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Four Different Ways to Analyze a Wholesale Deal!

SHOW SUMMARY:

In today's show, Larry and Kandas shared what they've been up to as well as some of their fun experiences last week. In this episode, they will talk about different situation and ways to analyze a wholesale deal.

SHOW HIGHLIGHTS:

  • On their firearms training
  • Updates on real estate
  • Ways to analyze wholesale deals
  • - ARV
  • - Rental income
  • - Wholetailing
  • - Seller financing
  • What wraparound mortgage is

QUOTES:

  • "When you're doing what you love, it doesn't always feel like work.”
  • “The more tools you have in your toolbox, the more deals you can do.”

RESOURCES AND LINKS FROM THIS SHOW:

SHOW TRANSCRIPT:

Larry: What’s up? What’s happening? How you doing? Look, Manny’s in the house. Ola, amigo, Larry and crew.

Kandas: And crew?

Larry: Now this –

Kandas: I’m just a crew now?

Larry: Yeah. Manny, you should never have said that. You should never have said that.

Kandas: Just a crew. Alright. Okay.

Larry: I’m just the crew, right?

Kandas: Alright. Moving on.

Larry: So, welcome to today’s BRAG Show, Be Rich and Generous. Thank you, guys, very much for watching. We really, really appreciate it. Thank you. I got a thing up here where we can see like comments and stuff somewhere. Oh, there we are. We’re live up here. Look.

Kandas: Oh, look, your stamp on my hand is showing up. Part of it.

Larry: Hello from Chicago. Alain, awesome. Thank you so much for being on. Awesome. Excellent. Excellent.

Kandas: Yeah, we didn’t get to do this show last week. We were in Nevada and –

Larry: Why don’t you tell ’em where we were?

Kandas: We were in Nevada.

Larry: Why don’t you tell ’em what we were doing?

Kandas: So, in Nevada, there is this phenomenal firearm training institute. It’s called Front Sight. And the level of training out there, the guys out there, like the range masters and the support staff that they’ve got and level 1s, level 2s, once we had level 3s, line coaches, they are phenomenal. I am a person who was not afraid of guns. We’ve had guns in our – Matt and I have guns in our house right now. I know how to operate a gun but I didn’t know how to run a gun, and I told the class out there and I told our staff here when we got back that we grew up in, you know, I grew up in the country so my firearm training when I was growing up was, you know, here’s a BB gun, here’s a .22, don’t shoot your brother, that type of thing. That is – that’s what I got.

Larry: That was your training.

Kandas: That was my training –

Larry: Here you go. Don’t shoot your brother.

Kandas: Don’t shoot your brother. Go have fun.

Larry: Obviously it worked. He’s still around.

Kandas: Don’t shoot your brother. Oh, and there was one other rule. Don’t shoot any other – don’t shoot anything else that you’re not willing to eat, right? So –

Larry: How to run a gun. What does that even mean? Kenny said that. How to run a gun.

Kandas: Run a gun. That’s the verbiage they used. So we learned – what we learned – and running a gun means keeping it in working order, right? Doing chamber checks, magazine checks, making sure you know how to do tactical reloads, emergency reloads. It was a self-defense handgun training class and it was absolutely phenomenal. We shot –

Larry: Four days.

Kandas: We shot guns for nine hours a day for four days. Some of it was classroom instruction. We would have like a twenty-minute lecture on how to do what we were getting ready to do. They would do a demo. They would put us up on a line to do it. Phenomenal. So good. We learned how to drop fire. I think one of the most impressive things that I learned is I always thought, and with the BB guns that we had, the CO2 BB guns, you put your finger on the trigger and pull, it’s shooting, but with an actual like 9 mm that I was shooting with out there, there’s slack on that trigger and you’ll be able to take the slack out to be ready for your shot, stay on the front sight, and finish out the view after that shot to do a second one or decide not to shoot was – that was one of my biggest –

Larry: Listen to her talking like a pro.

Kandas: I know. It’s so exciting.

Larry: Stay on the front sight, pull out the slack, take a nice, clean drop rest, right?

Kandas: And we did establish that I have a quicker draw than Larry Goins –

Larry: That is true. We did some competition, and where we had to pull out a gun out of the holster, and we had to load it, get a magazine off our support side, load it, rack it, and shoot.

Kandas: Three targets.

Larry: Three targets. We had to shoot a headshot where somebody was holding somebody hostage.

Kandas: You couldn’t shoot the hostage.

Larry: Right, you couldn’t shoot the hostage. And then you had to shoot two other people that were eighteen yards away.

Kandas: Two other body-style, torso-style targets.

Larry: Right. So, Kandas beat me to the draw.

