Rank #1: Episode 36: Dave’s First Flip! Questions from a Real First Time House Flipper!
Episode 36: Dave's First Flip! Questions from a Real First Time House Flipper!
by Doug & Andrea Van Soest | Spouses Flipping Houseshttp://traffic.libsyn.com/spousesflippinghouses/SFH_036_Daves_First_Flip.mp3
Episode 36: Show Notes
In today’s episode we are answering our close friend Dave’s questions, who recently got his FIRST house-flipping deal! During his process he’s had A LOT of GREAT questions for us. Questions a lot of people probably have just getting started.
So today, we will be answering and sharing those Questions & Answers with you, so you’ll have a bit more confidence in getting started and landing your own deals!
Episode 36 Transcript
Doug: Welcome back to the Spouses Flipping Houses podcast. We are back for Episode 36.
Andrea: After a long and fabulous summer.
Doug: Fabulous. It was a great summer. We thought we would take a break for a couple weeks when school got out, you know. Things were kind of busy. We had a couple trips we were going on, and we didn’t know that couple week break would turn into a couple months.
Andrea: We just thoroughly enjoyed our summer. I wish I could bottle up that feeling of peace and relaxation that you kind of experience when there’s not as much hustle and bustle, and got to wake up, and go-go-go, and get kids to school, and then work, and then football practice, and dance. It was just so relaxing. Wish we could have stretched that out.
Doug: Summer was really full, really fun. Our kids are at an age where, I don’t know. Normally this time of year when summer is coming to an end and school is starting, we start to do the happy dance when school is back is session.
Like okay, back to normal kind of schedule. But I don’t know; we haven’t felt that way this year. We want the summer to keep going.
Andrea: Yeah, they’re kind of at that age where it was just easier. It was so, so fun.
Doug: So they’re back in school now. They started last week, and we are back to normality and a normal schedule, if you will.
Andrea: If there is such a thing.
Doug: If there is such a thing, but that being said it allows us some time to get back to the podcast, which we’re really excited about. We’ve been looking forward to getting back to record some episodes and getting some more feedback from you guys. So we are back!
Andrea: Okay, so this is a little off-topic, but there is no way we can not talk about my current personal obsession. Do you know what that is?
Doug: Oh, absolutely. It’s on NBC 24/7.
Andrea: The Olympics. Oh my gosh, it’s so exciting.
Doug: Yeah, so Andrea was the track star back in her day, in her heyday, and she’s always loved the Olympics, and she has kind of brought me into that too. And we’ve just really enjoyed watching the competitors compete, and just hearing all of the back stories, and watching them, I don’t know, celebrate when they accomplish this feat in their particular sport.
Andrea: Yeah the looks on their face when they have worked for years, blood, sweat and tears to accomplish this goal, and they finally accomplish it. And they’re crying, and I’m crying. It’s so cool.
Doug: It is. There’s really something inspiring about it, just watching people you know, I don’t know, live out their dream in that moment where they are accomplishing probably their life’s dream. When they are winning the gold, or silver, or whatever it is they’re doing.
Pretty exciting. And then there’s the guy who does a false start, and you’re done.
Andrea: Oh man, no second chance.
Doug: Wow, you know that’s life.
Doug: That’s life sometimes though.
Andrea: I don’t know. I think they need to reconsider that rule.
Doug: You blew it.
Andrea: Let’s have a second chance people. One second chance.
Doug: I know. My heart breaks for them, but that’s the way it is. Yeah, the Olympics have been great. We’ve got a cool thing we’re going to talk about today, so we have a friend named Dave. Dave was actually in our wedding.
I was roommates with Dave in college, a good buddy of ours who has kind of worked with us off and on over the years. He actually read the book Rich Dad Poor Dad at the same time we read it. We were experiencing life together at that time, and the same thing happened to him.
He just got inspired, kind of became entrepreneurial and was wanting to do real estate as well, kind of like we did. Life took us different paths. Dave actually got in a band, got married, traveled around for several years on tour, and different things.
But Dave has always wanted to flip houses and has kept in touch with us over the years, and in the last several years he’s actually been living in Hawaii with his family. He’s been following the market, making offers here and there, asking for feedback from us on different deals that he comes across.
And we’ll give him our opinion, and he’s just been trying to get into this business. Well, a few months ago Dave got an acceptance on a deal, and the numbers look pretty good. And so he is super pumped that he got his first deal under contract.
Andrea: We could not be more happy and thrilled for Dave because kind of like the Olympics, he’s been trying and trying for this and finally got one. It’s so exciting!
Doug: And we remember that feeling. We felt like we tried forever making offers, and different strategies, and just hovering around the industry for a long time wanting to just get that first deal. And when it happens, you’re just a wave of emotions, and fear, and excitement, and nervousness that all hit you.
Andrea: Yeah, like the, “Oh no, why did they accept it? Was it too high?”
Doug: Why didn’t anybody else overbid me? I must have done something wrong. Yeah those questions all come into your head. But through this process of opening escrow and getting things lined up for him to close and begin this project, he has had a lot of questions for us and understandably so.
He’s sent us several emails, and we’ve talked to him on the phone quite a bit.
Andrea: But the thing is, he had really been studying, and researching, and learning for years. So we realized and would have thought at that point that he knows it all. He’s ready to go, but he still got to this point and still had questions. So it made us realize there have to be other people that have these same questions.
Doug: Yeah and you can take seminars, and courses, and really know a lot about real estate investing, and then when you get your feet dirty and get into it, you realize that you don’t know it all. There are questions; there’s always stuff you’re unsure of or that’s holding you up.
And that’s just normal, so what we did was took a bunch of these questions that we thought were great questions, probably questions that a lot of people, especially on their first flip, would have.
Andrea: Yeah, I think some of them are questions that probably scare people off not knowing how to do these things. So it’s good stuff.
Doug: Yeah, so we thought it would be very informational for people, and they might relate to it. So we’re going to get into some of Dave’s questions on his first flip. So let’s go for it.
Andrea: Okay, question number one: should I flip in an LLC, a corporation, or something else?
Doug: Yeah, so here’s how we start this answer. We are not attorneys.
Doug: Disclaimer, we are also not accountants, disclaimer, nor do we pretend to be by any means. But this is a very common question, very common, and a lot of people ask it. A lot of people are wondering what’s the best entity to do business in.
What do you set up? Do you do a corporation? Do you do a partnership? Do you do an LLC? Do you just flip in your own name? What do you do?
Andrea: We cannot tell you exactly what you should do. We are not telling you exactly what you should do. We’ll tell you what we did.
Doug: We’ll tell you what we did and our opinions and thoughts on this thing. First of all, don’t let that question hold you back from even making offers, and that’s the danger here is thinking, I don’t know what company to form or legal entity to have and having that hold you back from even making offers.
Don’t let that happen. Just make an offer in whatever. If you only have your own name to start, make it in your own name. Go for deal first. And I want to give kudos to Dave because that’s what he did.
He got the deal first, and then he started to wonder what to do next and was asking this question after the fact. That’s the correct order in my opinion, so what we did is set up an LLC here in California to start our first flip.
I don’t remember if we had it set up— I think we did have it set up before we actually got our first offer accepted, but that wasn’t that important. And we flipped homes in our LLC for I’d say the first year I think in the business.
The reason we did an LLC was we had just heard from other investors. We asked around, and other people had said that it was a good entity to have I think because the paperwork was simple in our state, wasn’t a lot required in terms of the backend. It was fairly inexpensive to do and relatively easy to setup.
And it was kind of a layer of protection between you and the actual house, so that’s what we did.
Andrea: But…there’s a giant ‘but’ here.
Doug: There’s a giant but. And this may be state-specific; I’m not sure. But in California, there’s a thing called the gross receipts tax that applies to LLCs. Gross receipts meaning your total gross sales. Once you hit a certain amount, an extra tax kicks in and in real estate, it doesn’t matter how much profit you make.
They’re talking about gross receipts, and prices of homes are pretty expensive, especially in California. So if you have gross sales of a million dollars was I think the first tier, an extra $5,000 you have to pay in taxes regardless of what your profit was. So that’s like three houses here in our area.
If you sold three houses, you’ve hit a million dollar gross receipt tax or limit, and then your first $5,000 tax bill kicks in, and then another one kicks in at like a million and a half or two million, two and a half. And it gets really expensive all of this extra tax, so we quickly changed out of that and now we actually flip out of an S corporation.
Now that’s us personally. We recommend you seek advice on this; seek legal counsel. Ask an accountant and an attorney if you have those at your disposal because you’ll probably get two different answers from them even based on what’s good for legal liability protection and then what’s also good from a tax standpoint. And you just have to make the decision from there.
Andrea: Like I said, don’t let that hold you back. If you get one under contract and you don’t have a corporation set up, buy it in your own name. Do it; figure it out on the next one. It’s not that big of a deal.
Doug: Exactly. Yeah, flip it in your own name. Don’t be too concerned about that. Just do the right things. Get your insurance; go forward; you’ll be okay. Figure it out later.
Andrea: Okay question number two: What do you call the binder agreement that you were referring to in the purchase? Oh okay, so this is actually Dave’s exact question that he emailed to you, and you had been telling him about how you purchased a binder for each deal that we do, and he didn’t quite understand what that was.
Doug: Yeah, so let me try to explain a little bit. Some people might be thinking, what are you talking about? Binder, what? And that’s okay. This is again one of those things that is not essential to know before flipping a house.
But typically in real estate when you buy a home, you’re going to get a title policy. We do recommend getting title insurance, and the title company is basically when you pay a one-time fee when you purchase the property. Usually it’s paid by the seller in a normal transaction.
Like let’s say you go buy a home off of the MLS with agents involved. At least in California, typically the seller will provide title insurance to the buyer, and they pay that fee based on the purchase price. And what that is, is the title company guaranteeing clear title.
So if something comes up later down the road that somebody raises their hand later and says, “No, I have legal right to this property,” for some reason (there’s all kinds of things that could possibly come up), well you’re insured. The title company is going to guarantee that you have clear title, and they’ll take care of any issues from that.
So you definitely want to get that but as a buyer, if you intend to resell this house in usually I think a two or three-year period, you can purchase what’s called a title binder policy when you buy the home. So it usually costs about ten percent of whatever the title fee is.
So let’s say the title insurance fee is $1,000; then you’re going to spend an extra $100 to get this binder. And what the binder essentially is, is a commitment from that same title company to reissue a new title policy within the two to three year period for the next owner.
And typically since you are the investor here, you’re going to be providing title insurance to the next buyer, so that’s usually a fee that the owner would pay.
Andrea: That you would have.
Doug: Right, that you would have. And it’s based on the purchase price, so let’s say you’re buying a home for $200,000 and when you flip it, you’re going to sell it for $350,000. Well that policy might go from $1,000 to say $1,500 because it’s based on the sales price.
But if you have a binder, you’re guaranteed a dramatically discounted rate on the next title policy for the next owner. So I hope I haven’t put anybody to sleep with all of this title talk.
Andrea: Basically it saves you money.
Doug: The bottom line is it’s a way to probably save $500, $600, $700 when you sell a home on title insurance. That’s it. It’s just a little trick to save money, so if you’re going to be flipping, look into the title binder policy while you’re in escrow with whatever title company you’re using. That’s all; that’s the short answer.
Andrea: Kind of long, but that’s okay. Question number three: I am so excited to get going on this project. Do you ever get started on the rehab before you close? Here’s my answer to that.
Doug: Bum, bum, bum.
Andrea: No! No, no, no!
Doug: Absolutely not.
Andrea: Do not do that. There are a couple reasons. For one, you don’t want to spend money improving a property that you don’t own because anything can happen before you close and if that transaction falls out, you have just improved somebody else’s property for free. You’re not going to get that money back. Don’t do that!
Doug: And you may think, nothing is going to happen. it’s a done deal. We’re moving forward, and everything is set in stone. Trust me, things can happen at the eleventh hour. Title issues can come up that we just talked about.
Andrea: Right and reason number two is liability issues. You don’t own that home. You don’t have insurance on it, so just not a good idea. Don’t do it.
Doug: That’s right. Somebody gets hurt on the job there, and you’ve got a real mess on your hands. Now it’s somebody else’s property where your person that you hired got hurt. It’s just a big mess. You don’t want to mess with that. It’s not worth the risk. Just be patient.
I understand he’s anxious. He’s ready to get going, wants to get a jump-start. Time is money. We get that. Just line everything up, but don’t start doing work. Don’t start putting money into the house before you own it.
Andrea: Okay question number four: What steps do I take to record the DOT (or the Deed of trust) and note for my lender?
Doug: Okay so another good question.
Andrea: Is this one going to be a snoozer?
Doug: It might be, so grab a cup of coffee real quick while I explain this, DOTs or deed of trusts, now in some states it might be called a mortgage. In some states it’s called a deed of trust. I don’t know what it’s called in your particular state, but here in California when you lend money on a property and you’re getting security for that money you just lent, you get it in the form of a deed of trust against the property.
And I think in Hawaii it’s the same thing. So to flip houses, we use private investors’ money a lot, so people that we know will invest money with us, and we’ll pay a rate of return. And in return for their money, they’re getting a deed of trust as security for that note just like a bank would, any bank that’s lending money to anybody.
So Dave is also using private investors to fund this deal, and he’s wanting to know the process. Hey, how do I record this deed of trust for my lenders? Well there are two ways this can happen. The first way is in escrow. In your typical escrow process (or if your state doesn’t have escrow, you’ll use a closing attorney), you can actually have them handle all of that.
So your private lender will fund the title company or the escrow company. They will handle all of the paperwork in terms of writing up the deed of trust and making sure that it gets notarized properly, and then when it all closes, they’ll go record it for you and handle it on the exact same day that the property closes.
That’s kind of the easiest way. Now there are some scenarios, and I think that was the case here with Dave, where his offer was a cash-offer. And he was afraid to upset the escrow process and the seller by trying to have the escrow company record a note and deed of trust in the escrow because now it looks like there’s a loan on the property— which technically there is— which doesn’t meet the terms of the cash deal that he had offered.
So he didn’t want to do that, so he was going to do it outside of escrow. So if that’s the case, the process is pretty simple. Basically you want to have your private lender get the money to escrow however that happens, either they wire it directly to them or they send it to you and then you send it to the escrow company.
And then you want to have the deed of trust drawn up yourself. Now you may not know how to do this, and that’s okay. I would get online, and you can go to any title company’s website for your state, and they have the forms available for you right there with little fill-in-the-blank spots.
You can fill them in, have a notary, a good one, look it over. Make sure it looks good, and then get the deed notarized, and then after the property closes you just walk it in to your county recorder’s office (search that in your area). Walk it in to the county recorder’s office; get a number; they’ll call you up to the window and say, “I want to record this deed of trust against this property.”
They’ll look it over and if there’s anything missing, they’ll let you know, and then you might have to come back and make sure it’s properly filled in. But it’s pretty simple. Just figure that part out. There’s not too much stuff to get hung up on there.
So that is the other process, and that is what I told Dave to do is do it yourself. Walk it in; make sure it looks correct. If you have a friendly title person who wants to look it over for you, that would be even more helpful just to make sure you filled in all of the numbers correctly and everything.
Are you bored over there?
Andrea: A little bit.
Andrea: We’re like peanut butter and jelly babe. I’m so glad you handle that side of things. The next two questions are not nearly so technical, so that’s why I’m answering them, and I just tuned you out right there because you got that.
Doug: Well and you’ve got the right mindset, like the bigger picture you know. Hey, does the deal make sense? How’s the rehab going to be? Let’s get that thing sold, you know. But some people, me included, are kind of analytic and get hung up on these things like, oh I don’t know this process. This is confusing to me, and therefore if I don’t fully understand it, how am I ever going to do this deal.
You don’t need to fully understand it. Just kind of have the bigger idea, the big picture in your head and then once you’re in it, then you figure it out. Like Dave’s doing here, asking questions: “Hey, uh I forget. How do we do this?”
And this is nothing new to Dave. He’s worked with private investors a lot, so these little details he just didn’t do or didn’t know because he’d never really done it. So good questions that a lot of people will have, and just don’t get hung up on them.
Andrea: Yeah. Okay question number five. I’m going to try to make this as understandable as possible to someone that did not read the entire email, just kind of a snippet of several questions, so he says, “Right now my running costs are about $30,000.” I’m thinking that means his total budget or what he’s spent so far.
Doug: Yeah the total he’s spent so far.
Andrea: Okay, “the major purchases left are windows, about $2,000. I decided I needed to do them because a lot of them were broken, and a flip across the street just put in new windows. I still have flooring to do that will be about $1,000 for material, a 12x12 concrete patio for $1,000, a new front door for $300. I still have to also do landscaping and gutters, so probably about another $5,000-6,000 that I need to spend on top of the $30,000 that I’ve already spent. So how do you know when you’re overspending?”
Well I would say that depends on a lot of things. You really need to make your flip project clean, and functional, and competitive with your comps. That’s your goal: clean, functional, competitive. If you meet those goals, anything beyond that you’re probably overspending.
So I feel like you’re on the right track Dave. Windows, if they’re broken, you’ve got to fix them. Flooring, got to have flooring; you already ripped out the other stuff, so you have to put in new.
Doug; That one is kind of essential.
Andrea: A concrete patio 12x12, that’s not crazy so that’s good. And then a new front door for $300, I think that will be a good $300 well spent, so I don’t feel like you’re overspending. I know you, and I know what you’re doing Dave, and I know you’re watching your comps, so for you I’m not worried about it.
I know that you’re doing just the right thing, but I think that’s a really great question. People probably get into the thick of it, and they’re watching this money go out and wondering, oh shoot. Am I overspending?
But if you are making that property clean, make sure everything works, and you’re competitive with your comps, then you’re not overspending.
Doug: Now if his question would have been worded like, “There’s some other things I want to do like this water fountain feature in the front yard that I think will just be a really cool thing. Or a brand new vinyl fence all the way around the front yard would make this house sell.”
Those are a little bit more of a question mark because now you’re talking about things you might not need to do.
Andrea: Right, then I’d say, “You know what? You might be overspending.”
Doug: Yeah and again, Andrea hit it on the head. It’s all about the comps and the neighborhood. Look at what has sold for the price you’re looking to sell for and ask what they had.
If you can meet that and exceed it by just a hair, you’re way ahead of the game. Don’t do unnecessary expenditures for things like big water features and custom stuff that you won’t get the money back on what you spent there.
Andrea: Right. Alright, question number six is our last question: For some reason, I thought I needed to match the exterior base color that was existing, which was blue. So I purchased a color-matched color (he said more words than that, but I’m trying to be concise here).
So I purchased a color-match type of paint basically to match the existing color that was already there, but I was looking back through a lot of your before-and-after videos, and I realized that you guys mostly do neutral beige colors and grays. So should I spend the extra $180 to get another five gallons of a neutral color or basically use what I’ve already got?
So the reason we threw this question in there, because I know it seems kind of simple, but these are the things that people get hung up on. And really, colors are not that big of a deal. So we tend to go with neutrals a lot of the time because you want to turn off the least amount of buyers as possible, and a neutral color is pretty much guaranteed to do that.
Doug: You’re trying to appeal to the masses.
Andrea: Right, with a bright blue you’re going to have a larger percentage of people that dislike that than a nice gray tone. So that’s why we tend to do that, but you know, he lives in Hawaii. Maybe blue is really exciting there— I don’t know.
We do use a lot of neutrals but in a property we just did, we just did a bright blue house actually because it’s really cool and perfect for the neighborhood.
Doug: Yeah it’s like a historic area that has kind of different colors going on, so maybe that’s this area. I’m not sure.
Andrea: As a rule of thumb, I like to keep the base color of a property neutral. If that’s going to cost you $180 to do that, that’s nothing. Spend the $180 right, but it really depends on your comps. If the blue is okay and there are other bright, funky colors in the neighborhood because you’re in Hawaii on these islands, then sweet. Save the money and go with what you got.
But if you want to be safe, I love a neutral color with a bright front door because people can see past the color on the front door. If they don’t love it, they know that it’s a super simple fix. But a lot of people can’t see past a color they don’t like on the entire exterior of the house.
Doug: Yeah, and there are some colors that just make the house seem a little smaller maybe or if it’s definitely an odd color for the neighborhood like you mentioned, you want to avoid that. You’re trying to appeal to the greatest amount of buyers as possible. So yeah neutral colors are typically what we use, but in his case this blue might be okay.
Andrea: Right, yeah I think it’s kind of fun.
Doug: So great questions Dave, we’re super excited to see how this property turns out. I think he’s just about to wrap up the rehab here in the next week, so we’ll definitely check back in with him and see how it’s going throughout the process. We certainly wish him the best, and I’m excited to see how it goes.
So that’s it for Dave’s questions. We will probably get some more later and maybe do another episode like this. We wanted to remind you that we are speaking at Flip Hacking Live in San Diego if anyone is going to be down here and wants to learn about real estate investing.
It’s going to be a great event, so if you’re interested in checking that out or getting some tickets, go to SpousesFlippingHouses.com/FlipHack.
Doug: Lots of good pictures of things going on throughout our business.
Andrea: Well we shouldn’t say lots.
Doug: A few.
Andrea: I’m trying to remember to post more stuff. I’m one of those people just living my life. I don’t stop and think, Hey, I should post this picture of me doing this thing. I’m just doing this thing! I’m trying to get better because it’s kind of fun to share the process, and the photos, and the before-and-afters, and that kind of thing.
Doug: Yeah, so check us out there, and we will I guess talk to you next week.
Andrea: Talk to you later.
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The post Episode 36: Dave’s First Flip! Questions from a Real First Time House Flipper! appeared first on Spouses Flipping Houses.
Aug 18 2016
Rank #2: Episode 20: A Dummies Guide to Estimating Repairs for Your Rehab Project
Episode 20: A Dummies Guide to Estimating Repairs for Your Rehab Project
by Doug & Andrea Van Soest | Spouses Flipping Houseshttp://traffic.libsyn.com/spousesflippinghouses/SFH_020_-_Dummies_Guide_to_Estimating_Repairs_for_Your_Rehab_Project.mp3
Episode 20: Show Notes
When it comes to rehabbing properties it’s important to at least have a MINIMAL knowledge of the process to estimating repairs. This part of the process is where A LOT of beginning rehabbers can easily get stuck!
When we got started, we had next to NO background in construction or repair estimation…but we have learned ENOUGH that has allowed us to still be successful in this business.
In today’s episode, we’ve got 5 tips for you on how to estimate repairs without ANY kind of construction background, so you don’t get stuck during YOUR rehab process!
Here’s a Few takeaways from today’s episode:
- How to NOT let the construction process hold you up
- Why You Need to Know about the Rehabs in YOUR Area & what they can teach you
- Why You Should Reach out to Other Investors & how they can help you
- What You Need to Know About Your Major Expenses
- Our Simple ‘Bid Tip’ for Your First Rehab Project
- A ‘Quick & Dirty’ Repair Estimating Tip to Save You Time when Speaking with Sellers, to increase your chance of getting the deal
Episode 20 Transcript
Andrea: Welcome back to Spouses Flipping Houses. This is Episode 20.
Andrea: 2-0. I just told Doug, “I’m really tired. I hope I have the energy to do this podcast.” And he said, “Just slap yourself!”
Doug: Don’t you know when we’ve been on long road trips, and I had to drive all night because you’re sleeping peacefully next to me in the passenger seat, I would slap myself every 30 minutes just to wake up.
Andrea: That’s terrible.
Doug: It works!
Andrea: I’m just going to eat some candy. I think that’ll be better than slapping myself.
Doug: I was doing that too, but there’s nothing like a good ol’ slap in the face to wake you up.
Andrea: Whatever works, I guess.
Doug: Well, we’re excited. We’ve got a great episode today, again, we hope. This one is called ‘A Dummies Guide to Estimating Repairs for Your Rehab Project.’
Andrea: And it’s kind of appropriately titled because we don’t really have a background in construction.
Doug: Just say it. We’re dummies.
Andrea: Yep, pretty much.
Doug: We’re rehab dummies, and we especially were when we first started.
Andrea: Not anymore, but we were when we first started.
Doug: Right, and we’re going to give you some tips today on estimating repairs and learning the construction business enough to be successful in this business. You don’t have to be super knowledgeable about any one subject, but you need to know enough about everything in order to do it, so we’re excited to talk about it today.
But beforehand, we wanted to talk a little bit about what’s been going on this week with us. We had an awesome Sunday.
Andrea: Yes we did.
Doug: At least for me, being a lifelong Denver Bronco fan. I apologize for any of you out there who are Bronco haters, but great time watching the Super Bowl. It was kind of nostalgic for me to see my nine-year-old son there who has just in the last year become this huge football fan and watch the game with him.
And it reminded me of when I was nine or ten years old back in the 80s, but a little bit different outcome in the Super Bowls for the Broncos then. We were getting destroyed by the 49ers and destroyed by the Redskins, and just getting killed, so it was nice to have a different outcome for him and see him celebrate that.
But I thought there was a little lesson in the Super Bowl too, a little lesson in life. So you’re looking at me wondering where I’m going with this.
Andrea: I’m listening, I’m listening.
Doug: So coming into the game, the Panthers were favored. Everybody had the Panthers winning this game. They were 15 and 1 going into the regular season, and had just blown people out in the playoffs, destroying the teams, cruising on the way to the Super Bowl. And they’re the number one offense in the League, looking like they’re just going to roll over the Broncos, and no one really gave the Broncos a chance.
And you know what, the Broncos probably were under matched. I mean, the Panthers had more speed, more talent, probably physically a better football team than Denver was that day. But for whatever reason, the Broncos prevailed, and in my opinion, it just came down to who wanted it more on Sunday.
And you could tell, Denver came prepared, and they came ready to play ball, especially their defense. And you know, they won the game, and they won it pretty handily. So the lesson in life, I think there’s a lesson in life, and real estate, and business in that Super Bowl. You may not think you are the most equipped person or successful person in real estate investing.
Maybe you’re not the best negotiator; maybe you’re not the best with numbers; maybe you’re not good at estimating repairs; maybe you don’t have all of these skills. But the lesson is that if you want it bad enough, and you’re focused, and you’re committed, you can come out on top. You can be successful, so what do you think about that?
Andrea: That’s pretty good babe. You always find a way to relate sports to life.
Doug: Hey, sports is a metaphor for life. I believe that. Teamwork also is another thing, but anyway, there’s a whole other lesson in that one. But yeah, I had a great time watching the Super Bowl. We also had a change in our rehab that we’re doing this week.
Andrea: Yeah, we had a house that was a pretty light rehab, and we went through trying to look for ways to save money and not do too much to it, and so we decided to go ahead and paint the cabinets, which we do a lot actually.
Doug: Yeah, kitchen cabinets.
Andrea: And the counter-tops were decent.
Doug: Yeah, they were like a corian.
Andrea: Yeah, a solid corian all the way up to the back splash, and we thought you know what, those are good counter-tops. Let’s just keep it. We’ll do new floors and new appliances. We’ll paint the cabinets white. We do that a lot, but in this house for whatever reason, man when they sprayed that white paint on there, it just highlighted every crack and ugly thing on those cabinets.
They’re very, very old. They’re not standard sizes; they almost look homemade, and they looked terrible once they were painted. And so basically the house was done. The rest of the house looked fantastic, and the kitchen looked awful. And you just can’t sell a house that way for top dollar. So we are going back in and ripping out that kitchen, kind of a bummer.
Doug: Yeah, but you know kitchens, and bathrooms, and curb appeal are three of the most important things really in a house, and I think the curb appeal would get people in, and then they would walk around and go into that kitchen and say, “Oh. This is not…”
I think that can be one of those tiebreakers that you don’t want to lose.
Andrea: Yeah, it’s totally worth it to go back in and spend a little more, and I think in the long run, we’ll make a lot more because of it. But it just goes to show since we’ve bought and sold hundreds of houses that we make mistakes too.
Doug: Yeah. Important to walk through your house after the rehab and just take a look and try to look at it from a buyer’s perspective. They’re going to come in here and what are they going to see? And they would have really been turned off by the kitchen.
Andrea: I walked through it and was like, “Oh, no way.” And I had my assistant go to the house too just to get her opinion in case I was being too picky, and she was like, “Nope. Not good.”
Doug: So now it’s going to have a brand new kitchen. It’s going to have the dishwasher that wasn’t in existence before because this was like a 50s house. It’s just going to shine, and someone is going to love that, and this might actually help sell the house at quite a bit higher price, hopefully.
Okay, so let’s dive into today’s topic: A Dummies Guide to Estimating Repairs for Your Rehab Project. When we first started, we had zero background in construction or estimating repairs, zero experience. Now since then, Andrea has become our resident expert through her interior design training and also being our project manager. She has learned quite a bit.
And I’ve learned to estimate repairs on the fly and do a real quick estimate, just because we’re analyzing homes all day long and making offers all day long. So you have to have that skill to be able to that. And we’re going to talk about getting those skills today.
Andrea: Yeah, I think that for a lot of beginning investors, this is one of those things that can hold them up because they’re afraid because they don’t understand this process. And it’s just like anything else: you decide to go for it and you figure it out as you go.
Doug: Right, right. So we have five tips for you here on learning how to estimate repairs. Now again, these come from us being house flippers, not contractors. But this is kind of a practical way, I think, to go about learning it if you absolutely no idea where to begin. This is sort-of how we did it.
Tip number one: learn about the rehabs in your area. So, what do I mean by that? Well, are you in a high-end market or a low-end market? Are homes where you live million dollar homes or are you in a market where they’re $150-$200,000 homes? What part of the country are you in? Are homes in your area that you’re going to be flipping older? 100 year old, 150 years old, 30 years old?
Where we live, almost every house is between 5 and 20 years old. It’s kind of a newer area, so repairs can be very different based on all of that. Are the homes large, on large plots of land, and there’s a lot of landscaping involved as well or are they small, mostly smaller lots, less landscaping?
Maybe you’re in a desert area that doesn’t require that or natural landscaping is the norm. So just learn about your area and what might be unique. Another example of this might be if you, say, lived in the Palm Springs area. Well, you have a lot of mid-century modern homes out there that have a very unique style, and they require a certain type of rehab, finishing, and material in order to sell.
Andrea: Yeah, that’s a great example because that’s one where you can really get it wrong if you don’t know what you’re doing. If you bought a home there, and you’re not from there, you can really rehab it the wrong way to where it will not sell in that particular town. So researching your area is vital.
Doug: Yeah, and we don’t have these so much around here, but maybe back East you might have a lot of older, Victorian-type homes that would have a very similar reaction to the market. You’re really going to have to know what you’re doing in order to rehab those homes a certain way for what a buyer might be looking for.
