On the show today we have one of the people that we look up and respect most in the real estate business, Attorney Jeff Watson to talk Legal Wholesaling!
– Wholesale Reformation – the most comprehensive course on wholesaling today! (Jeff is co-author)
– WatsonInvested.com sign up for email list to stay up to date on everything Jeff is doing. HIGHLY RECOMMENDED!!!
Notes from the show
The Vantastic Life is…
– in Destin Florida
Here is the FULL show transcript!
Joe Bauer: Welcome to the Nuts & Bolts of Real Estate Investing podcast. MY name is Joe Bauer and I’m here at my co-host, Julie Clark. Julie, how you doing today?
Julie Clark: Joe I’m doing secularly awesome today mainly because this is going to be probably the most important informational and life changing podcast that we have done to date, The Nuts & Bolts of Real Estate or Nuts & Bolts of Real Estate Investing podcast.
Julie Clark: I am so excited that Joe and I have agreed that we’re not even going to have our usual banter in the beginning. I know you guys will all miss that but we did just drop a podcast episode today … Is it today, Joe, it went out?
Joe Bauer: Yes.
Julie Clark: That is all about me interviewing the man, Joe Bauer. I think a lot of you of you guys who follow us are going to find that super fun to listen to and you can get all your Joe and Julie stuff off that podcast, but today we have so much to talk about. We are going to jump straight into it.
Julie Clark: Today we are talking about one of the most or the most important topic that all, all real estate investors need to know about and that is legal versus illegal wholesaling and all the little branches that come off that.
Julie Clark: We are so, so lucky today guys to have the one and only Attorney Jeff Watson with us today. I know a lot of you know who Jeff Watson is. He is the General Counsel to the National Real Estate Investor Association, the National REIA; as well as a fellow investor just like us, along with his partner John Cochran, the King of Systems who many of you know who that is. They’re recognized 100% by me and by many, many other people across this glorious land as the thought leaders and innovators in real estate investing, wealth building.
Julie Clark: Also Jeff is an expert on self-direct and retirement account transactions. He’s on the board of Quest Trust Company and if you’re interested in using your IRA to do some real estate investing, definitely need to check out Quest Trust Company as well as we’re going to talk to you at the end here how you guys can follow along with everything that Jeff talks about weekly, daily, monthly.
Julie Clark: He is the … Okay. I’m going to on and on, guys. This is in place of the banter. Jeff is the nationally recognized authority regarding regulatory concerns with wholesaling meaning the national authority on how to legally wholesale.
Julie Clark: He is the co-author of Wholesale Reformation which is, of course, that covers how to wholesale legally, it’s probably the only … Is the only course out there that you will find that is actually telling you the truth and everything you need to go, the only place you need to go to find out, aside from this podcast today, about legal wholesaling.
Julie Clark: Why is that important, guys? Because 99.9% of you are currently wholesaling illegally and I’m telling you, this can get you into massive, massive trouble, fines, maybe even some jail time. For those of you who are attempting to co-wholesale, that is even worse and today’s going to be your wakeup call. I promise you that.
Julie Clark: You guys, I’m not normally serious so I feel like I need to crack a joke. I can’t think of one. I’m so focused today. I am so focused today. Joe and I love you guys and we ask Jeff to be in this podcast so we can all help keep ourselves from hurting ourselves, getting fined or losing our businesses and all that good jazz. I hope that you guys understand how coveted this guest on our podcast is today and I give a big giant welcome to Mr. Jeff Watson. Hopefully he’s still with us.
Julie Clark: Jeff, are you there?
Jeff Watson: I am. I am here. I am just absolutely honored and flattered and amazed that the two of you guys who are just dominant forces there in Seattle Washington taking time out of your crazy schedule to talk with me. It is a privilege. It is an honor and I am looking forward to some great dialogue and conversation and banter.
Julie Clark: Me too.
Joe Bauer: Heck, yeah.
Julie Clark: Me too. Heck, yeah. Jeff … Not Jeff. I’m thinking so much about Jeff I can’t even remember Joe’s name. Joe, kick us off brother.
Joe Bauer: All right. The first question Jeff, is always the one that gets us to know you a little bit better and what we like to do is dig in a little bit. I’d like to know … We’d like to know how you grew up. Where you grew up and how did that get you to the point of being an expert that you are today? Like a backstory.
Jeff Watson: Wow! Oh wow! Well, let’s just lay the ugly truth out there, all right? Let’s just put the whole, ugly story out there. My life is an amazing example of the Grace of God. I was conceived and born in California through less than honorable circumstances. As a very young child I was moved from California to Colorado and then from Colorado back to North East Ohio which is still a home for me today.
Jeff Watson: I would tell you that my home life was not ideal but it motivated me and it equipped me to give me that burning passion that I could do better. The financial advice that I was hearing growing up was the rich are getting richer, the poor are getting poorer and poor, poor, pitiful me.
Jeff Watson: A stark contrast came to me in 1983 when my favorite uncle was talking about his very aggressive and deliberate campaign to get back the $37,000 that he paid to the IRS and income taxes and at the same time he’s talking about who he’s going to do that with the very talented treatment professionals. My stepdad said, “$37,000, that’s how much I made last year,” and I had that epiphany moment of which one was I going to listen to. Was I going to listen to the uncle that never got past the 8th grade but it accumulated a couple million in residential real estate was on going or was I going to listen to the stepdad that just kept saying, “Hey, the little guy can’t get ahead. The little guy can’t get ahead.”
Jeff Watson: I learned at a very early age, right out of high school, that you got to learn to tax code, you got to understand how things are taxed, how business works. God opened doors, I got into law school and found that I had to do something to supplement my retirement plans and real estate was the most logical choice. Boy, just been a step-by-step process from there.
Julie Clark: That’s a good story. That’s a good story. You know what I found interesting is that even the most experienced investors that I know almost the last thing they get in place, they could be killing it. They could be having huge podcasts, huge followings. Have all the stuff going on and yet the last thing they get in place is their tax plan, their asset planning and their tax plan.
Julie Clark: I’ll say I’m even a victim of that myself where you’re so focused on, “Let me figure out how to make that money,” then you get cruising and the you forget … You probably waste hundreds of thousands of dollars because you don’t put that as the priority. We agree-
Jeff Watson: Yeah. Julie, you’re so right. I’ve had person after person after person come to me and go, “It’s criminal how much I’m paying in taxes. What can you do to help me?”
Jeff Watson: Just small changes, small changes that are layered upon layered. I tell people that my personal tax return is a mosaic, all these little fragments, pieces and parts get brought in together and assembled in one tax return and it’s a mosaic that is 25 years in the making.
Julie Clark: Right.
Jeff Watson: It’s-
Julie Clark: Now, don’t you have a course on that too? Do you have a … I think you do, right? Or you did.
Jeff Watson: I did. I did and it was this two courses I have and one of them is on asset protection and wealth creation and it’s available through NoteSchool through Eddie Speed, through NoteSchool. It’s available that way. Then I’ve done another one and I’m redoing it now so it’s temporary out off the market regarding how to do stuff with self-directed retirements accounts.
Jeff Watson: As you said, my two passions in this world are teaching people how to wholesale legally and how to make money and not pay taxes.
Julie Clark: Absolutely. Well, we’ll have to have you back on when you’ve got those re-upped and cover that whole subject with you in regards to asset planning and all that stuff because we’ve had quest out to the club before and definitely a hot topic that we all need to make sure to keep on top off and since you’re my favorite guy, we’d like to hear that from you. How about that? [crosstalk 00:10:25]
Jeff Watson: That would be great. That’d be fun. That’d be fun, fun, fun.
Julie Clark: Today we’re going to start off our conversation and go deep on illegal versus legal wholesaling guys but I want to kick this off, Jeff, by asking you, what is ARELLO? Can you tell our listeners what that is?
Jeff Watson: Sure. ARELLO is the acronym, A-R-E-L-L-O. It stands for Association of Real Estate Licensed Law Officials. National organization … Go ahead.
Julie Clark: Has that been around forever or did it only developed once all these crazy wholesaling seemed to come out of the woodwork in the last however many years? Is it a long stick or newer?
Joe Bauer: ARELLO? It’s a long standing organization. They’ve been around for a couple of decades or more. Their headquarters in Chicago, Illinois and they hold multiple annual meetings around the nation. It’s where the regulators and investigators and super intendants and other people that handle real estate license law i.e., regulating the activities of agents and brokers in every state get together and they compare and they collaborate and they work on mutual problems.
