Episode #9 – Wholesaling Houses During the Coronavirus
Welcome to EarlToms podcast. Today we’re going to talk about the virus that’s going around, how you survive during this time, and what you need to prepare for. The comparison for this is going to be the foreclosure crisis back in 2009. That’s really the last time that we saw an economy downturn like we’re seeing right now. Today there was another six million people that filed for unemployment. You can survive but you have to be very, very specific and smart about what you’re doing right now because there’s a lot of uncertainty coming. We’re in the beginning of this right now. So what I hope to do in this episode is kind of walk you through what you can do, what I’m doing right now that is still allowing me to close deals.
I’ve already put three houses under contract this week. You need to figure out in your own market what can work, what’s going to work, and stay laser focused with your marketing dollars, what you’re spending. Right now is not the time to be scared and play with scared money. You have to take your analysis to a level that you probably don’t typically take it to, because the wasteful spending is probably going to be what allows you to be successful right now versus you’re going to have a file unemployment yourself because you can’t survive in the market. So with that being said, let’s go back to the comparison of 2009.
You had a lot of houses every day. I think it was in the neighborhood of, 100,000 houses a day that were being foreclosed. If you look at what’s going on right now, just with the unemployment numbers, the foreclosure crisis is nothing compared to what’s going on right now. You know, as far as unemployment claims. So a lot of those people are going to be homeowners. Some of them are going to be investors. Probably half are going to be renters. What you’re looking at right now is what is to come. Let’s predict the best we can of what’s to come. Right now it’s the beginning of April. This is when a lot of people are out kicking tires because the weather is warming up. They’re out there shopping. School’s about to turn out. Now let’s go find the house and get it under contract, because by the time we close, school’s going to be out. We’ll be able to move with the kids out of school. Now I have to worry about certain things. That’s not happening now. Now there are still a lot of sales going on. But even in my market, I saw on agent the other day and it baffles me that they would even put this on the listing, but they had a listing that said this house was under contract within 10 minutes of being listed. The buyer decided to back out, due to the Coronavirus fears. Well, now anyone that is going to look at that is likely not going to even be interested in it. It’s going to put fear in their mind. What you can do in situations like that, as you sit there you say, that’s going to scare everybody else away. Now that that seller also knows that he could have had the house sold had it not been for this virus. Now this price is going to drop. Your buyers are going to do the same thing. I’ve already had a couple of different funds say we’re putting our purchases on hold for right now, I’ve got other funds that are going anywhere from a 5% decrease in their purchase price up to a 20% decrease in their purchase price. It’s important right now with your buyers to actually have a conversation with them and say, What are you doing? What is being talked about so you can get an idea. If you’re going out there under your normal circumstances and putting these houses under contract, whether you use a formula or actually do a a real comparison for it to get a value out of it, then you need to know how much do I need to knock off to be able to get this deal sold.
Typically, I tell you not to do it but now is the time to where these $5,000 house profit spreads are going to be key to whether you survive. You’re going to have lower margins right now for the most part versus what you would have done in a very active market. When we look at what’s going on right now, with this being the beginning of April, and the market, not moving like it would have done, we’re really faced with missing the summer real estate season. If we miss the real estate season, that’s going to have a big impact on the economy itself. Not only does it employ a lot of people, you have agents making money, you have title companies, attorneys, home inspectors, appraisers, and insurance companies writing new policies. There’s a lot of people out there that right now that their business has slowed. At the at the same time, the biggest impact of missing the summer season is every house, whether it’s rented or sold, has every disposable good that is made from Clorox to couches to TVs. You name it. That’s what happened. So now when you miss the summer season, you’re not having people go into a new house, clean it, buy new furniture or buy a new TV. Now all of these manufacturers of disposable goods can’t hire or keep employees. Sure, a lot is being purchased right now. We all see the memes on Facebook about everybody hoarding toilet paper. The only thing that’s really going to be sold are household cleaning items because everybody’s focused on washing their hands. A lot of people are not even going to the grocery store anymore on a weekly basis to buy groceries. A lot of these things that are typically sold during the summer, aren’t being sold. The summer real estate season is almost comparable to the Christmas season for retailers because everybody is moving and doing certain things. They have to do a spring cleaning. What happening is you’re almost missing Christmas right now because of what’s going on with this virus. So you have to pay attention to know that it’s going to have an effect. You’re not seeing it right now because it hasn’t had enough time to be reported for everything. So go through this and in a way that in six months, three months, a month from now, we’re going to start being able to see what impact this is really having.
