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Andy McFarland is a self-made real estate entrepreneur who started with nothing and currently makes seven figures a year in his real estate business.
After getting fired from his last W-2 job in 2004, Andy went into real estate full time and has never looked back. Andy currently focuses on wholesaling properties in three different states; Utah, New Mexico, and Indiana. In 2015 alone, he did over 150 deals!
Andy has been married for 10 years and currently resides in Farmington Utah with his beautiful wife and three amazing children. Andy enjoys being around family and friends and continuing to grow and learn every day. You can follow Andy on his real estate journey by going to his website: www.iloverealestatestories.com or on his YouTube channel by searching for I Love Real Estate Stories.
He was also with us on episode 19 where we discussed ‘how much do you really need to know before getting started flipping houses?’
In today’s episode we talk about how real estate wholesalers operate and how to become one of their VIP buyers.
There is a very common misconception that wholesalers don’t leave enough meat on the bone when they sell their deals. That can and does happen, but it’s not every deal and not every wholesaler.
We discuss how we’ve seen wholesalers put out great deals at crazy prices because they made assumptions that were invalid.
Andy gives an example of how he just bought a house from a wholesaler that thought the house would only work as a rental. Andy determined it would work as a flip and snatched the deal up and wholesaled it himself at a higher price.
Some key points to take away from this episode are as follows:
- Be top of mind with good wholesalers (call them on a regular basis and befriend them)
- Develop friendships. Don’t just say, ‘Give me, give me, give me.’
- Be prepared. Be ready with funding, earnest money, offers, etc.
- Don’t make assumptions. Do your own due diligence.
Andy wholesales a TON of deals every year and his insights on how to build a great buyers list and how he operates his business are priceless.
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Danny Johnson: This is the Flipping Junkie podcast episode 32. [music] Welcome to the Flipping Junkie podcast. My name is Danny Johnson; former software developer turned house flipper, flipping hundreds of houses. Each week, we bring you interviews, strategies, stories, and motivation to help you get started flipping houses and on your way to becoming your own boss and achieving financial freedom. Thanks for spending time with me today. Now, let’s get to it.
Thanks for joining us again for the Flipping Junkie podcast. Today I’ve got a good friend, Andy McFarland, on the show to talk about how to work with wholesalers. Andy knows a thing or two about wholesaling. He’s a self-made real estate entrepreneur who started with nothing and currently makes 7 figures a year in his real estate investing business. He currently focuses on wholesaling in three different states; Utah, New Mexico, and Indiana. In 2015 alone, Andy did over 150 deals. So like I said, he knows a thing or two about wholesaling and we’ll be speaking with him and learning as much as we can from him today on the episodes. We’re going to talk about how to find the best wholesalers, how to work with them and do what we can to get them to give us a call with the greatest deals before they blast them out to everybody else. So we’re going to get into all the good stuff with this episode, so stay tuned.
Also, please check out our real estate investing website at LeadPropeller.com. Those websites are websites that I’ve built and set up that do a lot of great things using all the knowledge that I’ve learned in the last over 10 years of getting thousands of leads, motivated seller leads off the internet for house flipping business. A lot of that is built into LeadPropeller so you’d hit the ground running with one of those websites. Check it out, LeadPropeller.com. Also, we just came out of beta for REIMobile.com and that’s a web application for real estate investors. Basically keeps track of all your leads, set up follow-up reminders and do deal analysis, all that kind of stuff. So check it out, REIMobile.com. And if you have any questions about either of those software systems, the websites or the CRM system, you can give us a call at 210-999-5187. That’s 210-999-5187. Somebody here in my office will answer that number and answer any questions that you have about those systems. So, feel free to give us a call. And let’s go ahead and get into the episode. [music]
Thanks for being on the show again.
Andy McFarland: Yeah, no worries. I’m glad I can be on the second time.
Danny Johnson: Yeah. Episode 19 for anybody that wants to see the show notes, go to FlippingJunkie.com/19 where we talked about how much do you really need to know before taking action, getting started flipping houses. So, how you’ve been since – I guess it’s only been a couple months.
Andy McFarland: Yeah. Just a few months. Life’s been good, busy. The real estate world has been insane. We’ve had bigger volume in the last two months than I’ve ever had, so it’s been good.
Danny Johnson: That’s awesome. So still growing.
Andy McFarland: Still growing, yeah. We did 26 deals in March and we’ve got 24 right now in April.
Danny Johnson: Nice.
Andy McFarland: So, yeah, that’s a lot.
Danny Johnson: And you’re doing strictly wholesaling?
Andy McFarland: I do about four of those a month, I’ll flip them myself, but the majority of those is wholesale, yeah.
Danny Johnson: Nice. And you’re doing I Love Real Estate Stories, YouTube channel.
Andy McFarland: Yup. That YouTube channel, a little project with my older brother. We get in and tell a story every week, kind of documentary film style. And my brother does a really good job with that and I’m just a guy in front of the camera, but he’s the guy making the magic happen behind the camera and the editing room. So that’s a fun project.
Danny Johnson: Yeah, I love it. It’s a great thing. Everybody should check it out. It’s iloverealestatestories.com, right?
Andy McFarland: Yeah. Or you can go to YouTube and just plug in I Love Real Estate Stories or Andy McFarland and it will pop up. We appreciate any comments, any subscriptions. All free.
Danny Johnson: Check it out because he actually has one with me on it where I flew up and met with Andy, hung out with him and he recorded. So if you want to see a jittery me on camera, then go ahead and check it out.
Andy McFarland: Jittery? It was good.
