November 5, 2017

JF1160: The Science And Art Of Wholetailing #SkillSetSunday with Justin Colby

Justin and his team have moved over 650 homes! Today, he’ll tell us how we can profit more per deal and how to get more deals. Justin says that in order to get more deals, we need to quit being “one-trick ponies”. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!


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Justin Colby Real Estate Background:

  • Co-Founder and President of The Science of Flipping, Omni Investment Group and Phoenix Wealth Builders
  • Host of The Science of Flipping Podcast
  • Last year he flipped 96 homes and as a whole, he and his partner have flipped/ wholesaled over 300 properties to date
  • In the process of building 79 townhomes in Mesa, AZ.
  • Based in Scottsdale, Arizona
  • Say hi to him at


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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get in to any of that fluff.

With us today, Justin Colby. How are you doing, Justin?

Justin Colby: Good, man. How are you, bro’?

Joe Fairless: I’m doing well, nice to have you on the show again. Best Ever listeners, you have heard of Justin Colby, because 1) You listen to his podcast, probably; if you’re a flipper, you certainly should (The Science of Flipping), and if you don’t, then I know you listen to our podcast, and in episode JF 64 he gave his best advice ever. He’s also been on the podcast a couple other times on the special segments.

Because today is Sunday, we’ve got a special segment for you called Skillset Sunday, like we usually do. We’re gonna come away with a specific skill that perhaps you didn’t have, or we’re gonna help you hone that skill by the end of our conversation. That skill is the science and art of wholetaling. It’s a big focus of Justin’s right now.

A little bit about Justin, just as a refresher – he’s a co-founder and president of The Science of Flipping. Last year he flipped 96 homes – yes, 96 homes – and he has a partner who they have flipped over 300 properties to date.

He’s in the process of building 79 townhomes in Mesa, Arizona. Based in Scottsdale, Arizona… With that being said, Justin, just to give the Best Ever listeners a refresher – do you wanna give a little bit more about your background and your current focus?

Justin Colby: Yeah, absolutely. I think my assistant might have sent you an old bio; we’ve done over 650 homes…

Joe Fairless: Wow!

Justin Colby: We’re getting close to 700 at this point. We’ve actually sold off the development. That was good, because if you’ve ever tried to develop or are a developer, you know the headaches and hassles that come with that. So it was actually a good move for us to sell that off, but I definitely think she gave you the old one… That was definitely a couple years ago.

But things are rocking. One of the biggest things that I keep getting asked from our podcast listeners The Science of Flipping, from our students (whatever) is how to profit more per deal and how to get more deals. So obviously, you have me on the show and we’re talking about your specific trade or skill – Skillset Sunday I think you named it, and it’s a great name, by the way…

Joe Fairless: [laughs] I love alliteration.

Justin Colby: Yeah. So obviously, you and I have known each other for quite some time, so one of the things that I wanted to bring to your loyal listeners is this art of wholetaling, which is a close cousin of wholesaling, as well as actually rehabbing. The main difference here between all three – wholesaling, you tend to lock a property with the intent to either assign your contract and/or do a double-close of sorts. Rehabbing, like everyone is well aware – you negotiate a deal, you buy the property, then you add value to it by rehabbing it – maybe a new kitchen, a new roof, adding square footage, popping the top and going vertical… I’ve done it all.

Back in 2010 I started what — I don’t know if I can claim I termed it, but we started wholetaling, which is a cousin, being that I find the leads and negotiate the leads the same way, but instead of the intention of either assigning the contract, I actually will buy the property using private lenders, and then instead of rehabbing it, I don’t rehab it. I don’t put any more money into it, and I actually just relist it on the MLS.

The reason that strategy works – and it works in any city and any market… Well, I guess I shouldn’t say any market, because if it’s a downhill, a slide, like 6, you wanna be very careful. But the reason this strategy works no matter where you are is because especially right now, in a seller’s market, you can get top dollar. So one thing that everyone wants to know is how do you make more money in this industry, right? And one of my answers to that – there’s several answers, but one of my answers is stop being a one-trick pony and only wholesaling, or stop being a one-trick pony and only rehabbing. The headaches that come with rehabbing is a slow paycheck, for one. It may be bigger, but it comes slower. Dealing with contractors that don’t finish the work on time, and every other hurdle, as well as maybe the city.