Joe Bauer: In the last few years, they have turn some of their attention towards wholesaling activities.
Julie Clark: Right. Scary.
Jeff Watson: I discovered that an investigator for an Ohio agency did a very detailed, without me knowing it, investigation of me and a lot of my business relationships because he kept seeing my name showing up in educational circles when it came to how to invest. I’ve discovered since then that I’ve also been looked at by a federal organization and I’ve also recently undergone an examination by the Texas Department of Banking. I got news for you folks, I am a free citizen. I’m not currently under any threat. I’m not under any threat of indictment, not any threat of prosecution.
Jeff Watson: At this point in time, I don’t believe I’m the participant in any legal matter. As a participant, I’m obviously I’m the layer. I’m involved in a lot of stuff but that’s where we are.
Julie Clark: ARELLO is an organization that is the watchdog, we can say, and putting more scrutiny on wholesaling and basically acting like a broker when you’re not one which is a big topic we’re going to talk about today.
Julie Clark: You know what I noticed though when I looked up ARELLO, it looks like about 30% of the States are not in it and Washington is not one of us. I don’t know what that means but it’s … Unless there are things not updated there but it looked like Washington State, our state, was not a member of that organization. Not really sure what that-
Jeff Watson: Interesting.
Julie Clark: -means if that’s … Yeah.
Jeff Watson: I’m not sure what that means either but I can tell you that probably some of it is due to certain budgetary concerns, but I will tell you that your state, Washington, has a well-documented history of identifying questionable real estate investing activities and then aggressively stopping it.
Julie Clark: You hear that guys? This is why this is important today.
Julie Clark: Question for you, if an investor was to get investigated, is that like the Washington State Real Estate Commission would do that or this organization?
Jeff Watson: In the state of Washington it could be done a couple of different ways. It’ll often begin with the Washington Division of Real Estate or its equivalent and they could either contain it in house or they could refer it to the Local County Prosecutor. I have seen it go both ways.
Jeff Watson: The problem is you don’t know which way they’re coming at you and if the prosecutor chooses to come at you, that’s not good because the prosecutor is the one that got the right to put you in jail.
Julie Clark: Right. Guys, we’re trying to avoid that today on the topic of this podcast. I’m going to back it back just real quick here as we kick off because we’re going to go deep dive today and we’re going to cover just something super basic which is really just the definition of wholesaling. I assume the majority of people listening, I hope, would understand what wholesaling.
Julie Clark: Let me point out one thing to all you guys listening. If you’re like, “Well, I’m a rehabber. I flipped. I’m not a wholesaler. I don’t wholesale.” I promise you one thing, as you are cruising through this business and getting better and better and more into this flipping and rehabbing that you do, you will come across deals at some point that you’re going to want to wholesale. Just because you don’t think you’re a wholesaler today because you’re focusing on rehabbing when you get started, at some point you likely will be one or you will want to be one and you are going to want to know how to do that correctly. I encourage you to listen all the way to the end today because this is about you and your future and keeping you guys in line.
Julie Clark: The definition of wholesaling, I’m going to say it how I know it to be. I actually heard you say it so I’m just repeating what you said maybe with somebody else which is; to acquire an asset below market value and quickly resell it. That is one of the definitions of wholesaling.
Julie Clark: I think lots of people would say that’s when you put a property … They’d go and break that apart a little bit but that’s a broad definition. Is that fair?
Jeff Watson: I like that definition and there’s several reasons why I chose the words that are in that definition so yeah, I like that one.
Julie Clark: Yes, and-
Jeff Watson: Because if you noticed I used the phrase, “Acquire and asset.”
Julie Clark: Yes
Jeff Watson: Which means that you’re buying low and selling high.
Julie Clark: Right. One of those big words is acquire, right?
Jeff Watson: Yes.
Julie Clark: Let’s jump into the next question or definition. What is equitable interest? Is that a valid term and what does that really mean?
Jeff Watson: Fantastic question. Boy, yeah. You’re coming at me with good ones. Wow! Okay.
Jeff Watson: Equitable interest is a legal doctrine recognized in some but not all 50 states in this amazing country of ours. Where it says that you as the contractual purchaser of a property have certain ownership interests or rights in the property even though you don’t yet own it on title, even though you’re not yet the vested owner such as if you have a property under contract to purchase and you’re in the escrow phase and the property burns down, you may have a right to some of the insurance proceeds. You may not, okay?
Jeff Watson: It varies state by state because some states will admit to the doctrine of equitable interest, some states will say, “No, you merely have a contractual interest.” Some states will say, “No, you have both.” It’s a state by state concept.
Julie Clark: Not a term you want to throw around, right? Without-
Jeff Watson: Correct.
Julie Clark: -knowing what you’re talking about, yes.
Jeff Watson: Julie, so true. Without knowing what you’re talking about. I’ll tell you what I find to be fascinating is I hear people now parroting stuff in 2018 and 2019 that was applicable 10 years ago in different kinds of transactions, okay?
Julie Clark: Right.
Jeff Watson: They don’t understand that it’s a completely different kind of real estate transaction so those same terms don’t apply but anyhow …
Julie Clark: Here’s a follow up question then. “Are there terms in a contract that could,” I’ll say for a lack of a better word, “void your equitable interest? What is,” I’ve heard you used the word, I don’t know if I’m going to pronounce it right, “inchoate mean?”
Jeff Watson: Wow! Wow! Man! We’re not getting the softball question here. Joe, are you going to toss a softball or two my way later on because man, that’s a high and tight … That pitch is high and tight, man.
Joe Bauer: All I can say is good luck, Jeff. Good luck.
Jeff Watson: Okay. Let’s do the second half of that question first.
Jeff Watson: Inchoate refers to the fact that an equitable interest has not yet fully vested. All of the preconditions for me being able to fully have the legal right to that future benefit, have not yet been satisfied.
Jeff Watson: In a real estate contract scenario it means that there still some contingencies in the contract. What we’ve got here, now Julie you’ve done a beautiful job identifying the inherent contradiction that a lot of these half-baked, poorly educated wholesalers have is, “Oh, I got an equitable interest in the contract. I get equitable interest to the property because I’ve got a contract on it but my contract has four easy outs for me.” Well no, you can’t have both. You can’t have a contract with a bunch of easy outs that you’ve got the right to get out of and still say that you’ve got an equitable interest in the property. You can have it both ways.
Jeff Watson: If all of your preconditions to closing have been satisfied, all of your contingencies have all been removed and your money, as the buyer, is now on deposit with title on escrow. Now, you have a fully vested equitable interest in that property, but not until-
Julie Clark: Let’s drill down on that for a second and put that in layman terms because I’m totally following you but I want to make sure that everybody understands what we’re talking about and I’ll ask direct question about that.
Julie Clark: For example, if I have a contract and there still an out in that contract at the time I want to assign it, meaning a contingency of some sort meaning I have not accepted as the buyer, waived in and accepted I would say … Waive might not be the word I want to use, accepted the property inspection contingency can I … Does that mess me up on the assignment? Meaning, I need to have that inspection completed and that contingency accepted prior to assignment. Is that accurate? If I need an out left in the contract at the end I might have verbiage that says, I can come checkout the property prior to closing.
Julie Clark: What I’m saying is that lots of people trying to assign your contracts with inspection contingency still in there when they assign it and I’m sensing I myself do not do that because I listen to you. If you guys want to be in the tribe in the Washington area or nationally or whatever that wants to play by the rules, Seattle Investors Club and the Nuts & Bolts of Real Estate Investing is that tribe for you. I am so sensitive to playing by the rules. I probably overplayed by the rules.
Julie Clark: What I do when I assign contracts is I have not contingencies left. My buyer has already been in there and it’s good to go and yes, if they walk out of the deal that earnest money is going to be gone. That’s a risk that I have to take as an investor. What do you have to say about that?
Jeff Watson: I like what you’re saying. I like it a lot what you’re saying and that’s one of the neat things about even the fact that you guys call this Nuts & Bolts because we’re right down to really the substance of what holds all this stuff together, what makes it all work.
