Episode Transcript
[00:00:00] Speaker A: Welcome to Elite Agent Investors where we talk about next level tools, tech and tactics used by the top 1% real estate professionals. I'm your host, Pete Thorpe. You can find me online@Pethorpe IO. We bring active agents, professionals, brokers, investors and marketers all to share their most advanced marketing tactics. Today's episode is sponsored by Real Fuel. Powered by big data, Real Fuel analyzes thousands of data points to surface leads that are likely to sell in your chosen market.
So today we have a guest, Steve Franco from Kingston, Pennsylvania. And he is a little bit of everything. Steve does, lending, investing, brokerage, coaching across the board. He pretty much handles everything in the space that we all like to handle. We do a bit of ourselves. We'll eventually get into the lending side. We're not quite there yet, but we will be. So, Steve, welcome to Elite Agent Investors.
[00:00:55] Speaker B: How you doing? Yeah, thanks for having me.
[00:00:57] Speaker A: Fantastic. So normally all our listeners know that we start off with a question about the one thing that has helped you improve and increase your business. But today we're going a little bit different.
[00:01:07] Speaker B: We're going to go with a few.
[00:01:08] Speaker A: Things for agents investors to look out for and avoid, especially since you've got a lot of experience across the board there. So the first thing we're going to cover are what are some of the common mistakes that real estate investors make when running numbers and how can they avoid them?
[00:01:23] Speaker B: So you've got to first decide what you're, if you're doing commercial, you're doing self storage, you're doing mobile home parks, those are different categories that I can consult on. But those are going to be a little complicated here. If you're doing one one through four units or more simple deals, more smaller deals, your first thing, is it a rental or a flip?
If it's a flip, I'm actually debating right now whether I'm going to loan $130,000 to somebody on a flip because the ARV is only around 200 and by the time you pay off the lender and this, that, the other thing, let alone any rehab costs, those numbers don't seem great.
So as much as I want to help this, this borrower and he's got a lot of different deals with me, is you have to look at every deal and say, okay, this doesn't meet flip numbers any. Whether you're the investor or you're the lender, that's the first thing. If it's a rental, your whole, your numbers are totally different. You have to take into account, and no one likes to do this and most investors don't. Maintenance, vacancy management. One of the reasons I've focused on my brokerage firm the last five years is because over since COVID there haven't been any deals around here that are worth buying.
I went into Covid about 30 units. I sold about 20 of them because people were offering me what I thought was stupid money compared to what I had the mat. And you know, if I'm into a property for 30 and you want to pay me 250, kind of hard to say no to that.
And I said to them, I said, just so you know, the mortgage that you know is not going to get paid by the rents, your rents, your mortgage payment exceeds the rents, let alone your taxes and everything else. So like, I don't know where you're coming up with this ferry money and okay, I'll sell it to you. So really that's the first mistake. The second mistake is not using professional teams, whether it be contractors and building inspectors to come up with your repair estimates. Whether it be a professional lawyer or realtor or someone to write the contracts and watch the contracts.
But you know, don't expect, you know, all this and along with that, make sure it's an agent or a lawyer or a broker or whatever. Doesn't have to be a realtor. It has to be, you know, somebody qualified that knows the sector. My first and third buildings were bought with this cute little agent. She was so sweet and so friendly and so nice. But we'd read one book on real estate investing and she'd never done any real estate investing at all.
So it was, yeah, you can open the door for me, but you can't open the door on any knowledge.
And the third and most important thing is all of your projections before you buy should be as hard and negative as possible.
[00:04:10] Speaker A: Yep.
[00:04:10] Speaker B: If you think you're going to sell this flip from 180 to 220, assume 180. Don't assume 220. Especially in a market like now, which is going away from a seller's market. If you think your repair costs are going to be 50 grand, add 10.
If you think your holding costs are going to be about add 10, add 10. Always make it worse, you know. Well, I hear people in this market, and I heard this yesterday from a buyer who wanted me to work with them. And I said, listen, you're telling me a three bedroom apartment's gonna rent for 1650amonth in this town? I said, I own and manage 60 rentals. Not one of my three bedrooms is rented for 1650amonth.
