123 Why Do Real Estate Investors Tend To Start With Wholesaling?
Today’s Ugly Question:
“Why do real estate investors tend to start with wholesaling?”
Carolina Capital is a hard money lender serving the needs of the “Real Estate Investor” and the “Small Builder” borrower who is striving to build wealth and generate income for themselves and their families. We offer “hard money rehab loans” and “Ground-up Construction Loans” for investors only in NC, SC, GA, VA, and TN (some areas of FL, as well).
As part of our business practices, we also serve as consultants for investors guiding them to network with other investors and educating them in locating and structuring transactions. Rarely, if ever, will you find a hard money lender willing to invest in your success like Carolina Capital Management.
Bill Fairman (00:02):
Good afternoon. I can say that now cause it’s after noon.
Wendy Sweet (00:07):
And cause you’re a big boy and you gotta talk.
Bill Fairman (00:09):
That’s right. So have you ever wondered where most people get started in real estate investing? Right after this. I’m either too slow or too fast.
Wendy Sweet (00:27):
He’s too something.
Bill Fairman (00:27):
It’s always a balancing act. Hello, I’m Bill Fairman, Wendy Sweet and Jonathan Davis. We are Carolina Capital Management. We are lenders in the Southeast. So if you are interested in borrowing money, go to CarolinaHardMoney.com.
Jonathan Davis (00:46):
Who doesn’t wanna borrow money?
Bill Fairman (00:46):
That’s right. Click on the apply now tab. If you’re an investor looking for passive return, click on the accredited investor tab. Don’t forget to share, like and subscribe. Hit the bell, all that good stuff. This is a, we would like this to be a, interactive arrangement. So we do have a chat box either on the right of the screen or underneath, depending on the platform you’re viewing from and this is our Ask an Ugly Question segment. However, we’re not going to ask a good question because we always have breaking news.
Wendy Sweet (01:23):
Oh no! Into one of our houses we’ll renovating for the third time.
Bill Fairman (01:40):
Okay. So with that said picking a better neighborhood.
Wendy Sweet (01:45):
Yeah. I can’t argue with that.
Bill Fairman (01:48):
So breaking news. So, unemployment, excuse me. First time. Unemployment figures came out again this morning and they were about,
Wendy Sweet (01:57):
Bill Fairman (02:00):
Higher than what they expected. They were looking around 770 something and they came in at 790 something. So they’ve actually increased a little bit. It’s funny. I was talking about the unemployment picture. When the numbers came out earlier or Friday, I think it was. The government numbers. The actual unemployment rate went down, even though there’s more people applying for unemployment. How does that happen?
Jonathan Davis (02:40):
Is that new applications or would that just be,
Bill Fairman (02:42):
No, it was just the rate of unemployment. It went down to 6.3 from 6.5.
Jonathan Davis (02:54):
Bill Fairman (02:55):
Yeah, there was more people that lost jobs, but the unemployment rate went down. So here’s what happens.
Jonathan Davis (03:05):
This is fake news, Bill.
Bill Fairman (03:08):
If you want it-
Wendy Sweet (03:08):
That’s exactly right. That’s exactly what it sounds like. Fake news. Huh, what numbers can I make up today?
Bill Fairman (03:18):
I got this from another guy and he was pretty funny about it. If you want to lose 500,000 people, just ask the labor department where they are. So basically what has happened is that 400,000 people decided that looking for a job was no longer an option. So they’re out of the workforce. They’re decided not to, even though they’re unemployed, they’re not counted as unemployed because they stopped looking for a job.
Wendy Sweet (03:49):
Maybe they just didn’t turn in the paperwork. Maybe they’re fed up. I mean, that’s what is so confusing about what’s going on right now. Because you know, I’ve never seen anything like this, where it’s just a roller coaster and you don’t really know what’s driving anything because, you know, commercial real estate is hurting like for office space and things like that and then you’ve got the industrial commercial is exploding. You have some apartment complexes that are kind of hurting because, you know, it’s overbuilt or people don’t want to be so close together. And then other areas, apartment complexes are exploding and it’s just really a strange circumstance.