Danny Johnson: I’m not used to being on camera. Just audio stuff. All right. Well let’s just get right into this episode. We’re going to talk about how to work with wholesales. I think everybody should not only have a real estate attorney, closer, title company, all that kind of stuff, agent that they work with but also wholesalers because it’s a great source of deals. And you want to first explain maybe exactly how wholesalers operate?
Andy McFarland: Yeah, sure. Wholesalers operate in kind of varying degrees. You’ve got like the beginning wholesalers and the more experienced wholesalers and everything in between. But most people start real estate, they’ll say they’re a wholesaler. If they go out there and try to find a property, put it under contract and then sell that contract to somebody else, sell that opportunity to somebody else. So that’s wholesaling in a nutshell. They get under contract for less and try to sell it for a little bit more.
Danny Johnson: And so what we’re talking about is being on the side of it that you’re buying it from that investor as is. They can make some profit and then you have a deal that you can fix up and flip and make a big profit.
Andy McFarland: Yeah. Buying from wholesalers, and I’ve said this to people for years, that it’s the easiest way to get into this business really. Now, with the caveat you need to be careful, you need to know your numbers and you need to know whether or not it’s a deal and be able to evaluate the deal. But buying it from somebody that’s gone and found the deal for you, what easier way to go and find deals, right? I got a deal. So for sure that’s a great way to buy properties.
Danny Johnson: Right. I think the reason why some people just shy away from it and I did for a long time honestly myself is because there’s a common misperception… is it misperception or misconception? Either way. That the deals are too thin if you buy from a wholesaler. Like there’s not enough meat on the bone I think is what the typical phrase is that people use or have in their head. I’m sure that you don’t believe. I now don’t believe it. But I guess there’s a difference though in the deals that most people see that come across their phrase or that they get in their emails than the ones actually being sold without those mass emails. I mean, do you think that’s true?
Andy McFarland: Yeah, I think that’s true. That misconception you said there, I think it’s absolutely true. That’s why I mentioned earlier in saying that there’s newer wholesalers and there’s more experienced wholesalers. As wholesalers get more experienced, part of that being more experienced is they’ve got a better buyer’s list and with a better buyer’s list they can command more money. So what somebody might view through their email or just if they talk to a wholesaler and they got shown some deal and they don’t think it’s a deal, it might be because it doesn’t work for them. So my advice to people would be is don’t necessarily think they’re not all wholesale deals because that’s not necessarily true. But look at it and think, “Okay, why is this a deal? Why is this not a deal?” Again, but I mean, just to cut to the chase because I’ve heard that a lot before, experienced wholesalers get more money for their deals. Period. And if you’re on an email list of an experienced wholesaler, it’s got thousands of people on this list, yeah, you’re probably not going to get a phenomenal deal right there.
But there are ways to kind of get around that. What you want to do is find people who are maybe the less experienced wholesalers that haven’t been doing it as long, they don’t have as many buyers, and you can go talk to them and build a relationship with them. If you can kind of stay on the top of their mind, you can absolutely get even better deals from that. Experienced wholesalers will give you a deal too. But the people that are less experienced when they find a deal, you can get even a better deal from them. So don’t write off all wholesalers like “Oh, that doesn’t work.” That’s not true.
Danny Johnson: You make a fantastic point that I think could easily be missed and what you just said. You said be top of mind with them. I think that’s completely key because people say, “Well, I’ve talked to them. I’ve called ten wholesalers and they didn’t send me stuff. I just still get everything blasted out in an email.” It’s like, well, how often did you talk to them? “I called them once.” Well, you’re not going to be top of mind. You know what I mean? So, how do you be top of mind?
Andy McFarland: You know, I see you’d on top of mind on somebody, note them that they’re actually doing something and just follow up with them relatively frequent. I say a weekly basis is probably about as frequent as you need to be. Emails, techs, phone calls every once in a while, and don’t be so blatantly just like grabby, just like give me, give me, give me. Call them up and talk to them about whatever you talked about before. If they were into sports or if they were into… whatever they’re into. Just whatever you built that rapport with them on, talk to them about that so you can show them that you’re being genuine. Don’t always just ask them for deals. But then to say, “Hey, what are you working on? Do you have any deals right now? Or is there anything in the pipeline that’s coming up soon that you might be able to show me?” They’re going to tell you what they’ve got if you ask them that way.
Danny Johnson: That goes a long way because I get calls all the time too where people are like, “Send me some deals. Do you have any deals and stuff like that?” But when you call like that, you’re just like with everybody else. You’re with the hundred other people that called over the last couple of months saying the same exact thing. But the guy that stops and says “Hey, you know, I want to talk with you about flipping houses. I know you’re busy. Let’s just go have coffee for 30 minutes or something close to your office so you don’t have to go very far. Or I’ll come to your office.” Just to talk and chat. And it just goes a long way and you do stand out, so it’s not as hard as you might think.
Andy McFarland: When you ask them about that and you find out about a deal, even the experienced wholesalers, they’ll slip a little bit and they’ll tell you when they’ve got a deal coming up. And if you’re the first one to know about that, then the next thing is it’s not about what’s in it for you. You don’t say “Hey, give me that deal, give me that deal.” Ask them like, “Hey, look. How can I make your life easy with this? What’s going on with this deal? When does this need to close? And as from an experienced wholesaler’s perspective, the problem with most people are they want to be at the top of my buyer’s list yet they probably don’t have money, they don’t really know what a deal is and they can’t perform. So they want me to give them a deal. I look at this and say look, one, you’re not going to pay the most; and two, I don’t even know that you’re going to perform, you’ve got no history. So think to yourself, put yourself in their shoes. They want the deal to be made easy on their side. So what can you do to help make it fast and easy for them? Be ready with your money, be ready with your due diligence so you know that you can pull the trigger and to say yes, make your life easy.
