A Risk-Free Way to Start Investing?

Dave:
Hey, everyone. Welcome to On The Market. I’m Dave Meyer, your host, and we have an awesome show for you today. I’m going to be joined by Henry Washington, Jamil Damji and James Danerd for a deep dive discussion on wholesaling. We cover what wholesaling is. We address the elephant in the room, which is, is wholesaling actually ethical? And we’ll learn how, as an investor, you can best work with wholesalers. Then at the end, we got goaded into playing investor truth or dare. It goes completely off the rails, but it was very fun and very funny, so definitely stick around to the end. Think you’re going to learn a lot. You’ll probably laugh a lot. Enjoy.
Hey there. What’s going on, everyone? Welcome to On The Market. I’m your host, Dave Meyer, joined today by Jamil Damji, Henry Washington and James Danerd to talk about wholesaling. What’s going on, everyone?

Henry:
Woo. What’s up?

Dave:
I love how James is just flexing on all of us by just sitting there on his boat. It’s rocking slowly behind us. We’re all in our offices. I’m sweating, but he just looks relaxed and happy.

James:
This is my new office. I’m going to go jump in afterwards. We’re going to hit 82 degrees today. 82 on an island.

Henry:
Are you going to jump in Danerd’s dinghy?

James:
Yeah, I got to get Danerd’s dinghy. It needs the label for, I got to get the name put on: Danerd’s Dinghy.

Dave:
But you know the name of the yacht’s called The Fruits of Wholesale, right?

James:
That is.

Dave:
For everyone listening, just to add some context to this, James actually did just get a dinghy, and his daughter wants to name it Danerd’s Dinghy, which is hilarious.

James:
That’s probably what it’s going to end up being.

Dave:
Now it has to be. It’s memorialized in podcast history. All right. So for today’s main topic, we’re going to be talking about wholesaling obviously, and we’re going to just be badgering Jamil with questions. But before we do that, I want to talk to you about two major data points that are actually coming out at the end of July. And just for everyone listening, we are recording this in the middle of July, but on the 28th, for nerds like me, it is a big day for data to come out. We have two things coming out. We will have GDP for the second quarter, which will tell us whether or not we are officially in a recession. The technical definition of a recession is two consecutive quarters of GDP declines. We had a decline in the first quarter. So if it’s down again in the next quarter, we will be technically in a recession. The net other is the Fed will be announcing their next interest rate hike.
So I just want to go around quickly and force you guys to make a guess to yes or no recession, and how big of a hike the Fed will implement on the 28th. And we will find out quickly the day after all this, whether or not you are right or wrong. So Jamil, you’re in the hot seat today, so I’m going to make you go first again.

Jamil:
I think we are in a recession. I think that’s what we’re going to find out with Q2 data. And then also, I think the Fed’s going to have to do something with the CPI of what we just saw. 9.1%. Are you kidding me? They’re going to go up a point.

Henry:
A whole point?

Jamil:
Yeah.

Henry:
Wow.

Jamil:
That’s what they’re saying.

Henry:
Wow. Yeah. No, I was going to go with yes, we’re in a recession. I think that’ll come out, and I was three quarters of a point to half a point. A whole point. That’s aggressive, so I’ll go with three quarters.

Dave:
James?

James:
I’m with Henry. Both of you guys I think have nailed it. We’re in a recession, for sure. I don’t think it should be that bad, but yeah, we’re definitely in it. And three quarters of a point. From what I understand, it’s just been three quarter point hikes until inflation starts slowing down. Hopefully it is not a point, because that’s going to get pretty drastic. Good news is a lot of this is already baked into the rates, so it won’t be that much on the actual rate.

Dave:
I’m with all of you. I think we’re almost certainly in recession, and I also think it won’t be that bad. A lot of the impacts that usually come with a recession, like a declining stock market or asset prices shifting, we’re already seeing that. So it’s not like if we’re officially in a recession, all of a sudden, things are going to get significantly worse. Investors already know that this has been coming for a while. And for interest rates, I’m going to go 0.75 basis points. But I guess we’ll see. And honestly, I’m curious if these interest rate hikes will even bring down inflation, because they only really impact the demand side of the inflation problem. They can’t fix the supply side shock. They already printed the money. They’re not pulling it out. So I’m curious, they’re going to keep doing it, but we’ll see what happens.
All right. So tune into that. Oh, I should mention, I’m also going to be doing an episode next week about recessions and some of the historical data about what happens to housing markets in a recession, so make sure to tune into that. All right. So we are going to move into our main topic for today, which is wholesaling, but first, let’s take a quick break.
All right. Today’s episode, we are going to do something a little bit different. We are going to do a deep dive into the fundamentals and basics of one of the most common and sometimes controversial real estate investing strategies, which is wholesaling. And Jamil is an expert wholesaler, self-described Wholesale Genie. And so basically, Henry, James and I are going to pepper him with questions and hopefully he’ll help us understand what the truth is behind wholesaling. So Jamil, could you just get us started and explain what wholesaling is in the first place?

Jamil:
Absolutely. So first,, I just want to say every industry has a wholesale step up market, right? If you look at hamburgers, you look at McDonald’s, you see, you don’t start with a Big Mac. It starts at a cow, and then the cow gets butchered and then processed and transported and then processed again and packaged and reprocessed. And every step that goes along the market, the price of the beef increases. That’s business. And wholesaling essentially is the art of selling potential. We are adding value because we see a potential in a product, right? So for housing, you see you’ve got these terrible houses, these vacant properties, these distressed properties that are in original condition and need a tremendous amount of work. Well, there’s potential there. And investors can see the potential. Wholesaling is the art of controlling the asset and selling a portion of that potential so somebody else can realize it. You take your fee, move on to the next.

Dave:
So can you just put some numbers behind that? Give us an example, like how it works logistically.

