do. So I don’t have all the answers to share with you. But let me tell you what I am doing to try to work on this. Because if you’re not facing this right now, you certainly will, as you kind of continue to engage in entrepreneurship of any type, whether it’s real estate or not. Number one, I’m just trying to really focus on what it is that I want, where I’m headed, and visualizing that. And the way I’m thinking about it is that I’m trying to let my excitement for where I’m going pull me into the future, rather than trying to push myself out of my present state. So instead of trying to get away from where I’m at right now, I’m trying to get to where I’m going and let that excitement, that vision pull me forward. Another thing is practicing gratitude. I was at a an EEO entrepreneurs organization meeting yesterday, there was a learning event and the speaker was talking about how, you know, we tend to focus on all the things that aren’t going well, all the systems in our life that aren’t working. But there if you really looked at all the systems around you that are working, it’s like 99 point 99% of things that are working, you know, in order to be in that room yesterday, for that event, my car had to start, you know, the ignition system had to work, the engine system had to work, the traffic system that led me safely to the building had to work the elevator had to work by heart had to work so that I could still you know, it was still beating my lungs were still working. And when you start making this list of all the stuff that is actually working, it’s a long list and being grateful for all of those things is is an important way to maintain that perspective. The next thing I’m doing is I’m remembering all the things that have no correlation with my quote, success. A great example of this is my dog, I come home and my dog Fonzie is as happy to see me every day whether, you know whether I just had a huge score great when successful day very productive. Or if I had a terrible day, he still wants to be with me, he still wants to lick my face, he wants
to take a walk, he wants to play with the ball. And those things are amazing. And I realize also my friends and my family and nobody likes me less or more, if things are up or down. All this stuff is the same. There’s no correlation with my success. And that’s actually really comforting. And the last thing I’ll say is, I’m really focused on just getting back to doing the work itself. You know, you do the input activities, you make the calls you you write the seller letters, you call the buyers, you you get out, you walk around the neighborhoods, you want to do business. And if you do the input activities, just diligently and trust in them that they will produce the right output results, then that’s really all you can do. You know, you can’t control outputs, you can just do the inputs that you think are going to lead you to those outputs. And so every you know, the businesses like a dojo you gotta go in, and you gotta practice your moves and your positions and, and all that kind of stuff. And you do it day in and day out. And the right things happen as a result. So staying level, refusing to let the inevitable roller coaster of entrepreneurship take you for an emotional and a self worth ride. That is today’s food for thought, Hey, everybody, just a quick interruption to tell you about something we’ve put together for you. I don’t know if you’ve ever heard this funny expression, but a powerful one that says you can’t read the label when you’re inside the bottle. Well, real estate investing is kind of like that, when I got started, I was just reading and listening and studying everything I possibly could and taking massive action based on that, which was fantastic. But it took a long time, like a long time for me to realize that so much of what I was learning was actually pretty low brow I just didn’t have that perspective. And you know, you might be in the same kind of position right now. It’s very difficult to know and to see your own situation clearly when you right in the middle of it. So we’ve created a free PDF guide available for download. It’s just for you guys as listeners to sleep free real estate investing, not available to anybody else. And it’s called Five critical mistakes that make most real estate investors accidentally lowbrow. So you can go get this right now if you’d like it is free PDF guide at pod pod pod dot thoughtful rd calm pod dot thoughtful Rei com Go grab it and see if you are making any of these five critical mistakes.
Alright, we are moving on to today’s main course and today’s topic on Thoughtful Real Estate Entrepreneurship is what we call Relationship Wholesaling. So last week, we talked about the Triple Threat acquisition strategy. And now we’re going to dive deeper into one of those three strategies. And that strategy is is wholesaling. So this is really top of mind. For me, I just got done writing an E book called Relationship Wholesaling the advanced playbook for sophisticated entrepreneurs to five x their results without working harder. You actually if you want to see that you can go to Relationship Wholesaling calm, and it will start you out with a free download on why building a big buyers list, which is one of the common pieces of advice. And in wholesaling education is actually very counterproductive. And so we’re going to just like we do with our marketing conversation recently, there’s a lot to talk about