So I’ve got a story about this. So I’m a wholesaler but I also buy from wholesalers as well. In fact, I did a co-wholesale deal like just this week that I made money on. I just linked up with a newer wholesaler, he brought it to me and I used my list and I double-closed it. I funded it and made his life easy. You got another house under contract so we’re actually going to do that again. So he just doesn’t want to deal because he doesn’t have the money to close it. He doesn’t have the buyers list that I’ve got. So we’re going to split the profits on that one too. But besides co-wholesale deals, I had a guy that sent an email out. He’s just a newer wholesaler. He didn’t have a ton of people on his list and I was a guy that he knew. He sent an email out and I was kind of surprised he didn’t just call me directly. I saw the email and like within 20 minutes of sending it, I recognized it was a deal. Because one, I’ve done my research. I knew my market, I knew this was a good deal and I looked at his pictures and saw the video and I’m like, “Yeah, this is a deal.” So I called him up immediately and I said, “Hey, you sent this email. Why didn’t you call me?” He said, “Oh, I didn’t think you’d be interested in this deal because…” In his mind he thought I wasn’t into rental properties and for some reason he thought this was a rental property. Which is like this was absolutely… it could have been rental but it was like a total flip opportunity. So I said, “No, I’m interested,” and I said, “Is there anybody else on this?” He said, “Yeah, I’ve had a few phone calls and there’s people driving out to the property right now.” So, I made his life easy. You know what I said? I said, “I’ll take it. I’m done. I’ll take it.” He’s like, “You haven’t seen it yet, Andy.” I said, “I know. I’m good. I’ll take it.” And he’s like, “Okay. Well, sure, it’s yours.” I was the first one who said, “I’ll take it.” So the other people out there driving and go look at the property can keep the tires and stop. It’s already sold, it was my deal. So I bought it from him, right? Kind of set the scene, but I’ve seen the pictures and I have enough experience with the areas since I knew that it was just a deal.
So I bought it from him and I turned around this wholesale for $15,000 more to the guy who actually recently sold that property too. But that’s just the way like people will say, “Well, how am I going to get the deals from the wholesalers?” You got to sometimes be aggressive. Have your money in place, have your research done and just be the guy that’s going to take a little leap sometimes. Don’t misread that. Don’t do it irresponsibly. But sometimes you just have to be the first one to jump and make that wholesaler’s life easy. Because I say when I was a little bit of a less experienced wholesaler, when I’d get a deal, I just want to get rid of the deal. It was like a hot potato in my hands. Right? I was like, I got a deal signed up, I was excited and then the next thing is like okay, who am I going to sell this too? The first person that calls me, I’m excited, I’ll talk about it. And if they said to me, “Great. Tell you what. I’ll close the next week with cash and done, you’re going to put 10 grand in your pocket. What do you think?” I think, well, I’m done, okay, I’ll sell it. And I’ve sold so many deals that way because I’m a human being and all of you guys, you’re the same way. You just want that certainty. So do that for wholesalers. Be on top of their mind when they have a deal, have your research done and make their life easy and give them certainty.
Now, one way to screw up that deal is to say, “Yeah, I think I want to buy it but can I go look at it? I want to talk to a bunch of people and I’m going to talk to my lender and see if he’ll do it.” Eh.
Danny Johnson: Right. And you might not be at the stage yet in your investing but you need to know that that’s where you need to be. And that’s for anything. That’s just not wholesaling. That’s for anything. Listed properties, other deals, motivated sellers calling you. You just have to be ready. If you’re not ready, it’s really hard to get the really good deals.
Andy McFarland: Absolutely.
Danny Johnson: It can pass you right by.
Andy McFarland: That’s a good summary. Just be ready. Be ready and make the person’s life easy, and that goes a long way.
Danny Johnson: Right. You said something in there again too that I think is a big point. You talked about the wholesaler that you bought from. Site unseen, was thinking it was more of a rental property so you wouldn’t be interested. I think a lot of times even if it’s an experienced wholesaler that’s pushing out an email to a bunch of people, he might have read the property a little bit wrong, in a hurry or something, put wrong values. And other people are going to see those values and think, “Oh, that’s not a deal I’m interested in.” Those numbers that you see come across might not always be bright and you need to check and do the due diligence because it could err on your favor where everybody is passing it up, but it’s really a deal.
Andy McFarland: That’s absolutely true because you don’t assume. Look at those deals. Here’s another thing. So like Dany said, so true. Don’t assume. Look at your own ARV, look at your own repairs because the wholesaler that sent it out might be looking at it through the lens of a buy and hold or through the lens of a flip and you’re a buy and hold person. So don’t assume that it is or it isn’t a deal. Verify those facts. Yeah, that’s extremely key there. And by the way, when you see an email come across from these wholesalers and so the price that you say, everybody says it’s right, it’s like all these wholesalers are all selling it for more or asking more. Yeah, we’re capitalists, right? So we’re trying to maximize and do the best we can for our companies. But it doesn’t mean you can’t make an offer. So it’s a fraction of the people who send an email too that actually make an offer, which is interesting to me. If it’s something out there, I’m a wholesaler, I’ve got a property. You might not like my numbers. But why don’t you just reply back simply and say if you’ve done your research, you spent 10 minutes looking at it, come back and say, “110 doesn’t work for me but I’ll buy it for 95.” Let me know because you never know, I might come back and say, you know, start countering you and negotiating with you. So I think you always let people know where you will buy the property.
