BiggerPockets Real Estate Podcast - 792.5: How to Wholesale Real Estate (FREE Audiobook Chapter)

Starting point is 00:00:01 Rob, why are we here on a Sunday? Well, surprise, my friend, because the Bigger Bockets Bookstore now sells audiobooks, and to celebrate, they're offering all audiobooks for 50% off for 24 hours starting on July 17th. I don't know that I was prepared for this. That's going to be a little bit of a hit to the pocketbook. But hey, for our listeners, this is awesome. With dozens of investing in finance titles to choose from, you can listen to the rest of Jamil's How to Wholesale Real Estate,

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Starting point is 00:00:53 After you're done listening to this, go check out more Bigger Pockets podcast episodes with Rob and I. And don't forget that for you. Today only you can save 50% on all Bigger Pocket's audiobooks. So be sure to listen on Spotify, Apple Podcasts, or your favorite platform. Download your books today. Boom. Aren't you glad I texted you in the middle of the night for this? Okay.

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Starting point is 00:03:48 How to wholesale real estate. The no-cash strategy to build a scalable business by Jamil Damjee. Narrated by Desmond Manny. Copyright 2023 to Jamil Damjee. Production copyright 2023 to Bigger Pockets Publishing. Welcome. I'm Jamil Damgey, the author of this book. I'm proud to present the preface of how to wholesale real estate to get you started on your wholesale journey. Thank you so much for listening. And I hope you enjoyed the book enough to leave an honest review wherever you bought it. Without further ado, let's get wholesaling. You may be wondering why I have the book. the authority to write this book and what you can learn from it. I've been revolutionizing the world of real estate for over 20 years. I co-founded Kigley, one of the fastest growing real estate franchise businesses in the United States, which is heavily involved in the world of wholesaling. With hundreds of

Starting point is 00:04:43 franchises across the United States, our gross revenue in 2022 was $38 million, with a gross profit of $18.4 million. I've completed over 5,000 transactions, and I'm involved in $38,000. with 60 to 80 transactions monthly, not including franchises. Along with my deep success in wholesaling, I am the main host on the A&E show, Triple Digit Flip. I teach new and seasoned real estate investors how to wholesale in astro flipping, my real estate education course. Bigger Pockets recently named me as the subject matter expert for wholesaling, and I'm a panelist on the Bigger Pockets on the Market podcast. I'm the host of wholesale hotline, a real estate podcast that teaches new investors how to get their first wholesale deal.

Starting point is 00:05:30 I was featured in Forbes and actively contribute to Forbes Council posts. Wholesale real estate investing has been my number one strategy to grow two thriving seven-figure businesses and generate millions of dollars in wealth. Now, with this book, I want to teach you how to do the same. What is wholesale real estate? Simply, wholesale is a form of real estate investing in which you act as a principle in a transaction. In real estate, in real estate, in a transaction. In real estate, real estate, a principal is the contractual party in a transaction, either as the buyer or the seller. A principal is not a representative for anyone else, but act solely as the buyer or the seller in the contract. In traditional real estate, a wholesaler is not a principal because that person represents

Starting point is 00:06:14 the principal, whether that's the buyer or the seller. For wholesalers, the aim is to find properties and opportunities where there's a potential for forced appreciation, which you sell directly to another principal, or buyer, who proactively increases the value of the property. Examples of forced appreciation include adding carpeting to floors, renovating kitchens with new fixtures and upgraded materials, adding pools and backyards, changing the zoning of a property such as splitting lots, combining lots, etc. You sell your rights or equitable interest in that contract to a buyer who will realize the future potential of the property. Wholesalers are paid through the fees we collect for finding the properties.

Starting point is 00:06:59 Examples of principles who buy wholesale properties include developers, buying hold investors, fix and flippers, institutional buyers, tax strategist. The key to being a successful wholesaler is learning to locate opportunities and sell that potential to another principle. What you seek is value. If you can spot and create value, you have the potential to make a tremendous amount of money. There will always be opportunities for wholesaling no matter the economic conditions or the state of the real estate market. For example, as of the writing of this book, the real estate market has fundamentally changed.