here. So we’re going to make today part one of this discussion, and then we’re going to do part two of two on the next episode. So let’s just talk about this at a high level first, what is Relationship Wholesaling? And why would we, you know, write an E book about it. So relationship, wholesaling is basically when you take the the thoughtful real estate entrepreneur approach, and you apply it to the business of wholesaling. And we call it Relationship Wholesaling. It’s about people, it’s about people skills. It is about being thoughtful and intentional about what it is you’re trying to accomplish in your own business. And why there’s there’s a lot of education on the nuts and bolts of real estate investing in general and wholesaling specifically, and there’s lots and lots of focus on things like tips and shortcuts and, and all that kind of stuff. And I think maybe even especially more so in wholesaling. Because wholesaling tends to be I think one of these things that people like the idea of starting with, because it’s not a capital intensive category of the business. But in other words, there’s a lot of information out there about what to do. And so that’s just never been where my heart is really, I’m not excited about teaching people every tactical little nut and bolt. And that’s this ebook. And these episodes are not meant to do that. Instead, where my heart is, is getting your wheels turning, right, and this is the thoughtful real estate entrepreneur, after all. So my heart’s in getting your wheels turning, and being thoughtful and thinking about not just the what, but the principles behind those tactical things. I feel like my greatest contribution to you is to offer you something more strategic, and to talk about the importance, not just what to do, but how you do those things, right, because you might know what to do, but the style with which you do them, a spirit, the tone all of that. That’s to me what really, really matters. And we’re going to find here in the course of these couple episodes that they’re very practical benefits that come from doing this stuff is a thoughtful way and not just doing the the what but focusing on how you do that what in a way that is thoughtful. It results in better, bigger assignment fees. It’s a more enjoyable process, the whole thing, it gives everybody who’s involved a better experience. So let’s just step back. And let’s look at context. Because I want to remind you that when you’re following the Triple Threat acquisition strategy, what you’re, what you’re doing is you’re talking to a seller, and simultaneously looking at and evaluating three different paths. One of those paths is wholesaling a property, you know, referring it to somebody else, but another path is buying it and reselling it yourself. And the third path is buying it and holding on to it yourself. The context of most wholesaling education is that they’re teaching you to know that you want to do a wholesale deal before the phone even rings. So in that case, you are you’re looking at every deal already through a pre determined lens of wholesaling. But what we’re going to talk about is different because especially as you’re working with sellers on the front end of this process, you don’t know at this point if you want to wholesale the property. And so the conversation that the way you approach, it is a little bit different. And it requires focusing even more on relationship. So as you may recall, back in episode number one very first episode of this podcast, I told you the story of a traumatic incident that happened, and on my doorstep and scarred me, and caused me to stop doing really any type of real estate investing for seven years. So I had gone to a seminar. And I didn’t go to a seminar specifically to learn about wholesaling. But that’s a lot of what I learned at the seminar. And I got fired up. And it’s easy to see how that happens. And I understand how that happens for other people too. And so we bought a program, my wife and I, and we came home. And we started studying the program and just doing what you know, the program said to do, right, that’s, we know that the important thing here is to take action. So we’re taking action, and that’s fantastic. And, you know, we didn’t get a lot of results. But the results we did get word nuts just feeling really like they were right for us. It didn’t feel like a fit, it did not feel authentic to us. And then this one day, I had this terrible experience where somebody showed up on my doorstep at my house where I lived, knocked on the door unannounced and just totally chewed me out and call me a slimeball and said that, you know, I know what you’re trying to do here. And we don’t do that sleazy kind of stuff around here. If you’re not going to buy this property yourself, then you need to terminate you better get back to me tomorrow, and just really made me feel terrible and gross. And it it was such a traumatic experience. I just literally stopped doing anything related to real estate for a long time. Well, all of this now that I look back on it is is because it makes perfect sense. It’s because I was doing low brow wholesaling, right obviously, that wasn’t the name on the on the cover of the binder of the program that I bought. But that’s in hindsight, I can see that now that that’s what I was doing. So we’re not going to spend a lot of time focusing on the the low light, so to speak of the lowbrow approach. But I want to just give you a