The Science of Flipping - How Do Wholesalers Make Money?

Starting point is 00:00:00 What is up, everybody? What is up? Welcome back to the Science of Flipping. I am your host, Justin Colby. And if you have never been here before, this podcast is for real estate investors, people who are trying to figure out the best systems, tools, processes, techniques, strategies to scale a real estate investing business. I've done this now for 14 years and I've scaled up big and I've shrunk down small. I've made a ton of money and then I've lost some money. But I can tell you after 14 years of being in this business, I know the rights and the wrongs and I'm actively doing 10 to 20 deals every single month in eight different markets.

Starting point is 00:00:52 So these episodes are for you real time to help you actually do deals in your business. Now, this episode is going to be very specific to a question I was just asked on my YouTube channel. Someone who I don't know asked me a pretty simple question on one of my YouTube videos. By the way, if you have not yet subscribed to my YouTube, you should. YouTube.com forward slash Justin Colby. These podcast episodes are also streamed right there on YouTube and you can engage with me. You can say what's up. You can see me and all my antics I do with my hands. So anyways, I was asked this pretty simple question for someone looking to get into the wholesaling space. So if you have yet

Starting point is 00:01:37 to do your first deal and you're interested in getting into wholesaling, this episode is regarding this one question asked from a complete stranger about how do wholesalers make money? Now, I kind of looked at that and I thought it was a pretty obvious answer, but then I realized I've been doing this for 14 years and not everyone has been. And some of you are just trying to get started. And so I wanted to address this conversation and this question because I would guess there are plenty of you out there actually wondering that, but let me break down the fundamentals of what wholesaling is first. And then, you know, we can dive into how wholesalers make money. The first thing I will tell you is there are actually two ways to make money. It is a double close or an assignment. Now that's how you structure it. Now let's talk about what

Starting point is 00:02:28 wholesaling is. Wholesaling is actually the activity of doing marketing directly to a homeowner, contracting the property to buy and then wholesaling it to a flip investor or someone who's looking to buy rentals. Now, again, without trying to convolute this answer, I just want to be direct. From that part, how you get paid is A, you do a double close. And in most states, what that means is you find an end buyer. You find a rehab flipper or someone who's looking to buy and hold an investor. And you use their money to fund your A to B transaction as well as your B to C transaction. So let's break that down for a second.

Starting point is 00:03:13 When you contract the purchase agreement with the seller, or I'm sorry, yeah, with the seller, you are now the buyer. When you do a double close, you are technically the seller selling the property to your buyer. There are two separate escrows running simultaneously. And when you do a double close, your buyer's funds will actually fund your first A to B transaction as well as

Starting point is 00:03:40 simultaneously, basically back to back fund your B2C transaction. You never have to bring a single dollar in. It's all done with your buyer's funds. And that is how you make money. You essentially will create the difference in your buy price to your sales price. So if you bought it for a hundred grand and you sold it for 110, at the close of escrow, you will make a $10,000 check. Now, assignments are similar. You spend a bunch of money and you find a homeowner and you negotiate and you contract a deal to buy and you assign your interest in that deal in the property. You assign your original contract over to your end buyer for a fee. So again, you would actually have one escrow in

Starting point is 00:04:27 this scenario and you'd simply just have an extra assignment. So you would be the A to B buyer. You would purchase the property directly from the seller. You then would have one other document, which is the assignment document, and that would be going to your buyer. And that, again, if you bought it for a hundred grand and you were assigning the property, you would be assigning it for a total of 110 grand. Titles does magic. They just extrapolate the difference between a hundred grand and 110, and you get an assignment for $10,000. You actually can have it written out on your assignment paperwork, or my assignments actually make a little bit more work where we just say total purchase price is to be $110,000,

Starting point is 00:05:11 which includes purchase money as well as an assignment fee. And then title does a little extrapolating there, and they subtract the 100 grand that I originally contracted for from the 110, and then I get my $10,000 fee. Now, that's the two ways fundamentally the structures get paid, right? In the sense of the contracts, the paperwork, the escrow, how you collect a check, you can get a check through title, or you can get a wire. Now, let's just talk about the generality of the wholesaling and how you make money. The key about how wholesalers make money is their buyers. Their buyers is a massive component, right? I talk about this a lot, a lot, is you need to have great buyers. I actually had one of my coaching calls today with

Starting point is 00:05:58 our coaching, our level of coaching program. If you have any interest in the level of coaching program, go to the science of flipping.com and go ahead and fill out a simple application. Some of my top advisors will get with you to see if I'm the right coach for you. Again, the science of flipping.com. Now, I had a great conversation with one of my young students and he was actually asking about whether he should be calling his buyers. And my answer was yes. And here's why. You want to be able to build the rapport. You want to be able to build a relationship with your buyers because those buyers will trust you. Those are the same buyers that actually will buy a home from you sight unseen just from the pictures you sent them.

