The Science of Flipping - JV Agreements For Wholesalers

Starting point is 00:00:00 Yo, yo, what is up? What is up my science of flipping podcast people? As you could probably hear and as you see, I am in my home office for a very good reason. I did catch COVID. Now, I will be documenting my entire journey here as I have had COVID for several days and I feel roughly about 95%. Let's call it 90. Who am I kidding? But that is not what today's episode is about. While I do enjoy hanging out with two of the best athletes of all time, I am making sure I continue to deliver for you guys the science of flipping podcast listeners. Now, if this is your first time to the podcast, I encourage you to start going and watching this over on YouTube, youtube.com forward slash Justin

Starting point is 00:01:06 Colby. Now, not only are you going to get three podcast episodes a week, you're also going to be getting three extra business, real estate, and entrepreneurship YouTube videos. It is important you go to youtube.com forward slash Justin Colby, subscribe to my channel, make sure you're liking and commenting on every single one of my videos. It really helps the YouTube gods highlight my channel as I continue to give back to others. Now, this podcast, specifically the Science Flipping Podcast, is all about helping real estate investors better use their systems, tools,

Starting point is 00:01:46 have better operations, be able to scale, etc. Now there's one thing I know that has been top of mind for several people is I've actually this week have been asked the question about JV agreements for wholesalers. So I want to talk about this because to be honest with you, that is kind of long gone. Are they still applicable? Sure, they absolutely are. But I can tell you right now they are no longer needed. And again, excuse me for the way I might sound right now. Hopefully we can edit some of this nasally stuff out, but I am feeling roughly 90%. So, you know, things are looking great. With all this said, let's jump into the JV agreement. Now, what the JV agreement between wholesalers used to be is typically kind of an exclusive right to market as well as it line items out like a 50-50 split or a 60-40 split

Starting point is 00:02:48 which had a lot of value back in the day. Now could there still be value for it now? I would offer the answer is probably yes but it is not necessary anymore and that's the highlight I wanted to bring up to this episode is the way I have been doing JV deals is not with a JV agreement with a double assignment. So if you guys are all pretty familiar with wholesaling, obviously, there is an assignment to the end buyer where you collect an assignment fee. Well, if you are co-wholesaling or JVing a deal with another investor, then you don't need a JV agreement per se. You could just simply do a double assignment. So what does that look like? Well, I do about 10 to 20 of these a month, closer to 10. I think this month we did 12. And so, you know, the way this works is there's always an

Starting point is 00:03:47 investor such as myself that will market directly to the homeowner. Okay. And the homeowner and I negotiate and I contract the property with them. And then that property is marketed out to my buyers. And if my buyer likes the price I send it out at, the difference between my purchase price and what I sent it out at is essentially gonna be my assignment fee, okay? It'll be my assignment fee. So let's say I contracted it at 200 and I sent it to my buyers at 210.

Starting point is 00:04:23 That $10,000 difference will be my assignment fee. Now, that's great. Now, there are also times where I will have investors say, hey, do you mind if I send this to my buyer? Okay. And by the way, this is flip-flop for me too. There are times where I do this exact same thing to other investors where, hey, do you mind if I send this on to my buyer? So let's just use the example and stay with the example that I'm direct to homeowner. I find a buyer. And let's just say that buyer is an actual wholesaler or another investor that might be able to mark it up. So they might be able to find a buyer for 215. So here's how this

Starting point is 00:05:02 would work. I contracted it with a purchase and sale agreement with the seller. I assign it over to the other wholesaler. He still has the same terms. I still require him to put in $5,000 non-refundable earnest money. He doesn't get to, you know, skip out on that. And then he will assign it over to his buyer at 215. So I signed it at 210. He submits a $5,000 earnest money deposit. Then his buyer comes in at 215 and also submits a $5,000 earnest money deposit. Now, sometimes do the middle wholesaler not technically send in their money? There are times that they do not. There are times where the end buyer ultimately