Jamil:
Logistically, say you buy a house for… I’m going to use just real flat numbers here. You buy a house that is in distressed condition for $100,000. And you notice, or you look at the comps in the area and you see, wow, if I really fix this house up nice, you might be able to sell it for 210 or 225. But a lot of investment, a lot of work is going to need to be invested in order to get this property from this position to that position. So the wholesaler comes along and they notice that. They see the opportunity. They look at the house and they say, “Wow. In its current condition right now, I think cash investors at the most would be able to pay $110,000 for this property in order to make it worthwhile for them to invest in it, so that they could eventually put it back on the retail market at 200 to say $220,000. So I’m going to go and control that asset, and I’m going to put it under contract for a number below $110,000 so that I can make some money.”
Now, whatever that fee is, whatever you’re going to make is tantamount to how good of a negotiator you are and the ethics that you’re bringing into the conversation.

Dave:
So when you put it this way, it sounds like a great value add. What is the controversy about wholesaling?

Jamil:
Well, I think I’m going to play the contrarian here. And I think that the controversy with wholesaling and the reason why people hate wholesalers is they hate us because they ain’t us. That’s what it is. I’m going to just call it out, because I’ll look at it. And every time I’ve had a conversation with somebody who really aggressively disliked a wholesaler, it’s because they saw what the wholesaler was able to do. They saw what the wholesaler was able to accomplish. No rehabber was ever mad at the wholesaler till they saw the wholesale fee. Here’s the deal. You’re at the closing table, you’re signing the documents and you’re about to close on a property that you know can make money on. And then you see a $25,000 or a $30,000 assignment fee, and you feel like you got gut punched. Well, you weren’t gut punched when you agreed to buy the property for the numbers that you bought it at. There was no problem until you saw what somebody else was making.
And so again, I think that when you’re looking at it from those perspectives, the reason why people are upset, the reason why real estate agents are mad, is because that property didn’t become a listing. That property sold off market. Somebody else was able to solve the problem for the seller. Somebody else connected the dots to the buyer. And so that’s the problem that I think happens, is that people are looking at what’s going on in this space and they don’t like it because they aren’t doing it. Now, that’s not to say that there isn’t unscrupulous activity, that there isn’t things that people could be doing better. And I want to bring that to light, because of course, nobody in business is in business to rip people off. And when you see shady characters and you see bad things going on, the right thing to do is to put light on it, call it out and make sure that people evolve and do things better. Have wholesalers done things the wrong way? Absolutely. Have they gone off and misrepresented value to somebody? Yes.
But again, remember we’re in business, and the object of business is to make money. And as long as I’m working with people that are of sound mind, sound body, and are there to make a decision for themselves, then it’s my job to get a good price on a house. It’s my job to make money for my company. It’s my job to feed the people that are in my office all day, waiting for Jamil or waiting for the acquisitions manager to go out and do their work. So again, I think we’ve got to readdress this whole narrative of the wholesaler, their value that they add to the marketplace, and why people are truly upset of what’s going on. Because I’ll tell you this as well. I’ve seen shady realtors. I’ve seen shady mortgage brokers, but we don’t tar and feather in industry because of a few bad actors. We understand that there’s a tremendous amount of value that these people bring to the marketplace, and the same goes for wholesaling.

James:
Wholesaling is like this redheaded stepchild of real estate, because it doesn’t really fit in the same box a lot of times. Real estate brokers, they’re the biggest group of professionals selling real estate. They also have a lot of lobby dollars, and they also have very standardized fees that are very normal across the whole nation. Whereas in wholesaling, people get confused because they charge non-standardized fees. It’s based on a margin. But what people always need to remember, including real estate brokers – and this is the… Brokers get really annoyed at. I wear both hats. I’m a broker and a wholesaler. But the reason is, they don’t understand each other because they don’t actually sell the same thing. Real estate brokers sell houses. Wholesalers sell contracts. It’s commercial paper. So it’s a completely different… Even though you’re selling an asset, it’s still different because you’re selling an investment as a wholesaler, whereas as a broker you’re selling housing and you’re getting paid a commission to sell that housing.
But I think the biggest reason that people ethically don’t like wholesaling is because, A, you nailed it, Jamil. It’s hate us because you ain’t us, because they don’t understand, it doesn’t fit in their box, and they lose deals because of whatever they’re pitching didn’t work. But it’s also because they just don’t get the business all the way through. When you’re selling contracts, you’re selling paper. It’s no different than assigning a note or signing any kind of interest in an investment at that point. And I think, as it’s grown, people just understand it less, less and less. And as there was less inventory in the market, people really got annoyed with wholesalers. But as the inventory increases, I think they’re just going to be a normal part of the market now. They’re going to be a good thing, a healthy thing for the market to absorb different type of inventory.

Henry:
Yeah, man. I agree with you guys for the most part. Where I disagree is the hate us because they ain’t us. And I think that, sure, there are some people who have absolutely seen a wholesale fee and felt some type of way about that. I recently sold a property, a package deal, to a guy that was on two separate plots and he really only wanted one of the plots. And so he ended up doing a wholesale on one of the other plots, and I saw he made about 40 grand. And when I saw that he made that 40 grand, I went, “Man, I didn’t give him a high enough number.” And then I moved on, right? Because at the end of the day, I sold that property for a reason. And I sold it for the price that I wanted to sell it for. And I was happy when I got my accepted offer on that property. And so me seeing that he made 40 grand, all it did was make me go, “Eh, I should have did a little more due diligence and raised my price.”

