Why the heck would we refer to beloved faculty member Cris Chico as a “Puerto Rican ninja”?
Is it the beginning of an ill-advised and offensive joke? Perhaps the onset of some racially-motivated political incorrectness?
Hardly.
In fact, the “ninja” moniker is quite the opposite of a slur. It’s a compliment to our dear friend Cris – and a well-deserved one at that.
(Similarly, Cris is quite rightfully proud of his Puerto Rican heritage, which is downright delightful to Mogul’s multi-ethnic faculty board.)
You see, this house-flipping virtuoso recently surprised us with a few clever little “tricks of the trade” in today’s sixth installment of his ongoing series about Virtual Wholesaling.
And the more we learned about Cris’ strategic attention to “all the sneaky little details”, the more we found ourselves thinking: “This is some amazing ninja-level expertise!”
Of course, he doesn’t break any laws with this stuff, and he’s certainly not doing anything immoral, but Cris sure does know how to “get in” and “get out” of a wholesaling deal with quickness and efficiency!
But before you take a look at today’s helpful dealmaking strategies, you may want to check-out the previous five installments in this ongoing series:
And now, it’s time for today’s main course!
We join Mogul’s latest conversation with Cris right as he begins to explain how he sells his wholesale deals, after getting them under contract and contacting his list of potential buyers…
Virtual Wholesaling: How to Flip Houses like a Puerto Rican Ninja
Cris: Once we begin fielding calls from buyers, a couple of things will happen. Number one – we get a lot of interest in the property. Or number two – we don’t get much interest from the potential buyers.
If we get a lot of interest, then that's easy. It's simply a matter of coordinating, to show the property to the buyers. And my buyers typically visit each property by themselves, because they’re investors who already know the game. They already know me and my business, so we really don't have a lot of issues with people trying to go around us and snag the deal behind our backs.
But we prep the buyers. We tell them, “Hey, I'm going to make an appointment for you to see this certain property. You will probably meet the tenant, but the owner may be there too, so you should know that I’ve been referring to you as my ‘funding partner’ in each of my recent conversations with the owner.”
You see, since we’re talking about a wholesaling deal, I don’t tell the owners that we've need to get the property ‘inspected’. Instead, I say that we have to get the project ‘approved’ by my ‘funding source’. And sometimes we use two or three different ‘funding sources’, so several folks may need to visit the property on separate occasions.
And so, the buyer becomes our ‘funding source’. That way, at the closing, if the buyer and the seller ever show up together, then it makes logical sense for the seller to think, "Oh yeah, that guy is Cris’ funding source, and that's why he's here signing the papers." Conversely, if you refer to your buyer as your ‘home inspector’, then it may seem a little odd to the buyer when the ‘home inspector’ starts signing the closing documents.
So, we show the property to the buyer(s), and at that point it's just a matter of negotiating, if the buyer is truly interested in the property.
Sometimes you have to go back to the seller and get a price reduction on the property, in order to make the deal happen. If we don't have a lot of interest in the property, then sometimes we'll go back to the seller for a price reduction – depending on how much room we have to play with and how much we're asking the buyers to pay us as middlemen.
In those cases, I just say to the seller, "You know what? Unfortunately, none of our funding partners are approving this deal. They're telling us that we're overpaying, that we're paying way too much. And even at this point, they don't even want to see the inside of this thing because they just think that we're so grossly overpaying. However, if you're willing to sell for less, then I can resubmit the deal to them and see if we can make it happen."
With this approach, one of two things will eventually happen – either we'll sell the property or we don't. If we don't sell the property, then we just tell the seller, “Hey, we're not able to do the deal” – and then we just walk away. And that's it. End of story. Sometimes we get angry letters from their attorneys, but they just go into a special file in my filing cabinet.
Mogul: The file is labeled "LOL."
Cris: Yes! Exactly!
And, obviously, if we are able to sell it, then we begin the process of following through with a sale – such as ordering title work. We don't order title on the property until we have it sold.
So when we put the property under contract, we tell the seller, “Hey, we need to get the funding source approved first. Once we get the funding source approved, they'll let us know what title company we're going to use, and then we can proceed to go ahead and do the title work there.” Because we don't want to have the title company do a whole bunch of work on properties that are not going to pan out.
And, in general, we're aggressive with tying the properties up. So we might tie-up five deals and then only sell three. So it's really a numbers game. I always say that. In fact, I had a conversation with a guy recently and I told him, "If we're selling 100% of our properties, that means that we are not tying-up enough of them.”