Kandas: I beat the draw. I got the first shot off.

Larry: But I hit the targets.

Kandas: Quicker than me. I lost by time alone, that’s what I lost by. Time alone.

Larry: That’s true. But her husband, Matt, Kandas’ husband, Matt, he did awesome. Out of thirty people, he was second in the entire competition going through teams.

Kandas: It came down to him and one other guy.

Larry: Right. Absolutely.

Kandas: Sure did.

Larry: He did awesome. My cousin, Dwayne, is on. That’s awesome. What’s up, buddy?

Kandas: “What does that even mean?”

Larry: So – what does that – that’s what Kenny said.

Kandas: It’s kinda just lingo. Just go with it, Kenny. Why you gotta question me?

Larry: That’s funny. But it’s really good. If you get a chance, go to frontsight.com. We were there for what was called the Four-Day Defensive Handgun Training. We even had to go clear a house, right?

Kandas: That’s right.

Larry: They had you go in, like say somebody’s in the house, got your kids or your spouse or whatever, we had to go in and clear the house, right? Go from room to room clearing the house, shooting the bad guys, not shooting the good people, right?

Kandas: That’s right.

Larry: So, it was really good. It was a learning experience. I grew up around guns. I thought I knew a lot about guns. But they actually said at the end of the four days, that training that we took and the test we had to pass –

Kandas: We had to pass the test.

Larry: We had to go through a test, and it was three, five, seven, ten, and fifteen yards and we were timed. We also had to do tactical reloads. We had to fix malfunctions in a specific amount of time.

Kandas: Oh, yeah. Three different types of malfunctions.

Larry: Right. So, we have to do all that in a time frame and we were timed on it. They said that we had more training after those four days than 90 percent of law enforcement has.

Kandas: How scary is that?

Larry: I know, right? That is. So, I guess there’s a lot – maybe there’s a lot of small towns or whatever that they maybe don’t have in their budgets to go through training or whatever, I don’t know. Who knows?

Kandas: Who knows?

Larry: But, anyway, it was really good experience so, so much for that.

Kandas: That’s where we were last week so –

Larry: That’s why we weren’t on. We were out in the middle of the desert with no cell service.

Kandas: No cell service. Hardly any – and definitely no internet service when we were on the range, and then you’re so exhausted, by the time you get home, ’cause you’re in the desert, it’s hot, you got on camo pants, like not camo pants, cargo pants, it’s hot, and you’re in the sun all day out. We were completely exhausted, all four of us were. Frank went with us and –

Larry: My cousin.

Kandas: Yeah. Completely exhausted at the end of the day and then you just wake up the next day and do it again. Highly recommend it –

Larry: It’s a lot of fun, wasn’t it? We’re going back. It’s gonna be an annual thing –

Kandas: It will be an annual thing –

Larry: We’re going back.

Kandas: Yep.

Larry: We’re going back.

Kandas: So, on to real estate now since we’re back in the office and back at the grind, even though – our call this morning, we did a call for one of our mastermind groups where we were hosted this morning, and Sean had a really good point on there that when you’re doing what you love, it doesn’t – it doesn’t always feel like work. Yes, we’re in the grind. Yes, we’re in the trenches all day every day. We’re on the phone. Larry had over three hours of talk time yesterday by himself.

Larry: Really?

Kandas: Yeah.

Larry: Wow.

Kandas: You had three hours and ten minutes.

Larry: That’s a lot.

Kandas: It was a lot.

Larry: And then I went to a REIA meeting last night.

Kandas: Yeah, so, we’re in the grind, back at it, and I think last week kinda gave us a little bit of a renewed energy to come back to have that break.

Larry: I think you’re right.

Kandas: And so we’re back at it. So, with that, if you guys want to watch any past episodes or anything like that, you can go to bragradio.com, they’re all uploaded there for the last, what is it, eight months or so. Eight months or so now. They’ve been on Facebook so you can go back and watch those. If you don’t have an investor’s kit, you can call 877-LARRYGO. 877-LARRYGO, and Zenobia can help you out with getting that investor’s kit. It’s got digital copies of the Real Estate Day Trading book, HUD Homes Half Off book, some of our DVDs and things like that on our investing models. So, get that.

Larry: Awesome, awesome. And please share this right now. You’re on Facebook right now –

Kandas: Y’all right here.

Larry: Click the Share button and someone is gonna win one of these Real Estate Day Trading Jump Start, right? Matt’s in the house. What’s going on? Gunslinger. I love it.

Kandas: Did we not just get off the phone with you? Did you not have enough of us already today?