Jamil:
Yeah. But you’re a very mature person to say that, because I’ve been in deals, Henry, where I’ve made money. I bought from another wholesaler. Then I sold to another rehabber because I saw an opportunity for them to be more potential extracted from there, and still have somebody make money on the deal, right? So I committed to opportunity from a wholesaler, so I committed to buying it. If I wasn’t able to wholesale it, I was going to close on it regardless. But then I was able to sell the contract, and bada bing bada boom. I got some money, right? Now, at the end of the day, that wholesaler was so mad at me. He was so upset because he, for whatever reason, was offended. Offended that I saw what he left on the table. Again, it’s a maturity thing. And I think you come at this from a very different point of view, Henry, with all of the experience that you bring to the table, and just the kind of guy you are. You’re not looking at somebody else’s plate.
But I think human nature is what it is. And people look at others’ success, and you have an opportunity to champion it or you got an opportunity to feel a way about it. And I think that seven out of 10 people feel a way instead of champion.

Henry:
I mean, I totally get it, right? If I got time to count somebody else’s pockets, mine better be full, right? And so people better think twice about that. But look, I think where… Well, I’ll speak for myself. Where I struggle with wholesalers isn’t the fact that they make money. It’s the fact that a lot of the times they’re sold this pitch on this is an easy way to make money. And then they get into the game without properly educating themselves. And then they put themselves in tough situations by putting properties under contract for too much money. And then they inflate the numbers and then they end up backing out of deals. And what that does is, it doesn’t hurt them because they backed out. And that’s what was attractive about this strategy for them, is they felt like there was limited risk to them.
But what they did hurt was they hurt that person who has a tough situation that they were trying to alleviate by selling that property. Because while that property was under contract with this wholesaler, they technically couldn’t go out and try to sell this property any other way. And a lot of these wholesalers are telling these buyers that they are going to buy the property, right? And then they pay too much. Can’t get someone to buy it, back out of those contracts. And now someone who had a problem has even a bigger problem because now they’ve lost a lot of that time.
I think where wholesaling gets its bad name is that too many people call themselves wholesalers when they’re not wholesalers. They haven’t properly educated themselves on being wholesalers. And then they started a wholesale business, but they’re not running a wholesale business. They’re just trying to make a quick buck without doing their proper due diligence, and without really figuring out how to make this a business, how to build a network of people I need in my corner in order to do this properly. In order to know that when I tell a seller, “We are going to get this deal done for this price,” that you know good and darn well it’s going to get done for that price.
You see wholesalers sometimes, again, calling themselves wholesalers and then they just grab something off Zillow or off the MLS and then try to market that as a deal. And can you wholesale a deal on the MLS? Sometimes, but it’s pretty rare, right? And there’s usually an agreement between the agent and the wholesaler, because the wholesaler typically has a network of people the agent doesn’t have. But just to randomly grab something, call it a deal and put some people in tough spots I think is where wholesaling gets a lot of its bad name. And so I hope that we can talk a little bit about how do you approach the business of wholesaling, and then approach it in a way where you can be certain that when you tell a seller, “This is what you’re going to get,” that you know that’s what they’re going to get regardless of if you or somebody else closes on it.

Jamil:
That’s excellent. That’s an excellent observation, Henry. And I think that you nailed it, right? That’s that is a very, very huge issue in the entire business model. Because again, the barrier of entry is so low. There’s no licensing required. People lie and say that you don’t need any money. That’s not true, people. If you’re going to wholesale and you’re going to do it correctly, you need to execute a contract. And in order for you to have a ratified contract, it very likely is going to need earnest deposit. That earnest money could be anywhere from 10 to $10,000. So you do actually need some money, right? So let’s not buy into these myths. But again, what Henry’s talking about is people getting in and forgetting the fundamental thing that I said in the beginning, that what wholesaling is selling potential. If you don’t have potential in your hand, if you don’t have a deal, there’s no wholesale opportunity. That’s it.
So again, you begin your wholesale journey by understanding value. That’s why, at least for me, the thing that I did first when I got into the business was not get into the business. I got into the understanding of how to spot value. How do I see what an opportunity is? Because I know as long as I can get that piece down, as long as I can figure out where there’s a potential deal, I’m going to be able to get into control because I’m going to have the opportunity. I’m going to have the ball, right? And so I think we need to begin there. I think that if you’re looking at this, listening to us or thinking about getting into real estate investing, and wholesaling is the place that you begin to start because you know that it has the potential to give you large fees, it has the potential to turn you into a buy and hold investor or to take you down the path of fixing and flipping, because wholesale is the place a lot of folks start.
If that’s where you are, then listen to this and listen to it and tattoo this on you if you need to. Start by not starting and doing a deal. Start by learning how to comp, learn how to underwrite, learn how to spot potential. Once you get that piece down, then the next thing Henry said was find the network of people, squad up, go out there. And before you make a representation to a seller that you are actually a buyer, that you’ve got the liquid funds to perform on a deal, go get yourself some backing. Make that statement true. Actually have a backstop of funds that will allow you to perform on your deal, whether that be bring your buyer, whether that be connect with a Keyglee franchise, or work with Henry or James or somebody else that you know can pull the trigger that understands what they’re looking at and can perform. You will become the most valuable player on the team if you figure those two pieces out.

Dave:
That’s awesome advice, Jamil. And Henry, thank you for bringing up those points, because I do think there are some legitimate concerns that people have about working with wholesalers. But what Jamil said is true. There are bad actors in almost every part of real estate and there are bad actors in almost every industry out there. And as an investor, you need to make sure that you’re working with reputable people. And if you want to become a wholesaler, sure hope that you want to be a reputable and ethical one at the same time, because our show, On The Market, is all about current events, Jamil, is right now a good time to get into wholesaling and why or why not?