Danny Johnson: That’s a good point. I think most people are going to ask for more than they hope to get.
Andy McFarland: Yeah.
Danny Johnson: Yeah. Why not negotiate with the wholesaler?
Andy McFarland: Along that line, whenever we sent out an email because right now I’m an experienced wholesaler, I’d say, do quite a few wholesales every month. And I do it in three different states, so I do it in three different states, so depending on the state I know if I’ve got more or less strong buyers and depending on the area that I get the property in within that state, I know if it’s got more or less strong buyers that will buy in that area. But by and large we always send it out a little bit more than we think because sometimes it happens we’ll send it out where we think it’s a good price or like a price where you push a little bit and somebody might snap it up quickly and we left money on the table. So our responsibility, this is a peek behind an experienced wholesaler, right, guys? Our responsibility is to push a little bit, sometimes we push it. That means that we’re willing to come off the price a little bit sometimes. So just don’t assume that that’s the price that we’ll get negotiated.
Danny Johnson: Right, right. So how do you find the best wholesalers to spend the time sort of courting and trying to build relationships with?
Andy McFarland: That’s a brilliant question. Here’s the great filter for all you guys. This is gold to you guys, okay? Great wholesalers are people who do things actively to find properties. So when you’re at a REIA luncheon or any place where there’s real estate investors and you meet somebody for the first time and he says “I’m a wholesaler.” That’s great. The follow-up question is, “What are you doing? So tell me, you’re a wholesaler, what do you do to find these properties?” And if they say, “Well, I’m just new, I’m just getting started, I’m just looking for properties,” and they don’t have any answer for that, you might want to kind of scratch them off your list. You don’t really need to follow up with them probably. But if they say, “Well, I’m new to the wholesaling but I started sending out a bunch of mailers, I put up bandit signs and I’ve got a little lead propeller website that I just put up.” Okay. What do I know about that person? Even though he’s new, he’s doing things that are going to bring him a deal. So I want to follow up with that guy. I definitely want to follow up with that guy. But if he doesn’t say he’s doing anything, taking any action, you don’t really follow up with him. But if you have a list of people who are doing things and taking action, they will find deals. You just need to be at the top of their mind when they find those deals.
Danny Johnson: Right. So those are great questions. Because really, that’s what it’s all about. Wholesalers have to be master marketers.
Andy McFarland: Yeah. Let me give you this example. This co-wholesale deal I just did, okay? This was a newer investor who I have known for a couple of years, and this is a good note for you guys too. Always be genuine and friendly with everybody because you never know who’s going to end up being a guy who’s going to be somebody that’s not going to take the action. So I’ve known him for a few years. I’ve always given him that time. I’ve never blown him off. I talk to him and give him free advice. And he started sending mail and he doesn’t know anything. He’s a new investor and that’s fine. He started sending mail and failed on his way through this and he found somebody, he negotiated and he got a property under contract. So who does he call first? He called me because he has no idea. He’s scared to death and in fact, he uses my contract. He called me before he signed up and said, “Why should I say here and there?” and I walked him through it. He got it signed up and I looked at it and I was like, “Wow! It’s actually a deal.” You know, you’re kind of surprised. It was actually a deal. So he brought it to me first and I said, “Look, here’s what we’re going to do with it. I’ll send it out, we’ll split the profits,” and he was just ecstatic with that and that’s what we did. Then he found another one. Right? So if you help people along the way, let them take that action. Do the stuff and just be fair with them and it can be a good relationship.
Danny Johnson: Absolutely. I used to prematurely write off people that would call and ask what, you know, tell me they were a new investor and they want to find out what kind buying criteria I have. I would just be like, “I’m busy. I don’t have time.” Just anything in San Antonio, right? Like whatever it is, I’ll buy it. Just send it to me. And that doesn’t go a long way because you don’t talk to them much and they just kind of forget you or think that you are being a little bit rude. But if you get a ton of those calls, it starts to be kind of a pain and you should have somebody else field those calls for you, it would be the smart thing to do. But the better thing to do like Andy was talking about is to say especially with the newer investors, newer wholesalers or just investors in general, if they’re nervous about what to offer, how to analyze a deal, all that kind of stuff, but they’re actively marketing and getting leads, you offer to help them determine what to offer. So if they get a great lead and somebody is super motivated and they don’t know what to do, they’re freaking out. They call you, you go and help them and say, “Look, I’ll buy it from you for this.” Offer whatever you want below that and it’s yours. That’s your wholesale fee.
Andy McFarland: Yup. And that goes a long way. And this same guy that I worked this one with, we closed it on Monday, just a few days ago. He told me when we were leaving title, that was his first one. He was so nervous there. And some of you guys that are experienced investors listening, it’s hard to remember how nervous you were in your first. Is this real? Is this going to happen? But he got his check and I think he made $12,000 and he was so excited because it was real at that point. I can see the excitement in his eyes and he said, “Wow! This is awesome,” because he was doing mailers and stuff. And he said, “I’ve got some other people I got to go through,” and he’s like, “There’s a few people that are probably here. This person, I’m going to call him back today.” And he said, “What do you think about this?” and he told me a little bit about the property. And I said, “Well, here’s what I think. I think you probably need to be around right here.” I said, “Let me know when you work that out.” Lo and behold, he texted me yesterday and he says, “I got this one under contract.”
