Posted on: January 05, 2017

The Right Way (and the WRONG way) to Treat Your Cash Buyers!

DEBATE TIME!! Who doesn’t LOVE a good debate?

Recently, Tom was challenged online by another successful real estate investor on the subject of “Cash Buyers”. This successful investor believes there is nothing wrong with getting all warm and snuggly with your cash buyers.

Tom wanted to respond here and share his opinion on why getting close to your cash buyers could be the biggest mistake you make in your wholesaling business! In this Podcast, Tom goes in depth on the subject and shares his processes for dealing with cash buyers.

He also shares the reasons why it is virtually impossible to scale your wholesaling business by becoming friends with your investors. Tom drops gold nugget after nugget in this short but VERY powerful Podcast.

This should be essential listening for ALL Wholesalers!


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Episode Transcription

Tom Krol: Okay, a debate for the ages so you can be ringing that victory bell, every day. I was challenged on-line about how to treat as a wholesaler, your cash buyers, The Real Estate Wolf and The Real Estate Rhino, that’s me. We had two different opinions about this so I’m going to state the case now. I just want to say something guys, sometimes on Facebook things can get a little out of hand. There’s some mudslinging that goes on, we’re going to keep it clean and there’s nothing wrong with a healthy debate, it’s always good to learn something new from someone else’s perspective. And we both have a long successful history in real estate investing. So I’m interested to see what kind of feedback I get. But let’s get to this side of the debate, which is how to treat your cash buyers. Now, here’s what we find, a lot of wholesalers who have … Number one, they either have … There’s a few problems that a lot of new wholesalers have.
First of all, they accidentally, instead of creating a wholesaling business, they create a wholesaling job. Now if you don’t know … by the way, the topic of this debate is going to be cash buyers. If you don’t know if you have created a job or business, it’s very, very simple. All you have to do is stop working. So right now, if you really want to know the answer to this question, get yourself, get your family, it’s Christmas break, it’s winter break, go pack your bag right now, get on a plane and go to Fiji and do not connect. Don’t bring your cell phone, your laptop. Here’s the deal, if your business continues to make money without you, you’ve created a business. If the income stops when you stop, then you’ve created a job.
One of the number one causes of creating a business over a job or a job over a business, is the mishandling of cash buyers as a wholesaler, and we’re going to get more into that in a minute. The second thing that we see is people who don’t treat their cash buyers the right way. And we’re going to talk about the right way in the wrong way and in my opinion, on how to treat cash buyers, is that they have an income that looks like this. They call it the roller coaster, they market, market, market, do a deal, and then run out of money. And then they market, market, market, and then they don’t do a deal. Then they market, market and they do a deal. And it’s like this, it’s a constant like grind every day, every day. It’s a nightmare. So they have inconsistent income. That’s number two.
The third thing that we see about wholesalers who mishandle their cash buyers is that they have very teeny tiny assignments. 1,000, 2,000, 4,000, 6,000, that’s it. This is the problem, what we do is, we treat our buyers in a very specific way. We force them to play by our rules, we don’t believe in giving people deals, giving them contracts because they’re our friend. Or because they’ve guilted us into it, or because the worst reason, which is they’re reliable buyers. Oh, Tom, this guy is a reliable buyer. I don’t even know what that means. We realize that cash buyers are a dime a dozen. And the guy or girl with the biggest cash buyer list wins every single time. They do the most deals, the most consistently, with the highest assignment fees every single time, so that you’re ringing that victory bell all the time. Because when you create a feeding frenzy around your deal, you are going to get bids in and they’re going to keep one upping each other and you’re going to train your buyers to play by your rules.
Now, what a lot of people say is … And let me just pull this up because I have some objections here to this, is they’ll say, “Well …” Let’s just see if I can find it here, I have a list. I should actually pull this up first. What people will say is, “Yeah, but Tom, well, what happens if you get into trouble with these buyers?” Let me see here, if I can pull it up, Osvaldo, that is how I pronounce your name I hope, Wolf. Osvaldo, you say, “Well, Tom what happens if you get into trouble and it’s good to be able to rely on buyers?” Here’s the deal. I’m not saying that’s incorrect, but instead of relying on the buyers, when you realize that in my opinion, that buyers are a dime a dozen, what you realize is that you don’t get into trouble. You don’t need to rely on them right now.
What I mean by that is one thing that we do is we consistently have a backup offer. We have an emergency backup offer, that’s number one. How else do they play by our rules? Number one, is that they have a specific date and time to come to the inspection for the contract. Whatever contract we’re assigning or if we’re selling the property, whatever we’re doing, whatever the exit strategy is, we keep them to a very specific window to see it. So when they call and they say, “Hey Tom, remember I did you that one favor a long time ago. Can you let me see this property early and give me like the inside track?” No. Because now people don’t trust you. You’re not congruent with honesty. You’re not congruent with who you are, because people know that if they have a good relationship with you, they get a better deal.