I said, just, no. I mean, if you want to be stupid and you want to make an offer and you want to buy, great. But I'm going to see you in foreclosure court after I collect my commission.
So, you know, don't say, I mean, are there people out there in my market getting 1600amonth? Yes. Are they ending up in eviction court 2, 3, 4 times as often as I am? Yes, probably so.
[00:05:12] Speaker A: Yeah.
[00:05:13] Speaker B: Just don't, don't go into it assuming roses and realize your first couple years, if you're owning a rental and I have it with one of my new ones that I just bought, that's what I'm going to find out. The sewer clog. The sewer is mostly backed up and that's going to clog. At the worst time. The grandpa ran the water pipes outside the siding and all of a sudden they froze. You know, your first couple years are gonna suck. There's just no way around it. Yeah, you'll.
[00:05:36] Speaker A: You'll learn really fast. Any deals that we go walk, we usually have one of our trusted contractors go with us because we'll walk through and say it's gonna be about 30. And he'll usually come back and be like, now it's about 55. Because ABCD, we. I have a client right now that he lost a deal that he was having a hard money lender on and they couldn't come up with any new comps and they were worried about tariffs for lumber because the price of lumber kept going up and up and up. They're like, I can lend you X, but it looks like it's going to be Z at the end of the day. And I can't justify Z based on what's out there right now. If the prices stabilize and wood's going to be what it's going to be, then we can do it. But with the uncertainty, they didn't want to lend. So I can see that being a big issue there.
[00:06:20] Speaker B: Yeah. And the other thing, unfortunately, this is not at all political, but the reality is with the government changing so much, there's no other way to say it, we don't know if our people who are living off Social Security are going to have that income in three months.
[00:06:35] Speaker A: Yeah.
[00:06:36] Speaker B: We don't know if our people who are in industries that are going to be hurt by the tariffs or are people in industries who are depending on exports to what used to be our forever allies and no longer want to take our crap.
So, you know, I, I have, I'm I'm about to build two self storage facilities and I'm, you know, looking into investing in, you know, what would previously very stable industries pay, you know, loaning money to, for pilots or, you know, for pilot student loans or you know, self storage or whatever. And I'm doing it because I'm kind of pretending like nothing's changing, but the reality is attention. We don't know what's going to exist.
[00:07:13] Speaker A: Yeah, yeah, it's, it's very fluid right now, but let's put it that way.
[00:07:18] Speaker B: Yeah. You know, and so I mean self storage, self storage, mobile home products have been locked solid for the last 50 years is what two of the best sectors.
[00:07:26] Speaker A: Y.
[00:07:26] Speaker B: Well, if people can, if people lose their basic income, then they're just gonna let those, those units go empty and unpaid, you know, mobile home parks. Okay. That's kind of for people who don't have a lot of money. So that might survive. But like that's the other thing. And you know, I mean I'm not saying it changes your philosophy, but it also certainly says, hey, maybe I shouldn't count on the highest rate. Maybe I need to survive on a thousand a month instead of 1200amonth, you know, because you'd rather be overly hard and then discover things are better than the other way around.
[00:08:00] Speaker A: Yep, 100%.
So moving, moving into the, the money section.
How can investors use private lending and financing options to fund these deals? If. And what are some of the creative strategies they can use, especially given the uncertainty we got right now?
[00:08:16] Speaker B: Yeah, so I mean I do private lending, a little bit of hard money lending with my funds and some other people. And I actually outsource a lot some of my money to private lenders as well. So I can refer you to private and hard money lenders as well. I'm not a mortgage licensed mortgage broker, but these are all people that I have affiliate relationships with where I can get paid and I also offer debt service coverage ratio loans which are a great 30 and 40 year product on producing rental property, you know, so you def. And then, and then, and then of course your local, your local bank and your local lender. I would say to most people when you're going the bank route, go local, don't go to bank of America, Wells Fargo, especially if you're in. I'm originally from Boston, I was in television for decades. And you know, this was the flyover market. This was the market we, Pennsylvania was where we flew over from New York to LA in these smaller flyover markets. Bank of America first Of all, they don't loan under a hundred thousand dollars. Second of all, they have no representation here. They don't understand the market. Their decisions remain, you know, somewhere else. You want to work with a lender that knows your area and understands your area and the decisions made there. Wells Fargo has an office here, but they don't make their decisions here.
