Posted on: April 30, 2021
WI 678 | Real Estate Wholesaling Business

 

Joining Rafael on today’s show is Layne Peterson. He has a background in construction but when the economic market crashed, he knew that something had to change. So he did a crash course on real estate, got into wholesaling, and he’s now the owner of HomeVestors/We Buy Ugly Houses and Foresight Realty.

In this episode, Layne will look back on his solopreneur days and how he scaled his business to what it is today. He’ll also talk about some of his deals, giving a snapshot of his process for following leads and closing properties.

How to Build a Real Estate Wholesaling Business That Runs Without You

Episode Transcription

How do you start scaling up and start building a natural company when you start up as a solopreneur. We are going to cover all that stuff along with a whole bunch of other great things with my guest, Layne Peterson. You’ve been in the business for several years. You’re crushing it and you’re tapping into a couple of different verticals, but you run a successful wholesale business here in one of the most competitive areas in the United States. Welcome aboard.

Thank you for having me.

Tell us a little bit about how you got started. I know you’ve started a long time ago and you’ve had transition periods. We were talking about how to grow the company when you’re spreading yourself too thin. How does that happen? Give us a little bit of background on how you got started and where you are right now.

I was born and raised here in Arizona. I went to high school. I went to and graduated from ASU. Putting myself through college, I was working in construction. When I graduated college, the market was booming. I graduated in Accounting. I’m like, “Why would I go be an accountant when this market and my company is booming?” I stayed the course and kept in construction, building single-family homes. I had my own framing company division. It was going great until it wasn’t, then the market crashes and I have to adapt.

This is a while back in 2008.

In 2008, I was on my last construction job building this big, nice custom home. I’m like, “I got nothing else after this. I got to do something.” Fortunately, I was quickly able to adapt, ran down, did the real estate crash course, took the test, and started helping a buddy of mine do REOs, which quickly molded into doing courthouse step stuff. I met quite a few people down there. I started doing the bidding down at the courthouse step, which I still do. It just molded from there.

For those who are not familiar with courthouse steps, you’re talking about foreclosures. You’re looking at buying properties at the trustee sale.

When somebody is getting foreclosed on, one of the last steps is it has to go to a public auction. That happens at the courthouse steps. We would show up there and we would bid. I started out bidding on my own behalf, then word started spreading. People want to get in on it, and then I started bidding for other people. It turned into a bidding service.

You almost fell into wholesaling as an accident. That’s what it sounds like.

It was. I had to adapt.

That’s one of the biggest things. Whenever you come across adversity, you get hit in the face with something that you’re not expecting. For example, in your case, it was the economy. That’s big and it’s hard to do overcome in one single summer, but you went into it and then you adapted. What was your first step? Coming into wholesaling, what you’re doing at this point is bidding on properties at the courthouse steps and then just trying to wholesale those agreements to your buyers.

It started out when I was taking them all down on my account. I had a friend and we partnered up. We were taking them down ourselves. People started finding out and they’re like, “We want to get on this.” Construction has taken a dive. You had everybody from roofers to stucco guys, to everybody who was looking for something else to do, then I started wholesaling properties. It just molded from there.

Were you buying them under your LLC?

It started out that way, but then it turned into just a fee service down at the steps. They would pay me a fee to represent them and buy it for them. They would go directly into their name then they paid me a small fee.

WI 678 | Real Estate Wholesaling Business

Real Estate Wholesaling Business: One of the biggest things, whenever you come across adversity and get hit in the face with something that you’re not expecting, is to adapt.

 

Does that come in the form of a joint venture partnership agreement?

It was a bid service agreement.

That’s a completely different way of doing it. Those days for the most part are long gone. If you try to buy something at the step, are you paying it retail?

That’s another time that we had to adapt because that lasted for quite a few years. It was great while it lasted. Everything started getting gobbled up down there, then you have to adapt and figure out other ways to get properties. We then rolled into doing mailers, doing direct to seller, and then you become a countertop buyer like in the kitchen, sitting down face-to-face if somebody is buying their home. That was always my motto, “You adapt or die.” Everything is always changing in this market on all ends, retail and wholesale.