Starting point is 00:07:38 Some say for the worse. Seasoned real estate investors, however, know that downturns in the market are incredible opportunities to buy properties at a substantial discount. compared to when the market is highly competitive, downturns are the perfect time to buy. The key to success, even in a downturn market, is to know the right strategies and how to identify potentially valuable opportunities. You may be asking yourself, why now, Jamil? Why is now the time to get started with real estate investing? Simply, the market has shifted significantly.

Starting point is 00:08:13 Interest rates have spiked, while affordability for purchasing a home is at an all-time low. As a result, there have been a significant decrease in prospects from the buying pool. This in turn has created more downward pressure on pricing, so truly motivated sellers are willing to sell at a discount. This has transitioned us from a longtime seller's market to a buyer's market. This gives wholesalers a unique opportunity right now. Previously, wholesalers had a hard time convincing homeowners to sell at realistic prices for homes and distress conditions, often facing unrealistic discussions about the value.

Starting point is 00:08:52 This left wholesalers either priced out of opportunities or facing months of difficult negotiations. However, this market shift also means there are fewer motivated buyers, which gives a potential buyer more leverage in making deals. Working with a wholesaler might even be the best option for this type of homeowner, particularly those looking to sell on an expedited timeline because of a life situation such as a relocation for work, a medical event, or a divorce. Here's an example of a situation I encountered in 2018. A real estate agent approached me with a listing that she was having a hard time selling. The listing was a custom mansion in the Arcadia neighborhood of Phoenix, Arizona. This home had been sitting on the multiple listing service, or MLS, for nine months at $900,000.

Starting point is 00:09:40 It had started at a $1 million price point, but the agent steadily dropped the price over that. time. The agent didn't have a solution for the homeowner, who was under tremendous financial pressure to sell the home in addition to grieving the passing of his wife. All he wanted was the money from the sale of this property so he could go live near his kids and start a new chapter in his life. It didn't look to me like this property could be sold for $900,000 either. However, I realized that this mansion sat on a one-acre plot of land in a highly sought-after development, and it had perfect zoning options. I saw the potential of the property. It was not the custom mansion, but the land itself. Nobody else thought to demolish the mansion, so I presented the

Starting point is 00:10:25 property to a developer who wanted to subdivide the acre to build five new homes on it. The parties locked up the deal at $900,000 after all. The land and the mansion were sold to the developer, and I made a $100,000 assignment fee. More importantly, the seller could finally move on with his life after nine months of no sales. Plus, the real estate agent made a handsome commission. All of this happened because I looked at the situation from a different perspective, saw the potential, and sold that potential to a developer. Your job as a successful wholesaler is to hunt for this kind of potential

Starting point is 00:11:04 and understand all of the use cases for real estate just as I did in 2018. That's the reason I wrote this book. I want to dispel the stigma many wholesalers face to explain where a wholesaler's profit comes from and to provide an ethical framework on how wholesale operations can be profitable and add value to the lives and businesses of the people we work with. To be honest, I got into wholesaling by accident, and believe me, I've made my business. share of mistakes. The secret was to turn all of my mistakes into learning opportunities, which led me to become one of the best wholesalers in the industry. The foundation of wholesaling is

Starting point is 00:11:45 understanding value and how to spot it. Using wholesale as your primary strategy, you can generate cash that can be used for more real estate investing. In this book, I will teach you the basics of wholesale, its legalities and ethics, how to build a business, how to generate leads and sales without betting the bank, and finally how to scale your business into a multi-million dollar empire. Are you ready? Let's go. Most investors spend more time chasing deals than reviewing their insurance. But a quick coverage check can be fast, easy, and one of these smartest ways to protect and even improve your property's cash flow. As the months get colder, frozen types, icy walkways, and seasonal wear and tear can increase the likelihood of claims.

