The Science of Flipping - Episode 52 – Want to learn how to Wholesale HUD homes? | Real Estate Investing Podcast

Episode Date: November 4, 2014

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Welcome to the Science of Flipping Podcast. I'm your host, Justin Colby. Welcome everybody to the Science of Flipping Podcast. We are on episode 51 and I am excited today because I have a very, very special guest on the line today that I think everyone needs to hear the content and subject that we're going to be talking about today. So welcome to another great episode. Before I bring out my host, if this is your first time to the podcast, make sure to get over to thescienceofflipping.com. Download your free ebook the ebook is the 15 most costly mistakes that

you can make a real estate investor can make in today's market is absolutely free and trust me if someone has been doing this now for almost eight years you want to avoid these mistakes ask me how I know right so I So get over to thescienceofflipping.com, download the free ebook, and go ahead and get started. If this is your first time, this podcast is all about kind of creating your lifestyle by design, right? We've been flipping here in Phoenix for almost eight years, like I've said, and at this point, we almost never go see the homes. And we've been able to systemize our business to a point where we have people ingrained in our business from project managers to lead managers to acquisition managers

that for the most part, we could be anywhere in the world and be running our investment business here in Phoenix, Arizona. So that is all about what this is about, the systems and processes to create a successful real estate business no matter where you are. Thanks again for being here and listening. I just really want to jump right in and bring out our guest because I'm very excited to have this special guest on. He has taught me a ton and I know he is going to blow your minds with the content. My special guest on. He has taught me a ton and I know he is going to blow your minds with the content. So my special guest today is Mr. John Cochran, the HUD investor buyer himself. And so welcome to the call, John.

What's going on, dude? I'm excited to be here. Yeah, I appreciate your time. I know you're incredibly busy. You and I were talking a little bit. I think you're building your own home out there in Ohio. Am I right? I am. I am, dude. I'm building a house that is extremely too big for myself, but sometimes you've got to success, you might as well enjoy some of that. And so there's nothing wrong with building something that's larger than you need. But I don't know what you're going to do with all that room. How big is the house going to be? It's actually a two-level house. It's 6,000 square foot for just me and my monkey.

So that's a pretty big house, five bedrooms, five baths, top of the line, absolutely everything. So too big for us, but it is what it is. And you literally mean your monkey. I know you have a monkey. I do. I do. I have a monkey and she is crazier than me. She's probably weirder than me. And it's just awesome to own a monkey. It's awesome. Yeah, so it's a perfect fit is what you're saying. No, they don't throw poop like everybody thinks. They eat vegetables and a lot of fruit. They eat what's called monkey biscuits as well. They live to be about 40 to anywhere between 40 years old is where they're going to live at. I'm sorry, dude. I just know the questions

that everybody always asks about monkeys. Right, so your monkey's going to outlive you is what you're going to live at. I'm sorry, dude. I just know the questions that everybody always asks about monkeys. Right. So your monkey is going to outlive you is what you're saying? No. My monkey is going to live until I'm 71, and then that's going to be it. All right. All right. All right.

Well, let's just jump into it, dude. Enough of the chit-chat. I brought you on, and I asked you to do this podcast with me because I know my listeners need to hear what you have. You have a very calculated and strategic way to get a ton of deals in your market. And I know if it works in your market, it can work anywhere as well as you know that. And you really focus on buying homes from HUD, correct? I do, but before I even get started, I want you to tell all of your listeners the truth on how many times I've done this and why this has been more than one time. You know, John, you bring up a great point. This is actually our second time doing this podcast, and the first time I regret to inform

all of my listeners, it was because my audio did not record the call very well. And so, John, being so busy, couldn't do it again. So, we had to postpone it. So, it is absolutely my fault, everybody, that you haven't been able to hear this incredible information sooner.

So, I appreciate you bringing that out to everybody, John. Hey, dude, anything I can do to help. Now's your time to help. Now's your time to inform. I buy a lot of HUD foreclosures. A lot of people don't know that there's a lot of tips, there's a lot of tricks to buying HUD foreclosures, a house that has been foreclosed by the government. So whenever somebody goes out and they'll get an FHA loan on a property, that FHA loan is really a loan from the government.