It’s bad when the government is actually sending people checks because I don’t think that’s ever happened in the history of this country. So when a government says, OK, we know this is bad. We have to send you checks. Then everybody needs to wake up and realize this is going to hurt for a little while. We may have what they’ve been calling the V shaped curve. This may last for two years. You never really know until you’re actually going through it. That’s the case with everything in life. But right now, this is new to all of us. We all need to understand what’s going on. With what you’re doing right now, when I say you have to stop the wasteful spending, you have to really drill down on what works in your market. Now what I’ve been doing is remembering there are stages when something like this happens. I liken it back to the to the crisis of 2009 because I was actually appraising real estate at that time so I can remember, Hey, we started with with short sales. We got to foreclosures and came back to short sales, those didn’t work. Then we went to loan modifications. We’re going to have stages with this that are going to determine how you need to market to your potential sellers so that you could get deals closed and survive this in this business.
So, like I said, what I’m doing right now is marketing directly to the people that just need a cash injection. It’s not going to matter if they sell their house. It’s just going to provide additional income because basically, that money is just sitting there doing nothing for them. Now they need it because they’re preparing for what’s to come as well. When I say I’m marketing to the people that have money sitting there that they’re not using, but in some ways is costing them money. What I mean by that is I’m marketing directly to vacant houses and marketing directly to estates because, unfortunately, right now, we do have a lot of deaths coming. Every year we have people that pass away but right now we are having an excess of death. It’s unfortunate but you’re going to have a lot of heirs out there once they get through the grieving part of it and they realize they lost their job. Now they know their parents were able to still provide for them with the house. They’re going to wind up putting that house out to everybody, whether it be a real estate agent or looking you up online, organic searches, paid advertisements, with Google. I saw something the other day that Google is actually giving ad credits to small businesses right now to be able to help them through. This may be a time, if you’ve never done, pay per click marketing with Adwords to give it a shot. Maybe you get some leads off of it. As far as mailers, I’m only marketing right now with mailers to vacant homes and to estates because it has another benefit to it as well. I’m not actually having to be around people and risk my own health to be able to view that property and get that house under contract. When you’re going out with these right now, don’t keep sending mailers to 50% equity, tax lien, or divorce lists. Right now, that’s not going to be a good deal for you. The vacant houses and the heirs for the estate, they basically have ready cash to go because it doesn’t affect where they live. Their mortgage payments, anything like that. They’re not going to have to move. Those are easy sells right now.
I’ll give you an example. I sent my postcards and I got a lot of calls. I probably sent out 500 postcards to vacant houses that fit my criteria two weeks ago, and I’ve probably gotten 20 calls from them. I put two houses under contract with seller. His brother basically bought some houses but he got a brain injury some years ago. He doesn’t even live here anymore. So he needs cash. One of his houses I put under contract for $4,500 and he wanted me to look at his other house. The other house wound up being in an area I can’t stand. It’s our war zone in my market. So I told him, You know, I can only pay you $500 if I get it because I don’t like that area. I don’t want to be in that area. But $500 is not going to break me. If it helps you get completely out of my market, then I’ll be glad to do it for you. I went out there and looked at it. I went back to him and I said, You know what? I’ll take it from you, but I just do not want this house. He wound up letting me have this house for $250. That right there is going to give me probably a $10,000 to $15,000 markup. It’s going to cost me more to close this property with closing fees than it is to actually purchase this house. So basically, I got two houses with the same seller for less than $5,000 on the purchase price. There’s another house that I put under contract that I’m actually selling to a fund that is an estate. They’re ready to sell right now because they’re in panic mode. It’s an easy sale. It’s easy money for them. If you go that direction now in your market, Facebook may work, or something else may work for you in your market. I have no idea about your market. I’m telling you specifically about my market. Instead of running Adwords right now, I’ve already shut them down. I called the company that manages it for me. I told them our contract doesn’t say anything about Coronavirus but we’re not getting any activity. There’s really no sense spending money just for people to click that have no intentions of selling. That could be very different in your market. A lot of times with Facebook with me, I’ll get people that come in and say I thought you were selling the house. That’s wasteful spending right there because now, based on 500 mailers that I sent out, I’ve got three deals from those mailers. Right now, my return on my investment is far exceeding what it typically does simply because of people that are ready to sell and panic mode about what’s coming. Plus the prices that I’m actually able to get them for because they just need cash. They’re preparing for what is to come. The guy that I got the two houses from that $4,500 to $5,000 may be the difference of them being able to pay their bills in three months versus losing the house that they live in. I was glad to do it because one important thing that we have to pay attention to right now is yes, we do have something that’s unprecedented in our world, but at the same time, because the market for the real estate agents, the publicly listed houses, are going to take a severe decline in the months coming, it’s going to be up to us to keep some semblance of activity in the market going now.