Jamil:
I believe it’s always a good time to get into wholesaling, because the beauty of wholesale is that you really get laser focused on what the marketplace wants and how you can fill the order. Right? So because I’m wholesaling and I can see where buyer mentality is right now, where buyers are pulling the trigger, where they’re not pulling the trigger, I can see all that data. I know where it’s heading. And because I know where it’s heading, I know where I need to be in my numbers. And so the beauty of wholesale is you can make money on the ride up, you can make money at the top, and you can make money on the ride down. And right now,. We’re seeing this shift we’re seeing fix and flippers look at their potential next flip and say, “I’ve got to bake in 10%. I got to make sure that if the market corrects at all, that I’m not going to just do this for practice. I’m still going to be able to pay the electricity bill and keep things moving along in my life.”
And so again, wholesaling is beautiful because you’re not really putting yourself out in that extensive amount of risk because, again, you’re not typically holding a lot of property. As a wholesaler, I sell my contracts. I don’t own a lot of stuff. And anything that I’m closing, even if I’m going to take a loss on it, I’m still selling it, right? So I’m not ever really exposing myself to that much time in the market. That’s why I believe wholesaling is such a beautiful business model, because again, you’re in and out of transactions fast. You’re trading, right? You’re trading, you’re not holding, you’re not gaming, you’re not timing. You’re trading. And as long as you understand how to seek potential, how to seek opportunity, then you can trade anywhere on the cycle as you want.

James:
Yeah. We started our wholesale business officially in 2008, right? When the market was sliding at… We worked for a company. We started our own in 2007-8, and literally the month that we opened our business doors, subprime mortgages blew up, the market went into a free fall. And the only way that we made it by was, A, flipping, barely get by on those, but also wholesaling out opportunities. And you can still wholesale even right now. The market’s still really healthy. It’s a little different. Investors’ appetites are changing. But we were wholesaling when things were dropping in 10% a month. It was a very quick trade deal, but it was very key for us to build that business and to really learn in all types of markets, because it allowed us to collect fees without putting out a ton of different types of capital. And especially back then, there was such limited money out there. We didn’t have a whole lot of it, so it was allowing us to get deals done.
But the beautiful thing about wholesaling is, it’s a way to get paid as you’re learning. It’s like getting paid for your own college, right? Wholesaling is this, it allows you… When I started, I was 21. I had no idea about real estate, but I got to learn as I was starting to make money. I got to learn how to sell, how to cold call, how to talk to people. I then learned how to underwrite properties, like what is a comp? What is a value? Because we can go into these deep things like, “Oh, we got to learn how to comp. We got to learn how to do that analysis.” That takes time and experience. And wholesaling allows you to learn that without losing a bunch of money or putting in a bunch of money at the same time, but it teaches you all the core fundamentals to grow as an investor.
If I didn’t start wholesaling when I was brand new, I don’t know if I’d still be in real estate today. It allowed me to team up with the right people, sell to the right type of investors, learn their processes, then implement their processes into my daily processes and really grow as an investor. I would’ve probably never been flipping homes or buying rental properties if I didn’t start wholesaling in the very beginning, because it gave me the capital and the knowledge to learn how to do all those things. And the more you learn, the more you perfect your craft, like what Jamil just said, is as the market’s sliding down or as the market’s shifting, he knows what his buyers want. He knows what the margins need to be so he can get ahead of it during those things. So the more you learn during wholesaling, the more you team up with people, that’s how you learn the core basics.
And that’s why I’m sharp as an investor is those core principles that you learn as wholesaling. Understanding margins, understanding rehabs, understanding investor demand and what they’ll actually buy and not buy at the time. And then it helps you set your own buy box. And it really does help you protect yourself as an investor all the way through. It’s funny, because a lot of people look at wholesaling as the new way to… Like, “Oh, it’s for new people in real estate.” It’s a way to train you to the best on everything. You can be a ninja going forward because you got that crash course in wholesaling, as long as you take the steps. No one told me how to do it. I had to research it myself and learn those things and communicate with people, but it is the best college you can get for real estate.

Henry:
That’s a phenomenal point. I totally agree. And to go back to Dave’s original question, is this a good time? I agree with Jamil, it’s always a good time. Real estate is cyclical, so we’re always going to have ups and downs. And just like any investment vehicle, there’s ways to make money go in both directions. With this strategy specifically, and then the market that we’re currently in, real estate values are still fairly high. We still have supply and demand in our favor as investors. And so there are some markets where values are starting to come down a little bit. We’re seeing properties stay on the market a little bit longer, but we are seeing more opportunities to buy properties at a discount because of the financial landscape, because we’re in this looming recession. And when financial times are difficult, that creates more difficult situations for people where they might look to sell a property at a discount to create cash, to go do something else, to solve some other problem that they have.
And so, yes. Even if prices come down, that shouldn’t scare you away as somebody who’s interested in potentially wholesaling, because that means there’s more situations, and more situations means you can potentially offer less money than you would in a higher market. And so what I’m seeing in my personal business is, yes, we might not be able to sell for as much as we could sell for six months ago, but I can also buy for less than I could buy for six months ago. And so my margins are still there, right? It’s the same margins. It’s close to the same margins. And so it’s the same thing with wholesaling. You’ll be getting properties cheaper and maybe not wholesaling them for as much, but the deals are still out there. And it’s about what service are you providing to the people you’re contracting with? And what service are you providing to the people you’re assigning those contracts to?
Your job is to be a problem solver for both your sellers and your buyers. So if you get really good at understanding… And also, if the market does shift and prices do come down, there’s always going to be buyers. Somebody is still going to be swooping up properties, right? Your job as a wholesaler then is to go figure out who those people are, what they like. And then you need to go figure out how to find the people that are willing to sell you those things so that you can bridge that gap between the two to make your money. There’s always a way to make money.

Dave:
James and Henry, I know both of you wholesale in addition to flipping houses and buy and hold. How do you make the decision about which properties you are going to work on yourself by either holding onto them or flipping them, and which ones do you decide to wholesale? Because as an investor who talks to wholesalers, I wonder that sometimes. Am I just getting the dregs of what Henry and James don’t want? Is this the backwash of all the deals that they come across?

James:
There’s nothing wrong with a little backwash.