Danny Johnson: Nice.
Andy McFarland: He’s like, “Let’s do it again.” So I’m like, “Cool. Link it up on the walkthrough video, we’re going to shoot it out to our list. We’re going to split the wholesale fee and I know we’re going to be able to make money on that one too.” And he’s happy about it and of course I’m happy about it because from a little bit of help over the years, now I’ve got $12,000 I made on the one deal this week and I’ll probably make another $10,000 on this one. So that’s the best marketing money ever, right? I didn’t have to spend any. I just had to help a little bit.
Danny Johnson: Yeah. All right. Do you have any tips on how to gain the favor of good wholesalers though so that they call you first? Other than being top of mind, is there something else? And I think you touched a little bit on that before as far as being prepared but any other kind of tips?
Andy McFarland: Yeah. I would say if they’re a wholesaler, you really want to get in their good graces and they’re serious and they’re going to be in this market for a while. I think at some point, you might have to maybe do a deal that you don’t necessarily want to do. Don’t do a deal that’s going to lose money but maybe loosen your criteria a little bit and just step in there because I want to know that you’re actually going to perform. So one of my disposition guy calls me up and we’ve got somebody we’re working with or a few different offers, and we’ve worked with one before and the other one we haven’t worked with them before. We’re always going to err on the side that we’ve worked with before. He’s close from us. We know him. He’s kind of a known quantity to us. So sometimes it takes just getting in there and actually doing one so we actually respect you and know who you are. Because a lot of people that kick the tires and walk around this stuff, people actually close and perform. Then when you close and perform, there’s a difference too. There was somebody that bought a wholesale deal from us a couple of days ago and my disposition guy was kind of griping a little bit. This guy bought a few deals from us but on this specific deal, he was dragging his feet and he’s supposed to close on Friday, he didn’t wire his money until the following Tuesday. And our seller was getting a little bugged by that. He’s like, “Where’s my money?” And although he wasn’t backing up or anything, the seller was ticked which came back to us because we’re playing the liaison between the two, and it’s like, it made our life a little hard so my disposition guy’s got a little bad feelings with our buyer now because he didn’t wire the money upfront. He wired it on Tuesday. So that little thing, he still performed but it was like, “Eh.” He didn’t make our lives easy. So, just do what you say you’re going to do and that goes a long way.
Danny Johnson: Yeah, and being ready. Be ready to go and do that. Now, you guys do a lot of deals on a lot of different places and what is your process for disposing of the properties? Do you put them under contract and you got to find a buyer for them, you’re wholesaling them? What is your process?
Andy McFarland: So my process, well, it’s changed a little bit. I’ll tell you how it is right now. So we get a property under contract, my acquisition manager gets something under contract, brings it in the office. The office take the contract, sends it to title. We get title pulled. We coordinate with the seller to get in there to either take pictures or most probably do a video, so we’ll do a walkthrough video. And then once we decide internally how much we’re going to market this property for, then we email it out. So we put it together in an email. The email is the same format every time it says it’s coming from our company. The company is different depending on the state. From the same company but, you know. Then it’s got the property address, it’s got all the information of the property, it’s got a walkthrough video link. Then it’s got instructions on the bottom of the email, how somebody can get this property. And that’s pretty much it. We send it out, everybody gets to look at it. And then the first person to deposit the $2500 non-refundable earnest money and to sign our contract gets the deal. That’s the way it is now. And I say that’s how it is right now.
How it used to be and how some less experienced wholesalers are, the ones that you probably want to talk to more, they’ll make a few phone calls to people first. They’ll just kind of have top couple of people that will call. And when they do that, they’ll kind of leave money on the table because they’re not bringing it to everybody at once. So we made an internal policy that we use every time, no questions asked we send out an email to everybody because we don’t want to leave money on the table. But again, less experienced wholesalers, they’ll take the first person that comes along with money.
Danny Johnson: Wow. That’s interesting. I didn’t know that. I thought that you would maybe have those key guys that you would just give a call and have it done. So what happens then if you’ve got one that your experienced guy – you know, let’s say you put one out there, you’ve got it priced at $75,000. The guy that you’ve closed a couple of properties with bought a couple of properties from you. He says, “Okay, I’ll take it at $75,000, close next week.” But then you got an email from a guy you’ve never dealt with before and says maybe “I’ve got a hard money lender but we’ll give you $80,000 and close in 2 weeks.” How do you decide on that?
Andy McFarland: If the one guy that says “I’ll take it at 75,000”, he signs our contract and deposits the 2500 nonrefundable earnest money, it’s his contract, it’s his deal. If he hasn’t got there yet and he hasn’t given us the money to sign the contract and the guy that comes in that says 80, we’d probably evaluate that internally but I would say, I’ll my dispositions guy if he is going to deposit that 2500 hard earnest money, we’ll wait. If he’s got to put up the hard earnest money, he’s got to put the money out. If he does that, we’ll wait. But if we’ve already got it signed and this has happened to us before, we’ve got one signed and then somebody comes that actually will pay more, it’s a done deal. We have to honor that.
Danny Johnson: And so, is that typically what you ask for? Is the $2500 nonrefundable?
Andy McFarland: That’s what we do. We tell the people to evaluate the property, look at it, see the pictures or the video and if they want to put down the 2500 hard earnest money. And we don’t let most of them through the property until they’ve put up the hard earnest money. Then we say if you put up the hard earnest money and you walk the property and there’s something materially different than what you saw in the pictures or the video – I mean, if we omitted something that they see there, then at that point we’ll be flexible with them. But if there’s nothing materially different and if they come up with some excuse that’s not our fault, then of course they lose the earnest money.