It's backed by the government. It's not a bank-owned property. And when the government forecloses on these FHA loans, which is pretty much the most popular loan that you can get, whenever they foreclose on one of these loans, what happens is they bring it back to the market, and they call it a HUD home. So that's exactly what I do,

and that's a very big part of our business here in the vacation capital world of Dayton, Ohio. So that's what we do, and there's a lot of different ways to really... I don't want to say the words hack or manipulate the HUD system to buy properties cheap, but that's really what it is. Yeah. No, I know you and I have had extensive talks about how you're able to kind of manipulate that system, and the reason why you're able to do it is because you're really just going against computers, right? There's no human behind that. Yeah, dude. That's what everybody, the biggest myth that they think is that number one, they think that a HUD home is a bank-owned property.

So they think that it's a foreclosure and that is not true by any means. So since they think that it's a bank-owned foreclosure, they automatically think, well, this is a traditional real estate deal. So if I'm going to submit an offer to this HUD people or whatever, then obviously a person is going to say yes or no if I get that property or not. Well, that's not the way HUD works. If the government did anything right, they did this right. And they, they, every time you submit a bid to a HUD home, you know, you write an offer on a HUD home, there's actually a computer that is saying yes or no. So it's a robot. So in order for that to happen, you clearly know, it doesn't take a smart person to figure it out that if you're, if the computer is going to say yes or no to, if you're going to get this property

or not, they have to have pre-written guidelines in it to either say that yes or no. So I was really the one that cracked the code on all the percentages of what they'll take, what they'll do next, how to predict what they're going to do after that. So it's very, very easy whenever you have that system of what they'll do because it's just a robot. It's something that you submit a bid and they do the same thing over and over and over again. Absolutely. And you do actually have a product teaching the ins and outs of exactly what you do and

how you've been successful, right? And what's the product's name so all my listeners can know that they can go buy your product? It's called HUD Wholesaling. And the reason I called it that was because, number one, it does exactly what the name says. You buy foreclosures. You buy these HUD foreclosures extremely cheap. I show you really how we get around the system, the percentage they'll take, all the bidding, all the 31 different HUD tips and tricks that we use to get all these properties accepted from HUD.

And then what you do is you wholesale them back to the public. So this is kind of hard for people to understand, so I'll say it a couple times. But really what we do in the product is I show people how to take HUD's inventory and you go buy it really, really cheap. And then what you do is you sell it, you wholesale it back to the public cheaper than what HUD had it up on the market for. So, take an example. HUD has a property up on the market for $100,000. I go and I put that property under contract for $74,000. I buy it at 74%. What my job is, what my goal is in HUD wholesaling is I'm going to buy that property at $74,000, but then I'm going to sell it cheaper than that $100,000

that HUD had it up on the market for. That's why the public cannot figure out what the world's going on because they think that I'm losing so much money on these properties. What they don't know is that I'm actually profiting an obscene amount of money. They just think I'm losing it because I'm listing it. I'm relisting it back cheaper than what HUD had it up on the market for. So that's really what HUD wholesaling does is it shows you and it gives you all those algorithms and everything that we use totally step-by-step to buy HUD's inventory cheap and then sell it, wholesale it back to the public cheaper than what HUD had it up on the market for. That's what it is.

Nice. And you know, being on this call, I'm going to try to drag out some of these nice little gems that might be in your product, but I want my listener to have some good stuff that they can move forward with and immediately start bidding on HUD. So I'm going to try to drag out some of this great information from you and get these secrets kind of out to my great listeners. One of which would be simply, I know we've talked a lot about percentages, and a lot of people talk about their Mayo,

what their maximal allowable offer would be. And I know for HUD, that's not quite the case, especially since you've cracked the code. What type of percentages are you looking at with HUD homes? Because a lot of people need such deep discounts. And if they don't get it, they end up just walking away from the home. But I know that's not the case. So what kind of percentages are we talking about when you're dealing with the HUD system?

