AMA (Ask Meyer Anything): Seller Financing, A Better "BRRRR", & Do You Need an LLC?

Summary

BiggerPockets Real Estate Podcast Summary
Episode: AMA (Ask Meyer Anything): Seller Financing, A Better "BRRRR", & Do You Need an LLC?
Release Date: December 16, 2024

In this engaging episode of the BiggerPockets Real Estate Podcast, host Dave Meyer teams up with Henry Washington to tackle real-time questions from their community. They delve into crucial topics such as seller financing, the nuances of purchasing single-bedroom apartments, optimizing the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy for primary residences, and the considerations around forming an LLC for real estate investments. The conversation is enriched with expert insights, practical advice, and memorable quotes, making it invaluable for both seasoned investors and those just starting their real estate journey.

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1. Seller Financing: A Viable Strategy?

Overview:
The episode kicks off with a discussion on seller financing, addressing whether it's always a good idea from the seller's perspective.

Key Points:

• Mutual Benefits: Seller financing can be advantageous if it aligns with both the buyer's and seller's needs. For sellers, it offers continued cash flow and potential tax benefits, while buyers might secure more favorable terms than traditional bank financing.

• Risk Management: Sellers should assess the buyer's creditworthiness meticulously, as they're taking on the role traditionally held by banks. This involves considering higher interest rates to compensate for increased risk.

Notable Quotes:

• Henry Washington [00:50]: "The whole goal with seller financing is you want to structure the financing in a way that is a win for both parties."

• Dave Meyer [04:10]: "If you are not as sophisticated as a bank, I will try and do my best to underwrite this deal as best as possible, but I'm not going to be as good at it as underwriting creditworthiness from a bank perspective."

Timestamp Highlights:

• 00:49 - 07:09: Introduction to seller financing from the seller's viewpoint, emphasizing the need for mutually beneficial terms.

• 07:23 - 24:15: Further exploration of seller financing complexities, including the importance of presenting well-structured offers to sellers.

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2. The Pros and Cons of Buying Single-Bedroom Apartments

Overview:
Charles Burgess poses a question about the advantages and disadvantages of investing exclusively in single-bedroom apartment buildings compared to mixed-unit properties.

Key Points:

• Cash Flow Maximization: Single-bedroom units can generate higher revenue per square foot, enhancing overall cash flow.

• Lower Turnover and Maintenance: With potentially fewer maintenance issues and lower turnover rates, single-bedroom apartments can offer stability and reduced operational costs.

• Affordability and Demand: Increasing affordability challenges make single-bedroom units attractive to a broader tenant base, often leading to lower vacancy rates.

Notable Quotes:

• Henry Washington [10:50]: "They're essentially recession-proof."

• Dave Meyer [13:10]: "For every inch of that property, you're maximizing your revenue."

Timestamp Highlights:

• 10:50 - 20:00: Detailed analysis of single-bedroom apartments, highlighting their financial benefits and potential challenges like increased maintenance per unit.

• 20:04 - 20:38: Discussion on market demand and tenant behavior in single-bedroom units.

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3. Optimizing the BRRRR Strategy for Primary Residences

Overview:
Brody Villiers inquires about modifying the traditional BRRRR strategy by omitting the renting phase and turning the primary residence into an investment-focused property.

Key Points:

• Live-In Advantages: Owner-occupied properties often receive better financing terms, including lower interest rates.

• Tax Benefits: Renovating and living in the property can qualify for significant tax advantages, such as tax-free gains after meeting residency requirements.

• Alternative Financing: Instead of refinancing for funds, utilizing a Home Equity Line of Credit (HELOC) can provide flexibility without resetting the mortgage amortization schedule.

Notable Quotes:

• Dave Meyer [17:42]: "It's just such a nonsense thing to say your primary residence is not an investment."

• Henry Washington [19:40]: "You can literally become a real estate millionaire by doing this with small, multifamily over the course of like five or six years."

Timestamp Highlights:

• 15:32 - 20:40: Exploration of transforming the BRRRR strategy by focusing on owner-occupied properties, emphasizing long-term financial growth and stability.