Jonathan Davis (04:42):
I mean it’s a lot of, you know, logistics and migration patterns. I mean, that’s,
Wendy Sweet (04:47):
That’s a great point. That’s a great point. Like they just, American airlines just, you know, announced that their numbers are way down. Surprise, surprise. I’m sure every airline is. And you know, we’ve got 13,000 employees that work for American airlines here in Charlotte. And that doesn’t account for all of the other airlines that have people working out here plus the airport itself and they just renovated it.
Jonathan Davis (05:15):
And as secondary jobs that support American Airlines.
Wendy Sweet (05:17):
Exactly. The parking garage, the, you know, my shuttle driver and you know, all of that good stuff. It’s amazing.
Bill Fairman (05:28):
This is why in business, you have to be flexible. You know, we were somewhat touching on this in our interview with Dr. David Phelps earlier,
Wendy Sweet (05:40):
Which was awesome. So if you missed it, you’re gonna have to get on YouTube and look for it, right?
Bill Fairman (05:44):
Yeah. There’ll be a replay here shortly. But that said, you have to be flexible in everything that you do because things are likely to change. That’s why the real estate business for some people is going to go down. For other people, it’s going to go up. Hospitality is going down because it was affected by the pandemic.
Wendy Sweet (06:08):
Yeah. And how are the hotels going to survive this?
Bill Fairman (06:13):
Well, they’ll figure out a way.
Jonathan Davis (06:13):
The debt that the hotels had probably accumulated?
Wendy Sweet (06:17):
Jonathan Davis (06:17):
I don’t know the number off hand, but, I mean, it’s in the billions, I’m sure.
Wendy Sweet (06:22):
Yeah. I can’t imagine
Bill Fairman (06:24):
Well, listen. There’s always going to be a place for the large complexes, but we now have more choices for vacation utilizing short-term rentals as vacation spots instead of, you know, the hotels. And if you’re a family on vacation, you’re more unlikely to rent a house versus going through a hotel. If you’re, you know, couples, you could be empty nester couples, you could be couples without children that are young. They’re probably going to drift more towards hotels because they have the different, amenities.
Jonathan Davis (06:57):
Well, it could be, I, you know, I look at this even before the pandemic. I mean, people with families automatically drifted towards Airbnb. I mean, I know when I traveled, it was just more convenient to have that. But when I traveled for business, the hotel is always more convenient. Yeah. So in business travel is, you know, it’s almost non-existent so that’s one of the, in my opinion, one of the big factors on hotels, this is travel.
Bill Fairman (07:26):
Business travel is not gonna go away. It’s just not going to be utilized as much as it had been in the past. And you’re going to see a lot less of it internationally. You’re going to see more of it, you see more business travel, domestically, but let’s face it. You’re not going to go to as many places as you used to because it’s not necessary.
Wendy Sweet (07:48):
Jonathan Davis (07:48):
Why do you say business travel domestically is going to go in, are you saying increase from where it is now?
Bill Fairman (07:54):
It will come back.
Jonathan Davis (07:55):
Yeah. Oh yeah. Yeah, for sure.
Bill Fairman (07:56):
But is it going to be to those same levels? I doubt it. I know in our business, we looked at events that we would go to and we’re saying, you know, what is it really worth it?
Jonathan Davis (08:09):
I mean, we just bought a $600 plane ticket to get two free cocktails.
Bill Fairman (08:12):
Jonathan Davis (08:21):
You wanted to realize that’s not a good investment.
Wendy Sweet (08:24):
And it’s an ugly drink so it was really worthless for me.
Bill Fairman (08:28):
Now listen, that’s not to say when we first got into business at that travel that we did to the certain events, didn’t help promote us to get where we were, but you, it’s just like anything else in your real estate portfolio. You’re always looking at your portfolio to see what’s working for you. What you may have some tied up lazy money in that you might need to change and get working a little bit more. Same thing with the events that you’re going through. You just don’t continue to go to the events cause you always have gone to those events. Are they now paying you back? What it’s worth in going your time, number one.
Wendy Sweet (09:05):
Bill Fairman (09:05):
Plus the money that you spend doing it.
