How We Turned a Wholesale Fail Into a Bigger Payday

Mike DeHaan: [0:00] What is going on, guys? Welcome to today's collecting keys Friday focus. My name is Mike DeHaan, and I am your host for this short little Friday episode today. This is your first time to collecting keys. This is the show that is by real estate operators for real estate operators so that you can get better at growing and operating your real estate business in the ever changing economic, political, and financial climate that exists out there. And on these Friday shows, we do a handful of different things, but we typically do a deal deep dive with a deal that our company has recently closed or is working on, so that you can get a little bit better at recognizing opportunity and understanding how to piece together deals yourself. And so for this deal today, I'm going to talk about a one that was an attempted wholesale, which ran through some hurdles, and we actually ended up pivoting into a novation agreement, which are, I would say, kind of trendy right now in the space. They have some good press, some bad press, but overall, they are just another tool that you should have in your tool belt for when these opportunities come around. So this deal, it came off of a direct mail lead. And when we got it, we were pretty excited because the guy's asking price right away on the phone was super reasonable.

Mike DeHaan: [1:16] It is in one of the better neighborhoods in town. And so what we were able to do was go out, walk the property. It was a rental property. The guy lived out of the area. Get photos, and we were able to get it signed around very, very quickly at a price that we thought would be a super easy wholesale price, and we were expecting to make about $20,000 on an assignment fee. So from the second that we signed it, we were pretty sure that it was like a slam dunk, and it was gonna be as easy as it gets. We get assigned around, and we start going through our dispo process. And kind of the challenge, if you're a wholesaler right now, is dealing with tenants and dealing with owner occupants. Right? Because we are facing this nationwide affordability crisis. And when we have people that live in the homes, there's always the big question about where exactly are they gonna go. When it's a rental property, typically, the situation that exists is especially if it's like an out of town landlord, it is a situation where they've been kind of neglecting the property or they aren't really paying too much attention to the lease, especially if they don't use property manager, which most people that call us typically are property managers. And so what happens is you normally have tenants that are getting away with a pretty screaming price on a house for what they're paying for. Right? And so in this case, they were paying significantly below market.

Mike DeHaan: [2:33] And the kind of the rationale of the landlord was they had put these tenants in there years ago. They hadn't really like called them or caused issues. And so, you know, just let let them go. Right? You have a low mortgage payment. You're getting cash flow. You don't want them to, you know, leave and yes turn over the property, especially if you're out of the area. So why would you be concerned? And so when we got this conversation going, kind of the initial conversation that we had with the landlord was that we were going to have to have these people removed in order for us to be able to buy it or for us to be able to wholesale it because the intention was to flip the property. And we were told that would be totally fine. He would work with the tenants, handle all that. So be it. So anyways, when we first walked the house, everything seemed fine. The tenants were cooperative. We had some buyers that were pretty strongly interested, and everything seemed to be doing good moving forward. As things got serious, what started to happen, because the tenants were now facing displacement, was they started basically tampering with the deal. They started telling buyers and people that were deemed dealers on the homes, all these problems exist with the property. They stopped paying the seller rent. Right? And, basically, they became ultimately unresponsive to everybody.

Mike DeHaan: [3:44] This is a major problem because all of a sudden, the main the main piece that the seller had to do for us, which was get the tenants out, was no longer doable because you had tenants that were no longer willing to cooperate. We're actually trying to interfere with the deal. And so things have no choice but to get ugly. K? And so we basically gave the seller a couple different options. We said, either you can evict the tenants, we can do an extended closing, we keep the price the same, that all sounds good, or if you wanna move things forward and and keep our same timeline, we're gonna have to do a pretty significant price drop. And so ultimately, when we first well, I guess, when we first made this offer, the seller decided, hey. I actually don't even wanna participate with you anymore. He was a little bit upset, and he said, I'm just gonna handle this myself. You can go away. I don't wanna take your price drop. I don't wanna extend closing. I'm gonna go and find somebody else. So be it as sometimes happened. We were disappointed, but we started to move away. But then what happened is, as you as you should do with all these kind of deals, we followed up with them a couple of weeks later, and we said, hey. How is this eviction going with tenants? Turns out, surprise, surprise, it's a real pain in the ass, especially when you're doing this from across the state like this guy was. And so what we were able to do is give him two offers again. We said, hey, we're still willing to give you this lower offer, and we'll buy it with the tenants.

Mike DeHaan: [5:07] Are you open to that? And he said, absolutely not. And then that's when our acquisition manager was very crafty, and he said, how about this? What we will do is we will work to get you actually higher than our original asking price, and we will handle this entire process with the tenants on your behalf. We will serve notice. We will help go through the eviction process. We will do all these sort of things. We will assist with cash or keys. And what we will do is once the tenants are out, he wants you to work with us, and we are going to put the house on the market, and we're gonna try to get you the highest possible price. Because, mister Seller, I don't know if you've been in the house, but not only are they now causing problems with you in terms of not paying rent and everything else, but they've actually caused a lot of jam damage to the house over the last couple of weeks, and it is now very problematic. And so I guess that would happen beforehand. It wasn't just in the last couple weeks. But when we walked it, there was stuff that the seller did not know about. And, anyway, what we basically agreed to do was to handle this problem for him, and so that way, he didn't have to be trying to figure out this whole process from across the state. He didn't have to do any of the work.

Mike DeHaan: [6:09] And then as a benefit, what we're going to do is we're going to basically promise him the original price that we offered. We're going to handle the eviction. We will then put it on the market, and then we agreed to split any of the upside above our original price with him $50.50, so he has the potential to make more money. And so basic numbers on this, his floor price is 275,000. We're going to go through the eviction. He's gonna front the cost. We're gonna he's gonna handle the work. We're planning to put it on the market for about 350,000. After costs, the thing should net about 320,000. So that, you know, $2.75 to 320, what's that? It's like $45,000. We'll basically be splitting out within $50.50, so we should make about $25,000, be a little more work than a wholesale, but it will deal that will actually be able to close out. And it's mutually beneficial for the seller because he's gonna be walking away with even more money than if he had just gone with us originally, and definitely more money than if he'd gone with us on the major price shop that we have when he can get those tenants out. And so this is a deal that is still in progress. We actually started the process with the tenants today.

Mike DeHaan: [7:11] So whether it all plans out as we are expecting, we shall see. But all in all, it was a deal that could have gone in the trash, and instead we're able to revive it and come up with a mutually beneficial arrangement for both us and the seller, which will result in us making a little bit more money, and the seller makes more money, and it will be a deal that, you know, was gonna be somebody else's deal if we had just abandoned it when ultimately got tenants out and he decided to sell it. So overall, a big win win win all around. Anyways, guys, hopefully, that's a helpful one for you. Quick little episode today. If you have any questions around how we kinda set up these processes with these innovations or anything specific to that, go ahead and send me a DM on Instagram at Mike underscore Invest. I'm happy to send you some documentation. We also have a free little group in all of our SOPs and stuff and documentation around all these things available for you for free right now. If you go to collectingkeys.com/unlocked, you can go and get all that information there. It literally has, like, all of our documents and stuff to do these kinds of deals. So just go grab it. We got a little Facebook group. You can join in there, and we can go con con converse and get better at real estate. So awesome, guys. Thanks for listening, and we'll talk to you guys next week.