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4. Should You Invest Through an LLC?

Overview:
Charlie Martin seeks advice on whether to establish an LLC when purchasing his first property, aiming to separate personal finances and reduce personal risk.

Key Points:

• Flexibility vs. Formailty: While forming an LLC can offer liability protection and organizational benefits, it shouldn't hinder the initiation of real estate investments.

• Administrative Considerations: Managing an LLC involves additional paperwork and administrative tasks, which may be unnecessary for first-time investors.

• Personal Debt Implications: An LLC does not inherently separate personal debt from business debt. Pass-through taxation means business liabilities can affect personal finances.

Notable Quotes:

• Henry Washington [21:22]: "Don't let it hinder your process. Just buy the deal and then start your LLC later."

• Dave Meyer [24:14]: "LLC is something called a pass-through entity and so all of the income, all of the debt from those LLCs are going to pass through to your personal tax returns."

Timestamp Highlights:

• 21:22 - 24:15: Detailed discussion on the practical aspects of forming an LLC, emphasizing that while beneficial, it's not a prerequisite for starting in real estate investing.

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5. Understanding the Perception of Wholesalers Among Agents and Investors

Overview:
Ashley Mierz raises concerns about the general dislike some agents and investors have towards wholesalers, seeking expert opinions on the matter.

Key Points:

• Reputation Issues: The negative perception largely stems from the actions of unscrupulous wholesalers who prioritize personal gain over ethical dealings.

• Value Proposition: Effective wholesalers who provide genuine value can foster positive relationships with both sellers and investors.

• Market Dynamics: Wholesalers play a crucial role in connecting distressed sellers with investors seeking deals, but success requires maintaining trust and delivering on promises.

Notable Quotes:

• Henry Washington [31:00]: "What the customer is also twofold because your customer is the end buyer and the seller."

• Dave Meyer [32:18]: "No one wants to pay a middleman an exorbitant amount of fee just because that's what you need to eat."

Timestamp Highlights:

• 29:09 - 36:12: In-depth exploration of the challenges wholesalers face in the industry, emphasizing the importance of ethical practices and effective deal structuring to improve perceptions.

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Concluding Insights

Throughout the episode, Dave Meyer and Henry Washington provide actionable advice, grounded in real-world experiences. They emphasize the importance of aligning investment strategies with personal and market needs, maintaining ethical standards, and understanding the complexities of different investment mechanisms. Whether it's navigating seller financing, optimizing property types for investment, leveraging primary residences for wealth building, or evaluating the necessity of an LLC, the hosts offer clear, thoughtful guidance aimed at empowering listeners to make informed real estate decisions.

Final Notable Quote:

• Dave Meyer [36:03]: "LLC is... a pass-through entity and so all of the income, all of the debt from those LLCs are going to pass through to your personal tax returns."

This episode serves as a valuable resource for investors seeking to deepen their understanding of nuanced real estate strategies and overcome common industry challenges.

Transcript

[Dave Meyer]

You've got real estate questions. Henry Washington and I have answers. Hey everyone, it's Dave here with Henry and we're back with a format that everyone has seemed to really enjoy since we've been doing it the last few weeks. Once again, we're going to take a trip into the BiggerPockets forums to find a couple of questions from the community and we'll discuss them and give you our opinions on what the poster should do. A few of the topics on the list are Is seller financing always a good idea? Can you brrr a primary residence and stick around because towards the end of the show, Henry and I are going to talk about why a lot of investors seem to have a problem with wholesalers and what that whole sort of feud or gripe seems to be about. Henry, you ready?

[Henry Washington]

Let's do it.

[Dave Meyer]

All right, well, question one says seller financing. Good idea. Question mark. We're selling a few houses in Memphis and we have interest, a letter of intent on one house that's requesting seller financing. They're offering a few thousand more than asking and will also pay agent fees. Our agent is not an expert on this type of deal, but suggested a short term loan of three or four years and a balloon payment and written up by a lawyer could work. I've always steered clear of anything like these offers. Has anyone done anything like these types of deals? Thanks for any knowledge on this.