The hurdle with wholesaling is you might not make as much money per deal as you actually want, though you make more money quicker and you don’t necessarily have to raise any money privately. So this is a go-between that in a seller’s market you can get top dollar. I mean, literally, we’re getting an extra 20% to 50%, even 100% more than we would on our wholesale deals.

It’s a strategy that I’ve been teaching for a small group of people, and I’ve finally kind of got the courage to bring it out to the mass public, and speak on your show, and others are interviewing me about this subject as well.

Joe Fairless: If you don’t rehab the property, then who are you selling it to? Because I imagine the single-family homebuyer, the primary residence person is gonna want something that’s ready to go.

Justin Colby: Yes, so it is not a one size fits all. We try to do — about 30% of our deals I would like to be wholetails, and that comes down to the knowledge of the market, meaning the key to this entire world is you need to know your market and what’s selling for what. Otherwise, don’t be buying properties, don’t raise money. You just need to know your market, that is the key.

But we are actually selling to other investors, and the reason why is because guess what agents have on their buyers’ list? Other investors. Let’s just make the argument – I’m gonna use Phoenix – there’s 30k (I think there’s close to 40k) investors here in Phoenix. Let’s just say there’s five buyers on each of those agents’ buyers list… Just five, no more than five. So 150k buyers – all of those buyers are having the same problem that we’re having, which is what?

Joe Fairless: Finding deals.

Justin Colby: Exactly. So I am direct to seller, no realtor knows about it, no one else knows about it, I get it under contract… Now, I have a list of 22k or so for wholesale deals (buyers, that is), well, why wouldn’t I wanna go catch 150k buyers by putting it on the MLS? I decide the terms, meaning if a realtor brings a buyer, it has to be cash or hard money; they are gonna go conventional or use a loan for it, because the home is in good condition. Then I’m gonna require them to put down a non-refundable deposit of anywhere from 10%-20% non-refundable. Their skin is in the game. They’re buying a $200,000 home, they’re coming up with $20,000-$40,000 that is absolutely non-refundable, even if they don’t get the loan. So I get to dictate terms. But at the end of the day, the people we are still selling to tend to be investors, but because they can’t find properties, realtors can’t find properties, I’m giving the market an opportunity to have a property that still has profit in it. So I’m really feeding a niche that a lot of people, especially in Phoenix, arguably one of the most difficult real estate investing markets there is… There are a lot of people — our friend Sean is here, and Cody, and so many other investors are here. Well, if they only traditionally wholesale, I have a leg up on them because I have money that I can buy the home, and then list it and get a premium and open it up to another however many buyers that I don’t even have on my list.

Joe Fairless: What would be the downside if you aren’t able to sell it wholetail basically at the retail price that you’re looking for?

Justin Colby: Anytime you are borrowing money, and whether you’re a rehab flipper or a wholtailer, or even if you buy and hold – there’s always risk, and that’s why wholesaling is such a great way to get into the industry, because it really limits your risk. So wholetailing – the downside of that obviously is you don’t make as much money. You don’t wanna use this as a catch-all; this isn’t every deal ever I’m gonna be wholetailing… This is, again, a tool in your toolbelt for the right home.

We just bought one last week for 400k, we have it on the market as of this weekend for 495k… So after cost of money – I didn’t rehab it at all – there’s roughly 10% of my sales price goes to commissions for realtors, cost of money, holding costs… It’s roughly 10%. It’s a little under that, actually; it’s closer to 9%, but I just rounded up. So after said and done, 95k minus roughly 45k – I made $45,000. I probably could have made 25k on a wholesale fee. So I doubled my money, I 2x-ed my money because I had an opportunity to take this property down.

So again, the risk would be if you don’t get it sold at the price that you want it sold, that’s why you really need to know your market. I was gonna wholesale it for 25k, and whether I got the 25k or not, but that’s where we were at, so we underwrote it for a wholetail.