Jeff Watson: Yes. If you’ve got a contract and it’s gotten out from an inspection clause and you’re going to assign that contract, I would say that the best thing that I, as the assignor or I as the assignee want to do is I’ll accept the assignment in conjunction with or I’ll make the assignment in conjunction with waiving or releasing that inspection contingency because, hey, I’ve been able to exercise it and both the assignor and the assignee, the buyer and the new buyer have been through the property and they go, “Yup. We want this. We’re ready to go.” Okay, let’s do the assignment and let’s waive and release the inspection contingency and move on.
Jeff Watson: What we’re left with now is the contract ready to go to closing with possibly the final walkthrough clause left to where during the final walk through inspection the day of or the day before closing it says, “If there’s been a material alteration or change in the property, well then we don’t close.” Okay?
Julie Clark: Right.
Jeff Watson: But if it’s the same thing and all that’s happened is the molds growing a little bit more or the roofs leaked a little bit more, or the grass has got a little taller, or a window got broken out or whatever, hey, baby. We’re still ready to close this but not in material change, but a material change would be like, “Okay-
Julie Clark: [crosstalk 00:25:04].
Jeff Watson: Let me give you a quick example of what I consider to be a material change, okay?
Julie Clark: Yup.
Jeff Watson: The contract says that the seller is going to deliver in broom clean condition, and the day before closing you walk through there again and you find that there’s still four tons of garbage. Hey, that’s a problem. Or the seller says, “Hey, the appliances go with it with all four units of this property that I’m assigning over to you, or that I’m selling over to you. All the appliances will go it.” When you put it under contract they were nice, new clean appliance and then the day before closing you walk through and you find out that man, they just bought the cheapest stuff of Craig’s list and slid it back in there and it doesn’t match, it doesn’t fit and so on. Well, that’s a material problem.
Julie Clark: Right.
Jeff Watson: Those are some examples.
Julie Clark: Yup. What I want to tell all you guys listening is you’re like, “Damn it! Oh God! I got to accept or waive that inspection contingency before I can assign?” Let me tell you what. If you know what you’re doing and if you’re a real wholesaler, it is not a problem. You know why, guys? Because you should know your buyers. You should know your buyers. You should be doing business with people you know. Assigning your contract to some person that you have no idea, you’ve never met, you’ve barely ever talked to is just bad business in the first place because shit roles downhill. That’s the fastest way you’re going to lose your earnest money and have a problem.
Julie Clark: I just want to add that on top that you guys should be focused on doing business with who you know and who you like, really. That’s a big mission. Even Joe and I out there.
Jeff Watson: I’m going to jump in and echo amen on exactly what you just said, Julie. I’m going to share with you a phrase that one of my business colleagues just shared with me yesterday. They’re like, when they’re talking to someone about this, they’re not going to let them go walkthrough a property until they’ve seen a proof of funds.
Julie Clark: Right.
Jeff Watson: “You want to go look at this thing see if you’re interested in me assigning this contract to you?” Hey, before I even tell you the address, before we go look at it, I need to see your proof of funds because I’m interested in building a relationship. I’m not interested in a one night deal.
Julie Clark: Exactly. Having a fun language in your assignment contract is important too, guys, right?
Jeff Watson: Yeah. I want to make sure that you can perform.
Julie Clark: Well, let me ask you another question as we keep moving forward here. What are the rules on changes to a contract after it’s assigned? Because in my assignment-
Jeff Watson: Oh, [crosstalk 00:27:48] dude.
Julie Clark: Yeah. I mean I don’t want-
Jeff Watson: You let her do it again? You let her do it again? That one was low in the inside, man. Oh, man. Oh, man.
Julie Clark: All right.
Jeff Watson: Oh, man! She’s wearing in the heat. Whoa! Okay, wow! That’s a fantastic question. I have had this very same conversation with multiple lead investigators from various divisions of real estate. I will tell you that if you want to bring the scourge of their contempt and their investigated powers upon you, then you try to be that little sleazeball that says, “Oh, I’m the new buyer. The contract has been assigned to me, Mr. Seller, but perform unless we do this, this and this. We make these amendments to the contract.” That is gutter practice. That is sleazeball slime.
Jeff Watson: Now on the same hand, if you’ve taken the assignment of a contract and you’re ready to close and all of a sudden there some reason why both parties will agree, both the seller and the new buyer, will agree that, “Hey, we need to amend the contract in order to extend closing by day because of a snow storm or we need to extend closing a day because there was a power failure and the bank couldn’t wire the money.” that kind of stuff, that’s perfectly legit. But it’s got to be a mutually beneficial reason for why we would amend or alter the contract after it’s been assigned.
Julie Clark: I want to put a big, big highlight on the words that you just said so everybody listen. He said, “Mutually beneficial change,” that is the key that I just heard. Those are the highlight in words that I’m pulling out of that what you just said, “Mutually beneficial change.”
Jeff Watson: Yup. Exactly. Exactly. Wow.
Julie Clark: Well, let me ask you-
Jeff Watson: Man.
Julie Clark: Keep going. I got another one.
Jeff Watson: Okay. I’m catching my breath because man, those are just some powerful questions. Whoa! Go for it. Go for it. I’ve dug back in. I’ve dug back in. I’m ready.
Julie Clark: Ready? Okay. Here’s the next one. Should you tell the seller that you’re going to assign it or does that screw up your intent to close from the start?
Jeff Watson: Oh, wow! Man. If you continue the baseball analogy, what a nasty slider. Wow! That is a tough two-part question.
Jeff Watson: There is an argument growing among the regulatory officials and bodies that says, “That if you assign the contract without the seller’s written acknowledgement, you’ve engaged in a deceptive practice.” Think about that one folks.
Julie Clark: That’s not good.
Jeff Watson: Think about that one folks. Now, I’m going to go ahead and say this. I’ve said this on another podcast. I’ve said this other times and I’ll stand by it. If you’re wholesaling business is predominantly assignments, then you are illegal. Then you are dangerously illegal in doing business the wrong way and I ask one of two things that you either change your business and do it right or get out business before you get put out of business by somebody else.
Jeff Watson: If your business is primarily assignment of contracts, then you are not a legit wholesaler. You are the scourge. You are the problem. You are the bane of the existence on those of us that do it right.
Julie Clark: What would be some alternative options would be? Double close, right?
Jeff Watson: Double close. Take title to the property. Let’s face it, Julie. A lot of the people that are listening to this podcast, and I pray a hundreds and thousands of people do, that they’re out marketing for deals and what are they saying? “I buy houses. I close quickly. Cash for your deals I pay cash.” Well, then just be a man or woman of your word and show up at the closing table and close.
Julie Clark: Right.
Jeff Watson: You say you buy houses, we’ll buy it.
Julie Clark: Right.
Jeff Watson: Take title.
Julie Clark: Right. Is it possible to do close sometimes and not close sometimes? I mean, I guess it’s all about back to those legal terms, your intent and you talked about your capacity to close but your intent. We’ll focus on intent first.
Jeff Watson: Okay. Here’s where I am. I just in fact, two days ago I put out an email to my list, very modest list of probably only about 15,000 really serious investors. I’d put out an email to my list and I’ve got a tremendous amount of feedback from my list on my $9,000 question. What I basically said is, “In most of America, most mid-western flyover America, one your typical real estate deal. If your spread and profit is $9,000 or less then it’s more economical to go ahead and just design the contract.
Jeff Watson: Yes, I expect you to have evidence that at that point in time you had the funds, you get it doubled close but let’s face it for a $9,000 or less assignment fee just go ahead and assign the contract. You get above $9,000 and then we’re start changing the numbers and we’re starting to look at, ‘Okay. It’s probably a good idea to double close.’ However, you get a certain areas of this country, you got to some of the coastal states, doc stamps in Florida, taxes in New York-
Julie Clark: Washington.
Jeff Watson: -closing cost in Washington, Oregon, California, the regulatory problems in Cook County, Illinois. All of those things would say that number needs to probably go to $15,000 to $18,000.
Julie Clark: Because our costs are so high.
Jeff Watson: Because your costs are so high. Then flat out my clients that do business in California, they virtually double close on almost everything because they’ve got a sizeable spread. They’ve got a sizeable spread and they’re just doing it. There’s a huge regulatory outreach and crack down being initiated in a certain state West of the Rockies. It’s not Washington. It’s not Oregon and it’s not California, but it’s West of the Rockies let you think about it. That it seems as if it was triggered because some investor and I use the word “decided” to do a deal where they took a $100,000 assignment fee and the family, the kids of the sellers became indignant over the fact that this guy made a $100,000 on their parent’s house without ever doing anything for it.