Also, there could be other issues that you deal with in your area, like maybe certain areas have soft soil and foundations are known to crack and be a problem in a particular city/neighborhood/area. Or maybe you’re in an area that gets a lot of rain, and there are mold issues that you always have to be looking out for.
Certain things like that you need to know what you’re going to be dealing with in your particular market.
Andrea: Okay, tip number two for estimating repairs in your area is to ask other investors what they spent on their last rehab.
Doug: Good tip.
Andrea: And really what you have to do is go to an investor’s club meeting or an investor meet-up group and get to know some other investors. You don’t want to just go to someone that you don’t know and ask them that question, because it might be kind of personal.
Doug: They might feel threatened or something.
Andrea: You probably won’t get a good response, but if you are a part of these groups, and you’re meeting other people, you might get to a place where you could ask them and figure out what the spending norm is in your area.
Another thing that I always do, especially if we’re doing a rehab in a neighborhood where we haven’t done one before or in a new city, I will go through the comps that we find on the MLS that are in that surrounding area, and I will scroll through all of the pictures of the listings of whatever our competition is.
So I’m going to see that if they all have new cabinets, then we probably need new cabinets. Is their landscaping fantastic? Or sometimes, some neighborhoods we have are just dirt, so it’s okay if we have dirt. I’m also looking to see what style buyers are wanting in this area, so is it super modern or is it more traditional.
You can spend a lot of money and build a beautiful, very traditional style home, and kitchen, and bathrooms, but if you’re in an area where people want things super modern, it’s going to sit for a while. It’s going to be tough to sell.
Doug: Yeah, or you might not get as much for it.
Andrea: Yeah, so you need to look at the expectation out there by scrolling through pictures on the MLS, and seeing that this one sold really fast, it’s really modern. So did this one, so did this one— oh man, that one was on the market for 90 days, and it’s more traditional. Okay, bingo. I need to do a modern style home.
Doug: You can get a lot of good information by diving into the MLS and looking at those things, good tip. So tip number three: know your major expenses, know those pretty well. So what are the major expenses?
There’s a handful of them. First would be the first thing I look at when I drive up to a house or if I’m scrolling on Google Street View looking at a house, and that’s the roof. Roofs can be very expensive. Does a roof look worn, old? Is it a shake roof or something that’s going to be needing replacing?
Because if it is, you want to definitely account for that and that can be anywhere from $3-$6 per square foot, just depending on the roof. So know that could be a huge cost. Also, windows, and this is one of those things, again, by researching on the MLS to find out if that’s going to be necessary in your area, but if you need to do new windows, that could be a major expense too.
So definitely account for those, and that’s anywhere from $3,000 to $5,000 for a typical, average size house for retrofit windows.
Andrea: Yeah, but that is definitely one of those things where I would say look through the pictures of your competition. If they all don’t have new windows, you don’t need to do new windows. Save the cost.
Doug: You don’t need it, exactly. It just depends on your area, depends on the house. Another one would be heating and air conditioning. Once again, you may not need it depending on where you are, but if all of the competition has forced air and forced heat, and you don’t, you’re probably going to need it.
So that can be a pretty large cost as well. I would figure $4,000-$5,000 for an average house, depending on what you need there. Another one would be foundation. This one gets a little more technical, and this is the one that I think freaks people out the most. But if you have a potential foundation issue, that could be a minimal cost or it could be a huge cost depending on how bad it is.
So keep that in mind, and how do you look for foundation problems? Well the quick tip on that is to walk around the house and see if it feels level. Do you see places where the floor is protruding up or down? Are there major crack? You want to look for horizontal cracks in the drywall as well on the walls and above doors. Those are major hints for a potential foundation problem.
And another big expense would be a pool. A lot of areas don’t have pools, but out here where we live in the desert, there’s a lot of pools. And if the pool has been neglected or if the equipment is old, that can be a $3,000 to $10,000 fix to get your pool up and running like it should.
So those are just major repairs, major expenses that you want to note as you’re analyzing a house, walking through the house.
Andrea: Okay, so tip number four is to get at least three bids on your first rehab project. And there’s a couple reasons that you’re going to want to do that. Obviously number one is to compare prices, but number two is that this is going to give you an opportunity to basically interview several contractors.
There might be certain people that you’re just not going to work well with, and other people that you feel like you’ll work great with, and you’ll really hit it off. So you want to compare prices, but it’s also great to just meet several contractors. It’s nice to have a good, long list of several people you can call.
Doug: Right, yeah definitely.
Andrea: And then the other thing, if you have a chance and you’ve never purchased a rehab before, it might not be a bad idea to get a home inspection. We don’t really ever do this. I don’t know that we have ever done this.
Doug: I think early on we did maybe once.
Andrea: Maybe our first one, yeah.
Doug: First or second, one of those two.
Andrea: Generally, you really don’t have time. Once you get going and you’re in this business, you don’t have time to waste your seller’s time and your time with doing a home inspection. But, especially maybe your first time or two, to walk through the home with that inspector and see what they’re looking for, it would just be an education process for you to figure out what to look for in terms of repairs.
Doug: I think especially if you have a question about the foundation or something. If it’s an older home, and you just don’t know what to look for, yeah get an inspection on that first one, and then walk around with them. Talk to them; ask them questions. What are you looking for in a foundation?
You can get a good education that way so that next time you feel more confident.
Andrea: The tricky thing here is that back when we started, we were buying mostly REO Bank-owned homes, and they were vacant. So we could bring anybody through there that we wanted to. We could bring in 10 contractors if we wanted to. We could do two home inspections if we wanted to.
Nowadays, most people are buying homes directly from sellers, and if you have already signed a contract with a seller, and they’re ready to go, it’s going to make them really nervous if you bring three, four contractors through. And it’s going to make them really nervous if you bring a home inspector through.
So you have to really gauge your situation and figure out how you’re going to do that without freaking out your seller.
Doug: Yeah, you have to play that one by ear. But you know, like we said, especially on your first one, we recommend getting that done, getting bids, doing the whole thing because you want to make sure you’re not making a mistake, or getting into something that’s over your head, or have repairs coming in at 50 percent more than you expected, something like that.
Andrea: One creative thing you could do would actually be to bring a home inspector through your own home, and it would cost you some money, but that would be a great way to educate yourself on what they might be looking for. Same with contractors, even if your home is not in bad shape, you could just find out what it would cost if you wanted to change out these cabinets, or redo all of your flooring.
Just get some ballpark ideas, and then that way let’s suppose you do have a home under contract and you don’t want to freak out the seller, it’s just a good way to educate yourself.
Doug: Yeah, it’s great. Tip number five, so this is the way that I am typically going to estimate repairs now when I’m doing it from the computer or just walking through a house quickly with a homeowner or something like that. And that is to use a three-tier repair estimate model.
So, after years of doing this, and we’ve done hundreds of rehabs, it kind of boils down to thinking, for this type of house, we’d typically spend about this much money for a rehab. And we narrow it down to a real quick estimate based on price per square foot. So you’re not going to estimate based solely on that, but what we have is a three-tier system.
So we have a light rehab, a medium rehab, and a heavy rehab. Light rehab might be if the house doesn’t need much work, maybe it only needs paint, or flooring, maybe you’re just going to paint the cabinets. It’s a very light fix, either because that’s all it requires to sell or maybe it’s going to be a rental property for you, and you don’t need to go high upgrades on that.
But whatever the case, if you determine it’s a light rehab, ballpark right now we’re talking about $15 per square foot to do that rehab for the house. So, if it’s a 1,000 square foot house, $15 a square foot, you’re looking at a $15,000 light rehab for that property.
Now, you want to add in the major items on top of that. So let’s say it’s a light rehab, but you need new windows because that’s required in this area. You’d want to add that on top of the $15 a square foot, so it would be $15,000 plus another $4,000 to $5,000 for windows, so you’ll come in right around $19,000 or $20,000 on your estimate for that house.
Medium rehab would be about $20 per square foot. Now this would be a little bit stronger than the light rehab. You might be needing a new kitchen or a new bathroom, or both, maybe a little landscaping, possibly doing some more work like moving a couple of walls around or replacing some plumbing and electrical. It’s a little more involved, but it’s not a complete remodel.
This is probably the most common that we run into and again, it just depends on your area and your homes, but this would be $20 per square foot and again, add in the major items on top of that. So if you need a roof and you need to redo the pool on top of the medium rehab, make sure to add in another $10,000 to $15,000 on top of that.
And then of course, a heavy rehab you’re going to go $25 to $30 per square foot or more, depending. So this is something that’s going to need everything. It’s going to need all new interior/exterior landscaping, and most of the major items— add those on top of it. But we’re typically spending $25 to $30 or more per square foot for the heavy rehabs.
So again, very quick way to do it. Is it going to be exactly accurate? No, but in most cases when you’re making offers, going through properties, and doing this on a high volume basis, you just need to be in the ballpark. You need to be within about a five to ten percent margin there on what the actual repair bill will come in at.
You want to be as accurate as you can but without knowing everything and just doing a quick estimate, this price per square foot method plus adding in the major expenses on top of that seems to work pretty well for us. It seems to come in fairly accurate.
Andrea: Yeah, and sellers usually want an answer right away. They want to know what you will pay for their house, and so you have to be quick. If you’re sending out contractors to figure out what you can pay for their house…
Doug: Just to make an offer.
Andrea: …you’re going to probably lose out because somebody else can do this real fast.
Doug: Exactly, so you would use this method because you don’t want to waste time. You need to get a decision or an offer to these people. So that’s it. Just again to recap, the five tips. The first one was learning about the rehabs in your area— style, high-end or low-end, different things like that. The second tip was…
Andrea: Ask other investors what they spent on their rehab and scour the MLS checking out pictures of your competition.
Doug: The third tip was to know your major expenses— roof, windows, heating and air conditioning, pool, foundation. Fourth tip…
Andrea: Get three bids, at least, on your first rehab project.
Doug: And then the fifth tip was the price per square foot method. $15, $20 and $25+ for a quick estimate, so I hope that helped. That’s it for today. These are the methods we use, and just you know, I think the lesson here is don’t be afraid of this aspect of the business.
I think it tends to be one of those fear points that holds people back from even making an offer because they’re afraid they’re going to be so far off on this that they don’t what they’re doing. Get in there; get your feet wet; get estimates; learn from people, and you’ll get more comfortable with it really quickly, and it’s not that big of a deal to determine.
Andrea: Yeah, it’s totally a learn-as-you-go type of a thing. And eventually you’re going to look back and think, how funny, I used to be afraid of that.
Doug: Well, that’s all for today. We hope you enjoyed it. We’re going to go head out of here and check out a few rehabs right now.
Andrea: And eat lunch. Can we eat lunch?
Doug: And eat lunch, yes. So we will talk to you guys next week!
Andrea: Have a good week!
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The post Episode 20: A Dummies Guide to Estimating Repairs for Your Rehab Project appeared first on Spouses Flipping Houses.
Feb 12 2016
Rank #3: Episode 4: How to Rehab a Property for MAXIMUM Profit!
Episode 004: How to Rehab a Property for MAXIMUM Profit!
by Doug & Andrea Van Soest | Spouses Flipping Houses Podcasthttp://traffic.libsyn.com/spousesflippinghouses/SFH_004_-_How_to_Rehab_a_Property_for_MAXIMUM_Profit.mp3
Episode 4: Show Notes
In today’s episode we get to hear from Andrea, the design expert in our business, about rehabbing a house for MAX profit. Andrea has years of experience rehabbing properties and working with contractors and has mastered the art of repairing and upgrading a property to the optimal degree for maximizing your profits.
Andrea will share what are the most important areas of a house to focus on when doing a rehab project.
She also shares a great tool for how she manages and keeps track of the different material selections for each rehab project and the system she uses to keep track of it with the contractors.
Here are a few takeaways from today’s episode:
- Doug and Andrea talk about the importance of Gratitude in all aspects of life & business.
- Understanding the rehab condition of the “comps”
- Andrea goes into detail on the “5 main areas” to focus on for Max profit!
- What gives you the most “bang for your buck” in a rehab.
- Working with your contractor and keeping things organized.
Resources mentioned in the show:
- Doug and Andrea use the Gratitue365 app to journal things that they are grateful for. http://gratitude365app.com/
- Andrea mentioned she uses Podio as a tool for working with your contractor. There are SO many other benefits to using this as a Contact Relations Management system. We run our entire business out of this software. http://Podio.com.
Episode 4 Transcript
Doug: Hello and welcome to episode four of Spouses Flipping Houses, thank you thank you for joining us, we’re really excited to get into it today. Andrea, how are you doing over there?
Andrea: I’m doing good, how are you?
Doug: Today I’m great. I’m actually very grateful. I’ve had a theme of gratitude in our household in the last week or so, and I’m just really grateful today. I’m grateful that here we are, you and I, middle of a weekday, we’re sitting here in our home office slash recording studio [chuckles]–
Doug: — recording a podcast about topics we love, and we’re going to go to lunch after this… and I’m just grateful. This business has allowed us to do that. I get to work with my best friend, my spouse, every day, and I absolutely love it. And we have things coming up that we get to go to because our schedule is flexible.
And I just think back to when we were initially wanting to get into business for ourselves and the reasons that we wanted to do that, and it wasn’t necessarily trying to create some certain amount of income per year for our lifetime or anything like that, it was more about the freedom. Freedom that working for ourselves, having our own business, would allow us to have. Freedom of schedule, freedom of lifestyle.
We never wanted to miss one of our kids’ sporting events or dance recitals for the world. They are a priority for us, those kinds of things. And we get to do that and experience that, so I’m very grateful.
Andrea: Me too. I’m glad to hear you say that. Actually on our website, we have an e-book that’s “Eleven Tips for Successfully Working with Your Spouse”, and that is one of the tips that I have listed in there, and I really feel like it’s probably the most important one.
Because if you’re focused on what’s negative in your life, then even the good things aren’t going to seem that good to you. So focus on what’s good.
Andrea: And those things will just become more evident. All the good things will come to light. I think it’s so important. There’s actually been research studies that prove how it improves your physical health, your immune system, it improves your overall psychological health, the way you socially interact with people…
Gratitude is just huge, it’s so important. There’s actually apps you can use– Doug and I both actually use this app called “Gratitude 365“…
Doug: Yeah, it’s called “Gratitude” — let me just verify that, but I believe it’s called “Gratitude 365”, is that what it’s called? Yeah. And it’s just a very simple app — it’s a journal. It’s a gratitude journal. There’s a spot every day for you to jot something down, or put a picture in or a video, of what you’re grateful for that day.
And so I’ve been doing that for about a year and a half and Andrea’s been doing it for a while now, and it really is true, shifting your mind into that mindset of being thankful for the things that you have, even when everything else seems to be going wrong, focus on the things that are good in your life. That are positive. And just so much good comes from that. So, yeah. Grateful.
So today, we’ve got a really exciting topic. Today’s topic is how do I rehab a property for max profit? And we’re fortunate enough here to have a resident designer across the table from me, Andrea is an interior designer, she’s also a realtor, and she — in our business — she heads up working with our contractors, and basically deciding what happens with each house.
What are we going to do to it? How are we going to rehab it? What things are going to change, what aren’t?
Based on trying to maximize the profit, because this is a business that we’re running. So, she’s really good at that. Andrea’s got a lot of interior design training, she’s got a lot of experience in that field, she’s always been super creative, and has a great eye for design and what people like, and what people are looking for. And our house gets to benefit from that, thank you. [laughs]
Doug: So we’re really excited to let her take the reins on this episode today, and go into rehab zen, and how we do it and what we look for, and some good tips for doing this for maximum profit. So, Andrea, take it away.
Andrea: First of all, thanks babe. [chuckles]
Doug: You’re welcome. [chuckles]
Andrea: I appreciate it. Okay so, I think that the most important thing in fixing a house for max profit is that your house has to be as good or better than your comps’. Everything else I’m going to tell you from this point on is all relative based on this one’s point. Your house has got to be as good or better than the comps’.
So, if all the comps in the neighborhood have dirt backyards, then you probably don’t need to go put in an expensive sprinkler system and sod. You could probably get away with having dirt too, and save some money there. If all of the houses that you’re comparing to have granite counters and stainless steel appliances, and a custom backsplash, well, guess what? You gotta have those things, too.
Doug: How would I know what my comps have?
Andrea: Get on RedFin or the MLS, whatever you have access to, and scroll through their pictures, basically. You just gotta look. And don’t take the realtors’ description for it. It might say, “awesomely rehabbed house”, no, look through their pictures, because maybe it was not awesomely rehabbed. And so you don’t have to do as much, just be better than what that other person did.
Doug: A lot of realtors are very good at using words like “cozy”. [laughs]
Doug: To describe a really small house. Things like that. So yeah, don’t take all the wording. Okay.
Andrea: Okay so then yeah, my next tip is: fix what’s broken. Don’t try to hide things, it’s going to come out on an inspection. And it’s kind of a given. You need to fix what’s broken. If the air conditioning doesn’t work, you need to fix it. You want to have a good name in this business, you want to sell somebody a good product, so first and foremost, fix everything that’s broken.
Doug: And it’s just going to cause you a headache later if you don’t. Because it’s going to come back, people are going to be upset…
Andrea: It’ll stall the escrow process.
Doug: Yeah. So very good tip. Those things that are essential in the house that are broken, gotta be fixed, even if they’re not aesthetic things that you see… need to be repaired.
Andrea: Right. Okay so next, you need to solve any problems that the house might have. So what I mean by that is, if the house feels closed-in, you need to make it look and feel more open.
People want that open-concept house nowadays, and a lot of homes that were built a long time ago, everything is sectioned off in these small little compartments, so if you can go in and find ways of opening up walls, painting things a lighter color, lighter flooring, whatever you have to do visually to make the house feel more open, that will benefit you — in my opinion, it’s a problem for the house to feel small and closed-off, so that’s a problem you need to solve.
Doug: Yeah this is huge, because openness is so important. Today everybody wants an open floor plan, open house, that feels bigger, and if you go to the projects section of our website, you can actually see some of the before and after slideshows of a lot of our homes that we do, and you’ll notice if you look in there, some of the floor plans have dramatically opened up, and the rooms look bigger in the after pictures, because, you’re very good at this. Taking walls down that aren’t necessary there, and…
Andrea: Well thanks babe. Another problem that you might need to solve is functional obsolescence. And this is something that an appraiser can actually take away value for if a house is functionally obsolete. So what I mean by that is, if you have to walk through a bedroom to get into another bedroom, that is functional obsolescence.
We had a house recently that we had this situation on in Redlands, it was a tiny little house, it had only two bedrooms, but you had to walk through one of the bedrooms to get to the other bedroom. Who wants to live like that? It’s just weird. [laughs]
Doug: [laughs] Yeah.
Andrea: So we were able to restructure the house, and make the living room in the middle separate the two bedrooms, you’ve got to get a little bit creative, but that is definitely a problem, and you need to solve it.
Doug: Especially in older homes, that’s a pretty common problem.
Doug: You’ll have that a lot, you’ll have to walk through a kitchen to get to another bedroom, or vice-versa like you said. So if you can solve that, that’s a huge win for your property.
Andrea: Another problem that we often have to solve is that in the 1950s, they put the laundry hookups in the kitchen, so that the housewife I guess could be all —
Doug: Hey, you could be doing all of it, right?
Andrea: — doing everything at once, yeah. Well nowadays, nobody wants their laundry room in their kitchen. They don’t want to look at their washer and dryer while they’re cooking, they want their kitchen to be visually pretty.
That’s kind of what’s important to people these days. So we always look for a way to move that out of there, if at all possible. We’ll at least put it in the garage if we can’t put it somewhere else in the house.
Okay, so my next tip is, keep it neutral. You cannot get personally attached to a flip property. I think a lot of new–
Doug: But I like hot pink!
Andrea: I think a lot of new investors make this mistake and get really hung up, especially if they’re doing the work themselves, is thinking about the house the way that they would want it to be. And you really cannot do that. It’s not financially a benefit to you to do that, you’ll end up probably spending more money. You need to just keep it neutral.
Doug: Unless your style is totally neutral. [laughs]
Andrea: [laughs] I guess that would be the exception.
Doug: [simultaneously] Vanilla.
Andrea: So you may love red, but not everybody may love red, so you want to stick to tans, and gray color palettes. Light gray is really big right now.
Doug: Yeah, earth tones…
Andrea: Yeah. Well the “greige” [phoenetic: “GRAY-je”] sort of tan-gray…
Doug: “Greige”. [chuckles] Did you make that up? I like that.
Andrea: No I didn’t.
Doug: Oh okay.
Andrea: I wish I could take credit for it, but no, not me.
Andrea: Yeah, tan or gray, people really like those gray color palettes these days, so I’d say keep it neutral. And don’t overlook the small things. And by small things, I mean mostly flooring and paint. We pretty much, even on a simplest fix, we always do paint and flooring. Because that makes the whole house feel fresh and new.
Doug: Yeah, absolutely.
Andrea: Just because the walls aren’t scratched up, or they’re not too dirty–
Andrea: — They need to be fresh.
Doug: Maybe that tile flooring is thirty years old, but it’s in great condition… doesn’t mean you want to keep that tile floor. Unfortunately.
Andrea: That’s just not what people want these days, and you want your house to be the one that sells the quickest, so that you’re not having all of your carrying costs… so just do it right in the first place.
Doug: Yeah, when people ask me, “what’s the biggest return I can get?” or bang for your buck in terms of rehab, I’ve always told them as an appraiser, “carpet and paint”. Or, “flooring and paint”.
Doug: It’s going to return you back more than just about anything else, in my opinion.
Andrea: I would say that the five main areas of a house that you want to pay attention to are the kitchen, the bathroom, paint and flooring, and curb appeal.
Doug: Definitely. Definitely. Yeah, kitchens and bathrooms on the interior of the home are the rooms that people would look at when they’re going to see if a home has been quote-unquote “upgraded”. And that’s the sizzle.
Andrea: So if you have it in your budget to upgrade anything beyond the paint and the flooring, you want to put your money in your kitchen, and in the bathroom. A lot of times if we don’t have it in our budget to do new cabinets, we’ll paint the cabinets white, the ones that are already there, and we’ll add some new hardware on them. They almost look new.
Doug: Yeah, they can almost feel like new — yeah, exactly, almost feel like new cabinets. We do that a lot in the homes where the cabinets read their condition.
Andrea: And if a kitchen is smaller, painting the cabinets white makes it feel so much bigger and brighter, and just like a cheerful space.
Doug: Right. Definitely.
Andrea: Same thing with bathrooms. If we can’t afford to replace the vanity, we might paint it, so that it feels fresh.
Doug: Yeah, paint it… a lot of times, you’ll have maybe some tile in the shower wall that is in good condition, you can just re-glaze it, or– it’s almost like a paint, but it’s a shower grade paint that is waterproof, and you re-glaze it white, and maybe just– what we do a lot of times is, what, we change out a whole strip?
Andrea: Yeah, we’ll just pop out a whole band strip, of the existing tile. We’ll glaze the rest white, and then put in a new band strip of glass tile or something decorative.
Doug: Makes the whole thing feel new.
Andrea: [simultaneously] It looks brand new.
Doug: Yeah, if you’re on a budget, then that’s a really good way to do it in the bathroom.
Andrea: And then, curb appeal, that’s kind of self-explanatory; don’t break your budget on the curb appeal, but if you have it in your budget to do new exterior paint, that’s awesome, if you don’t, a lot of times, we’ll just paint the trim — sometimes just painting the trim white, or adding some shutters, makes the whole house feel like a new property.
Doug: Yeah. And again, knowing what your competition is on this as well. So if everybody’s got dirt front yards, depending on your area, it may not be that important that you go completely fully landscape the entire yard of the house, but in most cases at least having a little green grass…
Andrea: Mm-hmm. Oh absolutely. And you want to add the bare minimum, you want it to be clean, cleaned up.
Doug: Clean, yeah.
Andrea: Maybe a few little plants in the planter but you don’t have to go crazy, it doesn’t have to be like HGTV where they do this whole big amazing landscape– you don’t have to do that, it can be minimal, as long as it’s clean and fresh-looking.
Okay so my next tip is on staging. Some people choose to stage their properties, some people choose not to, obviously it’s always a benefit if you do it, but sometimes it’s not in your budget.
We generally don’t pay a stager to go in and do a full staging, unless it’s a very expensive property like this one we talked about, the mid-century modern, we paid a professional stager to go in and do that.
Doug: Full staging can run five, ten, fifteen thousand dollars depending on what you do.
Andrea: Yeah. And absolutely, they do a beautiful job, they make the house look so great, but that’s not always in your budget. Most of the time I would say it’s not in your budget, you don’t want to spend your profit, really, on that.
Doug: Depends on the house, depends on the price range of the property, but yeah, for the most — go ahead.
Andrea: Yeah. So what I like to do is something I call basically a semi-staging. So I have– just because I love this stuff–
Andrea: — a garage filled with staging supplies —
Doug: Oh, you love it. [laughs]
Andrea: [laughs] So I’ll basically just stage the kitchen, bathrooms, and the fireplace mantle and hearth if it has one. So nothing major, nothing over the top. I’ll put a bowl of lemons and some plants and some different things like that, maybe some plates in the kitchen, just to add some color, and to make it feel homey to a person, to help them visualize themselves living there.
Same thing in the bathroom, I’ll put out a pretty soap dispenser and a flower on the vanity, and a picture and a towel, and just that is enough to bring a little bit of life to the bathroom. You can do a very beautiful job of tile and flooring and all of that, but those little bit of staging items really does bring life to those rooms. I feel like it adds a lot. You don’t have to do it, but—
Doug: Yeah, psychologically, it does something to the buyer.
Doug: If you ever walk through those model homes, and it’s completely laid out, I don’t know, psychologically you feel like, “oh, I’m at home here, this is comfortable to me.”
Andrea: Yeah, it helps a potential buyer envision themselves living there. And that’s kind of your goal. And really, any little thing you can do to help your house be the one that sells first, if you have maybe five other houses that you’re competing with, that are all active, you just want to set yourself up for success, and do whatever you can do to make your house sell first.
Doug: Yeah, again, it comes back to being as good or better than your competition that’s out there, and this is all part of it.
Andrea: Yeah. Mm-hmm. So then okay, my last point is that you need to find what works for you, and stick with it. Now, as an interior designer, this absolutely kills me to say, I hate it, but it’s true. From a business perspective, it does not benefit you to be running all over town hunting down specialty tiles and specific granite slabs that are just perfect, you are running a business, and you need to have systems in place, and you need to be able to replicate and–
Doug: Scale. Yeah.
Andrea: Yes. And so in order to do that, you might find a couple of color schemes that work for you. Let’s say, if we do white cabinets, then we do this color granite, we do this color backsplash, we do this flooring. If we do dark cabinets, then we’re going to do this color backsplash, this color granite, and this color flooring.
Maybe you have two set-ups, maybe — we usually have probably four. And I can tell my contractor, okay, we’re going to go with this one, we’re going to go with that one, and he knows exactly what it is. And we’ll talk about that here in a minute, how we work with a contractor on all of this.
But you really need to find a couple of things and stick with them. And then I would say, go in every couple of years and revise that.
Doug: Just update it.
Andrea: Yeah, it needs to be updated so that — you know, we don’t use the same granite that we used three years ago, because it’s kind of outdated. Now we use actually a lot of quartz. So, you’ve gotta stay fresh with it, but don’t waste your time on every single house, especially for just those average neighborhood homes.
Doug: Yeah I was going to say, this is obviously going to depend on what type of homes you’re rehabbing. If you are in a completely custom area that demands this type of attention, which we occasionally will do a house like that, like a mid-century modern home, or something that–
Andrea: Yeah, we did one actually recently, out in the desert that was a mid-century modern and it had to be spot-on mid-century modern. So I went out and chose everything…
Doug: [simultaneously] Yeah, very particular details for the, yeah, finishes in there.
Andrea: Mm-hmm. And we had another one in San Diego that was kind of an up and coming neighborhood, a little bit higher price point, we knew it was very much like a hipster, trendy neighborhood, and so we tried to appeal to who the buyer was going to be for that specific property, so we went outside of our typical four system plan and we had it totally custom and awesome.
We’re doing another one that’s a historical one, obviously, you’ve got to go within the boundaries of the Historical Society, and that one’s going to be totally custom too.
Andrea: But for your regular, average neighborhoods, if you can have a couple different specific plans that you use, and you can just tell your contractor, A, B, C, it’ll make everybody’s life so much easier.
Doug: It’s going to save you so many headaches and so much time, if you do it that way and systemize it.
Doug: You mentioned working with your contractor, we have a special way do that, great tools, go ahead and talk about that.
Andrea: The tool that we use, and I’ll have Doug explain it actually because he set it up, but we use something called Podio, and this makes our life–
Doug: Love Podio. [chuckles]
Andrea: — so simple. In so many ways. But within Podio, there are so many things you can do. We’ll probably have a future episode that is all about Podio. But within Podio, we have a separate category for working with our contractor. So go ahead, Doug, tell us how you set that up.
Doug: Yeah so Podio is — it’s just a contact relations management, so it’s an online software that we use to systemize and manage our entire business operation. It’s very customizable, and it’s easy.
I’m not a techie by any means, but I’ve fallen in love with Podio, because you can customize it to whatever it is your needs are. So, we have a specific workspace within Podio just for our contractor and for Andrea.
And to make it quick, basically we’ll just set up specific projects in there, like, “Elm Street House” for example, and Andrea can just click and drop all these different items that she has saved that we talked about before like, a cabinet color, a countertop type, a backsplash tile, a wall color, and maybe a roof shingle, things that we use in succession with each other, and in a matter of a few seconds, click and drop those into that project, so that the contractor, who has access to that as well, can see exactly what she’s chosen…
Andrea: I’ve got the SKW numbers, everything’s in there. Every item I’ve already put in.
Doug: [simultaneously] It’s already been pre-uploaded. Yeah.
Andrea: Yeah I only have to put it in once, and then I can use those every time.
Doug: Yeah, so there’s different ways, we used to just send an e-mail every time and it would be custom– we’d have to re-write it every time, I’d like this, I’d like this, I’d like this, and then the e-mails get lost amongst a thousand other e-mails, and it’s hard to keep track of what you even said you wanted for that house.
This is a really good way to keep each other accountable, the contractor can make comments on it, he can upload photos after it’s done, put it in there immediately from his phone…
Andrea: I can upload photos to show, look, this is the tile that I want, but this is how I want it laid out. And so within our Podio workspace, he is assigned – our contractor is assigned specific tasks, so he goes in there and checks off when demolition’s been complete. And then I’ll get a notification, okay, demo’s been done. And then, the kitchen’s complete. I’ll get a notification of that.
So it gives me these progress reports as we go along, so I know what status should be of each property, and it saves me the time of always having to drive around and check on things. He’s constantly giving me updates of what’s going on. So invaluable.