Real estate is the nature of the beast. There are many different aspects and facets to it. It’s good to be versed and to know what you’re doing in each one of them. You become a master of one craft, and then you’re able to adapt in that space. More so even, it evolves. It evolves yourself, evolves the business, and then provide bigger and better solutions. One of the things that we mentioned right before we got started was consistency. How did that play into you building the business that you have now in terms of wholesaling?

When stuff starts changing, you have to adapt and I had never done direct-to-seller marketing before. When I rolled into doing that, I can’t just do it for a month or two and expect everything is going to be life-changing. You stay on the course and stay consistent. You start building almost a database because you’re getting leads even though you’re not buying right then and there. You have a whole database to follow up leads to go off of every single month, then it starts building and you stay consistent. The leads come in and some of them you buy right away. Some of them you buy in 3, 4, 5, 6 months from now.

Eighty percent of the deals are going to be coming from follow-up. It is key. It doesn’t matter what your source is, marketing campaign-wise, either coming from cold call or SMS, you still got to follow up somehow, someway. Have a process lined up, even a simple spreadsheet if your database is not that big yet, that’s fine. That will work. The point is to keep them on a consistent follow-up.

That’s the only way to maximize your advertising dollars. If you don’t have something set in place to follow up, then you’re not maximizing the advertising dollars that you’re spending.

You’re hardly ever going to lock a deal or get a signature on that contract at the closing table.

Sometimes, you do.

It happens sometimes and those are awesome. They’re beautiful when they have and I get excited about them every single time, but it’s not the standard, especially when somebody is starting up. The conversations and the solutions being presented can be a little rough and there’s some fine-tuning there. People have to get to a place where they trust you enough to do business with you.

We just locked up a deal that we had initially made contact with in July. You have to do that. You have to have a follow-up in place because you’ll never know when their situation is going to change or when they’re going to be ready.

I get it and I completely agree. Talking about deals, let’s break down one of your wholesale deals. Give me an example of how you got the lead and where your process works. What I want to tap into is a snapshot of the way you’ve run your operation.

For example, the one that we made contact in July. That was a text message campaign that had gone out. They had replied and shown some interest. We made the initial phone call and talked with them. They said, “Right now it’s not a good time.” “No problem.” Two weeks later, we followed up. They were still not ready and then they got on the 30-day follow-up campaign that we have. It’s not the same message every 30 days. It’s tweaked a little bit, but we’re touching on them every 30 days. You’re going to be on their mind. We got a phone call from the seller and said, “Now I’m ready.” We went through the process and do the whole thing with them.

You adapt or die.

Being top of mind in a seller’s head. Sometimes, I’ve had sellers say, “No, I’m not interested. I am not selling.” Unless they tell me that they already got rid of the property or they specifically asked me not to ever call them again, they’ll go on a follow-up sequence. We have a conversation with them, “Is it okay if I follow up with you in a couple of months?” We put them back on that. It builds rapport and gives you that consideration. It’s amazing to see how many of them call you before the time is even due on their own terms.

They’ll say, “Maybe a year from now.” You keep following up and they could spark it back up and come back alive.

Let’s dive a little bit deeper into this deal. How did you get that lead? What kind of lead was it?

It was a text message campaign that we had. We have our criteria, scrape the data, ran it through, sent out our text message campaign, and then they responded showing somewhat of an interest, and then we got on the phone with them.

That’s key. Time and time again, I see a lot of people, even some clients and students who keep the conversation in those lines of marketing, for example, SMS, but don’t try to negotiate via SMS. The point is to get people out of that stuff as soon as you get a hand raise and put them into a conversation.

That is our initial thing. When they show any interest in selling their home, our first thing is to give them a call. Try and get on and have a conversation with them because building that relationship is more important. I don’t know what the stats are, but I guarantee you’re going to buy a fraction of the home. We’re trying to do it on SMS, and then actually get on the phone and talking to them.

Things are going to fall through the cracks left and right. I guarantee you that.

You’re just throwing away your advertising money.

As a matter of fact, the way that we have it is a text comes in. If they’re interested, we don’t even text them back. The next step is a phone call.

A lot of times, you don’t make contact. They don’t answer or what have you, then you do texts. You try and get them on the phone eventually.