Starting point is 00:12:32 And traditional insurance companies aren't always built to handle these claims quickly or smoothly. That's why more real estate investors are turning to steadily. They focus exclusively on landlords, whether it's a single-family rental, a burr-builder's risk policy, or midterm holiday guests. You get fast quotes, flexible coverage, and protection for property damage, liability, and even loss of rental income. Now is the perfect time to review your rates and coverage. Get a quote in minutes at biggerpockets.com slash landlord insurance. Steadily, landlord insurance designed for the modern investor. The rise of the tech savvy investor is here.

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Starting point is 00:14:14 Check them out at biggerpockets.com slash dominion. Again, that's biggerpockets.com slash dominion. Real estate investors, the April 15th tax deadline. is coming fast. If you own rental property and haven't done a cost segregation study yet, you could be handing thousands of dollars to the IRS that you don't have to. These studies let you write off as much as 25% of your building and generate huge tax deductions. Costsegregation.com is an online self-guided software that makes cost segregation fast and affordable. So it finally makes sense for smaller rental properties purchased for as low as $100,000.

Starting point is 00:14:51 With pricing under $500 and an average savings of over $25,000, it's just a no-brainer. What's more, audit support is included by the number one cost segregation company in the U.S., but you must complete it before the tax deadline. Go to costsegregation.com and use code tax deadline to get 10% off your first report. Don't overpay the IRS. Head to costsegregation.com before April 15th. Section 1. Understanding the basics of wholesaling.

Starting point is 00:15:21 Chapter 1. Why wholesale? In 2008, the housing market was in free fall. When it crashed, it unearthed the many inefficiencies, predatory practices, and opportunities for regulation. This ultimately made the housing market substantially safer than it had been. Leading up to the crash, I had been primarily wholesaling. I began my career by wholesaling single-family properties and graduated into apartment complexes. It wasn't until I pivoted again into multi-family development that I exposed myself to risks that not only financially ruined me, but also family members who believed in me so much that they blindly and personally guaranteed millions of dollars in leverage. Everything got foreclosed, including my and my family member's homes. We lost the

Starting point is 00:16:12 house I grew up in and all our vehicles. Our bank accounts were frozen to protect creditors, and I personally lost $12 million in a matter of months. I tell this story because there is a lot of pain in the real estate market. Some economists and news outlets have made parallels between what we're seeing in the current market and what happened in 2008, understanding the changing wholesale landscape. The real estate market right now is a new frontier. Changes in monetary policy and rising interest rates have engineered a market shift by reducing buyer demand in one of the most unaffordable markets in the history of U.S. housing.

Starting point is 00:16:55 The Fed made a steep interest rate change in summer 2022, going up 55 basis points, which was the biggest change week over week since 1987. It then increased the rate again by 75 basis points in the same time period, The speed of the rate hikes was an emergency response to unfettered inflation, some of which was related to housing, such as material costs of goods, maintenance, and supply chain challenges caused by the COVID-19 pandemic. The average American household experienced dramatically decreased purchasing power in a matter of months.

Starting point is 00:17:36 In layman's terms in real estate, you either can afford less house or pay more for the same house than when it hit the market. When comparing the housing market now to what happened in 2008, what we're seeing is a correction and not another housing crash. A correction means home prices drop slightly, usually 10% or less. What is happening as of early 2023 during the writing of this book is a national average drop of around 5% to 7%. In 2008, there was a staggering drop of more than 30%, which is evidence of a housing crash. A correction could last from six months to over a year. The housing market experienced a similar correction at the end of 2018 and start of 2019.

Starting point is 00:18:27 It's important to note that the United States doesn't have one single housing market. Different regions are affected locally, so it's important to study data specific to whatever market you want to invest in. Market fluctuations don't necessarily mean investors should be worried or hold onto their dollars until the storm passes. It does mean that investors must rely on the fundamentals of real estate investing to take advantage of unique times with extraordinary potential. I re-entered the real estate game after I lost that $12 million in 2008.