Well, let me start off by telling you that the first thing that really got me onto the system was, number one, I knew that I was bidding against the computer. Number two, there's a particular property, the very first HUD home that I bought. I bought it. It wasn't the first HUD home that I bought. The first HUD home I bought whenever I had this system was back about three years ago, and I bought the property for a total of $18.47.

So that was completely outright. So once I bought that property for $18.47, completely outright, I was like, holy shit, like what in the world did I just do? Like, is this even legal? So I really studied HUD and I really started learning their percentages. So the cheapest that I've ever bought a property for is $18.47. So I've bought them anywhere between that all the way up to, you know, 56%. I bought a lot of properties for 56%. I bought a lot of properties in the low 70% of lists. Now, you might just say, well, John, there's no way that I'm going to be

buying a property for 70% LTV. So I'm not going to buy a property 70% of HUD's list price. I'm not going to do that because Mayo doesn't work out like that well guys you got to think of it like this so whenever you're buying a property for 70% when I say that I'm buying these properties at 56% for 72% for 70% when a bank lists a property they're already giving it a deep discount okay so let's just take that $100,000 example again. When HUD will list that property at $100,000, most of the time around the area, the properties are worth $150,000, $200,000. That's what they're worth.

What I'm doing is I'm taking their already discounted list price, and I'm even discounted even more through our algorithms and the way that we bid on these properties. So we buy these things literally at anywhere between 37% to even 91%. I've even been known to buy them for over 100%. So it just kind of depends on what my exit strategy is on it. But the main part of it is that you should be able to buy these things whenever you bid very strategically on these things. Anywhere between 56% all the way up to 85%,

you should be able to buy them all day. Yeah, and the trick that a lot of people that you're able to use is you don't just make one offer and walk away, right? They shouldn't be expecting to say, okay, well I'm gonna offer 75% of the list price and if they don't accept it, then I'm done with that property, right?

They don't wanna do that. Well, here's the deal, and you have to understand the way that most real estate investors' minds work and the way most people work, okay? So keep in mind that HUD is a computer, okay? That is nothing more than it is. It is just a robot. So what happens is that if you bid on a property today, say you bid in on that property for $100,000 and you bid $56,000 on it and you don't get it.

Well, most people, what they'll do is they will wait for HUD to do a price reduction, or they'll just say, you know what? Here in about two weeks, I'm going to submit another offer to them. Well, that's not what we do, okay? And that's how we steal a lot of properties from our competitors is because while they're waiting for a price reduction, what they don't know is that in the background, the asset managers that work at HUD, what's going on is that I'm bidding $56,000 on that $100,000 property. I'm doing it every single day. So while the public is waiting there two weeks, I'm bidding every single day. And what the public doesn't know is that HUD is going to keep lowering their percentage of what they're countering. And then eventually they're just

going to accept my offer before they even do a price reduction on it. So while the public's waiting for a price reduction, I'm still bidding on these things, and I'm getting them accepted because they don't know that HUD will keep on reducing what they will take in their computer, and they just don't know that. So you have to understand the way that people think and the way that I think. If you're bidding against a computer, bid every single day on these things, on every single property. Yeah, and do you often adjust the percentages or do you just stick to that same percentage and never adjust that? Do you ever go up, like let's say if you don't get it after five days of bidding, do you go up any percentage or do you just leave it there and you either get it or don't get it?

Leave it there. Fair enough. Leave it there and you either get it or don't get it? Leave it there. Fair enough. Leave it there. I'm just waiting on HUD to come down on their counter is what I'm waiting. Fair enough. And then the next question I would say is, depending upon bed bath size, do you adjust the initial offer percentage?

Meaning if it's a five bedroom rather than a two bedroom, the reason being is conceptually you would think, most investors would think, you probably could get a deeper discount on a two one because not a lot of people like it rather than a three two or a four three. So do you change those? Are you a little bit more aggressive with the- Oh, totally. Totally. So on one bedroom homes, we still bid on one-bedroom homes, but we bid a very, very low percentage on them. On a two-bedroom home, we're bidding in the 30%. We're bidding on the 30%.

