How Do Wholesalers Make Money?
This episode is regarding this one question asked from a complete stranger about how do wholesalers make money? Now, I kind of looked at that. And I thought it was pretty obvious answer. But then I realized I’ve been doing this for 14 years, and not everyone has been in some of you are just trying to get started. And so I wanted to address this conversation this question, because I would guess there plenty of you out there actually wondering that.
𝐉𝐨𝐢𝐧 𝐎𝐮𝐫 𝐏𝐫𝐢𝐯𝐚𝐭𝐞 𝐅𝐚𝐜𝐞𝐛𝐨𝐨𝐤 𝐆𝐫𝐨𝐮𝐩
Let me break down the fundamentals of what wholesaling is first, and then you know, we can dive into how wholesalers make money. The first thing I will tell you is there are actually two ways to make money.
It is a double close, or an assignment. Now that’s how you structure it. Now let’s talk about what wholesaling is wholesaling is actually the activity of doing marketing directly to a homeowner, contracting the property to buy and then wholesaling it to a flip investor or someone who’s looking to buy rentals. Now, again, without trying to convolute, this answer, I just want to be direct from that part, how you get paid is a you do a double close. And in most states, what that means is you find an end buyer, you find a rehab flipper or someone who’s looking to buy and hold an investor.
And you use their money to fund your A to B transaction, as well as your B to C transaction. So let’s break that down for a second when you contract the purchase agreement with the seller or I’m sorry, yeah, with the seller, you are now the buyer.
When you do a double close, you are technically the seller selling the property to your buyer, there are two separate escrows running simultaneously.
And when you do double close, your buyers funds will actually fund your first A to B transaction as well as simultaneously basically back to back fund your B to C transaction. You never have to bring a single dollar in it’s all done with your buyers funds. And that is how you make money you essentially will create the difference in your buy price to sales price. So if you bought it for 100 grand and you sold it for 110 at the close of escrow, you will make $10,000 check.
Now assignments are similar you spend a bunch of money and you find a homeowner and you negotiate a new contract to deal to buy and you assign your interest in that deal in in the property you assign your original contract over to your end buyer for a fee. So again, you would actually have one escrow In this scenario, and you’d simply just have an extra assignment. So you would be the A to B buyer you would purchase the property directly from the seller. You then would have one other document which is the assignment document and that would be going to your buyer. And that again if you bought it for 100 grand and you were assigning the property you would be assigning it for a total of 110 grand titles DOES MAGIC they just extrapolate the difference between 100 Grand 110 and you could get an assignment for $10,000 you actually can have it written out on your assignment paperwork or my assignments actually make a little bit more work where we just say total purchase price has to be $110,000, which includes purchase money as well as an assignment fee. And then title does a little extrapolating there and they subtract 100 grand that I originally contracted for from the 110. And then I get my $10,000 fee. Now, that’s the two ways fundamentally, the structures get paid right in the sense of the contract the paperwork, the escrow how you collect a check and get a check through title where you can get a wire. Now let’s just talk about the generality of wholesaling and how you make money. The key about how wholesalers make money is their buyers, their buyers is a massive component, right, I talked about this a lot, a lot, is you need to have great buyers, I actually had one of my coaching calls today with our coaching our level of coaching program. If you have any interest in the level of coaching program, go to the science of flipping.com. And go ahead and fill out a simple application. Some of my top advisors will get with you to see if I’m the right coach for you. Again, the science of flipping calm. Now, I had a great conversation with one of my young students, and he was actually asking about whether he should be calling his buyers? And my answer was yes. And here’s why.
You want to be able to build the rapport, you want to be able to build a relationship with your buyers, because those buyers will trust you. Those are the same buyers that actually will buy a home from you sight unseen, just from the pictures you sent them. That’s the type of buyer you want to have in your Rolodex. The difference being is there’s many wholesalers that that go out and collect emails and put an email blast out. And I don’t believe in that I actually believe in actually real conversations with real buyers to figure out what they want to buy, where they want to buy, what the buy price is what they’re buying pocket is not a conversation today. As a matter of fact, with someone who is buying anywhere from 90 to 93% of value, on the east side, Scottsdale, Mesa, Chandler 90 to 93% of value.
