The Happy Medium Between Flipping and Wholesaling
On this episode of Next Level American Dream, Sean is joined by TJ Kosen. TJ is the founder of Sherlock Houses and Platinum Real Estate Mastermind, has acquired many multifamily properties, and is now mainly focusing on SF Wholetailing. Today, Sean and TJ discuss the challenges of wholesaling in single family, the importance of knowing who the end buyer is, and the primary focus of his business, Sherlock Houses.
Key Topics
Tell us about your background
Your focus is market analysis, how are you using market research in your business now?
What is its benefit?
What might be a downfall to researching?
Connect with TJ Kosen:
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Sean has a conversation with TJ Kosen. TJ is a founder of Sherlock houses and platinum real estate mastermind, has acquired many multi-family properties and is now mainly focusing on single family [00:01:00] wholetaling. Today, Sean and TJ discussed the challenges of wholesaling in single family. The importance of knowing who the end buyer is in the primary focus of his business, Sherlock houses.
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Sean: Welcome TJ. Thanks for coming on the show. How are you doing?
TJ Kosen: Oh, absolutely. Thanks for having me, Sean. I'm doing great.
Sean: Good. Good. Let's start by just share with the people kind of your background, where you came from and then kind of what you have going on today.
TJ Kosen: Yeah, absolutely. Let's let's see. Let's do the short story go. So I started in real estate in 2006, a little while ago, and not the best time to get started, to be honest with you.
My first deal was actually 112 apartment units in Memphis, Tennessee, which is a kind of a C kind of a C neighborhood. So my second deal not to be overdone. 98 units. So that was way back in the day. People was asking what I learned from that. I guess what I learned from that is just don't buy a [00:02:00] multifamily and a C neighborhood in 2006 because they didn't, they didn't go as expected and.
And ended up selling one and they actually short selling another one in like 2010 to 11. So that's, that's how I got started in real estate. And I wouldn't recommend that. So after that flipped a bunch of houses in California, came out and moved out to Dallas. We've been out here and my wife and I about seven years.
And we focus on actually focused on a bunch of different stuff. So we focused on a lot of flips. We do about 30%, probably flips, probably about 30%, wholetales and probably about 30% wholesales. We're kind of upping the wholesale volume a little bit. What else do we do? We have some we have a bunch of rentals.
We have a self storage. So stay pretty active, build out a team. So did the whole business development team building thing and just just loving it. So that's the short story and we can dig into any kind of pieces of that. That makes sense. I guess.
Sean: Well, you know, so I'm, I'm, I'm focused on multifamily. So if you, if you can, let's rewind maybe a little bit to that.
I know it's a failure of yours, but cause so you, you started in multi-family and you [00:03:00] transitioned out of that because I guess you had a bad experience and decided to do single family. Is that how that went?
TJ Kosen: Yeah, more or less, it was a, it was more of the market timing thing. So I wouldn't, I wouldn't necessarily even consider the projects themselves a failure.
The first one, the 112 unit was a huge value add property and just such a completely different market dynamic in kind of 2006 than what we have now that it's kind of odd. We bought a, I think we bought it for about somewhere around $8,000, a unit price point. We intended to capitalize it about $15,000 a unit.
And at the time it was worth probably about 30 to $33,000 a unit. So definitely a different market. Right now I'm not even sure what that property would be worth per unit. I need to look it up and. So, I mean, so the math made a lot of sense, the only thing, and that's about what we hit actually that's about, we hit, we obviously have the purchase price correctly.
We hit the capitalization per unit pretty much spot on a couple of overages on some units that were really bad. A couple of 'em, you know, kind of under things on other units. And then we leased it up pretty substantially. So when [00:04:00] we bought it, the first one we bought it at about 10% occupied and at the peak, I think we were, we were, I think we were 92% occupied of available units, kind of at the At the operational peak.
And I think we got it up to about I'm not sure. 90, about 85% occupied. Once we finished up the rehab and we finished up the rehab right at the right at the top of the market right. Of 2008. So that was fun. The kind of failure aspect financially, I guess speaking was we saw a drop in gross collections over a six month period of about 25 to 30%.
So that definitely put us in a position that just kind of, wasn't fun on that property. That's the one that we actually that's the one we cashed out on. So that was a lot of cash. Kind of CA and the capitalization thing did not short sell it. We had a private lender, actually, the lending thing was really cool, and this is something that people can absolutely use in their current business.
So we bought it with a assuming a note from a private lender who was basically a correspondent lender from a local community bank. And so technically it was hard money or private money, I [00:05:00] guess, but he was only he was only like a point and a half, two points above prime. So our interest rate wasn't catastrophic.
