00:00:00:02 - 00:00:25:14
Unknown
I'm going to say something that's going to make some people super uncomfortable. A lot of wholesalers are lying to sellers today. Not all of them, but a lot of them. And the market is totally exposing it. When the market was hot, wholesalers could promise sellers pretty much any number. Take an assignment fee, close it close, closing 8,090% of their contracts.
00:00:25:14 - 00:00:46:19
Unknown
The math worked because buyers were everywhere and they were buying at a sending rate. Now the math doesn't work today. And when the math doesn't work and marketing costs get high and wholesale fees start coming down, there's not enough margin for the business. So people start to do things that don't match the type of character that we all say we align with.
00:00:46:22 - 00:01:08:11
Unknown
Contracts start to fall apart and we leave sellers hanging at the closing table. They get burned. Trust erodes not just with that investor, but with all of us. Now let's talk about what is actually happening and what it means for our current market.
00:01:08:13 - 00:01:32:19
Unknown
Okay. In 2020 and 2021, I think that's where a lot of people's minds are still at, because it felt so easy and good. It was almost a cheat code to wholesale deals. Now, we started in blackjack real estate as a flipping company primarily, and we scaled because we added wholesaling as an exit strategy. Now this is a time where we can play for every dollar we throw into direct mail, we'd get seven back.
00:01:32:19 - 00:02:00:02
Unknown
We didn't even have to track trackpads. Literally. We just saw, hey, direct mail is getting 7 to 1. Just buy more direct mail. And you could underwrite loosely because honestly, buyers were buying at prices that didn't seem to make sense and the market was saving the buyer. So the buyer kept doing it, their behavior got rewarded and hedge funds were buying anything that penciled based on their cap rate analysis, which didn't make sense for a normal investor.
00:02:00:03 - 00:02:25:23
Unknown
You're like, I can't imagine how a hedge fund can buy a property at a RV without ever fixing it up. And and buyers were coming or competing and buyers were competing as a wholesaler. I had so many buyers making me offers on my assignment contracts. It was insane. You get five, ten, 20 buyers showing up at a showing to compete for that contract, and margins were wide.
00:02:26:04 - 00:02:47:07
Unknown
We would get those four or 5 to 1 margins on average, which you got to have to be profitable and it was producing big checks. So wholesalers could and did promise sellers high numbers at the time. They'd lock them up on their contract, go find a buyer, and they better call it that world is gone. And I'll tell you what it's turned into and we'll go deeper into this.
00:02:47:07 - 00:03:12:14
Unknown
But today I watch wholesalers do unethical things like intentionally offer high prices. They know they're going to close and then go back and renegotiate. As a business practice, I'm not saying you should never renegotiate. There are many instances and sellers sometimes lie, but when that's a business practice that is completely unethical and that good, that good old day of seven one return is gone.
00:03:12:16 - 00:03:38:03
Unknown
And the current reality is no hedge funds, no I buyers and buyers are super conservative. Margins are way thinner, EVs are coming down, marketing costs are going up. And the wholesaler who promises a seller 180 grand goes to the marketing can only move it at 155 grand. That's a problem. That's a problem not just for that wholesaler, but for us in the marketplace.
00:03:38:05 - 00:04:01:04
Unknown
They renegotiate, they cancel. They pressure the seller into doing something that's unethical at times. Sometimes they're doing all of this as a business practice. And sellers who agreed to a number are now finding out three weeks in or the day before closing that it wasn't real. And here's the thing. They're stuck because they have two options. It's like cancel and the pain.
00:04:01:04 - 00:04:30:14
Unknown
Persist or capitulate to this wholesaler and take it and closed today and try to move on with their lives. Now this is actually a market signal worth paying attention to in my opinion. When wholesale fallout rates go up, it means 1 or 2 things either underwriting discipline has declined across the board, which I'm not even sure if we've ever had underwriting discipline from being honest or the spread between seller expectations and buyer capacity has widened right now.
00:04:30:15 - 00:04:55:00
Unknown
Honestly, I think it's both. The seller expectations are still anchored in these old prices. And what Timmy sold his house for four or 4 or 5 years ago. You know, they saw their neighbor sell it. They don't have context that that sold that property sold years ago. And that's not the same market we're in today. And they look at Zillow and Zillow is this moving scale in some places it's like kind of accurate and a lot of places it's not.
00:04:55:04 - 00:05:16:14
Unknown
So that's where their mind gets around what their property is worth. Meanwhile today's in buyer needs deals to pencil at $0.50 on the dollar because they got to underwrite for a bigger margin to to protect their downside risk. And there's a gap. And that's where the wholesaler deals go to die. So to me that tells us that this matters to you.