Wendy Sweet (09:08):
Which is a great. Because on the chat, you can see where we’re doing the cashflow expo on February 18th through the 20th. And we had Fred Rewey. Boy, his name is hard to say on the show last week, talking about this cashflow expo. And I think he started it three years ago before everybody did online stuff and I remember when he first sent me, you know, the email that, Hey, would you like to speak on this? And you probably remember. I was like, nah, no, that can’t be good. That’s not going to do any good. So we did it and did our recording for the show and it, we could not believe the response we got out of it. And so he’s really ahead of the game on putting on events like that and I’ve been just amazed at, you know, David Phelps. We just had him on the previous show, the way that the Freedom Founders mastermind, how awesome they’ve done, just putting that together and making you feel like you’re really there. Like you’re really in these individual chat rooms and you’re really having cocktails with the other people that are there and just what you get out of it, you still get the benefit out of it. So people that really have been able to take it to a higher level,
Bill Fairman (10:25):
And again, who is it going to hurt? It’s going to hurt the major hotels and the big rooms. They don’t have to rent as large a room anymore because now you need a smaller room because fewer people are going. But you still have the people that are, if you want to do a hybrid event where you can still have people online, and then you still have people that are there at the event and it kind of mixes in pretty well.
Wendy Sweet (10:47):
Yeah. And it was pretty cool with our, the last one we did was that trusted advisor event with Freedom Founders. Bill and I showed up, Jonathan was online and we all did the same thing while we were there. So it was.
Bill Fairman (11:02):
Yeah, I would say it was about half and half.
Jonathan Davis (11:05):
Yeah. There was, what was there? Probably 12 online?
Wendy Sweet (11:10):
Now we had 20, maybe 25 in the room, but it was just amazing how, how smooth that went. And I’ve got a lot out of it. It was pretty, pretty neat.
Bill Fairman (11:23):
Except the one part where I kicked out the outlet, the cords and knocked over power off.
Wendy Sweet (11:26):
Where you turn everything up. We will talk about that.
Bill Fairman (11:31):
Listen, before I forget, mortgage numbers. Rates are still pretty much the same. You get a 30 year, Fannie Freddie loan for 2.7% and then a 15 was 2.1- something.
Wendy Sweet (11:49):
Giving money away,
Jonathan Davis (11:52):
That’s free money,
Bill Fairman (11:54):
that said, re-finance applications have dropped 7% from last year at this time. No, I’m sorry. They dropped this month from last month. However, they’re like 70 something percent above last year.
Wendy Sweet (12:11):
But they vary refinancing everybody. I think we can count on seeing that continue to drive slightly.
New Speaker (12:17):
I don’t know 70%. That’s a lot.
Jonathan Davis (12:18):
The only thing is, you know, if they,
New Speaker (12:20):
It’s no cash up.
Jonathan Davis (12:22):
So yes, no cash out, but if they start loosening up the credit boxes for them, you’ll have more people that [inaudible].
Wendy Sweet (12:29):
Yeah. That’s true.
Bill Fairman (12:29):
People now aren’t refinancing because they can get a lower rate. People are now refinancing because their equity has gotten so high.
Wendy Sweet (12:37):
They want to take cash.
Bill Fairman (12:37):
They can take cash off the table and either invested or save it because the unknown, you don’t know, you might as well take that money out.
Wendy Sweet (12:46):
And it’s free.
Bill Fairman (12:46):
So it’s pretty close. Now, purchase money applications have decreased a little bit too in certain segments. So in the affordable housing side, they have dropped a bit because affordability is starting to become an issue and it’s supply. Very low supply of affordable homes. However, in the mid to upper column income homes, there’s still plenty of supply for those and by the way, applications,
Wendy Sweet (13:21):
At least three days worth.
Bill Fairman (13:21):
Applications are still high for those.
Wendy Sweet (13:23):
Yeah. They are.
Jonathan Davis (13:25):
Is that like a 350 to 6?
Bill Fairman (13:29):
It’s more like 500 in out.
Jonathan Davis (13:29):
Wendy Sweet (13:30):
So if you’re in the affordable market, don’t have fear thinking, Hey, I’m rehabbing these houses in the affordable arena. Don’t have fear thinking that you’re not going to be able to sell them. They’re still flying
Bill Fairman (13:44):
They’re down because too many people can’t find housing.
Wendy Sweet (13:46):
Yeah. You don’t have any competition.
Jonathan Davis (13:48):
You need to look at the days on market on
Bill Fairman (13:52):
Yeah, there’s not enough from around. What was interesting and interesting statistic was that 50% of the purchase money applications were second homes.