[00:09:32] Speaker A: No, I think, well, spro's in Texas, bank of America is down in North Carolina.
[00:09:36] Speaker B: So something like that. Yeah. Whereas, like, okay, so, you know, for our area Fidelity, they have an office here. Their main decision is made in Providence, but Providence almost never overrules the local branch. You know, but I, I don't really prefer that. I prefer, you know, even though the banks are getting consolidated and bought out, you know, our little Luzerne bank is now owned by a group out of, like, Westmoreland, Pennsylvania or Williamport, Pennsylvania. But really, when you're starting out, always rem. Remember, you need cash reserves.
So whatever the lender is giving you, and they're telling you the rosy story, when things change and you need more money, the lender's not going to say, oh, of course I'll give you more money. The lender's going to say, our deal was X and you're not getting more than X and you're not getting reimbursed. And remember, when you get a rehab loan, you put the money out first. Like, they might give you 90 on purchase and 100 on rehab, but when it comes to the rehab loan they're going to get, they're going to give it to you after you've paid it and it's been approved. So your contractor finishes, you pay your contractor, and then the, then the lender sends out their investigator and reimburses you. And I just went through with a lender that I actually work with, and his, his investigator came out and said none of the work had been done because the guy didn't. The guy took pictures of walls and said, oh, well, there couldn't have been any plumbing done. I said, last time I checked, plumbing was behind the wall, plumbing's not in front of the wall.
And the other thing when you go to any lender is realize what you think you're going to leave the table with is almost always less than what you're going to leave the table with because they, almost all of them, especially hard money, private money, and those guys reclaim first year's interest, first year's this, first year's, that, from the money, they're giving you a closing. So you think you're getting 60,000 to closing. And they say, well, there's really $19,000 in things we're reclaiming.
And after they did that on a, on a DSCR loan I have, then they stuck me and I didn't. I'd never done DSER before, but now they're escrowing for taxes, insurance and whatever.
And that was never discussed. I found it on page 23 of the loan documents. But that's an extra 300amonth, so. Always expect things to get worse.
And as a private money lender, you know, if I like the numbers on a deal, that's a great thing about private, you build a relationship with an individual.
You've done a couple deals with me. I like the numbers. We, you know, the first deal, I might say I'm going to be 70%, you know. Second deal, okay, I trust you, you paid off. I like your numbers. Maybe I up it a little bit. I got to the point with, with one of my private lenders where I just call him up and he just, I didn't even finish the conversation. I call him up and he starts wiring the money before we've even finished the conversation.
Yeah, I mean he, he, he doesn't release for approval the money, but like, you know, he knows if I'm calling him that I've already run the numbers and he's already gotten it. So when you go to your lender so hard private money is, you're borrowing from Pete, you're borrowing from me, you're borrowing from some person.
[00:12:42] Speaker A: Sure.
[00:12:42] Speaker B: Hard money is an institution. Asset based lending, you know, able, I can't think of what. Then it's able something lending. You know, companies like that, their companies very often hedge funds and they're a little more aggressive, a lot more aggressive than your bank, then your dscr. And those two guys are totally as a base like I, I glance at your credit, but really the property better be worth it or I'm not doing the deal.
The CR is we look a little bit at your credit, but again, it's mostly the deal. It's called asset based. They're really not worried about you. You're probably signing a personal guarantee with everybody. When you get to the bank level is when they're looking as much at you and your blood type and how big your eyeballs are and whatever else you want to say. I remember the first property I ever bought.
I sat down at the closing table and this was like, I read one book and I had this realtor who didn't have a clue And I said, I don't know why it didn't occur to me before. I said, the guy at the closing table, I said, so is this a good deal? You can afford it? I said, I know I can afford it. I can write a check for this right now.
[00:13:51] Speaker A: But this is a good deal.
[00:13:53] Speaker B: Tell me it's a good deal. He's like, but you can afford it now. I realized later he actually was telling me it's not a good deal deal because he never answered the question.
The deal you can afford is not the good deal. And the b, the best deal I've ever made, several deals is the bad one I didn't do.
