Transcription
Hey, it's Jerry Norton here. As a wholesaler, it's really important to understand the correlation between a seller's motivation and price. And the reason why that's so important is because once you understand a seller's motivation and how it correlates with price, you can tailor-craft the right solution for any situation.
So, what I've developed here is what I call the motivation price matrix. I'm going to break it down for you. This video is brought to you by Flipster, the nation's largest property database, including houses on the MLS and off-market leads like pre-foreclosures and vacant homes. To find your next wholesale or fix-and-flip deal, start your free trial today at joinflipster.com.
Okay, so if we take a look at this matrix here, what you see here is on the y-axis, you're going to see that high is at the top here and low is at the bottom. So this is price. Price goes from low to high. On the x-axis, this is motivation. So this is actually the opposite. It starts out with high motivation on the left and then as we go down, motivation gets lower. Okay? So there's a correlation between price—high at the top, motivation low at this end. And if we draw a straight line through here, and this is our uh seller situation.
So, as you can see here, as sellers' motivation goes up, the higher the motivation, the lower the price. Think about it. You're highly motivated to sell that property. You're willing to sell at a discount. On the flip side, if there's very low motivation, there's no urgency. There's no distress. There's nothing compelling you to sell at a discount. You can wait to get the highest price the market will pay. Well, if the motivation's low, then clearly you're going to want a higher price.
Let's look at this first quadrant here. This would be where the price is low, motivation is high. Now, in this situation right here, this is where we make our cash offer. This is a cash offer situation. Now, for this to work, there has to be high equity because they have to be willing to sell at a discount.
Now, this is the sweet spot right here. This is actually where we want to target our marketing. In every type of marketing I do, whether it's probate, pre-foreclosure, absentee owner, whatever it is, one of the filters that I like to add is high equity, because I want to start in every situation in this quadrant. And here's why. If this doesn't work and I uncover that their motivation is not as high, it's a lower motivation, which means I have to go up the spectrum on the price axis, right? I got to go up in price. I need to have other solutions for that seller. Otherwise, I'm sort of stuck. I'm very limited in what I can do. So, I want to start at the bottom here because that's where I'm going to have the opportunity for those low-cash offers. I market to that type of seller and then if I can't provide the right solution or if that solution isn't the right solution for that seller, then I've got a few other options.
So what's next? You know as motivation becomes less and it gets lower. We move this way, then price is going to be higher. This next line here is what we call a novation. So novation falls into this next quadrant up. Novation is a strategy where we're going to contract with that seller at a usually at a higher price. Then we're going to take it to market and we're going to try to find a retail buyer—usually is how novation works. And then that buyer is going to come in and we're going to novate their contract with the seller's contract and make a profit. Okay? Now, I have entire videos explaining what a novation is. If you don't understand a novation, we just closed a deal yesterday for a $70,000 novation. So none of these strategies have to do with profit. You can profit in every one of these categories as we go up obviously. So this isn't a profit thing. This is more of a situational thing.
Now what's next after novation? This would be our creative finance. And most creative finance strategies are going to fall into one of two buckets. It's either going to be subject to or it's going to be seller finance. These are sellers that are much less motivated. They want a higher price. So, why are they willing to take creative finance? Well, they're willing to wait to get some or all of their money. There's no urgency there. They want to sell, but there's no urgency. So, they're much more open to creative finance. If it's a subject-to situation, that's a low equity. Subject to is when they have an existing loan in place. Typically, we're talking about people with very low equity. They can't sell it for lower because they have a lien. There's a loan in place that prevents them, even if they wanted to, they can't sell it for lower because they have a mortgage there. So, for that type of a seller, we can offer them a subject to. If they own it free and clear and there is no loan in place, but they're not very motivated, but they want to sell, we offer them a seller finance. Hey, why don't we create a loan, you be the bank. I'll put a little bit of money down maybe and make payments to you for the property.