Starting point is 00:05:47 sends in the $5,000 non-refundable earnest money deposit and that's the only deposit that happens prior to or after mine at the open of escrow. So that is what you would do these days for a JV agreement. That's a very common resource. Now, if you're talking about buying a property, if you're going to be flipping a property and you want to have a JV agreement, that is something different. Okay. So that's the question I started asking my students about, why are you asking? And their answer was because the investor or the seller, who is really just a wholesaler, wanted them to sign a

Starting point is 00:06:28 JV agreement. And I told them not to. You don't need to. Go send the property out to your buyers. If you bring a buyer, tell that the other wholesaler that you will just do a double assignment and there's no need at all for a jv agreement so again you have one assignment to the original buyer who could be a wholesaler and then that wholesaler creates another assignment to their buyer now here's another spin on this whole thing that i've done a lot since cove had started uh is there are times where if i'm if I see a property that I think I could sell to my buyers list, because I have a really powerful buyers list, very active, I will call that wholesaler and say, hey, I think you're probably at the top of the number. I don't think I could really mark this

Starting point is 00:07:19 up. If I can get it sold at your price, would you be willing to give me $2,500? And he says, yes. Okay, great. So I send it to my buyer at his original price, the original wholesaler's price. My buyer pulls the trigger. Here's what you do. The original wholesaler will actually assign it to me $2,500 less than what we sold it for. So there's still going to be two assignments from there. Then we are going to actually, um, I'm going to market up that extra 2,500 and then send it to my buyer. Now here's the key. If you're ever the middleman in these scenarios. Do not sign your assignment until your buyer signs his or hers. Never put yourself on the hook for something like this until your buyer officially is on the hook for something like this, for the deal with earnest money, as well as a sign assignment.

Starting point is 00:08:24 And so again, that don't overthink that. That's just, you never want to put yourself in harm's way until your buyer is ready to commit. So that is the second version of it, where you might not mark it up. You might wanna call the original wholesaler, say, hey, this is your deal, right? You're direct to the seller?

Starting point is 00:08:42 Yeah, great. Okay, great. I think the number you're sending it out right? You're direct to the seller. Yeah, great. Okay, great. I think the number you're sending it out at, it will sell to my buyer, but I don't think I can mark it up. Do you mind if I get paid by you $2,500 into that number? And sometimes they don't have it, right? Sometimes wholesalers are like, Justin, I only have three grand on this deal, so I can't. And then I might say, okay, throw me 500 bucks and let's just go get the deal done because I know my buyers will move it. So, but that's knowing your buyers. And there are a lot of episodes here on YouTube, by the way,

Starting point is 00:09:15 you should be scrolling through my YouTube and watching other videos about buyers as well as the podcast about buyers. But knowing that my buyers, the way I know my buyers, it really gives me quite a great upper hand because I can actually sell something that most other investors can't. And that's the power of your buyers. Listen, have a full system and have two full-time disposition girls.

Starting point is 00:09:38 I mean, it's a business to run a disposition house, right? And so hopefully this finds you guys well. You know, it's a question I was asked twice this week. And here's what I think is happening. I think some guru out there is teaching JV agreements, which is fine. They're just not nearly as applicable these days as they used to be.

Starting point is 00:10:00 And by the way, there's nothing, I would tell you there's nothing wrong with them. It's just not needed per se. You could just do a double assignment. And, you know, here in Phoenix, there's so many, like, I'll tell you, we just did one that had four different assignments in it. It's insane. Like there's so many other people wholesaling the wholesale. That's the wholesale. It's just wild. So again, if you're listening to this on iTunes, I would love a five-star review. If you are not yet watching this, and trust me, this is one you're going to want to watch, you need to get over to youtube.com forward slash Justin Colby. Check it out. Subscribe to my channel. Six videos a week. You need to subscribe. Turn on your notification. Make sure you're liking the videos and make sure you're commenting and asking questions until then talk to you later

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The Science of Flipping - JV Agreements For Wholesalers

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