Doug: Yeah. Great tool. Great tool.
Andrea: So that’s pretty much it for today. To recap what we talked about, what Doug just said, make sure that your house is fixed as good or better than your comps’. Fix what’s broken, solve the problems, keep it neutral — remember those five main areas of the house, the kitchen, the bathroom, paint, flooring, curb appeal, stage if it’s in your budget, or you can do it yourself, a little DIY staging goes a long way, and find what works for you, and stick with it.
Get your couple color scheme plans, and stick with those for a period of time until you decide to revamp it. It’ll save you time, it’ll save your contractor time, and your houses will look great because you know that those are proven color combos that you’ve already used, and it works for you.
Doug: Okay that’s it for today. Thank you so much for joining us, I hope you got a lot of great information out of today’s topic. We want to encourage you to head to our website: spousesflippinghouses.com. Go check it out. Big picture of Andrea and I in the front of it. [laughs].
Doug: Little too big, maybe. [laughs]
Andrea: Yikes. [laughs]
Doug: Got two great free gifts for you there. One is an e-book, “Eleven Tips to Successfully Working with Your Spouse”, one of those tips which we talked about at the beginning of the episode and there’s great information there.
The other gift is a video course that I put together on how to analyze a deal in today’s market. Packed full of good information, I think you’ll get a lot of value out of it, and we just encourage you to connect with us on our website.
Andrea: Also we would really appreciate it if you would head over to iTunes and leave us a rating and review. That would be awesome. We would really appreciate it. You can also — if you have any questions, if there’s anything that you would love to hear us talk about, head over to our website, or you can e-mail us, and shoot us your questions, we would love to get to know you.
Doug: Looking forward to connecting with you. Thanks again for listening.
Andrea: Have a good week.
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The post Episode 4: How to Rehab a Property for MAXIMUM Profit! appeared first on Spouses Flipping Houses.
Oct 21 2015
Rank #4: Episode 32: Working With Contractors
Episode 32: Working With Contractors
by Doug & Andrea Van Soest | Spouses Flipping Houseshttp://traffic.libsyn.com/spousesflippinghouses/SFH_032_Working_With_Contractors.mp3
Episode 32: Show Notes
In today’s episode we’re discussing an ESSENTIAL topic in the business of flipping houses – ‘Working with Contractors’.
We’ve had our fair share of great & not-so-great experiences with contractors & have been able to dial-in a working-system we’ve really been happy with!
Tune in to today’s episode to learn 8 of our best tips for working with contractors to reduce your learning curve, & make your life just a little bit easier during your projects.
Here’s a Few takeaways from today’s episode:
- Where to find contractors
- How many bids to get when first starting out
- Make sure your contractors do THIS before getting started on a job
- The importance of making THIS specific request to hold your Contractors accountable
- How to set good communication with your contractors from the get-go
- What to expect when getting permits & working with the city
- Why you should keep a Project Journal & what to include in it
- Why you should inspect your contractors work & how often you should do so
- Do THIS simple thing to get your contractors to WANT to work for you
Episode 32 Transcript
Doug: Welcome to the Spouses Flipping Houses podcast. We are on Episode 32, and across the table from me is my lovely wife Andrea. Hello.
Doug: Today we’ve got a great topic that is pretty important if you’re going to flip houses, pretty essential, and it is working with contractors.
Andrea: Yes, we have worked with a lot of different contractors over the last eight years, and we’ve had some really great experiences and some really not so great experiences. And so through all of that, we sort of dialed down our system for working with contractors, and it really has been dialed down over the last I would say eight months or so.
Doug: Yeah definitely. It’s changed and morphed, how we’ve worked with contractors has morphed over the years, and we’ve kind of packaged it into this system now that we’re using that, at least for the time being, we’re really, really pleased with.
Doug: So in this podcast, we’ve got eight killer tips for you for working with contractors. And it’s really a lot of content here, so we’re going to dive right into it.
Andrea: Sounds good.
Doug: It’s funny how we flip houses for a living, but do you have any training in construction or anything like that? Any kind of formal background in…?
Andrea: The only background that I have, which I feel like actually has served me well, and I feel like I have a good understanding of the construction process, is the fact that my dad built one of the houses that we lived in growing up. And I would go with him to the jobsite all the time and just watch, and sometimes he’d have me helping to mud the drywall.
And so I feel…
Doug: In your mind, you built a house.
Andrea: in my mind I built a house. I basically built a house as a child.
Doug: Well I’m glad. Maybe that gave you the confidence to take this on because I have zero, zilch, zip background, I should say, in construction. No knowledge whatsoever, did not work in construction growing up.
I can paint a wall, and I can hang a picture on the wall, and Google something when I need to change out a toilet or whatever in the house, but zero background in any of this. And yet you and I landed on rehabbing houses for a living, so let that be encouragement to any of you out there who are like us and don’t have any real formal training or experience much at all. You can do it. It can be done.
Andrea: And even though you have no formal training, it is something that you have always loved, maybe back from your Lego days as a child. I don’t know, but you have always loved this sort of thing.
Andrea: Doug really wanted to be an architect growing up, and I always wanted to be an interior designer. I’ve loved interior design for as long as I can remember. I was constantly changing my parent’s house around and even painting without permission, things like that.
Doug: Tell that story! You painted your house while your parents were out of town I think, right?
Andrea: No that’s another story about some friends and I who accidentally knocked over a brick pillar, and we rebricked and mortared the pillar all by ourselves while they were out of town.
Doug: Didn’t show at all.
Andrea: No, they could tell the very second they drove up that something was very, very wrong.
Doug: It kind of looked like the Leaning Tower of Pisa, tilted. I remember seeing that, anyway.
Andrea: Yeah, but I think— actually I better go back and ask— I think I got permission, not really sure. There was an old boyfriend coming back to town to visit, and I just thought their house needed a facelift before he came over.
Doug: Your house right? Your parents…
Andrea: Our house, my house, their house. Sure, whatever. So yeah the trim and the front door were like a dark brown. It was fine, you know. But I just thought it would look better blue, so I painted it blue.
The problem being though that the roof peaked on the sides, so I only painted as far as I could reach, so the front of the house looked fantastic just don’t go around the side or back.
Doug: So as long as you didn’t bring the boyfriend around the side or the back, you’re good.
Andrea: And he didn’t even end up coming to town after all that.
Doug: Well I’m glad he didn’t. Maybe that plays a role in how we ended up together. I don’t know. I forgot about that; that’s funny story.
Andrea: But anyways, back to what I was saying. Both of us, from an early age, loved this whole concept of kind of renovating a home in some fashion, whether it be through design or you, the construction/architectural side.
Doug: Layout of things and just creating something. That was my draw to it and yours as well, this idea of creating a beautiful space and just everything that goes into that.
Andrea: Right, but then neither of us ended up majoring in anything having to do with that. But then somehow we’ve kind of found our way back to that thing we were ultimately passionate about. So that’s pretty cool.
Doug: Yeah, and we got into real estate investing, as we’ve mentioned on this podcast before, for the long-term goals of cash flow. Rentals, having that be our income someday is sort of our retirement. And that still has been our bottom line, ultimate goal, but yet the flipping houses portion of it we actually love doing.
And I think we will continue in some fashion or another to build or rehab houses even long after we need to do this for income because we enjoy it.
Andrea: Yeah, it is so fun to watch the transformation. It’s really, really exciting if you’ve ever had the opportunity, even if someone’s own home, to update your bathroom or whatever it is you might do. It’s so fun.
Doug: It’s gratifying too. It’s gratifying to take something that was “ugly, or broken, or dated” and transform that into something that is an enjoyable place to be in, an enjoyable space that looks beautiful now. So, it’s fun.
And we’re going to talk today, we sidetracked a little bit, but we’re going to talk about those contractors that can help you do this.
Andrea: Yes, because they can make it extra fun or they can make it extra terrible.
Doug: Stressful. So I guess we’ll go ahead and dive right into it, eight tips on dealing with contractors. But I guess first maybe we should talk about where you find contractors.
Andrea: There are a lot of different ways to find contractors. The thing that we put the most weight on is a referral from somebody that we respect, another investor. Sometimes they don’t want to give up their contractor if they’re keeping that person really busy, and so we totally respect that.
But if you can get a referral from somebody else that’s doing this business and doing well, they can give you feedback on someone’s work, and how they are to work with, and their communication style and all that.
Doug: Their trustworthiness.
Andrea: Yeah, that’s a big deal.
Doug: So referrals being number one. Another good way is, I think, just to drive around the neighborhoods you are looking to purchase in and look for some construction projects going on.
Andrea: We’ve actually gotten a good painter that way, a good trash haul out company that way. They just happened to be doing a house on that street, and we got their card. We could tell they were doing a good time.
Doug: Exactly. Yeah, go get their cards. Ask to talk to the boss guy, and you can find good people that way.
Andrea: And then another way of course is all of the online sources that there are. So there’s Craigslist, and Angie’s List, and Yelp. Actually I kind of like Yelp because you have a lot of really good and honest reviews on there generally.
If you go with Craigslist, you’ll probably want to get referrals from those people and call on their referrals to check up on them.
Doug: Yeah those are good ways. Another way that I’ve heard taught is that you can go into Home Depot or Lowe’s, preferably in the morning time, and then just go to the Pro-desk, and you’ll see a lot of contractors coming in there and buying materials.
So you could just talk to them there, get their card, or you could talk to the people at the Pro-desk and say, “Hey, who are the guys that are always buying a lot of materials here that you would recommend?” And maybe they’ll refer you to some people, so that’s another way.
Once you find your contractors, you need to know how to work with them.
Andrea: Right, and so we have come up with these— basically eight of our best tips for working with contractors. And when we first got started in this business, we got a referral from another investor for a really great contractor, and we loved him. We worked with him for a few years exclusively. It was a great relationship.
Then he actually moved to Arizona to do business out there, and so we parted ways very amicably, and we got another referral from another investor that we trusted for a contractor. Entered into a great relationship with this guy as well, and we worked with him for about four year.
And so we got to a point with this contractor who we used for basically everything. We really trusted him, and we kind of loosened up on our rules a ton, and it ended up ultimately biting us in the backside in the end because he got in over his head working for too many people.
I’m not exactly sure what went down with him but for whatever reason, he filed bankruptcy and kind of left us high and dry. So it forced us to go back and realize, okay, how could we have foreseen that coming a little bit quicker? And what can we do to ensure something like this never happens to us again?
So we were back to square one finding new contractors, which we did. We decided to, instead of putting all of our eggs in one basket, work with a few different contractors. It just makes a lot of sense, and it’s one way we know we wont’ get in that situation again.
If somebody starts to go awry, you can kick him off the job and have somebody else to plug right into his place.
Doug: And then you’re not overwhelming any one contractor with just too much work, and that was one of our problems with this guy.
Andrea: Yeah, we really overloaded him with probably too much. And that’s our bad; that was something that we should have recognized sooner. So basically last fall we had to sit down and realize, okay how can we do this better? And these are the things that we came up with.
So the first thing, it’s not one of the eight points, but the first thing is that for every job, especially before you have people that you know— once you have people that you know and love, you might not be getting a whole bunch of bids for every job— but when you’re first starting out, you want to get three bids for every job.
Doug: Yep, three bids. Three different opinions.
Andrea: At least.
Doug: And you’ve heard this from other people before I’m sure, but it makes sense to get three different opinions. Not just to see if you can go with the lowest price guy, but to get a feel for these people and how they’re going to communicate with you, what kind of detailed bid are they going to give you.
How quickly are they in getting that bid to you in the first place? If it takes them a week to give you a bid, maybe that’s an indication of how long they’ll take to do other things, so you’re looking for different factors there.
Andrea: Right, and you’re also letting them know that you’re getting bids from other people. So it kind of forces them to be a little competitive with their price because they know that they don’t for sure have this job.
Doug: Right, yeah. So once you have all of that, what’s your tip number one?
Andrea: Tip number one is have them sign a contract. And so when we were working with just one person, it wasn’t something that we did because we really trusted him. But from here on out, we’ve realized the importance of having a contract for every job, and that contract should include their estimated completion date.
And maybe you’re going to offer a bonus for finishing on time. I think that’s a really good idea.
Doug: An incentive.
Andrea: Yeah, and you also maybe want to have in there that you’re going to start deducting, say $50 a day, past the completion date. So if they don’t finish on time, then it’s going to start dinging them.
Doug: Okay, yeah so I think make sure that their time is reasonable. They set that time.
Andrea: Right. Always ask them to tell you first.
Doug: A realistic time frame, so then they have penalties if they’re late and bonuses if they’re early. That’s good.
Andrea: And you have to be reasonable with this because sometimes there are overages that come up or extra items that need to be fixed that were unforeseen that you didn’t know about, so you have to add that into the timeline.
So you have to be reasonable with them with your expectation, but to have that kind of spelled out so you’re both on the same page. I think that’s really important.
Doug: Okay, good. Another thing you want to get also is their license and insurance, definitely want to have a copy of that on file. Want to make sure they’re licensed. You don’t want to go down that road if anything were to happen in the future. You want to make sure they’re covered and have the proper insurance in place.
Andrea: So keep that together with that contract so you’ve got everything for that contractor in one place.
Doug: Yeah keep it on file. And I would say in the contract, the work agreement, make sure that you’re making it clear that you’re hiring them as a contractor not an employee.
Andrea: Okay, so tip number two is to request a basic schedule of the timeline that you can hold them to. So in your contract they’ve given you a completion date, but it really serves you both well to ask them to lay out a scheduled timeline so that you know okay, I can expect the painting will be done by this date, and the kitchen cabinets should be in around here.
So you can kind of gauge as you go along if you’re where you’re supposed to be, because you might not know until the last week that oh my goodness, we’re way behind schedule here, and I didn’t realize it because I didn’t see if we were hitting these markers along the way. So I feel like that’s really helpful to keep you on schedule.
But also, if you’re new in this process and you don’t understand construction, you don’t know a lot about this stuff, it’s a great education. So they’re basically writing out for you the process; this is how it goes. So now you know that the sheet and sheer inspection has to take place before the drywall can go up, or whatever it may be.
Doug: The order of things.
Andrea: Yeah, the order of things and how they take place. It’s just a fantastic education if you’re not familiar with the process.
Doug: Yeah, great. Number three.
Andrea: Tip number three is to establish good communication from the get-go. So first of all, make sure that they know how you prefer to communicate, whatever that might be. Is it text messages? Is it phone calls? Is it through Podio or some other communication progress tracking system that you have found and like to use? there’s lots of them out there.
I actually just starting using one that I really like called Asana. The jury is still out on that, so I don’t want to say 100 percent for sure I love it, but so far I really am liking it. There’s a version on your computer and then also on your phone, and you can communicate and send photos, and SKU numbers, and invoices, and everything you can track through this little program.
I know Doug would really prefer me to just strictly only use Podio. We did through that…
Doug: I’m compromising.
Andrea: We did use Podio with our last contractor. It worked really well actually. I liked it quite a lot, but working with several different people in different jobs, this one is a little bit more customizable where I can, and maybe you’re going to tell me Podio is too, but I can assign certain contractors to certain jobs.
And for me it’s just simpler. I’m kind of liking this one so far.
Doug: If it works better, great. That’s what we want. Something that works for you and the contractors.
Andrea: So any means of communication that you prefer to use, just make sure they know what that is and if there’s a good time of day they can best get a hold of you, or times you don’t want them to be calling you. Just make sure you establish that up front.
Request progress photos, but don’t rely solely on these.
Doug: Yes, this is one of the mistakes we made with a former contractor.
Andrea: Right. People can submit photos to you of a bathtub that’s not even your bathtub. So I would say if somebody wants to submit photos to you and you like that, use that as a means of communication to know what’s going on that day, but don’t pay out draws for work that’s completed based on a photo.
You’ve got to make sure that the eyeballs belonging to someone in your corporation have seen the work before you write them a check.
Doug: Yeah, big good tip there.
Andrea: And then one last little thing about communication: make sure that all change orders are in writing, so if they’re adding things to the budget, just make sure that they put that in writing somewhere so that you’re both clear on it. Make sure that you’re getting invoices and receipts for money that you’re paying them, and just track all of that stuff accordingly.
Doug: Yeah, good tip.
Andrea: Tip number four is the fact that getting permits and working with the city almost always doubles your time frame.
Doug: You might even say triples in some instances.
Andrea: It can.
Doug: If you’re going to be dealing with the city for permits, every city and municipality will be different of course, but I would add at least double your time maybe triple your expected time frame for completing that project.
Andrea: Yeah, so just make sure that you’re working that into your budget, those extra holding costs because you can think you know what’s going to take place, and you probably don’t know what’s going to take place.
Even little things like what we’ve been experiencing on this historical project, the engineer architect drew up his plans accordingly, but then when you go and start tearing into the roof, seeing what’s actually in there, and realizing how many things don’t actually meet today’s code, he’s made so many changes.
And then you have to wait for him to make those changes. Then you have to submit those changes to the city and wait for them to approve those changes, and meanwhile your guys are sitting on the sidelines twiddling their thumbs. And so, just know that it adds a little bit of time.
This historical project is kind of a double whammy for us because we have to abide by every single thing that the city is telling us, and then we also have to abide by everything the historical society is telling us to do. And some of the things that they both want are contradictory to each other.
So the historical society wants us to keep the original wood framed windows. Well they’re single-pane, they don’t meet the Title 24 requirements for energy efficiency according to the city, so the city wants all new windows. The historical society is really fighting us on that, and they do not want new windows.
They want the original windows refurbished, so I think we’ve kind of found a way to figure out how to do that. We’ve got this window refurbishing expert guy working on it and figuring out how he can make that work.
But it adds extra challenges and time, just the time to figure out what we’re going to do here to satisfy both sides.
Doug: So in this instance we’re dealing with two municipalities that are governing the rehab, and you may have similar things if you’re dealing with a Homeowner’s Association. They’re going to fight for what they want, and they only meet once a month. There are just delays that can be expected, so just count on that.
Andrea: Tip number five, and this is just a new little thing I’ve started doing, and I think it’s a great idea: keep a project journal. So in your project journal, it can just be little note column in your iPhone if you want or you can actually have a notebook.
Doug: Or maybe an app in your Podio system.
Andrea: Or maybe an app in your Podio system. But there you can write down ideas that you have, maybe design ideas or things you’ve discussed with the contractor. For me as the project manager, I constantly, for all of these different jobs, have all of these things swirling around in my brain.
So to get them out of my head and down on paper just makes me feel so much more at peace and in control, and I know what’s going on, and I’m not forgetting things because I’m jotting them down and remembering that oh yeah, he told me the new roof shingles were going to be delivered on Tuesday, so that’s in my journal here. I see that, so I’m going to text him and make sure that did happen.
Whatever the case may be, you can record change orders or draws that have been paid for easy reference. It’s right there. You can, without having to call your bookkeeper and say, “Hey, which draw number are we on for this project?” You can easily access that.
I suppose that could be in your Asana app as well. So however you want to do that, just in some form or fashion, keep a basic journal of these different projects. And then also, you can document things that went great with that project and things that you would want to change the next time.
I didn’t like the way we did this. I don’t want to ever do that again. Or hey, I loved the paint combination, the color combination that we used on the exterior of this house, so let’s keep that and duplicate it. You don’t have to go back and find it somewhere, you’ve got it written down.
Doug: That’s where I think the huge value is because you’re going to come across, let’s say a project two years from now that will have something similar to a house you’re working on now. And you’ll be like I remember we dealt with this, or we had something very similar, or this was a lot like this project. How did we deal with that? I liked that one; let’s go back and reference it.
You have all of that written down in your journal.
Andrea: So tip number six is, and I kind of touched on this already, but inspect their work at least weekly. If you live in the same town and you’re not managing a whole bunch of projects, you may want to inspect it twice a week. But I would say at least weekly.
For us, I typically drive out to all of our properties on either Thursday or Friday. So if you show up on Thursday and realize nothing has been done all week, you’ve lost a whole week. So if you showed up on Tuesday and on Thursday, you would have already realized on Tuesday that nothing is taking place, and you can kind of call people on the carpet.
For us, it doesn’t really make sense because we have so many things going on. I’m only able to do it one day a week, but also we’re working with people that we trust, and I know that the work is getting taken care of.
Doug: But even the once a week is, when we had gotten loose so to speak with the other contractor, we would go two, three weeks without seeing a project.
Andrea: So I think bare bones minimum, it should be one week. And so when you’re there each week, be sure that you are kind of checking over all of their work. If you’re working from a set of plans that you have, then double check that the windows are where they’re supposed to be.
Have a tape measure with you. Is the plumbing set up where it’s supposed to be? Are the can lights being laid out where they’re supposed to be? So you can make these changes if something is wrong before the drywall has gone in, before it’s become a really big challenge.
Doug: Don’t just assume that they’ve got all that handled, that they’re going to have it correct because I mean, everyone is human here and mistakes can be made, and things can be overlooked.
Andrea: Right, and they’re hiring subs too. This is all assuming that you’re working with a general contractor, but let’s say they have subs. Maybe their subs don’t know how to read the plans as well as they do, and it happens that people put things in the wrong places. So you need to kind of learn how to read the plans yourself and keep an eye on all of that.
Doug: Great, alright number seven.
Andrea: Number seven is only pay for work that has been completed.
Doug: Hallelujah. Amen. We live by this one now.
Andrea: Yeah we do. If they’re running a business that is good, and they’re doing a good job of running their contracting business, then they should be able to front the money to get started. You shouldn’t have to write a big check for them to get started on work that they have not done yet.
That being said, there are a few guys for smaller, kind of sub-out jobs that we use— for example, our HVAC guy— he always needs half to get started to buy the equipment and things. We know him; we’ve worked with him a lot; we trust him.
If for some reason he takes off, well that was $1,500. That’s not going to kill us. For him, we will do that. But for a main contractor, you’re not going to through it on $10,000 for them to get started. Do not do that.
Doug: Especially if you’ve never worked with the person. Do not do that from the get-go.
Andrea: We basically kind of let them know that we’ll pay them every Friday. So we’ll come out and verify the work. If it’s been done, you get paid every Friday.
Doug: Yeah and you know, this might be a little bit extra work for you, and that’s where my mind goes. I like to make things simple, and let’s just keep it simple and not have to go out there so many times. But really when it comes to this, you’re dealing with a lot of money on these rehabs and accountability with the people you’re working with. So it is very important.
Andrea: Right, and if you don’t want to do it. Let’s say you’re scaling your business to be really, really large, and you feel like you don’t have time for this, it’s an essential job. So you need to hire somebody else to do it. It doesn’t have to be you; I suppose if you don’t want to, or you don’t understand this stuff, or you don’t like it, but somebody in your corporation needs to be in the project management role.
Doug: Yep, for sure. Okay, so now for the final tip, number eight.
Andrea: Tip number eight is be reasonable and treat them with respect, treat them well. Contractors, they’re human too; they make mistakes. So try to determine what’s a mistake and what is maybe negligent or cause for firing.
We had a contractor recently that laid backsplash tile sideways. Actually, it was one of the subs. Well you know what, it was done. I didn’t make him fix it because I didn’t spell that out anywhere. To me, it was obvious which way the tile was supposed to go, but to him it wasn’t. So you know what, that was my bad.
The more clearly you can communicate your expectations, the better. And if you don’t, you’ve got to take responsibility for that. You want them to want to work for you. I don’t know if it’s the same way nationally right now as it is in Southern California, but contractors have a lot of work right now.
It wasn’t like that a couple of years ago. They were desperate for any job you could give them. Well they have a lot of options right now, and so I want them to want to work for me when I call. So compliment their work. They do generally take pride in their work, and they want you to like it.
So tell them, “Hey, that looks great. You did a great job.” Maybe bring them a cold drink on a hot day. Just little small things like that.
Doug: Smiling at them.
Andrea: Bringing a container of cold water, small things go a long way to make them feel like you value what they’re doing. It’s a big deal. And then make sure other little small things. Make sure the utilities are on for them to use the restroom and if they’re not, for some reason the plumbing isn’t connected, order a Porta-Potty so they don’t have to leave.
For one thing, that’s just a productivity issue. If they’re constantly leaving to run to Wendy’s to go to the bathroom, it’s slowing everything down. So make sure that they can use the restroom. It’s just one of those things that people don’t really think about, but it’s important.
It’s just a nice gesture for them, and it’s a productivity issue for you as well.
Doug: Yeah, yeah great tips. So now you have everything you need to know about working with contractors. I hope this helped. This system and these points that you’ve laid out here have really helped us in dealing with different subs and different contractors.
Andrea: It’s really been revolutionary. I think as I’ve stepped into this role of project management to just have something clearly spelled out to myself, a way to track and communicate with people, and stay on top of things. It’s been really, really important, so I hope that this is helpful to somebody else as well.
Doug: And like I said, it’s a big part of flipping a house. This is a huge chunk and can really make your life easier if you set it up from the beginning the right way, and go about the process, communication, and everything like that with your contractors correctly.
Otherwise, it’s just going to be a stress, and a headache, and can cause problems. And you want to make sure you have a good grip on this whole process.
Andrea: Our goal as business owners is to systemize things, and make things simple, and flow smoothly, and so in something like this with construction and renovation, there are so many unknowns and uncertainty. So the more you can systemize and streamline things to make getting over those hurdles and bumps in the road smoother, the better it’s going to be for everybody.
Doug: Yeah, and don’t be afraid of it. It can be done, and it’s just a matter of getting out there, doing it, and kind of figuring it out as you go as well. But these tips will definitely help you in that process. So that’s it for today, and we will talk to you next week!
Andrea: Talk to you later!
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May 26 2016
Rank #5: Episode 3: Is it a Deal?
Episode 003: How Do I Know if It's a Deal?
by Doug & Andrea Van Soest | The Spouses Flipping Houses Podcasthttp://traffic.libsyn.com/spousesflippinghouses/SFH_003-_How_do_I_know_if_its_a_Deal.mp3
Episode 3: Show Notes
In today’s episode Andrea puts Doug, a former Real Estate Appraiser, in the “hot seat” and interviews him about how to know if a deal is a deal. She asks the questions that most people would want to know when they are trying to determine if they should buy a house as an investment, and of course, what they should pay for it.
Here are a few takeaways from today’s episode:
- Learn the key factors to how an appraiser determines value.
- How do you know what homes are considered “comps”?
- Should you take your Realtor at their word?
- What is an ARV? How do I determine that?
- How to understand what you can pay for a house.
- Does your offer change if you want to keep the house instead of flipping it?
- Are “listings” and “pendings” important?
- Plus learn more about the FREE gifts available at our website.
Resources mentioned in the show:
John T. Reed’s book “How to get started in Real Estate Investing” http://johntreed.com/collections/real-estate-investment/products/how-to-get-started-in-real-estate-investment
Free sites to find comparable sales and listings
Episode 3: Transcript
Doug: Welcome to the Spouses Flipping Houses podcast with Doug and Andrea Van Soest.
Andrea: A podcast about real estate investing, business, entrepreneurship, and balancing it all with someone you love.
Doug: Hello and welcome to Spouses Flipping Houses podcast. This is episode 3. We are super excited to have you with us today. Really excited about our topic. Good morning! Andrea, how are you doing?
Andrea: I’m good. How are you?
Doug: I’m doing really good. Almost through my second cup of coffee. By the end of that cup, I’ll be doing excellent. So we’ve got a great topic for you today. One that I’m really excited about and is near and dear to my heart especially because I’m a former certified appraiser in the state of California and the topic is “How Do I Know if it’s a Deal”. Deal Analysis. What is a deal and what isn’t. We’re going to dive into that in a little bit, but before we do that, what’s going on in our business this week, Andrea?
Andrea: Well, we are getting ready to list two houses, probably tomorrow. We finished the rehab on them last week. The photographer just went out there over the weekend and I just got those photos back. So we’re going to get those listed, hopefully tomorrow, and we are starting rehab on two new flips that we’re going to be doing.
Doug: Big rehabs.
Andrea: Big rehabs, yes. So we just walked those properties with the contractor and kind of made a plan of how we’re going to rearrange walls and everything structurally that needs to be done and changed and everything so that we get going on those two. Those are going to be pretty exciting before and afters, I think.
Doug: The two we’re just about to list were on the other side of that. They were more carpet, paint, countertops type of rehabs which are easier, quicker, but not necessarily better or worse, just different for those houses.
Andrea: Cool. Okay, so let’s get into it! Today I’m going to interview Doug and ask him a few questions. We’re going to pick his brain on his appraisal knowledge. I think this gave us a lot of confidence getting started in real estate investing. Just knowing from an appraiser’s perspective whether or not it was a deal. So, first question. Doug, how did you get started as an appraiser?
Doug: Well, if you’ll remember when we were in San Diego, we had moved back, we had sold our kettle corn business in Colorado. We moved back and we wanted to get into real estate investing somehow. And we read a book by a guy by the name of John T Reed about getting started in real estate investing, and one of the things he recommended doing was get yourself a career in real estate. Just to kind of learn the lingo, the business, kind of how real estate works, whether it be mortgages or as a realtor or an appraiser or other things like that. And you actually had the idea of becoming an appraiser and I sort of stole your idea.
Andrea: Well, I got pregnant, too.
Doug: Yes, there was a lot going on in life at that time. I was working two or three jobs just to get by and do what we needed to do. And Andrea came up with this idea of becoming an appraiser, started researching it, found out that I could get all the educational training I needed in about thirty days with an online course.
So I did that. Went to the coffee shop every day, studied, took my test, had my certification education done, and then literally just got on the internet and started researching appraisers in San Diego where we were living.
And started calling everybody in the book, just going down the list, calling, “Hey, I’m licensed. I had my education done. I’m ready to start learning. Do you have any room?”. Nope. Nope.
Probably went through thirty or forty names calling before finally I reached somebody who said, “Yeah, I just left this one office. You might try calling this other guy. I think they’re looking for somebody”. She gave me his number.
Called him. Went down. Got hired as a trainee which is what you do in the appraisal world. You become a trainee first and start working as an apprentice. So that was 2003. So that’s how we got started and I was full time as an appraiser from that point until we started flipping houses.
Andrea: And I would definitely say that not everybody needs to go get a full-time job in a real estate venue to get started in real estate investing. But we were in San Diego, a market that was way too expensive for us to get involved in anyways.
The market was going up, prices were going up like crazy and everybody was already starting to speculate that, oh, this could be a bubble. So it wasn’t really a time at the place in life that we were for us to jump in. So getting a job just made sense. Getting a job in this world.
Doug: In the field isn’t a requirement, but not a bad way to go if that’s something you want to do. It’s good way to kind of learn. So, that was how I got into it.