And then I negotiated a $200,000 second with the seller because he bought it from a, I think he bought it from a, either foreclosure short sale auction. Well, not auction, but either, either directly from the bank or from a short sale. I don't remember. I think it was a foreclosure anyway. So I made him hold the $200,000 second and his contribution to earn his.
Kinda payday, I guess. Cause he secure the property. He evicted most of the unpaid tenants. He cleaned it up and just boarded up vacant units. So it was definitely kind of like we knew what we were getting into. We definitely had a blank slate to deal with and he, he wholetaled it. Didn't he? Shit. He wholetaled that to me.
So the same thing as I do with all these houses that I buy wholetaled it to us. Turned out pretty good. Like from, from that perspective, like I said, the kind of crappy part was about a six to eight month period in 2000 kind of eight to nine. I think it was fall oh eight to like spring 29, 20 0 9.
When we [00:06:00] just saw about a, about a 30% decrease in gross collected income. And obviously we weren't highly leveraged on it, but that definitely affects kind of the valuation of the property. And. Well, not all that other stuff going on. We sold that one cashed out and went back to San Diego, surfed a little bit, kind of licked my wounds cause we definitely lost, lost a lot of the kind of upfront cash and started buying and selling houses.
And that's a, that's a fantastic business. So I guess kind of, kind of by necessity necessity I got into single-family. I always considered myself kind of more of a multi-family guy. My first flip. I was actually in Memphis. It scared the crap out of me because when you're capitalizing 112 units, it's easy.
You're buying hundreds of gallons of all the same color paint. You know, we were buying each property, had to shoot, I don't know, each unit had eight doors, something like that, you know, and you got a front and a back and a bedroom. So there's four than a bathroom five. And in closet 6, 7, 8, yeah, like eight to 12 doors.
So just buying the crap out of all this stuff. And I thought it was almost more [00:07:00] straightforward than a flip because you buy a flip it's like, well, I don't know what color I painted it. I don't know. Let's see what the neighbor painted their colors. Well, what kind of tile do I put in? I don't know. Let's look around.
And it was really, it was really kind of interesting. So maybe one of the biggest takeaways I learned from it is in our flipping and our kind of wholetale business. We almost take a multifamily. Volume rehab approach to how we do it. So we do quite, I think we have four or five flips going right now. And they're all the same.
They're all the same. You and I were talking ahead of time where it honestly gets kind of boring and transactional where you're just going in and doing the same thing on all of them. So we take that approach. We take the kind of the multi-family rehab approach to our single family flips that strangely enough, our what do you call them?
Our rentals also look exactly the same. They're all the same color, all the same tile, all that stuff. So we take a lot of the lessons that I learned and apply it to our business now. And it goes really, it goes to.
Sean: So you've taken the multi-family scale of rehab and I brought it down to your single family.
It was okay. I'm going to rewind you a little bit on the so you didn't [00:08:00] actually, I call it a failure. I'm sorry. But it wasn't really a technically a failure. You just had a market downturn where your collections went down. But you were still able to sell that property out, even, even in a time period.
That was probably the worst time to sell. And you still did. Okay. You didn't, you know, you didn't do poorly on it. You still, you still survive that, right?
TJ Kosen: Yeah. Yeah, absolutely. We, we lost, we lost money on it, so financially it wasn't it wasn't definitely a success, but we I had enough money to kind of keep going the when, when you bought it,
Sean: why wouldn't you hold on to it at that point?
TJ Kosen: I think the second property was dragging us down. The second one, we actually, the 98 units was more of a semi stabilized thing, but in a. If this property has maybe C plus that one was maybe C minus and that one operationally the drop in income, I think was more so that one, we ended up short selling just because it's, it made sense at the time and in our opinion of it we bought it for what we thought was the right price and the guy that actually funny enough, I think the guy that bought it from us actually lost money [00:09:00] on it too.
So, I mean, that kinda sucks. And currently, so, but here's how here's, what's definitely different about that market in Memphis. The second property. We bought it from 1.3. We short sold it obviously for less than that. And it currently traded with 16 98 units currently traded four with 16, fewer units than it had when we owned it, because there's a big catastrophic fire for something like 2.2.
Sean: So just recently.
TJ Kosen: Just recently add a hundred percent vacant. So it's definitely a different market.
Sean: Yeah. From, from, from back then, for sure. Well, let's talk about so your, your business today you focus a lot on market analysis. What, what sort of tell us a little bit about that and then kind of maybe some tools that you're using and how that kind of works in your business.
TJ Kosen: Yeah, so we do, we do a pretty decent volume of, of flips and, but we still take Kind of the deal flow process as an individualized thing.