That lead came in, it took you several months to get it through the door to get that signature and the paperwork. What was the seller’s situation? What problem did you come in to solve?

They were looking to relocate. All the kids had gone to college. They had one that was just getting ready to leave so they were ready to downsize. They’re a little bit older, so they didn’t want to mess with COVID. It’s a big scare, getting people through your house, people coming in and out. They didn’t want to mess with the timeframe that it would take, the inspection period and all that. We were able to negotiate a price that made sense to them. They know they’re going to have to sell it at a little bit of a discount to not have to go through that. We were able to give them a price that made sense for them and made sense for us, and it all worked out.

We can always come in with speed and convenience. It’s one of the biggest things that we always talk about in Wholesaling Inc. You can always offer some type of convenience along with the speed of closing and timing convenience. You come in and you wrap your head around that as you were coming into that conversation, you’re going to see a lot of little gaps that you can fill in with solutions.

They have to understand that timing convenience does have value. When you break it down, there is actually a dollar amount for the time.

WI 678 | Real Estate Wholesaling Business

Real Estate Wholesaling Business: Real estate has the nature of the beast. There are so many different aspects and facets to it.

 

We were trading that for equity. What did it look like?

It ended up being a great deal. It ended up working great for one of our clients who’s building a portfolio of rentals. We were able to tie it up. I’m trying to remember if we were at 75% of the value and we were able to give it to them at 82% of value, pre-rehab. It worked great for the rental portfolio.

What was your wholesale fee on that if you don’t mind me asking?

That one was $23,000.

That’s $23,000 for a six-month follow-up. You stayed on top on a monthly basis. That’s consistency. I’m telling you, if that’s not magic in the making, I don’t know what is it?

It helps your numbers come back around.

That’s the thing, $23,000 and giving somebody else solutions. A lot of the time when people are coming into wholesaling, we have the tendency to be caught up in the price, “How is somebody going to sell for a lot less than retail? Why would they? It doesn’t happen,” but it does. People are looking for something different and it’s not about deceiving in price points. It’s not about any of that stuff. It’s about coming into it with a different perspective and providing a solution just like you guys did.

A lot of times, sellers learn that the hard way. We had a deal where I couldn’t get it to the closing table. They didn’t want to sign because they thought they were leaving too much money on the table. They went with a retail buyer. Two months later, she called me up and said, “These guys are canceling the day before I already have my new house, I’m all boxed up and moved out. I’m trying to close on my new house and I can’t close it unless this one closes.” We were able to scoot back in and close it in two weeks. I got an extension on another house, and then we were able to come. She got a little bit less but it was done. It was a guarantee. She had to get another house. To her, that has a lot of value.

When you have something like that, that’s a double hitter. I mean double hitter as them having a transaction on their end, and then you having your side of the transaction. They have money put into it. They have inspections and earnest money there. They’re going to lose. There are all kinds of stuff that plays into it. It’s just a bigger problem, a bigger headache, and now you have the time constraint that you can come in and then also alleviate that. When you pushed your deals, you said you pushed it up to 82% on your buyer side. What are you looking for to give your end-buyers? How do you structure that?

I want them to make money. I want them to have a deal. I know if they make money, then they’re going to stick around and they’re always going to be a client. That’s the most important thing that everybody has to understand. You make your money on the buy. That’s when you make your money, even though you’re not having cash in hand. If you don’t buy that house right, you’re going to have all sorts of headaches and problems getting rid of it. I don’t care what you do to it. You can put bells and whistles on it, if you don’t buy it right, you’re just going to have problems.

It’s going to sit there and it’s not going to move. It sucks when you have to go back and renegotiate something with the seller, “Mr. Seller, I am so sorry. I offered you more than I could. It can’t close on it,” then you have the awkward conversations. If you’re not getting a number from the seller to start off with, it’s a beginning of a conversation. We’ll anchor low and it’s not that it means that’s the price of the agreement and what it’s turned out to be, but it’s a starting point for a conversation. You’re totally right. You have to buy it right otherwise the second leg of the transaction does not work.

