Turn Your TRASH Into CASH – How to Make More Money by Selling The Leads You Get… Even if You Don’t Buy The House! – Part 1Posted on January 4, 2014 by
Not too long ago, I wrote a sweet 3-part article on how to fill your pipeline full of leads & deals. I hope by now that you’re using that advice to get lots of leads coming in that you can work with. If not, then go back & read it again!
And now that you (hopefully) have leads coming in, it’s time to introduce you to a new technique to make money. I’m going to try to keep this brief, because this technique is very simple, and we don’t want to complicate it. Don’t do like I did in the beginning & over-think this.
It works & it works well – IF you simply take action & DO it!
Here’s The Problem: As you begin to market for sellers of houses (motivated or not), you’re going to come across a lot of various stories, situations, and circumstances. Sometimes, you might find that you’re not able to buy the seller’s house or do business with them. There are a lot of reasons why this is possible.
You Might Not Buy The House Because You:
- Don’t know what to do,
- Don’t know how to do it,
- Can’t see an exit strategy
- Just don’t want to mess with it, because it would be too much work for you
- Don’t want to do this type of deal now (i.e. rehab, short sale, etc.)
- Are not in the geographical area as this house. (Like if you live in Dallas and the house is in Northern California and you have no ties to that area)
- Are still too scared or fresh to do a deal
- Have your hands full with deals already
- (Fill in your reason here)
…BUT You STILL Want to Make Money!! (Naturally)
In situations like those above, you can still make money by simply being creative! Hey, this seller has taken the time to talk to you. They most likely have a problem or a situation with their house and they need help. Don’t just ignore them. As a “Creative Real Estate Specialist,” you can and should still do something to help them AND make money for yourself by providing a solution for them, right? Right!
The “Usual” Deal: Typically, in the real estate wholesaling game, there have been many times when I had too many deals on my hands and didn’t have time to take on another rehab project… OR when I had a seller contact me with a house that was WAY out of town… OR when the amount of rehab work needed exceeded my pain threshold…
OR when I just didn’t feel comfortable doing the deal, but still saw it as being potentially profitable.
You get the idea.
So in those situations, here’s what you should usually do: Get the House Under Contract (to buy), then quickly turn around and SELL That Contract to Another Investor Buyer For MORE Than The Amount You’ve Agreed to Pay For it!
This is also known as: Wholesaling 101. Basic wholesaling at its finest, ladies & gentlemen!
Aren’t you glad you’re reading this article? :)
The amount of money you can usually make from deals of this nature range anywhere from $1,000 (absolute minimum) to $5,000 (usual minimum) to $10,000 (more like it) on up to $50,000… or more (on bigger houses or commercial deals).
Those wholesale deals are great! Quick & easy money without really lifting a finger, swinging a hammer, or fixing a house. It’s “The Lazy Man’s Way to Real Estate Riches” (I just made that title up! I’ll have to use that somewhere soon).
Here’s How It Works (Apologies to those who already know this):
- You get all the values you need in order to make a proper offer.
- You run your magic formula and make an offer on the house.
- You get the house under contract to buy at a wholesale price.
- You find an investor buyer who wants to do a rehab deal & doesn’t mind paying you for finding the deal for them.
- You get the property under contract to sell to your investor buyer for a higher price than you’re paying for it.
- You close the deal & get paid! Simple.
Here’s the Magic Formula You Need:
ARV x .65 (65%) – Rep = MAO
MAO – Your Profit = WMAO
Huh? Don’t worry, I’ll quickly explain all this…
ARV stands for “After-Repaired Value” – it’s what the house will appraise for once it’s all fixed up & beautiful. In the wholesale real estate game, the houses you deal with are usually NOT in that condition. But you need to know this amount in order to properly do a deal.
MAO = Maximum Allowable Offer. This is the MOST you can pay for a house YOU intend to rehab.
WMAO = Wholesale Maximum Allowable Offer. This is the most you can pay when you’re intending to wholesale the house to an investor buyer.
REP = Repairs needed to fix the house & make it perfect. We typically estimate this in $5,000 increments.
OWE = How much the existing loan balance is.
ASK = How much the seller is asking for the house.
Example: You get a call from a seller with a house that has an ARV of $150,000. They have NO Loan balance (own it free & clear), and are asking $100,000 for it. It needs about $40k in work to make it beautiful.
You do your formula, which is: ARV x .65 – Repairs = Maximum Allowable Offer (MAO).
Then, subtract your intended profit from there & you’ll have your Maximum Wholesale Allowable Offer (WMAO).
So if you want to make $10k, you’d come up with your WMAO as being: $47,500.
Because $150,000 x .65 = $97,500.
$97,500 – $40,000 (Repairs) = $57,500
$57,500 – $10,000 (Your Profit) = $47,500
Therefore, your WMAO = $47,500. This is the amount you would offer to the seller. If they accept your offer, you’d then get it under contract to buy at that price.
Then, you would simply go out & sell that contract to an investor buyer, and get him to pay you as much as you could (but probably $57,500), and set up a closing date w/ a title company or attorney. That’s where you’d get paid your $10,000.
Q: What if the seller didn’t accept your offer?
A: You’d try to negotiate with them, but not go over your MAO Price for buying all cash.
Q: But what if they still didn’t accept your offer & you couldn’t negotiate with them no matter what?
A: You can still make money by using a new ‘Secret Strategy.’
Now we’re getting to the real value of this article!
And I hate to do it, but you’ll have to wait until the next issue to read the solution to this problem.
Trust me, it’s worth the wait!
Until Next Time,