Andrea: Okay, so then you were an appraiser for several years, became certified, that sort of thing.
Doug: I got my actual license about a year later and then I became certified maybe two years after that, and those are just different levels of the appraiser license. But literally we worked on our own as our own independent appraisal company from 2004-2010.
Andrea: And pretty much all over southern California, so he appraised everything from the border of Mexico all the way up through LA.
Doug: Through LA, yeah.
Andrea: And that was a great experience. So Doug, from everything that you’ve learned, what are some things that determine the value of a house.
Doug: Well, good question. There’s a few things that are super important. Obviously location. Location would be the number one thing. You can’t compare a house in one city to a house in another city. It’s just a different area, so location is number one. Size. Bedroom count. Age. Condition of the home. Those are all key areas that determine the value of a house.
But really the thing that you need know as an appraiser or as an investor when you’re determining a value is what are the comparable homes selling for. The “comps” as we call them. “Comps”. It really determines what your home is going to sell for when you can compare all of the different features that your home has to a house maybe down the street that sold last month. What does my house have versus what that house has and you can add or subtract value from your house based on what that home sold for and compare.
Andrea: So how would somebody go about finding comps if they are not a realtor or an appraiser?
Doug: In this business, you really need to get access to the MLS. MLS for those who don’t know is the Multiple Listing System, or Service depending on where you are. Most areas have their own local MLS system for your market area. The people who generally are given access to that are going to be a realtor, someone who has a real estate license, like a mortgage broker, or an appraiser. Those three licenses will give you access, legally, to the MLS.
There are other ways to legally get access to the MLS. You can be an appraiser apprentice, or you can be an assistant to a realtor and have access to their multiple listing login. And you know, to do that, if you don’t have any of those licenses, I would call up a realtor and I would say, “Hey, can I help you in any way?
I’m going to be buying homes and be an investor. Homes that I’m not able to buy, maybe I can refer them to you and you can list them. But you definitely can get a real estate license. I mean you can take the classes online and get your license within a matter of a few months. To have your own login and there’s other benefits to that we can go into later. Bottom line, you really do need access to the Multiple Listing Service.
But it can be done without it and there are other ways around that and other ways to find comps. A few of the popular ones that are free services online would be redfin.com, one of my favorites. Zillow. There’s ways to run comps on Zillow. Trulia plus different public record sources, like Realty Track and other titles companies have their own websites with public data information that you can look up sales and things like that. That’s a whole other topic, but those are ways.
Andrea: Great! So how do I know if a house is a comp or if it is not a comp to my property?
Doug: Like I mentioned before, you want to look for similarities in features. You want to look for closeness and proximity, meaning the closer to your house the better. And you want to look for the most recently sold homes.
An ideal comparable, let’s say I have a house on the block that I’m trying to appraise, ideally the house next door is the exact same model, exact same square footage, built the same year, has the same features, bedroom, bathroom count.
It just sold last week. It was listed on the market so it had a normal marketing exposure, and it sold for X amount of dollars. That’s going to be the ultimate comparable because it’s literally the same house as yours.
Now that almost never happens because we’re talking about real estate and there’s differences. There’s differences in location so maybe it might have been across the street that backs up to a freeway, or maybe it had a swimming pool and other features that your house doesn’t have.
So there’s all these different things to consider. You’re looking for similarities in those major factors. Size, age, bedroom, bathroom count, and proximity being the major ones that you want to consider.
And we talked about recent sales. An appraiser, typically you don’t want to look for something within three months, no more than six months back if possible. So something that sold last year, twelve months ago, that’s not really comparable.
I mean, all your neighbors will say that’s a comparable and people think that but it’s really not a comparable because market conditions can change so much over that given amount of time that it may not be indicative of what your house might be selling for today.
Andrea: And I think that’s an important thing to know is that if an appraiser cannot use it, as a comp, it is not a comp because ultimately that house has to appraise at the price that you’re hoping for in order to sell it to a person for that price.
Doug: Right, and I go into this in detail in the free gift we give out. About how to look at these homes as an appraiser would look at them when you’re trying to determine value because ultimately that’s what the person buying the home is going to have to get an appraisal done.
Andrea: Right. So what if there are no comps? How do I determine value then? If I literally cannot find anything comparable to my house?
Doug: Okay, so if you put in those parameters, and you just don’t find anything that looks comparable, first of all you want to expand your parameters a little bit. So let’s say you looked up to a mile away and you looked for homes that were similar in square footage and there was nothing.
Well, expand your square footage a little bit. Expand to a mile and a half away. See if you can find anything there that looks comparable. Still don’t find anything? Go a little bit further, maybe two miles.
It’s really going to depend on the area that your house is located in, and a lot of other factors on how unique it might be. But if you’re not finding comps, it’s probably pretty unique so bottom line is if you just have no idea, and you’re not finding anything, and that house could be a one-hundred-thousand-dollar house, it could be a million-dollar house and you have no idea? I would just turn around and run! Just go to the next deal.
Unless you have a lot of experience and really know what you’re doing and you’re okay with taking big risks, I would run the other way. There’s going to be another deal come across your desk soon enough. There’s always another opportunity, and if you have it narrowed down to a pretty good range of what you think that house is worth, just skip it.
Andrea: Okay. So, my agent swears that this house is going to sell for $555,000. They’re my agent. Who am I to disagree, right? So how do I know if they’re right or they’re wrong?
Doug: Okay, so always respect your real estate agents, but never ever rely solely on what they’re telling you. A couple of reasons here. They may be a great person, but agents get paid by commission, so they get paid to list the house or sell it, or represent you as a buyer when buying a house. That’s how they get paid. They don’t get paid based on the profit you’re going to make on that deal, or lose. Just take that into consideration. They’re salespeople. They’re there for a commission. Now you’re an agent, so I’m not trying to knock agents. We need to work with agents and agents are great.
We love agents, but definitely you need to know the value for yourself. You need to know beyond a shadow of a doubt, based on the data that you’ve collected, and the research you’ve done, that you’re confident in what that home will sell for.
Don’t rely on the opinion of the agent. You can take that opinion for what it’s worth, and kind of use it, but don’t let it influence you too much. That’s the quickest way to get in trouble, I think in flipping homes for a new person who’s inexperienced is to just rely on what a real estate agent is telling them it will sell for.
Andrea: Absolutely. I would say the two deals we made the least amount on, in fact we may have only broke even on those properties, were two homes that a realtor told us he was positive was going to sell for this price. And we went against our own appraisal knowledge!
Doug: You know, and it was very convincing. I’ve got buyers in this area!
Andrea: Yes, that is what he told us.
Doug: I know someone who would pay this much for it. That’s very convincing.
Andrea: And guess what? That person he knew was out of the country and they had just bought something else and their money was tied up.
Doug: Yeah, yeah. That’s ultimately what happened.
Andrea: And we put it out on the market and guess what? People didn’t want to pay what he said that they would pay.
Doug: So we should have taken our own advice there. Just don’t be totally sold on something like that. If someone tells you they have a buyer for that. It’s guaranteed to sell. Know what it could sell for on the open market.
Andrea: Absolutely. Okay, so I’ve got some comps and I think I know what this house might sell for. So how do I know now what to offer?
Doug: Okay, so you think you know what the house will sell for. In order to know what to offer, you’re going to need to back out of the equation, back out your numbers, to determine what offer you can make. This is kind of a bigger conversation than just this little answer, but there’s some general formulas you can use, but first of all you need to understand your expenses, your costs.
There’s buying costs. There’s a cost to buy the property, the escrow fees, the things like that. There’s the rehab cost. How much work am I going to have to do it if any? There’s holding costs.
You’re going to hold that property for three months versus twelve months? That’s a huge difference in your cost there, just in utilities, and if you’re borrowing money, all that interest that you’re paying the whole time.
And your selling costs and those can vary a lot. If you’re going to sell it “For Sale by Owner”, okay. If you’re going to sell it on the market, you’re going to pay agent commissions. You’re going to pay potentially termite things. You’re going to pay for the buyer’s insurance. There’s a lot of expenses to consider there. The typical formula that you would hear that in most cases is a pretty safe offer to make and that’s why it’s widely used, a lot of people will teach to use this formula.
They take the ARV, which is what we talked about before, which is the After Repaired Value, ARV, get used to that term. That’s what you think the house will sell for when it’s repaired.
And then you multiply that by 70% and then you minus out the cost of repairs. That’s generally a pretty safe offer to make if you’re going to be flipping a home.
That 70%, taking that 30% off the top, what that does is that’s accounting for all of the general expenses, the cost to sell, the cost to hold it, the cost to buy it, other contingencies in there. And hopefully it’s leaving you with about 15% profit on the overall ARV.
Does it always work out? No, of course not. It’s just a general safe formula to use. But I want to say this about that formula. You really need to kind of know your area. And what market you’re in.
Andrea: How competitive it is.
Doug: How competitive it is. What other investors are paying for their flipped properties. And this will come with experience and the more you dive into this business and are working it every day and get used to seeing what’s out there, you’ll get a better feel for this. But if we were to use this formula on making our offers today?
Andrea: We’d never get a property.
Doug: We would rarely get a property, yeah. I don’t know about never. You might get a property here and there depending on how hard you work.
Andrea: It’s just very competitive right now.
Doug: It’s very competitive. Most of the time you’re not even going to get close to buying a house with that formula.
Andrea: But in the past, years past, easy. That was our formula.
Doug: That was our formula. Even maybe even 65% minus repairs was our formula in 2008 when we first started. 2009. It was different. Same area, the market was different.
The market was crashing, foreclosures, short sales through the roof, nobody was buying. Very different. It was definitely a buyer’s market at that point and it’s a seller’s market currently here today at this recording, October 2015.
That may change next year if you’re listening to this. You just don’t know so you really need to get a feel for the market and what’s a competitive number and know your expenses. Your own expenses. I’m not going to be able to save on that or that or that depending on how you go about the flip process.
Andrea: And what return do you want to make? So this is based on the return that we feel like our time is worth and what is it worth for us to go through this whole process. What do we need to make? Some people are okay with making less. Some people use their own money, they don’t use hard money, so you need to figure out what return you need to have and back that up.
Doug: Right. You’re going to have a certain amount of capital invested, whether it’s your capital or a partner’s capital or some kind of…you’re going to have capital and time and energy invested into this project. You were expecting to get a certain amount back at the end of the day. Is that return…are you happy with that? Are you not? Is it good enough for the risks you’re taking or not? Yeah. Stuff you have to determine.
Andrea: Right. Okay. What if I’m going to keep this house as a rental and not flip it? What would you suggest that I offer then?
Doug: Okay. Good question. Totally different in a sense but very similar. You still need to know your After Repaired Value, in my opinion. You still need to know what that asset is worth on the open market. Now, there’s another term that I’m going to make up called the ARR, After Repair Rent. I just made that one up.
Not only do you need to know your ARV, After Repaired Value, you need to know your ARR. What will that house rent for when it’s repaired to the rental standard for that area? And that’s important because if you’re going to keep it as a rental, you need to know what kind of income you can expect to get as market rent for that house.
You also need to know, again you mentioned what return are you looking for? So in a rental property you’re investing a certain amount of money into that home and expecting it to return a certain amount of money every month in a form of cash flow.
But if you figure that out over an annual basis, it becomes a certain percentage that you’re hoping to get. So you need to kind of know that number.
What kind of expenses can you expect? There’s a whole other podcast episode we’ll probably do on analyzing rental properties, but there’s a lot of expenses in there: vacancies, maintenance, management. Are you going to manage it yourself or are you going to hire somebody to do that for you?
Andrea: Water. Do you have to pay the water? Do you have to pay the trash? Some cities require that.
Doug: Yeah utilities can vary. Taxes that you have. Insurance. So there’s a lot of costs in there. And what type of financing? Do you have financing on the house or is it just going to be your own cash, your own capital?
Because if you have financing, then there’s a cost to that. You know you have to figure in all those things. So, how long do you want to hold the house is another factor you’ll want to consider. Are you buying that as a rental hoping that will appreciate in value? That’s kind of a speculation.
But, if you’re a market expert, or you have a pretty good sense that you feel the market is going to appreciate, it might be a strategy you want to do. Have a sort of an exit plan in mind before you analyze that deal.
But the reason I say you need to know the ARV is because even though a house might make sense on paper, as a return in terms of cash flow, you still don’t want to overpay for that house for what it’s worth as an asset. Does that make sense?
Doug: So you don’t necessarily have to buy it at seventy percent minus repairs to make it a good rental property, but I wouldn’t be paying 110% of its value just because it looks like it’s going to be a good cash flow property. Obviously that would be foolish. So, you’ve got to know those numbers again and just look at it from a little different perspective.
Andrea: Okay, so analyzing comps. What about active listings and pending sales? Should I consider those?
Doug: Okay, so people who are selling their homes and even agents will use these to justify their number a lot more than they should be. An active listing is just a home that’s for sale, It means really nothing as far as the number that they’re asking.
Andrea: In terms of an appraisal essentially.
Doug: Yeah, in terms of an appraisal or if I’m trying to determine the value of a home. If the home next door is listed for five hundred thousand, that doesn’t mean that this house is going to be five hundred thousand or even in the neighborhood of five hundred thousand.
You have to take the whole market and all the sales into consideration, not just that home. Because that’s just what somebody is asking for the home. It really doesn’t mean anything.
Now pending, you can put a little more consideration to, because that house is typically in escrow. There’s an offer. It’s been accepted. They’re just going through the process of maybe qualifying the buyer and going through all that to get the house closed.
Andrea: But as an agent I will tell you that they do not tell you what the house is pending for. So you might see that it was listed at 550, and it went pending. That doesn’t mean that’s it’s pending at 550, and you won’t actually know what it’s selling for until it’s a closed sale and they list the price that it sold for.
If you even call the agent and ask them, they might be cool and tell you, but most of the times they’re not going to tell you in case it falls out of escrow and they have to relist it.
They don’t want you to know if they came down on their price. So it’s kind of a hidden number. You don’t really know what it’s pending for. Maybe they came down by $50,000 and it’s actually pending for 500 now.
Doug: Yeah, excellent point. So you don’t want to give too much away to either the active or the pending sales. The one thing that they are, not the one thing, but something that they are valuable for is just helping to know your overall market conditions that you’re in.
For example, if there is a ton of active listings in a particular neighborhood, you’ve got to take that into consideration because all of those active listings are potentially your competition if you were to have this home listed on the market and try to resell it yourself. Your competition is all of those other active listing homes.
So you need to really know what kind of market you’re in now. Are the active listings lower than the average sales in the area? That could be an indicator that maybe this market’s going down.
Or are the active listings way higher than all the average sales? Maybe their expectations are for it to go up. So those an appraiser would look at, and an investor should look at when they’re trying to determine the market conditions.
A good thing to kind of know is with active listings and sales would be to figure out the months of inventory in your particular area. So let me explain that a little bit.
Generally, agents will tell you about six months’ worth of inventory is a balanced market. And what that means is if you take the current number of active listings, in your search, let’s say in a particular neighborhood. And let’s say I’ve got thirty-six active listings. You divide that by the average number of sales per month over the last six months or so.
So let’s say over the past six months there’s been 36 sales. And you divide that by six, that’s six per month. So if I have 36 currently active homes, and I’ve got an average of six sales per month, I have six-month’s worth of inventory. Is that too many sixes?
I hope that math equation worked out because I just did it in my head and I hope that makes sense. That would be a balanced market.
Typically, anything below that, four months’ worth of inventory, two months’ worth of inventory, that’s going to be a seller’s market. There’s less competition.
There’s typically a higher demand for that property than what is available. Anything above six months, if you get into the eight, nine, ten months’ worth of inventory, it’s the opposite. You’re in a buyer’s market. The buyers have more choice of homes. So those are certainly things you want to consider with the active listings and the pendings.
Andrea: Good! Great info!
Doug: Bottom line is when determining value, you’ve got to know what the sales are. You’ve got to have access to data, MLS, public records, so you can know what homes sold and have a general idea of what those homes have in terms of their features. Pictures are great. When you look at a sale, go into the MLS and you can kind of see what kind of condition that home appeared to be in. Read the comments from the agent about that house.
So you have to know your data. Don’t take people’s opinions of what it would sell for. Really know the numbers yourself. You have to be confident in your own research that you know what it’s going to sell for. Know your After Repaired Value. Know your numbers and just get out there and start making offers.
If you want to be conservative at first, great. That way you won’t get in trouble. But start making offers and practice at it. You’ll get feedback. Take it with a grain of salt, but the bottom line is kind of get started. Start making offers, and you’ll learn a little bit more about your market as you go.
Andrea: Cool. So we want to invite you to go over to our website and check that out, spousesflippinghouses.com and we have two free gifts for you over there. The first one is a three-part video series that Doug has created on deal analyzation, and he goes much more into depth on all of this information on a video that you can see.
You can see his screen as he’s going through comps and showing you how he finds comps and how he analyzes them, and what’s good and what’s not. It’s valuable, valuable information.
So we’re giving you that for free as well as a little e-book on working with your spouse and having fun doing that. So, check out our website.
Doug: And please give us a rating and review on iTunes if you would. Take the time to do that. We really appreciate it. We love your feedback and it would just help us to get the word out to other people who might want to learn more about this topic as well.
If you have questions, get on our website and let us know what your questions are. We’d love to answer those for you as well. So, that wraps up today! Anything else?
Andrea: I don’t think so. Have a great week everybody!
Doug: Have a great week and we’ll talk to you next week!
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Oct 21 2015
Rank #6: Episode 27: Wholesaling Explained! The “How To” of One of our Favorite Investing Strategies!
Episode 27: Wholesaling Explained! The "How To" of one of our favorite investing strategies!
by Doug & Andrea Van Soest | Spouses Flipping Houseshttp://traffic.libsyn.com/spousesflippinghouses/SFH_027_Wholesaling_Explained.mp3
Episode 27: Show Notes
In today’s episode we’re talking about wholesaling! It’s definitely one of our favorite investment strategies that we use. Last month we had a record number of wholesale deals. So we wanted to share with you how it works, the benefits of it and 5 of our quick tips you should know BEFORE getting started with wholesale deals. Tune in now and make sure to leave any questions or comments you have in the comment section below.
Here’s a Few takeaways from today’s episode:
- The 4 MOST COMMON ways to structure a wholesale deal
- Our favorite & preferred method to structuring a wholesale deal
- The 3 Primary Benefits to Wholesaling
- What an Acceptable Profit Margin on a wholesale deal is
- 5 Quick Tips You Need to Know BEFORE getting started
Episode 27 Transcript
Andrea: Welcome back to Spouses Flipping Houses Episode 27. Today we are talking about one of our favorite subjects.
Doug: Yes it is.
Doug: One of our favorite strategies, especially right now, wholesaling.
Andrea: Everybody knows what it means to flip a house; everybody knows what it means to be a landlord and keep a rental, for the most part, but not everybody knows or quite understands what it means to wholesale.
Doug: Yeah and it can be a great strategy, even if you’re not a wholesaler as your main strategy, it’s good to know this and utilize it when you need it or at least understand the process if you’re going to be buying properties from wholesalers, that kind of thing. Excited to get into that later. But before that, what’s happening in our rehabs this week?
Andrea: A lot! We got a couple that are almost finished and this is my favorite stage, when the cabinets are going in. I feel like when it comes down to the finish line, everything happens so fast, and it’s really fun. That’s when it gets really exciting. The cabinets go in, the tile, the bathroom deco tiles, all that sort of thing, the fixtures are all kind of going in at one time, and it’s so exciting.
We’ve got two or three that are in that same stage right now, and so I can’t wait to drive around tomorrow and check them all out.
Doug: Yeah finally. These are some big projects and kind of when they transform from a construction project to a house, so it’s exciting to see that.
Andrea: And then we’re starting up another rehab actually in our own town of Marietta. Believe it or not, in the last eight years, we’ve flipped a lot a lot a lot of houses, and this is only the second one that we have done in our hometown, so that’s kind of fun.
Doug: Yeah for whatever reason we just haven’t been able to land projects we wanted to do here that the numbers seemed to work, but this one is five minutes away. So it’s pretty cool, pretty exciting to start that. I like the convenience factor.
Andrea: Yeah super convenient, and then you and I kind of went back and forth on this one a lot as far as what we were going to do to it because we wanted to keep our budget small so it could be just a quick rehab, turn it around, put it back on the market. It’s in a great neighborhood that people want to live in, so the reality is we don’t have to do a whole lot to it.
But the house is full of popcorn ceilings, and I felt like that was completely unacceptable.
Doug: Well you know, a lot of the houses around here are newer-ish. So this was built in the late 80s, which is actually one of the older homes in our area because we’re just a bunch of new track homes. So there’s not a lot majorly wrong with these houses other than they’re typically dater, and they have popcorn ceilings, and they have obviously old appliances and stuff that we would want to upgrade.
But I’m thinking, Man, we’re just going to put this thing right back on the market. There’s lots of homes just like it. We can sell this thing for the market value and not have to put a lot of money into. But once we get in there, we always want to improve the house.
Andrea: Yeah, it always, and I think we’ve said this before, it always needs at the bare minimum, probably paint and carpet. Just to feel fresh, and clean, and new.
Doug: Yeah definitely.
Andrea: But this one had the popcorn ceilings that were just more chunky than your normal popcorn ceilings. It just felt so much worse.
Doug: Chunky popcorn.
Andrea: Well you know it’s kind of chunky.
Doug: Maybe it was kettle corn ceiling.
Andrea: It’s like cottage cheese has been tossed up there and stuck. It’s so ugly.
Doug: It was pretty bumpy, pretty lumpy, and it needs landscaping too. So once you get into it, it really needs more than I thought, but still. It’s a minor rehab on the scale of the rehabs that we typically do.
Andrea: Yeah we’ll still be able to do it really fast, and I won. Woo-woo! We’re scraping the ceilings.
Doug: Chalk another one up for Andrea there in the win column.
Andrea: It’s going to look really good though. I think you’ll be glad.
Doug: No, yeah. So that one’s coming up too. Well before we get into our main topic we wanted to encourage you again, if you haven’t visited our website, please do that. SpousesFlippingHouses.com, there’s a free gift for you there if you haven’t received that.
We have some before-and-after pictures. You can listen to our episodes there, leave some comments, and we love getting feedback from the listeners. So please check that out. Also if you haven’t subscribed on iTunes, do that and leave us a rating and review. That really helps us out. We really do appreciate the ratings and the feedback on iTunes.
Andrea: On to wholesaling, Doug, what is wholesaling?
Doug: What is wholesaling? Wholesaling is you have a owner of a property, and you negotiate a purchase price. Then, you find another buyer, and you negotiate a sale price for a higher amount and wam-bam, the difference is your wholesale fee. You connect the two, and you get paid the difference.
End of story. Pretty simple, right?
Andrea: Sounds pretty simple.
Doug: Yeah, it’s very simple. That’s its simplest terms. Now there are many, many ways to structure a wholesale deal. There’s not just one-size-fits-all. So, we thought we would talk about four of probably the most common or the most popular ways to do wholesale of property.
And we’re going to get into that. Now there are many more, there’s other ways, and creative ways, and things like that, but these are the four main ways.
Andrea: Yeah, the first way that you can wholesale a property is to actually use your funds to close on a property from the seller. So you go through the whole escrow process; you close on it in your name.
Doug: You own the property at that point.
Andrea: Yeah, you are the owner. The title is in your name. Then, you go and quickly find a new buyer, whether you quickly put it on the MLS or you put it out there to different buyers that you know of that buy that kind of inventory. And without doing anything to it, you quickly resell it for a profit.
Doug: Correct. That’s wholesaling number one.
Andrea: That’s kind of “a-to-b-to-c.”
Doug: Yeah, so a-to-b, you’re being “b.” And then b-to-c, “c” being the end buyer at that point.
Andrea: A few things about this method for wholesaling is that number one, you will need money to close on that property or you’ll have to borrow money, transactional funding.
Doug: Partner, something.
Andrea: Hard money, whatever it is. So if you don’t have your own funds, then you’re going to have the cost of money included that’s going to come out of your profit. Another thing you want to think about is that doing this takes a little bit longer.
You have the process that it takes to close on the property that you’re buying. Then you have to do your marketing to find a new end buyer, so that just lengthens everything plus all of the escrow time involved.
The last thing you need to know about this is that there’s a little bit more risk involved because you are going to be the owner of the house. You will take title; there’s expenses and liabilities that come along with that, and then what if you can’t find an end buyer at a higher price than what you paid? Well, that’s a big fat bummer.
Doug: Too bad for you.
Andrea: Now why would you want to do this? Because we just kind of made it sound like maybe it’s not a great strategy, but there are reasons why you would definitely want to close a wholesale deal in this way. And one of the main reasons is to protect a large profit.
So if you have created a very large wholesaling profit for yourself on a particular deal, well, the seller might freak out if they see that on the closing statement or the buyer might freak out if they see that on the closing statement. Should they? No they shouldn’t because they’re both getting to sell or buy a property that they want to sell or buy, but it’s human nature.
Sometimes people will freak out if it’s a large wholesale fee that you’re going to be earning. So it might be in your best interest to protect that by actually closing on it, and then reselling it, and nobody knows what your profit it. So it’s kind of an element of privacy.
Doug: Yeah. The second way or popular way to do a wholesale deal is much simpler, less risk, a lot less moving parts. And it’s basically to just take a finder’s fee, also known as a referral fee or acquisition fee, and with this method, all you’re doing is basically locating a property and letting another buyer know about it, your wholesale buyer, your end buyer.
And they will pay you a fee for that service. You can negotiate any fee you want as long as it’s okay with both of you. Sometimes that’s paid through the escrow closing process; sometimes it’s paid outside of escrow. You’re known as what’s called a “birddog” in the industry. This is called bird-dogging.
And if you get the visual of a dog retrieving a bird or going to stir up the birds for the hunter, you know it’s essentially what you’re doing. You’re looking for deals for a buyer and then getting paid for that. Be sure you check the laws in your state, because sometimes there could be tricky ways that you want to make sure you’re getting paid in a legal manner for the services you’re providing if you’re not a licensed agent blah blah blah.
We’re not attorneys, but anyway. Just check on that stuff, but that’s a simple way to do it.
Andrea: Probably the least risky way of starting if you don’t have money, right? Because your end buyer will be the one putting in the earnest money deposit. You’re not doing any of that.
Doug: Yeah your end buyer typically is going to be the one on the contract as the buyer. The end buyer is the only buyer. You’re just sort of assisting that buyer and getting paid a fee for it.
Andrea: Yeah, you basically just found it. You’re telling them about it. They’re hooking you up.
Doug: Right, so that’s method number two, finder’s fee.
Andrea: The third method that you can use for wholesaling a property is what we call the double close or the simultaneous close. So in this instance, there will be two escrows that are happening at the same time. So your seller of the property is “a” and you are “b.”
So we’ve got an escrow between “a” and “b,” and we have a separate escrow going on at the same time between you and your end buyer, that would be “b” and “c.” So you are involved in two escrows at one time. So the end buyer, “c,” will be using their money to close the first escrow between “a” and “b.”
Doug: Have we lost anybody yet?
Andrea: And so usually these closings would be concurrent. They’d happen at the same time so you’re not bringing any money. Your end buyer that you have found is going to be funding the first escrow.
Doug: Yeah. The “c” buyer funds the a-to-b escrow. So it’s really not that complicated, but sometimes you have to wrap your brain around what’s happening. You just have two separate escrows. One closes literally minutes before the other, so they call it simultaneous or a double closing.
And you actually are on title, in the chain of title, for about five minutes or whatever it is. And it’s a-to-b then b-to-c concurrently.
Andrea: And this can be structured in different ways. So maybe your end buyer is supplying the earnest money, maybe you’re the one supplying the earnest money for the first transaction. It can probably be written up in different ways, and this probably varies state to state because…
Doug: It does, I think.
Andrea: Yeah, a lot of escrow companies won’t actually do this type of transaction. Some will, but a lot won’t.
Doug: In our experience in California, most escrow companies don’t do this. It’s just too many moving parts. You really have to have a lot of disclosures, disclose to everybody what’s going on, what you want to do legally. And you know what? Quite honestly, we don’t really like this method because of that.
It’s just too many moving parts. Then you’ve got two escrows, fees, yeah you’ve got all of this different stuff. And it’s just, to me, there are too many things that could go wrong with it. But it is a method that people use.
Andrea: This is another way to keep your profit private from the buyer and seller. So when you’ve got these two separate transactions, they don’t know who is making what. So that’s why people do this.
Doug: Yeah, that’s why people want to do it, if you have a larger spread typically. The fourth common way to do a wholesale deal, and this is our favorite; it also happens to me in my opinion, one of the simplest ways, and that is just an assignment. Okay, so what are we talking about with an assignment?
Well, you get a contract with a seller, and it’s in your name or your company’s name, whoever is the buyer. And then all you’re going to do is market that contract, you’re going to sell your interest in that contract to another buyer, and that’s called an assignment. You’re actually going to assign the contract to another buyer in escrow, and then collect— you’re going to charge to do that, assignment fee, marketing fee, wholesale fee, whatever you want to call it.
So you actually never buy the property in this instance. There’s no risk because you’re not using your money. You’re actually not going to be the buyer. You are on contract, but then you are just selling your position as the buyer to somebody else.
Andrea: However, your profit will be on the closing statement generally.
Doug: For the buyer, it will. You have to have a buyer that understands this process, is okay with whatever fee you make. Because some people, like Andrea mentioned earlier, just weird out if they know you’re making a lot of money on a deal, even if it’s a great deal for them, they just get funny if they see a big fee there. So that’s one risk.
You’ve got to make sure you’re dealing with someone who is okay with you making money doing this deal and obviously is okay with how it’s all structured. And also you need to make sure that your contract is assignable, that is says in the contract, “you have the right to assign this contract,” which is very, very common.
Most escrow companies totally understand this method and are okay with it, and it’s just a simple way to do it. So we really like this method. This is our favorite. And one thing you need to be careful of with this strategy, certain states are a little more harsh on this than others, but in this strategy when you’re looking to find a buyer, you want to market the fact that you have a contract to buy the property.
You’re not actually marketing the property itself. So if you’re putting things out there on the worldwide web, like on Craigslist or however (that’s a whole other podcast episode on how to find a buyer), but you just want to make it clear in your advertising that you are selling a contract, not a property. Make sense? Okay good.
Andrea: Yeah, that you’re not the owner.
Doug: You’re not the owner, correct.
Andrea: Now we did nine wholesale deals in the month of March and every single one of them I believe was this strategy, number four, the assignment of contract.
Doug: Yeah, it’s the absolute best way to do it in our opinion, and we are dealing with buyers that we normally deal with that are familiar with this process, and that makes everything easier too.