Starting point is 00:06:43 That's the type of buyer you want to have in your Rolodex. The difference being is there's many wholesalers that they just go out and collect emails and put an email blast out. And I don't believe in that. I actually believe in actually real conversations with real buyers to figure out what they want to buy, where they want to buy, what their buy price is, what their buying pocket is. I had a conversation today, as a matter of fact, with someone who is buying anywhere from 90 to 93% of value on the East side, Scottsdale, Mesa, Chandler, 90 to 93% of value. If I didn't have that conversation with the buyer, I probably would not be able to send the next text message directly to him that I get in that area, right? I now can go in to negotiating with that seller in Scottsdale, Mesa, Chandler,

Starting point is 00:07:33 and I can be a lot more aggressive than everyone else because I have that one buyer that I know is paying actively. Right now, he's buying at 90% to 93% of value. It's insane. Those numbers are absolutely insane. And so that knowledge that I get by having that conversation allows me to do way more deals than my competition. Again, I'm doing anywhere from 10 to 20 deals a month in eight different states, but those conversations are the conversations that not a lot of wholesalers are taking the time to have. And I want you to do that. So when we're talking in generalities about how a wholesaler gets paid, well, that's how. The buyer's list is absolutely everything. Your buyer's list is gold. A lot of people will ask me, or they'll tell me, I want to build a wholesaling business

Starting point is 00:08:20 big enough to sell. I'll say, well, that won't happen. You'll never sell your wholesaling business big enough to sell. I'll say, well, that won't happen. You'll never sell your wholesaling business. They'll say, well, why not? And I'll say, well, because essentially it's you. You are the key to your wholesaling business. Here's one thing you could sell is your buyers list. If you build the best active buyers list in your city, you will win. Because then what do you have? I just used an example. Now, if I find a deal in Scottsdale, Mesa, or Chandler, I can go negotiate way more aggressive than the rest of my competition because I have this buyer. Here's another thing you have. You can work with realtors. Hey, Mr. or Mrs. Realtor, I'm looking to buy off-market properties. I have a network of investors that pay real top dollar, but I myself am looking to buy as well. And if there's a deal that,

Starting point is 00:09:05 or a property that looks distressed, you can't list it. Before you do anything at all, make sure you go and contact me because I probably can get you an offer five, 10 minutes and make sure you get paid your commission just the same. Just make me the first call. If you can do that for me, then we'll make sure we can do a bunch of deals together. Here's another thing you can do. You can call all your other investor friends and say, hey guys, I have a buyer paying 90 to 93% in Chandler, Mesa, and Gilbert. What do you got? You got anything out there? Or Scottsdale, Chandler, or Mesa. You got anything in Scottsdale, Chandler, or Mesa? And I could probably mark it up and we could do a double S, like not a double escrow, but we could

Starting point is 00:09:50 co-wholesale a property that I didn't have, but they had because I have a buyer who's willing to pay that much more. Wholesaling comes down to your buyers. If you have the buyers, you have everything. Now on the front end of wholesaling is marketing. Marketing and sales, right? If you're going to go try to find a motivated seller, you got to get in front of them. You got to say the right things. But a lot of people say you make your money on the buy,

Starting point is 00:10:17 and that's accurate. But what gives you strength to your negotiating, to the ability to negotiate with the seller and buy right, is your ability to know where your buyers will buy it. If you can go know that your buyer is going to pay 90 to 93 cents on the dollar and everyone else is paying 84 cents on the dollar, you know you can just out negotiate. You can offer a higher price, you can get the deal, you can move on. So while yes, in sales and marketing, you want to be the first of the deal. You want to be the best person to buy low and sell high and all that

Starting point is 00:10:51 kind of stuff. You make your money on the buy. While I totally get that guys, I totally do. The reality is you can only do that within wholesaling, within the wholesaling realm. You can really only do that being that you know where your buyers will do it. So again, fundamentally how this all works in terms of getting paid, you have a double close and then you have an assignment. Again, very straightforward. I think you understand the difference between the two. The overarching business model of wholesaling is predicated on one thing and one thing only, and that's your buyers. If you have buyers, you can go find deals. I have a kid that literally I just had a

Starting point is 00:11:31 conversation with. He's one of our acquisition guys. He's 19 years old. He was door knocking today. He's super hyped up because he knows if he can go find that one deal, my buyer will take it and he'll make himself a commission. Going and finding the seller, I don't want to say it's easy, but it becomes a whole lot easier when you know where and what your buyers are willing to take. And so as a whole, that is going to be my answer. Hopefully that really, really helped you. Again, if you have any interest in me coaching you, helping you get started in real estate wholesaling, then go to thescienceofflipping.com and fill out a simple

Starting point is 00:12:06 form. We will get you scheduled with some of my top advisors. Otherwise, make sure, make sure you are subscribed to my YouTube channel. If you have not yet, get over to youtube.com forward slash Justin Colby. Subscribe. If you are listening to this on iTunes, show me some love, smash the five stars. And if you're watching this on YouTube, make sure you give me a like. That really helps the YouTube gods push this material out there to the universe. So like the video, five stars on iTunes. Make sure you subscribe and I'll see y'all on the next podcast. Peace.

The Science of Flipping - How Do Wholesalers Make Money?

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