And that's kind of how I feel about the private lending that I'm considering right now is if I don't see the current ARV on a SE property to be well above what I'm lending, then I'm probably not loaning on it. Because even though I know the borrower, I know the intermediary, I know everybody and it's an eastern, it's a nice market.
I, if it's not worth today, the 130, I'm putting it, I'm putting it on the street 130. If it's not worth 150 easy today, then I'm probably not loaning.
[00:14:43] Speaker A: Yeah, because especially you don't know what's going to happen.
[00:14:46] Speaker B: Yeah, well, and as a private asset based lender, the borrower, and this is 100, the gallon's 100 of the money, which happens because he's done a lot of deals. Okay, fine, but he walks away. Maybe I have a personal guarantee, but he walks away. And I'm stuck with a building that's an hour and a half for me that I don't really have great information on and it's only worth about what I have into it. So my chance of loss is pretty high, you know, so, so you always go into it and that's the last thing is, you know, making sure that you have done your due diligence that you've met with, if it's a rental, local property manager in the area, what do I need to do and what am I going to rent these for? If it's a flip, meet with a local realtor, not the one selling you the house, go on Zillow. And who's the number one, you know, pretty Barbie realtor for that market in that zip code that's, you know, go, go get their advice, you know, bring the most, don't go. Well, I think I can hire Chuck in a truck for 10 bucks an hour. Yeah, you might. But get the quote from, you know, Pete's contracting and you know, license management services.
Get the higher number and maybe you can live with the lower number. And the last thing is don't ever do the. Well, I'm going to do the work myself.
You may do the work, but that's the other problem I have with this particular one is their contracting that they own is going to do the work. And I say, well, great. What's a bid from another contractor? Well, why. Well, what if these guys up and disappear?
[00:16:22] Speaker A: Yep.
[00:16:22] Speaker B: What'll it cost me to bring a third party in there?
So really the, the mistakes are always in the deal analysis. And that's why I teach this course specifically on, you know, creative money and deal analysis and other things like that. Because I know it, because I screwed it up, you know. And you know, YouTube University is, can be great. You might find a guy like Pete that knows what he's doing. YouTube University might be you find the guy who hasn't done it in 30 years or never did it. Doesn't realize that wholesaling is basically illegal in Pennsylvania unless you're a licensed agent. Doesn't realize that. Yada yada yada.
[00:16:59] Speaker A: Yep.
[00:16:59] Speaker B: So really, I mean lending is. But lending is your friend. The last thing I'll say is you will make more money percentage wise and probably more money cash compared to giving all your money to one deal.
[00:17:14] Speaker A: That's absolutely true. I'll tell you, I definitely don't do any of my own work except for I will occasionally do demo now just because I like it. But otherwise, you know, you swing this ledge hammer and tear some stuff down occasionally, but otherwise everything else I've got. We have master electricians, plumbers, the whole deal. We can do the work. I can hang the cabinets, I can do the flooring. It's not the best use of my time. At the end of the day I could be, you know, doing, doing other things, but I don't mind swinging the sledge every now and again.
[00:17:47] Speaker B: But yeah, and to your point, one of my wife's mentors in the management side of things says if something costs less than 300 an hour, unless you love it out torso, because that's what you. As a professional, you should work on your business. You should be looking for the. I mean, I remember years ago I was back in the media days, I was painting a floor in one of my apartments while on the satellite phone or the cell phone to a conference call with Samsung International in Japan.
And I mean it couldn't have been more why am I here saving myself $10 an hour when I should be sitting in office having this conversation with Samsung production, you know, you are better off finding that next deal or sleeping than, you know, doing the low end thing that you're probably not that great at either.
[00:18:38] Speaker A: This is true. All right, so, so the last one we're going to cover, we'll go a little bit back, especially since we've been talking about rentals and whatnot. So what are some of the key differences between cash on cash value and cap rate and how can an investor use those metrics to make a good decision about their investment?