Andrea: Right. So those are the four types of wholesaling strategies that people generally use. The first one, completely close on the purchase and resell it. The second one, you just take a finder’s fee where you’re essentially a birddog. The third one is the double or simultaneous close, which you can’t always do depending on your escrow company. And the fourth one is the assignment of contract, which is our preferred method of wholesaling.
Doug: Right. So let’s just quickly touch on some of the benefits of this strategy of wholesaling.
Andrea: Yeah the first one is that it’s basically low risk because even if you do close it and resell it, you’re not the one taking on all of the liability of fixing it up and going through that whole process to get it to the finish line. You’re making your profit really quick and moving onto the next one.
Doug: Yeah, and it doesn’t have to require a lot of money to do this strategy. In fact, it doesn’t require any money if you are able to locate properties for free through your network, through the MLS, however you can find properties. It doesn’t require a lot of money.
Andrea: It’s a good way to start.
Doug: Yeah it’s a great way to start.
Andrea; Yeah, the third benefit is the fact that you get paid immediately. When you do a flip, you are taking on this challenge, and you’re not going to get paid on it for four to six months, maybe longer— maybe shorter if you’re really, really good. But your payday comes much later, so in this strategy you get paid right away.
Doug: Right, and the last thing is you basically can create your own income here. The better you are at finding below market deals, however you go about that, the more money you can make because there is typically a price range that a flipper will pay. And the more you can get the property below that, the better pay you can get. So that’s up to you.
Andrea: Now I have a feeling that a lot of people are going to be curious, what is an acceptable profit margin? Or what’s an acceptable mark up on wholesale deals?
Doug: Good question. And here’s how I’ve heard that answered in my favorite way by our favorite quoted person Mike Cantu. They say, “Mike, what do you charge typically on a wholesale fee?”
He says, “I charge as much as I can get with still leaving a little meat on the bone for the buyer.” So as long as it’s a good deal for the buyer, charge as much as you can get. You’re in business for a profit. Right?
Doug: So you may hear people answer this with, “Well $5,000 is a standard wholesale fee,” and you know what? I wouldn’t listen to it. There’s no standard wholesale fee in my opinion. I know people who make far less on wholesale fees, people who make far more. It varies quite a bit, so there’s no real answer to that.
My opinion is you charge the most you can get for it.
Andrea: It might also depend on your method of marketing and how costly that is to you. So if you’re door knocking, you might be totally cool with taking a couple thousand dollar market because it cost you nothing to get that, whereas we are sending out thousands and thousands of mailers.
It’s very expensive, so we generally don’t like to do a wholesale that’s less than $10,000. It just doesn’t make sense.
Doug: Yeah because we’re spending a lot to get those deals. And the other thought that I just was thinking about is that if you’re working with consistent buyers over, and over, and over that are easy to work with and good buyers for you, you want to provide them with a good deal because they’re going to be repeat buyers from you.
So if you mark it up so much that you’re squeezing their profit out of it, they’re not going to buy from you again. So to keep them coming back for more, and more, and more, you definitely want to leave some meat on the bone for them. That’s one thought.
Andrea: Yeah, I think that’s really, really important actually because this whole business is about creating win-win relationships, whether it’s win you’re buying a property or especially when you’re selling because you do want to have that repeat business.
Doug: Yeah, and if you sell somebody a deal and they end up losing money on it, not only do you feel bad, but they’re not going to come to you again for a deal. You’ve just lost that customer.
Andrea: Yeah they won’t trust you.
Doug: Right, so just keep those things in mind. Alright, so we’ve got five quick tips for you here in regards to wholesaling. When we get a property under contract typically, we just know it’s a deal. We don’t necessarily know what we’re going to do with that deal every time we get it under contract.
We need some time to analyze that, so we may end up buying it, fixing it up, and selling it, the traditional flip that you can think of. We may end up wholesaling that deal. We may end up wanting to keep it as a rental. We don’t always know from the very beginning, and sometimes it takes a day or two to analyze the deal and find out what’s best for us in that situation.
Andrea: And it may also have to do with what else we have going on at that time. Maybe we have a lot of fix-and-flips going on, and so it’s best to just wholesale it.
Doug: It absolutely does which is another good reason if you’re a traditional flipper and you come across a deal, it’s good to know about this wholesaling strategy because if you’re just too busy with all of the projects you have going, you still could possibly make a little profit on a wholesale deal by selling it to another friend of yours who is looking for a deal at that time. So it’s a good thing to know.
So the first tip would be to have plan A and then have plan B. We typically go into an escrow, let’s say we have an intent to wholesale it. Sometimes, we aren’t able to find a buyer for an acceptable fee that we’re willing to take for that wholesale deal. Well in those cases, we know that we bought a deal when we got it under contract, and we will go ahead and close on that deal and just flip it ourselves.
So that’s what we’ll typically do, so just have options. You don’t want to just have only one exit strategy and all your eggs are riding in that basket, because what if you can’t find a buyer for that? So just be flexible and be willing to do something different.
Andrea: Our second tip for wholesaling is don’t string a seller along if you can’t find a buyer. This is really important to us. Our reputation is important to us. These sellers are usually in a tough situation in their life, and the last thing they need is for you to string them along when you really can’t perform.
So stick to your contingency dates and perform according to the contract that you agreed upon as best you can. If you can’t, let them know right away so they can move along and figure out another solution to their problem.
Doug: Right, good tip. The third tip would be to disclose in your contract what you intend to do. We have a disclosure in our contract, and it should say something to the effect of, “the buyer is an investor and intends to rent, sell, assign, or joint-venture with other partners for a profit.”
Typically they’re going to know up front that you’re an investor but in the event that they don’t, you’re making clear that you’re looking to do this deal for a profit, and you’re listing several ways that could happen, which is, in our case, very accurate because we don’t always know what we’re going to do with the property. We just know that we intend to make money on it somehow. So definitely put that disclosure in your contract.
Andrea: The fourth wholesaling tip is to get a nonrefundable deposit from your wholesale buyer or your end buyer along with your signed contract or agreement with them, just in case they back out.
Doug: Yeah, you don’t want your money to be on the line if they fail to perform. At least you have their earnest money deposit that you can give to the seller because you failed to perform on the contract.
So tip number five, just know that it’s okay to make money doing this. The wholesale world exists not just in real estate of course but all products. You have middlemen who sell at a wholesale price to the grocery stores, or Target, or whoever that then sells at a retail price. That is what you’re doing in this business, and it’s okay to make a profit doing it.
Andrea: Yeah, you are providing a service. You’re providing a service to the seller, and you’re providing a service to the buyer. If seller A knew how to find buyer C, they would just do that, but they don’t, and you do. You know how to find seller A, and you know how to find buyer C, and you connect the dots. So you’re providing a service, don’t feel bad about it.
Doug: Absolutely, absolutely. So that’s wholesaling in a nutshell. Great strategy, one of our favorites. We do love the fix-and-flip. That’s like our bread and butter. We love to take a house and turn it into something beautiful, and that can generate a great profit for you, but this is another great strategy to have in your toolbox so to speak.
So we hope you got a lot out of this episode.
Andrea: Coming up really soon here, we’re going to have another question and answer episode. I have a feeling that this podcast episode may have generated several more questions.
Doug: Hope so.
Andrea: So feel free to send us your questions at firstname.lastname@example.org. We will definitely answer your questions via email, and we may read it on the next podcast and answer it for everyone.
Doug: Yeah, so send in those questions and until then, I guess we will just talk to you next week.
Andrea: Have a good week.
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The post Episode 27: Wholesaling Explained! The “How To” of One of our Favorite Investing Strategies! appeared first on Spouses Flipping Houses.
Apr 21 2016
Rank #7: Episode 34: Andy McFarland Interview – Part 1
Episode 34: Andy McFarland Interview - Part 1
by Doug & Andrea Van Soest | Spouses Flipping Houseshttp://traffic.libsyn.com/spousesflippinghouses/SFH_034_Interview_With_Andy_McFarland_Part_1.mp3
Episode 34: Show Notes
Today Doug will be interviewing our friend, and highly respected Real Estate Investor, Andy McFarland. Andy has been investing in real estate for over 13 years and just last month in May alone did 33 deals! In other words, Andy is Killing it in his market! Tune in to today’s episode for an excellent interview with Andy McFarland.
Here’s a Few takeaways from today’s episode:
- How Andy got started in Real Estate Investing
- Andy’s Recommendation for what type of deals a beginner should start with
- How Andy got started finding deals
- Andy’s recommendations for scaling your business
- Simple tips for meeting with sellers and building Rapport
Episode 34 Transcript
Doug: Welcome back to Spouses Flipping Houses. This is Episode 34. We’ve got a killer interview, actually two-part interview, but part one will be today with Andy McFarland. He’s a friend of ours, highly respected investor, and is just killing it in a few markets. So I’m excited to share that interview with you. I think you’re really going to enjoy it.
But first, Andrea how are you?
Andrea: I am fantastic and mostly because we are about to head out on a vacation that I’m super excited about.
Doug: Yes, yes really excited about.
Andrea: So our daughter is turning 13 this fall, and we’re doing a special trip with just her. So we are taking her to New York City.
Doug: She was born like last week. How can she be 13?
Andrea: I know. You know what they say how don’t blink or they’ll grow up in a heartbeat? It’s so true. It happens; it’s happened. She’s almost 13.
Doug: Yeah it’s scary.
Andrea: So we had read this book by an author that we really love named Bob Goff, and he wrote a book called Love Does, incredible book if you’re looking for something to read this summer. And we were really inspired by him, and one of the main things that we took away was this idea of taking each kid on a special trip when they turn a “coming of age” year.
So he does 12; we decided to do 13. And we just thought what a special bonding memory that would be with each kid to take them on a special trip. So our sweet Adley is turning 13, and we are taking her to New York.
Doug: New York City. Yeah, she’s really, really excited. We’re excited too, and so that’s coming up and we just can’t wait for that. So we’re all jazzed around here for that trip.
Andrea: So we’re actually going to be gone for 11 days. We’re going to drive to Carlsbad, New Mexico.
Doug: Road trip.
Andrea: And drop our boys off at Doug’s parents house, and then we’ll fly out to New York for five days, and then fly back. And then we’ll be at a family reunion for Doug’s family there in New Mexico. So eleven days is a long time; we’ve never actually left our business for that long.
I know a lot of people work remotely, and Joe McCall travels all over the world and still does his business. We take a lot of trips but not really long ones, so this will be the longest we’ve ever been away from our business, and we actually feel great about it.
So that’s really exciting that our business is now in a place that we feel like we can leave, and it’s not going to skip a beat.
Doug: I mean when we first started this business, if we would have taken off this amount of time, our business would have just completely come to a stop because it was us doing everything. So no calls would be made and returned; no mailers would be going out; no offers being made, nothing.
And then when we would get back, we’d have to kind of restart again and try to get that ball and momentum rolling again. But now it’s really neat to just look and see how far we come. Sometimes it’s hard to see your progression until you have something to measure it against.
And so it’s exciting to us to see that it would be business-as-usual even though we’re not going to be physically here.
Andrea: Yeah, so on to the good stuff. We have a really fun interview for you today with Andy McFarland out of Utah. He’s actually in three different markets, and this guy is someone who we really highly respect. He is an absolute action-taker, like the best action-taker that we know.
Doug: Yes definitely.
Andrea: He’s young. He’s built an incredible business for himself in the last 13 years and as much as we respect and admire him for all of the things that he’s done in business, he’s just a really great person and willing to help anyone that needs help. He’s just a good guy.
Doug: Yeah, yeah. I think you’re going to get a lot out of this interview, so pay attention to the things Andy is talking about and how he was able to go from nothing to building this incredible investing business. He did 33 deals in May, in the month of May, 33.
Andrea: That’s amazing.
Doug: That’s more than one a day, so a guy worth listening to for sure.
Andrea: Okay, here we go.
Doug: Alright we have Andy McFarland on the horn here with us. How’s it going Andy?
Andy: Really good, I’m doing really good Doug.
Doug: Hey man, it’s been good to get to know you over the past year. So I met you about, I guess maybe nine months ago at a Collective Genius Mastermind meeting.
Doug: Had known about you before that though, but great dude. I’m glad to have you here with us. A lot of what you do, and we’ll get into it later, Andrea and I have kind of modeled after your business model if you will. You set the pace, and we followed behind you and just don’t recreate the wheel you know.
We just get in your tread and do what you’re doing because I think it’s a really good business model.
Andy: Oh that’s awesome. I’m honored to hear that man.
Doug: So tell us a little about you, your family, where you live, what you do, how you got into this business.
Andy: Sure, going way back I’m an army brat, so I was born in Georgia, and I’ve moved all around the country, including Germany from time to time. My dad retired from the military, and we landed in Utah. So I’ve been here ever since.
All of my family is here. Both of my brothers who work with me and my sister, she’s here. And I started real estate when I was about 22 years old. I read Rich Dad Poor Dad, it got me turned on to real estate, I bought a property, fixed it, sold it, rented it. It was called “The Tree House.”
I nicknamed it the Tree House, and I learned a ton from that and ended up making good money from that. And I haven’t really looked back ever since. I had a full-time job at the time, and I actually got fired from that full-time job.
Doug; Weren’t you like skateboarding on the property or something?
Andy: Yeah so I worked on a loading dock and when we were done at the dock and punched out, you know it’s a good opportunity to go ride and skate on the dock. But apparently management didn’t think it was a great idea, so they let me go.
It was the best thing that ever happened to me. That was my last W-2 job for somebody else, and I haven’t looked back. And man, I have not worked a day since. I’ve put in a lot of hours, but I love what I do. And I love even more what I do right now. It just keeps getting better and better, seriously. Pinch me, it feels like it just can’t get any better, right?
But to answer about my family, I live in Utah with my wife and three kids currently, but she’s pregnant so we’re going to have our fourth kid middle of next month.
Doug: Nice. Congratulations man.
Andy: July 2016. Thank you, so extremely happy. I’m extremely happy.
Doug: Three kids and one on the way. How do you have time to do anything else besides kids?
Andy: I have a great time, and the head of that great team is probably my wife. She’s amazing. She’s a stay-at-home mom, which is definitely a thankless job, and it definitely is a job. But she enjoys it; she loves it; she’s really good at it. And without her doing what she does, I couldn’t do what I do.
But she helps there and just handles the household so amazing that I can go out into the world I guess, and kill things and drag them home for us to eat.
Doug: Awesome, and you mentioned a great team, and we’ll touch on that down in the interview here. So in Utah, have a great family, you’ve been doing this since you were 22. So how long have you been in the business?
Andy: How many years is that? My birthday is tomorrow. I’ll be 36, so what is that 14 years?
Doug: So you lived through the big crash.
Andy: Yeah I lived through the crash. I survived the crash for sure. I didn’t go bankrupt or anything, but it was tough.
Doug: So we got started during the crash, 2008 really after the crash as everything was really cheap.
Andy: Great time to get started.
Doug: Great time to get started, yeah. So I can’t imagine if you were in our market, it’s probably similar where prices were cut in half or more. So what were you doing early on when you first got started, and then what are you doing now in terms of deals? What does your business look like?
Andy: Yeah, it’s always been real estate. I’ve always done wholesaling before it was cool and sexy. I’ve always gone direct-to-seller. I pretty much did deals however we could. I was working with a partner primarily when I first started, for the first year or two I was on my own and I worked with a partner.
And we held rental properties. We fixed and flipped. We did wholesale deals, pretty much anything to do a deal. When we were ramping up, I felt I was ramping up, we were doing two, three deals a month when the market kind of crashed corrected. And I learned a lot there, had some investments go bad, lost money on some deals, my balance sheet was cut in half as far as my rental portfolio and stuff went.
It was just cut in half right, so kind of had to regroup. But you learn a lot about yourself through those times and even though I lost money, I paid everyone their money back. I didn’t go bankrupt. I survived through it. I didn’t have to go get a “normal job.”
But definitely there was some retraction going on in that time, and I learned from some mistakes we made. Some things I thought were good weren’t necessarily the best in hindsight. But yeah I survived through it, and it definitely colors my investing today. I lived through that; I see what that is.
So if somebody that’s new to the business that hasn’t lost any money yet or sees everything as always going up, and it’s always going to be good, there is a downside. You need to protect yourself a little bit.
Doug: Right, yeah I’m very aware of market cycles. But you’re right. It’s easy to get in that mode where you see prices just going up, you hear the realtor talk that it’s just going to go up forever. Real estate always goes up, but you got to have that in mind that it’s not going to be this way forever necessarily. The markets change.
Andy: You can make money in any market though. People say, “What are you going to do when the market shifts?” You can definitely make money in any market. I’ve made money in real estate through a bad market, but it’s definitely easy to make money in a market that’s going up.
It’s a lot easier to do that. There’s a lot more competition, but it’s easy. You can buy something and even if you bought it wrong, four months later the market appreciated and you got bailed out. And you thought you were a wizard.
Doug: So you said you’ve always been direct-to-seller for the most part?
Andy: Yeah for the most part.
Doug: So how were you finding deals when you first started? You got this one house, and you fixed and flipped it. You actually rehabbed it and resold it right? You didn’t wholesale that one.
Andy: I didn’t wholesale that one. That one was not direct-to-seller. That was from an REO agent, so I got in, got my offer in early, and it was a property I had no business buying. It was an illegal, non-conforming, bank-owned triplex. It was in a bad area.
It had so many code violations and things from the city on it. I mean it was just a mess, but I bought it for the right price and just went into it with determination and grit. I said I’m going to make this work.
So I went to the city, made it so it was legal to rent it as a triplex, fixed it all up, pulled all of the permits, paid for all of the contractors on credit cards, and IOUs, and just borrowed money from people and just pieced it all together. And I put a ton of sweat equity in because I had no other way to do it.
And at the end of that, I rented out the three units because it was a triplex. I rented them out, so I learned to be a property manager a little bit. So I filled out the leases with people and moved them in, took security deposits.
Then after I rented them out (so I bought it, fixed it, rented them out), and then I sold that deal on owner financing because I wanted to get the maximum value for it. So I sold it on owner financing. It was actually an all-inclusive trust deed. I put an investor on it, and he was playing property manager, which I didn’t love, and then collecting all of the rents.
And he paid me less than that, and I was making a spread and was happy, and a year later he cashed me out, and I got my big chunk of equity. More money than I’d ever seen in my life, I made $40,000. It was crazy.
Doug: Okay, you killed that deal. And you just said some things that I cannot believe you knew what they were at 22 years old. You said all-inclusive trust deed. Now did you have some training or did you just figure this out? How did you know to do this?
Andy: Truly, my company right now is called Tree House Investments, and that first property was called my tree house. And I called it my tree house because you know when you’re a kid and you’re first learning how to hammer nails into boards and just build a tree house, your first experience with building?
Well that was my first experience with real estate, first experience with building, first experience with property management, first experience with financing, everything. I had no idea, so through the tree house, my tree house, my adult tree house, I learned everything about real estate.
It was probably one of my hardest deals to date, but it’s good to go through the hard things in life that really build you, and that property turned me into… I mean if I could do that one, looking back now, I could do anything. So yeah, it was a bank-owned triplex.
How did I get the financing for it? I mean I just…
Doug: Figured it out.
Andy: Tough. I figured it out, right. I needed some money for a down payment, and I figured it out. And all the money to fix it up, I figured it out. Selling on owner financing, I didn’t know that at the time, but I just learned how I could do this. I was always asking questions: how can I do this?
And I try to surround myself with people who were higher on the chain than I was, and they just taught me as I went through it one step at a time. Looking back on that now, I can see that I learned financing. I learned how to rent. I learned everything from that property, and it just kick started my career I guess. So that’s why Tree House Investments, that’s my company.
Doug: Well that’s an awesome story. So just for those who don’t know, an all-inclusive trust deed is basically like a wrap mortgage, correct? You’ve got existing financing, but then you’re going to sell it and carry back your own financing, and you probably have a spread in the middle.
Andy: Yep I had a spread. I was smiling from ear to ear… Working at the loading dock at the time, making $100 a day, working very hard for that money, and I think I was making about a $400 a month spread. And I thought to myself, I literally thought this way: this is four days of work that I don’t have to show up for. I’m just getting free money. I don’t have to work. Free money.
It was crazy to me that I could make $400 every month.
Doug: Pretty great right.
Andy: And when he cashed me out I made my $40,000, and it was amazing.
Doug: I can see why you never went back to a W-2 after that. It’s such an eye-opener.
Andy: It’s such an eye-opener. It was amazing.
Doug: So that was when you first began, so what does it look like today, 12, 14 years later, whatever we are?
Andy: Fourteen years later, I’ve got an amazing team at home with my wife of course, and I have an amazing team at work. I’ve been blessed to have a lot of people through the years that have come into my life and my business, and plugged them in. And I like to think that they utilize their unique ability for our greater good, for our collective good.
So my company right now, we do a lot of wholesale. Probably 80 percent wholesale, 20 percent fix and flip, and I do keep some rentals. I don’t have a huge rental portfolio, but I keep some. My team is— I have a guy that runs pretty much my whole wholesale company— and from everything underneath that, I’ve got sales people.
I’ve got a dispositions guy, a transaction coordinator, lead managers, project managers, and then COO, the guy who runs the wholesale company and a marketing manager. I’ve got everything from top-down, so I manage that company about five hours a week trying to keep that going.
Doug: How many people do you have currently? Do you know?
Andy: So I’ve got a COO who is also a marketing manager, a dispositions person, transaction coordinator, inside sales, three lead mangers, and five acquisition managers. I’m trying to keep track on my fingers, that’s 12.
And then I’ve got real estate agents who are kind of not necessarily in the company, but there are probably three of those. So eh 15-ish people.
Doug: And you’re not all just in Utah anymore, right?
Andy: No I branched out of Utah a few years ago. When I stopped doing […] acquisitions, that freed me to go take a system and put a plug into other states around the country. So I do New Mexico.
Doug: My home state.
Andy: New Mexico!
Doug: Represent, 505.
Andy: There’s a lot of people from New Mexico, but New Mexico and Indiana— Indianapolis, Indiana— and of course Utah, my home state, Grover, Utah. I’ve actually never been to New Mexico. I need to go. I want to go to…
Doug: What? Wait a minute, so you’re telling me you’re doing deals in New Mexico, and you’ve never been there?
Andy: I’ve personally never been. I take that back; I’ve been to the four corners, so I’ve stood in New Mexico from the four corners, but I’ve actually never…
Doug: One foot in.
Andy: And I’ve been in four different states at once. But beyond that I have not been to New Mexico.
Doug: That’s such a testament to what technology can help you do these days and obviously outsourcing with teams and what not. You’re flipping, you’re wholesaling deals in New Mexico, and you’ve never even been there.
Andy: Yeah, flipping and wholesaling.
Doug: Flipping and wholesaling.
Andy: Yeah I’ve probably got five or six flips going on in New Mexico right now.
Doug: That’s fantastic, so you mentioned a huge May that you just had. How many deals did you do in May?
Andy: So in May we had 33 contracts.
Doug: 33. There’s 31 days in May.
Andy: Yeah, we did over a deal a day, which was amazing. It’s a testament to my team, how amazing they are. We were trending probably about 20-22 deals a month average, and then May just blew up. So it’s crazy.
Doug: Man, that’s fantastic.
Andy: In June, we’re now trending about a deal a day.
Doug: About a deal a day. Do you prefer wholesaling or flipping?
Andy: For me it doesn’t really matter. It’s whatever we can do to maximize. We look at each deal on a case-by-case basis and say okay, what’s the best thing to do with this deal? And we do that whether that means wholesale it out, whether that means wholetail it out, or buy it, fix it, and sell it, or keep it as a rental.
I’ve actually kept a couple rentals this year for financing deals.
Doug: Back up there. Can you just explain wholetailing? I don’t think we’ve talked about that on this podcast very much. You said wholesale, wholetail, and flipping. So what’s a wholetail?
Andy: So a wholetail is when you buy the property, own it, and do minimal work to it, if any, and just put it on the MLS because right now around the country it’s a pretty hot market in most places.
Doug: That is a great strategy if you can buy property below market. That’s one of my favorite strategies to do today, wholetailing.
Andy: Yeah, we’ve got one like that right now that we bought for $236,000. We recognized it was a great wholetail opportunity. We cleaned it up— I mean a couple thousand bucks maybe— just kind of spruced it up a little bit. We listed it on the MLS for $320,000 last Friday.
My dispositions guy and real estate agent are dealing with that, but I know we have two offers right now, so I don’t know what it’s going to end up landing. But we didn’t do anything to it. I mean I did buy it.
I had the capability to buy it over the years. I mean I’ve been frugal with my money, and I’ve also got some investors that help me do what I do. But yeah, I’m able to look at that, not taking money out of the equation, saying okay, where am I going to find the money to buy it?
Because that’s probably most people’s problem with the wholetailing. They’re like, well how am I going to buy this thing? I tell my team to take that off the table. If it makes sense to do it, I’ll take care of it, and I do. So we bought that property and others like it, and it just makes sense.
We maximize that. We find where we can get the most value out of those contracts.
Doug: Okay, so you analyze it deal-by-deal these days.
Andy: I do, deal-by-deal.
Doug: When you started out, you did sort of a rehab project and then became a landlord on your first deal.
Doug: A lot of people I hear teach, and it’s not necessarily right or wrong, but a lot of people teach that if you’re beginning, you should start with wholesaling. That’s a good way to go. What do you think? What’s the best way if you’re a beginner? What do you recommend people do when they start out?
Andy: Well wholesaling sounds the best. It sounds the best on paper. You don’t need any money; you don’t need any credit; you don’t need anything. But I find that, for me, wholesaling is kind of farther up the river on the deal chain. The wholesalers that wholesale, I think successful wholesalers, because they have a lot of deal flow.
So if you have a lot of deal flow and you know what you’re doing, you can negotiate those discounts and you know what a deal is. Then you can kind of float that down the river to people who are going to do other things with that. Because I mean you got to get a really good deal to be able to wholesale.
That’s not to say that you can’t start with wholesaling; you absolutely can start with wholesaling. But I find the best wholesales with people that have experience across the whole real estate front.
Doug: I agree 100 percent. Yeah, I think if you want to just do wholesaling you can start with it, but I think the best wholesalers start out as a fix and flipper. You know, you understand construction costs. You’ve actually retailed a property so you kind of know when you rehab a property, you know what the demand is on that house and how it’s different from an average home.
So you understand all of that, and there’s usually a volume of deal flow that goes with it, and then you can transition to wholesaling, which is in my mind so much easier. But yeah, I agree.
Andy: If you’ve only got one or two deals, I’d say do the best you can to maximize those deals. How much money can you make? If you’re going to wholesale for a quick little amount of money and leave money on top for somebody else, why not take it, maximize it, and learn from that whole experience.
But for us, people say, “If it’s such a good deal, why don’t you do it?” I mean you guys know that doing 20 or sometimes 30 deals in a month, I can’t. My team is not sufficient. I cannot. My team is not built up to flip 30+ properties a month. We’re just not there yet, nor do I ever want to get there because that’s capital-intensive business, and I don’t really want to do it.
But we truly, in fact people ask me too, “Well how do I get on your list? You filter the properties, and you just give the good ones to your VIP buyers.” And truly, I was at lunch with a guy yesterday who was saying that to me, and he said, “You just sent out a deal.”
He saw a deal before me. He showed me his phone, and I looked at the deal we sent out, and I didn’t even know we had it. Like it was that… We send it out to everybody.
Doug: You send it out to everyone.
Andy: We send it out to everybody, like that’s part of our system. It’s just everybody gets to see it. We don’t play favorites because we’ve learned that if you play favorites, you shoot yourself in the foot a little bit on the disposition side. Sometimes you leave money on the table, so we don’t do that.
Doug: Hm okay, interesting. I’m currently kind of the opposite. We do play favorites, but I’ve been toying with going the other way with it. And the only reason is I don’t necessarily, as a buyer, like to be on the other side of that. You know? But I totally see the point on why you do it that way.
Andy: I’m the same way as a buyer. I don’t like the other side of that but as a wholesaler, it does make you more money and it is more fair to your general list. But also it’s just how do you manage the disposition side when you’ve got so many properties coming in unless you just do it that way?
Doug: That’s a good point. At the volume you’re at and again, you’re running a business. You’re in business to hopefully have a profit, and you want to maximize the profit you can make, and that’s usually the best way to do it.
Andy: Yeah absolutely.
Doug: You mentioned that you bought a house recently for $230,000 or something, and you’re putting it on the market for $320,000 with cleanup?
Doug: People are going to want to know where to find that deal. How do I find those deals? So tell me a little bit about how you’re getting these deals. What’s your strategy?
Andy: So we’re direct-to-seller. We look at the MLS a little bit. We bid on HUD homes a little bit, but we don’t get hardly anything from that. It’s not our focus. I’ve been direct-to-seller for a long time. I say to people that I’ve been direct-to-seller before it was cool.
I was sending mail out. I will give you some specifics, but I was doing the things direct-to-seller while you could still get deals on the MLS. I guess that’s me being 8thickheaded, right? Like I probably should have just been on the MLS picking up deals.
But I’ve seen everybody that’s been jumping into this direct-to-seller thing, so I started out doing that, and I was a one-man band. I did everything.
Doug: So yeah, how were you doing that? When you started out, what were you doing to go direct-to-seller?
Andy: When I started out I would just send mail. I’d send the little postcards, and I had a smaller list at the time, and I’d send some mail. And I would answer the phone call, and I would build rapport on the phone, and then I would prepare my appointments, and I would go see those sellers, and I would negotiate them.
I would lock up the contract, and then I would turn around and give it to a title company, and I would sell the property. I was, and I just described to you right there my system, I was the marketing manager, the lead manager. I was the acquisitions manager. I was […], transaction coordination, and I was dispositions.
In my business right now, that’s six different positions that I just described to you, but it was me. I’ve grown up, and I’ve done them all. And I’ve negotiated with hundreds of sellers on my own before I even started scaling with my team.
Doug: So that’s a good transition. Let’s move into that. Tell us a little bit about your team. I mean you went over the numbers of them, but you know if I’m a one-man band like you were, which I was as well. Andrea and I were a two-man band for a long time, held all of the hats in the company.
I’m looking to scale; I want to grow. I want to go from one, two deals a month to five deals a month, and then eventually to 30 deals a month like Andy. Where should I look first? Who should I hire first? What do I do to relieve some of those responsibilities that I have? What’s the best way to go?
Andy: Yeah, number one: the problem most real estate investors have is they get so busy doing the reactionary things in our business that they stop doing the most important thing, which is marketing or finding deals. In this market, it’s marketing.
In other markets, it’s just finding the deals other ways. So that’s the number one thing. If you find yourself getting so busy with those things, other things than that and you stop doing that, your business dries up. You’ve got to make sure you still have those lead sources going.
