So when you’re saying to me, “I can’t get deals. I can’t find deals. There’s no spread in the deals.” It’s not the market’s fault.
I’m Dave Dinkel and this is a deal talk. It’s a student’s first deal. Typically, I never put a date because the content should be timeless. However, the date of this first deal is August 2021 and the reason I’m doing this – there seems to be a constant roar out there, “There’s no real estate deals. I can’t find any. What am I doing wrong?”
So what we’re going to look at is a very recent deal depending on how soon after I made this video you look at it. It’s the student’s first deal with a net profit of $129,726.40. I’m going to talk about how he got it, and what it’s all about. The other thing to mention quickly – no earnest money deposit, and no money in the transaction.
But before I start that, I have another little series – I can’t believe this just happened. So today I got a phone call from an investor, who is not a student, but he’s been an investor since 2007. He informed me, and you’ll see why in a minute because he was coming back, when I said something. I try and help people. When I do transactional funding for them, I get involved in the sense that I put up 100% of the money for the A to B closing, get paid back on the B to C closing, and everyone’s a winner. But very often times, new investors come to me with their double closings, and they have no clue how it works. They’ve watched videos. They maybe even have a mentor and I help them along by saying if you get stuck at a roadblock, ask me first before you say something or do something that’s going to kill the deal. If I’m able to fund it and close it, everyone’s a winner. If you mess it up, everyone’s a loser.
So this investor came to me, and he said I got a property under contract for $75,000 and he asked me what I thought and went on to explain he sold it for $99,000. This is a very, very typical response or email that I get every once in a while from an investor. Here’s the address. Here’s what I can pay for it. What do you think? They’re somewhat annoying because you should be able to make your decision. The biggest decision to make is to get it under contract and then make the decision about what do you think it’s worth. Because if you don’t have it under contract, somebody else is going to do that for you in their name. So I looked at the property. He went on into great detail about the estimated rehab cost down to $1000, and he’d used this software which is pretty elaborate. I don’t know if he paid for it or it’s part of his mentoring class that he has with somebody. But he also got his contractor’s estimate of repair which is almost identical.
So you would say to yourself, “Man if I’m going to rehab that property, I know pretty much exactly what it’s going to cost.” However when somebody says to me, “What do you think about that?” My answer is “How do you know what your cost to carry the property is going to be because it’s going to be a hard money loan. How many months do you think it’ll take?” “Well it shouldn’t take more than 30 days.”
Seven months later, when you haven’t sold the property and you’re being eaten alive by interest on your hard money loans, and you can’t sell it because you can’t find a buyer or code enforcement found the problem. And you can’t sell until you fix some major damage that you weren’t aware of, typically structural. How much did it cost? It didn’t cost the estimated repair that the software generated and, typically, that’s why rehabbers lose money, which nobody talks about. Everybody talks about the flip and flop shows and how much money they made, and so on and so forth. They don’t talk about how long it takes to get a permit. What you see on TV is they go in and they start demoing the property. Well you’ve got to get a demo permit. In some places permits to install a new kitchen, put on a new roof, can take months. If you’re borrowing hard money that cost can be treacherous I’m going to say.
So I expressed my opinion that I didn’t like to see investors putting their estimates of rehab costs into their sales literature because of the liability issue. In certain parts of the country, it’s very common for wholesalers to put in the after repaired value and typically they’re all over the place. They may not be in the same state in some cases. So the people that look at them have to understand that and they probably do. But in those areas sometimes they put in the estimated rehab cost. Now they could even put a disclaimer at the bottom. It says if you don’t do the work right and you don’t do it timely, these could be a lot more. But what I have seen is a rehabber comes in who doesn’t know what he’s doing. He looks at a $66,000 rehab estimate, starts the rehab, finds some issue that the seller didn’t know about – like a structural issue, semi-sinkhole or something or he just does the rehab poorly and they go way over budget. He winds up losing money. Who does he blame? Not himself, not the contractor who didn’t show up for a month or two. He blames the seller. He blames the investor who sold it to him and told him in writing black-and-white $66,000 rehab.
So what does he do? He goes to his attorney and says you know I’ve lost $66,000, not made money. In the after repaired value he told me about was $50,000 less. Why? Because he did a crappy rehab or the estimate of after repaired value was way too high. So what does he do? He sues. Now the thing that people have to understand is, anybody can sue anybody for any reason – doesn’t have to be valid.
As an investor selling a property that’s “as is, where is” sounds like “okay you got what comes with it”. Not necessarily true. First of all, if you defrauded the buyer by not telling about an issue you knew about, you have a problem. But the buyer can still sue you because he wants to, and he has an attorney who’s willing to take a $5000 retainer to do it. So let’s say you’re right. You win the case. Do you think you win the case and your attorney’s fees back just because you won? You may not be able to recover them.
