JV'ing a Novation Deal with Our Competition

Dan Austin: [0:00] Hey there. Welcome back to another episode of the Collecting Keys Real Estate Investing Podcast, the podcast where we teach you how to make massive income, not just passive income. Today's a Friday episode, which means it's a solo episode, and you have me, Dan Austin, as your host. And we've been trying to do a few more like deal analysis, whether it's a flip or a wholesale deal, or in this case, a joint venture deal that we did an ovation on with our competition. So what we want to do is just talk about how we're structuring deals. The goal is, and we've heard from our listeners and folks in our scale community, how valuable it is to hear how we are operating our business through the marketing, through the sales processes. And then of course, you know, how are we monetizing? How are we making money? What does it look like on the back end? There's a lot of folks out there that have podcasts or gurus out there that never really talk about the deals that they're doing today. Maybe they talk about deals they did five years ago. And so we just want you guys to see what we're doing. And if we're successful at it, we'll still be doing it in the future, and you get to see the deals that we're doing and how how we're doing them throughout the year, hopefully. And so, today I am actually going to cover a deal that we just closed on. We sold it on November eighth of this year, so 2024, so about a month ago.

Dan Austin: [1:23] And, yeah, it was definitely one of those deals where we didn't quite know. We thought initially when we got the call, we're like, okay, this lady is pretty motivated, right? But we didn't know how we were going to monetize it as the negotiation kind of played out. So we got the phone call, it came in. Of course, we got right on it, went out there, started talking to the gal, scheduled an appointment. And essentially, she had her kids living in it. She did not live in the property. She lived like in another state, not too far away, her kids were living in it, and they were going to move out and she wanted to sell the thing, which made total sense for her in that point in time in her life. And so we jumped on that and said, awesome, we'd love to work with you, let's make this happen. And then we immediately found out like, okay, there's competition. She's been calling people. She actually got a couple offer cards from us over the years, over well, I should say over the months throughout this year. One, she she mentioned, she's like, I got an offer from this company for $2.9 and then the next one they sent me in the mail was $2.29 So it was one of our ROS postcards that we tend to send out, and which is kind of funny that she recognized that. I don't know that she put that together that thought was us, but it was. And then anyways, she talked about, she got an offer from one of our competitors, and the cash offer was $20.05 ks, and then the, what was called the equity protection program, which a lot of people use, the Eric Brewer method, which he calls it the Equity Protection Program, which it's essentially a innovation.

Dan Austin: [2:51] He's kind of like the guru that everybody talks about innovations. Anyways, that's, he was on the podcast many, many episodes ago, I don't know, probably 200 episodes ago, he talked about this when he was chatting with us and used that same terminology. So I know it was somebody that either listened to our podcast or knows Eric at some level. And so the equity protection program was 245,000, which is pretty common because, you know, you can cut out the lending costs and the transaction costs, right? And so you can kind of bump up your offer while the owner, the seller maintains title of the house, still pays their mortgage, still pays their insurance, still pays all of the taxes, everything. All of those carry costs and all those costs that a seller, you know, typically we even get them paying the utility bills, like nothing changes from that perspective, and you just go in there and you help them sell it. The difference is with the Brewer Method, he tries to not do anything and then just lists it for a higher price. To me, I think that's kind of weird. It doesn't really provide value. I think in these situations, you should at least be providing some value to this person. And I'll get into the value we provided here in a second. So anyways, we know that's an offer. Well, then we get a call from a different competitor of ours and says, Hey, are you guys working on this? Like the gal said your name, Becker Nobars were like, Oh yeah, yeah, we're working on it. Okay, okay, well, hey, it's getting, let's not bid everybody up.

Dan Austin: [4:05] There's a bunch of competition on this thing, let's not bid each other up. What do you guys think about JV ing this deal? We're like, okay, perfect. So like, let's negotiate a good price with the seller, one of us, and then we'll just split any wholesale fee that we get. Well, that's not an uncommon thing for us to do. I always say it's a team sport. Instead of working against each other, we should work with each other, And that's how you stay in business, right? So we did that. And as we were working with the gal, she really wanted a cash offer, and we were calculating the ARV at about $330,000 Maybe a little, we're kind of like, it's probably $3.20, $3.30 on the high end. So $3.20 was the ARV we were actually initially working off of. We wanted as a cash offer to be at like $2.19 to $2.29. Like that was like the max that we could even think imagine being at because it was a pretty lipstick deal. It was something that needed to be flipped, had a little cosmetic things that need to be done, a little bit of a lipstick. We were estimating 20 to 25 k in rehab budgets for it. So nothing too crazy. But like I said, had our competition at $20.05 for cash offer, $2.45. So we knew we could beat them on cash offer, but then we're just kind of looking at it. We're like, gosh, I don't love the cash offer scenario. So anyways, we essentially pitched the same deal, the Novation, but when we did it, our sales gals spent thirty minutes on the phone, really covering with her, building great rapport, got the seller laughing, started building the relationship. And during the sales process, really the lady was like, I've got all these letters in the mail from all these different people.