00:05:16:14 - 00:05:37:18
Unknown
Because even if you don't wholesale today, you have an advantage. You have an opportunity to go to the sellers, go direct a seller and be a person of their word and tell them I am the actual buyer. This is what I'm planning to do. Here are my numbers is how I can make this work for you. And then you can throw stones at the wholesaler who you know is not trying that they got it.
00:05:37:22 - 00:05:57:03
Unknown
Look on that. I will wholesale house myself. I will sign a house to another buyer. I'm no problem doing that. I do far less of those today just based on the market. But these people are just totally wholesale and they have to get it way deeper because they need to add a wholesale fee. So an end buyer, a house flipper, a buyer investor, somebody like that can pay more.
00:05:57:05 - 00:06:14:11
Unknown
And if money is important and we try to play this game like money is not an important component to the sellers, it may not be the most important component. And that's why they are a motivated seller. But it does matter. And we're fooling ourselves if we don't think it does. And we're all we're doing is ruining our own industry reputation.
00:06:14:13 - 00:06:33:20
Unknown
The the buyers is I mean, the sellers are becoming skeptical of all investors. One wholesaler represents all of us. They become hostile, more hostile than what they already are. They talk. You think these people don't talk to folks in their neighborhood? They do. And that's just making our acquisitions harder across the board. So we have to do better.
00:06:33:22 - 00:06:54:15
Unknown
We have a reputation problem in the industry today, and honestly, the individual operators who are trying to do things the right way, that's what you're inheriting. So what do you do? You've got to differentiate with credibility. You got to bring facts and proof, show your process. Don't be afraid to open up what you're actually doing. Explain your math.
00:06:54:17 - 00:07:19:12
Unknown
Now, I'm not saying you get on the phone and a seller gives you a high price. You start explaining your math. This is down the conversation. Once you've went through the process, don't promise what you can't deliver. And if you're unsure, that's a different promise you're making to the seller. You have to be up. Set appropriate expectations. So if you think you could buy something at 100, the sellers like I need 120 and that's where that's you're stuck.
00:07:19:12 - 00:07:39:12
Unknown
There you go. Look, I don't know if I can do it at 120, but I'll try if you're willing to work with me. That's a totally different play and completely aboveboard than promising something. You know, you can't get them in a market where trust is eroded. A straightforward, credible offer, honestly, is going to stand out. And that will be a competitive advantage today.
00:07:39:16 - 00:08:00:11
Unknown
And here's what I be paying attention to. Are you seeing more expired listings that were previously under contract or cancel listings like don't slip on those free sources. Are you are are sellers coming to you with stories about other investors and how they wrong them? Are days on market stretching out even on properties that you thought were priced reasonably?
00:08:00:12 - 00:08:32:10
Unknown
If you're seeing these signals, that's probably influenced by the wholesale fallout effect showing up in your pipeline. These are people who have probably been burned. These are people you can still serve and help. Okay, so you need to start thinking about what the inefficiency is in today's marketplace, period. You have to if you keep doing the same thing and expecting a different result, it's going to well, what does that actually what is it that doing the same thing and expecting a different result is the definition of insanity.
00:08:32:10 - 00:08:53:05
Unknown
So if you want to be insane, not in a good way. You keep doing it. But if if nothing changes, nothing changes. So here's the bottom line. The market is correcting and it has been correcting. We come down from an all time high and we have massive headwinds. That's the true. And part of that correction is burning out.
00:08:53:05 - 00:09:18:04
Unknown
The operators who built promises that they can't keep. A lot of these wholesalers who don't have another exit strategy, who aren't capitalized, who don't know how to raise private money, who don't have great hard money lending relationships. So if you're building a business today on credibility and real underwriting, this is your moment to separate yourself. And I want to know from you guys, because there's a lot going on in different marketplaces.
00:09:18:04 - 00:09:44:13
Unknown
What are you seeing out there? Our sellers bringing up bad actor investors in your market? Drop a comment. Let me know what's happening. I'd love to see more markets and what's going on. Let's bring back here to something that you're flipping and and give that information back to you guys. Again, a lot of negative great things are born out of bad situations after every bottom market cycle, a big boom.
00:09:44:13 - 00:10:04:06
Unknown
I mean, how many of you guys said, gosh, I wish I was savvy and buying houses in 2011 and 12? I wish I would have known and seen and had this skill. Can you imagine where people were thinking in 2008 nine, ten? This is the bottom. It's going to be the worst. It's never going to get better. Just like in 2020.
00:10:04:06 - 00:10:23:23
Unknown
We thought it was going to keep getting better and now it's getting worse. And guess what happens after you get worse? It gets better. So are you position and understand the inefficiency in the marketplace so that you can take advantage of it. So you can be there to serve people with an elite operation. That's where I want you to be thinking, and I'll see you guys on the next podcast.