[Charles Burgess]

This is cool.

[Henry Washington]

This is interesting because this is from the perspective of the seller. So the seller is considering taking a seller financing offer. Normally when we're talking about this, we're talking from the perspective of the buyer. And should you buy on seller finance? So A, I love buying on seller finance in the right situations and B, selling on seller finance can be very beneficial for a seller in the right situation. And so the key with this is it has to be a need on both sides. Right? The whole goal with seller financing is you want to structure the financing in a way that is a win for both parties. So if you are the seller, you've got these properties free and clear, you like the cash flow and don't necessarily need a lump sum of cash to go do something else and you want to limit your tax burden, then yeah, selling on seller finance is a great idea for that seller if that's the situation that they're in. But if they're in a situation where they need a lot of cash and they don't mind the tax burden because the need for the amount of cash is more important, then seller finance is a bad idea. For that seller. So it really is just a matter of what do you need and does the seller finance terms offer you the solution to your problem?

[Dave Meyer]

Yeah, it's a question of goal and then can you actually execute on it? Like you said, this is going to be a strategy that probably offers you pretty good cash flow because let's just make an assumption. The poster here doesn't say what the offered interest rate is, but the average 30 year fix right now is probably around 7%. If I'm selling this house, I need at least a point or two above that. So you're talking about maybe 8%, 9% loan. I know a lot of people go into seller financing, you know, from the buy side thinking oh, I can get a lower rate because this is not a bank. I wouldn't look at it that way as the seller personally, because I am not as sophisticated as a bank. I will try and do my best to underwrite this deal as best as possible, but I'm not going to be as good at it as underwriting creditworthiness from a bank perspective. And so I would want to increase the risk premium and make sure that I was getting a pretty good cash on cash return that was as good or likely better than what I would do with the money. Right. If I could just sell it all out, go reinvest in a property and get an 8% cash on cash return, I'd probably do that rather than sell or finance it. But if you're just going to have it sit in a savings account and you can earn an 8% cash and cash return, go ahead and sell or finance it. So I totally agree with that.

[Henry Washington]

I agree seller financing terms, I think of them like a teeter totter. Right. In other words, if I was going to consider selling something on seller finance and let's say I didn't need the money but liked the cash flow, then I would be open to the idea. But it's a matter of a teeter totter, meaning so that if I am going to ask for above market on the interest rate, I would probably expect that that person buying it would want to put less down. Right? Because if you think of the terms of a seller finance loan, if they're all going to be in favor of one party or the other, then it doesn't make sense to do the deal for anybody. So if I want a high down payment, if I want the tippy top market price, if I want a high interest rate and I want, you know, a three or five year term, well then that buyer has no reason to do that deal. Right, Right. But if, but if I say, okay, I want an 8% interest rate and they say, okay, well then I can only put $10,000 down and then we can meet somewhere in the middle on the rest of the terms, then that's probably something reasonable. So this is really about what is it that you need or want as a buyer and what is it that you need or want as a seller and can you structure the terms to help you meet those goals? Like it's not a one size fits all with seller financing ever.

[Dave Meyer]

I think there's good ways to do this, but I do think this is at least from a person who does a little bit of private lending perspective. I think this is a good example of why it's hard to accept lending to people who haven't really done this kind of thing before because they go into it with sort of an unsophisticated offer and it's hard to build trust based off that. And it's why a lot of the times, I know a lot of people educate about seller financing, how to do it. The people who tend to get seller financing deals are the ones who have already done it before and who have figured this out and have become really good at it. And so just recommend that if you are looking for seller financing, think about what the things Henry was just saying and just get really good at it. Maybe even before you approach your first seller.

[Henry Washington]

Absolutely.

[Dave Meyer]

Because the seller's not going to want to teach you how to do this. You know, like you have to go in with a very sophisticated, attractive package and offer to get someone's attention. Especially in this type of market where this seller could probably just sell it to someone else.