quick summary because it’s important to have like a reference point that we can relate to. lowbrow wholesaling involves not surprisingly low brow marketing, right? So that would be things like bandit signs, we buy houses, messaging, break postcards, I’ll buy your property for all cash, fast clothes, all that kind of stuff. Go back and take a listen to episode four and five because we did a deep dive on marketing and all the different forms and types of marketing in that episode. lowbrow wholesaling involves a lowbrow seller relations approach. It’s a very much like a cut to the chase, no relationship kind of thing. Let’s just talk about the property. I want to learn everything I can about the property quickly so I can get to an offer quickly. And so we also talked a lot about why thoughtful real estate entrepreneurs work directly with sellers and how they do that in Episode Number three, so I would definitely recommend you check that one out as well. In order to have this all this make
as much sense as possible for you. And then buyer. So the whole concept of wholesaling has one unique element that’s different from other plays, and programs within real estate, which is the need to have buyers to whom you can assign a referral deal. And so low bro, wholesalers build a big quote, buyers list and they blast out emails to that big quote buyers list about their deals. And it’s really just an email database. And I don’t even know these people for the most part. And I know that because I’m on lots of other lowbrow wholesalers email list, and I just get these random emails from people who wouldn’t know me if they ran into me on the street at all. So a logo wholesalers really thinking one thing, they’re thinking wholesale, you know, they’re not thinking Triple Threat acquisition strategy there. The phone rings, they’re thinking wholesale before they even say hello. And that means if they’re thinking wholesale, immediately they’re thinking one thing, low price, I got to get the lowest price possible. And if they’re thinking lowest price possible, that means they’re thinking one thing, find out as fast as possible with the lowest prices that I can get. So what is Relationship Wholesaling? Exactly. Let me give you our definition of relationship. wholesaling. relationship, wholesaling is developing a seller relationship that secures a worthwhile investment opportunity, and thoughtfully placing it with a buyer in a way that adds value to both the buyer and the seller. So it’s about relationships with two different parties. It’s about relationships with sellers, and it’s about relationships with buyers. And most lowbrow. wholesaling isn’t really about like relationships at all with either of them. But it’s more about contact, right, you get contact with the seller contact with a buyer. And the premise though of Relationship Wholesaling is that if you develop a strong relationship with both seller and buyer, and you have insight into them, and what they want to accomplish, what their goals are, then you’ll have the raw materials of information and insight that you need to very thoughtfully put those parties together in a way that is going to maximize value for everybody involved. There’s so much of traditional kind of lowbrow wholesaling education that is under under the banner of like, it’s a numbers game, you know, it’s about volume, get out there and make a ton of offers as fast as possible, have a lot of distressed sellers calling you and a lot of quote cash buyers. And if you have a lot of both, then you’re bound to have a few that hit and you can make some money relationship. wholesaling is about quality, over quantity. It’s not about a volume business. It is about doing fewer deals that are better and add more value for everybody. So a relationship wholesaler would rather do one deal that makes $40,000 then do eight deals that make $5,000. Today, in part one, what we’re going to really focus on the most here is the seller and the property side of things. And then in the next episode, we’re going to talk more about the buyers side of things. So let’s just talk about the properties for a moment. which types of properties are good for wholesaling? Well, I think there’s a couple different oversimplifications that come up in most wholesaling education. oversimplification number one is that it’s about single family homes. And I would say, I’m sure that if you do the survey, single family homes would be the most common properties that are wholesale. But while they may be the most common, it’s more important to just remember the principle behind this idea of wholesaling, you’re basically a connector and you’re a matchmaker, and you’re trying to thoughtfully connect buyers with the properties that they want to buy. And you’re trying to thoughtfully Connect sellers with the somebody to buy their properties, which is you, and then your network of other people that you might invite into the party. But the principle is that, your matchmaking, and there were all sorts of buyers who want all sorts of properties. It doesn’t have to be single family homes at all, it just gets more specialized. As you move out of single family homes, it becomes more of a niche market or a niche business for you, if you are connecting the say buyers of commercial properties, or the buyers of multifamily properties with those opportunities. So the most common situation, the most common example might be single family homes, but there’s