My name is Blake Selby. I’m a private lender that loans out my own personal money. Over my career I’ve also bought, sold, and loaned on close to a thousand units. I’ve seen all sides of the real estate industry, even picking up a few hundred grand in wholesale fees along the way.
In this video I’m going to share a unique strategy that I’ve developed for wholesalers and real estate investors alike. Why would I share? Because I also am willing to fund this strategy for you. I can’t possibly be in every state and every county at once so I rely on you guys to bring me deals to fund, and quite frankly I prefer to just be the money man and stay in my lane.
What if I told you to stop wholesaling contracts for nominal fees and instead become the flipper yourself? What if you could do that without spending a dime of your own money? There is a way, and if you care to hear me out, it’s not some stupid scam or a bunch of hot air. These are actionable steps that I’m currently working on with wholesalers and deals that I’m actually funding right now.
I’ll give you an example that should serve as a guide moving forward. Let’s say there is a house with a 100,000 dollar purchase price that needs about 35,000 in renovations in order to be considered updated/move-in ready. Let’s say that upon completion of these renovations, the house is going to be worth 200,000. That level of increase is not uncommon in the industry as cosmetics and finishes tend to make houses more appealing to a broader range of home-buyers. Every dollar you put into improving a house like this, should increase the value by more than a dollar. If this is not the case, then abandon that house and move onto another.
Let’s also assume that the owner of this example house has most or all of their mortgage paid off. This caveat by itself will exclude many houses from this strategy, and that’s totally okay, because it narrows the scope of what you're looking for and allows you to carve a niche in the industry.
Once you’ve identified a house like this, you want to look at the purchase price to renovation ratio. You want to find a purchase price that is at least double the renovation estimate. You don’t have to get a formal bid on the renovation, but definitely be able to ballpark it.
On a deal like this I’d fund 100% of the renovation budget. The purchase price would be “carried back” by the owner until the renovation is complete, at which time they would be paid at closing when the property sells to the new buyer. If needed, I’ll also pay off a small mortgage, no more than 20% of the purchase price, but in our example we’ll assume this house is paid off.
Assuming the house sells for 200,000, after paying commissions and prorates, there should be at least 180,000 in net proceeds left. Once I’m paid off the 40,000 mortgage (35,000 renovation loan + 5,000 interest), there is still 140,000 left. Next, the owner is paid the 100,000 purchase price, and you, the wholesaler turned flipper, are left with 40,000 take-home.
The average wholesale fee in the industry is much lower than 40,000. In fact, many of the wholesalers I talk to on a day to day basis are happy just to make 5,000. It’s obvious why this strategy benefits the wholesaler turned flipper, and the private lender (me), but what about the owner? What incentives would they have to entertain a deal like this?
First let’s assume the property was listed for 100,000 and had been sitting. Normally, a buyer would haggle with the owner and negotiate a lower purchase price as is custom in the industry, especially for an outdated property. You, on the other hand, can offer a full purchase price. Secondly, by turning an outdated property into a move-in-ready property, you are able to sell to a broader clientele, giving the owner a much better chance to sell the property more quickly and to a buyer pool more willing to pay full retail prices. Since you’ll be making so much on each deal, you may also choose to offer the owner a portion of your profits. This may be the nudge needed for an owner who is on the fence about doing this deal. I would not lead with this, however, just save it for a rainy day.
Why would an owner want to wait and not just get their cash right away? What if they need the cash in order to move somewhere else? How would the remodel take place while they are living there? If the owner does see the value in this proposed strategy, why wouldn't the owner just do this themselves if they had a close to paid-off property?
These are all valid concerns that an owner, listing agent, or broker/wholesaler may have. You need to be able to explain that by flipping the property, you have opened the market for this property to vast numbers of quality buyers and may be able to end up selling the house faster than if it was just sitting like before due to the increased marketability of the property. The owner can absolutely still live in the property while the remodel is taking place. If this seems unrealistic or not ideal, I will tell you I have personally done this on over 50 flips. Is it ideal for the contractors’ workspaces? Probably not. Is it doable? Absolutely. Find a contractor that is willing to work around an owner and also help assist them in clearing rooms and moving items as needed. If you get pushback from a contractor, find another one. Tell the contractor to include this inconvenience into their bid. If an owner had the money to do this themselves or felt like they could get the money, maybe they wouldn’t need you. But more often than not, it’s hard for an owner to come up with the lump sum of money and a vision to fully renovate their house.
You’re bringing more than a money-man (me) to the table. You’ll be overseeing the project just like a flipper, and making sure the contractors are doing their jobs. You’re bringing vision, a project plan, and a timeline to the table.
What about pushback from listing agents, brokers, or other wholesalers? I’ve found that many listing agents in this industry are very averse to creative financing arrangements. Generally, this is because they’ve been hard-wired to associate the word “wholesaler” with something negative. This is why you need to reframe yourself (no pun intended) as a flipper, and avoid that connotation altogether. The rest of their concerns will be with the creative financing, as it leaves their commission or fee in limbo. These industry professionals do not want to wait until you’re done flipping to get paid. This is where I come in once again. If the deal is good, I will not hesitate to increase the “renovation loan” amount by enough money to cover their fee or commission so long as it’s in line with industry rates. This way, even though the property won’t be changing hands, the listing agent, broker, or other wholesaler will be incentivized to help you educate/convince the property owner that you’re the offer they should take. As long as these professionals are getting their cuts up front when the “renovation loan” closes, they will be happy. You may also bring up the fact that once the house is renovated, you’ll likely be looking at them to help sell it and they may be able to double-dip on their commissions/fees.
Once you have identified a house and the owner and all parties are satisfied, give me a call. Once I’ve initially approved the deal my staff will draft up a letter of intent, which will be nonbinding but useful as an instruction sheet for the attorney and also a great way for everyone to get on the same page prior to any title work being ordered. This is an important step because we don’t want to be spending money on attorneys and title work without everyone understanding exactly what’s going to be taking place.
My “renovation loan” will attach to the property in a 1st lien position mortgage, which means I get paid first. This creates a safety margin for me and allows me not to have to charge a very high fee. I do not require any upfront fees of any kind or any monthly payments. I get paid only when you get paid at the end of the process.
What’s nice about this for you, is that you’re only responsible for paying interest on the renovation portion, not the purchase price. This eliminates at least two thirds of your holding costs.
I always find a 5-Star attorney and title company in the immediate area where the property is located, who can serve as a true 3rd party and an escrow agent for the renovation loan money. I require that you use licensed and bonded contractors who will be paid out in draw format. These contractors can simply go to the title office or attorney's office and pick up their checks upon completion of various stages of the project with our written approval. Aside from my 1st lien mortgage on the property, you will have a separate “venture agreement” worked out with the owner of the property, which the attorney will also draft. You’ll want to make sure the bullet points of this are included in our aforementioned letter of intent. This will bring the maximum transparency to the deal and everyone involved.
Once the renovation is complete, you will work with the owner to either list the property with a real estate agent, wholesaler, or FSBO. I will have no say in this, however I’ll be happy to give you recommendations. Once the property is sold, the attorney will disburse all funds to their respective parties and you will have made a juicy fee, probably many times more than what you would have made wholesaling the contract. I strongly recommend taking good before and after pictures and asking the owner for a letter of recommendation, which you can then use in conjunction with my proof of funds letter to attach to all future submitted offers to help owners, agents, and other wholesalers feel confident in your ability to deliver.