Multifamily 101 - wholesaling and the value of your signature

Hey YouTube, this is Cody. I'm here with Christian even though he shouldn't be here today.

It's my day off. However, I love these YouTube videos and your robe. Yep, I am not going to change for you guys, but I will be here for today's video of Multifamily 101. What are we talking about today, Cody?

Oh my goodness, today we're talking about don't sign stuff that you can't perform on. One of my prior mentors did this. And it cost him relationships. I've seen a lot of people do this and they're in the real estate space, whether they're in multifamily or not, and they're signing stuff that they can't execute on. Now, what's the problem with that, number one?

Well, number one, you're gonna absolutely burn bridges when you get to the end of whatever the project is. Let's say you have a 5-year balloon and you can't come up with the money. Well, first of all, you're going to ruin relationships with investors. Second, you're probably gonna lose whatever you invested in and possibly a heck of a lot more. And 3, you go out and you try to rebuild from that or you build a habit of doing that again and again and your ability to start a business tank.

Now let's keep it even more simple. Last week we talked about contingencies. Well, some people sign real estate PSAs, they sign contracts that they can't execute on and they're like, oh, I'll just wholesale it or I'll back out last minute. While you may not lose any money, you will lose reputation. So don't sign deals that you can't perform on, even if it's just for earnest money. I had an old mentor who wrote up a deal personally for himself, and he didn't even have the earnest money down. And that burned the bridge with me, that burned the bridge with the other broker and with the owner, and he didn't get the deal. Imagine that. Not a good place to be.

No, not at all. You have to be really, really careful with these. Now, since this is Multifamily 101, usually it's me and Brandon on the channel with Cody. We want to keep everything very, very simple. So wholesaling is something where that's just rampant, where people sign for stuff with no intention of ever executing.

Yeah.

Quick breakdown. What is wholesaling?

I sign a contract for X and there's a value on it. So I have a contract to buy something. In this case, we're talking real estate. I get to buy it for, let's say, $100,000. It's worth $150,000 today. I get it for $100,000. I go find an investor who's willing to pay $130,000. Well, if I have it for $100,000, they're willing to pay me $130,000 at closing, my fee, the markup, when I sign over the contract to them is the difference between what I have it under contract at and what they're willing to pay. So I would make $30,000 with no money out of pocket just for assigning over something that has more value to someone else than it does to me.

So Cody, I can just sign for absolutely anything as long as I can sell it for more before it closes. I just get free money.

Free money. It works until it doesn't.

So what happens in this scenario if you just don't execute on the contract, or you can't execute on the contract and you can't find the buyer?

Well, it depends. If you don't have any contingencies, well, then you're out your earnest money. And some people are willing to do that. They'll just put some really low earnest money. However, the principle of it is do good business, be a good human, and do what you say you're going to do. If you're signing a whole bunch of contracts Number one, you're going to burn a whole bunch of bridges when you can't perform. If you can't find a buyer, you back out. Maybe you lose your earnest money, maybe you don't if you have the right contingencies. Either way, though, it's not good for your track record. You will start burning from both ends, so to speak. It will not work well. It's going to hurt you mentally and it's going to hurt your reputation when it comes to working with other people. Because when people work with us, we close every single deal we write up. Except for one that was supposed to be bank financeable and the seller lied on docs. So, oh well. We do everything we say we're going to do and people know that. And so when a deal pops up, we have the reputation to go in and close it because everything we sign, we do.

And people are going to want to work with you when that is your track record. Hey, I worked with them once and they just bought it. There was nothing fishy. They didn't reassign the contract. They didn't fail to close.

Didn't retrade.

Yeah, they just did what they said they would do. And we built a brand off of that. There are a lot of brokers now who have worked with us once who, when they have a deal, we are their first call because they know we can close if we sign it. And sometimes our decision-making process is like 15 seconds. They'll bring the deal. We already know the property. They put the deal together and say, do you want to buy this? Yes. And then we close it.

Yeah, there's a 23-unit seller finance just north of Spokane. I turned it down in literally 27 seconds.

And there was a 10-plex in Motoslake we bought earlier in the year that we accepted in probably about 5 minutes of conversation. We closed that— was that 3 weeks from when we said we'd buy it to when we closed?