Julie Clark: Yup. That was [crosstalk 00:35:15].
Jeff Watson: That raised … I’m sorry?
Julie Clark: Was it a single family residence that that occurred on?
Jeff Watson: Yes. It was a single family residence that occurred on with an older seller who may not have really known what their value was, that’s an issue in Colorado watch out for that. Be careful. The regulatory body in California is justifiably concerned about that where people may not really know what their houses are worth and they’re selling them too quickly and too cheaply. Be careful there folks.
Jeff Watson: This particular instance in another state towards the northwest, West of the Rockies, has triggered a huge regulatory investigation in the wholesaling practices throughout the state. This one guy, this one greedy, ignored jerk that I don’t know who it is, I don’t want to know. Not at this point in time, but taking a $100,000 assignment fee that’s just unconscionable on my opinion. Anyhow …
Julie Clark: I find that interesting [inaudible 00:36:26] that because I’m both a real estate broker and an investor. I’m a big, big, big proponent of people getting their real estate license. If you’re going to be in a real estate business, why the hell wouldn’t you have a real estate license? It’s an insurance card, it’s a discount card, all these things. I think there’s a myth and it’s backwards. People think it’s worse if you have a real estate license like you’re going to be more regulated and get in more in trouble versus if you’re a cowboy without one and I totally disagree because it’s not hard to play by the rules if you know what the rules are. Just get off your ass and learn what the rules are.
Julie Clark: What I find is that a lot of these wholesalers I’ve come to find out because I’m like, “Why do you not get your license? Get your license, get your license.” To me a $10,000 commission versus a $10,000 wholesale who cares your tax is the same, right?
Jeff Watson: Amen.
Julie Clark: It’s [crosstalk 00:37:33]. But what I found is the reason why some of these cowboys or cowgirls don’t get their license is because they are just along the lines of what you’re talking about. They’re walking into this houses, which in my opinion is morally wrong. I’m talking about single family residences at this point, and they are low balling so hard and they’re spreads are $30,000, $40,000, $50,000 not even at a $100,000. The reason they don’t get their license is because you can’t in there, they feel there’s no point, and offer a low ball like that and they say, “No, that’s too low.” Then the same breath you’re trying convert them to a listing.
Julie Clark: My MO is I walk-in and I say, “I provide you options. Here’s what the cash offer looks like. Here’s what a listing looks like side-by-side. Here’s what another option might look like. What works best for you?” But my spreads aren’t $30,000 so I can have that conversation. I go in half the time and say, “I’m going to give you that cash offer because you’re asking for it, but I’m going to tell you not to take it. I’m going to show you why and now let’s get your home listed for sale,” and guess what? I made the same amount of money either way.
Jeff Watson: Not only did you make the same amount of money. You did it with your reputation and integrity intact and you build a relationship that may bring you more deals in the future. Can you imagine that?
Julie Clark: I also didn’t waste all my marketing dollars on trying to pick off 5% of my marketing list or less that actually would agree to these low wholesale deals. I’m not saying … Wholesaling is great as a tool, for sure. Absolutely. But if that’s only-
Jeff Watson: If it’s done morally and ethically, yes. You got to do right. You got to do it right.
Julie Clark: Let’s go back to focusing in on that question. I’m not sure we sort of got the answer or we sort of left it in limbo whether or not you should tell the seller that you’re going to assign it. I mean obviously if you’re doing things right and your contract is legit you have something in your contract that says that, your contract’s assignable maybe without seller consent, right? Is that it’s just the assignable. That could be changing is what I hear?
Jeff Watson: I believe that’s going to change. I think you’re going to see some regulatory push that’s going to start west of the Rockies and work its way east where you’re going to now start to see two things. Number one, sellers need to consent to the assignment and number two, more and more wholesalers are going to have to become licensed. They’re going to have to become agents, brokers, licensees whatever phrase you want to use and they’re going to have to comply with those ethical rules and responsibilities and I think that’s fine.
Jeff Watson: Now, let’s put it to you this way. Do you have to tell the seller that you’re assigning the contract? Right now legally, if the contract is written where it says, “X, Y, Z home buyers and/or it’s assigns or affiliated entities.” I’m going to tell you illegally under that you probably don’t have to tell the seller but I think you’re running a really bad risk of leaving a lot of questions and confusions in the marketplace and you’re losing a terrific opportunity to build a relationship for future referrals. I think you better off having a conversation with the seller such as along the line of, “Hey Mr. Seller, as you know I was planning of buying your property and we’re going to plan on closing next Friday. Well, things have changed and an investor colleague of mine wants the house even more than I do. They’re willing to give me a little bit of money more than what I’m paying you but we’re still going to close on Friday and you’re still going to get all your money. Do you have any questions about what I’m telling you?”
Julie Clark: You know what I believe, Jeff? I believe that it’s all in the delivery and that it could be an issue.
Jeff Watson: Yes.
Julie Clark: It could be a non-issue if you know how to deliver it properly. I think all these things are non-issues if you educate yourself and learn how to do things properly and then you can sleep at night, right.
Jeff Watson: Yup.
Julie Clark: I’m with you. I’m going to keep tract here. One of the things that we talked about like intent to close, let’s talk about along the lines of that earnest money and what some good rules of thumb are about earnest money for wholesalers or any investor contract and that a low earnest money, as I’ve learned from you, can be a sign of your intention. Intention is a big word that we’ve been talking on.
Jeff Watson: Yeah. If you’re putting down $10 as your earnest money, $10 other good and valuable consideration as your earnest money, you’re really not that eager. Earnest money means how eager are you to perform. How zealous are you, how committed. You’re really not that committed. You’re really not that interested in doing the deal.
Julie Clark: Right.
Jeff Watson: I will tell you that regulators when they see those kinds of contracts, they’re just like not impressed. It’s a black mark against you as far as are they going to dig deeper or not.
Jeff Watson: When they see a contract that says, “Okay. I’m putting up $500. I’m putting up $600. I’m putting up $300 and if I fail to perform, you get to keep that. By the way if I don’t perform in the next 30 days, I’m done. You get to keep the $500 bucks.” That’s something that a regulator will look at and say, “Okay. There’s a consequence to this person. They’re not stringing this seller along. We’re okay with that.” I’ve had these conversations.
Jeff Watson: I’ve had these conversations with regulators and people that manage and direct investigative body. I’m telling you what I know from being in the marketplace and working on both sides of the isle. Sorry, Julie talk over you.
Julie Clark: Does it have anything to do with the price, the purchase price because we’re an expensive market over here, not the most expensive in the country but definitely more expensive than Ohio and places like that, I think. My minimum earnest money that I use is 1000 bucks but if the property is more expensive it might be higher. I’ll tell you a little tip, secret sauce everybody who’s listening. I’d beat you on your contracts because I offer more earnest money because I am [crosstalk 00:44:26] caught in what I’m doing and I know who my buyers are and I’m out there beating you because I’m not afraid to offer a real earnest money.
Julie Clark: There’s a little tip for all you guys listening right now. Not only is it going to get you in trouble if you don’t offer a bit of earnest money but all the smart investors in town are going to beat you on the deal. He-ha, ho-ha to you guys.
Jeff Watson: Well, here’s the point you raise and I love it. I love this. How serious are you about buying a property or are you one of these, what I going to call, Neanderthal, poorly educated wholesalers that you surely shouldn’t be in the business and you’re throwing everything you possibly can under contracts for 10 bucks. Then you’re just going to shotgun all these contracts all over the place and pray that somebody else will take your deal and you’ll make a little bit of money off of it.
Jeff Watson: Well, that doesn’t impress me as a business model. What instead impresses me as a business model is that you’ve dialed in your marketing, you know where you want to buy, you know what your customers, your rehab buyers, your landlord buyers want and so you focus your marketing in those areas and you get quality properties under contract. You’ve putting down a thousand bucks, you’ve putting down 500 bucks, you’ve putting down $2000 whatever it takes to seal the deal with that seller and you already have a good idea that you’re going to fix this property up and flip it or you’re going to double close on it, do something to it and then let a rehabber or a landlord come in and take it and finish it out. That to me is a legit business.
Julie Clark: Yup. Let me ask you another follow-up question then. Does it matter if the earnest money is deposited by the original principal buyer versus the new end buyer after the assignment?