Larry: So, please share. We’re gonna pick a winner next week to win the Real Estate Day Trading Jump Start and if you call Zenobia, she’s gonna send you this.

Kandas: Digital copies.

Larry: Digital copies. Yes. Yeah, we’re gonna pay for e-mail.

Kandas: We will pay for the e-mail, unless you have one of those pay an extra 5 cents to have it delivered to my inbox. I’m not doing that.

Larry: Exactly.

Kandas: I’ll pay the regular fee for my provider to send it to you. Anyway –

Larry: Okay, so, what we wanna talk about today is a lot of people that are wholesaling, they only look at analyzing deals one way, right? One way. And that way is the ARV times 0.7 minus repairs, minus what you wanna make equals your MAO, as a lot of people call it, maximum allowable offer, right? So that’s one way to do it. You take ARV, after-repair value, times 0.7, 70 percent. Let’s keep this simple. Let’s say ARV is $100,000, right? 70 percent is $70,000. Let’s say it needs $10,000 in work. Now you’re down to $60,000. Let’s say you wanna make $10,000, now you’re down to $50,000. So if you offer $50,000, you can sell it for $60,000, your buyer puts $10,000 in it, they’ll be into $70,000, that’s worth $100,000. Pretty simple, right? That’s just one way to analyze the deal, right?

Kandas: That’s typically the quickest and if you don’t have to have a calculator to do that and you’re under your maximum offer, you’re pretty good. Even if you – when you’ve determined your maximum offer, in that’s case it was $50,000, that’s the max offer. You don’t ever wanna start there.

Larry: Exactly. So, another way I like to analyze deals is if it has a tenant in it because I know if it has a tenant in it, I need to sell it to a landlord, right? I want to sell that property as close as I can to where rents are 2 percent per month. 2 percent per month, right? So, what does that mean? That means if rents are $500 a month, $500 is 2 percent of $25,000, right?

Kandas: $25,000.

Larry: $25,000. So, if rents are $1,000 a month, right, that’s 2 percent of $50,000. Now, I’ll be the first one to tell you, on the higher priced properties, that’s much, much, much more difficult to do. People don’t expect 2 percent a month on the higher priced stuff, right?

Kandas: Right.

Larry: But we buy a lot of houses for $10,000, $15,000, $20,000, $30,000. In fact, most of our houses I would say are between $15,000 and $30,000 or $40,000.

Kandas: I would say, yeah, $15,000 to $35,000, yep.

Larry: But the cool thing is, if we buy a house for $10,000, we’re gonna sell it for $20,000. We buy it for $15,000, we typically sell it for $30,000. We buy it for $20,000, a lot of times we sell it for $40,000. We even buy a lot for $25,000 and sell it for $50,000.

Kandas: Right.

Larry: Right?

Kandas: Very common.

Larry: So, to double our money, although we’re – now, having said that, if you’re buying a house for $25,000 and you’re selling it for $49,900, $50,000, you probably need to close on it and resell that deal, right? In other words, if you do an assignment and your seller sees, well, I’m getting $25,000 but you’re getting $25,000, right? So you’re probably going to need to close on it and resell the property, depending on who your seller is, depending on the relationship, and also depending on where they are.

Kandas: And I think we did a show, two or three shows ago, that talks about when to double close and when to assign. I’m pretty sure that was a show topic not too long ago where we talked about different things that can happen and when you would wanna double close versus assign.

Larry: I believe you’re right. I believe we did. That’s good. That’s good. Alright, so, that is the second way that we analyze rental properties. In fact, when I’m on the phone with the seller and I did this just this morning, when I’m on the phone with the seller and if the property’s rented out, I say, well, you know, rental properties are really based on the income. That’s all it’s based on, is the income. You might be able to get more out of it if you kick the tenant out and go in there and fix it up, but as a rental property, it’s based on the income, and they’re selling to where rents are 2 percent per month, so if yours is rented out for $400, I’m gonna give you $20,000 for it. It’s that simple. It really is.

Kandas: And if you’re looking at a property that’s already rented, I don’t know why you would wanna kick the tenant out just to do repairs when it’s perfectly livable, there’s not any issues with the current tenant or whatnot, just wait ’til they move out then do your repairs and rent it out for more if you need to.

Larry: Well, and that’s what I tell the seller, because I want the seller to realize that, okay, this is what it’s worth right now but if I wanna get more, I gotta kick the tenant out and then it needs paint, carpet, repairs, maintenance, all that stuff that’s gotta be outfitted, and then I gotta try to list it, right? So, if as is, right now, if you want a quick cash offer, then I’ll pay all closing costs, I can give where rents are 2 percent per month, okay? So that’s the second way to analyze deals. You got the ARV, the after-repair value, and you have the rental income, okay? Now, if it’s a really low-priced property, alright? If it’s a really low-priced property, I’m gonna subtract repairs out. I’m gonna say rents are 2 percent minus repairs, right? So, if it’s renting out for $400 a month, then I can pay you $20,000 minus about $5,000 in repairs, right? If the repairs are about $5,000, right?