absolutely a market of people who wants to sell different types of properties that are not single family homes, and a market of people who really want to buy those, but aren’t really good at finding them. And so you absolutely could serve that market as well. The second oversimplification, I find is that it’s really about rundown properties, let’s just say houses here, so rundown houses, and motivated sellers. So it’s really, it’s certainly possible. And it’s maybe even probable that a lot of wholesale deals are done with properties that are not in perfect condition. But it’s really a generalization. And I would say a big overgeneralization a dangerous one that goes right along with the idea of motivated sellers, right? lowbrow wholesalers tend to think that the only the only people who will be worth dealing with or who will be able to, you’ll be able to negotiate a deal that’s worth doing are distressed and motivated. sellers. And that just doesn’t have to be the case at all. If you meet somebody who is let’s say, you know, facing foreclosure or their property is in such bad shape that they couldn’t sell it retail very easily, because it might not be financed by a bank. You know, the those situations are a little bit more clear to understand somebody motivation. But there are lots of people who are motivated sellers whose motivation isn’t just spray painted on their forehead, it just takes a little more work and energy and a thoughtful relationship approach to understand exactly what those motivations might be, so that you can create a proposal that is going to address those motivations. I want to give you an example of something that is not at all about a distressed seller. And it’s not all about necessarily a rundown house. This is what we call in my office, apples to oranges deals. Sometimes there’s a difference between what is a property currently is and what a property could be, or what’s currently there, and what could be there. And entrepreneurs are always focused on what could be there and not necessarily what is there. And sometimes the seller, those just really focused on what is there. And so if the seller is looking at their property, and they’re thinking this is an apple, this is a great apple and I want to sell this property to somebody who is willing to pay me fairly for this apple. Now, you might look at the property though, and you might not see an apple. I mean, you see that the apples there but you actually might be seeing an orange because in your perspective, you’re seeing not what’s there right now but what could be there. So a real good simple of this would be what if you had a single family home, it was located in a high density zone or was on a really large lot that maybe could be divided or something like that. The seller comes along and they say they’re thinking, I really want someone to pay me fairly for this home. And you’re looking at and you’re saying it’s not a home, though it’s a it’s a site for 12 units. So you actually very well might be able to pay them very fairly, what they feel like it their properties worth and give them exactly what they want, it could be absolutely a market price. Because you’re seeing an orange, you’re seeing what could be there, which is 12 units, not an apple, and you’re going to be marketing it to your buyers, as the orange that that it is. So in this case, your buyers would be developers, people who are going to, you know, fully maximize and utilize what that zoning will allow. And so you’re able to buy this apple in a way that is completely fair and makes the seller absolutely happy. They don’t feel like they’re taking a discount really at all, but you are seeing an orange and you’re actually able to create value as if it is an orange. So that’s a perfect example of a situation where the seller doesn’t have to be like particularly quote motivated, or the property doesn’t have to be distressed or anything along those lines. So let’s talk about sellers again, for a little bit here. Again, the for context, if you are a thoughtful real estate entrepreneur, and you’re following the Triple Threat acquisition strategy, then you’re engaging the seller without even yet having decided for sure if this will be a wholesale deal for you. You’re keeping your options open, you’re looking at all three, all three basic plans all the time, and you’re keeping those options open. And ultimately you will make that decision about which of those paths to take based on several things, not the least of which though is what you’re able to negotiate with the seller and that fits with that seller is trying to accomplish and what you need and want in your business at the moment. So all that is to say that for the most part, how you as a thoughtful real estate entrepreneur, approach sellers in a wholesale scenario is no different than how you approach them in any other scenario. Because the truth is you don’t even know if it’s a wholesale scenario, yet you’re exploring that possibility. But you’re not certain if that is possibility. And you’re not certain if that is the best possibility for you. So the way that you approach all sellers is that you’re sitting there listening hard, trying to understand exactly what it is that they want, and they need, what is the most important to them? What are the things that would have to be true? What is their single one thing is the one thing that above all else has to be true for them to say yes and move forward