So I don't, I'm not one of these guys were having a desire really to build up to 20, 30 wholesale deals a month, because I think that'd becomes just kind of an operational headache. I'm [00:10:00] happy doing the volume that we're doing. So we still take it almost like a deal by deal analytic basis. So for example, we'll take a property in Arlington, Texas, which is a
great suburban DFW. And we'll say, you know, for this property, maybe we want to hit this price point. So if the full ARV is maybe say 250,000. Depending on where we bought it at full ARV means you're going to have to dump a lot of money into it. So maybe we shoot for a ARV price point less than that, maybe two 20 to 25, but we compensate by doing a lesser scope of work to the property.
So that's kind of how we, we take. And look at it. It's probably one of the biggest questions I get when newer investors are asking, Hey, this wholetale thing, how does this work? How do you do it? And th that's how we approach it, where we repair properties either wholetale or flip to basically hit the price point that we want to hit.
And then price it generally competitively to get moved one way or the other. So that's, that's the like on a micro level, kind of how we look at a small market, like Arlington, [00:11:00] okay. What's a, what's a comparable property for the price point that we're trying to hit here. And what do we have to do to meet that? And then obviously I'm just on a macro level.
It's kind of a fantastic business model in real estate right now in the single family space where everyone knows retail is definitely going up because of just a lot of different reasons. The wholesale prices are kind of going up maybe at a little bit of an accelerated rate, but this middle ground where the wholetale kind of re like retail, retail listed, but still in need of some work.
So what we would have called maybe seven, eight years ago, like a handyman special on the MLS, I think the acceleration and. Price point, it's kind of gone up a little bit faster than either one of those other ones where it's really compressing the difference between kind of a fixer up property and a all, all, all the way fixed up property.
So for us, it's fantastic. We have the capacity to take down a lot of properties and we have the crews to rehab the ones who want to rehab and then analyze the market in where the other properties are at [00:12:00] and do maybe a, maybe a 25% rehab or a 30% rehab, or, you know, 50% rehab instead of spending on every single property instead of sending.
I don't know, 30 minimum 60,000, if a is comprehensive. We just had one that went from 45 to 60,000 projected. But we looked at, but we, but on that particular property, we looked at the comps and we're like, you know, if we do these extra things, if we do a new fence, a new roof and a new HVAC system, Well actually increase the ARV price by a lot.
So let's just blow it out. Cause you're doing all the rest of this stuff. So that's where I really take kind of a, and the company takes really a, an individual unit by unit approach to at least the, at least the single single family stuff that we do say, well, what do we do to this deal to optimize, optimize this deal for us.
Sean: Yeah. So I come from a single family too, as you know, and that's, that's, what I used to do is look at, look at what the market was, tolerating on the retail side. And you'll what you'll find is there's a lot of times there's investors that come in and they just blow the house out. And they're just doing all [00:13:00] this, you know, the nicest stuff, and they're getting the maximum ARV, but the people that are selling their house in the neighborhood that have lived there for 10 years or something, they're not, they're not putting in all new appliances and countertops and all these other things, and they're still selling their house. Right.
TJ Kosen: And they might not be selling for full ARV up here. Right. They're not doing, they're not doing a $35,000 renovation to get up there.
Sean: Right? Exactly. So you can take a, you can take an existing sort of distress property, kind of get it to a level where someone would have sold it if they'd lived in it for the last 10 years or so.
And you can still sell it for a pretty decent amount and someone, someone buying that house can buy a house at, so you can come in and live in it. Doesn't have all the latest stainless steel appliances and granite countertops, but it's still a nice house that they can live in. And it's more affordable than the ones that investors may be selling it at top
retail.
TJ Kosen: Oh, absolutely.
Sean: There's a really good middle ground.
TJ Kosen: Fantastic. Yeah. Now it's a fantastic little niche right in there where the benefit to the marketplace is obviously all the. All the benefits that we offer to sellers anyhow, where they need the closing and the, you know, [00:14:00] whatever the issue is with the house.
But the benefit to the end buyer really is, oh, you want, if you want to live in this neighborhood, you know, 250 for a fully blown out house and a competitive market. That might be a little tough. But as long as that property itself is financeable generally conventionally in general, not FHA because you're not usually holding these things 90 days, as long as the property is conventionally financable.
So I guess what that means is no, like no massive holes in the walls. Toilets are working. Plumbing is working, the systems are operational. Then you can have a family come in and be. Do the old-fashion sweat equity building some equity because they're not paying full price. So now they can go in and kind of customize and pick their own things.