Kandas: Yeah. Only if they are. You wanna make sure that they are.

Larry: Now, we’re buying a lot of properties that are rented for $350, $450, $550, $600 a month, and we’re paying $15,000, $20,000 for, so we turn around and sell them at a higher price and make $10,000 or $15,000 per deal. And it’s a great deal for the landlord, great deal for us. Give ’em our buyers list, investorsrehab.com, right? So, you’ll see some of the deals that we’re selling and how cheap we’ll actually sell ’em, right? So, the third way that we analyze deals is wholetailing, right? Wholetailing. It’s not wholesaling and it’s not retailing. If we have a house that’s vacant, okay? Or maybe the owner lives in it but they’re gonna be moving out, but it’s a decent kinda house where it’s not specifically a rental type of house, okay? Not specifically a rental house, but it’s a house that maybe has an after-repair value of say $89,900 or $99,900 or even $79,900, right?

Kandas: Right.

Larry: Instead of selling that property at $30,000 or $40,000, we can sell that property for $59,900, you know, $49,900, whatever, right? So, we could sell it instead of that ARV times 0.7, we can really sell it ARV times about 0.8 or 0.85, right? “Put some lips tick on it.” There you go, Manny. That’s good. Put some lipstick on it. Now, we don’t do any of that. We don’t do any of that but we tell our buyers, you know, it’s an easy in and out, right?

Kandas: That’s a common phrase. It drives me nuts but that’s a common phrase.

Larry: Easy in and out, right? Paint, carpet, and you’re done. You’re done. So, that’s a wholetail deal and we did a wholetail deal just, I believe it was last month. We bought a house for $50,000 and we sold it for $89,900, wholetail, right? And it was a little brick ranch house on a couple acres and we wholetailed that deal. We put it on the MLS. Now it ended up selling from one of our signs, I believe, but we did put it on the MLS but we sold it for $89,900, right? Let’s see, here in sales, something, we can look at that. So, while I’m going over the fourth way, right? Now, the fourth way is actually a really, really cool way that not a lot of people think about but you need to put a little post-it note up of these four different ways on your screen so you know every time you get on the phone with somebody and you’re researching on the computer so that way you don’t forget it. But if you’re too far apart on the price and I’ll be the first one to admit I forget it too, okay? I do forget it sometimes. So, the last way is seller financing, okay?

Kandas: And we’ve done this with a few deals in the last six months.

Larry: Right, right, we have. So, what will happen is if you can’t come together on the price, you start pitching seller financing to them, right? You say, well, you know, what are you gonna do with the money? Well, I’m just gonna put it in the bank. Okay. Well, if you’re gonna put it in the bank, what kind of interest rates are the banks paying now? They’re paying 1 percent. Well, you know, here’s a thought. If you sell this property that you’ve had, you know, as a rental for a long time and you’ve depreciated it down, you’re gonna have a lot of capital gains, right? So that’s taxes. If I pay you $20,000 for the house and if I pay you $20,000 cash, you might have $5,000 in taxes, but if I can pay you what you want, $30,000, but you finance it for me, now you still have cash flow, you don’t have to deal with tenants, trash, termites, and toilets, and the buyer, me, or whoever I sell it to is gonna take care of repairs, insurance, taxes, maintenance, all that stuff, right? And you still get cash flow but you don’t have to deal with the tenants. And it saves you money in taxes, right? Saves you money in taxes. So, let’s just figure out what the payment would be and then I just get out my financial calculator and I figure out what the payment would be, and I don’t even talk about a down payment. Never ever, ever mention a down payment. I don’t buy a house with a down payment, right? If I do, if they’re very adamant about selling with a down payment, here’s another way you can structure it. You say, look, I’m not gonna keep this house, okay? My model is to buy properties and sell it. So here’s what I’m gonna do. When I do sell it, it may be immediately, it may be a couple of weeks, it may be a few months, right? But when I do sell it, what I’m gonna do is I’m gonna – whatever down payment I get, I’m gonna give you half of the down payment, okay? We’ve got a mobile home park we’re doing that with right now where I negotiated financing, right? 100 percent seller financing, but I told them and they wanted a little something down. I said, the only way I’m gonna give you something down is whenever I sell it, I give you half of what I get, right? I give you half of what I get down. So, yeah, Manny says look at doing a wraparound. I don’t wanna do a wraparound because I wanna be out of the deal. I wanna take my money and run, right?