with you. In wholesaling, if you’re if you’re thinking that maybe this opportunity has possibility to be a wholesale path for you, then you’ve got your ears tuned for clues around price. Price is one of the things really that does unlock wholesaling as a potential option for a path. I gotta say, overall, the idea, just a mass market approach to real estate investing is all about buy low, sell high, and that really kind of drives me nuts. I think it’s way too simplistic for Thoughtful Real Estate Entrepreneurship. But in the case of wholesaling price does actually matter a lot. So as you’re having these conversations with sellers, you are tuning your ears to hear clues, that give you some insight about whether you would be able to perhaps negotiate to buy this property at a price that would make sense from a wholesaling perspective. As a thoughtful real estate entrepreneur, you’re actively avoiding the lowbrow assumption that this seller needs to be desperate, in order to sell you their property, you’re actively avoiding the assumption that they’re already desperate just because they called you from your marketing. So you are not assuming any of those things. You were just open minded and you’re having this conversation asking good questions, and seeking hard to understand the other person and what it is they are trying to accomplish. You know, in little in lowbrow wholesaling your power comes from the other person’s moment of weakness, your power comes from their distress, because you have the upper hand, so to speak. But in relationship, wholesaling, it’s very different your power comes from your ability to connect with them, to understand them, and to develop a relationship and to understand what it is they want to accomplish. Because ultimately, your real power comes from you having a better ability than anybody else to deliver the outcome that they’re really trying to get. And that’s ultimately your leverage is if you can provide the best solution, it’s getting them where they’re trying to go more than anybody else, then you’re not meeting them to have a weakness that you can exploit, you were simply delivering the best possible solution. So at that point, once you understand your seller, you understand what they’re trying to accomplish. You of course, as you would in any situation wholesale or not, you present a proposal, not an offer represents your best effort to deliver on their needs. Of course, you’re going to be doing that in a way that will work for you too. But that’s not part of your pitch, you are presenting your proposal and saying, here’s what I understood you’re trying to accomplish, here’s my best shot at at a plan that I think will get you where you’re trying to go. And now a proposal has a lot of elements, you know, any real estate transaction has a lot of elements, we tend to boil it all down to just one thing, which is price. But a real estate transaction has a lot of elements and bustle proposal has a lot of elements, everything from you know the closing date to the amount of earnest money to the contingencies to possession to the timing of down payments and all sorts of things. But price is one of those. And price is an important one when it comes to wholesale and transactions. And while I don’t like to over simplify real estate and make it all about price, it is important in the context of wholesaling property. So when you’re, you know, pursuing a buy and resell plan, or a long term old, there are other elements of a proposal that can kind of offset price, you might get a price, you might be able to negotiate a price you feel okay about but not amazing. But if there are other offsetting benefits that kind of grease the wheels for you in other ways, then you can you can deal with kind of a mediocre price in a buy and resell or a long term old scenario. But if you’re talking about a wholesale deal, though, the really the price does have to be simply has to be a pretty decent price that you can work with, to create value for everybody involved. So let’s just talk about price specifically for a moment. In relationship, wholesaling, you’re focused on creating a win win win. So that’s a three way with the price. And that’s going to have to be high enough to meet your sellers needs, there’s no doubt about that, it’s also going to have to be low enough to create a win for your buyer, because your job is to set your buyer up with a profitable deal. And we’ll talk more about that in the next episode. But it has to be low enough to create a win for your buyer. And it also has to be low enough to create a spread between the two things. So what’s high enough for your seller and will flow enough for your buyer, because that is what creates your win. That’s what creates your assignment fee or wholesale income that comes from putting this deal together. And so we need a three way with. And this is not just about doing the right thing, it’s also very, very practical that the deal simply will not work, unless everybody involved is getting a win out of it because everybody is participating in this voluntarily. And if it’s not a win for everybody, it’s not going to going to work. So that’s where the real art of putting a wholesale deal together in a relationship manner comes into play. So if you start thinking about, you know, you need to negotiate a price that’s low enough for the buyer and high enough for the seller and whatnot. What that suggests that there are some prerequisites, that