Now, these are strategies that we can acquire deals. We can still wholesale those. We wholesale quite a bit of creative finance, but we typically can pay a lot more. And why are we paying more? Why are we paying a higher price? Because the motivation's not there. They're not willing to sell it on a novation or they're not willing to take a low cash offer. So then that's this—this is the type of seller that we would offer creative finance.
So I hope you're seeing what's happening here. When we're on the phone or we're in person with a seller, I'm trying to uncover what is your motivation, and once I understand your motivation and where you fall in the spectrum, I can find the appropriate solution for you and offer that.
What's the fourth one up here? This would be here where we just list it. Now, caveat to this, you have to have a real estate license to do this. This is the no-motivation seller, and so they want full retail price. Now again, I don't market that type of seller. I market this seller. I want to market high-motivation, high-intent, high-urgent sellers. But let's say that someone comes through my funnel and I'm on the phone or I'm on appointment and they say, "Look, the Zillow number is 200,000. That's the retail number. That's what the open market would pay. I'm not motivated. I'm not selling at a discount. I don't want to do creative finance and wait to get some or all my money. I don't want to do this novation thing you're telling me about. I don't want to do any of that. I just want to sell it for full market value." Well, most wholesalers throw those leads away. It's like, ah, it's retail. Nothing I can do for them. Not my client. Next.
What I do, cuz we hold an active real estate license in the different markets where I wholesale, is we'll say, "Okay, no problem. I'll tell you what. Why don't we just list it for you—a 3% listing fee? We'll put it on the MLS. We'll get you a buyer and we'll help you get that sold for the highest price the market will pay, and we get a 3% commission." You know, on a $400,000 house, that's almost the same as a wholesale fee. Why throw that away? Now, if you don't want to take on the listing yourself or your team, you can always refer that lead to an agent and get paid a referral fee. However, you can't get referral fees from agents unless you hold an active real estate license.
So guys, I mean, bottom line is like, why would you not get a real estate license? Not only are they mandating it in most markets with regulation where if you're going to wholesale, you have to have one anyway, but but why not get one just to monetize it when you're providing solutions to sellers? Why say to that seller, hey, why don't you go find an agent? I'm not your buyer? Why not be able to say, hey, why don't we list it for you? Now, I'm going to put a different hat on now. I'm no longer the buyer. I'm now representing your best interest, but we have the ability to do that, Mr. Seller. Why don't we then just put on our realtor hat and list this and sell this for you? And now I'm not wasting that lead. But my goal is to be able to do marketing. I'm going to target the high-motivation sellers. I'm going to anchor low with cash. I go into every conversation hoping that I can get a low cash offer. Why there? Because listen guys, if I can acquire deals in this zone right here, oh my gosh, I got all the room in the world. I can I can buy that and it's a deeply discounted property and add it to a portfolio or fix and flip it. I like to wholesale a lot so I can wholesale that for a premium, get a big profit on that. Like that is the sweet spot where you want to focus all of your marketing.
Uh, I have a student—let me tell you a story here about this student of mine when he came through my training with FastTrack and what he was doing is he was doing subject to. So he was targeting not just creative finance, specifically subject to. He was targeting low equity. That's good for subject to, right? They don't have a lot of room to sell, so they have very low or no equity. And he was targeting agents with long days-on-market listings. He would combine the two. Here's my low-equity list. Now I'm going to look and make sure they're listed for sale, not selling, call the agent, and I'm going to pitch subject to to the agent who then has to go back to the seller and sell the seller on subject to, and then he would acquire those deals and then he would wholesale those to buyers that wanted to keep those for rental. That was his strategy and he was pretty good at it. He had done so far about 15 of those. But he has to go nationwide because what has he done? He's narrowed down a very small, super-niche strategy: low equity listed, long days on market. I gotta go nationwide because I gotta have enough opportunity. Then when I go to disposition on my wholesale side, he has to JV. So he's splitting half the profit because he doesn't have buyers in all these random markets because he's not in one market, he's in all markets. So then once he gets a good subject-to deal, he goes to a wholesaler in that market, 50/50 JV, splits the assignment fee. That's his strategy. Nothing wrong with that. Very cool. But what I told him is I said, "Dude, you've narrowed down so niche that you're going to have a very difficult time to find enough opportunity to be sustainable. I don't feel like it's a good strategy to only target that. What I want to do is I want to go right here. If that doesn't fit for some reason, I now have other solutions."