So again, if you can 2x your money knowing your market, it limits your risk. Now, there’s a risk anytime you’re borrowing money and buying a property…

Joe Fairless: Yeah, and I imagine the buyers who want the loan are definitely not desirable, because even if they put up 10%-20%, your returns wouldn’t be as good, since you’re borrowing the money and you’re paying on a monthly or whatever your terms are with your hard money lender.

Justin Colby: I dictate that. So you’re right, I would prefer a cash close quick, but if they come in, they’re willing to put down the 10%-20% non-refundable, an extra 30 days, and then we’ll stipulate… I’ll actually even go — if there’s a lender here that will pay them enough, I’ll actually line up hard money until they can refi it with a bank, just to save myself. But at the end of the day, 3k for an extra monthly payment — again, so I went from making 45k to making 42k grand… I’ll take it. I’m still making an extra 20k+ over wholesaling.

It’s a very similar amount of time. The reason why I say this is I’ve rehabbed well over 350 deals, I’ve wholesaled roughly 250-300, so it’s something where I know the difference between the two; there’s huge high risk in rehabbing, because now you’re actually putting in money and creating value, and if  [unintelligible [00:11:16].03] you can be f-ed, and ask me how I know that, right…? And I love wholesaling, for obvious reasons, same reasons everyone does, but this is a great little niche that you can put in an extra 150k-250k in your pocket up and above — stretch your bottom line is what I’m basically saying here.

Joe Fairless: For a Best Ever listener who is line “Yeah, I like this wholetailing! Oh, wait… My bank account – I don’t have that money.” How do you recommend someone starting out go find private lenders?

Justin Colby: I run a training on this, but one of the tools I use… A business partner, Kent Clothier, has a tool called Find Private Lenders; I’ve been using that now since he came out with it. It’s the same type of direct mail, basically… [unintelligible [00:11:59].23] all the data for people who lent privately, meaning not a corporation, and the direct mail simply says “Hey, I saw you lent on 123 Main Street. I have a property very similar to 123 Main Street. If you’re interested in lending again, please give me a call.”

I found one lender specifically out of California that averaged over 8 million dollars with this one lender.

Joe Fairless: Through direct mail?

Justin Colby: Through direct mail. That data, again, Find Private Lenders now packages it, but that’s all public data; you can absolutely go down to the County Recorder’s Office and pull all that data for yourself if you would like to do that. I’d rather spend $1,000 and find private lenders now. [unintelligible [00:12:38].27] it’s as easy as knowing who you’re talking to, and one of the things that everyone’s biggest hurdle is “How do I raise money? I don’t know…” – if you don’t actually go ask for it, you’ll never get it, and most people actually never go talk to people about opportunities in real estate, because they’re scared, quite frankly.

They might be marketing, they might be wholesaling and you’re making some money – well, if you can take that one wholesale deal and show that to someone who might have some money… Maybe they have a savings account, maybe they have a self-directed IRA, maybe their family is rich or whatever, to say “Here’s an opportunity – instead of throwing it in the stock market…” I have a whole presentation about this that I can give your listeners if you guys would like; I call it a Private Lender Packet, and you just present it. “Here’s 123 Main Street. Here’s my purchase price. Here’s the sales price. Here’s the mortgage I’d like to borrow money at 10%. Here’s the mortgage layout. After two months I would owe you this, three months this, four months this… Blah-blah-blah. Here’s how you’re protected with a note.” The main key here is they want protection.

It’s not even as much about how much money can they make, it’s how is my money gonna be protected so I don’t lose it, because in the stock market it’s not protected. So in real estate we have a way to protect them, and if everything goes to hell, then they at least have an asset which is real estate. So it’s about educating them if they’ve never lent on real estate, but once you do and someone has done it once, they have an itch for it. I promise you right now, because shows are so popular, everybody and their mother – and Joe will agree to this – wants to be in the real estate investing business.

Look at Grant Cardone – he’s everywhere right now, talking about real estate investing and lending on property and returns on your investment. It is everywhere. So you open up the door a little bit to someone, I promise you they’re gonna start drooling a little bit, trying to figure out how they can make this work, how they can protect their money and what type of returns they can get. It just takes you to go out and talk to them.