Everyone’s going to sit there and think, well, you’re only paying $250 for a house. If you saw this house and you knew the area, you would fully understand because yesterday, a month ago, I would have never even bought that house for $250. It’s up to us right now to help other people as well as keep food on our table. This is not the time that you go out and be a vulture. No, someone needs money. If you do that now, that money that they needed that they’re not going to get from their job is only going to last them for so long. Yes, you are helping them but at the same time, you’re not actually helping anyone but yourself. Karma will come and find you eventually if you are a vulture. What we have to do is we have to look at it in a way of going OK, if I only make $5,000 on this deal, if I only make $2,500 on this deal, help the other people because the more people were able to help will lessen the damage that is going on in the economy right now. It will help us get in that V shape versus a six month recession, a year long recession, or a five year recession. The more money we’re able to put in people’s pockets right now, the better off we’re going to be long term. Go out there. Do your deals. Do not take advantage of the situation because as a group, as an industry, agents aren’t going to be eating for a while. We are going to be eating. We’re probably going to do more deals if we do it the right way than we ever have in this business, or at least in the last 10 years since the foreclosure crisis. Right now, the saving grace for our economy is going to come from us because we’re going to be the only ones that are able to salvage any part of this real estate season. They’re supposed to happen every single summer, and if we don’t do our part, then we’re going to suffer long term. So make sure when you’re going out there, you’re taking that into consideration and helping other people, but at the same time putting food on your table. I’m not saying go out there and only make $500 on every single deal. If that’s what it takes to get that deal closed, that’s still $500 more that you can put in your bank account right now. So if you’re even doing five deals now, when you were doing one deal a month safer $10,000 to $15,000 a deal. If you’re doing five deals now for $2,500 you’re eating. You’re still doing exactly what you were doing but now is the time that we as wholesalers have to keep this market moving because if we don’t keep this market moving, the long term effect of this economy missing the real estate season is going to hurt and hurt really bad. I’m asking everyone on this episode to actually go through the process and help other people. Let the karma come back and find you in a good way. Now you’re going to have a lot of people since they can’t actually go interact, a lot of people are desperate. You’re going to have more people that say, such and such bought my house. He helped me out a great deal. You’re going to get more deals if you follow what I’m saying.
In your market you need to figure out what marketing is going to give you the vacant houses. The houses that are not being used that are typically irrelevant to the sellers but can give them a cash injection right now. They won’t care because they’re holding on to the houses they live in and trying to hold on to their rental houses. We’ve got this eviction moratorium going on a lot of places over the country. The mortgages are being forgiven. Everyone is trying to work together right now to salvage any portion of this economy that we can so be sure you’re out there helping people during this crisis. When you’re out there looking right now, whether it’s vacant or estates? That’s the freebies right now. In say, three months, we may be at an investor list because they still have mortgage payments. Now, all of a sudden, they’re not getting their rent. The bank is threatening foreclosure. Let me go ahead and sell it so I don’t lose the house I live in because it’s all going to trickle down. Maybe in six months, we’re going to be in a foreclosure list because the people that couldn’t sell the vacant houses, the estates, the investors, the people that lost their job, that are basically hanging on by a thread. It may be three months, but it maybe six months, maybe a year. The foreclosures are coming. At some point in time, the foreclosures will be coming. It may be short sales, who knows? But you’re going to have the duress involved where actual homeowners have to sell their houses. Let’s go to those investors and homeowners that are owner occupied or tenant occupied. Let’s go to those once we get this under control so we don’t actually have to put our own health at risk in order to pay our bills right now.