[Henry Washington]

In other words, if you are the seller in this situation, this needs to sound like a no brainer.

[Dave Meyer]

Yeah.

[Henry Washington]

And if it doesn't sound like a no brainer, then just go the traditional route.

[Dave Meyer]

Yeah, that, that's a really good point. And it probably, I think, you know, like you said this earlier, but it's right that this is probably not a good offer because if, if this buyer was doing their job correctly, this would seem like a no brainer. Everything would have been explained and buttoned up and the seller would probably feel pretty comfortable with the offer that's in front of them.

[Henry Washington]

100%.

[Dave Meyer]

All right, that was a good conversation. I like that one. One day I would love to be in a position where I own my rental screen clear and have this problem.

[Henry Washington]

That's the goal.

[Dave Meyer]

All right, so before we move on.

[Unknown]

To Question two We do have to.

[Dave Meyer]

Take a quick break, but after that break we're going to talk about the ups and downs of buying all one bedroom apartments. We'll be right back.

[Unknown]

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[Dave Meyer]

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[Charles Burgess]

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[Dave Meyer]

Hey everyone, welcome Back to the BiggerPockets Real Estate Podcast. Henry and I just talked about the pros and cons of seller financing from the seller's perspective. Now we're talking about a really interesting question and I am looking forward to talking to you about Henry. The question title is up and Downsides of buying all one Bedroom Apartments. The question comes from Charles Burgess. He says hello all Looking at a few options of apartment complexes for my next deal. A 24 unit just entered the market and all units are one bed, one bath. Outside of normal deal analysis like market info, cash flow, etc. Are there any particular upsides or downsides of purchasing all single bedroom units versus a more traditional mix of units for a property that size? Thanks for the feedback Henry. Have you done anything like this before?

[Henry Washington]

I've never bought an entire building of one bedroom units. I do have an entire building of two bedroom one bath units and they stay full. Yeah, I do have some one bedroom rentals and I rarely have vacancies in them. Same rarely. And they rent for really great rents because it's still a standalone unit and so it's not much less than the two bedroom. Yeah, but you're renting it to typically less foot traffic, so less wear and tear. They're essentially recession proof. Yeah, I mean we have an affordable housing problem and you're talking about buying a building full of affordable housing. That sounds like a win to me. I don't know. I really, really like one bedroom rentals.

[Dave Meyer]

Yeah, I actually think if I were buying single family homes, I prefer the more bedrooms the better. That's kind of my approach. So you want a family or you want a house with multiple units because that actually makes it more affordable. I like to think about it sort of on a per bedroom basis. Like if you're buying a four bedroom house, can I get 600 bucks a bedroom? Can I get 700 bucks a bedroom? Because a lot of the places I buy rentals, there's just a lot of young people, they're sharing houses and so I'm sort of thinking about it that way. But when it comes to large multifamily, I don't necessarily think the same thing applies. First and foremost, the smaller the apartment, the higher revenue per square foot you're getting.

[Henry Washington]

Right.

[Dave Meyer]

For every, for every inch of that property, you're maximizing your revenue. So I think that the revenue upside of a model like this is actually really high. The question to me just becomes about maintenance because let's just say Instead you bought 12 two bedrooms where you have probably the same amount of tenants. You now have double the number of kitchens, you probably have double the number of bathrooms. And so the condition of those key, you know, systems is going to be really important and the replicability of them. I would want to look at a deal like this where the layouts are pretty similar, the finishes are pretty similar. And so you can get some efficiency of scale in maintaining this type of property and not, you know, making up something every single time and needing custom parts and doing a lot of work for every time there's going to be a maintenance call.

[Henry Washington]

Yeah, I agree with you. You're going to have to watch the wear and tear. But the cost per square foot can help with some of that, right?

[Dave Meyer]

Exactly.

[Henry Washington]

And the decreased turnover is also going to help with that because I think you'll have less turn in one bedrooms. I mean, that's been proven in my portfolio.

[Dave Meyer]

I have a couple of one bedrooms in Denver still. I don't know if I've ever had a month of vacancy in any of them in like 15 years. Like I really mean that. I don't know if I've ever had one.