So besides a list and direct mail, quite honestly, it’s about the people around you. I have a friend who inherited a decent sum of money; he’s a fireman, he doesn’t know what to do with it, and he’s like “Hey, I know you flip homes; I’d like to do something with my money.”

I’m like “Listen, I don’t like mixing friends and business, but here’s what it’s gonna look like.” I gave him the same type of packet. If you’re good with this, awesome; you can lend me money. If not, no harm, no foul. But you would be shocked about your friends, your family and the people around you, the people at meetup groups… If you guys aren’t going to meetup groups, talking about raising money or doing deals together, you’re missing some easy money, and I don’t wanna use the word “easy”, because it’s not just easy, but it’s a lot more simple than people think it is.

Joe Fairless: Right. It’s true, it is… Especially once you get some momentum and you have some projects that are returning some capital, because then you get the same people and then they talk to people, and then you attract other people…

I wanna ask you a clarification question. You said the direct mail piece says “I saw you lent on 123 Main Street. If you’re interested in lending again, give me a call because I have a similar property.” Where in the public records does it show that someone lent on a property?

Justin Colby: Well, it will show that there was a loan on the property, and then the way you decipher it is if says Chase Bank or it says Justin Colby. If it’s Justin Colby, it may not be 100% guaranteed, but you are 99% sure that that’s a private loan.

Joe Fairless: Okay, cool. And then the other question is what are the types of terms — you gave a hypothetical example – I think you said 10% – but just for a Best Ever listener who’s getting started with private lenders, what’s a typical term? I know it depends on the investor, it depends on the deal probably, but just generally what are you seeing?

Justin Colby: Most common it’s somewhere between 10%-15%.

Joe Fairless: Annually?

Justin Colby: Yes, annualized. I’ve raised all the way down to 8%; I just got a line of credit from a lender at 9% for five million dollars. Once again, to Joe’s point – once you start doing something and you start to show results, money becomes cheaper and cheaper and cheaper, and what I wanted to say about that is even if you have to cut your teeth, meaning you have to do your first deal as a partnership, where you call someone and be like “Hey, Joe, I wanna do this deal, blah-blah-blah… Why don’t we JV it? You bring the money, I’ll bring the deal, we’ll split profits.” Even if you have to start there, which is very expensive money – that is as expensive as it gets – but now you start to have a track record; you can then bring that track record to so many people that your money is gonna get cheaper and cheaper and cheaper.

So even if to start out you need to JV with people, do joint ventures and split profits just to get the ball rolling, at least you have the opportunity now that you have this experience to bring elsewhere.

Nowadays most loans are 10%-15%, anywhere in there. I have a lender that gives me as low as 8%. 8% is the lowest I’ve received privately. I know, again, if you’ve got a Credit Union, some banks you can get lower, but I’m teaching guys how to do it privately, so you don’t have to have any money out of pocket. And you do a note. I tend to do a six-month, just because I know I’m not gonna hold it for very long; you annualize the interest… I back-end it, meaning I’m not even debt-servicing through the note, meaning if I’m supposed to be paying $1,000/month, it actually accrues on top of the principle, and so when I sell it, that’s when they take the $1,000/month including the principle. I don’t actually debt-service and cut checks every month.

Joe Fairless: You don’t do interest-only payments or anything?

Justin Colby: No.

Joe Fairless: Okay, you just lump it all towards the end.

Justin Colby: Yeah, because of liquidity issues. So if you’re doing 5, 10, 15 of these at a time, or rehabbing, a lot of times the hurdle of rehabbing is liquidity. You have five deals wrapped up and you’re doing rehabs and you have all this money out and you’re like “Holy hell, I have no money in my bank account.”

Joe Fairless: So a five million dollar line of credit at 9%… Are you lumping it all towards the end on those deals too, or do you have some special terms?

Justin Colby: Yeah, that line of credit I can’t. Privately, I do. So I call Joe and I’m like “Joe, give me a loan. Great.” I would say “Hey Joe, let’s structure it at 12% interest.” I’ll do back-ended interest, meaning it will just continue to accrue, and then we’ll just map out what the loan looks like – 6 months, 12%, etc. But with the line of credit, I do have to debt-service that. You have to do that.