Wendy Sweet (14:02):
Bill Fairman (14:03):
Wendy Sweet (14:04):
Interesting. And we don’t like to lend in resort areas.
Bill Fairman (14:08):
Well, here’s the thing. It doesn’t necessarily mean that a resort area is just a second home. So you have people that can now work away from.
Wendy Sweet (14:18):
Where they’re living,
Bill Fairman (14:18):
Where they’re current. Let’s assume they have a home in the city.
Wendy Sweet (14:24):
And one in the country.
Bill Fairman (14:24):
One in the bigger cities and they want to go into another area that they can get away from it all, by getting more house for the money rates are so low right now, you might as well buy them and then worst case scenario, you can either retire there, sell one of them and still make up for it. So it was pretty interesting that 50% of the purchase money applications where it’s like a second home,
Jonathan Davis (14:50):
That is interesting.
Bill Fairman (14:52):
Okay. So we’ve used up almost all of our time on our part that we haven’t even asked the ugly question. So time for the ugly question. Would you like to ask it?
Wendy Sweet (15:13):
I don’t remember what it is, has something to do with wholesaling. There we go. Why do real estate investors tend to start with wholesaling?
Bill Fairman (15:23):
I’ll let you guys go first.
Wendy Sweet (15:24):
because you don’t have an answer.
Bill Fairman (15:28):
Because I don’t have an answer.
Jonathan Davis (15:28):
You wanna take it?
Wendy Sweet (15:28):
Oh, I’ll start. So, that’s a thing that I recommend to a lot of people, you know, when people are calling me and they’re new into the business and the problem is they don’t have any money. They don’t have any money to bring to the table when they close. They don’t have any money to take care of the contract or something goes wrong or they got a bad credit score.
Jonathan Davis (15:49):
That’s why they come to a hard money lender because you don’t need any money. Right?
Wendy Sweet (15:55):
Oh yeah. Wouldn’t that be nice there? They used to be that way when hard money was easily available. But, and the only thing, you know, the hard part about, you know, funneling people toward the wholesaling is in order to be a good wholesaler, you need to understand investing. You can’t just jump in and not know what you’re doing and what I mean by that is you need to know how to calculate a deal. You need to look at a house and get a good idea of what it’s going to cost to fix it up. You need to look at that house and know what it would sell when it’s fixed up. And what is it going to be when it grows up? Is it going to be around property? Is this going to be a fix and flip kind of property? You need to understand all of that. And you don’t know it by, you know, just waking up one day and watching how to garden TV, right?
Jonathan Davis (16:46):
I mean, I don’t know. Everything I’ve learned is from HGTV. We know, I mean, wholesaling, it’s the easiest to get into, because like, when you said it doesn’t require any capital upfront, all it requires is time. So if you want to get in and learn the business and you have time, then that’s the best route to do that. Because like you said, you learn the art of the deal. You learn, well, this, they want 60,000 for this house, but all the comps in the area are comping out after repaired at, you know, 110, and it’s going to cost $30,000 to do the repairs. We were like, well, man, you’re in a 90 for a 110. Like, there’s not much skin in that one to, you know, to make a profit. So it helps you develop the ability to look like you said, to look at a property and look at a deal and analyze it, which will help you when you get to the next phase, which would be when you want to become a borrower and flip a house, or, you know, do,
Wendy Sweet (17:49):
Buy and hold,
Jonathan Davis (17:51):
Buy and hold, whatever it is it’s going to help you because learning how to analyze a property and analyze a deal is the most crucial step you make or lose all of your money on the purchase of the asset,
Wendy Sweet (18:04):
Real estate 101.
Jonathan Davis (18:05):
So you learn that very quickly and wholesale it, you know, you get a property under contract and every investor that you’re trying to sell it to says, you’re crazy. That’s a ridiculous price. And you just made it really big,
Wendy Sweet (18:17):
Jonathan Davis (18:18):
Big mistake. That would cost you a lot of money.