Danny Johnson: Have you ever had a time when did you have that happen where they gave the nonrefundable earnest money and then went through and said, “Hey, this isn’t what I thought” even though it was all in the video?
Andy McFarland: Yeah, that’s funny. I had an instance like that. It’s happened a few different times but the most notable one happened a couple of years ago. A guy in my local market who I kind of knew a little bit, he did this. My dispositions guy took the $2500, did the whole bit – actually he said he was going to deposit the money, we signed the contract and did all the stuff and we moved forward with him. I think he hadn’t deposited it or something. I remember there’s something in question there. He came back to me said, “Well, actually I don’t want to do it now.” When I called him and I got involved, I said, “Look, you said this stuff, you committed the money, you did all these things and now you’re backing out. Why?” The real reason was his lender wasn’t going to come through. That was the real reason. And I think we didn’t have his money because my dispositions guy screwed up there. He said he had the money but he didn’t have the money. So we wanted to just retain it but we didn’t. So I’m calling the guy up and saying, “Look, you have to close. You have to perform on this or give us the money.” And he’s like, “No, I’m not going to do that.” And I basically said, “You realize what you’re doing here.” I said, “You’re ruining your reputation. You’re never going to buy from me again.” And I didn’t go as far as telling other people because I don’t want to be that way. So I didn’t go telling other investors and stuff and spread bad reputation. But I definitely made it known, I said, “You’re telling me who you are right here. For $2500 you’re ruining your reputation. You either give me the money or close the property.” And he didn’t. He walked away from that and true to form, he’s offered a list, I’ll never sell to him ever again because he showed me who he was.
Danny Johnson: I guess that doesn’t happen enough to be a problem. So it’s very rare then that people will try to renegotiate is really what it’s about.
Andy McFarland: It’s pretty rare that that happens. I guess the only reason that time happens is because my dispositions guy thought he was depositing the money and he didn’t check up on it because he got busy. So when he brought the story to me, we didn’t have the money so I’m calling him up to try to get the money after the fact when he’s trying to back out. So if we had the money, there would have been no question. And I’m like, “Well, see you.” But he didn’t want to put up the money.
Danny Johnson: Right. So you said basically the key here is if you’re a newer investor and you want to get onto somebody’s list and be sort of part of the VIP portion of their list that they call first, that’s probably the way to go. And you know, it’s all about being prepared and helping them, building that relationship and then you’ll be able to get quite a few deals. It’s pretty awesome when you think about the fact that if you had 5 wholesalers that you’re buddies with and even if they have a VIP list and you’re not on it, but you’re calling them and asking that question that Andy said as you have anything coming up, you have something you’re putting under contract right now. I don’t know how many times I’ve done it and you said sometimes it catches you off-guard but you still spill the beans anyway. Like I already have somebody in mind for a property I’m putting under contract to wholesale. But somebody else calls me and asks, and I don’t know what it is, I can’t help it, I have to tell him about it.
Andy McFarland: Isn’t that weird? Somebody asks you a question, you feel like obligated to answer even though you don’t have to.
Danny Johnson: Right. And so then I’m like, “Oh well, I guess my buddy is not going to be heading over there if this guy wants because I’ve already told him about it.” But you know, obviously, if it’s somebody I don’t know, I’m not.
Andy McFarland: Yeah, somebody you don’t know. But if they’re good enough at building rapport and they position well enough that you feel like, “Okay, these guys might actually buy it, you give them that chance and they’re just like, ‘Great, I’m on it. I’m going to do this thing.’” You won’t call your friend. You’re like, “Okay, we’ll see if this guy does it.”
Danny Johnson: Right. They won’t know.
Andy McFarland: They’ll never know. But if you have that, if you build that friends list, that’s what I call the friends list, of people who are doing stuff. You call them up and shake their pockets is what I call it, shake their pockets and say “What do you have? Or what do you have coming up?” You will get deals. Period. Done. I’m telling you that is like, just market through the people you know. Right? Just ask those wholesalers you know or the newbie investors. They’ll come up with something. You will buy deals that way, I promise. Because I buy deals that way. I just showed you guys, and I showed two of them, three that are going to happen. Just recently that I do that as an experienced wholesaler. So there’s a trick.
Danny Johnson: You think about the power of it too because if you have just even five people that you’re buying from, from wholesalers. And so you’re doing a bunch of marketing yourself. Imagine all of the marketing combined that all you guys are doing and you’re benefiting by getting these deals.
Andy McFarland: Yeah. And a lot of times, these newer wholesalers, it’s the hot potato, they want to get rid of it. But they don’t have the option to close the property or to keep it as a rental. So think what your advantage is if you’ve got some money. If you want to flip something or keep it as a rental. You do have an advantage because they don’t have those options. For me right now as the experienced wholesaler, I’ve got all those options. I will flip it, I will wholetail it meaning I’ll buy it and put it on the MLS. I’ll keep it for my personal rental portfolio. I’ve got all of these options at my disposal. The newer investor, a lot of times they don’t have any of that. They’re just going off of faith that if they put something on their contract, they can sell it. So they need you. They need you to come and make their life easy.
Danny Johnson: Right, right. Now there’s another side of this too with working with wholesalers, and that’s selling through wholesalers. Now obviously you’ve got a lot of experience and have been doing it for a long time. You probably aren’t going through other wholesalers to sell properties. But you had given an example earlier in this episode where you did buy one and then wholesaled it.