Jamil:
Says guy on the yacht.

Dave:
Yes, it is the backwash.

Henry:
That’s the name of your boat.

James:
Yeah. Backwash. That is the new name.

Dave:
Oh, that’s a good name.

James:
That’s a great question. And honestly, I think it’s one of the most detrimental questions to investors because they get this paranoid state in their mind of, “Oh, you’re passing on the deals you don’t want.” I buy property based on resources and location. What I buy, and every investor should have their own buy box, their own set of requirements that they’re buying on. And to be honest, it should be pretty tight. I don’t go buy every different types of fix and flip property, because as I build my business, I have different types of contractors. I have different types of capital, different types of teams that are running things to where my cost per deal might be more. And so I’m going to look at different types of deals than other investors. And all four of us would probably buy a different fix and flip right now today, if we had to pick our type of deal. They’re going to be a different thing.
That’s what goes out of our company or when we’re passing on a deal, not the margin on a deal. The majority of the stuff that I buy, no one wants anyways. It’s just complex, it’s tough, it requires a lot of capital, it requires a lot of time. We like it because we get the absolute best margins, only because there’s less competition. Not because we’re stealing the property over there. We go where the competition’s not because we can get better margins that way, but that’s not leftover deals from any type of wholesaler. That’s just passing on a opportunity that doesn’t quite fit on your buy box and it allows you to capitalize on it. So it allows you to make money on a property because it doesn’t quite work for me, but it could definitely work for Dave, right? Or for Henry. If I find a cash flowing property that he can leave no money in and it might not fit my rental requirements right now, because right now we’re trying to buy bigger apartment properties, just for efficiencies – not cash flow, but for efficiencies only – I might pass that on to Henry.
It could be a great deal for him because that fits exactly in his buy box of what he’s looking to accomplish right now, but it doesn’t fit into where we can be efficient. And so that’s not a bad deal. I just have to know as a wholesaler, what is actually a good deal? What is the margins that investors need to pay? And it doesn’t really matter who’s buying it for what. We should all be buying around the same margin anyways. And so by knowing these margins, I can pass on a deal and still make it great for everybody. And it doesn’t take my resources, because I also don’t want to just go buy some random deal because it can affect my deals in other markets too, because I’m being inefficient. So most of the reason people are passing is because it doesn’t fit in their buy box, not because they’re being greedy or they’re trying to just keep the good ones.

Jamil:
It’s interesting. The intent always seems so sinister for helping, right? And I get it a lot. When I was first starting, before we built a brand, before people actually started buying so many houses from us and winning on the majority of them, that they said, “Wow, these guys actually sell great opportunities.” But before then it was always like, “Well, why aren’t you doing it yourself? Well, why aren’t you flipping it yourself if it’s so good?” Well, look. Again, let’s all remember that everybody can do their own due diligence. Everybody can run their own numbers. Everybody can do their own math. And so this isn’t about, hey, there must be some hidden motive or some agenda that I’m on, just because I’m giving you something that you can win on. Does it need to be that sinister? Can we not all agree that, hey, there’s people out there that actually want to see other people win. And I think, again, it goes back to the narrative of what wholesaling is that, are we here to add value to the marketplace or are we here to extract it?

Henry:
100% agree. And Dave’s question goes back to that age old saying of one man’s trash, right? One man’s trash is absolutely another man’s trash. So to answer your question, Dave, if you get a lead for me, it is 100% something I don’t want. But that’s okay.

Dave:
That’s okay. Right.

Jamil:
That doesn’t mean it’s not something you don’t want.

Henry:
Doesn’t mean it’s not a good deal. It doesn’t mean it’s not a good opportunity. It just means it’s not something that I want to do. And it could be a number of reasons. So James was right. A lot of my decisions are resource-based. And so if right now I’m contractor-deficient, so I can’t take on a ton of heavy rehabs right now. I don’t have the team in place. I lost one of my main crews. And so I may look to assign something that I know I don’t have the resources to flip. Maybe you do. Awesome opportunity for you, right? Doesn’t mean it’s a bad deal. Just means I can’t do it right now. It could also mean that it doesn’t fit my buy box. Maybe your buy box is super awesome duplexes, and my buy box is I only want single family homes in this one niche neighborhood, because I’m doing this one niche strategy and that’s my thing.
And so now I’ve come across this duplex. I can’t do my thing. Dave loved duplexes. If I send you a duplex that you can make some money on, you’ll probably buy it. It doesn’t mean it’s a bad deal. It just means it’s not for me. It’s not in my buy box. But that’s the value of building your relationships. That’s the value of connecting dots and learning how to solve problems. If you are the wholesaler, it’s your job to get out there and know people like Dave, who wants to buy the duplexes in this super swanky neighborhood in Denver, and then James, who wants to buy the big distressed properties to flip in the Seattle market. And then Henry who likes the little rinky-dink single families in these neighborhoods in Arkansas, right? And if you know all these things, and then you become this master marketer who’s just great at generating leads, as soon as the lead comes in, you already know your buyer if you’re a good wholesaler.
The lead comes in and you’re like, “Oh, this one’s for James. Oh, this one’s for Dave. This one’s for Henry.” And then you will know, because your job is to understand who the players are in your sphere and what they like. And you’re just throwing them deals. And if you’re smart and you’ve built up some capital from these wholesale fees, you should absolutely be picking and choosing the ones that you want and keeping those. That’s 100% what you should be doing. So yeah, Dave, that’s absolutely what you’re getting from me.