I then said to him that his sales price was too low because I agreed with his after repaired value of $250,000 and he was like startled. Now I have to say to you that I love this guy. I’ve been working with him for a couple years. He listens to me sometimes, but he also gets a lot of other people’s opinion. And when you do that, when you go around the people that you know are pipefitters (I’m not picking on pipefitters), they’re hairdressers (not picking on hairdressers), but it seems like the last person you talk to that doesn’t know what they’re talking about, but he or she agrees with you, reinforces that problem you have, what you’re saying, or what you’re believing. So his answer to me about my objection to his price being too low was I don’t see how anyone would pay more than $99,000 for it.
Now it just happens to be that literally the example I’m going to show you, the student purchased it for $75,000. I’m going to show you what he sold it for. Because his after repaired value to the person he sold it to was not $250k. It was about $275k to maybe $290k, but the only difference is the area.
The student was in an area where the homes were more upscale. In this area that this particular’s nonstudent came to me with he was in a more rural area, but here’s what bothered me. His answer, “I don’t see how anyone else can pay more than $99,000 for it,” was the worst answer he could’ve given me. It like enrages me. Should I be concerned? No. He was extremely happy making $24,000 less closing costs.
What I’m saying to you is that because you don’t understand how something could happen to someone else because it’s not in your realm of belief, doesn’t mean it can’t happen. One of the best things that happens to new students who have no experience and no money is they have an open mind. You’re going to see exactly what happens when you have an open mind, rather than when you have experience and I’m not saying you know it all. I’m saying that you have something in your mind that you believe and you’re going to come up with reasons to enforce why you did it. It comes down a very simple saying – Would you rather be right, or would you rather be happy? In this case with this nonstudent, he would rather be right than happy, and he has excuses to reinforce his thought pattern. There’s nothing wrong with that except for the fact you’re not going to get rich if you believe that somebody else won’t pay more than what you think they should or can pay for it.
So here if you been with me before, what I do is I take the A to B and B to C HUD’s. These are real. If anybody says to you, you know, this is hocus-pocus or something, I have the full HUD’s. All I’ve done is blocked out the players. Typically I also take out the date. You’re going to see in this case I didn’t even take those out. I want you to see this is real and recent.
And before I start on the A to B HUD, I want to mention this thing about there are no deals out there. It’s somewhat annoying to me because as I do transactional funding and here we are in August 2021, 2020 was a banner year. I did a lot of deals. 2019 was a banner year. I did a lot of deals. So a lot of deals in 2019. A lot of deals in 2020. What do you think has happened so far since January 1 of this year to August? I’ve done more closings in these eight months then I did in the past previous two years.
So when you’re saying to me, “I can’t get deals. I can’t find deals. There’s no spread in the deals.” It’s not the market’s fault. You’re not doing it right. You’re not doing enough of it or whatever’s happening, you’re not doing it right. I’m frustrated because on one hand I deal with students all day long, all week long who are doing deals daily and there is no reason you can’t if you do them right.
So here’s what I’m going to show you. I never do the dates. I’m doing them now so you can see a real date, real August, happened August 11. Now I also show you August 11 because I want to bring up something. This is the A to B top half of the HUD. Not much to show you here, except lo and behold, there is the purchase price by my student on this deal versus the experienced nonstudent on his deal same purchase price.
This is the bottom half of the A to B HUD. First thing that comes up – the funding. I funded the property. I put in for $74,281 even. So there’s no money in the transaction. “Oh Dave, what about the earnest money deposit?” There is none.
I show you ways to do deals with no earnest money deposits and what is the feedback? “I can’t do deals because I don’t have the earnest money deposits. Do you loan earnest money deposits?” No, no one in the industry loans earnest money deposits.
And when a new investor calls me and says, “I was told I can do deals with no earnest money deposit because I’m going to assign the contract and now they’re asking me for an earnest money deposit.” Yes, the guys who are telling you don’t need any money, don’t need earnest money deposit, forgot to tell you that there are ways to do it with no earnest money deposit, but they either don’t know how, or they just didn’t bother to tell you because they are selling you something in effect. Now you can do it. I just showed you it can be done, and I’ve told you in other videos of mine there’s actually three ways to do it.
But let’s look at the date. Again I’m reinforcing a date. This is the prorated interest in the beginning of the year, the 1st of January to the 11th of August, and by the way, this is a cash out deal. Thirteen cents goes to the investor student of mine. Left side of the HUD to the buyer side. Right side is the seller side. On an ALTA statement it’s reversed.
Why does he get $0.13 back? I don’t even know if they gave him the 13 cents. I didn’t ask him. “Why is it $0.13 Dave?” Because that’s what happens. I got a note and a mortgage on the property for this amount. As the amount changes, you have recording fees that change. Doc stamps that change. I pay for all that. So ultimately you have to overprice the amount that I’m giving him in a loan so that in fact he gets money back at closing.