[00:18:55] Speaker B: Yeah, so cash on cash and cap rate. And a lot of times, you know, we can cover separately debt service coverage ratio and also dollars per door, but cash on cash versus cap rate. So everyone says, oh, it's a 10 cap, it's a 12 cap. Now the first thing is I tell everyone when it's a rental, I take out the rent, I take out the heart, I take the rent, I take out the hard cost, I take out 30% maintenance, vacancy management or some pad that's appropriate for you that can, can cover those soft costs. And that's the number that I'm dealing with in terms of what my net operating income is. It's not just hard income minus hard expenses because someone's got to manage the building, someone's going to fix the crap when it breaks and that's going to happen. It's going to cost you money. Yep.
And I find in my area that 30%, it doesn't all go to management, but a lot of times it'll all go to maintenance the first year. And so cap rate is real simple. If Your property makes 14,000 a year and you have 4,000 a year in expenses, so your property makes 10 grand and you have a hundred thousand dollars invested in that property. That's a 10% cap rate. I'll take the pads out of it because it just confuses the crap out of everything.
So I'm, you know, I profited ten grand over a hundred grand out of my pocket. The and remember, this is algebra. And I know we've all been educated in the wonderful American education system where algebra is not our favorite thing. But it's really not that hard. If you say I'm going to profit 10 grand and I want to make 10%, 10 grand divided by 10% will tell you it's 100 grand. And that's why I love 10% as a cap rate because A, I can get 12 lending it out and I can get eight or nine other investments. So it's in the middle. But also because it's easy, I move the decimal place over one place point, I have 10 grand profit divided by 0.10 is the same thing. Multiplying it by 10 all of a sudden building is worth 100 grand. Now you got to remember it's worth that when you do the work to make it. Make that rent. If you're buying a crap hole, it's not worth a hundred the day you buy it unless it's going to make that rent the day you buy it.
So keep that 10,000 profit over 100 grand in your mind and, and then look and say if you went to it and we'll keep a simple traditional lender 80%. I'm going to make up these numbers. I'm not in front of a computer. But okay, so 80% means I've got 20 grand on the street instead of 100 because the bank has put in 80, I put in 20.
Well my profit all of a sudden is now only $2500. $3500. Let's, let's say my profit is 3000 a year instead of 10.
Okay, so I've made 3000 on 20, which is a higher percentage than 10, number one. And now if you multiply three by five, 20, 40, 60, 80, 100, I'm taking home. If I, if I deploy that 100 grand on five different properties, I'm taking home 15 grand.
So I'm making 15% by using a bank's leverage.
So your cash on cash is simply a comparison of, and if there was no bank, your cash on cash and cap rate are basically the same because all of your money's in one place. Right, but your cap rate is the 100,000. Doesn't care where the money comes from.
So 10,000 profit over 100,000. That 100,000 could be bank, it could be an inheritance, it could be, you know, fairy dust, it could be whatever you want.
Like for example the self storage facility that I'm putting together. Half a million of that is coming as an in kind contribution in terms of partnership from the people who own the land.
I'm not buying the land from them, but they're still part of my debt and they actually.
So like your cash on cash is the dollars that came out of your pocket versus the dollars that went back into your pocket. Your cap rate is your, your top profit over the amount of dollars in the door from any source Whatsoever.
And pretty much that's the reason where I look at people in Philadelphia and I grew up in Boston and they're making 3, 4, 5, 6%.
And I say, why would you bother? First of all, you're not keeping up with inflation.
Second of all, one of my army clients told me one time, why does he invest here when he doesn't live anywhere near here? He's still, he's still active duty. He's like, because it's really hard to make a 10 or a 12 become 0. It's really easy to make a 3, 4 or 5 become a 0.
And so you want to invest somewhere that has a good enough return that when BLEEP goes bad, you have, you have the coverage.
[00:23:39] Speaker A: Well, if you've got that diversification too, across five properties, you're less likely to lose it all in one shot.
[00:23:45] Speaker B: Yeah, exactly. So, and, and to your point, this is the reason I, and I have four or five of them, I don't like, I don't go seeking them, but sometimes they end up in my portfolio because other stuff doesn't pan out. But I don't like singles. Where I don't, I like, no, I also don't like fives and sixes. I don't like smaller things with common areas because in the, in the doubles and triples where everyone has their own door, they have a sense of ownership, they will shovel their own whatever in the fives and sixes of the common hallway. First of all, they about everybody else's smoking weed or cooking curry or whatever. And second of all, they don't clean the common area, they don't do the snow, they don't do the ice, even if at least they just don't do it. But I don't like singles because again, I do them. But when I lose a tenant in a single, that single stops paying rent. I'm 100% without rent.