[Henry Washington]

No, they go so fast. People want them. And look, six years ago, five years ago, you might have had a little more vacancy, a little more turn. But as affordability has become more of a problem over the last, especially two to three years, a whole lot more people who would have never considered living in a one bedroom would consider it now. And so what I think you'll need to watch out for in this one bedroom scenario is how many people are going to try to live there. Yeah, right. Are you going to get people who try to have, you know, a roommate or two in this one bedroom situation? And are you okay with that? Like that's. Yeah, that's what you'll need to be able to watch because like I said, affordability is a problem. If you've got people who can't afford the one bedroom, they might bring in a roommate and then do you want that in that situation? But other than that, I love this.

[Dave Meyer]

Yeah, I think it's a great plan. If it were me, I would want to find one bedrooms that had a little bit of Space. So not like micro units, studio units. Just because ideally you want people to stay for a long time and you want it to be a comfortable experience and not have that turnover. Because if you did.

[Henry Washington]

Great point.

[Dave Meyer]

Even though you probably have low vacancy, I can imagine a scenario if they're small units and people see them sort of as transitionary, that they would be coming in and out of it relatively quickly. But man, if you can attract a couple.

[Henry Washington]

Yes.

[Dave Meyer]

You know, two incomes for a single family home, they're going to be able to usually afford that pretty easily. Hopefully they're happy there, stay a long time. That seems like a great situation. All right, well I think that's a good one. Let us know how that one works out. Charles, that sounds like a potentially pretty interesting deal. Moving on to our third question which is about burring a primary residence. If you've never heard this acronym burst answer. Buy, rehab, refinance, rent and repeat. And this question from Brody Villiers. Hear that French accent? Was that good? I took French for six years.

[Henry Washington]

Hopefully that. Sorry Brody.

[Dave Meyer]

Sorry Brody. I hope I pronounced your last name correctly. Question is, is it ever a good idea to bur a primary residence minus the renting part, just buying a distressed home, renovating it and refinancing it to recoup the costs that can be used for future investments, then living in it permanently. What do you think about this one?

[Henry Washington]

I love it. Same love it.

[Dave Meyer]

This is a no brainer, right?

[Henry Washington]

It's easy peasy. Yeah, absolutely. Now there are several caveats. First and foremost is if you're buying a rental property and you're buying it on a 30 year fixed and you're putting your own money into it to renovate it, then refinancing that money out. I think that makes sense because you want to pull your own money out. If you're doing a situation where you're buying it maybe on like a short term loan, hard money loan, something like that, and then then you are going to need to refinance that property again to pull that money out. But if you're buying it and you're not doing some sort of short term loan, you're not using your own cash to put in there, you don't necessarily need to refinance it, you can get a line of credit on it.

[Dave Meyer]

Yes.

[Henry Washington]

And then use that line of credit if you need to to buy your next property. Because the refinance. What a lot of people don't mention is that refinance is restructuring your loan at a higher amount which makes your mortgage payment and your living exp expenses.

[Dave Meyer]

Higher and resets your amortization schedule so you're paying more interest.

[Henry Washington]

So in other words, if you're using on the primary purchase, if you're not using a loan that you're going to have to refinance out of to satisfy the lenders because there's some sort of high interest rate or you've got to get your money back for the renovation because you put your own hard working dollars into that renovation money, then I would consider a HELOC instead of a refinance in that situation.

[Dave Meyer]

Yeah.

[Henry Washington]

Other than that you have to refinance because you're doing a high interest loan or you got to get your cash back out of it.

[Dave Meyer]

Yeah, I agree with everything you just said and I think this strategy just makes so much sense. I am very tired of people saying that your primary residence is not an investment. Like it's just such a nonsense thing to say. Like, I know like Grant Cardone is like always out there, like, oh yeah, it's not an investment.

[Henry Washington]

Yeah.