Mogul: MmmHmm...
Cris: You know? So we don't want to be batting 100%. Personally, I'd like to be batting 50%, which means that I'm tying-up approximately ten deals per month and only selling five. And you know, it's just the nature of the game… The more chances you take, the better chance you have of success.
And, also, working with so many properties helps you really learn your markets, because then you know what sells and what doesn’t. And you can take that information with you into your next round of wholesaling deals.
And here’s another important thing…
As we're coordinating all of this, we always tell the title company that we need to review all documents before anybody else does. That way, when the buyers and sellers are getting ready to close (and let's suppose they prepared a seller HUD), we tell the title company we need to see the HUD first.
We see it first before the seller does, always. We review the HUD, and then we make adjustments, if needed. We want to make sure that whatever mistakes we find are corrected. And, you know, typically the main things we're looking for are (i) correct closing costs and (ii) a correct assignment fee, so we're getting paid and it's reflected accurately on the HUD. And also we like to tuck away our assignment fee within the bottom of the second page, so that it's nicely “hidden away” somewhere in there – where it's harder for somebody to really find it.
Mogul: Do you typically do “simultaneous close” transactions for your wholesale deals?
Cris: No, we typically use the “assignment” method. In fact, we almost always do assignments. The only time we would do a simultaneous close is if there's a large assignment fee. I guess anytime we start earning an assignment fee over $25,000 or $30,000 in the deal, then we may consider doing a simultaneous closing.
But one of the things we do is tell the buyer and the title company that the buyer needs to come in first. So we get all the documents squared away, we get the HUD, and we preview the HUD with the seller (typically via telephone).
And we really go through the HUD with each seller, and we give them that bottom line number and say, "Mr. Seller, based on everything, this is the number that the title company is going to write you at the end when all's said and done. Does that sound right?" They're like, "Yeah, that sounds right" – because that's really all they care about.
So I find that if you kind of go over that with the sellers via telephone, then they kind of know what to expect when they get there, and they're going to scrutinize everything else much less. All they care about is just the accuracy of that bottom line number.
And we also tell the title company that the buyer needs to come in first. The buyer brings his money in the morning and signs first, and then the seller comes in later and signs in the afternoon (walking out with a check). We never want them sitting across a table from each other.
And it’s not because we're doing anything illegal or bad, or anything like that, but the worst thing I have found in deals like this is idle conversation between the buyer and the seller. When those two people are sitting at a table, waiting around with nothing else to do but chit-chat, then all of the sudden you've got a call from the title company saying that the deal has unraveled.
It’s usually because the buyer told something to the seller, you know? And it all just cascades out of control. So we always keep the parties separate from coming in.
Mogul: Well, there's another facet to it also. In addition to the potential danger of idle conversation, there's also the potential danger of confusion. Because your buyers are typically investors who possess a certain level of sophistication and knowledge of how wholesaling works. But with the sellers, you're usually dealing with folks who are almost always unsophisticated and un-knowledgeable, in a general sense.
And so your sellers could become confused when they encounter this other person across the table. They’re like, “I thought you were just a lender”, you know? So many things in that situation could cause confusion, and a confused mind says “no”. A confused mind feels fear.
So, that's just another reason why you should have your buyers and sellers close each half of the wholesaling transaction separately.
Cris: Yeah.
Mogul: Oh! And as a quick aside: I meant to ask this a second ago… When your assignment fee is tucked into the corner of the HUD, what is it called? What are you naming it, typically?
Cris: We go ahead and use the term “assignment fee”. If the seller would ask, and most of the time they don't ask (because they don't really know what that is or how it works), we may explain it to them this way: “Many times, in order to facilitate the funding, we may need to switch the original contract name to another name, and we do an assignment in order to pull excess funds out of the transaction. That way, we have more capital available to us.”
Adjust Your Terminology #1 – Consider the benefits of referring to your wholesale buyers as “funding sources”.
Adjust Your Terminology #2 – Consider the benefits of incorporating “approval” terminology into your buyers’ property visits.
Preview Your Contracts – Preview all contracts to ensure accuracy and strategic formatting.
Coach Your Sellers Pre-Close – Prepare your sellers for the closing transaction by coaching them through the verbiage of all contracts.
Schedule Separate Closing Appointments – When using the Double Close method to do a wholesaling deal, schedule separate closing appointments – one appointment for the buyer and a subsequent appointment for the seller.