So I would say marketing. Make sure somebody is doing marketing. The second thing I would say is look at what you’re good at. Sit down and be honest with yourself. What’s your unique ability? What is something that just comes naturally to you that you’re just better at than most people?
And that’s probably your strength. That’s probably the last thing you want to outsource. And then be honest with yourself about the things that aren’t your strengths. And whatever is not your strength, get someone to help you with that first because we all assume everyone in this world is like us, and that’s absolutely not true.
Everybody has different strengths and abilities, so you can hire somebody who has your opposite strengths, and they’ll be happy to do that. So for me, I recognize— and I didn’t know it at the time, but I’ve since looked back and know— that I always was interested in people.
I cared for people, and I liked to create […] in situations, and I was good at structuring deals. So that was the […]. I mean I was my own acquisition manager for a long time, but the other things I wasn’t as good at I outsourced that.
Somebody answering the phones was one of the first things I did. I got somebody to be my marketing manager to make sure the phones didn’t stop ringing, which is a problem in and of itself. What marketing channels are you implementing and are you going to continue doing those month in and month out?
Because as soon as you stop, the phone doesn’t ring. And if the phone stops ringing, you’re kind of out of business.
Doug: Yeah, lead sources are the lifeblood of your business. I mean marketing, if you don’t have leads, you’re not going to buy property, not going to do deals. So whether that’s you looking on the MLS everyday, if that’s your marketing, or sending out mailers, or putting an ad on the Internet, whatever it is you’re doing to get leads.
I totally agree, you have to keep that lead flow going.
Doug: I know you, and I know that you were a rock star acquisition guy. Like you’re the sales guy. You can tell you’re just a personable guy, and you were the one. I’m imagining that was your strength for the most part is being able to meet with sellers, build rapport, negotiate a deal, and lock up a contract.
So you probably have the feeling that nobody can do this as well as you can when you’re hiring someone, and a lot of people who are listening to this podcast might be in that situation. They’re running everything; they’re doing the whole show themselves, and maybe that’s what they’re best at too.
How do you move past that? How do you find the next person that can replace you and what are some tips you’d have? Well, let’s not even go into the finding someone else. What are some tips you’d have on doing that role? On meeting with sellers and negotiating, building rapport, tell us your strategy for that.
Andy: Yeah I’ll give you that strategy and those tips in just a second, but anybody that just wants to scale a little bigger. I think the first thing for me was recognizing that I didn’t have to be the one doing it, and I thought I had to be doing it. So everybody that’s listening to this now understands that you don’t have to be the one doing that even though you’re really good at it.
But I had all of these other tasks that I was doing besides acquisitions because I was a business owner and helping with a lot of other thing even though I had help. So I really needed to find someone to help me do it so that I could then scale beyond that, and start working more on my business and ultimately go to other states, and really grow this thing.
But yeah, being an acquisition manager there are some people that are good at it naturally, and there are some people that just aren’t so good at it. I thought no one was better than me, and I was blessed and lucky enough to find somebody that was our first acquisition manager who I trained.
I went on four appointments with them, and they got it. That was pretty much it. They just were that. They didn’t have real estate experience necessarily, but they just had it. This was their unique ability. It was like they were born to do it, and I look back now sad to say, but they’re better than me. They’re still with me, and they are better than me at it.
I wouldn’t want to have to compete against them, but […] my assistants focus on that. They don’t have to work on anything else. All I have to focus on is going to see those sellers, but to get to your question about what makes somebody good at that.
There’s DISC profiles and a thing called a Kolbe test that you can look at. If you understand— I don’t want to go too in depth about that. D-I-S-C. I am a high IS. “I” is a person that is interested in other people and likes to talk to other people, and is just the one that is going to be friendly.
So I’m a high I, which I think is going to be extremely important in an acquisition manager. Someone that’s interested in other people and is a high I. I’m also a high S, and one of the characteristics of an “S” is that they care about people. I truly care about other people, so I like people, I talk to people, and I care about them.
So a high IS is a good acquisition manager or a high DI. A “D” is a driver, and I’m a very low D. But if you’re a high D and an I, that also can make a good acquisition manager. And on the Kolbe test, somebody that has a high quick start. So I don’t want to get into depth there, but a high quick start is really good.
I’m a nine out of ten on a quick start, and my acquisition manager, the other one that I hired, was a nine as well. It was good. But when you’re going to work with a seller, you don’t necessarily need real estate experience, but you do need to be able to go and build rapport with that person.
So if you’re a person that naturally can go talk to anybody and be interested in them, and listen to them, and ask questions about them, and find out their situation deep enough to know what their problems are if they’ll share with you their problems, then you can be a good acquisition manager because that’s all this business is.
I go in there. I care about them truly up front. I care enough to listen to their situation, repeat back to them what their situation is, and they tell me, “Here’s what I need. A, B, and C.”
And I say, “Okay. If I can get you A, B, and C, is there any reason we can’t be in business together?” And of course they say, “No, we absolutely can do business.” So that’s when I say, “Okay, I’m going to get you A, B, and C, and we’re going to do this.”
And then that thing is signing the contract. But for me, I would go in to work with sellers, I wouldn’t even bring up a contract or talk business until I was 1) building a rapport with them and 2) understanding of their situation. And as soon as I did, then I would go back to why we were actually there that day, which was to work on their real estate problem.
Andrea: That is it for today. We hope you enjoyed the first half of our interview with Andy McFarland. Tune in next week for the second half. We’ve got more really great stuff.
Doug: Talk to you then.
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Jun 17 2016
Rank #8: Episode 35: Andy McFarland Interview – Part 2
Episode 35: Andy McFarland Interview - Part 2
by Doug & Andrea Van Soest | Spouses Flipping Houseshttp://traffic.libsyn.com/spousesflippinghouses/SFH_035_Interview_With_Andy_McFarland_Part_2.mp3
Episode 35: Show Notes
Tune in today for the second half of Doug’s interview with Andy McFarland. If you missed part one of this awesome interview with one of the the industries best, make sure to listen to part 1 right here.
Here’s a Few takeaways from today’s episode:
- Andy’s simple tips for building rock-solid rapport
- The importance of working from a SERVICE FIRST mentality
- The #1 change Andy would make to accelerate his progress if he could go back to when he first started
- How Andy & his Brothers keep a good relationship while working together
- A Quick Look at Andy’s ILoveRealEstateStories video series
- Where You Can Learn More from Andy
- Andy’s advice for beginners & the biggest mistakes to avoid
Episode 35 Transcript
: Welcome to Spouses Flipping Houses, Episode 35. This is the summer edition.
: We are Doug and Andrea’s kids, and we have officially taken over their podcast.
: Our mom and dad are busy packing for the trip we’re leaving on today, so we thought we’d pitch in and help them out with their to-do list.
: We looked through the list, and most of it was no fun. Stuff like laundry, vacuuming out the car, checking with employees, boring! But record podcast intro, that sounded like fun.
: So what do they normally talk about anyways?
: Hm, I’m not really sure. I don’t listen.
: I know. They talk about houses.
: That is so boring.
: Well, we have the mics, so we can talk about whatever we want.
: Basketball championships?
: That’s even more boring.
: No way, but maybe we should just introduce what this podcast episode is actually about.
: Sounds good.
: Okay everyone, sit back, relax, and get ready to here the rest of our parent’s interview with the one and only Mr. Andy McFarland.
: Do you even know who he is?
: No, not really. But mom and dad think he’s pretty cool.
: Oh okay, this podcasting thing is pretty easy.
Doug: Okay, you make it sound so easy though, like build rapport, and you know. First of all, I love the point you made about genuinely caring about the person. And we take that approach as well, and I think that’s huge. That’s why I really respect your approach.
We’re not going here to steal a property from anyone. We’re here to see if we can help solve a problem that you’re having. And usually if they’re contacting you from whatever marketing, there’s something going on. It’s either the house; it’s finances; it’s family; it’s health; it’s something.
There’s something that’s driving them to need to sell this property quickly, so you’re trying to dig that out of them. But how do you build rapport? Because people might be listening thinking, sure that sounds easy to you, but I’m nervous as heck to go in there.
People are on their guard and you know, so what are some tips, real tips, on how you would do that?
Andy: Yeah, I like to go to their house. I think rapport starts on the phone but getting that in person with someone it’s easier to build rapport. You can look at them; you can smile; you can sense their body language; you can sense how they’re reacting to you. So I like to go in person with somebody.
Truly care about that person. Knowing in your head that it starts with that mentality, and if you go in there like that, you need to truly care about them. Because if you don’t, check yourself first. If you don’t care, it’s going to be hard for you to do these other things.
But if you do care, all of these other things we’re going to talk about will come naturally to you. Go in there, care about the person. If you find yourself in that appointment talking more than you’re listening, you’re doing something wrong. So go in there and listen more than you talk.
Remember you’re given two ears and one mouth, so use them accordingly. Listen twice as much as you talk and if the conversation is stale and not going anywhere, then you can remember an acronym for that. I’ve taught this before, friends— or family, right— so ford. F-O-R-D.
F is for family, so you can start talking with somebody about their family. Wife, kids, whatever it is, ask about their family. If you see them kind of light up, it’s something they’re interested in and want to talk about. If they just are short and don’t really want to talk about it, that’s okay. Some people don’t necessarily want to talk about that, so you can move on to the next one.
O is occupation. A lot of people want to talk about what they do, what their job is. So ask about their occupation. If they light up, if they like it, if it’s interesting, keep asking follow up questions. If they don’t light up with that, you can go on to the next one.
R, recreation. What’s the recreation? What do they like to do for fun? So again, see are they lighting up with this. I like to ride motorcycles; I like to go canoeing, whatever it is they like to do. If they light up, ask them about it and don’t just ask them what they like to do and move to the next question.
If they say they like something, ask a follow-up question, ask a follow-up question, ask a follow-up question. For me, I’m truly interested. I want to know if someone says they’re interested in scuba diving and they just got back from Cozumel, I want to know. Tell me about it. How’d you learn how to scuba dive? Where are the dives you’ve been on?
I’m going to ask all of these follow-up questions that’s going to get them talking. And number four is dreams. What do they want to do? What’s their aspiration in life? You talk about people’s dreams. Some people have these dreams of being a rock star or whatever it is they want to do.
Talk about their dreams. So whatever they light up about, go there with them and keep asking follow-up questions. And what you’re going to find is once you find those things and they light up and tell you about that, and you listen to them and are actively listening and asking follow-up questions, they’re going to tell that you really care about them.
They’re going to naturally get in rapport with you. They might not even know your name after 30 minutes, but after they just shared with you their dream, or their recreation, or their occupation, they’re going to be like, “Oh wow. Sorry Doug, you came here to talk about the house. I mean I was just blabbering on for 30 minutes about whatever it is I was blabbering about.”
But at that point, you’re going to feel it. Once they’ve lit up and followed-up deeper, you’re going to feel in rapport. You’ll feel this just drop, this wall of strangerness will drop, and you’ll be their friend. So you go from being an unwelcome pest to a welcome guest in their house.
And at that point, once you’re in rapport there, that guard has been dropped, at that point they will probably allow you to help them so you can shift the conversation to the house. But don’t just jump to what you want.
Again, now they like you and they’re going to share the truth with you. So you can say, “Okay, tell me Doug, what’s going on with this situation? What would you like to see happen here?” And then I’m going to listen intently as to what they would like to see happen.
Don’t assume it’s about money; don’t assume you know what it is they want. Listen to them and as soon as you listen to them, they’ll tell you all of the things they need for you to give them in order to get what you want— which is to purchase the property and ultimately help them.
So I don’t go in there and say I have to do this. I go in there with that attitude of 1) I’m going to build rapport. 2) I’m going to listen to them and once they tell me what they need, I’m going to craft a solution that works for me that gives them what they need. And at the end of all that, we’re going to be friends.
They’ll have told me the things. I will have repeated it back to them, and I’m going to say, “Doug, I’ve given you all of the stuff. You’ve said you needed these things. If I can take care of those things for you, is there any reason we can’t do business today?”
“Great. Will you please trust me with this business, and sign the contract, and let me take care of you.” They’re going to sign the contract.
Doug: That’s awesome because you know, the first thing you’d think of is, “Okay, what’s wrong with the house? How many bedrooms, bathrooms, square footage? What price do you want?” And honestly, a lot of the people out there, that’s all they’re doing.
There’s no rapport building. They’re going in; they’re finding out how low they can make an offer on that house. And the people are turned off by that.
Andy: That’s a lot of my competition, and that was never my approach. And I would go into situations with multiple people that were vying for that business, and I would ultimately walk out with the business because I took the time to listen to them and give them what they needed, and I’m going to take care of them.
And in my team I’ve tried to translate that to my team, and I’ve got some people on my team that are better at that than me, and some of them are at varying degrees. But we try and employ that same strategy across the board of we’re helping people.
We have a Monday morning meeting with everybody on my team. We all get together and have a team huddle, and make sure we’re all on the same page, and share accountability numbers from last week. But we start that unintelligible , and we make sure it’s an important thing for us.
We really want to make sure that we’re taking care of people, that we’re serving people. Like that’s an attitude that’s pervasive through the whole company. We’re not trying to take advantage of anybody. We’re trying to give guidance and help so that we can actually be of service and help other people.
It’s not just lip service. We really want to do that.
Doug: That’s awesome. That is a great way, a great culture you’ve built there that is centered around that service first, and treating people right, and you can feel good about yourself as a business owner, as a service provider to these people. So that’s fantastic.
I’m sure, like us, if you determine hey man, you’re probably better off listing this property. If that’s the right situation for them, we recommend that. And then often times you might get a different answer, “Well, I really don’t want to do that because of this.” And now you’ve just discovered the reason.
Andy: And I was never afraid to do that. I would bring up the things like “elephants in the room” that you think, well why would you tell them that? Don’t think they haven’t thought of that before. You can tell them.
Now of course, when I’m there talking to them, I’m also going to spin the benefits of, “Hey look. It sounds like you want more of a retail price. I can get you a real estate agent who is great on my team who can help you list this thing. We’ll help you get the retail price.”
Now of course, you’re going to have to deal with it being more time, and you might have to clean it up a little bit and do some of these repairs we talked about. And you’re going to have to deal with inspections, and appraisals, and all of that stuff, but if you’re willing to do all of that and wait those three or four months, you’re going to make more money.
So if that’s what you really want to do, if that’s what’s important to you, we can. And let’s run it down on this yellow pad. Here’s about how much more you’re going to make. What do you think?
And they’re like, “Yeah, but I don’t want to put the money into it. I don’t want to put the time. I don’t want to deal with all that stuff.”
“Okay, well I absolutely can help you with this other side too.”
Doug: Yeah, you just helped eliminate those options if that’s not something they really want to deal with. Just by offering a help to them.
Andy: But if it is, I’m fine with that.
Doug: And if it is, great. You’ve helped them, yeah. That’s fantastic.
Andy: And sometimes I’ll start the conversation with that too. I’d say I’m going to be like a real estate consultant. I’m going to tell you all of this stuff and at the end of the day, we’re going to leave as friends, and you’ve got a lot of good information.
I’m going to do the best I can to help you however we can but if that doesn’t mean my services, then I’m going to point you in the right direction. So I try to start with that honesty and sincerity, so there’s guards down, and they’re not thinking, oh this guy is trying to give me the hard sell.
I never was the hard sell with these guys. I just didn’t do that to people.
Doug: Yeah, no that’s good, good stuff. So I’m going to shift gears a little bit. If you could go back 14 years, 13 years when you were kind of brand new in this business, would you change anything? What would you change?
Andy: That’s a tough question because you know, if I changed anything I probably wouldn’t be… I’ve taken my perfect journey to where I am today, but some things that I could do to accelerate my progress would certainly be surrounding myself with people who are at a higher level than me or who were where I wanted to be at that time.
If I’d have done that and as I started to do that in my life and business, and any aspect of my life but especially in business, I accelerated. My growth was accelerated to their level quicker by surrounding myself with them.
So that’s probably one of the things I would do. I would go back and whisper in my ear, “Hey. Go find people who are where you want to be.” And what I thought was possible was my own limitation at the time, I remember thinking.
I met a guy, I met a seller years ago that told me of the glory years of how he flipped a hundred houses a year back in the day. And I remember sitting there, I shook my head and thought to myself. In my head, I really thought he was a liar. I thought he was the guy when you walk into the gym who says, “I used to be able to bench press 400 pounds.”
Doug: Right, I know that guy.
Andy: The glory years. But I thought, meh okay. And I smiled, and nodded, and whatever. It just, in my head, it was not even a possibility. Like I could not even conceive how it was all possible. But I’ve since surrounded myself, I mean years ago, with people who do those types of things and volume, and I can see who they are.
And I know them, and they’re no different or smarter than me, and then I can see how it’s possible for them. I can follow the same blueprint. So that’s what I would do. I would surround myself with people who were where I wanted to be, push my own limiting beliefs.
Doug: That’s good stuff. So this is the Spouses Flipping Houses podcast, so we have a lot of listeners that are spouses and not just that, but maybe they’re father-son, or they’re sisters, or brothers and working together in a partnership in some way with a loved one or family member.
I think that you work with your brothers in some capacity. Is that correct?
Andy: I do, yeah and my wife too. My wife, bless her soul, she cares but she doesn’t know where our houses are, what we’re doing. But it’s kind of a blessing for me that we can come and talk about other things besides that, but she’s fully supportive. But she just doesn’t need to know the addresses. She’s okay with that.
But my brothers, yeah. I had a goal a few years ago before either of my brothers were working with me to work with my brothers. Family is important to me, and I wanted to be able to… When you work with people, you spend a lot of time with them.
So my older brother, two years ago, was in a job he didn’t like. It’s been over two years now, two and a half years ago. He was in a job he didn’t like, and he wasn’t utilizing his unique ability, and he hated going to work everyday.
And I didn’t get to see him a lot, and it was just— I wanted to work together using his strength, which is he’s an artist. He makes videos. So I started a video blog. It’s about my life as a real estate entrepreneur. I call it “I Love Real Estate Stories,” so that’s something we’ve been able to do together.
He works with me in that capacity, and he also does some side work for the wholesale company. And anything video that we have, anything audio, he edits that, and he’s phenomenal at that. So that’s been great to work with him. I see him a lot. I work with him a lot. That’s my older brother, so awesome working with Jason.
My younger brother took a little different path in life. We were all army brats, but he was a lot younger than us, so he didn’t remember the army life. So he was too young to remember it, so when he was 19 years old he shocked us all and said, “I’m going to go in the army.”
Me and my brother, and my parents, and my brother and sister were like, “Okay…” So he cut his long hair, his rock star dreams, and he joined the military. He joined the army. So five years later he came out, and I’m proud to say the army made a man out of him. It changed him, and he was always a good man, but he became a lot more responsible, and he learned a lot of things.
He learned a lot about himself in those five years, but he came back out and saw what I was doing in real estate, and he thought, hey I want to do real estate. So nepotism did not get him the job, but it definitely got him the job interview. So my COO kind of brought him in and basically found a spot for him in the organization.
And he’s flourished. He’s been great. He does our inside sales, for lack of a better term for it. He comps the properties in three states and just does a lot of stuff for us. So I get to work with him in that capacity, so he works in the wholesale company.
He doesn’t report to me. He reports to other people in the company, which is awesome.
Doug: So maybe you don’t work real closely alongside either one of them but if you do, how is that dynamic being brothers? And having all of this history and family, but you’re also in this business together where the ultimate goal is staying profitable and in business— is there a weird dynamic there at all? Or how does that go?
Andy: Not at all. That would probably be a better question for them, but not at all.
Doug: Maybe I should ask them that question.
Andy: They’re big boys. They know what they need to do, and they take care of the business, and they work extremely hard. I don’t worry about any of them. Yeah, they work hard, and there’s none of that. There’s none of that.
But it’s great. I get to see them and work with them a lot, and we have a lot in common of course because of our business life. As males, what you do is like 70 percent of your life.
Andy: So we can relate on that level all of the time.
Doug: Yeah that’s good. We sort of identify ourselves with our occupation and what we do. That’s just part of our DNA. So you mentioned, you kind of glossed over it, but I want you to talk about your “I Love Real Estate Stories” projects that you’re doing. Tell me about them.
I’ve watched a few of them, but I’ll let you talk about them. It’s really cool stuff.
Andy: Sure. It’s a YouTube channel, and I started it two, two and a half years ago with my older brother Jason. So we said we’re going to make videos of the life of a real estate entrepreneur and every aspect of that life.
So whether it be a flip project or we buy, fix, and resell, kind of like an HGTV show, but we show you the real stuff, the real numbers. We include holding costs; we include the bad and ugly. It’s not fake TV drama. It’s real stuff.
Wholesale deals I’ve done, I talk about those. I talk about walkthrough videos; I talk about staging; I talk about personnel issues; I talk about everything. Sometimes it’s like life and motivational stuff, but it’s whatever the flavor of that week is.
Like this last week we had a Mastermind meeting with, Justin and I run a group called Seven Figure Flipping, so we did that Mastermind group. So this week’s video, which is coming out tomorrow, is about that. It’s about my life. Last week I spent three days locked down with a bunch of real estate entrepreneurs trying to push their business.
So I’m going to share an eight or nine minute video, it’s a recap, of what happened there because that was my life this week. So that’s pretty much what it is. You can find it if you go to YouTube and type in “Andy McFarland” or you type in “I Love Real Estate Stories,” it should pop up.
And I would love for people to go there and subscribe to the channel, and comment, or email me or whatever. But everything I do there is free. We actually do have some training videos that you can buy, but everything there is free. We love to have people consume our content and like it.
And give Jason attaboys, my older brother, because he loves it when somebody comes and praises those videos because that’s his art. That’s his art.
Doug: Yeah, I know you were trying to get a bunch of subscribers. I don’t know if you still have that goal or not but if anyone is listening, go become a subscriber and help them out. Check out the videos. They’re great stuff, very inspiring.
In fact you just ran a marathon, which is cool.
Andy: Yeah I did.
Doug: And there was a whole theme though, there was a whole message in that video of running this marathon that I really, really related to, and I really liked it. And one of the things I think you said in there.
You were talking about how you didn’t know what shoes to buy. You’d never been a runner. You hated running your whole life. I’m talking for you, but you just had set this goal as more of a mental goal. You wanted to see if you could do it, run this marathon.
Didn’t know anything about running shoes; didn’t know anything about training or what you’re supposed to do, or anything like that. But you just started doing it, and then as you were involved in this training process, you kind of learned what you didn’t know.
You learned what questions to ask at that point, and I mean you can totally relate that to real estate.
Andy: Yeah and we kind of did. We tied it in there, that analogy. We were on a coaching call, and somebody said, “What’s the appropriate amount of taking action versus learning?” That was their question, and I said, “Let me give you an analogy in running because that was fresh in my life.”
The first day I decided it was October 27, 2015. I said, “I’m going to run a marathon.” And I’d never run more than a mile in my life, but that day I asked the question, kind of a rhetorical question on the coaching call, “What do you think I did that first day?”
And the first day, I went out and ran. I mean that’s what it was. I didn’t know anything. I didn’t buy a book. I just went out and ran. And then I learned questions to ask, and I went to the running store three weeks later, and they said, “You’ve been running in these shoes?”
And I was like, “Well yeah. I mean they’re shoes.”
And they’re like, “No! You don’t do this.”
But I didn’t know, and the point is taking action leads you to the questions to ask. It was a good analogy.
Doug: Yeah, and I just thought that was really good. Getting out there and doing it, and then just learn as you go. So speaking of real estate stories, do you have a favorite real estate story?
Andy: Oh goodness. We’ve done probably 60 or 70 videos, or more, over the last two years. And some of them, there’s a lot of effort in each one of those even though people don’t necessarily see it. The running one was good. That was six months of my life that we packed into eight minutes.
That was six months I’ve been tracking. I’ve been running, people that know behind the scenes, and then of course the marathon day. I did a video called “$187,651” or whatever, but that was the profit I made on one of these flip properties I did.
Andy: And it was an amazing flip. We called it “Bedtime Stories,” so it’s an old one. People don’t really dig through your archives on your YouTube channel, but you go through there it was a year and a half or two years ago that we put it out. $187,000 whatever.
It’s a cool transformation, amazing story of money making. And that one we actually made the video of me reading a bedtime story to my kids, which I do every night. So my kids are in the story. I’m reading them the story of this book of this house that I flipped, $187,000.
And it was real, like it was a real video of me reading my kids this Shutterfly story of this rehab project I did. So that’s probably one of the highlight ones.
Doug: Oh that’s cool. Didn’t you have recently a house that had a few snakes?
Andy: Oh yeah. I had a rental house that had 55 snakes that the tenants had unintelligible. My acquisition manager almost got beat up by an old man with a cane. I’m sure that’s a story. There are so many stories every week.
I mean the videos are quality. I’m patting myself on the back, but the stories are all real. It’s quality stuff, and it’s all free content.
Doug: It’s never boring in this business. That’s for sure. There’s always something new that oh, I’ve never seen that before. That’s interesting.
Andy: Oh my gosh. That’s why I had this idea. I was like, oh people are going to love to see the inside life of a real estate entrepreneur. The sellers that we see, you can’t make up these stories.
Doug: You cannot make that up, yeah.
Andy: They’re crazy. Some of these stories…it’s crazy. Man, yeah. So I thought I would tell a few stories. But I can only tell one percent of the stories, just because there are so many of them.
But we pick and choose, okay this is the story we’re going to tell this week. Let’s tell this story.
Doug: Okay, good stuff. Well you’re also an educator. You’ve got some stuff out there that you do. You teach. Tell me about if people want to learn from you, I know you’ve got a partner Justin, who we’ve also had on this podcast here. Tell us about what you guys do.
Andy: Yeah, first of all let me say being an educator or a guru can have a bad connotation these days, “Oh the guru…” So I don’t like to see myself as that because it’s like throwing yourself into the sea of people.
Doug: I didn’t say guru. I said educator, professor.
Andy: But let me throw that out there because people are skeptical. I had one student ask me recently who was joining our high level Mastermind, “If you make so much money in real estate, why do you need my money?”
Folks like that you have to navigate. She recently apologized to me actually though because she’s got a ton of valuable information? But yes, I am an educator with Justin Williams. He and I do this together.
I used to do some educating on the side just as like private coaching stuff. I just don’t have the time to do all of that stuff anymore. I only do everything through what Justin and I do. Besides, “I Love Real Estate Stories,” you can go there and buy a few videos there, which are extremely high quality.
Like the production value is amazing. They’re worth every penny. That’s not a sales pitch for those, but they’re worth every penny. So ILoveRealEstateStories.com/products, and I always tell people that if you don’t like that stuff, you can email me and I’ll give you all of your money back, and you keep the videos.
I’ve never had anybody take me up on that. Like everybody who watches gets more value on that, so you can absolutely go do that. But yeah Justin and I have a thing called House Flipping Formula, which is basically people who want to get started in real estate.
Learn at your own pace with some coaching calls and a private Facebook group. It’s amazing. It’s kind of our flagship program, so you can join that. House Flipping Formula.
Doug: Now is that an online, like it’s all a web-based kind of thing?
Andy: It’s all web-based, learn at your own pace weekly assignments with accountability and all of that stuff behind it. It’s great. For somebody who wants to get started, I would say push them right there. Go to that and you can learn how to get started. It’s all of the 101 stuff.
Doug: That’s for the 101, the getting started stuff.
Andy: Oh if people say, “Let me pick your brain,” and they start talking, “How do I comp a property?” And I’m like, “Ugh, I would love to sit and talk to you about this, but just go watch this.”
And once they go through the 101, 201, House Flipping Formula, basically once they go through that program, we hope to elevate people through that. And we have elevated people through that to our high end Mastermind. It’s called Seven Figure Flipping.
It’s for people that have already nailed their business. They’re making a good six-figure income flipping houses, or wholesaling houses, or doing rentals. And then they come, and we really just accelerate their business and take them to where they can do seven figures, because Justin and I both have seven-figure house flipping businesses.
So we basically hold their hand and coach them through that, through our Mastermind process of other people going through the same journey, and we just really accelerate their business growth.
Doug: Man, and that one is called Seven Figure Flipping?
Andy: Seven Figure Flipping, yeah.
Doug: So House Flipping Formula and Seven Figure Flipping. You can Google those and find you guys, I think.
Andy: Yeah I was going to say we have an event coming up in October in San Diego called Flip Hacking Live, my goodness. A lot of good people— I’m going to speak in there.
Doug: Yeah, we’re speaking there. It’s either myself or Andrea, or both of us I don’t really know yet. But we’re speaking there as well, so I’m excited about that. Yeah, Flip Hacking Live.
Andy: Awesome. So I’m going to be in San Diego for that, so anybody that’s coming out to that, it would be cool to meet you guys. But Doug is going to be speaking. Justin will be speaking, and we’ve got a bunch of Seven Figure Flipping students who are going to be speaking.
And I can tell you that these guys are absolutely crushing and destroying their markets, and yeah it’s awesome to watch them. So they’re worth it.
Doug: So that’s going to be a live event. If anyone wants to check that out, we have a link. It’s SpousesFlippingHouses.com/FlipHack, and you can sign up there and watch a video that I happen to be in.
Andy: I’m in the video too. I didn’t know it until… Justin put me in the video. It’s pretty funny.
Doug: You should go just watch the video. It’s entertaining just to watch the video.
Andy: Seriously, just go watch that video because the video is awesome.
Doug: The video is awesome.
Andy: That’ll be fun. That’ll be cool just to go to San Diego and hang out, and do that. It’s always fun.
Doug: Alright, so a couple more questions. Kind of on a more serious note, what’s the biggest mistake you see other beginning investors making?
Andy: Oh goodness. Not learning from the experience of other people and not taking action fast enough. So through our educating, I see all types. And the people that I see who are the most successful are the ones that don’t over think it, and they just do.
They just do what other successful people do. The ones that are less successful or not as successful as quickly are the ones that think too much about it, and they get in their own heads saying, Oh well I should I do this? What criteria are on this list?
They just get in their own head about it, but the people who are just like go, go, go, implement, do, do, do. They just crush it.
Doug: So not getting bogged down with all of the details and things that there are to think about and just getting bottlenecked in that. Instead, take what you know. Take action, then you’ll learn what the next question is and go from there.
Andy: That’s it. That really is it.
Doug: I don’t know what that is. I don’t know if it’s fear-based or what. What’s that phrase? Perfection is the enemy of progress, or something like that.
Andy: Yeah that’s a great way to put it. I’ve heard it different ways, but it really is. For something to be perfect first, it’s never going to be perfect.
Doug: It’s never going to be perfect. You’re never going to know all of it.