[Dave Meyer]

But if you want your primary home to be an investment, it is probably one of the better investments you will make in your entire real estate investing career. Because one, you're living there, you get much better financing on owner occupied properties that benefit if you sell it is tax free. So like there's just so many benefits to being able to do this. So I actually, Brody here is calling it a brrr. I actually think this is more like a live and flip, if you've ever heard this term. It's basically you're just renovating your primary residence. And the benefit of live and flip is that if you live in a property for two out of the last five years when you go sell it, that gains all the equity you build by renovating that property is tax free. You don't even need to do a 1031 exchange. You could take it and do whatever you want with it tax free. That is such an enormous advantage. So instead of the. Okay, going over the new acronym here, instead of a live and flip or a burr, I would call this the lift lock or a lifelock. It's a live and flip line of credit, right? You, you live in it, you renovate it, you jack up the equity and then when you need money to do your next deal rather than refinancing, you take out a HELOC and line of credit and use that money to, to go and get your next deal. But I think this is a fantastic strategy.

[Henry Washington]

Listen, I don't think that this is said enough but you can literally become a real estate millionaire by doing this with small, multifamily over the course of like five or six years.

[Dave Meyer]

Yeah.

[Henry Washington]

Like if you just did this on duplexes and quadplexes for about like one a year for about four or five years and in 20 to 30 years those things are paid off, you'll have over a million dollars in net worth like this. You never have to do any of these crazy strategies that I do, like off market deal. Like you can literally just do owner occupied loans.

[Dave Meyer]

Yeah.

[Henry Washington]

And become a very successful real estate investor on just a few properties.

[Dave Meyer]

Yeah. I don't know if you saw our buddy James Dainard posted something on Instagram about this the other day. Like how he just like leveled up his primary residence and it's gotten pretty. Damn.

[Henry Washington]

It's pretty stupid. It's pretty stupid now, but yeah, it is.

[Dave Meyer]

Yeah. It's like his house is now the size of multiple apartment buildings. But he really did do this strategy over what, 20ish years. And he's just practiced what she preaches and it really does work.

[Henry Washington]

James's primary residence is that 24 unit, one bedroom, one bath apartment building.

[Dave Meyer]

He's just got 24 bedrooms for himself.

[Henry Washington]

Right.

[Dave Meyer]

All right, moving on to question four, which is a classic. I don't know how many times I've seen this question, heard this question, but people still ask. And so we are going to address this question from Charlie Martin who wants to know, should I purchase under an LLC or not? Charlie says, hello, I'm hoping to buy my first property next year and I'm wondering if I should create an LLC to do so. The reason is I want to separate my personal debt to income ratio from my real estate investing business and of course reduce personal risk. Is complete separation even possible? Thanks, Henry. What's your take?

[Henry Washington]

I don't care. Here's what I mean by that. What happens a lot of the times is people are fearful of getting started and so they just go back and forth on trying to figure out what they should do and then they spend a bunch of time trying to figure out what their LLC name should be and then what their logo is and they do all this stuff to kind of just feel like they're making progress when at the end of the day you should just buy a deal and if this is going to stop you and getting your way, then forget about it, just buy the deal and then start your LLC later and you can. It's not very hard to transition a property out of your personal name into an llc. Depending on the loan you use. If you use, if you use an FHA loan, you can't have an LLC anyway. So like, it's really not that big of a deal. Don't let it hinder your process. That's the general answer. Now here's the, here's the business answer. If you are confident you are going to buy a property, this is just a formality for you, like you were getting in this business. I just want to set things up so that I'm doing it the right way. Then absolutely. Talk to an accountant, talk to an attorney. Figure out what the best entity structure is for you and the type of protection that you want. Set up that entity structure and then buy the property in that entity structure. It will make your life easier if you already know those things and are confident in it. But if you're not, just go do a deal and figure it out later.