Julie Clark: Let’s say, when you assign it … Let’s say you have language in your contract that allows you X amount of days or that your earnest money can be deposited, buyer and seller agreed, that earnest money can be deposited upon buyer’s acceptance of the inspection contingency. Now we’re accomplishing the goal of removing those contingencies so we don’t have a non-valid contract. Let’s say we are able to simultaneously line up a buyer at the same time.
Julie Clark: Me, personally, I always make sure that my company made that deposit from an account with our name on it to make our contract solid versus having the end buyer make that deposit. I just have them reimburse me as part of the assignment process.
Jeff Watson: Yes.
Julie Clark: What’s your thought on that?
Jeff Watson: Well my first question is Julie, have you been bugging my phone because this is the exact same advice that I gave a friend of mine that only did 150 deals in Orlando, Florida last year. I gave him this exact same advice on Monday.
Julie Clark: I do stalk you Jeff but I really did that but no bugging [inaudible 00:47:42]. Not yet.
Jeff Watson: I will tell you that the language that you just used is the same language that I have given to a client in southwest Florida, a client in Dayton, Ohio and a client in Orlando, Florida. Yeah, I love that language. That stuff is a real smart people in this space understand and use. What it does is it sends a message, and Julie I’m sending love your way because you have either very, very brilliantly come up with this on your own or you’ve gotten it from me other way and I don’t care which. Either way is great.
Julie Clark: No. I’m learning from you. I want to give credit where credit’s due everybody. Everything that I’m talking about today is from Jeff Watson. No doubt. I’ve been following him and listening to him for a couple of years now. There you go.
Jeff Watson: What this language does, what the language that you talked about were the earnest money is now then deposited with title and escrow or with the closing attorney, depending about how your jurisdiction works, upon the buyer’s completion and satisfaction of the inspection. What that’s doing is it’s sending a message that: A. I may really legit professional buyer but, “Oh by the way Mr. Seller, you’ve got to understand. I only buy stuff that meets my criteria. I want you to know that we really don’t have a firm deal until I’ve inspected your property and it’s met my approval, because you know what? I’m going to buy your property. I’m either going to fix it up and resell it or I’m going to buy your property and then I’m going to turn it over to my list of rehabbers or landlords and so on.
Jeff Watson: I’m serious and I want to know and I want to make sure that you know that I’m serious and I want to make sure that you know that I only am doing deals that are really going to be legit deals. I’m not one of this contracts that I’ll spray it all over the person and pray that something hits.”
Julie Clark: Yup. What about the fact though? What about the question of … I know that would be the preferred and recommended and taught by Jeff Watson way to do it, but is there a problem if the end-buyer simultaneously and on time when that earnest money is due makes that deposit to escrow?
Jeff Watson: Is that a problem? I don’t think it’s a legal problem. I think it’s a functional problem. I think you got to look at and say do you … Because someone is going to make an argument at some point in time that you don’t have a valid contract without the absence of earnest money. I think the other … Yeah, that’s a debate that you could rage on forever.
Julie Clark: Well, you have earnest money on your contract, right? It’s all in there. It’s just who’s actually making the physical deposit.
Jeff Watson: But it’s not been paid. It’s not been paid. I think if you have that language in there, then you’re tipping your hand that you’re assigning the deal and so I can argue this one either way. I would tell you Julie, I prefer the idea of you as the original buyer who’s had the original negotiations with the seller, that it’s your money from your entity. Just put the property in your contract going into title in escrow that it’s your money going on deposit and there’s part of the assignment fee at either pay at the assignment time or collect it in full at the closing, that’s how you get that money back as well. I’m more comfortable with that method. I think that’s …
Julie Clark: It’s also a good way guys, to find out which buyers are serious on those that can … Nobody gets a contract assignment from you without them reimbursing you for that earnest money.
Jeff Watson: And more, and more, and more. I would tell you that my attitude is that I tell my clients, “On the deals that you’re going to assign, I’d like you to collect the third of your assignment fee and your earnest money back at the time that your assignment contact is assigned and catch the balance at the closing but you’ve got to have something.
Jeff Watson: Oh, by the way your assignment agreement had better said that if you fail to perform according to the terms of the contract, then the assignment is null and void and expires and the contract reverts back to with no money being paid back to you, mister failed to perform buyer. The contract reverts back to me, the original buyer, so I can try and keep the deal alive and satisfy the promise I made to the seller.”
Julie Clark: That’s it. That’s actually a shining nugget for you guys there if you’re listening what Jeff just said in your assignment contract to make sure you have language that it reverts back to you and that any money they’ve paid for lack of a better word and correct me if I’m wrong is almost like a termination fee.
Jeff Watson: It’s forfeited. They forfeit it for their non-performance.
Julie Clark: Right. Right on. That goes into most transition into this next topic in because that means that if you have to have money to put down on an earnest money deposit because you want to be a player and a wholesaler and if you are wanting to be active wholesaler and investor, that means that you going to have some money and that maybe you’re not broke.
Julie Clark: What’s the problem, if any … There’s a lot of gurus out there, real estate gurus, that hook people. Their hook is, “Invest in real estate with no money, no credit, no brain, no nothing. Just as long as you breathe, you can make money off real estate.”
Julie Clark: Is there a problem getting into real estate if you’re broke not just because you have money to send out marketing but maybe for other reasons, other legal reasons that such as your capacity to actually do a transaction? We haven’t touched on that part. We’ve talked about intent to close but we haven’t talked about your actual ability and capacity to close late on this, Mr. Jeff Watson.
Jeff Watson: All right. Let me do this. I’m going to just slip into a client, slip stream here for a second. I’m proud that a certain client of mine whose company hit INC 500 List last year, 2018. One of the requirements for you to come in to his real estate training program is that you have to have a certain amount of money that you can commit for the next six months to your marketing campaign.
Jeff Watson: If you don’t have that money all over and above the tuition, a very reasonable tuition for his program, you’re not accepted. The reason is because broke people should not be investing in real estate. If you have been pitch with no money, no job, no credit; I got news for you. You’re being sold the line of goods.
Jeff Watson: You’ve got to have some money. You’ve got to have some money because you’ve got to have the money to market. You’ve got to have the money to do some … You’ve got to have money for earnest money, you’ve got money to market and so on, but more importantly than that you’ve got to have the ability and capacity to close.
Jeff Watson: Now do you have to have the money yourself and your own personal checking account, saving account, broker’s account? No, but you’ve got to have spent the time, work the rooms, created the lender relationships, network with private lenders transactional funders whoever, whatever and be able to say, “Hey, listen. If I get a deal where I can buy it at 55% of the after repair value, would you be able to fund that deal for me? If I can get a deal at 65% of the after repair value, would you be willing to fund that deal for me?” Be able to have those commitments either via email or letter whatever saying, “Yes, we believe that we can do that,” then you’re now meeting that requirement of having the capacity to perform.
Jeff Watson: If you put something under contract 65 cents on the dollar of the AVR, and you’ve got a private lender that says, “You know what, I’ll fund up to 70% or whatever,” then you’ve got it. Then you can say, “Hey listen, Mr. Investigator. When I made that offer, I was relying up on the fact that X, Y, Z funding company had told me that they’d make that money available to me.”
Julie Clark: Or a private investor meaning this isn’t just networking shake hand stuff, make sure they’ve sent you an email that you can actually pull proof that you were relying on something that is not just verbal.
Jeff Watson: Yup. Right.
Julie Clark: When it comes to-
Jeff Watson: You’ve got to create the relationship deep enough that they’re going to say, “Yeah, you get me a good deal and such and such an area and I’ll be happy to look at it and fund it if it meets these criteria.”
Julie Clark: Let me give you guys another tip because our market out here in the Seattle area as many markets probably are right now has had a, we’ll call it an adjustment. We’re waiting to figure out where our little soft landing will be here but we’ve had an adjustment. Some of my lender friends are getting five calls a week from people not able to pay off their second lean position investors on their deals.
Julie Clark: They can probably get their first lean hard money paid off but they can’t get the second lean position paid off because our market is just a down and they over leverage the property and blew their budget on the rehab. Flash in to anybody that’s thinking about going into second lean position these days, we will dive deep into that today. But one of the things as you’re a new investor or an experience whatever level that you’re at, something to focus on right now going forward that we’re learning about because of the spanking that some investors are getting in our market, that are having to drop their prices is that when you’re looking for a partner … Let’s say you don’t have any experience and Jeff, you can tell me if this might meet the criteria. You should be looking as you’re getting started to partner with somebody.