And, you know, generally from what I can tell the buyers that buy our properties in that perspective, really like it. We also get some investor buyers at the buy from cashflow just off the MLS. So there's nothing wrong with that, I guess. So that's a nice niche. We like it a lot. It makes a lot of sense in this kind of market.
Sean: Yeah. And as a, as an investor on your side, as long as you have the funding to close on the deals and kind of do the re the minor repairs [00:15:00] the repairs are going to do, and then have have it on the market for a little bit of time, long as you can fund that, that's a great space. I used to love doing wholetales a lot.
Yeah. It's a great space to sort of sell in the other thing right now. It's tough to get any, any repairs done. So if you're doing a big renovation or re. Getting crews on site, getting subs there, getting materials, all that stuff is kind of a hassle. So if you can, if you can minimize that expense in doing those big repairs, that's always a good thing, right?
Because you have less time of, of labor on onsite, less materials, all that's going to be a benefit to you ultimately as a, as an investor for sure.
TJ Kosen: Oh, yeah. A hundred percent. And as you, as you increase your volume, I'm sure as you know too maybe you have crews that are really good and really solid, but as you increase your volume, the capacity of those crews to handle those, no more deals is not necessarily there.
It's easy. If you're a roofer, I suppose. I mean, you call your roofer and he does it sometime during the week because he's not really bumping into anything else. Well, the paint guys, the drywall guys, it's easy [00:16:00] to sort of over outgrow that capacity issue. I'm just picking on a rougher. Actually, just this week we had a foundation delayed because foundation guy was, you know, backed up.
So now I was doing it on Saturday instead of Tuesday, like, know, I mean, it's part of the business, but so there are risks and that's a wholetale house. There are risks obviously to it, but it does make it. So you're not relying on, you know, your favorite tile guy. That's going to get here Tuesday and he doesn't show up until Friday.
And he doesn't get done until, you know, eight days later than you thought he was going to get done.
Sean: What are some of the, I guess funding maybe is one of the issues, but what are some of the downsides to doing it that way in terms of this focusing your business in that wholetale sector?
TJ Kosen: Yeah, absolutely. The, so I think there's two. You mentioned funding. I think there's two probably broad categories now that I think about it, of risks in that are in that space and they both stem from having to own the property. So there's an inherent risk obvious than owning a property that you don't know anything about.
And the risks associated with that are kind of the same as with like a wholetale and flip really [00:17:00] is don't overpay. So I see a lot of folks say, oh, this is a great, that's like when you see people put out, it's a great rental. But that's because they just overpaid for it and they want to sell it to someone else who might want it for a rental.
It's a horrible rental because by the time you do the math, it's full ARV. Well, I'd rather buy a rental property off the MLS because at least then I get an inspection timeframe and can negotiate repairs, maybe. So don't over pay. It's not a way to get a better deal. It's a way to get a better deal out of something that is a wholesale or a flip type of deal.
And my experience where maybe you get a higher profit margin, but it's not a way I don't think it makes something that's an otherwise kind of shitty deal, a deal. That's more of a space for, I mean, no offense to shitty deals, but I think that's more of a space for like a seller finance or sub to kind of mark.
Where maybe there's inherently less room there. So now we have the financing that we can assume. So now we don't have the extra cost of getting new loans. You know, I think that's a good spot for that, but if you're strictly going to have to buy this thing and deal with it and own it yourself, then the biggest risk is just like anything else don't [00:18:00] over pay for it.
There's always the risk of the unknowns on the renovate. And you know, still, it was still doing light renovations and the market risk, the biggest, the biggest. Risk. And I see people get into trouble with and where I've had some issues. And I don't mean issues catastrophically, but just minor issues is not really knowing what the buyer avatar is going to be for your property once, once you've taken it down and and wholetale that are listed it as is.
So when, so the process, obviously we buy the. However we closed on, we talk about that in a minute, I guess, and we always clean it out. So we always take all the crap out. Our dumpster guy makes a lot of money off of us. We take honest pictures and we give an honest assessment on the MLS when we're listing it, of what the property, you know, what it is.
It's a handyman special, it's a sweat equity special. It's a not FHA financable special. It is maybe a conventionally financable special. So we target our buyer avatar. And then say, okay, who's going to buy this property when we're done with it. Is it going to be a end buyer? That's going to live here [00:19:00] because the property is, you know, it's got functional toilets has got, we fixed the foundation.
Maybe, maybe we restretch the carpet, you know, once in a while, we've even, we've put new carpet and let me put new carpet in wholetales too. Cause it costs us a new carpet right next to friggin yellow vinyl, kitchen, tile whatever. But it made sense, you know, for that kind of property. So. So we identify who the buyer is.