[Dave Meyer]

I personally buy all of my deals and LLCs. That's just a decision I made a long time ago, mostly because I've done deals with different partners with different structures and I find it easier to just have LLCs to. Each one has its own operating agreement, each one has its own rules. We take minutes for, you know, for meetings. Like, it just, it's just a cleaner way to do it in my mind. And I just like liability protection. And so I think those things are the main reasons they do it. The other reason I love doing it is I just, I love filling out paperwork. I just, I love every year that I get to file my periodic status reports with the government. I have to do my FinCEN reporting now to the federal government. It just makes it even more fun. I just, I love that stuff. So, yes, yes, the reason I do.

[Henry Washington]

It, yes, you should be protecting yourself. I think if you're going to start a business business, you should treat it like a business. And having an buying in the entity is the right thing to do. But do not let it slow you down or stop you. If you're just on the fence about it, just go get the deal, then figure it out later.

[Dave Meyer]

Yeah. And if you're buying a deal, just yourself, no partner, you and your, your spouse, like, you really don't need to do an LLC for the first one. But it's. That's up to you. The one thing I will mention though, that Charlie said that he wants to separate his personal debt to income ratio for real estate investing business. That's not. What, an llc?

[Henry Washington]

Not a thing.

[Dave Meyer]

Yeah, that's not an llc. An LLC is something called a pass through entity and so all of the income, all of the debt from those llc. No matter how you structure the llc, they are going to pass through to your personal tax returns. So it is not going to matter in that regard. LLC is a liability tax legal structure that helps you in case you get sued. It helps you mitigate conflict with partners or figure out structure with partners. It does not change your DTI at all. All right. Well we have hit some very good topics so far. We've talked about seller financing, one bedroom apartments, burring your primary residence or purchasing in an llc. We are going to take a quick break but when we come back we got a hot button issue. One of the most controversial topics in real estate, we're talking about wholesalers right after the break.

[Unknown]

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[Henry Washington]

On the Market pod.

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[Dave Meyer]

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[Dave Meyer]

We get to I think I feel like I'm, I'm just like setting up a soapbox for you to just start ranting right my Wife loves it when I rant. Please, sir, step up onto your soapbox and let me read you this question. The question is, why don't agents and investors like wholesalers? This comes from Ashley Mierz. She says, I'm considering getting into wholesaling. But from videos and some research I have done, it seems like a lot of investors and agents just don't like wholesalers. I'm assuming it's because the wholesaler is basically the middleman. I would love some advice on wholesaling from the experts here on bp. Thank you, sir. The stage is yours.

[Henry Washington]

Look, I feel like this question is missing a word because what it should really say is why don't agents and investors like bad wholesalers? Because that's the real problem, right? The problem is that there are a lot of bad wholesalers. But if you are a good wholesaler, there are agents who love to work with a good wholesaler. There are agents and investors who love to work with a good wholesaler. They're investors who need to work with good wholesalers. The problem is they're few and far between. And so most people, most agents and most investors who have had experience with wholesalers have had bad experiences with wholesalers. And if you want to do that business, man, there's just not a lot of people who are doing it in a way that is beneficial to the seller and beneficial to the end buyer. I think you find a lot of people who are doing it in ways that are only self beneficial beneficial to them. And I think that that's where the problem is. Because middlemanning is a thing in almost every industry. There's a ton of money in middlemanning.

[Dave Meyer]

Basically the whole economy.

[Henry Washington]

So it needs to be done in the proper way. And what I think my experience with wholesalers is typically they don't know how to underwrite deals and so they find bad deals. They put themselves in a bad situation by saying they're going to pay overpay for a deal and then they back out of that deal. And who gets hurt is the seller who is in a distressed situation, who needs to sell, right? And then it creates this stain on the industry. I think a good wholesaler is worth their weight in gold, but it's just hard to find them.

[Dave Meyer]

To Henry's point, you absolutely need to do this ethically, I think, particularly on the seller side and be candid about what's going on. But as an investor, you know this about me because I'm sort of a lazy investor. I'm just more, I work full time I don't have time to do the work of finding deals myself. I'd be happy to pay a wholesaler for finding me a good deal. It just makes sense, right? I'm going to do more deals because I can pay a wholesaler. I'm flipping my first house. I'm doing none of the work. But I'm. James and I partnered on a. On a flip. We paid a wholesaler. I was happy to pay the wholesaler. That's just, it's. They found us a great deal in a good amount of time and it worked out well and they worked well with the seller and everything worked out well for everyone.