Starting point is 00:19:06 The difference in 2010 was that the housing. market had hit rock bottom and had only one way to go. Up. Few people were buying real estate because the average person was staying away from toxic asset classes. I could buy properties at a fraction of their peak value. Between 2010 and 2012, I purchased $8,000 worth of property in Phoenix, Arizona, my specialty area. In 2019, I exited those same properties for $8 million. That was a 10-time's return on investment by taking advantage of a market shift and getting back to the fundamentals of real estate. I cherry-picked properties this time looking for the best buy-and-hold opportunities. I looked to generate the cash required to fund these types of opportunities. That's the power of

Starting point is 00:20:02 wholesale in shifting markets. You have the advantage of generating cash, spotting opportunities, and executing when those deals present themselves. My good friend and real estate aficionado, Dolph Derruse says in his book, Real Estate Riches, that the deal of a decade comes around once a week. A good wholesaler first has the cash on hand to take advantage of these opportunities. Why Wholesale is perfect for new investors. To recap, wholesale real estate investing is a strategy in which you secure the contractual rights to purchase a property with the potential for forced appreciation. You then sell those contractual rights to someone who will realize that potential. The best thing about wholesaling is you never buy the property, which means even with limited funds, you could do this.

Starting point is 00:20:59 wholesaling is a viable strategy in any market condition. In a bare market, everyone wants to buy real estate at the low point, so wholesalers are key for other buyers because of our ability to find real estate. Wholesalers add value to the economy in a bare market by contributing volume in the marketplace, especially when retail buyers have stepped out of the picture. In so-called flat markets, wholesalers can find golden opportunities, because there's a plethora of real estate deals. Wholesalers are the experts who find the hidden pearls.

Starting point is 00:21:37 Meanwhile, in a bull market, we're the ones who can negotiate deep discounts. As prices go sky high in bull markets, we bring in opportunities for others. Wholesailing is lucrative because it allows you to sell an opportunity without investing large amounts of time or money into the renovation or sale, of the home. Many beginner real estate investors use this strategy to generate cash to fund future real estate investment goals. There are four reasons why wholesale is such an attractive strategy for new investors.

Starting point is 00:22:14 One, you can start wholesaling today in most states, even without a real estate license. In some states, you do need a license. Two, you don't need much money or credit to get started. 3. You don't need previous real estate experience. 4. You encounter significantly less risk than with other real estate strategies. I next go into each of these four points in more detail. 1. You can start wholesaling today. Starting off as a wholesaler is a perfect way to build a foundation in the fundamentals of real estate.

Starting point is 00:22:55 From here, you can, for example, branch out as a fix-and-flip real estate agent, or go into buy-and-hold properties. The best part, in most states you don't need a real estate license to get started. More on this in Chapter 3. For example, I do not have a real estate license yet have successfully closed thousands of deals. However, I require everybody else at my company to be licensed, because I prefer to be safe, then sorry. Whether you're licensed or not,

Starting point is 00:23:30 a crucial piece to getting started is understanding the value of a property. In the industry, this is done through underwriting, which is commonly known as comping, discussed in Chapter 6. Underwriting is doing the necessary research on the value of a property. Understanding the value of a property uses appraisal rules. The appraisal rules are simply the rules that all appraisers follow when evaluating properties.

Starting point is 00:23:59 To understand how appraisers determine value, I informally interviewed hundreds of appraisers. I can't stress enough how important it is to learn and follow these rules. Knowing how to value and compare properties separates the good wholesalers from the best wholesalers. Accurately evaluating a property and doing it well makes you indispensable to investors, other wholesalers, fix-in-flippers, and real estate agents in your area. I feel so strongly about the importance of comping that I freely share the list of appraisal rules. I post them on my Instagram account, and I host a weekly show about them. These rules are crucial to understanding the ins and outs of all real estate business.