This is a huge weakness because it makes the 98% of the other buyers feel like crap and then the list will get small because people know they can’t trust you. The other thing they do is they say, “Well, what happens if you have a buyer that is not a qualified buyer? They say they’re a buyer, but they’re really another wholesaler, [inaudible 00:06:17] chaining a deal or something like that.” We can prevent that. We force all of our buyers to put down a non-refundable deposit to the title company, non-refundable. And it’s $5,000 so if they’re playing games, they’re going to lose that deposit. We hold their feet to the fire. We always want to be truth tellers and truth finders.
We hold our buyers feet to the fire, so we make them attend inspection at a certain date and time. We make them bid for the property. There is no inside track. We do the inspection, they have 24 hours to make a bid. If they call up before then and say, “Hey, where am I at? Where do I stand?” We don’t reveal any information. Why? Because if you do that for one, then the word spreads and you are now not good. You guys, you got to remember, these cash buyers, they have cash for a reason because they’re smart. They know how to put you into a guilt trip and they know how to make you feel like you’re one of their employees. So they want you to be an employee, they want to be friends with you. Believe me, they’re not your friends, they’re not your friends. I’m not saying once in a rare while, can you become friends with the cash buyer.
I happen to be very good friends with one … Well, I would say two cash buyers where we’ve gone out together on vacation and I go and see him and he comes and sees me and we are actual friends, we hang out outside of work. But you guys, for the most part, these people are not your friends. The fact that they’re reliable is worth nothing to me. It’s totally worth us. All cash buyers who are legitimate cash buyers are reliable. That’s why they’re cash buyers, they have the cash, they want to do a deal, and that’s the key. We make them do a non-refundable deposit. The last thing we do is we absolutely make them play by the rules as far as timelines. If an offer comes in at the tail end after 24 hours of the inspection, we don’t accept it, even if it’s for more money.
If you do that one time, you will get a bad name and then we also have a backup offer. So just to kind of summarize here, here is the deal with cash buyers. This is how we feel about it. Number one, they are a dime a dozen. There are cash buyer investors everywhere, everywhere for your deal, everywhere. That’s number one. Number two is that we make them play by our rules. We are not, what I call cash buyer employees. No one in our tribe is a CBE, cash buyer employees, the cash buyers, come to us for deals and play by our rules. We don’t bring them deals. We don’t do that. There’s no reason to, because you’re going to get mistreated that way, and you’re going to have small assignments, inconsistent income, and you have created a job instead of a business.
We don’t work for the cash buyers. They’re our customers, not our employers. So we make them play by our rules. We always make them put a non-refundable deposit. We always have a backup offer, and we do not fluctuate at all on our timelines, there’s nobody inside track in our company. Nobody gets treated any differently than anybody else. Here’s what you’re also going to find, just as a side note, the people who say, “Oh, well, you’re greedy when you first started, you were a nice guy and now you’re just greedy. All you care about is money.” I mean, they’ll guilt trip you into this. When they do that, they’ll be mad and say, “Oh, well if you’re going to do that, I’m not going to buy deals.”
Oh my goodness, they’re not going to buy deals. Yeah, right. All of the buyers, I will tell you who said that to us when we made this change in our business and our assignment fees literally tripled and quadrupled when we did that. Every single one, every single one, there’s a possibility of one and we have about 2,500 cash buyers, but there’s a possibility, I think there was one guy who never came back. But every single one since then has come back and plays ball. They know that we provide really great contracts and they are consistently getting them from us. So that’s how I feel about cash buyers. I feel that you got to create a feeding frenzy. You got to make them play by your rules and there’s no favorites. There’s no special treatment for anybody, unless it’s a charity.
Unless you know there’s a buyer who legitimately did something very, very nice for you and you want to do a charity event and just say, “Hey, listen on this one you know, I could be making a $20,000 assignment. I’m just going to give it to you. I’m going to take cherry pick it and take it out of the loop and just give you a deal and just give me $1,000 for it, it’s my charity for the year.” That’s a different story. But if we’re talking about day in day out business, that is the best model. Not only is it the best model, but it’s the most scalable, because when you start to leave decisions about who’s who and what’s what to your employees, your acquisition managers or your disposition manager, when you start to do that, that is not a scalable model because I can’t scale your friendship brain with the buyers to the acquisition manager.
Having these special relationships or special treatment for some buyers and not others, this creates a very unscalable model where you’re in the model, you’re making these day to day decisions. You want McDonald’s employees, you want the 21 year old who could make the same exact Big Mac in Miami, can make the same exact Big Mac a different 21 year old in San Diego or Anchorage or New York or Dallas or Chicago. Why? Because there’s a picture of a Big Mac on of pickles and the burger and the bun on the cash register. That’s what I want.
I want a scalable model hands off so that if I’m away for three weeks on a vacation with my family, I don’t want to be bothered. So that’s why we do that. Yes, it’s going to create a little bit of an awkward situation in the beginning with some of your buyers who are used to you working for them. But after you get over that, I think it’s key. Anyway, Osvaldo that is my position on cash buyers. I say that once you start turning your cash buyers into your customers instead your friends, then you go from having a hobby business to a scalable … A hobby into a scalable business. That’s my position and hopefully that’s clear and we’ll go from there. Talk to you soon.

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