The buyer going to be a retail end user buyer who wants some equity? Is, is it going to be a cashflow buyer that wants to rent this property and keeping their portfolio? And those two buyers are generally pretty comparable in price points. Is it going to be an investor buyer who wants to resell the property?
Cause there are, believe it or not still people that buy stuff off the. And renovate and resell so good for them. Is it going to be, and then what level of investor buyer is it going to be a completely trashed, like just horrible house with missing sub floor, missing walls, missing all this other stuff?
Well, then there's more risk in the property. So the price has gotta be lower. At the top end, at the best property, like a three bedroom, two bath brick house. [00:20:00] Functioning toilets, functioning, HVAC, kind of old and rattling. We tend to see a full ARV minus a reasonable repairs being the price point that sells well.
And the repairs are always kind of a fluid thing. So maybe our assessment of a 50 K rehab, maybe they think, you know, it's full ARV minus 30 K is kind of where those properties tend to sell the investor special properties of the. No, no toilets, no HVAC just bad properties. They don't wholetale as well because there's more, there's more issues with the properties.
So you don't have as big a buyer pool, even though the buyer pool is still the MLS, the actual number of buyers that want to buy that property. If you take out all the conventional buyers out there while you're taking out, probably what, 80% of the buyers in the market. So now you're definitely targeting a investor buyer.
So then you have to understand, well, what's an investor buyer going to need on this property in order to make it work. And now you're. More closer to a wholesale plus price. It's a wholesale plus maybe closing costs plus an additional profit margin above a wholesale price is where we've noticed those deals tend to go.
And those are the [00:21:00] easiest ones to mess up because comps on, on us like a comp plan, just the non grade property are harder to come by and harder to exact, exact defy on a property by property basis. So those are the risks you got to own the thing, and there's, there's risks of owning an asset.
Sean: Yeah. So you gave a lot of information there.
I'm just going to try and rewind a little bit of it summarize. So the, the risk is as a buyer of these types of properties like you're doing is that you may overpay because you think, Hey, I can, I can unload this. At a higher price point. So I'm comfortable paying more, but the risk in doing that is like you said, you do have to acquire the property.
You do have to fund that there's additional capital expense there and then holding it, all those sorts of things. And then, like you said, you don't know what the repairs are really ultimately going to be. Right. And then if you, if you haven't targeted your avatar perfectly, you know, you may end up having to do more repairs to get to that retail level.
Homeowner type buyer, then you would have to do with someone that's going to come [00:22:00] in, like you said, and just do the minimum repairs and rent it out as a, as a rental property. Those two buyers, there could be a significant amount of not only price point, but repairs that are necess necessary to kind of make that customer happy.
Right.
TJ Kosen: Right. Absolutely.
Sean: You can do less for the investor guy. Who's going to rent it. Then you can, then you can for the family that wants to move in there and doesn't need a perfect house. Right. So, if you don't know, if you haven't identified that exit strategy properly that can swing your, your, your, your profits quite a bit.
TJ Kosen: Yeah. A hundred percent, a hundred percent. It's definitely
Sean: Did I summarize that ok?
TJ Kosen: Way more succinctly than I did. I packed a lot of words around it, but that's, that's exactly right. Is identifying the buyer and also really screening the buyer. I mean, obviously you have to screen buyers if you're going to wholesale properties, and if you're going to retail properties, probably the screening process is the most straightforward on the retail market.
The screening process for the for the wholetale, the, you know, the no rehab, basically flip model that this is, is a little [00:23:00] different. You want to make sure the buyers understand that, Hey, we're not, we're not really offering repairs on this, so you can ideally there's no option period. But if you have a retail buyer, they still want an option period.
Maybe they walk in and they think the AC works and then their inspector comes in and oh, the AC doesn't work. Next thing you know, you're probably putting in an a/c because they need to get the financing. So you try to, you try to set the, you try to frame the property as well as you can. And that's why I did allude.
That's why I mentioned really were honest and upfront throughout the entire thing. We're taking honest pictures with cell phones. We're not paying, you know, we're not Photoshopping pictures and you're not upping the contrast and making it look prettier because if you have the contrast to see really how crappy that floor, actually you're taking, you know, cell phone pictures, you're being honest with the descriptions and you definitely get a lot of agents that Well, you get a lot of agents to either call ahead of time and say, oh, well, why is it?
Why is the price like that? I mean, did you read, and then you get agents after the fact that, wow, man, it needs a lot more work than I thought it did. It's not like, well, why do you think it was priced the way [00:24:00] it was? So, you know, you gotta have thick skin because you get, you know, and you get good agents that understand.
And they're like, okay, What's the pricing, you know, the pricing strategy here. I understand why this property is what it is. Let's get my client in here and show it to them. And you get other agents that are like, oh man, this is a screaming deal. Oh, when they get out there, it's like, oh man, that seems a lot of work.
