Recently I spoke to a friend by phone, and she mentioned her lack of interest in wholesaling. Her reason will shock you as it did me. She insisted she was looking for cash flow. I stayed quiet and listened as she went on to further explain how it was hard to locate wholesale deals in a competitive market.
Then my friend, a very astute investor of apartment buildings, described her latest contract. She had to purchase a 9-unit building in another state. “Hmmm,” I said as I listened to her verbalize her disappointment with the potential cash flow of her latest contracted building. She and her husband had become accustomed to a minimum net profit from each of their properties.
Finally I spoke up by asking a question. “So what you’re saying,” I interjected, “is that this property you have under contract has a positive net cash flow, just not enough to meet your criteria?” “That’s right,” she said. Well, do you think someone else might be interested in the cash flow this building is kicking out each month, say a first-time investor?” I went on to point out that perhaps she and her husband had developed a much higher expectation of net income than when they started out some 10 years ago. She agreed.
“If you don’t close this contract what will you do instead?” “Oh,” she said quickly, “I always give myself a due diligence contingency and can get out of the contract without any damages.” I was beside myself by this stage of the conversation as I realized she was building my case for me. Those of you who think as I do know already know what my suggestion to my friend was.
“Wait a minute,” I said in a confused tone of voice, “so you’re willing to just back out of the contract because it doesn’t meet your needs?” “Yep, that’s right,” she responded. “Ken I’m not hurting anyone, it’s all upfront and legally spelled out in my contract.” “You’re not hurting anyone but perhaps yourself,” I explained. “Huh, how’s that?” her tone was full of inquiry now.
“Just think.” I told her. “You aren’t happy with $6,000 positive monthly cash flow. You consider that too low for the out-of-state headache and other reasons. However, think now,” I told her with a long pregnant pause to allow my words to sink in.……… “how many investors do you think would ring your phone off the hook for such an opportunity? Or, imagine in that town alone this building would be a great deal for the locals.” Now she was coming around to my way of thinking. “This, my dear,” I said with a hint of the master revealing his secrets, “is a perfect wholesaling opportunity. Did you set your contract up with an assignability clause?”
“I have never worried about that since we close all our deals, except the ones which don’t meet your criteria.” I interrupted. “Well, yeah, we give those back by exercising our contingencies.” Then I added, “Well, well, now, don’t cry when I tell you this,” I teased “but just think of the money you’ve left on the table without realizing the missed opportunities.”
I told her in my direct way of speaking which seems to irritate some, “I suggest you set up every real estate sales contract you enter into with an assignment clause.
In those cases where you determine the deal doesn’t satisfy your needs, you can now shop your contract for a buyer who will find it attractive. You’re not passing off junk. Remember, one investor’s junk or headache represents a treasure find for another investor. Since you’re out there shopping for apartment buildings why not assign (wholesale) the ones you feel don’t meet your needs to someone else who will be happy to buy from you?”
I do renovations and make a pretty penny doing so. I have a top-notch contractor and crew which are very expensive, so I’m not interested in profits below a certain level. Whereas the investor starting out with only himself and his brother-in-law doing the work would love the properties I pass on. Do you get my drift?” “Yes! Yes! Yes! I get it,” she said. “And Jimmy (her husband) will love this idea. Ken, I’ve known you for some time now and never thought of wholesaling in this way. I thought wholesaling is what the newbies with no money did to get started.”
My friend made the mistake that many others do; they think wholesaling is below their current status, or it’s just for beginners without money.
Not so! The old pros who’ve been in this business for many years use wholesaling as their foundation. Wholesaling pays the overhead. Wholesaling pays employee’s salaries. It’s vacation money. It’s the mortar between the bricks that keeps it all together. You can do it anywhere anytime, even in other countries.
I was just in Brazil in January and met a guy form Spain who was finding properties through a local real estate broker, then would place the property under contract. He had buyers for his contract before he closed the binder agreement. I told them as best I could in my broken Portuguese that this was what I do in the States. I wanted a piece of the action, but was just getting a feel for the culture and the language. Hey, I know my limits.
But my point is wholesaling is possible anywhere, anytime, and in any market cycle. Our motto as wholesalers is “Get the first!”
