In a recent episode of my podcast, Get Your FILL, Financial Independence and Long Life, I asked my guest, JLucky Henry, a real estate wholesaler and rappin’ real estate agent, to explain how wholesaling works. He did such a great job, I asked him if I could use his explanation in a blog post. Here it is…

C: Let’s assume that someone listening is not really that familiar with wholesaling and doesn’t totally understand how it all works. Will you explain it as if you’re explaining it to a child, really basic, because I think that a lot of us start at the middle, you know what I mean? We say, “How do you get into wholesaling?” How about, instead, we talk about what it actually is and how it works?

JL: Okay, as if we’re explaining it to a child, right? I would say: Okay you have a puzzle, right?

This puzzle has a 1,000 pieces to it. It’s in okay condition. It’s got some stains on it and whatever, a little wear. And on top of that, you’re missing about 10 pieces, right? Ten little pieces. Now that puzzle’s worth $100 when it’s brand new in the box but because you have dirtied it up and stained it and it’s missing 10 pieces, you’re not gonna get $100 for it.

It’s your little brother’s birthday and you need money right now to buy him a gift. Last year, you didn’t get him a gift and your mom is gonna be upset at you if you don’t buy your little brother a gift this year, so you need some income, so you’re gonna sell your puzzle. Now your friend comes over, right? Your Friends’ name is Lucky. Let’s go with Lucky since that’s my name. I come over and you say, “Hey can you help me sell this puzzle or do you know anybody looking to buy a puzzle?”

I look at the puzzle. I realize that if it was in good condition it would be worth 100 bucks. I look up on Amazon and I see that I could replace those ten pieces for five bucks and there’s a stain remover, called: Puzzle Stain Remover that costs 10 bucks so 15 bucks plus I gotta spend time wiping it down.

And I ask you, “How much money do you want for it?” And you’re like, “Well, all I need is 20 bucks. I just gotta get my brother something. And I’m over this puzzle, I don’t want it anymore, anyway.”

I say, “20 bucks, 20 bucks, that’s it?” Okay, so now I do the math: 20 bucks plus the $15 I need to spend, that’s only $35. It’s not gonna be worth $100, it’s not a brand new one but it’s gotta be worth $90 or $80, right?

So if I offer you 20 bucks, you’ll say yes. Now I just gotta find someone that will give me $40 because I’ll tell them: hey look, you can buy this for $40, spend 15 bucks on it and it’ll be worth $90.

So, now I find another kid, an older kid, who was willing to buy that puzzle. Someone who wants to spend time fixing up and cleaning the puzzle. I find them and they’ll say, “Yeah, I’ll pay you $40 for that.”

So the double close is: I take the $40 and I say, “Give me the money, I’ll bring you the puzzle tomorrow.” I go over to my friend. I say, “Here’s the $20, you needed. Can have the puzzle?” I take the puzzle to the person who gave me $40 and I put $20 in my pocket ’cause I’m a wholesaler. I just made $20.

C: And you never actually owned the puzzle.

JL: I never actually owned the puzzle. Even when I carried the puzzle, I never owned it. The person already gave me money for it, I was just transporting it to him. It was in my possession, but I never owned it at all.

Listen to the whole episode to learn more about wholesaling and JLucky Henry.

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