I'm like, well, yeah, but he said it needed a lot of work. It's not my fault. You can't read.
Sean: Yeah. Yeah. Yeah. So I think it's essentially understanding that avatar that you're going after. Like you said to begin with when you're in the buying process of that property is, is a critical thing. That was kind of always the thing I, I did first was who, who is, who.
is going to end up with this property, right. In my mind, when I was looking at it to buy the property, I was thinking, who am I selling this to? And like you said, there's really, there's, there's really like three avatars on that end user at that, at that wholetale price point. And you know, you gotta, you got to kind of quantify.
Who it's going to, and then back factor what you can pay for the [00:25:00] property. And that's where you run. That's what I was saying, where you run the risk. Like you said, if you pick the wrong avatar, you know, it can change everything on your exit and change your profits, for sure. So I think that's a good place to start if anybody's wanting to do this, that wholetale Market style that you're doing.
I think it really understanding who you're selling to and those three buyers that you listed, what their needs are and what their expectations are and what you can price those things at. That's really going to be a critical part of, of doing that business that way.
TJ Kosen: Yeah. I agree. A hundred percent, a hundred percent.
It's where people bump into the most, most issues on the property is not understanding who their property is going to appeal to. It's it's honestly, it's more sophisticated. No offense than wholesalers or retail because retail. If you're doing a flip, all of our flips, like I said, they all look exactly the same, but that's because, you know, we blow them out.
We do pretty much everything. Right. And then, and then the only question is, you know, what, what aspect of a full blown out scope do we, can we maybe get away with not having to do in this neighborhood? Can we not scrape popcorn ceilings? [00:26:00] You know, three years ago? Right now. And it's a super hot market.
Yeah. Maybe so maybe that's off of scope. So we can deduct that stuff from a retail flip scope wise, but it's a different, it's a different mindset when you're looking at this wholetale thing, because then you're taking, you're taking it from the asset from the property perspective and being like, well, what makes sense for this property versus the flip perspective?
You kind of take them off. What can I get away with, with not having to do on this property? Or, Hey, if we want to hit the top, top, top price point, then we have to do everything. So let's figure out how to do that. And what does everything even entail? Does everything entail, you know, a new HVAC or a new roof?
Like I just said on the one we just sold or does everything entail a, the HVAC and the roof are fine for this price point.
Sean: Yeah. When I was looking at my retail properties, I would always look at there's two, two things I would look at. So what, what is going to be on the inspection report? Right. And so that's, that's the first thing I was concerned about.
So your mechanicals, all that sort of thing, what's going to pass inspection, what isn't and what isn't going to pass inspection. It has to be dealt with. And then the second thing I would look at is what is the market standard, right? So what [00:27:00] is, what is the neighborhood drivers for amenities in those particular properties that are getting that maximum retail?
Yeah, everybody's selling hardwoods and granite and stainless appliances. Then you have to do that same thing, right.
TJ Kosen: A hundred percent.
Sean: So retail is almost an easier, you know it's easier to kind of mentally equate because you're just, you're, you're doing what's, what's set in the neighborhood and what's said in the inspection reports and then wholesaling is even, like you said, it's even easier because you're just buying it and turning it around as is right.
So there's really nothing done at all in those situations.
TJ Kosen: And with wholesale, if you miss. You know, you know, you know, as you're trying to show it to other folks, like you get 10, 10 buyers in there and all 10 of them say, dude, I need to be here. And you know, here is five K less than you're getting it for. Then, you know, you know, you missed when you bought it, like that's an easy, that's an immediate affirmation as to how correct you are on the process versus, you know, if you are low on wholesale and you're showing it to 10 different people, you know, three of them are gonna be bidding it up for you.
So that's an immediate response [00:28:00] rate. So it doesn't take a lot of really specific market knowledge to be a mediocre wholesaler. Now, obviously it takes a lot of market knowledge and a lot of marketing skills to be a really good wholesaler, but you know, most people don't start out there. They usually start off kind of mediocre and then work their way up.
Whereas wholetaling, I think is the easiest way to really screw it up if you don't know what you're doing.
Sean: Yeah, I think so too. I think you're right in that. And I think, I think, like you said, doing your market research, understanding your market, understanding your avatar. I think those are going to be important for anybody that's doing that, that level of business.
TJ Kosen: Absolutely.
Sean: Like you said, in the wholesale game if you do hit it wrong, You're generally under you're under contract. So you can go back and either negotiate or discuss it with the seller, you know, or ultimately, I guess you had the termination option too, in some cases. So I think in wholesaling, you kind of have some, some ways to deal with that.