are really critical to being successful with Relationship Wholesaling, you need to know the values in your market, inside and out, you need to know the after repaired values, right. So what’s this property going to be worth after it’s fixed up, you know, expanded upon or otherwise improved? What are the dirt values? If this property was just a lot? Or if the property was going to get scraped? What would it be worth to a developer? Which means also, what is possible in that particular zone? And then that particular property? What are typical prices in these different neighborhoods? You know, what’s the average price in this particular neighborhood? It’s a very different proposition, if you’re going to be selling the most expensive house that this neighborhood has ever seen, rather than something that’s just sort of right in the middle of the road in terms of the average prices in this neighborhood. Another important thing to know is what would it be able to retail for today? I mean, if you if you own this property and just stuck a sign out front, and retail the property, what would it be worth today, so you have to invest some time studying your market to really understand these things. Because you’re going to want to be able to quickly size up an opportunity, even at a high level to be able to understand generally does this look like a deal that might work from a wholesale perspective or not. And if you have no idea whether the after repaired value of this home is 600,000 or 450,000. That’s a big a big, big difference. as I alluded to, you also really
need to know as a prerequisite to being successful in Relationship Wholesaling, you need to know the basics of what’s possible in different zones. You know, can you put multiple units in the zone and this property? Can? Is it a if it’s a corner lot? Are there different or more things you can do a corner lot in this zone and in your city? Could you add like a mother in law sweetly what we call him my work and accessory dwelling unit, because you add that is this zone for a high rise where there’s a house now, right, we’ve got a few minutes ago, we talked about the apples to oranges deals. And so you have to understand what what the orange is. And understanding what the orange is, is a lot about what’s possible on a particular piece of dirt in this particular zone of this property. And then the third thing is you have to be able to at least roughly assess the costs to make certain repairs, improvements or alterations to the property right. So if you are thinking that you’re going to do a cosmetic renovation on this thousand square foot house, you need to be able to look at that and have a just a basic idea of whether that’s a $5,000 renovation a $25,000 renovation, or or whatever it might be, if you’re going to take a house and expand it, for instance and add square footage, that’s going to be a totally different idea. So you need to be able to look at the big variables in the equation and understand what is this something worth now, what could be worth if I did something to it? And if I did something to it, what would it cost to get it there? What would the doing something to it cost. And an important point here, I know that there’s a great deal a great deal of variation in the price points across our country. I’m in a, you know, medium, too expensive kind of a market. But there are lots of you listening who probably are in markets where the average house might cost $75,000. Whereas in my city, it’s like 450, or $500,000. And so the point I want to make is that the lower the price point, the more precise you have to be right, if you’re off in your estimation of repairs, or after repaired value, or anything by say $1,000 in my market $1,000 is is nothing in relation to a $600,000 house. It’s like a rounding error. You know, no one’s going to be upset if you said it was a $74,000 repair budget that actually ended up being a $75,000 repair budget. But if we’re talking about a $60,000, house $1,000 off is a much bigger percentage of that deal. So you have to be a lot more precise and lower price point markets. So once you have listened to the seller, you’ve understood what they’re trying to accomplish, you have understood the market and and what this thing can be worth as an orange after you’re done with it. And you’ve created some agreement with the seller by putting a proposal in front of that Vegas your best shot at giving them what they’re trying to accomplish in a way that you know will work for you. Now it’s time to write up the deal. And as a tree, again, as a thoughtful real estate entrepreneur, there’s really not a lot of difference between the way you write this deal up versus any other deal. And again, following this triple threat acquisition strategy, you might not even know at this point, which path you’re going to take, you might still be keeping your options open to wholesale the property to buy it for yourself for your long term portfolio to buy it and improve it and resell it yourself. You just know at this point that you’ve got a deal worth doing. And that you’re going to now select the best path as you move forward through your due diligence and whatnot, you’re going to select the best path once you’ve gotten it into contract. So how you get it written up isn’t really any different than how you would write up as a Thoughtful Real Estate Entrepreneur, any other particular deal. The agreement you write is of course going to