Who Made More Money
“How to Make a $10,000 Profit Wholesaling for Every $1000 a Realtor® Made on the Same Transaction”
Let’s see who made more money..
What you’re about to see is a real life example of how to make a $10,000 profit wholesaling for every $1000 a Realtor® made on the same transaction. Hi, I’m Dave Dinkel. First, let’s discuss a few of the urban legends about wholesaling real estate.
“It’s not legal”. My only answer to that is you’re right if it’s done improperly. However, every day thousands of wholesale transactions take place across the United States. Most all of them are done legally. Once you learn how to do them properly you don’t have to worry about having to be licensed to get a commission because you’re receiving a profit on the deal.
“You can’t sell something you don’t own.” There’s two ways to look at this. In wholesaling, when we do a double closing we own the property. It may only be for 20 minutes or two hours but we don’t sell it until we own it first. The other part of the equation is we can put a contract on it and assign the contract or do a joint venture or do some other things that are totally legal and result in higher payouts than if we were Realtors® receiving a commission.
“You can’t receive a commission on the sale of a property without being a licensed agent.” You’re absolutely right. No question whatsoever. However, we can receive a profit on a property that we have an equitable interest in, which means we have a signed contract by the seller. We can then assign that contract or we can do a double closing as you’ll see an example of in this particular video.
“It can’t happen. It’s too good to be true.” The people who say that are the same people who have said that Earth is flat and men will never fly. It’s not too good to be true if you understand how to do it but it’s certainly a wonderful alternative to receiving 2% to 6% commissions on a transaction.
“You’re stealing commissions from Realtors®.” I’m going to say that’s up to the Realtors®. If you understand how to do wholesaling you have an enormous advantage over real estate investors. Why? You can always get a commission but if you find a deal that can be profitable you can buy it yourself. You don’t need money to buy it and you can resell it yourself. In fact, what we see happening you receive a commission of 5% to 6% from the seller, a profit spread, and possibly even a commission from an end buyer coming in. So 9% minimum commissions plus spreads.
“You can’t do real estate transactions without money.” Well, you can. All you have to be able to do is find a transactional funding lender who will lend you 100% of what’s needed to purchase the property.
“You’re taking advantage of the seller.” That’s an excuse for you not getting a listing if you’re a listing agent and listening to me. If you understand what we do working with motivated sellers we provide a solution to their problem quickly. You provide a solution by listing the property and hoping that someone will come around timely. Too many times I’ve seen a listing agent get a listing and then the property goes to foreclosure, goes to tax deed sale or is lost for some other reason, simply because the agent promised that he would have it sold by a certain date and it didn’t sell. Motivated sellers are not concerned about price. They’re concerned about, “How can you solve my problem and how quickly?” When you learn that you’ll be able to work with more motivated sellers.
“My broker says …” Well, frankly, I hear this all the time. “My broker says it’s not legal. You can’t sell something you don’t own.” All of the above and the reality is if he is a wealthy broker and been in the business a long time ask him where his net worth is. You’re going to find out he made it as an investor buying and holding properties. The couple of reasons that he may tell you that it’s illegal? First of all, he’s uninformed. Bottom line. He can start spouting a statute in the state of Florida that says you can’t sell it without owning it and that sort of stuff. The reality is he doesn’t understand equitable interest in a contract. It’s so powerful that you can foreclose on an equitable interest contract without having a mortgage or note on the property. He may also be biased. He may not want you to be out there being an investor because he doesn’t understand it. You could do something wrong and he is responsible for you. Or the third option might be that he is doing it himself and he doesn’t want to be bothered. You’re going to see a real life example in a moment where that broker uses his agents to bring buyers to him. In this particular example, the buyer is a student who is wholesaling a property to an end buyer using another wholesaler’s list.
Now I want to go over another typical double closing so you understand fully exactly what happens. The players so to speak in the transaction are the seller of the property, letter designation A, the investor who is both a buyer to begin with and a seller in the second part, he is designated as B, and the end buyer, the person who is going to walk away with the property to either resell again, to rehab it, or to hold it as the landlord. He’s designated as C.