Andy McFarland: Yeah.
Danny Johnson: So somebody sold to a wholesaler that wholesaled a property. So it can go down several iterations of wholesaling for a single property.
Andy McFarland: Most I’ve seen is 5. I’ve seen it happen before. I was in the middle of a transaction with those 5 people, between the seller and out of these 5. That was a record that I was a part of.
Danny Johnson: Yeah. I think there was one that –
Andy McFarland: It’s like linking a chain.
Danny Johnson: There was one deal I think about a year ago I did and I wholesaled it and I made a lot of money on the wholesale. Who I sold it to I think had done the rehab and sold it, and I was checking comps on another property and I said, “I’m going to see what they ended up selling that one for.” Because it was one that it was kind of difficult to gauge really what the resell value would be. And I nearly had a heart attack when I saw it because it was several hundred grand more than what I thought. And in San Antonio, that’s a big difference. We just don’t have very expensive properties. So yeah, that one could have gone several iterations of wholesaling. But even though I made really good money without having to touch it, I nearly had a heart attack with what kind of profit I could have made had I fixed it up.
Andy McFarland: Sometimes that happens. Like we mentioned earlier, you knowing certain areas – I mean, don’t take for granted the wholesaler knows exactly what the numbers are. When he sends out an RAV if he puts one on there, that might not necessarily be true because there’s a lot of variables there, what repairs he’s going to do to it. There’s so much stuff in there that in fact, even experienced in my backyard, we’ve got one right now that we sent out that internally before we sent it out, we’re like we don’t know. I don’t know. Like there wasn’t a lot of comps. It’s one of those subjective areas that it depends on what you do to it, it’s a good area. So we really didn’t know. So we put a guess on it, we put a stamp on it, we send it out and we’re actually getting more than we thought, which we thought we were stretching and we’re getting the highest investing. But you just never know. You never know what people are willing to do, so don’t assume. Don’t assume that it’s not going to go for more.
Danny Johnson: Right. So what kind of info do you guys – do you actually put your estimate ARV and repair costs? Or you leave that all up to the…
Andy McFarland: We do. And recently I’ve thought that maybe we should rethink that, but we do. We put on there what we think it’s going to take to make it a rental, what we think it’s going to make to flip it and then also what our estimated ARV is. But again, it’s tough because it really is very subjective. It’s very subjective because when you say, you know, somebody can put 20 grand into a rehab and sell it for 200 and somebody might put 50 grand into it and sell it for 260. It just depends on the area. Some of those areas that are hip and happening, like sometimes it’s just – I call it the “field of dreams.” If you build it, they’ll come. Like some of those areas, you’ll be able to sell it for a lot more.
Danny Johnson: Right, right. Some people can spend twice as much as another person and get less work out of that double budget.
Andy McFarland: Yeah, that’s true.
Danny Johnson: So I guess you just give a good idea of what you think it would be and they’ve got to work it out for themselves and do their due diligence. So selling through wholesalers though, that’s another way that we as investors can work with wholesalers. Obviously, the benefit there in my opinion is just the time savings and hassle savings. Because if they have a good list, they can give you a decent amount, a really good amount and then they deal with all the hassles of getting it closed with somebody that’s maybe going through hard money or whatever.
Andy McFarland: A good example of that, I keep coming back to this one that we closed earlier this week, a co-wholesale deal with a guy who’s a newer investor. So kind of brought him on the right way, he brought it to me first. I sent it out to my list and we sold it for a good amount. Now what I know is he would not have been able to find a buyer for that amount. I think the wholesale fee was about $24,000 or $25,000. He would not have found a buyer for that much and like the circumstances required that the property be closed, so we had to do a double close. So him coming to me, not only did I take it, he had a contract and I said, I’ll handle it.” My team sends it out. We found a buyer. We did all of the transaction coordination and I actually funded the front transaction and then we sold it again on the back transaction. So I brought the money on that equation too. That’s something that he probably doesn’t value it as much because he doesn’t know but as an experienced investor, you know, the transactional funding can cost a lot of money and because I funded it myself and bought it, I didn’t have to pay for lender’s policy, I didn’t have to pay for junk fees. It was very minimal fees because it was just my own money that I sent it out and brought it back. So I saved him money a lot of ways there. So on his own he would not have made the $12,000 check that he made. So yeah, sometimes partnering with an experienced wholesaler can make a lot of sense.
Danny Johnson: I agree completely and that’s why we’re having this talk and as part of the podcast episode series of going from foundation mindset through who you want in your team, who you need on your team and wholesalers, they definitely should be a part of your team.
All right, Andy, since we’ve got a little bit of time here, let’s talk about what’s a really good way for people that are getting started in investing, building team and all that kind of stuff, but they’re saying, “Hey, I want to be a wholesaler myself. I want to build a really awesome buyers list.” Do you have any tips for doing that?