There are a lot of people who learned that. At the very beginning, they just want a deal. They’ll write a deal and then it ends up being a headache. It keeps them up at night and all those anxiety because they can’t get rid of it. The name is on the line as well. They want to do right by the seller. I’m sure they have good intentions when they sign that contract but you make your money on the buy.

I learned that the hard way. The first week into it, I went all in like a freight train. I was having a bunch of conversations with sellers. I had a bunch of appointments that first week and it was a long time ago. I locked up six deals on my first week. I did this while working for a company. It wasn’t all my leads. I wasn’t doing the marketing. I was getting the appointments and then just had to perform on those. I was the acquisitions guy. I went and locked up six deals. I came back the first week, fresh. I’m coming in from a totally different industry. It had nothing to do with real estate. I felt like a rockstar. I walked into that office Monday morning. We laid out the six contracts right there, “Let’s go.” I’m super excited and none of them sold.

My math was all over the place. I was trying to justify and doing all kinds of wishful thinking like, “Well we do this. I guess they can push it a little higher.” We’re paying retail of not even more, minus realtor fees, but they were all locked wrong. They all fell through. The second week, I sucked even more because I had to go back and renegotiate. I’m having conversations with those sellers and tell them, “I was here last week. I was super green and I’m so sorry.”

A lot of the time, people coming into wholesaling have the tendency to be caught up in the price.

I hate doing that. I try to avoid that as much as possible. I don’t want to do that to a seller and I don’t want to be in that situation. I don’t like it.

One thing that we do on the dispo side as well is when we push it out, we want to make sure we do the math. It’s always rough numbers. Every buyer in your contract is going to have a different skillset when it comes to renovating and doing their thing.

Rehab is always the variable.

You can’t pinpoint it because somebody might do a great job at it and somebody may completely suck and not do great at all. We have this calculation in there. It’s just a ballpark and what it does. It creates our numbers on the acquisition from the space of giving the end buyer about a 12% return.

Is it annualize or on the deal?

On the deal.

It’s a great return.

That’s what we’re ballparking for, 10% to 12% return on the deal. I know for a fact that if we lock a deal and we have a 10% to 12% ROI on my buyer’s list, they’re going to suck it right up. It works so we work the numbers off of that, but you have to know where to come in. You got to do that math.

Do you guys have to pinpoint it like price per square foot? If it’s a minor rehab, do you have it per square foot and it’s more of a major?

Inside the course, we have a full calculator for it where you type in a couple of numbers, a couple of comps, and it’ll give you a range. You take into account the estimated rehab repair and then it’ll work out the numbers based off on that 10% to 12% return. That way, you’re locking a deal. You’re having a conversation based on logical numbers. You have something in your hands that you can sell and you can push. It’s a sellable agreement.

If you end up being a credible source for your investors or clients, they’ll come back to you. The stigma of wholesalers is they overestimate the retail value and they underestimate the rehab. They’re like, “This house is worth $500,000 and only needs $20,000.” Really it’s worth $400,000 and it needs $50,000. When you get that name, people just start deleting your emails.

Your buyer’s list is the holy grail of your business. You have to take care of it. A lot of the time, we get people and they want to partner up. They want to do joint venture deals, “I have this deal. Can we push it through your buyer’s list? We’ll set up a JV agreement.”

You want to make sure that’s a good deal.

The last thing I want to do or anybody wants to do for that matter is swamp out the buyer’s inbox with crappy deals that are not going to sell.

WI 678 | Real Estate Wholesaling Business

Real Estate Wholesaling Business: You always want to make sure you’re giving your investors a good deal.

 

They’re going to unsubscribe and not even look at your deals. That’s what I’ve always tried to do. You always want to make sure you’re giving your investors a good deal. You don’t want to be that guy who overestimates the retail and underestimates the rehab.

That’s also very important. You’re not going to last too long if you’re that guy.

That’s why I always say, “Make your money on the buy. Buy it right and you’re not going to have any problems.”

Come in with the problem-solving mentality, lock it right, and then have meat on the bones for the end buyer. You’re not going to get rich off of one deal. As you said, consistency is what gets it to that space of an actual business. I love it. Thank you so much. If somebody wants to get ahold of you, where would they find you?