Wendy Sweet (18:19):
You are so right. And people said, well, how can I get into it? I always suggest that you find a wholesaler that’s already wholesaling and say, let me be your bird dog. And they’re happy to teach you the ropes. They love to have somebody that’s willing to, you know, park on a road at 10 o’clock on a Saturday morning. And you know,
Bill Fairman (18:43):
And stalk the neighborhood
Wendy Sweet (18:45):
You stalk the neighborhood, 6you walk up to the front door. You knock on it. And then you do it at 10 o’clock on a Saturday because everybody’s home. You know, they’re washing their cars. They’re going to the grocery store. They’re,
Bill Fairman (18:54):
Making breakfast in their underwear.
Wendy Sweet (18:54):
Their kids are watching TV. They’re raking leaves. They’re they’re at home. And if you arm yourself with the clipboard, it’s better than a weapon.
Bill Fairman (19:04):
Man. If you have a, if you carry a clipboard, Oh my gosh, almost invites you into their house because of the authority of the clipboards.
Wendy Sweet (19:11):
It’s a dream. I don’t know why it just is, but I tell people, knock on the door, say, Hey, my name is Joe Smith, and I love this neighborhood. I’m an investor. And I’m interested in buying houses. Do you know anybody in this area that is interested in selling? You never asked them directly because it might’ve found them, but do you know anybody? And they’re either going to tell you to get off their porch, or they’re going to say yes, as a matter of fact, blah, blah, blah, blah, blah and then they start to fill you in on everybody in the neighborhood. And all you need is one street. They hit one street and the leads you’ll pick up. Then you take that lead, you take it to the wholesaler you’re working with and they can negotiate stuff and that’s how you learn and to me, that’s better than bandit sign. It’s better than mailers.
Jonathan Davis (20:00):
At this time, bandit signs work.
Wendy Sweet (20:00):
Absolutely, they did.
Jonathan Davis (20:00):
New Speaker (20:00):
Bill Fairman (20:06):
And just so you know, what a bandit sign is, that means it’s one of those little election looking signs or the, we clean out gutter signs that you see that’s abandoned sign. They call it a bandit sign because most municipalities don’t allow them to be there. So you’re doing it not legally, but usually all we do is pick them up and throw them away.
Wendy Sweet (20:31):
You just put another one down.
Jonathan Davis (20:32):
Yep, exactly. Exactly. Yeah. I mean, it’s, you know, mailers, I mean, those, you can get lists and you can create your own software to scrape data off of like a GIS software or something like that, or, you know, or the county’s website. And you can do that and send out mailers. Now it’s,
Wendy Sweet (20:54):
You can buy lists.
Jonathan Davis (20:56):
And you can buy lists. It’s less of your time that you’re spending, but they’re going to, it’s going to cost money to send those out. Like for every thousand mailers you send out, you might only get, you know, two to five responses.
Wendy Sweet (21:09):
And half of those will be don’t ever mail me. So you gotta be careful about that. And I think what’s important too, is I, you know, we get mail all the time because not only are we lenders on houses, but we’re also owners of houses. And I am amazed at the amount of mail that we get, Hey, I want to buy your house on houses that were sold over a year ago, and we’re not the owners on it. So the point is, I want to call that person to go. You just paid money for a list that really bites. So you gotta be careful where you’re buying your list from and the value of what’s on that list.
Jonathan Davis (21:44):
I have a property that’s actually four houses on one parcel. So technically it’s four houses but I get bandit or not bandit. I get mailers all the time for that, for one house on there and I call them like, well, if you buy this one, you have to buy all the others.
Wendy Sweet (21:59):
And they don’t know. It’s, you know, they’re just taking pictures off of what Google earth is showing them or Zillow is showing them and move forward from there. Did you have something you wanted to say?
Bill Fairman (22:13):
Did you wanna hear my answer as well at start?
Wendy Sweet (22:14):
Well, we finally got a channel.
Jonathan Davis (22:18):
I don’t know. I feel like Wendy really answered it. I don’t see how much you,
Wendy Sweet (22:23):
Can you improve on what we’ve already said. Is that possible?
Bill Fairman (22:26):
You left one thing out.
Wendy Sweet (22:27):
Oh, I knew what we missed
Bill Fairman (22:29):
You’re likely to lose a junket change because the worst thing that can happen when you’re a wholesaler is that you overbuy
Jonathan Davis (22:37):
Bill that was implied in the you don’t need much money to start,
Bill Fairman (22:41):
You don’t need much money to get in and purchase it. Can you lose money?