Andy McFarland: Yeah. So let me give you a real world example of what we’ve done. So I’m wholesaling in three different states now. So in my home state I’ve been doing this for a long time so I know a lot of buyers and I’ve got this list that’s been built up over the years. So that’s not fair, right? That’s cheating. So let’s talk about when I went to a new state. The state we went to just in the last, year, we went to Indiana. So we do stuff in Indianapolis, Indiana. We had no buyers there. So what we did was we went into the market and we just started networking like crazy. We weren’t physically on the ground there but we would call title companies and we would call real estate investors, people that had Craigslist ads. Anybody and everybody, we’d talk to them and we would put them on our list and we’d say “Who do you know?” We played that game. And every investor knows a few other investors and you get them and you just put them all in your list and you call them and make that personal contact. Title companies – who are the big buyers? Who buys all this stuff? So we did that, just networking. Besides that, we researched where the cash sales were and we saw who were buying multiple different properties. And we made it a point to reach out to them and find them and if we couldn’t get their phone number or know somebody that knew them, we would send them a mailer. So I actually made a video and put it on a little squeeze page, and we sent them a postcard that said something to the effect of “I know you bought a property in this area. We have one that’s like it. I’ve tried to reach you. Please go to this website, I’ve got a message for you.” So we just sent out some postcards to people. Again, these were players like pre-screen, we knew that they bought properties in the area we want to be in. So we sent it out to them, a few different postcards, they’d come through and go on our squeeze page. You can do the Craigslist ads or you can do signs to find those cash buyers. We’ve done a little bit of that stuff but for the most part, I would say it’s brute force. You go in there and you just ask somebody who do you know, who do you know and you start building that slowly and surely you build this list. Then now we’re there, it’s been over a year and now we’ve got a legitimate buyers list.
So it’s not very hard. People get intimidated by that, but these buyers can’t hide. You got a Danny Johnson in the market who’s buying a lot of properties under his LLC or his name or whatever, they can’t hide. They’re on public record. You see them out there buying stuff. There’s no fake in this stuff. You can find them. It’s just a matter of where it is recorded that they bought a property. Find out where it’s recorded and then make it a point “I’m going to find this guy. This Johnson Homes LLC, I’m going to find this guy.”
Danny Johnson: That’s not what it is, by the way.
Andy McFarland: I don’t know what it is. But, you know, then you call them. You just reverse search them like who’s the owner of that and what’s the register address and knock on the door if you have to but when you find somebody that’s buying, if you look in the market and you find somebody that’s bought 20 homes in the last six months, let me tell you, it’s worth your time to drive around and find that person and go buy them lunch because they’re going to make your life really easy.
Danny Johnson: Yeah. And you should definitely keep track of when you find people and make contact with people like that where they’ve got a history of buying a lot of deals, doing a lot of deals, you know they’re real players and they’re going to be able to close and act quickly. You should always keep track of that. I don’t know if you’ve got a system that you’re using but in REI Mobile we have a thing where you have investors and you can keep track of all those different things so that you can rate them and sort them and have all that different kind of criteria build into it.
Andy McFarland: That’s an interesting idea. In a certain area you know and you can handpick, if you’re shopping around town.
Danny Johnson: Yeah. So if they respond to you putting something out and then you can look and say “Oh yeah, this is one of those guys that bought 20 properties in the last four months.”
Andy McFarland: Absolutely. Let me correct myself, something I said earlier. We send out our email blasts almost all of the time on properties. But there are certain instances where we don’t actually make phone calls and you’d actually call specific people. That instance would be needs to close extremely fast. So it’s got like three or four days and we’re going to wholesale this thing, we know that you can pick up the phone. You might not get the maximum value but you know something will perform or we negotiate a lot of seller financing. And sometimes, you’re negotiating seller financing, that’s a sensitive situation because you make promises to the seller and you want to make sure whoever you assign that contract too can actually fulfill those promises. So we won’t just send that out to anybody. We want to make sure the person we send it out to is reputable because if they screw that up, the seller is probably going to call us and say you guys and we’ll be like, “Ugh.” It was these guys, right? So it’s kind of you got this moral ethical obligation to make sure that what you negotiated on the seller finance deal actually ends up happening through the years.
Danny Johnson: That’s awesome. Do you put properties on Craigslist or do any of that? Or are you guys strictly going off of your emails or the list that you build?
Andy McFarland: Most of the time it’s emails and certain areas where we’ve actually bought properties than wholetail because for whatever reason we didn’t have our buyer at the time like this is good enough, we just knew that we were going to sell it. Sometimes then we’ll buy them and put them on MLS, Craigslist and just try to get as much exposure as possible. But not very frequently. Most of the time we’re certain we got it sold before we buy it.
Danny Johnson: Great. Andy, I really appreciate you being on the show again. Lots of great info. And people listening want to reach out to you or contact you, is there a way for them to do that?
Andy McFarland: Yeah. Andy@iloverealestatestories.com or if you want to see what I’m about, if you want to see the videos I’m putting out, go to YouTube, I Love Real Estate Stories or Andy McFarland. You can see us there. I’d love for you guys to make a comment, subscribe. Shoot me an email if you like something. That’ll be cool. I like communicating to people about that.
Danny Johnson: Andy is awesome. Shares a lot of info with people. I appreciate everything you shared with me and all of us on this podcast. So thanks a lot, Andy.
Andy McFarland: See you.
Danny Johnson: All right, take care.
All right. That’s the end of another great episode for the Flipping Junkie podcast. A comeback for next week’s episode where I’ve got Gloria Kelley from APIA Insurance. They’re handling our insurance for our properties. We’re going to talk about all the different things that investors need to be aware of with regards to getting insurance for these properties and especially if they’re vacant and you’re doing work with them, some of the ins and outs. I know a lot of investors aren’t very sure about whether their policies are going to cover an issue with the property if it’s vacant and so we’re going to try to make sure that everything is known through that episode. So check it out next week and thanks a lot for listening to the podcast. Again, if you’ve got any questions about our real estate investors website at LeadPropeller.com or the real estate investor software system REIMobile.com, you can give us a call and we’ll be glad to answer any questions at (210) 999-5187. Hope you’re having a great week and see you next week!