[00:24:35] Speaker A: Yeah.
[00:24:35] Speaker B: You know, if I've got a double and one of them stops paying rent or goes vacant, I can probably still pay my mortgage, my taxes, I can push back a few months if I had to. I could probably keep, you know, keep the lights on or at least a lot closer. So that's the other thing is what is your talent, what is your income tolerance on a month to month basis for how much can you take out of your pocket if goes wrong? And how likely do you want to have to do that?
[00:25:00] Speaker A: Yep, it absolutely will for sure. So I know we covered obviously a lot of ground and I know you referred back to it a couple different times about wholesaling technically being illegal. In pa you don't have a license.
Now, you mentioned something about being able to protect investors against that as well. Is that running through your brokerage or different a course?
[00:25:21] Speaker B: What's the Pennsylvania.
Sorry.
Pennsylvania just passed a law that went in effect January 4th, and it's a horrible law. It actually does not protect the consumer. I tried to work with P in the State House on how to make it right.
Frankly, there was more of an interest to look like they did something than to do it right. Yep.
But the law says, and people say double close novation. And I'm here to tell you, not as a lawyer, but I think everyone is screwed because if you're not licensed because the law says any intent to sell equity on a property you do not own, I. E. Hold Title 2 at this moment for Units 1, 2, 3, and 4 in Pennsylvania, if you. You must be a licensed agent working under a broker that allows wholesaling.
Now they just say licensed agent, but the rest of rel. The rest of the licensing says you got to be under a broker because everything.
Well, and so we do. I tell everybody for five, you don't have to be a Realtor. Realtor is a private club. It costs usually 1600 a year to be a member of your local realtor association. The law doesn't give a crap. Realtor is a private club. I, you know, most of your commercial agents, they might be realtors because it's just fun, but whatever, they don't have to be.
You're not selling a strip mall or a strip club on mls, usually the smaller ones.
So what I tell people is, first of all, for 500 bucks or less to get your class. And I reimburse you out of the deals we do for that 500 bucks every couple years to get your license. And I reimburse that, too, out of deals we do. I do a lot of reimbursing for my courses and everything else out of deals we do together.
But that will get you earning 80% to 100% working with my brokerage firm because I can legally have you do everything and guide you through it. If you're not licensed under Pennsylvania law, you can't show the property. You can't negotiate with sellers. You can't negotiate with buyers. You can't advertise the property. You can't tell people about the property. You can't. Someone calls you up and says, hey, how many bedrooms in that house? You can say, well, the website link is this. You legally can't answer a damn question.
So all of a sudden I'm stuck giving you 25%. If you just give me a warm lead. Don't send me a list and say, here, find something. Give me 25%. No, Janie wants to talk to you about real estate and you do a three way call or whatever, you connect me, I'll give you 25% if you disappear the next day. If you stay in the deal and do the pieces that I can have you do, I give you 50%.
So you're making good money even without getting licensed by tell everybody. Yeah, you're making most 50 or you're making at most a hundred.
And if you are a successful salesperson or you can close a reasonable number of deals, we can even adjust that. I just, I offered two people yesterday, I said, come on my firm and I won't charge you any percentage. You'll just pay a thousand bucks every close.
And he's like, wait, so I'm gonna make 30 grand? I said, yeah, you're gonna make 30. Well, the deal is worth 30. You're gonna make 29. I'm gonna make one. He's like, why would you do that? I said, because you close six a month.
So I have six grand a month coming in from you. And if I can get that going 5, 10, 15 times, my life gets a lot nicer because that's my, my skill set of guiding people more than it is being on the street doors.
I do okay on the knocking on doors, but I would rather help you make the most money.