We did it. We didn't retrade on, didn't care about anything. The rents could have been half of what they were. We still would have bought it because we knew the asset and we knew what we were signing for. If you're going to sign stuff, another caveat to this, you have to know what all you're doing. You need to know what you're getting into.. There will be situations where other people lie. However, if you have enough of the variables controlled to where they're no longer variables, you're all set. And it's a lot easier to make decisions quickly and act on them. What you don't want to do is make an uninformed decision. I've signed for one thing I didn't know what it meant and it was all fine, but it would've been annoying. We would've won if something went wrong. That was with our bank loan. However, it would've been obnoxious to say, at least I didn't make an informed decision. I just signed it. And so, you know, learning lessons there. But if you're looking at any deal, whether it could be multifamily or storage, make sure you have enough inputs to where you're not just signing willy-nilly. You don't want to figure the rest out later. You need to figure out enough today so you can commit and figure out the last few pieces later.

Something a lot of people do, especially when they're new in real estate, is they're solely focused on making deals and making money. And if it's all about the money, you're going to miss a whole bunch of pieces. One, it's not going to be fun. You're going to make another job. But more importantly, you're— the story's worth more than the real estate. Always say that all the time on this channel. You're going to build relationships by the story and track record that you create as you're crafting your story. This is building your personal brand. And if you really want to play the real estate game beyond 1 or 2 duplexes, I mean, you really have to start identifying with people. This is who I am. This is what I'm about. Which comes down to what is your signature actually worth? If your name's on a piece of paper and that means that that deal is going to close, that will be known in your industry and in your market extremely quickly. Cody's been playing this game for 3 years. I've been playing it for 2 years. We've played it together for just over 1 year. When we sign something, we close it. Everyone in Central Washington knows that.

And if I need money today and I'm working with investors that are local and I needed a loan, I can sign it and I can give up backing and I can do the personal guarantee thing, but a lot of them don't even care about that because they know word is bond with me. If you could build that reputation, it's not best practice, but I've had people give me money without any docs and I'm like, let's fill it out. And they're like, I don't care. I know you're going to do it. And then I pay them off early and I give them a little extra.

Word is bond with this guy. I love when we do the correct paperwork for it, but it is great that You actually do. If you say it's going to happen with or without docs, it does happen always.

And so we get that in place. That's the only time I've ever really done that. And they just didn't want the docs. I wanted it, but hey, I virtually, you know, in the air signed for it. If I say I'm going to do something, it gets done and they understand that. And so if I ever need money, if I ever get in a pinch, I can make a phone call. We get the docs signed and get the money moved because Everything that I sign, I'm able to do. Same thing with Christian. And we don't violate this. This is just a— it's another principle, but really it's just a 101. Don't sign for stuff that you can't perform on.

Yeah. And I think that really came together with the Robinhood purchase, $1 million down when we started our capital raise. The first person we went to is someone who does not partner with other people. They have 1 or 2 other partners. They typically do the lending game. They actually asked us, can we just do the whole thing? Yeah, the whole thing. It can be us. They brought one other partner along for the ride. Can it just be our group and can we do it with you? Because we trust you guys that you will do what you say. They also placed a third position loan, which they absolutely don't do, on one of our buildings to get some renovations done.

Yeah, they never do that.

You can get terms that no one else can. You can get prices no one else can. You can raise capital that no one else can if you focus on your personal brand and your integrity. If I put my name down, this will happen. If I say it happens, it will happen. And you have a repetition doing that, it's worth everything. So don't sign for anything that you do not know that you can execute on.

Yeah, especially if you're doing it online, you're just pressing buttons to sign for stuff. People do the e-signature. But if you are gonna press a button online, make sure it's the subscribe button, 'cause we appreciate you sticking through for the 27% of you that are still here.

Yeah, if you've watched all the way through a video on why not to put your name behind stuff, just hit the subscribe button. This has been a long video, and these aren't the catchiest topics of all time. These are teaching you the 101 for multifamily. If you wanna learn more of this, hit subscribe, hit like, and we will see you guys next Tuesday.