Dan Austin: [5:32] I'm getting offers from other people, but I like you the most. I wanna work with you. I trust you the most. So anyways, we ended up getting this thing locked up on innovation at 246. So yeah, we went one k above our competition just to, you know, make sure that she got the best she could, and she felt good about it. And then she decided to go with us, not just because of that, but also just because of the rapport. Because I'm sure we could have got everybody else to bid up, right? But we didn't do that. We worked with our other competitor to just say, okay, let us make the offer. This is what we're gonna do. And we ran the numbers together. So we were thinking we would list this thing for like $3.20 is what we ended up thinking we'd list it for at the time. We're gonna budget no more than 25 k. And then if we could get it $2.46, we felt good about that, right? No transaction, no carry costs on the front end. So anyways, we made that offer, it gets accepted. And the cool thing why we did this one too, is our competitor has a couple of full time in house loop crews. We sub everything out. We don't have a full time crew, and our crew actually was busy on another project we were working on. At the time, our competitor said he would fund the he would just fund the project.

Dan Austin: [6:34] He's like, I'll just put it in my pipeline just like it was one of ours, and we'll just split the the fee $50.50. So for us, we are no money out of pocket at all. We had zero, zero risk because our competitor was carrying all of the labor, all the work, and we didn't even have to take title, right? We did this as an ovation, so the seller kept title. And then on top of it, we didn't have to manage a project, we didn't have to do anything. We had our agent who we used to list things for a decent price list it for us in the back end. So this is one of those things, once we got on contract, never even saw it, thought about it, did anything with it. So it was an amazing situation. So then we go through it, do the rehab, it costs a little bit more. We originally actually won like 20, we were like hopeful, but it ended up being like $25,000 on the rehab budget. Just had a few things pop up that we had to do, and you're just in that moment, you're like, You know what? I don't want to lose my ass on this. Let's just put the extra money into it so it at least sells. So then in, I think it was in August, we listed it for $3.15. That was what our agent thought at the time. So we were shooting a little bit high on the ARV initially, but that's okay. It wasn't too high. First week, no action. So we dropped it to $3.10 the second week, and then we let it sit there for a month, and we just weren't getting much action at all. So we dropped it to $2.99.

Dan Austin: [7:45] And then like a week later, we had it signed around and ended up getting it at $30.05, and then closed like a month later. So we ended up closing like in beginning in November, like I mentioned. So we had it for, you know, a couple, two, three months listed. And so we were just kind of like, oh, what's going on? You know? And I think that just speaks to the fact that sometimes you just gotta get your price right. Just because it's sitting doesn't mean it's stale. You know, lot of people get itchy, and they want to pull it off the market and be like, okay, I'll just keep it as a rental, or I'll sit on it through the winter. Don't get too crazy, just, you know, sometimes the right buyer hasn't seen it. You get that price drop in there, and they see it, and all of a sudden, boom, they're ready to go, they're hungry. And then we yeah. Once we did that $2.99, it really got people excited. I mean, it's hard for people in Spokane to find a house under 300. It's really, really hard. And it was a good clean house that just got flipped, so it was it showed pretty dang well. So got that bad boy sold, and then we split a total profit of, I think it was like 22,000. So we made an 11 ks fee on this, and we didn't do anything besides negotiate it. And I would say that the moral of the story here is, is like when we're going through the negotiation process, we thought we had a deal, and then all of sudden it was like, oh man, we got competition on it, and they're driving the price up. And it's like, okay, what do we got to do here to get this deal to happen? And how can we?

Dan Austin: [8:58] Because we probably wouldn't have done this by ourselves as an ovation because we, like I said, our crew is busy. Or when we partner with a competition, they are better at flipping houses. They are house flippers before they are wholesalers. So they had that system down pat. And I've seen their product. I've actually hired them to do work for me. They do a good job, and they know how to do things to make money. So that was a weapon and a tool that they had, and we were able to pair up our badass, good solid rapport building with the seller, and make that partnership work where we all brought something to the table, as opposed to just trying to bid it up and throw your highest and best, and then somebody wins it, that's not you. So I would implore you to understand what those that are marketing and negotiating directly with sellers, what are they doing? Working with them, building those relationships with them because you never know when you run into on a walk through with somebody and, you know, if you have a great relationship with them and you're trustworthy, there's something to be made there as opposed to bidding yourselves up to where somebody's taking a risk on the deal just to try to make a small profit here.

Dan Austin: [10:00] I mean, I mean, 11 k is nothing to, write home about, but it's also pretty awesome for the amount of work we had to put into this deal. So it's a team sport. Work with the team out there that's available to you in your market and get creative. Sometimes novations can work. I don't love them as a go to strategy. I don't think you can run a business on them without doing something a little shady. So don't think that novations are your go to strategy. In this situation, it helped her. The value that I told you that we'd provide is she got a higher price for her house, which was a little bit dumpy while she lived in another state. So she didn't have to do any of the work. We came in and we just cleaned the house up, put some lipstick in there, flooring, paint, trim, all that sort of stuff, made her house more presentable. She got a higher price, and we made a little bit of money in the back. And that to me right there is worth to the customer, to the seller doing innovation. Anyhow, I hope you found this valuable. If you like these, if you like this one or you have questions about this one, hit me up on Instagram. It's the best way to get reached out to me. That's at investormandan. I get back to people in the DMs pretty quickly. And if you want to know how to do these deals, how we're actually doing these deals, we do have our scale community that many people know about, but a lot of people that are listening don't actually know about our scale community. Go to collectingkeys.com/scale to look at what we're doing there.

Dan Austin: [11:16] We talk about these sorts of things in our weekly coaching calls, and really break these things down for the group as well. And I hope you guys found value in this. I will catch you all next week. See you.