[00:28:58] Speaker A: It definitely works. It's especially in, in this investing wholesaling space, even going to retail. That, that is the model that we operate off of on our, our team. And our setup right now is we, we, we look at the off market deals and if they're not good deals for investors, we're flipping them into retail listings. So we're building out doing it that way because I think that's the way the, the whole market seems to be shifting towards is, is going that route. Commissions getting compressed. You have to be multifaceted to be able to serve your sellers and even your buyers and become more of a deal architect to figure out how to make all these things work, especially with just the changes that are everywhere. Laws with unintended consequences just so they could look like they were doing something.
It's, it's all over the place.
[00:29:43] Speaker B: So yeah, if you don't do sellers disclosures and lead disclosures, there's huge fines that go along with that stuff.
[00:29:52] Speaker A: Yeah.
[00:29:52] Speaker B: And I actually just got nailed by the title company that I've worked with the longest because their underwriters now interpret 11. There's a whole five things that you have to tell the seller about the new law. That they have the rights for 30 days to change their mind and yada yada, which is the reason we're opening a non par brokerage firm. So I can use no listing agreements, which gets us around the whole wholesale law entirely. But they know this, this, this title company wants me to have people have the buyer sign the 1173 and they want someone's signature on that. They know what the spread is between A and B.
Because in this one, I can tell you, my attorney, even I were debating this law like when it first came out.
This guy has been a canary in coal mine. He's one of the biggest real estate attorneys in the. In the northeast PA area, one of the biggest commercial attorneys in general.
And, you know, we were debating whether double flows get you around it. He says, steven, really, none of that crap matters. What do you mean? He's like, if I pull you on the stand after doing a wholesale deal and because I just done a deal where I signed the guy on New Year's Eve before the law signed the guy on Thursday for 40,000, I sold it the next day for 80. He's like, I pull you on the stand And I say, Mr. Franco, you hadn't even been to the property at that point and you resold it for $40,000 more. What did you do to increase the value of that property that makes it okay that you took $40,000 away from this person overnight? He's like, I will have that jury crying, I will have that judge crying, and I may not have you in cuffs, but I'm going to have you losing a lot of money.
[00:31:32] Speaker A: Right?
[00:31:33] Speaker B: So understand. And when I went to the PAR conference the end of January as an association of realtors, the amount of venom toward a licensed broker who wholesales over the topic of wholesaling. The realtors are out to get you, the real estate agents are out to get you. They called the state and it's over. Also realize that because you're doing something not that could be considered not legal.
I see you advertise the property for 50 grand, I then know you have it for less. I go to that seller directly. Now, I wouldn't do this. I haven't done this. But that seller signs with me, you don't have a valid contract because I can show you intended to sell it for a profit.
[00:32:18] Speaker A: Right.
[00:32:20] Speaker B: So what I tell everybody is, you know, it's great to like, it's great to work around it. And that's why we offer the other option. But one of those two options, otherwise you're just looking over your shoulder.
And wholesaling is a great way. I mean, this isn't about scary. Wholesale is a great way to make lots of money. There's lots of states that don't have those rules. But the other reason I tell everyone to get licensed is because there are states that do. And I'm licensed in pa, but I can still wholesale in other states because I can affiliate with another broker.
[00:32:49] Speaker A: Yep.
[00:32:50] Speaker B: And if there's a deal that if you're not an MLS member but you are a licensed agent, there's a deal that belongs on the mls, we can refer that to a licensed agent, to a licensed realtor like me, and you make a profit. Otherwise, as a wholesaler, your card stops if you can't make a wholesale number with the seller.
[00:33:09] Speaker A: Exactly. That's what we talk about with having multiple exit strategies. So whether you're looking at novation, sub to retail listing all the various ways you can do, we have eight different ways we could sell a property. So it's really about making that connection with the seller and then coming up, as we said, a deal architect of how to architect this deal to make it work. Although now I have to go back and do a little more research here on the PA side because we were starting to pick up some properties up here for renovations and flipping. So while we're picking it up ourselves and doing the work that we were looking at, doing some wholesaling for them, now I got to go back and revisit that.