The first closing is what’s called the A to B leg of the transaction. What I did is make a copy of the full front page of the HUD and I’m going to show you the backside of both the A to B and B to C HUDs and show you what the important things on each one are. Then we’ll go into more detail coming up.
B is the buyer and that’s the price he’s going to pay. Coincidentally, that’s the same price as the A seller receives. Left side of the HUD is for the buyer. Right side of the HUD is for the seller. That’s going to switch on the next HUD because the investor B is going to become the seller.
This is the second page of the A to B HUD statement. What’s important here is the agent’s commission right at the top. You need to look at it and see what you’re going to make.
Now we’re going to go into the second closing or the B to C leg of the transaction. This is the front page of the B to C HUD. The important part here – the buyer, the investor B, is now the seller. The C or end buyer is now on the left side of the HUD. This is the investor’s net profit on the transaction after all costs that are shown on the HUD. It could have had outside costs like boarding up the property or something but these are same-day transactions. A to B, B to C, same day, no money from the investor buyer.
This is the back page of the HUD and the reason I put it on here to show you, no commission whatsoever for the agent because we don’t use agents to sell. We put a property out and an agent calls us up and says, “I have a cash buyer for that property. How much is the commission?” It’s zero. We don’t pay commissions. We think that you guys work for tips as it is. You’re over-regulated, underpaid, and overworked.
What we allow you to do is mark up the property whatever you can mark it up. You’re going to see exactly that example in this particular video. These are what are called JV fees, joint venture fees. This is where the money is for Realtors® who understand what we do with wholesaling.
I said this is the no money transaction. Both closings were done on the same day using no money from the student. Notice the arrow above that says, “Needed to close”. That’s the amount that’s needed to close that needs a transactional funder to put up 100% of the purchase price.
Let’s start into both the HUDs. This is the A to B HUD, first leg, top half. It’s top half so you can see the actual numbers. This is a real life example of a real HUD, which I closed about one week ago. There’s the purchase price. Now again this is the A to B HUD so the investor put this under contract for $158,000.
This is the bottom half of the HUD. There are no other important numbers on the top half that are consequential with what we do as wholesalers for this example. Here’s the first thing that comes up all the time. “No earnest money deposit”. You’re going to have people, your broker or your associates say, “That’s illegal. I can show you the statute under Florida. You can’t have no earnest money deposit.”
Well, I’m not going to get into it but the Florida Supreme Court has ruled that the earnest money deposit is equivalent to the contract. We do it and we do it differently in any of the other 35 other examples I give you on my website, DaveDinkel.com. You can see and hear exactly how we do that.
These are the funds needed to close the transaction. The student had to come up with $159,949.23 to be able to close the first leg of the double closing. He had no money.
So now we’re going to go to the second page of the HUD. I showed you this a little earlier. The important part in this one is the Realtor’s® commission, $3160. If you’ll notice there’s two payouts. Was it the same agent or did a buyer’s agent get half of the commission? Doesn’t matter.
Now the bottom half of this A to B HUD has no significance in terms of numbers. Yes, there’s all sorts of charges on there. They do not matter. What I’m trying to show you is the most important aspects of a double closing and how they work.
So here we go, we’re going to the second leg. This is the B to C HUD. It’s the top half, just like I showed you the top half of the A to B. Here it shows the student sold the property for $197,000. So the sales price is $197,000, the purchase price is $158,000. This is where a lot of agents and investors go wrong judging the profit on the transaction between the sales price and the purchase price. If we do that the estimated profit would be $39,000.
So let’s look at what the profit is really. This is the bottom half now of the same page on the B to C, first page, bottom half. First thing we see is the buyer’s earnest moment deposit, $10,000. What we have our students do is make sure they get an earnest money deposit from an end buyer that’s at least two to five times what their earnest money deposit is, if in fact they put one up.