My email is my name Layne.Peterson@HomeVestors.com. I’m always super responsive there. I’m always building my database. I JV with a lot of people too. I love to do it if the deal is right, or just call me at (480) 560-2585.

Do you do Instagram or social media?

I do Instagram and Facebook. I’m on TikTok just to watch my kids. That’s about it.

If you were to recommend a book or a learning source to somebody starting up as a wholesaler, what would that be?

Specifically to wholesaling, I’m not sure but there’s a book called You Are Not So Smart. It’s cool. It sets your tone of let’s not be so egotistical and pompous. We don’t know everything. In fact, we know way less than we even think we know. We all try and convince ourselves that we know more or we’re right. We do it subconsciously and consciously. I liked that book.

I love that title, especially in this industry. There’s so much ego going on. When you dive into it and start growing as a person and working on yourself, and I’ll speak for myself, the more I realized that I don’t know it all. There’s so much to it.

I’ve been doing this for several years for the wholesaling side. I’ve been in real estate since the early 2000s just here in Arizona. As long as you have that mentality of you can always learn more and keep your people tight and build your network. There are a lot of smart people in this business that I’ve been friends with and networking with a lot of them since the crash happened, and I’m still close with them. You want to maintain those relationships because you’ll never know when a deal is going to happen. I’ve JV’d with countless other wholesalers. They know that I’m an East Valley guy or I’m a land guy or this guy is an apartment guy. They bring you those deals. You want to stay in front of people. You know that. You guys got a great network going as well. We always collaborate with each other. The whole synergy of it with all the other people in the business increases your bottom line.

This industry didn’t use to be that way but it’s shifting to the place where it’s better to be inside a network because a lot of people are more willing to help than we initially believe they are. It just creates that great environment. It comes down to having the right people around you. As you said at the beginning of the interview, it’s having the right people around you to do everything and grow your business. Get out of those tasky things that you need to handle as an individual and delegate those.

One of the biggest deals that I did, didn’t come from my advertising. It came from somebody else in the business. He had a relationship with a bank and the deal came up where it was two subdivisions, not for houses. They got caught in the crash. They were 90% developed plus a big plot of vacant land. In one of the subdivisions, they had seven big custom homes that also got taken back. He called me and said, “Help me do this deal.” We got through the entire deal. I ended up owning the vacant land piece, which was a great investment.

Do you still have that?

You make your money on the buy.

I’m almost through it. We got a small portion of it left. We’ve worked through it, split it and plotted it. The seven houses we were able to wholesale, and then he ended up with the other subdivision. It was one of the most complicated deals that I’d done but it was one of the biggest deals that I had done. It was somebody else in the business. We have a great relationship. We have confidence and trust in each other and he brought me the deal.

That’s the thing. If you don’t have the solution for something, what do you do? Reach out to your network. A lot of times, the question is who, not how. That’s how you’re going to move faster. It’s, “Who can help me? It’s not, “How can I figure this out?” It’s tapping into people who already have experience in what you’re doing. Give me numbers on that one if you don’t mind me asking. I know you’re pretty reserved, just throw a number out there. Out of curiosity, I want to put a tangible number in the valley of the networks.

The money that was made was on the seven big custom homes because he kept the other subdivision and I kept the vacant land. The sales price on all those seven custom homes was $3.8 million. There’s over $1 million in wholesale fees.

If that’s not the network is your net worth, I don’t know what is. Thank you so much. I appreciate you dropping those nuggets on us.

Thanks for having me.

Tribe, you got it at the show. If you’re ready to have a conversation with somebody from our team, go to the Wholesale Inc. website and see if it’s a fit. If it is a fit and you want to jump into my program, I look forward to working with you on a one-to-one basis. Until then, stay focus. You got this.

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About Rafael Cortez

Rafael is an Organizational Psychologist and real estate professional holding ownership in multiple companies in various verticals. He has profitably invested in wholesale real estate over the last decade, runs an active business doing an average of 15 deals per month and is now passionate about using his investment knowledge, entrepreneurial experience and training as an organizational psychologist to help others learn about real estate investing through the Wholesaling Business Blueprint Coaching program with Wholesaling Inc.

 

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