If you, when you're wholetaling, you're going to buy that thing, you know, it's your money out there and your investor's money or whatever. So it's a different risk level. Just so I think market research what you're doing in terms [00:29:00] of like, like you said, when you look at Arlington and you figure out what, what exactly in Arlington it's is working and what not working for that particular market segment, I think that's, that's important for sure.
TJ Kosen: It also, you know, same as with the wholesale price in what a wholetale in Arlington might be different than what would wholetale in, if you were in a like a Cincinnati market or something like that, or even a California market, if you have the capacity, it's something down in Southern California where I'm from right now, that's probably a very, very competitive wholetale market where you'd have closer to full ARV prices than we do in Dallas and Texas here.
So it, it really is important to know your kind of macro sub market. Like your city, what's going on in the city. What makes sense here? And then definitely the micro more defined sub market. Like I like to say, you know, comps are comps until they're not a comp, so make sure if you're looking at, oh, it's a three bedroom, two bath house like lit with wholetale definitely is a three bedroom, two bath house, you know, is there a busy road?
Is there, what are the dividing lines? It's a lot more important to have that like exact thing [00:30:00] in this model, I think.
Sean: What are some of the tools that you recommend people use to do that? Or are there, are there, I know MLS is obviously here in Dallas, for sure. MLS is obviously the most accurate, the most data.
But are you, are you using other tools to kind of figure out what your valuations are and what your amenities are going to have to look like and what are you using to do that market research?
TJ Kosen: Yeah, I think the MLS is probably the best option realistically, where. Where are you bumped into, you know, with some of our mastermind like mastermind, attendees and stuff.
Are they bumping into stuff is where there's more of a rural market. We've wholetaled some stuff in Waco. We wholetaled some stuff in but we wholetaled some stuff in a town I'd never even heard of it before. So that's when it gets a little bit squishier. And you got, you gotta do more homework. So there's the big ones, obviously in Texas.
I know Propelio still does pretty decent on Texas statewide comps. I prop screen does comps. So he used that in the office. We use batch comps sometimes batch lead comps to sometimes when we're looking at deals that are outside of our, like outside of where our MLS access is. In DFW [00:31:00] and the big market here, we definitely just mostly
rely on MLS. And then we rely on an understanding of like the property itself. So the best knowledge base probably to have if for wholesale strategy is, is the pricing on what needs to get repaired and what doesn't need to get repaired. So a lot of people know foundations and the big issue in Dallas I guess all throughout Texas, really.
So knowing even pricing on foundation repairs, if you're going to sell to an end retail buyer is huge. Just knowing, kind of having a ballpark of that. Okay. We'll foundation, maybe five K on this house, maybe seven K on this house. I actually, we missed, we missed on one where recently we were going to wholetale it.
We didn't get a chance to do a whole lot of due diligence. And the foundation came back at $9,000 and then a bunch of other stuff, like not really popped up, but like kind of went in there and looked at the numbers on the house. Like, well, you know, let's add, screw that. Let's flip it because. Did the foundation.
Now we're cracking a bunch of walls popping out at a bunch of drywall, have a lot more drywall issues, which is to be expected, but also didn't expect to have that much foundation. [00:32:00] So now we're, now we're going to flip that property instead. So the the biggest hedge against risk on any one of these strategies is just buy it, right?
So we always, we always, we always focused on that as the main objective in the company is if you buy it right where it is a wholesaleable property, then these other exit strategies are. Kind of profit maximization strategies. They're not necessarily, you know, bail, bail out, like fix the mistake strategies don't make a mistake is the best way to not lose money.
Sean: Yeah, exactly. Well I'm going to shift gears a little bit on you. So, you know, the, the podcast is called Next Level American Dream, and I ask all of our guests this and, and so what is the American dream mean to you, TJ?
TJ Kosen: Well let's see. I just had a second kid on Monday. So today for anyone listening to the podcast recording or whatever, this is Thursday.
So Monday afternoon we went into the hospital at eight 30, I think. And by two 40 we had had a new baby. So that's [00:33:00] number two. So what, what everyone likes saying, they all like saying I'm building a legacy for all this generational wealth and all this other stuff. I don't buy it. Like I don't buy that as being the legacy.
The legacy that I I buy is in, because the next generation screws it up. If you don't give them the skills to do it and to take it and kind of run with it, they screw it up. So I, I don't buy a financial legacy. I think it's a nice bonus. If you're able to do it, I buy into the. Memory legacy and the making impact legacy.
And I don't think you do that necessarily by maximizing your profit and focusing exclusively on how much money you're making, making money. Realistically, it's relatively straightforward. You find a process that works for you and you do it a whole bunch of times and it becomes successful and then you get bored with it.