I don’t know where you get your leads, whether Facebook, Google, SEO, word of mouth, postcards, or bandit sides. I don’t know where you’re getting your leads from, but figure out a way to go to the vacant and the estates right now so that you don’t have to have personal person contact. You can Docusign a contract, give an offer over the phone, whatever you need to do. Keep yourself healthy right now because the wholesalers are the only ones that are going to see this summer season through without completely tanking the economy for the next six months, a year, two years, ever how long it’s going to last. I can’t stress enough right now to stop the wasteful spending. This is not the time to just be going out there and throwing everything against the wall to see if it sticks. If you can’t figure out how you’re getting your leads, if you don’t have a way of tracking that, you’re probably not going to survive this. You’re going to be sending out marketing material. You’re going to be wasting money trying to get leads that right now you can’t close. When you’re going for these properties that you typically do and they’ve got a mortgage on it, like I just told you, I’ve already got multiple funds that have said we’re not buying right now. I’ve also got others that are saying we’re reducing our purchase price by 5 to 20% depending on which one it is. Now the prices are typically going to be under what somebody owes on their house. If you can’t figure out how to get to those closable deals right now, under these circumstances, stop spending your money because you’re going to need that in a month or three months. Just stop right there and talk to people in your area. Say, what are you doing? If you can’t actually analyze where your deals are coming from, how you’re getting them, and how you can get to the people that can close their deals while keeping you safe and healthy – just save your money because you’re not to the level yet in this business to be able to survive. Now, I’m not saying that you won’t ever but it’s better in business to cut your losses than to keep spending money and wind up putting yourself in a worse position down the road. So figure out whether you’re going to stay in this right now. If you are, then start looking at your market and start doing these analysis, how much have prices dropped? How many houses are being listed now? What are my days on the market? How many contracts are falling through? Start looking at those type things so that you can prepare because when you sit there now and you send out your marketing, you may be getting something in two weeks or a month. Somebody may wait two months or three months to call. When you’re looking at all that realize anything that you’re doing today is a deal for down the road. You have to be able to predict what’s coming versus where we are today, so figure your stages out in your market if you want be able to survive.
I think I’ve gone on a little soapbox so far, and I don’t mean to but like I said, I was appraising real estate, meeting a lot of families during the foreclosure crisis that have left scars on me to this day. When you meet little children that are asking you, why am I losing losing my house and there’s absolutely nothing that you could do. Don’t leave scars with you because those little children didn’t have a dog in that fight. It was something that was out of their control. Their parents did everything that they could to provide for those children. It still happened because one thing that I worried that’s going to happen again is years ago, the banks were just rubber stamping these foreclosures. We’ve all seen the stories. People lost their house when they shouldn’t have. I actually saw return checks to keep people in foreclosure with banks back then. Something like that will come out of this is well so make sure you’re trying your best to take care of other people right now. It will come back and find you, I promise. It does every single time, whether it be a Google review, word of mouth, something will come back and find you. If you’re thinking, I only have x number of dollars in my bank account. I’ve got to get something closed. If you were taking care of people it will find you. It’ll come out of thin air sometimes. It may be just a lead that calls you and says, Hey, I got your postcard six months ago. It could be a wholesaler that you work with in your market. It could be an investor that says, you sold a couple of my houses before, do you think you could get this one sold? It will find you one way or the other. You will have good results if you help people.
I hope everyone stays safe. Practices the social distancing. Do what is necessary right now to protect you and your family. No one wants to see what’s going on. None of us in this industry want to see anyone pass away because of this because they were doing things that were risky., Things that they shouldn’t have been doing right now. Just vacant houses and the estates. Protect you and your family. Let everything else work itself out. I hope this has helped everyone. We’re far from being finished with this virus. We’re just getting started. So take the time, whether it be a day, a week, whatever it is, take the time to really drill down to your market and see what’s going on. Take the time to talk to your buyers. Ask what conversations are happening inside your office right now. How can we still work together to help other people? What can we do together right now? Give me an idea so I know what I’m facing when I go out there and provide you the service of finding houses for you. Again, stay safe. Stay healthy. Be smart. We will all come through this. It’s up to the wholesalers right now to save this summer season in real estate. Help EarlTom accomplish this mission. Help other people. We will save this economy together. I hope everyone has learned something from this episode. We’re all realizing that the wholesalers are what’s going to keep this economy moving and I really, really hope everyone stays safe and healthy through all this. Until next time – stay safe, stay healthy.