Why didn’t I give him $1000 back? He didn’t need a thousand. He didn’t need $0.13. Bear with me on this thing and I’ll bring you through the whole transaction, so you get it.
We have the top half of the B to C HUD. What’s important here? The first most important thing – the date. Remember I said to you it was August 11? “Whoa, what’s this, Dave? It’s August 26. This isn’t a same day double closing.” You’re right.
Why didn’t I do it as a same-day double closing? Very simply, this particular property was being swarmed by other investors and I’ll show you why in a little bit. Had we put it under contract, as he did, put it out wholesale to close on the same day, I would imagine that probably 5 to 10 other investors would’ve gone directly to the seller and said, “Look what Dave’s student is selling this for. He’s gypping you. He’s taking advantage of you.”
As an interesting step back to look at this thing, the purchase price that my student got it for $75,000 was more than any other crazy guys that were running around door knocking were offering him. They were offering him less money. I’ll show you why in a moment or so coming up that in their mind they thought we can get this thing for even less money. What happened? They didn’t get it. So here’s the other important thing. That’s what he sold it for – $209,500.
Now I’m going to show you something coming up which you will find interesting. I talk about building a big buyers list. Sometimes those people that refer buyers are other wholesalers and sometimes they want half the profit. They want $10,000. They want $50,000. Whatever they want. If they find out what you purchased it for or have it under contract for, they’re going to want more and more, but in this case your buyers list doesn’t have to be other wholesalers who bring buyers and you’re going to see one that is extraordinarily good.
So here we have it. 15 days later we closed it on the B to C side. Again, why? Because I didn’t want black hat wholesalers going around my student stealing the deal from him or us having to file a notice of interest, a lis penance against the seller to make him come to the closing table.
So this is the bottom half of the B to C HUD, and this is where the action takes place. So the first thing that comes up is the end buyer put up a $6,000 earnest money deposit. That means that if the end buyer didn’t close, we would collect $6,000 from him or if we had to go to mediation, we’d get at least half of that. Whereas my student, how much did he have up as an earnest money deposit? Zero, remember? So he would make money without ever having to go to closing.
So there is my funding coming back. So this interest income that I got in my Ira is tax-deferred, not tax-free, tax-deferred. Now I put the date in here again, just so you can see, this is not a same-day double closing. However, it is a no money closing for my student investor.
By the way, here’s a clue – a 1031 exchange. In a 1031 exchange, remember I said to you in the HUD statement the buyers on the left. So my investor student now is on the right and the buyer came to closing with the 1031 exchange check in effect that he had to invest by a certain date. By the way, this property is a duplex.
But the most important part about the bottom half of the B to C HUD is right here. My student put up no earnest money deposit as you saw, so this is his net profit $129,726.40, net profit, no money in the transaction, so on and so forth.
But I want to show you one other thing. This is the second page of the B to C HUD, the bottom half. Remember I said to you that you have a buyers list and other wholesalers will bring you buyers and they charge you a fee for that? Okay. First thing I want to do in this page, I want to give you the ultimate clue here as to why this property had so many investors swirling around it. That’s taxes owed – $11,380.78. It was going to a tax deed sale.
I talk to you all the time in my materials and my videos in my courses – the serious money in tax deed sales is not at the auction. It’s pre-tax deed sales. Now I understand there’s plenty of people selling courses on tax certificates and tax deeds, purchasing them at the auction and on and on and on. They will show you examples. I bought this for $200. I sold it for $200,000. NO. Yes, it may happen. Realistically I like low hanging fruit for students. I don’t want them to go after something and in one and 10,000 times, they missed it because that tax deed sale was in another county when he had to be in another county to do that tax deed sale. It’s silly. Here’s where the money is. This was a pre-tax deed sale.
Oh yeah, there’s the referral fee. Remember I said to you, sometimes called the JV fee? It can be called any number of things. There it is – $500. $500 intermediary fee. Gee-whiz. So what does that mean? It means as you build your buyers list, it doesn’t have to be other wholesalers who are getting a giant JV fee out of your deal.
This is kind of a frustrating video for me because I feel emotionally attached to both the nonstudent that came to me telling me you can’t do it, but he’s sure they can’t do it for his reasons, and it doesn’t have to be. And what very often times happens with new students is they don’t know any better. They just do what we ask them to do, and they come out if you watch some of my videos and they say, “I didn’t believe it, but it works.” So I’m going to close this very quickly. I am Dave Dinkel. I wish you limitless success in all that you do, and I have this question, “Why not you?”
If you’d like more information about my mentor program, please go to Davedinkel.com/mentoring-program/
For more information on transactional funding, please go to BestTransactionalFunding.com