Starting point is 00:24:47 You don't need much money or credit. A common misconception about real estate investing is that you need a lot of money to get started. In the more traditional ways that investors find leads and new deals, that belief isn't entirely unfounded. My first wholesaling deal that I was responsible for managing netted me $50,000. It was because I lived around the area that property developers were interested in, not because I spent thousands of dollars on marketing to bring potential deals to my doorstep. That $50,000 sale turned into a $47,000 payday, with the remaining amount paying for various fees. Now, you might be thinking that purchasing a home and investment property are different, and you'd be correct.

Starting point is 00:25:40 But even if you don't have the tens of thousands of dollars to purchase a property, you can still get started. in real estate investing without using your personal savings or credit. Because of the quick turnaround time for wholesale deals to generate cash flow, this is a system that doesn't require your money to be put down. In this landscape, this method has a low level of financial risk while potentially offering a high financial reward. 3. You don't need previous real estate experience. You don't need previous experience either as a real estate investor or in running a real estate business.

Starting point is 00:26:23 Don't get me wrong. These types of experience help, but you don't need them to flourish as a wholesaler. As I noted earlier, being a wholesaler may not require you to have a real estate license or any type of official certification. Rather than spending weeks or months of intensive study to start doing deals, in many states you could start quickly through wholesaling. Also, as I noted earlier, I am a big proponent of having a license, even though I don't have one. The benefit of having a license is discussed in Chapter 3. You might even decide to get one after you start wholesale investing.

Starting point is 00:27:04 I do see the many benefits that are afforded to those with a license, which is why I require new hires at Kigley to already have their license. licenses. It's important to keep in mind that some states require licenses for wholesale activity. I point out here that the lack of a license requirement makes wholesale attractive to new investors entering the market because of the flexibility and speed with which they can start and close deals. Four, you encounter significantly less risk. So I bet you're wondering, Jamil, now I know the benefits of wholesaling, but what kind of returns can I expect when I start closing deals? Despite the recent disruptions in the housing market, my business has flourished,

Starting point is 00:27:54 as I discussed earlier. The catch is that there is potential, if you know, the kinds of proven strategies that generate those kinds of profits. I'll outline those strategies in the following chapters, but my experience shows that wholesalers can mitigate risk, regardless of the housing climate. If you're just starting out in real estate investing, the returns from wholesale strategies are ideal to help you get established in real estate and to build relationships. This also lets you open the door for future experimentation within real estate, especially with your newly honed skills of identifying a property's potential and, let's you open the door

Starting point is 00:28:36 and learning how to find deals without the burden of expensive marketing costs. Wholesale is truly a powerful strategy, but for too long it's had a bad reputation and years of misconceptions, leading curious investors to avoid the strategy altogether. Don't worry. In the next chapter, we'll look at some of the misconceptions and how to dispel them. A quick recap. wholesale real estate investing is a strategy in which you secure rights to a property that has the

Starting point is 00:29:11 opportunity to force appreciation because of its potential, and you sell that potential to a buyer for a profit. Current market influences are related to the aftermath of the pandemic, to ongoing supply chain challenges, and to constant federal interest rate hikes in 2023. The current market presents an incredible opportunity for new investors to enter wholesale real estate because it is now a buyer's market. Wholesale real estate investing is a great entry for both new and seasoned investors because you can start today. You don't need much money or credit. You don't need previous experience and you encounter significantly less risk than with other real estate investing strategies. Thank you all for listening to the Bigger Pockets Real Estate podcast. Make sure you get

Starting point is 00:30:20 all our new episodes by subscribing on YouTube, Apple, Spotify, or any other podcast. platform. Our new episodes come out Monday, Wednesday, and Friday. On the host, an executive producer of the show, Dave Meyer, the show is produced by Ian K, copywriting is by Calicoe content, and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.w.w.com. The content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk. So use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. You can afford to

Starting point is 00:30:55 lose. And remember, past performance is not indicative of future results. Bigger Pocket's LLC disclaims all liability for direct, indirect, consequential, or other damages arising from a reliance on information presented in this podcast.

BiggerPockets Real Estate Podcast - 792.5: How to Wholesale Real Estate (FREE Audiobook Chapter)

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