Andy: I tell our students too that look at my business or might look up to me, or Justin, or what we’ve got built, and I say, “Guys it’s not perfect. It’s absolutely not perfect.” We deal with imperfection everyday in our business, and we just try to look at what’s the biggest problem now and try to make it better.
That’s it. Everyday we try to get a little bit better in something, and it’s never going to be perfect. If you wait for it to be perfect, you won’t start.
Doug: And then the last question is what’s you favorite thing about this business?
Andy: I get to live my purpose and do what I want to do. The Seven Figure Flipping Mastermind event that we did last week was here in Utah and after three days, I got to listen to my team; I got to listen to Justin; I got to listen to everybody there. But I got a little bit emotional.
I’m an emotional guy but at the end of that, Justin said thanks, and everybody there kind of said you know, thanks. And we went for different things, but they specifically thanked me, and I just choked up. I started tearing up, and I said, “Thank you guys for letting me do what it is I love to do.”
I love talking to people, working with people, and helping people to push their real estate businesses. I’m so honored and blessed to be able to. Not only do I have my business doing that, but I can have the time to go and help other people do that, and fulfill their purpose, and help them grow.
Pinch me, right. I’m thinking I would do it for free. I mean I don’t have the time to help everybody in the world, but I would do it for free. I’m living my dream right now, so I couldn’t ask for anything more than that. It’s been amazing.
Doug: That’s awesome man. I’m really happy for you, and I can vouch that you’re one of the good guys out there in this business for sure. So if anyone wants to check out more about you, there’s “I Love Real Estate Stories,” you can do that. Is there any other way to see more about Andy McFarland?
Andy: That’s probably the best way. If they come into our universe through House Flipping Formula or especially Seven Figure Flipping, they will get to know me very well. We will become friends. I am friends with every single person in that program for sure.
They’ve been to my house. We hang out. We talk one-on-one. I know them; I know their kids; I know everything about them. But definitely come into my universe there, and “I Love Real Estate Stories.” I would love for you guys to come there, and comment, and let me know what you think. Every little bit helps.
Doug: Yeah it is high quality. I really enjoy those videos, so go check them out.
Andy: Cool, hope it helps.
Doug: Well, cool man. Thanks for giving us your time! Appreciate it. We’ll talk to you again hopefully down the road here.
Andy: Thanks for having me and thanks for doing this Spouses Flipping Houses so that you can influence other people in a positive way. That’s what you’re doing, and I appreciate that.
Doug: Alright sounds good, take care Andy.
Andy: See you Doug.
Andrea: Wow, I hope you feel as inspired by Andy McFarland as I do. If you want to check out more of his stuff, head over to his YouTube channel, ILoveRealEstateStories.com, and you can find tons of great content there.
Also, if you head over to our website, SpousesFlippingHouses.com, we have a free gift for you there. And if you are interested in attending the Flip Hacking Live event…
Doug: It’s so hard to say. Flip Hacking Live.
Andrea: Flip Hacking Live in October, you can head to our website at SpousesFlippingHouses.com/FlipHack.
Doug: You know, we better watch it because we might be out of a job. Our kids did pretty good with that intro.
Andrea: They sure did. That was fun. We just might have to put them to work again sometime this summer.
Doug: Yeah, as long as they’re not having to go on payroll. Alright, so that’s it. We hope you guys have a great week.
Andrea: Have a good week.
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Jun 23 2016
Rank #9: Episode 33: Finding the RIGHT Comps to NAIL DOWN your value!
Episode 33: Finding the RIGHT comps to NAIL DOWN your value!
by Doug & Andrea Van Soest | Spouses Flipping Houseshttp://traffic.libsyn.com/spousesflippinghouses/SFH_033_Finding_Right_Comps_Nail_Down_Value.mp3
Episode 33: Show Notes
There are a LOT of moving parts when it comes to flipping a property but if you DON’T understand how to find the VALUE of a property, you are going to have a tough time making this business work. Everything revolves around the Value! Tune into today’s episode to learn how to find the right comps for YOUR properties!
Here’s a Few takeaways from today’s episode:
- How the “As-is” & After Repair Value (ARV) are defined
- The importance of THINKING like an appraiser when running comparables
- How to find the Right Comps for the ARV
- 3 IMPORTANT factors to consider when running comparables
Episode 33 Transcript
Andrea: Welcome back to Spouses Flipping Houses, Episode 33. Today we are talking about finding the right comparables to nail down your value, and Doug really is an expert in this. He’s former certified residential appraiser and in my opinion, he’s a valuation expert.
Doug: Well if I do say so myself, I do consider myself an expert in valuation. I mean it’s very important, muy importante; a very big part of the investing world is knowing value, so you have to know how to do it right.
Andrea: Yeah. And so it’s coming at you from somebody that knows what he’s talking about. So before we get into that, we just want to say thank you so much to everybody that has submitted a rating and review in iTunes. We really appreciate it; we want to read a couple of them right quick.
Doug: So this review came in. It’s from “DB1169,” five stars, “I’ve been listening to real estate podcasts for several months now and just stumbled across Doug and Andrea. My wife and I are building our business, and it’s great to listen to a husband and wife duo who are crushing the business without crushing their relationship (smiley face).
Thanks for the tips on how to do this as a couple. I’ve got to admit my wife and I have learned quite a bit about each other in the short time we’ve worked together on this business. She questioned at times whether we could work together, and the advice you two have given in your podcast gives us the encouragement to know that we can actually work together and prosper, both in business and in our relationship. Keep it going and bring back Mike Cantu for some more episodes.”
Agree with that for sure. Thank you so much!
Andrea: The Mike Cantu part. The rest of it, thank you!
Doug: Right, that’ s what I meant.
Andrea: And then the other one we wanted to read comes from Jessie Artigue. It’s also a five-star rating. She says, “We are a fellow husband and wife podcasting team, and this duo has us smitten. Love learning more about real estate investing and can’t wait to start implementing all of the incredibly insightful info that we have learned.
Keep up the great work Doug and Andrea. Your heart and hustle has inspired us over at Marriage is Funny.” So I love this one especially because we happen to love this podcast by Jessie and Gerard, called “Marriage is Funny.” Didn’t even know they were listening to our podcast, so that was super fun.
If you want another resource for working together as a married couple or just on marriage in general, this podcast is fantastic.
Doug: Yeah, they are hilarious too. Great podcast.
Andrea: So funny, great to listen to, and they just kind of talk through relationship issues in such a true and honest way that’s really interesting to listen to. And I know we’ve gotten a lot out of it, so highly recommend “Marriage is Funny.”
Doug: Yeah thanks for the shout out Jessie and Gerard. It’s great to hear from you. So what’s been going on in our business this week?
Andrea: A lot. We have been so busy, not only with things in our business, but it’s the end of the school year for our three kids so we’ve been running around literally like crazy trying to wrap everything up for their school years, and field trips, and all of that good stuff.
Andrea: Yeah, so it’s been really fun but really, really busy. So what’s going on in our business though is that this has been a fantastic year for wholesaling for us. We have had some huge wholesale deals close.
Doug: Yeah, loving the wholesaling lately.
Andrea: Our average wholesale fee has nearly doubled this year.
Doug: That’s a good thing.
Andrea: That’s a really, really good thing, so we’re loving the wholesale. And then also on our rehabs, we are just getting ready to start choosing all of the fun stuff for our historical project.
Andrea: Finally we passed all of our inspections. We’re ready to drywall and get to the good stuff: the tiles, and the paints, and all of the fun stuff that I love. I was just texting with the contractor, and Doug is like, “Are you ready to start this podcast?”
“Just a minute, I’m texting pictures to Hermando. Hang on.”
Doug: She’s like, “Oh, ahh. Oh I like that one.” Getting some ideas, so we’re really excited that one is going to start coming together pretty soon, so that’ll be cool . We’ll put some pictures maybe of that on our website.
Andrea: I’m sure we will, and we have other rehabs too but as you know, when you’re running a business— and we’ve talked about this I’m sure before— not every flip is Pinterest-worthy. It just can’t be because you’re not making good money.
Doug: You’re going to be way over improving it likely, if it’s a lower end property.
Andrea: But every once in a while you have the opportunity to do something really, really cool, and that’s kind of where we’re at on this historical project. We get to make it really cool, so I’m excited.
Doug: Good, good stuff. So let’s get into the main topic.
Andrea: Okay, so as we all know, there are a lot of moving parts when it comes to flipping a house. But if you don’t understand how to find the value of a property, you’re going to have a tough time making this business work for you. Everything revolves around value.
So Doug, help define value for us.
Doug: Well thank you Andrea, I certainly will. No but seriously just to reiterate what you said, if you get the value wrong, I mean it’s really hard to fix that once you’ve purchased the property. If you get that part wrong, you might be in trouble, so very important.
Let’s talk about value first of all. There are two kinds of value. There’s the as-is value, and the as-is value is the value of the property based in its current, as-is condition as it sits today. That’s as-is value. So that’s one thing.
Then there’s the after-repaired value, and that’s commonly referred to in the real estate world as the ARV. You’ll use that word a lot if you’re a real estate investor. What is the ARV? And what the after-repaired value means is that’s what the property will be worth when it’s been fixed or repaired according to your design plan for that property.
So a prime example of this would be: we do some homes out in the Palm Springs area, and they have these mid-century modern homes, which are the cool, rat-pack looking, flat-roof type of homes. And there’s a ton of those out there. And those have two very different values.
They have the as-is value, those homes that have not been touched since they were built in 1955, 1960. They’re worth one thing, and then that same home that is completely remodeled and brought to the current, modern features with the right design elements is worth a totally different number than the as-is number, totally different. I’m talking several hundred thousand dollars difference.
So that’s a good example. Same square footage, same bedroom/bathroom count, same lot, same street, can be worth completely different values. So ARV is very important to know.
Andrea: So the ARV is what its price will be in the future once you’ve gone through all of the hard work of getting it to that point. So how do we find the right comps based on after-repaired value when its not that yet?
Doug: Okay, good question. So when you’re running comps— we call it running comps— when you’re searching for comparable sales and comparable listings, you’re wanting to have in mind your finished product on the house.
You’re not trying to find sales and comparables that are comparable to what it is today. You want to keep in mind this image of this beautifully rehabbed home that you’re going to create, and that’s what we’re trying to determine the value of because that’s where you’re going to be selling your property for that price.
So let’s talk about how to find that ARV. Alright so I’m going to base this on steps that I took and criteria I would use as an appraiser. Because I used to be an appraiser, and the reason I do it that way is when you’re going to sell a home, typically you’re going to be selling it to someone who most likely might be getting a loan on the property.
And when they get a loan from the bank, the bank has to order an appraisal. And if that home does not appraise, guess what? You’re not selling that home to hose people, likely. Because the bank is only going to lend based on what that appraisal comes in at, so when you’re flipping a property, you have to think with the end game…
Andrea: End game in mind.
Doug: Yeah there we go.
Andrea: It’s so true because people say, “Oh a home is worth what a person is willing to pay.” That’s true to an extent. Really, a home is worth what the appraiser comes in at unless you fall out of escrow and get a new buyer and a new appraisal. The appraisal is really, really important.
Doug: Yeah the appraisal is going to help determine what that property will actually sell for. Anyway, so that’s what you need to keep in mind when you’re running comparables. So I think like an appraiser. I’m running comparable sales like an appraiser would do, which is a good way to go about it.
So there’s a couple things you want to keep in mind when you’re searching for comparables. Number one is the sale date of these comparables, and we’re talking about homes that have sold right now by the way, not homes that are listed on the market, not homes that are pending in escrow, homes that have closed actual sales.
A sale date needs to be no later than six months in the past, preferably three months or sooner. And the rule of thumb here is the more recent the better. And obviously that makes sense. The more recent that close sale is, the more similar it is to the current market conditions that you’re in.
Andrea: So let’s say that there are more recent comps that are a lower number that doesn’t really help you, but there are comps that are six months back that are higher that do help you. So can I just assume that the appraiser will be able to use those because they’re within six months and count on my number coming in at that?
Doug: Okay, so if that’s the case, that appears to be a market that is trending down. If the majority of your recent sales are a little bit lower than the sales six months ago, you might be in a market that’s down turning and you want to raise an eyebrow there. Pay close attention because your value could actually be even lower by the time you’re going to sell your house.
Andrea: So the appraiser is most likely going to use the more recent comparables.
Doug: Yeah, the appraiser can go back six months, but they’re going to give more consideration to the sales that are more recent because it’s more reflective of the current market conditions, if that makes sense.
And when that’s the case by the way, you want to also check your listings and pendings at that point. If the listings are continually getting lower, and lower priced, yeah, that’s a good indication that you’re in a down trending market. So that’s the sale date, number one, the more recent sales the better.
The second thing you want to consider is the location. If you are running comparable sales, if the property is urban property, really built up, you’re in a populated city, you want to try and stay within a half mile distance from your property or closer. If it’s in a suburban neighborhood, your typical suburbs, up to one mile. Keep your sales, keep your comps that you’re running within a one mile distance.
And if you’re in a more rural area it’s going to vary, but you don’t really want to go further than two to five miles away depending. And again, same concept. The reason is, the closer this home is locate to yours, likely the most similar it is to your house and can be considered a better comparable.
Another thing to consider with location is neighborhood. So what do I mean by neighborhood? Well for example, where we live we’re in a track development. We’re in an area that has a few hundred homes that were built right around the same time, and there are several of these track developments in our city, but those are specific neighborhoods.
So if you can get sales that are in your neighborhood, that’s the best. That’s the best thing to do. Homes that are outside your neighborhood, not necessarily that you can’t use them, but they may not be as good as a home in your neighborhood. If that makes sense.
Andrea: So just like with the sale date, the appraiser is going to give more weight to homes that are in your neighborhood.
Doug: Exactly, exactly, it’s more similar. Especially if you have a homeowner’s association or if you’re in a gated community of some kind, the importance of that goes up even higher. You definitely need to find some sales within the same community or association that is of the home you’re trying to compare to.
Other factors to consider here would be like school districts. In some areas, school districts can be really, really important to stay in the same school district.
Andrea: Yeah so we had a great example of this. A couple of years ago, we purchased a home in the city of Pomona. Well, the city of Claremont is right next door to Pomona, and Claremont is known for having excellent schools. People want to live in Claremont for their school district.
Well a section of this Claremont school district happened to run through a small portion of Pomona, and it happened to actually go right down the street of our property. So the homes on the other side of the street of the same home we were buying, were technically in the Claremont school district. Ours was in the Pomona school district because it was on the other side of the street.
So if a person didn’t know this, they could have majorly overpaid for this property because it’s in the same neighborhood, right across the street from these other homes.
Doug: Same city. Same zip code. Right across the street.
Andrea: They could have seen the value, same city. Yeah they could have easily overvalued and thought that this home was worth $75-100,000 more because that’s what the homes in that school district were selling for, so literally right across the street.
Luckily, we were well aware of this whole Claremont school district thing and knew that our property didn’t fall within their district lines, and we didn’t overpay.
Doug: And sure enough, we sold like $75,000 less than some of those, even though we had rehabbed it, because we were prepared for that.
Andrea: But if someone did not know what they were doing, I could see how they could have made a huge, huge error on that property.
Doug: So neighborhood, very important. Also, there’s boundary lines that you don’t really want to cross. You might find a sale that is within a half mile and was sold last week, and appears to be a really good comp based on the location but when you look at a map, it happens to be on another side of a freeway or a river.
Andrea: Or railroad tracks.
Doug: Railroad tracks. There are certain boundaries that you don’t want to cross if you don’t have to. And some of those things we mentioned would be things you don’t want to cross: freeways, if there’s some kind of a major street, busy shopping center that separates two areas, something like that that is sort of dividing two areas. Try not to cross those things and stay within your general housing neighborhood.
And another factor for helping you determine the ARV would be the property characteristics. So now we’re talking about the living space of a property, for example. When you’re trying to find what would be a comparable home, you don’t really want to veer more than 20-25 percent difference than your subject property.
So let me explain. If the house you’re trying to compare is 1,000 square feet, your really don’t want to find any sales that are smaller than 800 square feet or larger than 1,200 square feet give or take. That’s about the limit. Anything bigger or smaller than that is really not considered a comparable home.
So try to stay really close within square footage and also bedroom and bathroom count. Now when you have a four-bedroom home to a five-bedroom home, it’s not that big of a deal. Those are kind of similar. But when you go from a one-bedroom home to a two-bedroom home, you’ve just doubled your bedrooms.
You have 100 percent more bedrooms in a two-bedroom than a one-bedroom home, so you’re probably going to have a different buyer looking for those homes, so that is a big difference.
Andrea: Even a two to a three. You know, a two-bedroom home might be great for a single person or people that are like roommates looking to buy a house together, but probably not for a family. A family is generally going to want three bedrooms or more, so you considerably limit your buyer pool when it’s just two bedrooms or less.
So going from a two-bedroom to a three-bedroom is a pretty significant jump as well.
Doug: it is, yeah, so pay attention to that. There are certain areas where if you just look at across the board all the same sales, and there doesn’t seem to be that big of a difference between a two and three-bedroom, then that’s one thing.
But most areas if you dive into it, you’ll see that on average, the three-bedroom homes, even if they’re the same size, square footage, as a two-bedroom home, they’re selling for more. Obviously you’re getting an extra bedroom there.
Age, another thing, try to stay as close to the age as you can. If it’s a newer home, and I’m talking newer like in the last 20 years built, try to stay within a 5-10 year window. So if your home was built in 1995, you want to look for homes from 1990 to the year 2000. That’s kind of what you’re hoping to find.
The older the home, you can go a little bit bigger on this search. So if the home was built a hundred years ago, look for homes that are 75 years old or older. Try to stay within the general Generation X of whenever that home was built in, so stay within the same generation if you can.
Another thing to consider is views. This can be especially important if views are a prime…
Doug: Feature or benefit of a certain area. Like in California we have this big ocean, and so properties that have an ocean view are going to be far more desirable, far more valuable than homes that don’t. So that’s a big one. Lake views, sometimes mountain views or city views.
Andrea: It’s a big deal in a city like Palm Springs too where they pay attention not only to does it have a mountain view? But does it have a mountain view based on the direction that the sun is setting? People have a very specific opinion about the exact type of mountain view that they want in that city.
Doug: Yeah, so you’ve got to know these things about your area. So again, trying to find comparables that are similar to the one that you’re running comparables for. So views are important. And lastly, any additional amenities that the house might have.
So number of garages, garage space like a one/two/three-car garage. Pools, if you have a pool at your house, try to find sales that have pools. Guest house, barns, stables, you name it, these kinds of features.
Andrea: And just know that if your property does have these and others don’t, or yours doesn’t and others do, the appraiser can adjust accordingly. So he might knock $10-15,000 off your property if you don’t have a pool and all of the others do. So there are adjustments that can be made.
Doug: Yeah, yeah, and I forgot to mention that the likelihood of finding an exact match comparable is very low. You’re just looking in general at all of these things that I’ve mentioned and trying to find the ones that have the majority of these that are similar to your house. You’re not going to find like for like, usually.
Another thing I forgot to mention was lot size. Lot size is another factor to consider. Some areas, this has huge value. Other areas, not so much, kind of the land is all the same. It’s not really usable, and it doesn’t really matter if you have a half-acre or an acre; it’s kind of all the same. So it really is something to pay attention to.
And then lastly, of course, condition. If you’re running comparable sales for an after-repaired value, you want to find homes that are upgraded or have been remodeled recently, or are in similar condition to what your house will be when it’s going to be sold. How do you know this? Well, you look at the pictures on the listings.
Andrea: Read the descriptions.
Doug: Read the descriptions. Sometimes the pictures may look okay, but then you’ll read the description, and it says, “Handyman fixer.
As-is.” Something like that, and you’ll know that’s not a good comparable because it’s not in turnkey, livable, upgraded condition. So pay attention to condition.
Eliminate all of the ones that are fixers, or need work, or are outdated and only go with the comps that are similar to what you’re looking for in your house.
Andrea: Okay, so let’s say that I have just run a search based on all of the criteria that you have just told me for a house I want to flip. But it has come back to me with 30 properties that match my criteria, and they all range in value about a hundred thousand dollars. So what do I do?
Doug: Aha, okay good. So you’ve narrowed it down to about 30 properties. That’s a good number to work with. So what you want to do is basically print out that list or look at these properties, and then try to narrow it down to three to five that are the best, the most similar.
Look at a map; see where they’re located in relation to your property. Go a little bit deeper into reading about their features. Try to find the best comparables. Narrow it down to about three to five, and then you’ll probably have the best one or two, really, that are the most similar.
And give those one or two the most consideration when you’re trying to figure out your value. So let’s say you narrow it down to three to five, and now your range is only about $10-15,000 instead of $100,000. That’s likely what will happen.
You’ve already got a good range right there. Base it on the most recent sale. Let’s say everything is similar except that yours has a pool and that one doesn’t. Well at that point, you’re like great, I just need to figure out how much a pool adds in value.
And you can sometimes derive that from some of the other sales. Oh they averaged about $5,000, maybe $10,000 more if they have a pool. There you go. There’s your pool; there’s your extra value. So maybe $5,000 or $10,000 more than that particular comp. So I hope that helps; I hope that makes sense.
I know it’s a quick version of how to find the ARV, but really these are key points that you want to know when you’re trying to run and determine your value.
Andrea: Like Doug said in the beginning, it’s really, really important because if you don’t get the value right, nothing else matters.
Doug: That’s right.
Andrea: So if you would like a more detailed explanation of this process and a video example of exactly how Doug comes up with his value for properties that we flip, properties that we wholesale, and properties that we decide to keep as rentals, you can download the free gift from our website, SpousesFlippingHouses.com, and it’s a really great resource.
Doug: There’s a three-part video series in there where I go into a lot more detail on this, and you can watch me do it on the computer to get a better grasp on what it is we just talked about here.
So go grab that if you haven’t. That’s it.
Andrea: That’s it.
Doug: We are done for this week. We will be back next week with an interview. We’re really excited about that, so stay tuned for that one.
Andrea: We’ll talk to you later.
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The post Episode 33: Finding the RIGHT Comps to NAIL DOWN your value! appeared first on Spouses Flipping Houses.
Jun 09 2016
Rank #10: Episode 22: Listener Q & A; Expensive Markets; Hard Money; How to Buy Low!
Episode 22: Listener Q&A Expensive Markets; Hard Money; How to Buy Low!
by Doug & Andrea Van Soest | Spouses Flipping Houseshttp://traffic.libsyn.com/spousesflippinghouses/SFH_022_Listener_Q__A_Expensive_Markets_Hard_Money_How_to_Buy_Low.mp3
Episode 22: Show Notes
In today’s episode, we’re taking a break from the norm and doing something a bit different today. We’ve received some really great questions last month and while answering them, we realized it would be helpful if we shared some of them with everyone listening in. If you have any questions for us, feel free to send them to email@example.com or leave a comment below & we will answer each of your questions!
Episode 22 Transcript
Andrea: Welcome back. So today is Episode 22, and we are going to answer some of your questions today, just a few.
Doug: Yes, question and answer episode. We’ve been soliciting questions from you guys over the past month or so, and we’ve had a lot of great questions come in, usually via email. And we’ve been trying to answer those personally to those people, but we’re going to actually go through a few of those questions on the air today because I think they’ll be beneficial to most people.
Andrea: Yeah, because most of them I thought, Man, I wish other people could see this question that has come in. I wish they could see the answer because I’m sure they’re not the only person that is wondering about this.
Doug: Right. But before we get into that, we’ve had a real busy week here, and the weeks just never go exactly how you think they’re going to go.
Andrea: No they don’t. I don’t know why I always do this, but I sit down on Sunday night and write out everything I have to do and by Tuesday, it has totally changed around.
Doug: I know. You can just throw that out the window because things or opportunities will show up all of the sudden that you need to take advantage of right now, or you need to meet with someone, and something else gets pushed back. And that’s fine. It’s good to be a little bit flexible because things change.
Andrea: That’s also what I love about this business. I like the unpredictability of it.
Doug: True. It’s never boring. You can definitely say that; it’s always exciting. There’s always something. But last week we mentioned how we’re really not focused on getting more rehabs right now because we’re dealing with some other ones and trying to get those finished up, and we’re just focused on wholesaling.
That was until last night. So what happened yesterday?
Andrea: Yesterday we had a great deal in Palm Springs come across our desk, and that’s just an area that we love. We have a contractor that we really like working with out there, and that plays a huge part of it I think, when we know that this will be easy because our guy out there will take care of it really fast. It’s going to be really good, so we have to do this one.
Doug: And it would be one we would enjoy doing because it’s just a fun rehab out there in the desert.
Andrea: Yeah, they’re typically more modern, and it’s just really fun. You don’t get to do a lot of that out here where we live. People aren’t as interested in that mid-century modern style, and they love it out in Palm Springs. So it’s really fun.
Doug: So that’ll be fun, so Andrea after this is hopping in the car and jetting out to Palm Springs to check out this property and make sure it’s you know, what the person says it is.
Andrea: And I’ll meet the contractor out there, and we’re going to try to make our plan really quick. Figure out what we’re going to do to it.
Doug: And then I’m headed out to Fontana today for another property that we’re in escrow on, and this deal in particular just goes to show how this business is really about people and really about relationships, most of the time. It’s not always about just buying a house for a certain number, and pushing the paperwork through, and closing on it.
It may have been the case back in the foreclosure short-sale days, but today, 90 percent of the properties we buy are directly from an owner or a real person who sometimes has real problems, either with the property or just personally in their life. And we are problem-solvers in this business above everything, and if you can solve that person’s problem and still buy the house at numbers that work for you, then that’s a win-win. And we love doing that, and it kind of makes us happy when that situation happens.
So this particular property, the owner was pretty savvy, and he had called several investors to come take a look at his house and make an offer, and we were one of a few. And when I got there, I think I was the last one to come in. He had said: “Here’s where my offers are at. Nobody has given me the $190k that I want on this property. The first person who can give me that number, I’ll sell them the house.”
Andrea: And he had inherited this house, right?
Doug: Yeah, he was living there, but he had inherited the house years ago, and his sister is part-owner, and she lives out of state. So he’s the other part-owner. But the guy has health problems, and he’s just really down on his luck and is just in a bad spot. So he’s gotten to the point where he needs to sell this house in order to get money to live.
He literally is about of money, completely. But one of the issues, other than that, was that in order to just move out of the house and get some of his belongings out, you need money to do that, or you need family and friends around to help you. Those he doesn’t have around, so he needs money.
And nobody else was willing to work with him on that. They just wanted him to close on the house, and for it to be vacant. So just through talking with him, we discovered that we could solve this problem by closing on the house and giving him time afterwards to get your things and move out.
So that was solving his problem for him, and we were able to come to that agreement to do it. So we opened escrow on the property, and then one after another, little problems just start happening that keep causing delays, things that would normally not be a problem for just about anybody else. But for example, the notary goes out to his property to have him sign paperwork and notarize the grant deed.
And well, he doesn’t have any I.D. He doesn’t have a driver’s license, so he has to order one of those, and that takes a couple of weeks, so it kind of delays the process.
Andrea: And the problem with delaying the process was that when we signed the contract originally, he was already out of money at that point. So here and now, we’re a couple of weeks into it, and he literally has nothing. Doug actually even drove over there to check up on him one day because he was just kind of worried about the guy. He had been slower in responding to escrow, and we just weren’t sure what was going on with him.
And Doug pulls up to his house, and the guy is literally sitting in his house with no food, and he’s got an injury to his leg that prevents him from walking to the grocery store. He had a bike that he was able to ride and go get groceries, but his bike was broken, and he’s out of money.
Doug: He has no one to call.
Andrea: Yeah, and I’m so glad that Doug showed up on that day because Doug drove to the store, bought him a bike, went to the grocery store, got him groceries and a grocery store gift card. Brought all of that back to him, hoping that would help him to sustain himself until this house closes and he actually gets the money that he needs to keep going.
Doug: Yeah, so it’s been kind of one thing after another, and the latest issue is that we’re going to close. Great, we’re right here at the closing time, but he doesn’t have a bank account. So the check will be so large that if he goes to cash the check, it’s going to put a five to ten day hold on the check, which pushes him over the limit of the time we gave him to move his stuff out.
So now we’re reworking that. We’re going to give him longer or go help him get a bank account set up so that the money can just be wired directly to his account, something like that. So we’re still solving problems, working through it, but I want to check up on him and make sure he’s doing well.
And we’re going to follow through, make sure he’s taking care of after escrow closes and has a place, has food, is back to comfort living a little bit.
Andrea: Yeah, this was a tricky one and just one of those things that really pulls at your heartstrings. You sort of can get invested in these people as you’re going through the process and buying their house, you genuinely do care about them. We want to make sure that he’s okay. I don’t want to just buy his house; I want to make sure he’s okay.
Doug: Yeah, yeah. Most people have someone around that can help them out, but sometimes you’re that person, and we’ve kind of realized that in this situation.
Andrea: Sometimes you’re all they’ve got.
Doug: We’re the ones who can help him out, so you know, we’re doing what we can to take care of him. But that’s what I’m going to be dealing with today, which is kind of cool.
Andrea: Okay, so onto our listener questions. I just want to say that I have really enjoyed receiving these emails of questions over the last couple of weeks. It has been really fun to get to know some of the people that are listening to this podcast in a more personal way, and some people have even included pictures of themselves, which is so fun just to say, “Hey, this is me and my wife. This is us, and we’re doing what you’re doing.”
Or, “Hey, this is our family. This is who we are.” And it’s been really, really cool, so thank you very much for your emails and your questions. We’re going to answer a couple of them right now.
Okay, so question number one: We want to get started in real estate investing, but our market is very expensive. It’s a very high-end market, so should we move to a more affordable market to get started? And I first want to say that this question was asked by several people.
Doug: All right, so first of all, I would ask a couple of questions back. Number one, are you sure this is the career you want to have? I mean absolutely sure because uprooting your family, and your life, and moving to a new location to take on a venture that you haven’t done yet or haven’t even started, aren’t even sure you’re going to like it, is that something you’re willing to do or want to do?
It’s one thing if you were planning to move out of the area anyway. But if this is the sole reason, because you think you can’t invest in real estate where you live, then I think you should rethink that because I believe you can’t.
Andrea: Yeah, I think that every market has some kind of a niche that will work. If that means driving an hour away to the suburbs of your market, that might be a better option for you to get started. In fact, we don’t buy a whole lot of deals right around where we live. Most of the things that we buy are bought an hour away.
Doug: Yeah, Palm Springs is an hour and a half drive from us. And most people, I would say depending on where you live in the country, but the majority of people are going to live within an hour, hour and a half, of all kinds of markets— typically. High-end, low-end, rural, urban, most people. That’s not that bad of a drive.