The reason being if the end buyer doesn’t come to closing and they can get his earnest money deposit they will still make money without having to even close the transaction. They’ll lose theirs but they will make more money on their end buyer’s earnest money deposit. I’m warning you ahead of time, it’s not easy to get the end buyer’s earnest money deposit if you don’t know what you’re doing because a closing agent is going to tell you, “I need this cancellation of contract release of the earnest money deposit.” In their mind, that’s exactly what they need. In reality, you can forestall that happening by adding certain clauses to your contract.
So there’s the transactional funding being repaid. I funded this transaction. That amount includes my funding fee. I mentioned to you before that that’s the profit, $15,528.30, after all costs and expenses on the HUD statements, both the A to B and the B to C. If the student had put up an earnest money deposit of $1000 originally but you’d had to subtract the earnest money deposit that he put up.
Here’s what’s important. B to C HUD, second page, top half. We’re going to get into expenses here. The Realtor’s® commission, none. Why? We don’t use Realtors® to sell our properties. Why? Because your power in real estate investing is your buyer’s list. Your power being a Realtor® is your buyer’s list. You just don’t realize it yet if you’re a Realtor® and listening to this. Some of you do and some of you are very powerful and you’re going to see that in a moment.
This is the bottom half of the second page and here’s what I want you to see. Three JV agreements. Those are joint venture agreements with other wholesalers who have brought a buyer to the closing table. If your first question is how can you have three people bring one buyer it happens all the time.
Here’s wholesaler number one. He marked the property up $5000. He didn’t come back to the student and say, “You have to discount it $5000 for me.” He just simply marked it up from what the student put it out at. Here’s wholesaler number two. It happens to be a broker and a wholesaler and the majority of his income comes from wholesaling rather than from his army of commission listing agents. He marked it up $5000.
Now here is a Realtor® who is most likely one of his commissioned agents who ultimately brought the end buyer and he marked it up $7000. The total profit to other wholesalers is $5000 plus $5000 plus $7000. $17,000 profit. Now they have no closing costs. These are net figures to them. Profit to the student? $15,528.30.
So in this case, the wholesalers who brought the end buyer made more money than the student who found the deal, contracted the deal, and worked the deal. Now the total profit on the deal is $32,528.30. I put that number up because you’ll see in a moment or so the significance of that spread.
One last insight, total net profit $32,528.30. The Realtor’s® commission was $1580 each. That means the student wholesaler made $15,28.30 divided by what the agent made. The student made 9.8 times as much money as either agent.
Now the wholesaler and the broker wholesalers made $17,000 so they made 10.6 times as much profit as either of the listing agents who originally had the property. On the entire deal, just to cut to the chase, all the wholesale profit was $32,528.30 divided by the total Realtor® commission and that result is the wholesalers receive 10.29 times the Realtor’s® commission on the transaction. This simply means that for every $1000 the licensed agents made the investor and the wholesale Realtors® in this transaction made $10,000.
Now why couldn’t the student have made more of the $32,000 profit? He could have if he had done one thing, which I stress all the time to my students. Build a bigger buyer’s list. Now did the other wholesalers take part of the student’s profit? No. They simply marked up the student’s offer price. Now the student came back to me after he realized that they had marked it up and said to me, “It’s not fair.”
I said to him, “Look, you could have made that profit had you put it out at that price and somebody was willing to come forward and pay you that. You didn’t. You put it out lower and at the time you were happy to make that money because you had no money in the transaction. Probably no more than 30 minutes of your own time and another wholesaler and another wholesaler and finally a wholesaler that had an end buyer came along and marked it up. You didn’t lose anything. Get over it.”
I ask this question all the time? Why not you? For much more information on wholesaling and how to maximize your profit on real estate deals go to www.DaveDinkel.com. If you need transactional funding for your wholesale deals go to www.transactionalfunding1PT.com.
To your limitless success,