be assignable. Like it always is even if you’re planning to hold something for yourself for the long term or you or you think that’s a high possibility. There’s no reason not to have the agreement be assignable. Anyway, a sign ability allows you to even closing a different one of your own entities if you want to fest your interest in the property in a different way. One thing I do like to do is if I think there’s any possibility at all, that I might be wholesaling the property or, or anything at all, I like to just mention to the seller briefly, that I might invite a partner to work on the deal with me. So I just kind of laying the foundation of planting that seed, so that if later, I do need to bring that up with him, it’s not a complete surprise. And in my experience, sellers understand, you know, buying a house fixing it, doing something with it is it’s takes money, it’s expensive. And not everybody has all the those resources themselves. And so, in my experience, most sellers see the idea of having a partner as a totally reasonable type of thing, I’ve never really had anybody bought at that whatsoever. contingencies as you read it the deal, when I run it, the deal my contingencies, or no difference whatsoever. If I’m thinking wholesale, then if I’m thinking about buying it myself, I pretty much always unless the situation is very unique. always asked for an inspection contingency. And if it feels reasonable, based on what I know about the seller at their goals and their thought process about their own property and everything, I also always add a financing contingency. Now if the conversation has been very much about how this property is not financial, and they it’s very important to them that they know their buyer does not need to go secure financing. Obviously, I’m not going to make that part of the deal. But what I find is that by default, most sellers consider a financing contingency to be a pretty reasonable type of thing. So if my feeling is that they would not object to a financing contingency at all that I absolutely added in there, if I do feel from our conversations, like it would be objectionable to them, but I don’t. One thing that’s really important to note is that we’re not going to include any of the lowbrow overly liberal contingencies that are taught so much. And a lot of lowbrow real estate investing education. So for instance, some some people will advise you to put the most unbelievably open ended contingencies in a deal like, say, subject to partners approval, right? Because that could mean anything you could like you could say, your next door neighbor is your partner, and he decided he didn’t like the deal. It’s so open ended, it allows you to hit the eject button on the deal for any reason whatsoever. And well, certainly, yes, that makes sense from your perspective, because that’s a good thing for you. It’s also not in the best interest of the seller. So we really try to make sure that the contingencies are very reasonable and are not allowing you more latitude than you need to actually get done what you need to get done through due diligence, finding a partner to assign the deal to. So thank you for listening to Sleaze-Free Real Estate Investing. So in the next episode, we’re going to be continuing this discussion with part two of two about Relationship Wholesaling. So today, we’ve talked a lot about the principles of relationship, wholesaling, what it even means, and kind of how we interact with sellers and the some summary there is it how we interact with sellers isn’t really any different in a wholesaling scenario. But the introduction of buyers into the equation is unique to wholesaling. And that’s what we’re going to focus on in the next episode. And so please be sure to tune in to that next time. If you want to get a head start on the buyer side of this dialogue about Relationship Wholesaling. As I mentioned, we just wrote an E book called Relationship Wholesaling. And if you go to RelationshipWholesaling.com, the first thing you get there as a free download, that’s called five and a half ways. Building a huge buyers list is silently killing your wholesaling profits. If you go in, you opt in there, you’ll get that PDF, and it will start to give you some initial ideas about what it is we’re going to be talking about on the next episode. And you can get a sneak peek of some of those concepts around the Relationship Wholesaling approach to working with buyers because that’s where things start to get really different. I’m also not exactly happy, a little bit embarrassed and humbled to say I’m going to be sharing with you some of my mistakes. In the next episode, things I would do differently if I had it to do over again, but lessons I’ve learned along the way. And we’re also going to be discussing, as I mentioned, the subtitle to the E book is how sophisticated real estate entrepreneurs five x their results without working harder. So we’re going to talk about how you get that extra ROI as a relationship wholesaler instead of using the traditional lowbrow methodology. So again, please do yourself and do us a big favor by hitting that subscribe button and your podcast app. And then that way you’ll know exactly when that next episode comes out. You can find show notes for today including a transcript at thoughtfulre.com/E7. Until next time, this is Jeff from the thoughtful real estate entrepreneurs signing off
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