Julie Clark: I tell everybody when you’re getting started don’t do deals by yourself. Part of your education. Yeah, you’re not going to make all the money but you’re paying further for your education. Partner with someone. It doesn’t have to be some of the most experienced person in town but maybe that’s somebody that’s got like five or so deals under their belt at least, that you can ride along with, learn from. But when you’re looking for that partner everybody, there’s a lot of investors that have experienced and done five or more deals or 10 deals that don’t have any money.
Julie Clark: That’s amazing how that happens but when you are interviewing somebody to be, even if you’re new, to be your partner or private lender or whatever, make sure that they, as a bonus and helpful to you, have money and they have credit. Better yet, they have a job so they have borrowing capacity because if you get stuck in a deal that doesn’t go well, you need to be able to potentially refinance out and you can’t do that if you don’t have credit to rely upon.
Julie Clark: The best partner is somebody with experience, that has money, that has a credit score, that even has a job and those are the people that you should be looking for when you’re going forward here. That’s my opinion just to shout it out there based on what’s going on in our market today and how people are in need of that.
Jeff Watson: Very, very good, valuable wise advice, Julie. I completely agree with where you’re going with that. If that’s the space you want to be in, yes. Yes.
Jeff Watson: I’m going to tell you in my world, I’m a little different, I’m a little weird. I have said this over and over and over again and I’ll keep saying it. I will never ever, ever, ever again borrow money from a bank.
Julie Clark: I know.
Jeff Watson: I won’t do it. I’m privileged in that I have developed a network of private lenders that we’re talking seven multiple … I’ve got multiple private lenders with seven figure resources.
Julie Clark: There you go.
Jeff Watson: Any kind of deal I get into I’ve got them to back me up. By the way, I know where their limits are and we’re very conservative on our staff. We knew the adjustment was coming. How much is the adjustment? Who knows. You guys in the coastal states, the Washington’s, the Oregon’s, the California’s, the New York’s, the Florida’s, the New Jersey’s, it’s going to take a while for you to sort it out and see where it ends up because you’re getting double pinched. You’re getting pinch with, you’re not sure how the tax reformat of ’17 and getting back to your returns because you’re just now getting ready to start filing those returns. You’re not sure what the itemization is going to look like, what your full deduction is. You’re also getting pinched with some rising interest rates. Then, you’re getting a little bit of the echo effect. All the sudden everybody is nervous about the market.
Jeff Watson: I’m not panicking. I do not think this is going to be a big reset like we saw in ’07, ’08 and ’09. I don’t think it’s going to be that. I think this is going to be everybody catches their breath and then moves forward.
Julie Clark: I think so. I agreed. The best you guys can do wherever you’re listening from because we have do listeners from across this beautiful land not just in Seattle, is make sure you’re connected to your local real estate investment club, your local real estate investment club, because that’s where you’re going to find out that information. You guys should all be sticking together like we do here in Seattle and helping each other.
Julie Clark: I’ll say, I did as I shout it out on our Facebook page last night for Seattle Investors Club that I make it to point to check in with Redfin agents. Redfin is pretty predominant here in the Seattle area. Whenever I got the chance to talk to a Redfin agent I deep dive with them and I find out, “What’s going on all you guys? How busy are you?” Because they represent a lot of buyers.
Julie Clark: I was able to have one of those conversations last night. For those of you that are members of the club, check out. I went into detail on what the response was from her. Basically she said they’re busy as ever, so that gives us all some hope that things are picking up in the pace will pick it up. Go check out that post on our Facebook page so we can keep moving on here.
Julie Clark: Let me ask you another question. Some investors here in our market, Jeff, instead of wholesaling and assigning their contract and I think this is due to our excise tax that we have to pay which is 1.78% of the purchased price of homes can get pretty expensive because an inexpensive home is $500,000 here, if you can even find one, that they instead of assigning the contract they sell the LLC as a way of … The LLC is a party, is a principle and a contract and they sell the LLC as an alternative to assigning a contract. What do you think about that?
Jeff Watson: I have a lot of thoughts on that. I’ve given that same strategic advice to other individuals in various transactions. I can tell you that idea has already been thoroughly look at in states like state of Florida and they’ve adapted their laws and said we’re still going to collect our doc stamps on both transactions because we know maturely what’s going on because we’re going to look through what you’re doing and we’re going to look to the real intent of what happened.
Jeff Watson: I will tell you that from a property tax standpoint, they’re looking at it in other escapes just make sure that the taxman gets his whole revenue. The other thing I’m going to tell you is if you’re going to do that, particularly if you’re part of the transaction of either buying or selling the LLC, you want to make sure that that LLC was only created for the purpose of buying that particular property and that the organizational document say so on the estate website and that the operating agreement said so in the operating agreement. You’re going to want to make sure that there’s a representation and warranty and indemnification language from the seller to the buyer that survives the closing for at least a year. If I’m in that deal, that’s what I want to see.
Julie Clark: Well guys, I’m going to tell you we’re not going to deep dive on that today, but you might want to push rewind on what Jeff just said and listen to that again if that’s a strategy that you’re using, re-listen to what he said and maybe we’ll do a deeper dive on that another time. I’m going to keep tract here because we don’t want to keep our man here forever, even though I like to. Keep on tracking here.
Julie Clark: Let me see what else I got here.
Julie Clark: Let’s say wholesalers, the way they can get in trouble also say some ways that I’m aware of, they have contract terms that are terrible and don’t show their intention to close and so forth. We’ve already talked about.
Julie Clark: Another big way is marketing. Marketing both to sellers to get a deal in the first place and marketing once you have a deal under contract. I mean you could literally correctly put a deal in our contract with the correct language in terms and your contract and do everything correctly. Then you could still screw it up because you market it wrong, right?
Jeff Watson: Right. Absolutely. Let me talk about marketing on both ends because I know we’re running out of time here. Let me hit this quick.
Jeff Watson: Marketing on the front end, make sure that your talk matches your walk. If you’re out there with sings and marketing saying, “I buy houses. I close quickly. I pay cash.” Then, you better be closing on some of your deals, you better repay and you better be fund and you better be closing.
Jeff Watson: If you get a property under contract and you do not yet own the property, you have not close on the deal, you do not, I repeat, you do not have the legal right under any state I’ve seen to sell the property, to market the property, to advertise the property in a public manner. You don’t have the right. You can only market that which you own. If you have a property under contract you can only market the contract.
Jeff Watson: It varies from jurisdiction to jurisdiction as everybody’s got their own little interpretations. Ohio is different than Florida, Florida is different than Illinois, Illinois is different than Washington, and so. They’re different from Colorado. There’s subtle nuances. You can market what you have and that’s the contract and then you got to be careful how you market the contract that you’re not really advertising the house.
Jeff Watson: The rule of thumb that I’ve seen that the general principle that I’ve seen is you’ve got to say, “Contract for sale. A 32 in the XYZ subdivision 1800, 2200, whatever square feet it is.” Then, what are you going to sale that? What are you willing to sell that contract for?
Jeff Watson: The purchase price of the property that you got it for plus your fee above it. You can do that as a way of bringing in a potential buyer for a double closing, you can do that for a way of bringing in someone to just assign the contract but until they’ve raise their hand, until your perspective buyer has raised their hand and says, “You know what? I want that 32 in the Huber Height subdivision that’s got 2100 square feet under heating air. I want that property.” Then they’re like, “Okay. Great. Show me your proof of funds and then I’ll share the contract with you.”
Julie Clark: What that means guys is that 99% of you are totally doing this wrong. You’re blasting it on our Facebook communities, talking about a property instead of a contract. You’re putting the address on there. You’re putting the photos on there. None of that can happen. I’m going to make it real clear to you all right now. All of those posts get deleted off Seattle Investors Club. We might not be right place for you to wholesale your deals because we don’t allow that. They will be deleted by me immediately.
Julie Clark: Let me ask you a question because lots of people try and blast their deals through real estate investing club Facebook communities, let’s say. They’re not the owner of that community they are the just member of that community. If I allow that Jeff as the owner of that Facebook community and allow that to go on and like I said, I was the owner of that community, started that group. Is there any recourse on me or is it just on the person posting?
Jeff Watson: Well, there’s a little bit of recourse on you. You could have the uncomfortable visit from a badge carrying, weapon totting investigator saying, “We need access to your membership and here’s subpoena to give it to us.”