On a three-bedroom homes, we'll bid anywhere in the 50%. On a four-plus-bedroom home, we'll bid all the way up into the 70% to 80%. So we do have guidelines that we go by. I have a spreadsheet that all we do is we download HUD's list every single day. We import that into our own Excel spreadsheet that knows basically all their algorithms and everything. And then it will tell me what I need to be bidding based upon the bedrooms. So use that. Nice. Okay, great, dude. That's awesome. So again, he has a product, guys. If you want me what I need to be bidding based upon the bedrooms so that nice okay great

dude that's awesome that's uh so again he has a product guys if you want to know more from John or see this product or buy this product let me tell you this guy knows what he's doing so just email me directly email me an info at the science of flipping and I will make sure to get you access you obviously will have to purchase the product but I'll make sure you get you access. You obviously will have to purchase the product, but I'll make sure you get there. So email me at info at the science of flipping. Now, John, we're not quite done yet. I know you're incredibly busy,

but I wanted to talk, at least walk through the process of truly wholesaling a HUD home because I've had plenty of podcasts where I talk about wholesaling, how that works, but that's based off more of a traditional seller, right? So I talk a lot about marketing to a traditional seller, directly to seller,

getting it under contract, and then either assigning or double closing that contract. I talk a lot about that, but what's the process work? How does the process work when dealing with HUD and you're dealing with a computer and ultimately you're dealing with the government agency how does that whole process work well first of all the HUD contracts they're not assignable okay and that's where most people are like oh my gosh like I can't do this business then so what we do is you can either use the buyers funds to fund your deal or you can go out and get transactional funding on it so you do have to bring the funds to the A closing, if you will. So you go and you use the percentages.

You get these properties accepted that, you know, really nobody can even believe that you get them this cheap. You get the properties accepted, and then what's going to happen is you're going to have to fill out a package with HUD. This is, you know, basically going to be your purchase and sale agreement. That package is not assignable, okay? to fill out a package with HUD. This is basically going to be your purchase and sale agreement. That package is not assignable. But what you can do whenever you have that package is you can start marketing for your C buyer, the person that is going to buy that property off of you. So you get the package from HUD, you start marketing it, putting your price tag on it and everything. Now it's still up on the MLS at this point, okay? So this is where you trick the public, okay?

So now you start marketing through different avenues, you know, through Craigslist and maybe your own personal buyers list and all these other avenues that we use to market these properties. You go ahead and you find yourself a buyer before 30 days because HUD will give you 30 days to close on every single one of these properties you go out and you find your buyer and then you simply close your your deal you know on you know at nine o'clock on whatever day and then at noon the same exact day you're closing with the buyer that you found now the reason that the buyers Justin why I like wholesaling this way is because, dude, I get it, man. There's nobody that gets more than what I do whenever you wholesale deals and you're signing contractors with motivated sellers. I get it. I do it.

This and that. But the problem is that you're having to show that seller or that buyer exactly what your fee is going to be. I mean, they know what you're going to be making on it. And let's just be frank, dude. People don't want people to make money. Everybody's greedy. They want themselves to make all the money. So you can only make so much.

And if you try to pull a $10,000 profit, even if the house is worth it, dealing with a motivated seller, they're going to be like, no, dude, I'm not going to do this because you're going to make $10,000 and you did nothing for doing that. That's just what the mentality of people is. Now, the thing that I like about HUD and the thing is because you're wholesaling these properties off and they never know what your profit is going to be because remember what I told you. You get these properties extra, extra cheap. You go through and you get the contract with HUD. You start marketing it,

but whenever you market the price, you're pricing it cheaper than what HUD has it up on the market for because you're buying it at a discount because you even had to bid on these things. That's where the public gets really, really confused is that property up on the market for $100,000, now you bought it for $74,000, so what you're doing is you is that property up on the market for $100,000, now you bought it for $74,000. So what you're doing is you're marking it up on the market for $89,900. So you have a $16,000 profit involved with the public's eyes. They think that you're losing money. They think that you're losing $10,000. Maybe you're just this new real estate investor. You have no clue what you're doing and you're losing $10,000 off of it because they see that $100,000, and then you're selling it for $89,900.