Kandas: You don’t wanna have an ongoing relationship with the seller or the new buyer. That’s in any real estate transaction, honestly. We wanna be in and out, that’s why most of our real estate deals are on assignment instead of double close unless needed in the ways that you’ll see when you watch the previous shows.

Larry: I misread what Manny said. He said what is a wraparound mortgage. If I got seller financing from my seller, let’s say I bought the house for $30,000, no money down, but I went and sold it for $40,000 and I got $5,000 down, so now my buyer owes me $35,000, I owe my seller $30,000. I could do a wraparound, wraparound mortgage –

Kandas: What is happening? I’m not – I don’t wear perfume and I have no idea what’s happening–

Larry: I have allergies, bad.

Kandas: You got – he’s so special, okay, so special. You can’t do perfumes so you can’t do perfume, you can’t do hairsprays type stuff.

Larry: Anyway. So if I was gonna do a wraparound mortgage, I could do a wraparound mortgage where my buyer pays me $35,000, maybe I charge 9 percent interest, and my seller’s charging 5 so I make a little spread on the $30,000 at 4 percent interest, okay –

Kandas: A little spread –

Larry: That is a wraparound. You can do it. You can stay in the middle. You can collect a little bit of cash flow but I just wanna sell it, be done with it –

Kandas: There’s people that do –

Larry: My money’s in the bank.

Kandas: We know, in our industry, there are people that do that for a living. That do wraparound mortgages for a living and they have spreadsheets upon spreadsheets to keep track of, the payments and who owes what when and they make sure the first mortgage gets paid even when they don’t get paid. There – it’s a business all in of itself. It’s a very niche part of real estate investing.

Larry: Exactly. Very exactly. I was reading Derron’s comment about a deal. Go to submitaproperty.com and submit that property. Or larrybuyshouses.

Kandas: At the end of this, it’s supposed to say Zillow. Whatever it is –

Larry: Well, what’s going on with you?

Kandas: Whatever it is, it’s gotten me too.

Larry: That’s for being – that’s for treating me like you do.

Kandas: Anyway, if it’s – if that – any of that says that you’re basing the $152,000 on the Zillow says the Zestimate is, you can’t go up of that.

Larry: The Zestimate means –

Kandas: Zilch. Zestimate means zero. Any other – almost any other word other than zero that means nothing so that starts with a Z. Now, you say you couldn’t find comps, no repairs, no garage, couldn’t find comps, you just gotta go farther away. There’d have to be comparables for what you would be able to sell it for ’cause why would you wanna buy a house not knowing what you could sell it for?

Larry: Worst, worst, worst case scenario, if you’re brand new, not really sure what you’re doing, call up a realtor. Hey, I got a house I’m thinking about fixing up and selling, what could you sell it for?

Kandas: Right, and how quick could you sell it.

Larry: And give ’em the address. And how quick could you sell it.

Kandas: What can you sell it for and how quick could you sell it and they can tell you. If they know the area, if they know the neighborhood that they’re staying or whatnot, they’ll be able to find some comps to let you know what it’s worth, but I wouldn’t trust the Zestimate for anything.

Larry: There you go. That’s good. So, guys, that’s the four different ways that you can analyze deals to wholesale properties, right? Don’t just think it’s ARV times 0.7. Don’t just think it’s just rental, you know, based on cash flow. Don’t just think it’s wholetailing or it’s seller financing, right? So, make sure you have all those tools in your toolbox because the more tools you have in your toolbox, the more deals you can do. Very, very important.

Kandas: Just being able to think outside the box to know that there are multiple ways to do a deal other than just the 70 percent of ARV minus, you know, cost, the first way that we showed, is very powerful.

Larry: Exactly. Exactly. And Alain says something about private money structuring for Filthy Riches model. You can do private money any way you want to. It’s private money. It’s between you and your private money lender so you can do it however you want to.

Kandas: We have a course on that too, how to broker, lend, and borrow hard money. The section of that course that you would want to pay attention to would be how to lend the hard money. How to structure it. It would suffice for private money or hard money.

Larry: There you go. Mark’s on. What’s up, Mark? That’s good. So, guys, thank you so much for watching. We really, really, really appreciate it. If you wanna work with us one on one personally, mentoring, then partnering with us, go to larrygoins.com/apply. So, thank you, guys, so much. We really, really appreciate it. Give us some feedback. Please share, share, share.

Kandas: And we’ll be back next week.

Larry: We will, ’cause we’ll be here. See ya.

Kandas: Bye, guys.

Larry: Thanks.