Jonathan Davis (22:46):
When you’re the bird dog, you can’t.
Bill Fairman (22:48):
Well, that’s true. But if you’re the wholesaler and you’re the one that gets it under contract,
Wendy Sweet (22:52):
And so you’ve paid your 500 down, you could lose that
Bill Fairman (22:55):
And you put a down payment down or a deposit, you could lose that $500. $500 to learn. A valuable lesson is a very small amount
Jonathan Davis (23:03):
Yeah. $500 is a very cheap fee. I mean, you go to some of these, what, educational classes,
Wendy Sweet (23:11):
Rows of zeros on that bubble,
Jonathan Davis (23:12):
Real world. It teaches you faster. And, you know, sometimes cheaper than educational courses.
Bill Fairman (23:21):
And it’s just like they say, this is not a beginner’s game. We have friends in Collective Genius that have built multimillion dollar business wholesaling doing nothing but wholesale and they are thriving businesses and they continue to grow even with the low supply.
Jonathan Davis (23:43):
And they built multi-million dollar businesses in one city. Like that’s how much success that they’ve had. Like you don’t have to do while I have to cover all up to, you know, I guess I got to cover all of North Carolina. It’s like, no, you pick, like you said, like pick a neighborhood. Start there.
Wendy Sweet (24:01):
Jonathan Davis (24:02):
Wendy Sweet (24:03):
I really believe the street will work and you just need to not be afraid to knock on somebody’s door. That clipboard will stop the bullet.
Jonathan Davis (24:15):
Put a visor on there and, yeah, man,
Wendy Sweet (24:17):
And smile. That’s key. You gotta smile
Bill Fairman (24:22):
Oh, so, Wendy was tapping me cause I was looking at my phone. I had Dianna texted me saying, I’m looking at the Ugly Question show. Dianna, we have a chat box. Anyway, thanks for watching.
Wendy Sweet (24:39):
She listens way in, she doesn’t get it.
Bill Fairman (24:42):
All right guys. I’m sorry, go ahead
Jonathan Davis (24:44):
I was gonna say, but yes, wholesaling is the easiest way to get in. Now, like it’s the easiest because it requires the least amount of money, but it is the most time consuming. If you become like, you will never spend more time. In my opinion, I may be wrong, but more time in real estate or doing work then as a wholesaler.
Wendy Sweet (25:09):
And your timing is important. When you get a lead coming in, you need to respond right then. It’s not,
Jonathan Davis (25:16):
Oh, you’re always on call. If someone texts, you responds to it, like a text message that you said nine o’clock at night, you got to get on that. There’s no stopping.
Wendy Sweet (25:25):
There’s 10 people. 10 more people behind you.
Jonathan Davis (25:28):
When someone’s says, meet me at nine o’clock. I ignore it.
Wendy Sweet (25:29):
Me too. Not there.
Bill Fairman (25:36):
Oop, there’s Deanna and smiley face. All right. It was a pleasure serving you.
Jonathan Davis (25:44):
Bill wants to wrap u early because he didn’t get to talk much.
Bill Fairman (25:48):
And we’re right on time.
Wendy Sweet (25:48):
Bill Fairman (25:50):
And yeah, I’m a little disappointed that didn’t get that ramble on. So that concludes another wonderful episode of Ask an Ugly question. We are Active Income, Passive Wealth show. We are Carolina Capital Management, and we make loans in the Southeast for real estate investors. If you’re interested in borrowing money, then go to CarolinaHardMoney.com, click on the apply now button. If you’re a passive investor, looking for passive returns, click on the accredited investor tab. Don’t forget.
Wendy Sweet (26:26):
Don’t forget to like, share and subscribe and don’t forget to hit the bell.
Bill Fairman (26:31):
See, this is the problem. If I don’t talk most of the time, I don’t have the throat lube. Okay. That was a bad thing.
Jonathan Davis (26:42):
I know, like no one wants to think about your throat lube.
Wendy Sweet (26:47):
So we’ll leave you with that folks. Thank you so much and we’ll see you next week.
Jonathan Davis (26:51):
Don’t close your eyes.
Bill Fairman (26:52):
That was wonderful. Have a great day.