[00:33:48] Speaker B: Well, I mean, and what I tell all the national folks is, you know, just JV with us, you know, and you know, we, you know, just, just, just team up with us. Get one of your people license or don't. And obviously through our, through our, our, our unlicensed methodology, which is totally, totally legal, I've checked out my attorneys is, you know, we can play with, with a volume operator like you, we can play with the percentages because that, you know, I can pay you guys maybe more than 50 or whatever, whatever. There's ways around it potentially. But the other thing is I actually stopped a straight up MLS deal this morning that's closing on Friday and they sent over this. Basically what they wanted to do is change the buyer's name on the contract. But the document the attorney sent over without any contact from the other agent had the word novation and I stopped it cold and said, wait a second. According to PAR, Pennsylvania association of Realtors legal hotline, Ovation, sub 2, double close, yada yada. All the variations, assignment, it's all intending to profit without closing first on the property, right. Close first, then market, you're fine. Market before you close, you're showing intention. So it turns out in this, in this situation, they were just moving into a different company. Name one of their other companies. But I made them show me that because I said, I don't. This came from an attorney I respect totally. But I said, I don't quite know if that's 1173 kosher.
So. And I don't know that I want my brokerage tied to something that didn't declare 1173. This is the law, you know, so like. And I tend to be, I tend to be a little more chicken than some people. I mean, I know a lot of people, wholesalers who told me point blank, we're just going to wait to get in. And I said, that's great. You have the money to fight the state.
[00:35:33] Speaker A: I say you get. Yeah, you get bit once in the state comes after you forget about it. It's like having a Sauron's eye on you. You're. You're not getting away.
[00:35:40] Speaker B: Well, and, and think about the first people, or maybe not just the first, but certainly the first people they caught. They catch. They're going to crucify them, throw gasoline on them, burn them, crush them, and the PAR is going to call up the state and say, how much money do you want to support this case? Because the association of Realtors wants this gone. The head of the PAR legislative committee said from the podium in a meeting after I'd spoken out the day before at his other meeting about ethical wholesaling. He said, every time a wholesaler sits down to screw a client, which is every time a wholesaler sits down.
And I went up to him after, he's like, well, I'm not talking about you. I said, okay, first of all, yes, you are. But I said, second of all, you tried that exact same sentence in a room full of black people, a room full of pick your group. They would have every right to rip your arms off. Yeah, well, I wasn't talking about you. I was talking about the other ones. No, but PAR is right there wanting to, wanting to hurt this and, and, and so, and then, you know, so basically finding a way to do it legally, close on it first and market, you know, I mean, and there's Lots of some title companies are still rolling with it. Some title companies are saying oh show me your 1173 pick.
So anyway it kind of went off off long on there but I do offer training courses on this stuff. I do offer a joint venture on property, you know and also on property management and everything else. So and I you know I've done New York, Pennsylvania, Boston actually ownership of property in different, in different states. So I don't wholesale as wide as wide berth as as you probably do. But yeah, any way I can help people is great.
[00:37:17] Speaker A: Yeah, for sure. I think there at that point is a good spot where we'll wrap it up. So tell us where can people find you online if they want to check you out, get in touch with you?
[00:37:27] Speaker B: Yeah so so my, my online is is reihomepage.com or the primary one that I tell for calls like this is thewholesalebroker.com okay. I'm also on Facebook. I do most of my stuff under my personal Facebook Steve Franco My phone number text is always easier but 570-798-7051.
You know we always put our, our group meetups online. I'm going to be attaching the group meetup playbacks to the wholesale broker and REI homepage probably next week.
And you know if you're looking for lending, you're looking to team up on something, you know, you're looking for jv, you're looking for classes, whatever, you know I'm definitely here to help you. I also do one off deal analysis. You're like hey can you run the numbers on this deal?
So yeah and I appreciate you having me on and whatever else we can do. Let's get stuff going.
[00:38:21] Speaker A: Fantastic Steve, definitely appreciate it. And if you are listening now would like to be a guest like Steve was, you can go ahead and reach out to eliteagentinvestors.com and apply right there.
And one last time if you'd like to leverage some of the latest technology and marketing methods that are out there, go ahead and check out Realfuel AI where you can get some off market leads and AI scoring where they have a 271% chance of being more likely to sell in the next 90 days if their AI score is on the higher end of the scale. So thanks for joining us on Elite Agent Investors. We'll see you on the next episode.