Once you understand this and you're able to provide these different solutions, there isn't a single lead that you can't technically convert—every single lead that comes in. You could convert that lead into a deal that you make money at feasibly, right? Because these are the really the only four different solutions that you can provide a seller to solve their problems. So, what I do is if I'm spending money on marketing, I don't want to waste my marketing dollars by only having one solution. I don't want to be a one-trick pony. I want to have a solution for every situation.
Now, caveat to this. If you're new to real estate and you're new to wholesaling, learning all of these four different things can be very overwhelming. There's a lot to it. These are entire strategies to learn how to do. There's a lot that goes into that. There's a lot of practice; there's a lot of, you know, you're just going to have to really deep dive each one. So, don't be all things to all people in the beginning. You're going to overwhelm yourself and you're going to be okay at a lot of things and not good at any one thing.
What I recommend is focus right here. Focus on high-equity cash offer. The reason why is because this quadrant right here is the easiest one to get your head around. You have to understand value and you have to understand repairs or condition. That's it. Once you understand those two things, you can run a formula. You can get to a low price and then you have all the options in the world. Flippers are going to want that. Buy-and-hold people are going to want that. You could buy it and resell it on the open market and make a profit. Like you could do so much with that deal. And it's the least amount of things to learn how to do. Why? Because you're just making a low offer at a big discount, and that's it. Novation, you got to learn a whole new slew of things. You got to be managing that seller while you're listing the property on the open market. You're dealing with other agents and buyers coming in, bringing the two parties together. There's a lot to it. You got to learn how to do that. Creative finance is an entire thing to learn with sell with seller finance and subject to. You don't look at one thing. You look at 10 things to determine if it's a good deal, right? Because you're dealing with entry fees and interest rates and balloons and all these other things to determine if it's a good deal. So, there's a lot to learn there, and you know, listings aren't that complicated, but it's one more thing.
So, what do you do? Start here. As you get good at that, you get comfortable at that, you're consistent at it, you're closing deals, you've got that process dialed in, you're good at comping, you're good at estimating repairs, you're good at locking up deals, and you got that good and it's it's going well, then say, you know what, I think we're ready to introduce novations to our business model. Now, I'm going to deep dive and learn that, and I'm going to look for situations where that might be a good fit, and I'm going to open that up to now offer sellers and then creative finance. I'm going to open that up and offer that to sellers. Everything in this business is developmental. So, you want to learn these things as you go. But the endgame in my wholesale business and what I recommend for you is that you have a solution for every situation.
Now, really what it comes down to is as you learn these things, you're really developing a business. Now, you're going away from chasing deals, trying to transact to now, how do I build a business? It's a business with processes, a business with team, a business that allows me to get out of the trenches and get into the owner's box of the company. It thrives without me being there every single day. I don't have to be involved in every single deal. That's a real business. How do you build that business? Well, that's something that I teach how to do. We call it FastTrack. And when you come into my FastTrack program, you're going to learn how to consistently do deals every month. Go from your first deal to doing six figures a year to doing seven figures a year. I believe if you learn how to do this well, you can be a seven-figure-a-year business, guys, making a million dollars a year or more doing deals that fit all of this. But you got to learn how to do that. You need a good coach, a good program. And so check out my FastTrack program. Just go to fasttrackwithjerry.com to learn more. Thanks, guys. I'll see you on the next video.