Dave:
I totally get that. That makes sense. You have a certain amount of resources and you have to pick the ones that you want. And it goes back to the same thing about comparing yourself to other people. As long as the deal works for me, it shouldn’t, I guess, really matter why you don’t want it because it works for me. And if it fits in my buy box, that should be good enough.
But this does bring up a question I did want to hit on for part of the show, which is, as an investor, what should I be looking for in a wholesaler? I, as you all know, work full-time at BiggerPockets. I live in Europe. I don’t have time personally to go source deals all the time. And so there is appeal to me, and I think to a lot of people, to work with a wholesaler. If you can find me a deal, I’ll pay you an assignment fee, but I don’t know how to vet a wholesaler and to find the right wholesaler for me. So Jamil, can you tell me a little bit about how I should go about finding people to work with?

Jamil:
Absolutely. Absolutely. So it goes back to, first and foremost, do you resonate with this person, right? When you first meet somebody, you get a vibe of how do they communicate? Are they responsive? Do they answer their phone? Do they respond to text messages? Do they look like they’re somebody that’s on top of it? I’ve bought a lot of deals from a lot of wholesalers, and I can tell you that a lot of them are not on top of it. They don’t respond. They ghost you. All kinds of craziness happens. And so, like anything else, like any other relationship, you want to see fundamentally, are you just an on top of it human being? Great. Next, I want to start asking them questions. I want to find out from them, what are your main lead sources? How are you doing lead generation? Are they mainly working with other wholesalers?
Then if I know that, oh, wow, you mainly work with other wholesalers? There’s very likely going to be multiple assignments on this deal, so I might not be buying as deeply as I might want to. Not saying it’s not going to be a good deal. I’m just saying, I know there’s going to be layers of people on it. The next thing I’d want to find out is, okay, what do you specialize in? Are you looking at small multi-family? Do you mainly go after single family? Do you mainly focus in these neighborhoods? Do you mainly focus in luxury? I want to get an understanding of your wheelhouse. What’s your expertise? And then beyond that, I want to find out how you do business, right? Are you handling a transaction from start to finish? Do you have transaction coordinators on your team? Am I going to get wiring instructions from you right away? When I ask you questions like what’s access, am I responded to immediately?
When I ask you question, what’s close of escrow and what title company are you with, does it take you six hours to get me that information? These are all signals. These are all signals to what’s going to happen further down the deal. And so that’s how I’m going to be vetting somebody initially, right? Because again, how you are at one thing is how you’re going to be at everything. And so immediately, if I find that you’re not on top of it, I immediately don’t get transparent answers, then I’m going to have my guard up. I’m going to feel like I don’t think I’m working with somebody that might be giving me all the details or all the information that I need.
But after that, you’ve just got to rely on yourself, right? Again, you are the person that’s doing the due diligence based off numbers. You got to be proficient at running your valuations on how much a rehab is going to be or what your rental rates are going to be. You’re going to need to know that. And so if, again, you’re buying something at a price that makes sense for you and you’ve seen the information that you need to do your due diligence, at that point now, you’ve just got to trust and hope that this deal is going to go the way it needs to. And that’s the reason why we have title companies. That’s why we have escrow. That’s why we have closing attorneys, because they’re going to make sure that the title is clear. They’re going to make sure your earnest money is protected. They’re going to make sure that the things that need to happen to protect you throughout the rest of the transaction are going to be taken care of.
That’s what they’re being paid for. But beyond that, that’s your job. You got to play in it, and you got to trust that everybody’s going to do their piece. This is what society is, right? If I go and I place an order for something, I trust a person on the other side of that order is going to fulfill it. Think about just how we feed ourselves, right? I place an order on my phone. This is food I’m putting in my body. It keeps me alive.Do I know the person on the other end of that washed their hands after they used the restroom? I don’t. I trust that everybody in our transactions in life are doing the things they’re supposed to do in order to keep society moving. And I’m going to think the same way of my real estate agent. I’m going to think the same way of the wholesaler. I’m going to think the same way of the escrow company until I’m proven wrong.

James:
And you always want to also dig into their paperwork a little bit. For me, I don’t really interview wholesalers. I kind of set the tone and let them know what my buy box is, because at the end of the day, wholesalers are not brokers. They’re not offering me a service. They’re not working for me or getting paid to do a service. They’re providing additional opportunities. It’s up to me as an investor to explain to them what my buy box is, what my terms for closing is, and then find out what kind of contracts and what their terms for closing are. Because for me, I don’t really care how they’re marketing for things, what kind of deals they’re looking for. I want to know what’s the process when they finally send me that 20th deal, because a lot of times I got to look at 20, 30 deals from one individual wholesaler before we actually pull the trigger on it.
But when I do pull the trigger and it is a great opportunity, I want to get that locked down right away. So those are the things that I’m talking about more with wholesalers. They can market whatever which way they want. I’m going to tell them what I want to buy as it comes through. How do I lock that deal down? Because if it is that great buy, you got to lock it down very, very quickly. And then the other reason I want to know about their paperwork is because if you’re being assigned to their paperwork, you are going off of their contractual agreement. If they have weak paperwork, if it’s shady, if they didn’t do the proper disclosures… In Washington state, we have a distressed homeowner law and that needs to be in every contract in 16-point font on a separate addendum. If someone is wholesaling, a distressed homeowner to us, and they do not have that clause in there, that is not a binding contract at that point. And then I’m now getting their assigned contract over with me, and it’s not legally binding.
And so you do want to know what kind of paperwork they operate on, what kind of agreements they have. And then also, if you are a little… I will say, I have met some very shady characters in this space, but there are shady characters in every space, probably broker space I’ve seen the shadiest. But you always want to make sure that you have your own disclosure too in release. So when we do wholesale deals, the wholesalers are giving me a disclosure and a release disclaimer, saying, “Hey, I’m releasing the liability from them,” but I’m also putting back on what their responsibility is, who they’re communicating with and what their responsibility in the deal was. And so in case anything goes bad, they’re covered and I’m covered at the same time. So know your paperwork. I think there’s a huge mistake that a lot of people make is they rush to get that deal, they get it assigned, and all of a sudden they’ve been assigned a mess or a contract term that they didn’t quite understand.