So then you do something else and then eventually you figure out, you know, the actual fun part of all that stuff was. The experiences with the [00:34:00] people was in building the team or in coaching someone that else that wants to, you know, a wants to make their life better or, you know, you look down at your brand new baby and be like, man, if I screw this up, this guy is screwed.
Not me. So building these life skills I think is, is my goal for the kind of American dream. I realized that when kind of a little, maybe a little off topic, but I realized that actually when my mom died three years ago. She died while my wife was pregnant with our first baby. And she, you know, at 24 you don't buy a bunch of apartments without raising money from friends and family.
And for years she told me that her favorite part of the whole experience was in going back and dealing with the subcontractors dealing... I was basically in charge of the project, but she was dealing with the bookkeeping, dealing with the project managers. We had a pretty good size operation going from 2000, basically six to, to, I think 10, maybe 11, six to 11.
When we sold the one we [00:35:00] sold the second one and she told me for years, like I had so much fun doing that. The money's not important. It was cool. And I thought she was absolutely nuts. Like, mom, I've had fun. Like I've traveled, I've done fun things. That's not fun. And she said, for years now I had so much fun.
And then it finally took her dying on me to, to switch gears in my mind and be like, you know, I spent all this kind of fun time, like stressed out, like, but doing all this stuff that I wouldn't have had the opportunity to do. And that's the memory that's more important because the money is just the money is just, it's not even score-keeping, the money is just a means to have a lifestyle that you want to have.
So. That's that's my goal is let's see if we can impact some folks. You know, we're not trying to try and change the world because that's, that's a stupid goal. I think we're trying to, you know, make people's lives a little bit better by helping them out. And I think if we translate that to the next generation, then that's where you, that's where you actually make a difference.
People that go set out to change the world, that they never do it because that's their goal. Our goal is, you know, let's, let's impact some lives incrementally [00:36:00] and they things a little bit better that way.
Sean: Yeah. So the, the experience that she had, having fun, working with you and taking on these large projects and these challenges.
So she enjoyed that so much that, that repositioned how you thought about how you want to spend your time. So now you focus more on spending time with your family, and then now you're, you're doing coaching and an outreach to other investors to help them build their business and do their thing as well. So, yeah, that's really good.
Well TJ. So how can people kind of reach out to you if they want to, if they want to take, take you and, and figure out what you have going on and, and get some coaching or, or get some help from you or whatever, is there a way people can reach out to you and go to a website
or something like that?
TJ Kosen: Love to love to talk to anyone, anyone that wants I've made it. Yeah. Put it out there. We offer we actually offer a quick coaching call just for fun. You can sign up at tjkosen.com and there's some more information, you know, just kind of about us on there as well. And then I'm super easy to find on Facebook all over the local DFW kind of groups, but you can look [00:37:00] tjkosen.com.
Send me a friend request because once you cap out and you delete a bunch of people that aren't interacting. Add more people send me a message though. Do you have any actual questions? Because if you just get a friend request, you tend to ignore it. Same thing with Instagram on Instagram, I've actually bought deals off of Instagram by posting stuff.
So I've had people hit me up, like, Hey, I got this deal. What do you think? Super approachable. You can always email me TJ kosen K O S E N@gmail.com and. And I'm totally get back to folks would love to interact. Would love to help anyone with pieces of their business that maybe they're not, not good at.
We didn't talk a lot about marketing. We didn't talk a lot about operations. We didn't talk a lot about kind of team building, but those are all once you get the transactional engineering aspect down, that's the next step. That's really kind of a fun part of building the whole process.
Sean: Yeah. You start building out your systems and stuff.
TJ Kosen: Absolutely.
Sean: So, yeah, they'll check out your website, reach out to you on Facebook. Those are, those are great ways to get in touch with you. That'd be good. And, and then you can help them kind of tailor that wholetaling model or really kind of any of the [00:38:00] single family business stuff that they may need help with.
That'd be great.
TJ Kosen: Absolutely.
Sean: Well, good. Well, thanks for being on the show, TJ. I really appreciate it. I won't we'll have you we'll have you come back on some time and down the road and, and check in with you. And when you know, and to see all the babies are grown up and stuff.
TJ Kosen: Fantastic. Thank you so much, Sean. I really appreciate you having me.
Sean: Thanks again. We'll talk to you soon.
Abigail: Thanks for joining us for another episode of Next Level American Dream. If you would like to learn more about what we talked about today, want to contact the team directly or interested in passively investing and being a part of our deal room, head over to our website at www.Thomsonmultifamilygroup.com.
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