They can't figure it out. What they don't know is you're profiting $16,000 because you know how to buy them cheap. Right, right. And you just do a double close, or you bring transactional funding, right? Yeah, yeah, that's it. No difference there. So everything I've ever taught about that is the same thing. No difference when you do a double close. Yeah, that's it. more abnormal than dealing with the direct to sellers or any type of paperwork that we would have to bring as the end buyer or as the transaction pretty standard as far as

doing a double close type wholesale? It's 100% standard. I mean, it's 100% standard. You're assuming a double close on it. And I personally think that it's a cleaner transaction doing a double close. People will go through and just be like, you know gosh, I'm going to have to get transactional funding for this and this and this and this. It's going to cost me $2,500. But guys, what you're not seeing is that did you hear that profit $16,000? You can very easily make anywhere between $8,000 to $55,000 on a wholesale deal.

You can't do that. Guys, you cannot do that with a motivated seller because nobody's going to let you profit that much. So pay the transactional fund or fee and run like hell to the bank because you're not going to find wholesale fees that way with the way that we've structured this entire training. So yes, dude, it is a back-to-back clean as it could be. I think that it's definitely a lot cleaner than even doing an assignment contract. That's right. That's right. And so, you know, for all the listeners out there, you have two different ways to fund this deal.

One, you use transactional funding and you fund the front end. And then that same day or the next day, your buyer will fund his portion of the deal. The other way is more of a traditional back-to-back where the C buyer is bringing their funds to fund your purchase and simultaneously will fund theirs. There will be no assignment. So it's a pretty clean opportunity to wholesale some properties at deep discounts. All right, John. alright John is there anything else any bits of jewels that you can just give these people before we jump off the call I know I've taken plenty of your time

and you've got to run anything else that you want to leave with the listeners today I just think that all the listeners online should really truly know how freaking ugly you are oh man come on you've got to go there. You got to go there. Dude, there's a reason why

you're doing a podcast and not a video. I'm just saying. I'm just saying. Oh, boy. Well, that's enough of John. We are done with John Cochran, but listen, as much as we like to joke with each other, we've been friends for years now. He knows what he is doing. His product

is amazing. You can use it anywhere in this country. So make sure to reach back out to me at info at the science of flipping. If you're interested in getting John's product again, he absolutely knows what he's doing. He is making millions of dollars if you don't mind me saying John. So this guy is absolutely crushing it. He's been an awesome guest as awesome as he could be, I guess. And that is it for today's podcast. Well, hold on, dude. I do have one more thing that I want to add to this.

Because I know there's a lot of people in California and New York and the higher-priced areas. And they're just going through and saying, John, dude, this guy is so full of it. There's just no way that I'm going to be able to buy a half a million dollar house at 56%. And you're absolutely correct. You're not going to be able to do that in a higher priced area. HUD is not going to accept 56%, 72% on a property that is listed on the market for 500,000 or a million dollars or north of a million. They're not going to do that. There's different percentages that you have to go by in the higher states. Okay. So even in the Phoenix area, even in the Phoenix area, you guys cannot really use the same bidding percentages that I

gave you. You have to use the other ones that we use across the entire country because, you know, it does vary, but we do have all the percentages for every single city in the entire United States. So I just wanted to clear that up real quick because the thought that went through my head with that, Justin, is like, you know, I don't want people to be like, there's just no way that can happen because you're absolutely right. But the bidding percentages are different in those areas, but the profit is still the same.

So the profit is always going to be anywhere between $8,000 and anywhere to $55,000 on these wholesale deals. Yeah, no, I think you bring up a good point. I think there's parts of the country that are much more expensive and a million-dollar home, you're just not going to pick up for $500,000. So I think it's worth noting that you're going to have to be more aggressive and the percentages are going to have to go up. And even yourself, John, you said you'll pay 100% of it depending upon your exit strategy. So again, another good reason most likely

have to get this product because you really want to know those percentages across the country as they'll differ from city to city. So good point there, John. All right, guys, I'm going to let this guy go. He is a rock star, and we are done today. Give me an email if you need any further information. Otherwise, I've been your host, Justin Colby, and we are out.