Henry:
Awesome. Jamil, James, I totally agree with you. I think you do need to be asking questions of the wholesaler you’re working with, because at the end of the day, you’re going to be taking over their contract. So you want to make sure the contract is great and you want to make sure they’re ethical people, people that you want to be contractually tied to a deal with. And so I talk to students about this all the time. And so I actually have a list of questions that you can ask wholesalers, and so maybe we can put something together for everybody.

Dave:
All right. With all of those amazing points that Jamil, Henry and James just said, we actually have a incredible data drop coming at you courtesy of these three. We are going to put together a master list of questions that you can ask any wholesalers you are thinking about working with, and as a wholesaler, you should be prepared to answer to any investors who you might want to work with as well. So thank you to Henry, Jamil and James for putting that together for all of our listeners. All right, before we get out of here or actually move to our crowdsource section, are there any last words any of you have for our audience that they should know about wholesaling?

James:
I think right now, if you’re getting in the wholesaler market, you just want to spend a lot of time understanding what’s going on, what investors buy at, and then build around that, rather than going out and just looking for property. Talk to buyers, find out what they want to buy, build your business around that.

Jamil:
For me, I think it’s really important that you fall in love with the model. I love wholesaling. I love real estate. I love seeing the difference between a fully remodeled house and the house in its original form when it needs help and love. Get obsessed with this, really enjoy what you’re doing, and be prideful that what you’re doing in the marketplace is actually of value and people need you.

Henry:
Operate in full transparency. If you feel like you have to hide something, then there’s probably a better way that you could do that thing. So be able to tell everyone the truth and make money, and you’re probably going to be doing it right.

Dave:
I love it. All of you bringing ethics and morality to wholesaling. Not that the majority of wholesalers are not unethical, but it is nice to hear from all of you how it can be done in a value-add way. We are going to move onto our crowdsource, but first let’s take a quick break. All right. For today’s crowdsource section, our producer Kalin has put us up to something. She has asked us to play investor truth or dare. I am a little nervous. I’m going to just keep picking on Jamil. Jamil-

Jamil:
Yeah.

Dave:
… first. Truth or dare?

Jamil:
Let’s go truth.

Dave:
Okay. What is the grossest or worst thing you’ve seen when touring a house?

Jamil:
Oh my gosh. So I was talking to a physician, and he was a GP and needed to sell two properties, and he was meeting me at the house. So I go there, it was at the end of his day and it’s a really nice part of Phoenix. I pull up into his driveway, and as we’re walking from the driveway to the back of the house, he says, “I’m really sorry. I didn’t have an opportunity to clean up because I just finished my day. And your timing and my day ending just matched up, so come on in.” And we go into this house and I’m in shock at what I’m seeing, because all it is is bags of used toilet paper.

Dave:
What?

Jamil:
Bags and bags and bags and bags and bags and bags of collected, used toilet paper up and down the hallways of the house, in every room of the house, in the bathrooms, in the kitchen. This man, who was a physician, collected his own used toilet paper, and then thought that there was a way that he could have cleaned it up before I got there.

Dave:
Yeah, just a casual cleanup.

Jamil:
Casual cleanup. It was the craziest thing. It actually made me second guess the entire medical system, because I realized that this person had just been giving people medical advice before I went to his feces-filled property. So get a second opinion.

Dave:
I have so many questions. Well, actually, I have a friend who’s a doctor and she graduated medical school and I asked her, “What’s the most important thing you learned in medical school?” And she said, “Get a second opinion. Some of my classmates were idiots.” But wait, were they clear bags? I have a lot of questions.

Jamil:
Well, yeah. It was grocery bags, so it was all just coming out. They were full, they were full and-

Dave:
Oh, they weren’t closed?

Jamil:
Some of them were tied. Some of them were open. It was like a horror movie. And you literally couldn’t not see it. It was everywhere. They were everywhere. And they were piled on top of each other. The home smelled so badly. It was insane.

Dave:
Wait, but did you buy it?

Jamil:
I didn’t actually buy it.

Dave:
James would’ve bought it. He would’ve negotiated that down.

Jamil:
I should have. I should have. I should have put it under contract, but a competitor of mine actually did. And I saw that they ended up making like 30 or $40,000 assigning it to somebody. So one man’s poop.

Henry:
So it wasn’t a crappy deal.

Dave:
Can we get a rim shot? All right, Jamil. Ask someone else now. Pass it along.

Jamil:
Okay. Henry, truth or dare?

Henry:
Truth. That’s an easy one for me.

Jamil:
Truth. Okay. What is the worst deal you’ve ever been a part of?

Henry:
Oh man. The worst deal I’ve ever been a part of. So I’ve been pretty fortunate on the flip side to not have been a part of any crazy losing deals. So let’s see, I bought a house as a flip that I thought I could make a quick buck on. And sometimes, when you think it’s too good to be true, it probably is. And so I got a call from a seller who had a house that they had just struggled selling, and the reason they had struggled selling it is because their agent just sucked. The pictures were terrible. They didn’t do any follow up. It was just an agent trying to make an easy commission on doing the least amount of work. But the house was a really nice house, and it was in a part of this area where a lot of people retire to.
And so I was like, “Cool, I’ll just snag this property at a decent price. And then I will stage it. I have a rockstar agent and he’ll be able to get it sold and I’ll make a whole bunch of money, and it’s going to be awesome.” And so I didn’t do the proper due diligence. And so this house was a multi-level house, and so lots of stairs, and the backyard was super sloped. And so what I realized after I bought it was that most of the elderly people who live in this community didn’t want to have… It was laid out in a way where you couldn’t enjoy the benefits of the full house without having to go upstairs. It’s not like there was only a bonus room downstairs. To use the house properly, you had to go up and down the stairs every day.
And so most of the older demographic didn’t want to buy that house, and most of the younger demographic who had kids didn’t want to buy that house because the backyard wasn’t usable and it was super sloped, and so there was no yard for the kids to play in. And so even though I bought it and I staged it and it looked way more desirable, I got lots and lots of looks, I couldn’t get anybody to buy this thing. And it sat on the market and we dropped the price, and it sat on the market and we dropped the price, and it sat on the market and we dropped the price, and I ended up finally selling it for on paper what looks like a profit, but by the time you counted my holding costs and my fees and my commissions, I lost, I don’t know, not a ton of money. 10 grand maybe.
But it was a lesson for me in, don’t get too greedy and don’t think that you can just ease your way into making money. If it was that easy to make money flipping houses, everybody would be flipping houses. And so I lost my fundamentals on that deal and it cost me some money and a whole lot of headache. And I know 10 grand’s not a ton of money in the grand scheme of flipping houses, but you got to remind you, I was only about a year into the game at this point, and so 10 grand was a lot of money at that point, so that one wasn’t my fave. But lessons learned. Haven’t made that mistake again. Do my due diligence every time. All right. My turn. Dave, truth or dare?