Julie Clark: Got it.
Jeff Watson: I don’t know if anybody that runs a Facebook community group that wants that experience.
Julie Clark: No, I don’t.
Jeff Watson: I haven’t met anybody out there yet that says, “You know what? I love getting subpoenaed. I love having investigators show up on my office. I just love compliance with that kind of stuff.” Have not met anybody yet that wants that. That’s the easy version.
Jeff Watson: I’m sorry?
Julie Clark: Yeah. I mean that is rampant. I think that that is happening. I’ll be talking to some of my friends that I love that have other Facebook investing communities that I know off just to remind them. I think they just don’t know. I just wanted to make a point to that and ask you that specifically so I can help them help themselves because we’re already … Does that [inaudible 01:11:33] with us.
Jeff Watson: Let me go to the next step though because there’s going to be somebody, and I’m just picking that prototypical, “Yeah but I’ll never get caught.”
Julie Clark: Yeah.
Jeff Watson: You really think that what you put up on Facebook isn’t public and isn’t permanent? You have just created for the public to see especially the investigators to see, the regulators to see your evidence, irrefutable evidence of your deliberate violation of your states real estate licensure laws. Because you’re acting like a real estate agent or real estate broker, real estate licensee and you’re marketing for sale a property that you do not own and for which you do not have a exclusive listing agreement that says that you as an agent or licensee may market that property.
Jeff Watson: You’ve just put it put there for the whole world to have whenever they want it. Man, you just put evidence out there that can be used to hang you.
Julie Clark: Right. Low hanging fruit don’t do it. I’m going to keep tracking here because you guys if you have follow up questions in all this, I’m telling you I study like … This is the number one thing that I study and you guys are welcome to ask me these questions as well. If I don’t know, I’ll be asking Jeff. Make sure to spend a lot of time on this.
Julie Clark: Let me ask you a question though. That post on social media, “Hey everybody I’m a wholesaler and so and so. I get deals all the time. Who wants to join my buyers list?” Is that okay or is that wrong?
Jeff Watson: Well, it’s a lie.
Julie Clark: Yup.
Jeff Watson: Okay. It’s a lie. I’m not sure I’m comfortable doing business to anybody that just lies as part of their marketing campaign.
Jeff Watson: The second thing is-
Julie Clark: Well, [crosstalk 01:13:22]. I mean, it’s a way to grow your list.
Jeff Watson: There’s a legitimate way to grow your list. My response is the best way to grow your list is to go, “Hey. If I get a good deal in such and such a neighborhood, would you be interested?”
Julie Clark: Right. Yeah. A blanket blast.
Jeff Watson: Than a blanket blast because let me put it to you this way. You’re not looking for a thousand people on your buyers list. You’re looking for 25 people that you know can perform.
Julie Clark: That’s a little bit of a mic drop moment there, Jeff. That is what I say all the time. I call it the dirty little secret of wholesaling. That wholesalers you don’t really need a big list, you just need a good three to five buyers on your list that you know very well, you know can perform. That’s the dirty little secret about wholesaling. All these videos and podcasts about growing these giant lists, I mean, lists are important for other things like marketing or coaching, and other reasons but as a wholesaler it’s not crucial to have a huge list if you know who’s on your list.
Jeff Watson: Exactly. I make my list 25, 30 people because some of the people that I know, they are landlords.
Julie Clark: Yeah, valid.
Jeff Watson: They’re looking to pick up one or two quality properties a year. The rest of them are rehabbers. They’re so busy running their rehab crews that they don’t time to market for their deals. Okay. Great. Fine. I can live with that.
Jeff Watson: But to say I’m just trying to get it to people who they are legit, they can perform.
Julie Clark: Word. One other question as we wrap up here. We get close to wrapping up.
Julie Clark: If I have a deal under contract legitimately, it’s all good. We’ve all listen to Jeff Watson. We’ve all done what we’re supposed to do. Now, as far as marketing goes we know we’re not going to do that by saying we have a property for sale on social media. We’re allowed to say we have a contract for sale without any details or photos or addresses or anything like that. Side note, can we advertise that contract for sale on Zillow or Craig’s List or something like that?
Jeff Watson: Yes. As I believe you can on both … Well, that depends on Zillow’s rules but Craig List you can. Craig’s List yes, you can. Zillow, I’m not up to speed on their little rules. I’ll tell you I’ve-
Julie Clark: If you’re a real estate agent in the state of Washington and you have a wholesale contract that you’re marketing, you might feel like, “Hey. This isn’t a property, this is a contract and I’m not acting as a broker, but the MLS and those that care might see differently,” just as a heads up. It really doesn’t matter what you think it matters what they think and all of this. It doesn’t matter what you think, it matters what they think. You just put on a spotlight on your back.
Julie Clark: Again, if you have a good buyers list that shouldn’t really be necessary. Then, I’m not going to talk about it today but our local MLS in Washington State actually will allow you to list a wholesale contract on the MLS. There’s complications that come with that but if there’s a path to do so and it’s allowed. If you want to know more about that hit me up offline here so we can keep on tracking.
Jeff Watson: Yeah. Yeah. That’s interesting to know because I’m currently physically present on the state right now where some of the MLS systems allow you to put contracts on and some do not. It depends on the MLS board rules. That’s cool.
Julie Clark: Yup. Yup.
Jeff Watson: That’s cool.
Julie Clark: Let me ask you-
Jeff Watson: All right.
Julie Clark: Once I have a deal under contract, I can email that out to my private buyer’s list not social media just my private buyers list. What’s the definition of a private buyers list? They have opted in specifically for me to sell, not sell but to show them properties I have under contract. Can I have photos? If it’s my private buyers list, can I have photos in that? Most people are going to use like Dropbox and have a link to them anyways.
Jeff Watson: Wow! Man! Man! You’re going to straight for the gold.
Julie Clark: Well, that’s the important step here at the end, right?
Jeff Watson: Wow! I’m going to drop this gold nugget bomb. All right.
Jeff Watson: Here’s the ideal scenario. Your private buyers list is made up of people who have attended social events that you have hosted where you are there to meet, greet, and vet potential buyers so that you-
Julie Clark: Hosting or attending? If you attend a local-
Jeff Watson: I’m sorry?
Julie Clark: Hosted it or attended it? Let’s say you go to somebody else’s meet up full of investors and you one-on-one network, does that count as … That counts, yeah?
Jeff Watson: That’s fine. That’s fine.
Julie Clark: Yeah.
Jeff Watson: I’m just going for the gold. I’m going to the gold. I’m talking as if you were a big player, big dog player in your market already and people know that you’re the guy. That they know you’re the gal. They know that, “Man. If Julie gets this deal, it’s a screaming deal. I got to move fast.”
Jeff Watson: I’ve told other clients of mine, host events, broadcasting events invite anybody and everybody that wants to be on your buyers list to the event. Vet them, screen them, meet them, shake their hand, get a gut feeling on them, ask the question, “Hey. If I get a good deal under contract in a neighborhood that you’re interested in, how quickly can you close?”
Jeff Watson: Look him in the eye and behold in their hand as part of the hand shake when you ask that question and just see what they do.
Jeff Watson: Now, a guy like Joe can get away with that easier because he’s got a vice like grip and he’s not going to let go until he get the answer he wants, okay?
Jeff Watson: That’s a screening tool that I’ve told some of my clients to use. Then only those people get added. Now, here’s why I told some clients do that because it weeds out the want-to-bes, the whiners, the donut eaters and the dreamers but it also weeds out the investigator that’s looking to see what you’re doing.
Julie Clark: That show up to the meetings, maybe. Who knows?
Jeff Watson: It’s hard for them to get permission to show up after hours to a meeting and be able to prove to you through a proof of funds letter that, “Yeah, I’m ready to go.”
Jeff Watson: I’m going to tell you. I’m going to tell you right now. If you’re one of these, you think you’re cute wholesalers and you got this big list, I’m going to tell you. Your list has been infiltrated by somebody investigating you.
Julie Clark: Yup. Let’s say good business practice there guys. Let’s say though now, you’ve got your lists. All these are legit people. They’re on your private list. You’ve met them the right way. You’ve had Joe shook your hand for you. Now the rules, can I give the address in that email that I send out or do I need to make them click through and raise their hand to a second step in my private-
Jeff Watson: Here’s what I would do. Here’s what I would do. I would give them the general idea of where the property is located and one of the little tricks I’ve seen is they actually includes photographs of the property in the contract to where they documented the condition of the property via photographs and part of the contract says that the property at closing will look like this and then there’s photographs.