Joe Fairless: Okay. And the line of credit – is that with a community bank?

Justin Colby: No, it’s actually with Lending Home… If you’ve heard of Lending Home.

Joe Fairless: I have.

Justin Colby: [unintelligible [00:19:18].00] give anyone paperwork to see if they would fit that model; they do a very light credit check. You have to show you have money in the bank. They don’t wanna just lend to anybody. So it’s not necessarily for starters, I would say. People who are out there doing deals, making money, you can go get a line of credit, go through an application.

Joe Fairless: In the typical terms, you didn’t mention any points at closing.

Justin Colby: Privately versus the line of credit it’s gonna be different. With a straight note, let’s call 10%, six-month note, annualized, debt-servicing on the back-end, right? Line of credit can be different. It could have points, you could increase your points and have lower interest, you can have less points and have higher interest, but it’s all dependent upon what you want, what makes more financial sense.

Points, a lot of times for quick transactions are not good. So I personally, as a wholetailer, want no points, ever. I want higher interest, because I’m not tending to hold it on long. Wholetailing – you should be in and out within 30 days, period. From the day you buy it to the day you sell it and collect the check – no more than 30 days. That’s the intention.

Now, things happen, I get that, but your intention is to have a quick check, just like wholesaling. But you’re doubling, you’re tripling, you’re quadrupling what you normally would make on a wholesale property.

Joe Fairless: Anything that we haven’t talked about as it relates to wholetailing that you wanna discuss before we wrap up?

Justin Colby: I think the thing that I’ve gotta just keep hammering home –  you need to know your market. You need to know how many days the property is on the market for, you need to know what price point the hottest market is; for us, it’s about 150k-200k, that is the epitome of on fire. So if I were to do this deal — again, I’ve just bought a home for 400k, so I have to know, before I bought it, how many days on market are most properties of 400k? Are there any comparable as is properties? Because I’m not gonna rehab it.

So you’ve really gotta dive in and know all the way down to what percentage of list price are homes selling for. We saw that the homes at 400k were selling about 97% of list price. So if I listed it for 495k or whatever we did, the market is tending to give me 97% of that, that’s what the home is selling at.

So it’s crucial to know your market, to know your price points, the days on market, how quickly things are moving, all the way down to how many cash transactions are in that zip code… So getting data before you pull the trigger on this is gonna be the most paramount part of this. But once you know that data, security comes with knowledge, right? So it will be a lot less risky because you have the knowledge behind you. That would be the last thing I wanna make sure everyone’s very aware of – the most important part is the knowledge of your market, your zip codes, how quickly things are moving.

Joe Fairless: Justin, how can the Best Ever listeners get in touch with you?

Justin Colby: or The Science Of Flipping Podcast on iTunes is there. You can e-mail me at for any questions. I think I did this last time – I have a book that I sell on Amazon, named The Science Of Flipping. I sell it for $15, but anytime someone is gracious enough to interview me on their podcast, I tell them to go find it on my website for free. So just go to and go ahead and download my book – it’s my real book; it’s not just an eBook, I actually sell this on Amazon. So it’s a $15 book that I’m giving you for free. Just go to and you can grab that book.

Joe Fairless: Cool. Justin, you delivered on the value proposition here of wholetailing and discussing the pros and cons, the differences when compared to wholesaling and rehabbing, how to find private lenders — well, first off, what the heck is it, how to find private lenders to help fund those deals, the list of direct mail, people around you, the typical terms that we can expect to receive… I love how you mentioned you don’t want the points, you’d rather pay a higher interest rate; I wrote that down, I was like “That’s interesting.” That’s a good negotiation point to remember when you’re talking to private lenders, because when you do the math, yeah, that makes a lot of sense – 1% at closing versus paying 1% over 12 months; d’oh, it makes a lot of sense.

And also the data that is needed prior to doing this, and I’m really glad you went through that at the very end – days on market, what percent of the list price are homes selling for, and knowing what is the sweet spot. In your market it’s 150k-200k homes that are the hottest.

Thanks for being on the show. I hope you have a best ever weekend, Justin, and we’ll talk to you soon.

Justin Colby: Thanks, dude!

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