Dave:
Oh, I guess dare?

Henry:
Perfect.

Dave:
Oh no.

Henry:
So Dave, I want you to invest $100 into the most random investment, so let’s see. Let’s see.

Dave:
Oh, that’s great.

Henry:
You get to pick, so you can invest $10 into the wild commodity of wine.

Dave:
Ooh. Okay.

Henry:
Or you can invest… I’m sorry. Not $10. $100. Or you can invest $100 into water, and so water as a commodity.

Dave:
Is that a thing?

Henry:
Yeah.

Dave:
How do you do that?

Henry:
Yeah, you can invest in water. Water is a commodity. And so you, my friend, can now choose between water or wine.

Dave:
Well, that’s easy, right? Wine, obviously.

James:
Basic necessity.

Dave:
I don’t know which one’s a better investment, but I know which one I would rather own, which is wine. So I’m taking wine.

Henry:
Well, they say you should invest in things you understand. And so you’re simply saying more about wine than water. I don’t know what that says about you as a person, but we will… So you have to invest $100 into wine as a commodity, and then you have to give us a follow up on how your investment is doing later on.

Dave:
Okay. Accepted. I like this a lot. I will figure out how to do this and I will report back.

James:
And you got to figure out how to turn water into wine, and then you’re there.

Dave:
Oh, I could combine them.

Henry:
You’re right.

Dave:
All right. I think for the last one, James, truth or dare?

James:
Let’s do a dare, Dave. What have you got for me?

Dave:
Oh, good. Well, I was hoping you would say this because when you were… James, for everyone listening, had to go off camera, and Henry, Jamil and I decided that you should have to jump off your boat right now while screaming the most amount of money that you’ve ever made on a single real estate deal at the same time. Do you accept?

James:
You can’t not accept the dare, correct? What’s the alternative? Actually, what even happens if you don’t accept the dare?

Dave:
You’re fired from the podcast.

James:
Yeah, no. I’m in. I’m in. I’m definitely in.

Henry:
Your friends, you’re letting [inaudible 00:55:32].

Dave:
I just want to see James’ boat neighbors. He’s just screaming as a thousand dollar-

James:
It’s going to get awkward. So what are we doing with this?

Dave:
Good.

James:
All right. So we got to jump off the… All right.

Dave:
All right. He’s leaping.

James:
Any requests for back flip, dive? Actually, straight dive. That’s probably a good thing.

Jamil:
Oh wow, you’re going to… Yeah. Just straight dive. Don’t hurt yourself.

Dave:
Yeah. We could all rate his dives. I mean, look at this guy, his podcast studio is a-

James:
This is, I will say-

Jamil:
Man.

Dave:
If you’re all listening to this, you should be watching this on YouTube, because you could see how sweet James’ boat is.

Jamil:
Yes.

James:
I’m figuring out the best place to jump off without hurting myself.

Dave:
Where are you, by the way? Can you do a little travel show intro for us?

James:
Yeah. We’re in Catalina Island. We’re up the coast of California.

Henry:
It goes with the wine, the freaking Catalina Wine Mixer.

Dave:
Oh yeah.

James:
Yeah. The Catalina Wine Mixer.

Dave:
Wine mix. It’s a wine for me to invest it.

James:
We’re doing this. All right. Well, I got to take my earphones out.

Dave:
All right. Well, I’ll just say bye James, because I guess this is the last time we’ll see you on this podcast. So thanks for joining us.

James:
Here we go.

Henry:
Let’s hear that number.

James:
All right. A million dollars.

Jamil:
Yeah. Well done. Well done.

Dave:
A million times out of a single deal? Very nice dive.

Jamil:
Perfectly executed.

Dave:
All right. Well, Jamil, Henry, this was a lot of fun. It was a little disorganized, but we had a great time. Always fun hanging out with you guys, and honestly learned a ton about wholesaling. This was a really cool conversation. Oh, he’s back.

Henry:
Hey.

Dave:
James, Bravo. We were just complimenting.

Jamil:
You’re awesome, bro.

Dave:
Excellent form.

Jamil:
You’re the best, James. We love you.

Henry:
Thank you, sir. That was amazing.

Dave:
That was great, dude.

James:
The one time I cleared six figures, so.

Dave:
Wow. That’s unbelievable. We’ll have to hear about that in the next show. You can go towel off.

James:
Yeah. All right.

Dave:
All right. Well, thank you all for listening. We will see you all next time for another episode that will be hopefully just as weird as this one. On The Market is created by me, Dave Meyer and Kalin Bennett. Produced by Kalin Bennett, editing by Joel Ascarza and OnyxMedia. Copywriting by Nate Weintraub, and a very special thanks to the entire BiggerPockets team. The content on the show On The Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.