Jeff Watson: “Seller warns and presents that the property will be in the condition as describe and attachments one through four,” and there are four photographs that are attached as one through four.
Julie Clark: Interesting.
Jeff Watson: There’s a gold nugget right there. Client came down on the floor folks, pick it up put it on your pocket.
Julie Clark: You’re not actually ever sending anybody a specific link to photos. It’s just part of the contract that they get to review as part of their decision to buy?
Jeff Watson: Yup. You could do that process, yes.
Julie Clark: Interesting. Boy, [crosstalk 01:22:45] today.
Jeff Watson: Well, I hope they did too because I just gave them a good one. Just the way of doing this business legit, it’s just the way of doing this business legit because there’s a legitimate reason they have those photographs in the contract because the sellers warranting and representing that they will deliver the property and the condition as represented in attachments one through four.
Jeff Watson: We got to use it. We got to write a contract that’s specific for that property. We can’t shotgun 57 contracts out through some auto blaster program. Yes, that’s right. We got to write a contract specific for that deal.
Joe Bauer: Oh. Wow! We got to work. How about that? Okay.
Jeff Watson: Yeah. Just some nuggets there.
Jeff Watson: Julie, on your private buyers lists you can treat them a lot differently. You can give them a lot better information access as long as you make sure that they know. As long as you make sure that they know. “Hey, do not share this. If you share this and I find out, you’re off my list.”
Julie Clark: Right, got it.
Jeff Watson: “This is confidential. For your eyes only.”
Julie Clark: Private communication only not for public distribution. There you go.
Jeff Watson: Or private redistribution.
Julie Clark: Right.
Jeff Watson: Not for public examination or private distribution.
Julie Clark: Final question of the day. Mr. Jeff Watson, I promise I’ll let you go because this is a big one right now. Final question, everybody.
Julie Clark: We are having a massive, and I know this is one of your favorite not favorite topics. We have a massive, massive problem right now in Washington in the Seattle area marketing which covers many counties, of crappy, co-wholesaling, busy training kit that is so out of control that we need to give everybody a beat down and slap down right now if you think appropriate, Jeff, on why that is bad news. Then, I guess I’ll back it up with, is there a way to do it properly if things are done ahead of time, agree to all ahead of time before any properties ever found. Is there a way to do it or is it just no way to do it?
Jeff Watson: There is a legal way to premeditatedly plan out a legitimate joint venture relationship that is established before the properties put under contract to allow more than one party the right to market the property because they’re participants in the contract. No problem.
Jeff Watson: It’s done premeditated. It’s done in advance. It’s done with both parties having reputable skin in the game. But this sleazeball co-wholesaling stuff is illegal, it is wrong, and you will get shut down. The fastest way that I know how to deal with it is to simply put, “Are you the true owner of the property? Do you really have it under contract?”
Julie Clark: Right.
Jeff Watson: What you’re going to find and I’ve seen this happen over and over again, is you’re going to find that there people are out there [selling 01:26:10] stuff that they don’t own, selling stuff that they don’t have a contract on hoping to find someone willing to pay even more money then turn around and scramble back and go to the person who’s marketing contract and going, “Hey, let me get on this deal with you because I think I can sell it to somebody else so we can both make money.” That is so wrong. That is so illegal.
Jeff Watson: I could spend a whole another podcast with you guys just on the right way to collaborate on deals versus the wrong way to collaborate on deals.
Julie Clark: Word. But the word is today guys, whenever you are looking at purchasing a wholesale deal I guess it will come from the investor side who’s buying, make sure you ask that question which is … Resay it again, Jeff. “Are you the principal on this contract or are you the underlying-”
Jeff Watson: Prove to me that you’re the principal party on this deal.
Julie Clark: Right. As far as any type of predetermined joint venture thing, do both parties need to be a principal in the written contract or can there be a joint marketing agreement on a marketing of a contract where one person is a party to the contract and the other person’s just their marketing partner if it’s … I get what you’re saying. Most people-
Jeff Watson: They got to have skin in the game, they cannot just be a marketing partner. They got to have skin in the game as a buyer.
Julie Clark: Got it.
Jeff Watson: They got to be a buyer. They got to be on the contract as a buyer signed and acknowledged by the seller as a party to the transaction.
Julie Clark: Now, does that party to the transaction have to … That would say that for another day. That is a deep conversation right there. I won’t even bother asking you [crosstalk 01:27:57]-
Jeff Watson: We’ve gone long but we’ve got enough stuff that we’ve just touch the iceberg on that we can do a whole another podcast to the same length when it just comes to collaboration on these kind of deals.
Julie Clark: That’s right. We are certainly, I will request, I will beg you that we do that on another day so we can cut you lose today because we’ve run over an hour here today already because this is the number one podcast that we have ever done. I hope you guys all appreciate and take this all very seriously how important this is. We will continue to grow our relationship with Jeff Watson and continue.
Julie Clark: He is my number one go to source for how to do things the right way and tribe here at the Nuts & Bolts of Real Estate Investing in Seattle Investors Club. That is the mission of our tribe is to do things by the rules. If you want to be playing along with that tribe, join us.
Julie Clark: If you guys want to know more about him, I’m going to wrap it up here, more about Jeff Watson and follow along yourself probably the best way to do that, Jeff, correct me if I’m wrong is to jump on his website which is Watsoninvested.com where you can get access to all good things, Jeff Watson. Sign up for his blog, notified of events he’s getting involved in. I highly recommend it. It’s going to be the number one player on your team. Hopefully, I’m number two and be on that, Joe?
Joe Bauer: Yeah.
Julie Clark: Jeff, you have anything else to add before we cut you lose?
Jeff Watson: When you go to my blog, watsoninvested.com thank you so much for mentioning that, you will have the opportunity to sign up for my buy weekly email newsletter where I just handout content drip by drip by drip. I’m doing a series right now on wholesaling and closings and all that stuff. I can tell you, I am rocking the boat. I know that when I send out an email to my 15,000 or so readers and I get three gurus to respond back to me, I know I touched a soft spot. I know I got somebody. I know I got somebody’s detention.
Julie Clark: Yup. Be on the forefront of this, guys. You don’t want to be on the tail end and finding out this information. You are a ding dong if you don’t take our advice and get on Jeff’s world through watsoninvested.com and all these other.
Julie Clark: Joe, where can everybody find all these … We’ll also be putting a link to your website in the show notes. Is that right, Joe? Throw at us here.
Joe Bauer: Yeah, absolutely. If you guys are driving around or whatnot listening to this, you can get to the show notes at seattleinvestorsclub.com/63. That’s seattleinvestorsclub.com/63. If you guys like this at all, we would love it if you go to our iTunes page and leave a review and hit the subscribe button which is totally free and you can find that by seattleinvestorsclub.com/iTunes. All right, guys.
Julie Clark: As a side note, guys, anybody who’s listening Seattle Investors Club offers free local coaching biweekly masterminds on Tuesdays and Thursdays. Probably the easiest way to get involve with that is go to seattleinvestorsclub.com and get that information or jump on our Facebook page at Seattle Investors Club where we make all those announcements. It’s free to join our Facebook page. Come join us, 12:00 to 2:00 p.m. every Tuesday and Thursday and learn from, like I said the tribe who likes to do things right.
Julie Clark: Jeff, we cannot thank you enough for taking all this time today. Joe and I, I’m going tell you what it is but we have a little gift for you. Joe, do you know what I’m talking about?
Joe Bauer: Oh, yeah.
Julie Clark: Yes, but we’re not going to tell you, Jeff, what that is today and hopefully you’re going to like it. You’ll know when you get it. That is from Julie and Joe at the Nuts & Bolts of Real Estate Investing.
Jeff Watson: Awesome. I’m looking forward to it. I have immensely enjoyed my time and I’m going to flat out tell you, folks. Those were the toughest, most thought out questions that I have ever been asked on any podcast interview when it comes to wholesaling, real estate investing or anything else like it. Julie, kudos to you for some really good questions.
Julie Clark: Thank you. I’ll wear that as badge of honor. Right on, guys. We’re over and out and we’ll see you soon.
Jeff Watson: Peace and thank you so much.