[Henry Washington]

I think the mentality of the industry of wholesaling is. Is wrong. And what I mean by that is, for every other business, what makes you good at that business is that you are serving the needs of your client, your end buyer, your customer, you're providing them value. And I don't think that it's seen that way in the wholesaling market. As a wholesaler, your customer is the end buyer. You want your customer to be able to be profitable. You want your customer to become back to you for return business. But your customer is also twofold because your customer is also the seller who is selling the house. And so you have to be able to provide a service on both sides of that transaction to the seller and to your buyer. And that's a delicate balance. Like, that's a hard business, right? And it takes some industry expertise to be able to get good at that. But if you can solve that problem, then I think that you can have a ton of success in the wholesaling industry. Because if some, like you said, you're happy to pay a wholesaler to bring you a deal, that's going to be profitable for you, right? So there's got to be profit on the backside, which means your wholesale fee might not be able to be as massive as you want it to be. I feel like there is a place in the industry where all of this can be done correctly. But you've got to learn. The truth kind of about wholesaling is that you have to be able to run a very tough business with multiple layers of customers, and it's not going to be something easy. And I think what happens is people get into it thinking it's going to be easy. They see how challenging it is, they get themselves into some sticky situations, and then it gives wholesalers a bad name, but it doesn't mean that they're all bad. If you play this game the right way. I think there is a way to do it profitably and ethically and take care of both the sellers and provide investors opportunities to make money.

[Dave Meyer]

Yeah, I think wholesaling just like has a bad rap and it's like not properly named. Actually when I first got into this industry and people calling it wholesalers, like, it was like, what is this talking about? Because wholesale in like every, like Costco is a wholesale club, right? It's like large quantities of goods sold at low margin for resale. And so if you do think about that definition of it, it kind of makes sense, right? Like you are selling individual deals, but they typically being a middleman is a low margin business. Like you have to do a lot of volume. And I just think, yeah, the years were really good from like 2018 to 2022 where you could get these like huge five digit, 25 grand, you know, assignment fees. But like to. I just don't know if that's normal or it's going to be the case going forward. And so you're just gonna have to be. If you're a wholesaler, you're gonna have to be really good at this job and you're just gonna have to be able to do a good amount of volume to make a living off of it. Because no one wants to pay a middleman an exorbitant amount of fee just because that's what you need to eat. Like, I mean, no offense, but no one cares, like they're going to pay what the value is to them. And like, I don't know, I just, I think that we often in this whole industry sort of like have come to this point where we like anchor our expectation to returns to this like magical time in the late 2010s where things were particularly amazing. And I don't know if we're going back to that. So I think wholesalers just need to reset their expectations. And if they do, then sellers, agents, buyers are all going to be happy to work with you if you're providing a appropriate amount of value at an appropriate price.

[Henry Washington]

Absolutely. 100%.

[Dave Meyer]

All right, well, we hit. We had some big ones today. Big Stuff llc, Wholesalers, Seller financing. These are some good topics. Thanks a lot for being here, man.

[Henry Washington]

That was a lot of fun. Happy to do it, guys.

[Dave Meyer]

All right, well, thank you all so much for listening. If you enjoyed this episode, please make sure to leave us a review on either Apple or Spotify. Or give us that thumbs up if you're watching here on YouTube. We'll see you very soon for another episode of the Biggerpockets Podcast in just a couple days. I'm Dave Meyer. He's Henry Washington. See you soon. Thank you all for listening to the Biggerpockets Real Estate Podcast. Make sure you get all our new.

[Unknown]

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[Dave Meyer]

Or any other podcast platform.

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[Dave Meyer]

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[Dave Meyer]

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For informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk, so use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose, and remember, past performance is not indicative of future results. Biggerpockets LLC disclaims all liability for direct, indirect, consequential or other damages arising from a reliance on information presented in this podcast.