If I didn’t have that conversation with the buyer, I probably would not be able to send the next text message directly to him that I get in that area. Right. I now can go in to negotiating with that seller in Scottsdale, Mesa Chandler. And I can be a lot more aggressive than everyone else. Because I have that one buyer that I know is paying actively right now he’s buying at 90 to 93% of value. It’s insane. Those numbers are absolutely insane. And so that knowledge that I get by having that conversation allows me to do way more deals than my competition. Again, I’m doing anywhere from 10 to 20 deals a month in eight different states. But those conversations are the conversations that not a lot of wholesalers are taking the time to have and I want you to do that.
So when we’re talking in generalities about how a wholesaler gets paid, what that’s how is the buyers list is absolutely everything your buyers list is gold. A lot of people will ask me like I want they’ll tell me I want to build a wholesaling business big enough to sell I’ll sell it well that won’t happen. You’ll never sell your wholesaling business. So why not? And I’ll say well, because essentially as you You are the key to your wholesaling business. Here’s one thing you could sell is your buyers list. If you build the best active buyers list in your city, you will win
because then what do you have? I just used an example now if I find a deal in Scottsdale Mesa Chandler, I can go negotiate way more aggressive than the rest of my competition because I have this buyer. Here’s another thing you have you can work with realtors, Hey mister missus realtor, I’m looking to buy off market properties. I have a network of investors that pay real top dollar but I myself am looking to buy as well and you know, there’s a deal that are a property it looks distressed. You can’t list it before you do anything at all. Make sure you go and contact me because I probably can get you an offer, you know 510 minutes and make sure you get paid your commission. Just the same. Just make me the first call. If you can do that for me, then we’ll make sure we can do a bunch of deals together. Here’s another thing you can do. You can call all your other investor friends. Let’s say hey guys, I have a buyer paying 90 to 93% in Chandler Mason in Gilbert.
What do you got? You got anything out there? Or Scottsdale Chandler Mesa, you got anything in Scottsdale, Chandler Mesa, and I could probably mark it up and we could do a double s like not a double escrow but we could co wholesale a property that I didn’t have but they had because I have a buyer who’s willing to pay that much more. wholesaling comes down to your buyers, if you have the buyers you have everything now on the front end of wholesaling is marketing marketing and sales right? If you’re gonna go try to find a motivated seller you got to get in front of them you got to say the right things. But you know a lot of people say you make your money on the buyer and that’s accurate. But what gives you strength to your negotiating to the ability to negotiate with the seller and by right is your ability to know where your buyers will buy it if you can go know that your buyers gonna pay 99 three cents on the dollar and everyone else is paying 84 cents on the dollar you know, you can get out negotiate, you can offer higher price you get the deal you can move on. So while yes in sales and marketing you want to be the first of the deal you want to be you know the best person to buy low and sell high and all that kind of stuff you make your money on the buy. While I totally get that guys I totally do.
The reality is you can only do that within wholesaling within the within the wholesaling realm, you can really only do that bank being that you know where your buyers will do it. So again, fundamentally how this all works in terms of getting paid, you have a double close and then you have an assignment. Again, very straightforward. I think you understand the difference between between the two.
The overarching business model of wholesaling is predicated on one thing and one thing only and that’s your buyers. If you have buyers you can go find deals I have a kid that literally I just had a conversation with he’s one of our acquisition guys he’s 19 years old, he was door knocking today super hyped up because he knows if he can go find that one deal my buyer will take it and you’ll make himself a commission going and finding the the seller. I don’t want to say it’s easy, but it becomes a whole lot easier when you know where and what your buyers are willing to take and so as a whole that is going to be my answer. Hopefully that really, really helped you. Again, if you have any interest in me coaching you helping you get started in real estate wholesaling. Then go to the science of flipping.com and fill out a simple form. We will get you scheduled with some of my top advisors. Otherwise, make sure make sure you’re subscribed to my YouTube channel. If you have not yet get over to youtube.com forward slash Justin Colby, subscribe if you are listening to this on iTunes, show me some love smash the five stars and if you’re watching this on YouTube, make sure you give me a like that really helps the YouTube Gods you know push this material out there to the universe. So, like the video five stars on iTunes, make sure you subscribe, and I’ll see y’all on the next podcast. Peace.