So I would definitely want to say, okay, we live in a high-end market. Where is the closest market that is more affordable that we’re more comfortable starting in and how far of a drive is that. Get to know that area. You can go there two/three times a week. You don’t have to go everyday.
Andrea: Or maybe you develop some kind of an equity split partnership for your first deal if you decide that you do want to go ahead and go for it in your high-end market, but you can’t afford it, you’re a little bit nervous maybe you partner up with somebody else that’s done this before with experience. Where you bring the deal, they bring the funds, and you can learn the process as you go.
Doug: Yeah, and I mean ultimately flipping houses in a high-end market, you’re probably going to be happier that you did that versus going into a low-end market.
Andrea: Oftentimes spreads are going to be bigger.
Doug: Yeah, spreads are going to be bigger. It really is essentially the same process. You’re going to be dealing with different things than you would in a lower end market, but typically the reward path is going to be much greater. There’s a saying out there: “Live where you want; invest where it makes sense.” So I think you can apply that to wherever you live.
You don’t have to flip houses right in your backyard. Locate a market you want to work in, and the important thing is get to know that market. And it doesn’t have to be five minutes away, like we said. We’re going an hour, hour and a half, sometimes two hours away. So just make it work.
Andrea: Okay, question number two: how easy is it to get started with a hard money lender? And also, when using a hard money lender, how much are you required to spend out-of-pocket or are you able to use the equity that you have created there in the ARV to reduce or eliminate this issue?
Doug: If you don’t know what ARV is, it’s the after-repaired-value. So okay, good question, the first thing I would say here is that all hard money lenders are not created equal. There are definitely different kinds of lenders out there. Hard money is kind of a loose term. It could be anything from a huge brokerage company that lends to investors, or it could be a single guy next door who is called a hard money lender because he has some money that he lends out himself.
So they’re definitely not all the same. But most of them I would say, most hard money lenders, are going to want you to have some kind of skin in the game no matter how much of a discount you’ve got on the property. They want to know that you’re financially invested in the property as well as all of your time and efforts.
But that being said, it is far easier than a traditional home loan. The application process is typically pretty simple. They may run a credit check or want to verify your funds and ask questions about your experience and things like that. They might do an appraisal; they may not.
Some of them just have an in-house appraisal type system that they do. They don’t even send an appraiser out. You’re typically going to pay two to four points at anywhere from 9 to 15 percent is pretty typical. And I’ve seen or heard at least from different areas across the country that this varies. But here locally in Southern California, you’re closer to that two or three point range, and you’re closer to the 9 to 12 percent probably.
Andrea: Right, and most of them will lend around 60 to 70 percent of the ARV, which is the after-repaired-value, or 70 to 80 percent of your purchase price, so keep that in mind. And then sometimes they will hold back money for repairs.
Doug: Right, so lenders have different programs. As far as the hold-back, sometimes they’ll fund say 70 percent of the purchase price, so they’ll want you to come in with the remaining balance. So there’s your money out-of-pocket, but yet they will fund part of your rehab.
But they’ll want to do it on a draw basis, like after you’ve completed say a third of it, they’ll come out and take a look, release some of that money back to you, sort-of reimbursing you. So that can be a way to go where you’re getting your money back a little bit quicker.
Andrea: And sometimes you can establish relationships with these hard money lenders. So after you’ve completed one or two deals with them and you’ve sort of proved yourself, the process will probably get a little easier for you. Sometimes you can borrow at a higher percentage or a lower interest rate.
Doug: Yeah, they get more flexible once you’ve proven yourself and typically, you don’t have to go through the whole long application process every time. It might just be much simpler— here’s the address, here’s the property. They already have all of your information. They don’t have to rerun your credit. They’re kind of more comfortable working with you now.
Far, far easier than a home loan, if you’ve been through that process recently, like from big banks out there. Much, much, much easier.
Andrea: Yeah, we do love hard money lenders. We’ve used them a lot. They’re a great way to get started, but you will want to eventually start finding private money sources, because that can be even easier.
Doug: Yeah, that’s the way to go. It’s better for the people lending you money because they’re getting a great return. It’s easier for you, and the terms are all negotiable and flexible, so private is what you want to migrate to.
So if you’re looking for hard money sources, I would go to some real estate clubs, get some referrals, talk to other investors in the area, see who they use, get online, start searching around, and definitely get quotes just like you would from a contractor. Ask the lenders their terms. Ask how they do their process and interview two, or three, or four of them before you choose one.
Andrea: Right, okay so question number three: I am having difficulty finding properties to buy low. I have been previously buying through auctions, but I cannot increase my volume by more than six deals per year. I want to increase my volume, but I have to buy low in order to make a profit, and I live in South Orange County. Currently, I’ve been buying properties in LA County, so what can I do about this?
Doug: Okay, very good question, and first I would say that you are not alone. This is probably the number one struggle that most “mom and pop” investors and big bank investors as well have, finding those deals, finding more below-market properties. So you’re not alone.
And I would say this is probably the number one most important, valuable skill you can develop in this business— how to get your hands on below-market deals.
Andrea: Yeah, it’s so true. Because really, anybody can fix it up and do a decent job. I’ve seen a lot of ugly rehabs that sell just fine. This is where it’s at.
Doug: This is where the money’s made, on the purchase and locating these deals. This is what everybody wants, all of the investors, so it can be done. So a couple things here, first of all, you mentioned in the question that you’ve been doing auctions. That’s been your source of deals for the past few years.
I would say this, strategies have different seasons where they work, and there are seasons where they don’t. And in my opinion right now, and we’re talking about foreclosure auctions I would assume, this is not the season for foreclosure auctions.
Andrea: And the “seasons” that you’re referring to really are based on the market cycle.
Doug: Yeah based on the market cycle, so currently in the cycle we’re in, we’re not experiencing a huge amount, in Southern California where this question came from, of foreclosures. Yes, there are still some out there but not like it was in 2009/10/11, which is when you’ve been purchasing properties.
Andrea: And which is when you would typically be buying great auction properties, when there are a ton of foreclosures.
Doug: Yeah. Again, sort of a supply-and-demand, there’s a lot less supply of these foreclosures at the auction steps, and now you have a lot of people you’re competing with down there because that’s their only source as well. And you know what, it has its advantages. It’s quick; it’s easy; you buy a property that day.
It’s highly competitive right now, and if you’re looking for really below-market deals, it’s going to be a struggle as you’ve noticed to get a consistent amount of deals at the courthouse steps right now. So I would say that season has passed for that.
Andrea: Yeah, I think it’s really important to pay attention to the market cycles as it goes along because throughout every cycle, you’re going to change and shift your strategy as you move through that cycle. There’s going to be different ways that you’re going to go about acquiring properties.
Doug: Right, and so Bruce Norris has this thing called a Deal Wheel, which is this very topic we’re talking about right here. There are certain strategies that tend to work in certain cycles within the market that tend to be where you want to be trying to acquire properties during that particular time.
So in the cycle we’re in now, it is direct to owner. I mean, that is the way to go for the most part as far as hard-to-acquire deals.
Andrea: And we’re in California, so we’re mostly speaking to where we are. There might be other areas of the country where auctions are great, but this person asking this question is also in California.
Doug: Exactly. It goes back to our point of your market. Your cycle may be different; your market may be different where you are. Auctions may be a great source for you, and you’re getting plenty of below-market deals. Great! If it’s working for you, keep going.
But for this particular investor, we know Orange County and LA very well, so I would say a couple of things. You need to get serious about your acquisition strategies and really put your effort into marketing. Just like in any business, if you don’t have leads, if you’re not marketing or advertising in some way to generate leads and deals, you don’t have a business. You’re going to die.
So I would say that you need to put a few fishing lines out in the water. The more lines you have, the more chance you might have of catching some fish.
Andrea: And discovering what works and what doesn’t.
Doug: Exactly. So in my opinion, for this guy who asked this question, you know it depends on your budget. If you have a high budget, and you’re ready to spend some money to try to get some deals quickly, there are lots of things you can do.
You can do direct mail on a higher scale. You can do some pay-per-click on the Internet; you can do a radio ad; you can do a TV ad; you can do billboards. This is pretty big stuff. Most “mom and pop” investors maybe don’t have that high of a budget to try and find deals, which is understandable, so if you don’t, there are some other strategies that are very low budget.
They might require some more time and effort, but I think they can be great, great strategies for finding some deals for you. And some of those would be like door knocking. We’ve mentioned this before, but either just drive through neighborhoods you’d like to invest in or you think would be good areas to buy properties in.
Look for the ones that look vacant, that look rundown, that might have a for-sale-by-owner sign, anything that has a hint that maybe that property is causing a problem for somebody because it’s looking rundown or might be vacant, then that person might be interested in selling. Knock on the door!
Andrea: I think a lot of people ignore this one because it’s uncomfortable, but it really is so effective. I was just talking to a mom at my son’s school a couple days ago, and she was telling me how her husband really wanted to buy a rental property in this one town near where his mother lived, and he saw a house a few doors down that was rundown. He had never done this before.
He went and knocked on the door, bought the house. The first door he’d ever knocked on, bought the house.
Doug: There you go. Yeah, and it works so good because so few people do this because it’s uncomfortable. It takes time. Nobody likes to, I don’t know maybe some people do, but I don’t like to door knock. I just don’t. But it can be a great way, and it doesn’t cost you anything except time.
So do that! Drive around, knock on doors. If nobody is home, knock on the neighbor’s door. Ask them about their neighbors, if they know anything about the house, and if they can get in touch with them. That’s a good way to go. Or, form some relationships with some agents out there.
Go into some offices and find out who the real players are there, the agents that get a lot of listings, and just let them know who you are/what you do, and that you’re looking for some of their properties that maybe need an all-cash offer Some of the fixer ones or some of the properties that their other investors aren’t interested, to call you and give you a shot.
And there’s a whole other podcast episode probably just in this topic here but you know, get to know some agents and try to build that relationship. Maybe they can send you leads— that’s free. Go onto some for-sale-by-owner sites on the Internet like Craigslist, FSOB.com, and there’s probably a million others.
Look for the ones that are for-sale-by-owner and start calling them up or just work the MLS. I think that’s probably better than going to the auctions these days. Even though it’s competitive, it’s free and you can do that. Get on the MLS everyday and start calling up agents, making some offers.
Andrea: You can even call expired listings. You can call cancelled listings.
Doug: Right, yeah. Get a little creative. Look outside the box on the MLS, things that aren’t just active listings. Good point. Also, wholesalers, the Internet is full of wholesalers. Just start Googling in your area and reach out to these wholesalers. Try to get on their lists; see if they have anything that day they could send you.
Go to some investment clubs and start asking who are the people who have deals here. I’m looking for deals.
Andrea: You know what’s a great way to find wholesalers is actually to put an ad out on Craigslist because I’ve noticed that when we have tried to sell a property on Craigslist…
Doug: So you mean like listing a house on Craiglist for sale?
Andrea: Yeah, so okay maybe you don’t want to lie. I guess you need a deal to actually list on there, but I feel like every time that we have listed something on there, the majority of the calls that we get are from wholesalers and bird-dogs. And it’s been a great way to fill up our list. We get their contact info; we can call them on future deals.
It was actually a great unintended strategy for finding wholesalers.
Doug: That is. That’s a good one. And you know the last comment I would say about finding deals is, especially in Orange County and LA, it’s a highly competitive market, and maybe you need to take a look at your margins. Are you really trying to buy too low, I guess is my question.
And I want to be careful to say pay more for a house because that’s maybe not good advice for a lot of people, but listen, if you want to do volume in LA or Orange County, you have to tighten up your margins a little bit. What can you do to save money on selling the house, or on your rehabs, or on your holding time, or your hard money costs and private money? Can you get those down?
How can you get your costs down so that you can be a little more competitive and pay a little bit more to do deals? Because sometimes, again, if you’re looking to do volume, that may just be the reality of your market. You’re just trying to get too much of a good deal in that area, so take a look at that. Maybe you’re just offering too low.
Andrea: So thank you so much for sending in your questions. This has been awesome. We would like to do more question and answer episodes like this, maybe once a month. So if you have additional questions, please feel free to email me at firstname.lastname@example.org , and I will get back to you, and we might read your question on the air.
Doug: Yeah, so reach out to us. Also, please give us a rating and review on iTunes. It really helps us out. We love it when we get some of those.
Andrea: And if you’re new here, head over to our website, SpousesFlippingHouses.com. We have a free gift for you.
Doug: So that’s it for the day. We have to hit the road, get out of here.
Andrea: Have a great week!
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The post Episode 22: Listener Q & A; Expensive Markets; Hard Money; How to Buy Low! appeared first on Spouses Flipping Houses.
Mar 03 2016
Rank #11: Episode 23: Working with Agents! How to get deals that come to YOU!!
Episode 23: Working with Agents! How to Get Deals that Come to YOU!!
by Doug & Andrea Van Soest | Spouses Flipping Houseshttp://traffic.libsyn.com/spousesflippinghouses/SFH_023_How_to_get_deals_that_come_to_you.mp3
Episode 23: Show NotesAs an Investor, working with Real Estate Agents can be a REALLY helpful addition to your deal finding strategy. But how do you do it? And how do you do it without making the WRONG impression? Tune in now to learn the secrets to working with Real Estate Agents that can bring you deals!
Here’s a Few takeaways from today’s episode:
- Why Real Estate Agents are a Great Way to land deals
- The difference between “Buyer’s Agents” & “Listing Agents” and the benefits of each
- Why you might want to work with newer agents AND veteran agents
- The BIGGEST Mistake you can make when reaching out to agents and how to avoid it
- Our Strategy to Approaching Lasting Agent Relationships
Episode 23 Transcript
Doug: Welcome back to the Spouses Flipping Houses podcast. We are on Episode 23. Michael Jordan was number 23, and he was something special, so this is going to be a special episode. I can feel it. I know it.
Andrea: Okay, that’s a lot to live up to.
Doug: It is a lot to live up to.
Andrea: Michael Jordan.
Doug: Air Jordan man. You know. Today we’re going to be talking about something we actually mentioned on the show last week that we thought might be a good podcast episode someday. So today is that day, working with real estate agents. We are going to talk about that.
What’s the best way to do it. How do you do it.
Andrea: How do you not do it.
Doug: How do you not do it. What the benefits are and all of that kind of stuff. So we’re going to get into that, and that’s going to be a great topic. Before that, we’ve had a busy week here with a lot of stuff going on. Andrea, I have hardly seen you because you’ve been out and about. So what have you been doing?
Andrea: Yes, I have been up to my eyeballs in building permits and working with inspectors and contractors.
Doug: You’re getting very familiar with the city and county buildings I think.
Andrea: I am, and you know in some cities and counties, that’s actually a great thing. They’ve got a little café; well this is Riverside anyways. You can get a Starbucks and then while you’re sitting there waiting for your number to be called, they’ve got HDTV up on the big screen while you wait and these nice comfy chairs. Not a bad gig.
Doug: Well they ought to. Our taxes are high enough out here in California. Glad to know it’s going towards Starbucks machines.
Andrea: It is, it is. It’s a nice little benefit while you’re waiting to pull your permits.
Doug: Cool, cool. So what’s the latest that’s happened with some of the properties with the permits?
Andrea: Nothing too major, just one when we originally pulled the permit, we didn’t include HVAC for whatever reason, and so we’re having to add that before the inspector comes back out on Thursday for the next inspection. And then on another one in Riverside, just kind of dealing with the historical society a little bit and figuring out exactly what they want and don’t want.
Doug: They have some interesting requirements.
Andrea: Yeah, we have to use as much of the original wood as we can, but we’re doing an addition. So we’ll have to mill some new wood to look like the original siding, and then a huge percentage of our demo, they want a receipt showing that it was actually recycled. I think 80 or 90 percent, which is pretty cool they do that.
Doug: Yeah it’s a cool thing, just nothing that we were aware of before.
Andrea: Yeah, so just learning all of these things as we go. It’s kind of fun.
Doug: That is really cool. We’ll have an update on the Fontana property that I mentioned on last week’s show, going out to this guy where we had one issue after another after another on trying to close his out, because he’s trying to move out.
Anyways, I went out and met with him, and we had a meal together, and it was actually a really good meeting. And we were able to talk through some of the questions he had about the process and really what it boiled down to was that we needed to give him a little more time than what we had originally talked about.
Because originally, he had indicated that he only needed two days to be out. Well, that’s just not enough time to really get all of your stuff in order and move.
Andrea: Not for anyone.
Doug: Not for anyone. We’d given a week originally, but that wasn’t going to be enough really. So we just extended it to three weeks, and I was able to help him get some things lined up and in place so that as soon as this closes, he’s ready to get his truck and trailer and get stuff packed up to move on his way.
So that closed Friday, so that was good. That has happened, and now we’re in that three-week period, so we’ll follow up again and see how it’s going. But it’s been good. It’s been a good, busy week.
Andrea: So before we get started, I just wanted to remind everybody to head over to our website, SpousesFlippingHouses.com. We have a free gift for you and then also, we’re trying to be more active on Instagram actually.
Doug: Come check us out on Insta.
Andrea: I think we just dated ourselves a little bit there, but I really like Instagram. I think I even like it better than Facebook because it’s just very visual. You can quickly share a photo of what’s going on in your day, and you don’t have to read someone’s long diatribe like you do on Facebook.
Doug: Someone’s novel.
Andrea: I don’t know; I just like it. It’s kind of fun. Yeah, you can quickly scroll through fun photos, so it’s just a good place for us to post before-and-after pictures and kind of what we’ve got going on. So follow us on Instagram.
Doug: Yeah, and you post a lot of good, cool stuff on there that’s happening throughout our days. So check us out!
Andrea: Well, recently. Last week I did, so we’ll see.
Doug: All right, so let’s get into the main topic today, which is working with real estate agents. So, working with agents can be a great source of leads for you. It can be a great relationship altogether.
We love real estate agents and a lot of times, you’ll hear other investors who maybe have a podcast or platform talk bad— I don’t know if I want to say bad— but kind of put a negative connotation towards working with agents, and how they’re frustrating, and. “Oh, those real estate agents,” or whatever. Well I’ve got an agent sitting across the table from me, so I can’t do that.
Andrea: I’ll kick you under the table.
Doug: The truth is we love real estate, and we love working with them, and they can make your life easy in a lot of ways. They can help you find deals; they can help you sell deals; they can do a lot of stuff for you.
Andrea: And it’s free. It’s a free source.
Doug: It’s free, yeah. So you know, one thing we’ve mentioned many times before and is even obviously more so true with working with agents just in this business in general is that this is a people business. It really is. It’s about relationships. It’s about the relationships you make along the way and dealing with people to help each other accomplish each other’s goals. And agents are some of those people.
So there are two different types of real estate agents, and most agents do wear both of these hats, but some agents really focus on one side or the other of their industry. And that is there’s buyer’s agents and there’s listing agents.
So let’s talk about buyer’s agents real quick. Buyer’s agents are obviously those agents who work with folks or investors, whoever, that are looking to buy. Well first of all, having a buyer’s agent costs you nothing. The commissions that are paid are paid on the selling side, so if you have a buyer’s agent working for you, it’s free to you.
All it is is a benefit. It’s somebody helping you to locate a property, and helping you with paperwork, and all of that kind of stuff. So it’s free. It costs you nothing. Another benefit of working with a buyer’s agent is that there’s a potential for multiple transactions, multiple deals.
You don’t have to do it just once with an agent. They can help you again, and again, and again to find more properties. Another advantage to say, working with a buyer’s agent, is that they typically work in real estate offices among other agents, and they may have a heads-up on a listing that is coming up. Or you might get a priority on your offer based on their relationship with somebody else in their office who has a home that might fit the bill of what you’re looking for. So that can definitely be a benefit.
And then there are also agents that work specific niches. That’s their expertise. Some might be like a probate; their expertise is in going after probates. Or historic homes, like maybe they just focus on certain neighborhoods, and if it’s a neighborhood you like, you want to get in with an agent like that.
So for the fixer homes that come up in that area, you know, they’re going to call you. Condos might be another one, somebody who just focuses strictly on condos, if you’re a condo buyer. So there are agents that will focus on particular niches that can be a benefit.
And then there’s the listing side, listing agents. Now these are the agents that already have a listing. They have deals; they have homes that they are listing for sale. So again, another benefit to working with a listing agent is they typically get more and more listings all of the time.
Whatever their source is, whatever their farm or network, they’re continually getting listings, and that’s more potential properties you can make offers on and potentially purchase. Another benefit to working with a listing agent is once you buy from them, if you buy one home and it goes well, you do everything right, do what you say you’re going to do and close on time, agents remember that.
And they like an easy transaction, so they might call you again, and again, and again hopefully. And you move up their list of priorities as a good buyer. This was a great strategy during the downturn, the big financial crisis when all of the foreclosures hit.
Certain agents, lots of agents, would work with these banks and get many, many, many bank-owned home listings, and if you showed that you’re a buyer that can close and you’re easy to work with, guess what? You become a priority buyer for them.
Andrea: Okay, so how do you find great agents to work with? Well, there are really two schools of thought on this. The first one is that you would want to go after new hungry agents that will hustle for you that haven’t necessarily been burned by other investors yet.
Doug: Yeah, they’re not tainted by the “investor bad name” that can typically be out there.
Andrea: Right, and this might be a better option for you if you’re wanting to go out there and make lots and lots of offers to get flip deals. Seasoned agents are not going to probably want to make hundreds of offers for you. They’ve already got business coming in. They don’t need to do that. They don’t need to work that hard.
But a new agent that’s got hustle, they might be willing to do that for you. The other school of thought on how to find agents to work with is to actually work with one of those seasoned vets who understands what it means to work with an investor.
So this would probably be better if you are wanting to maybe make wholesale deals that you are finding on your own. Some of these seasoned agents that have been around for a long time have big money landlord clients that you don’t even know exist. So if you can figure out who those agents are that work with those people, that could be huge for you.
So I’ll give you a couple of different ideas on how you can go about locating both of these types of agents. So if you’re looking for one of those young, hustling type newer agents, a great idea is to put an ad out there on Craigslist. Because who’s out scouring Craigslist but the people that are hustling and the new agents that don’t have deals yet.
So that’s a great way to find somebody that might be willing to really work hard for you. Another thing you can do is create some kind of a presentation on the benefits of working with investors, and go into your local Keller-Williams or local Century 21 and say, “Can I present this to your agents and let them know about the benefits of working with me and why they might want to do that?”
If you have lots of agents that know who you are and know that you’re the go-to person if they get a listing or know of somebody who wants to sell a house that is in need of repair or for whatever reason it’s not going to do great on the MLS, you can have that opportunity to go and present yourself in front of a room full of people that might then call you if they have a great property.
And then the third idea that I would give you is just to network, because agents love to network. And if you just get on the Internet and search for real estate agent meet-ups, you will find tons of opportunities for you to go and meet some of these people, talk to them, and let them know what you’re about, and find out what they’re about, and how you guys can work together.
Doug: Yeah, there’s probably like a meet-up.com I would guess where you can find them, right?
Andrea: Mm hm.
Doug: So let’s talk about how to find these agents. How do you approach them? Let’s talk about what not to do first of all. So what you don’t want to do is call up an agent, let’s say you just call someone off the Internet or call up one of these offices, you don’t want to say, “Hi. I’m an investor. Can you find me a deal to flip? I want to flip houses.”
Typically, that’s not going to go well for you. They hear that word “investor,” and they probably hear that a lot from a lot of people first of all. And what they’re hearing you say is actually, “I’m going to make low-ball offers and make you work super hard for me with very little chance of ever earning commission,” because that’s just what they hear. That’s how that is interpreted.
So don’t do that. In fact, I wouldn’t even call yourself an investor. It’s fine calling up to say, “Hey, listen. I’ve got some cash, and I’m looking for a property I can put a little money into and turn around to sell. Would you be interested in helping me?” That’s much better than, “I’m an investor. I want to find a deal.” So try that route.
Also, another thing you don’t want to do is be rude, or arrogant, or demanding. Sometimes people can just have that approach because they feel like, Well I’m the guy wanting to do this, and you’re going to help me, and you know… because you’re an agent and you make a commission.
That’s just a bad way to go about working with anyone, so don’t be rude. Don’t be arrogant. Be likeable.
Andrea: That goes back to the whole people business thing. It’s really important.
Andrea: Unfortunately a lot of agents have a bad taste in their mouth towards real estate investors, and so our goal in what we’re trying to share with you here is let’s all change that together.
Doug: Yeah, yeah, you need to work around that. Let’s be a likeable person. Don’t be one of those “investors” that gets thrown in that category of someone they don’t want to work with.
Andrea: So how should you approach an agent relationship? Well, real estate agents are typically not educated on the type of creative deals that real estate investors do, like wholesaling, assignment of contract, different things like that. They really don’t understand it. It might even make them nervous or they think that that’s against the rules when it’s not.
So you want to find an agent that is either experienced with these different types of transactions or somebody that is trainable, that you can educate and make them feel comfortable with your process.
Doug: Right, someone who is open to it and can see the opportunity there.
Andrea: Right. Another great way to form a relationship with an agent is to actually call on one of their listings to inquire about it. And if it’s pending, maybe you ask them to call you if for some reason the buyer backs out. This is actually a great strategy.
Doug: It’s a great way to do it.
Andrea: And it’s a great way to just keep yourself at the forefront of their mind and eventually, you’re going to be the one that they call.
Doug: Yeah, and then you’re offering them a service like, “Hey, listen. If this guy backs out, call me. We’ll buy it.”
Andrea: Right. And then you want to make it a win-win situation. So you want to give them referrals of people that maybe you come across through your other means of marketing that have a house that they want to sell, but yet what you can offer them is just not quite enough for whatever reason.
You’re not their best option, so give that person as a referral to those agents that you’re working with. They will appreciate it so much. Also, if you work with an agent that does help you to buy a deal, be sure to give them the relist when it’s finished because two commissions equals a happy agent. They will love you.
Doug: Absolutely. They’re not out there for free. They want to make a living too, so help them do that.
Andrea: Yeah, and then another way to make it successful for both of you is just to regularly sit down and brainstorm with your agent for creative ways that you guys can find deals together through the MLS, like using expired listings, cancelled listings, listings maybe that have just fallen out.
If you are continually sitting down with them and going over these things, you’ll make them feel like an important part of your team, like they’re valued. And not only that, I mean great things come out of creative strategizing sessions. That’s a good way to go.
Doug: Absolutely, absolutely. And it helps solidify your relationship with them so they know you’re a real player. A couple more tips on that, just like dealing with say seller leads that come in that call you from a marketing piece or something, an important thing to do with any agent that you touch bases with, or maybe you’ve worked with in the past, or that you got their business card when you met them, is to follow up with these agents.
Don’t be annoying or anything like that, but send an email like, “Hey, just checking in. Do you have anything that you think I might be interested in?” Then the next week, send them a text message: “Hey, it’s Doug. Just wanting to know if you have anything coming up.” Guess what, the squeaky wheel gets the grease.
Andrea: It’s so true because even with us, if we have a wholesale deal, whoever has called us that week to say, “Hey Doug, you got a wholesale deal?” They’re the one we’re going to tell about it just because they called.
Doug: They just happened to call right when we got one, and yes, be the squeaky wheel. Don’t be afraid to do that. It’ll pay off big time for you. So that is working with agents in a nutshell. We hope you got a lot out of that episode. I think agents are an incredible strategy, really no matter what market cycle you’re in.
Andrea: Yeah, there’s always a way that you can successfully work with realtors.
Doug: Yeah, so go out there and find your agents to work with. And also, keep sending us questions at email@example.com. We’re collecting some more questions so we can do another Q & A episode down the road.
Andrea: Yep, have a good week!
Doug: All right, take care.
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The post Episode 23: Working with Agents! How to get deals that come to YOU!! appeared first on Spouses Flipping Houses.
Mar 10 2016
Rank #12: Episode 10: Building Cashflow for Financial Freedom – How We Bought 57 Rentals & Counting!
Episode 10: Building Cashflow for Financial Freedom - How We Bought 57 Rentals & Counting!
by Doug & Andrea Van Soest | Spouses Flipping Houseshttp://traffic.libsyn.com/spousesflippinghouses/SFH_010__Building-cash-flow-for-financial-freedom.mp3
Today, we will be talking about Rental Properties & Cashflow. This is THE reason we got into real estate investing. We’ll cover some of the benefits of Rental Properties, the method we used to purchase rentals, one of the common mistakes people make when getting into rentals, and share 3 things to look for in a rental property to help you get started.
Key takeaways from this episode:
- People will always need a roof over their head so why not provide that for them?
- Financing & loans are easily available to buy rentals
- Your tenant is essentially paying the mortgage for you
- Hard Money Loans can be used if you’re self-employed
- Norris Group is Recommended -Know Your Market – things will vary based on your area
Be aware of expenses:
- Property Taxes -Insurance -Maintenance -Vacancies
3 Part Video Series
- Goes more in detail on Analyzing Deals, Rental Properties and their expenses
- Sign Up on our website to receive them.
3 Things to Consider When Looking at a Rental
- What type of property is it, where’s it located & what school district is it in?
- What financing is available to you?
- What quality of tenant do you think you can get for the property? -Ultimately want to be cash-flow positive after all expenses.
Resources mentioned in the episode
Episode 10 Transcript
Andrea: Shelter never goes out of style.
Doug: People always want a roof over their head and a place to live.
Andrea: They need it.
Doug: And so why not provide that for them?
— Intro/Music —
Doug: Welcome to the Spouses Flipping Houses Podcast. This is episode 10. So excited to be here today and so excited to bring this episode to you. Andrea, my partner in crime across the table, how is it going?
Andrea: It’s going good. How are you?
Doug: I’m doing well. I had the flu all weekend, so I’ve been a big grump.
Andrea: So you’re really not doing so well?
Doug: I’m letting better now, feeling better today.
Andrea: Yes, you’re amongst the living. That’s good.
Doug: I’m amongst the living, and I’m getting stronger everyday. So hopefully by tomorrow I’ll be back to 100 percent.
Andrea: Well I hope so, because we are headed to a mastermind meeting that I am super excited about, and I need you.
Doug: Yes. To be there!
Andrea: My introverted self needs you to be there.
Doug: Yeah, no we’re really excited about it. This Mastermind group is going to be a good thing, and we’ll probably have an episode in the future on the importance of Mastermind groups, and just collaborating with like-minded people, and helping do that to move your businesses forward. But today, what are we going to talk about?
Andrea: Today, we are talking about one of our favorite subjects, which is rental properties and cash flow.
Doug: Yes, very exciting topic for us. The reason, really, that we got into real estate investing, so if you’ll remember, when Andrea and I were early in our relationship, when we were dating, we read a book called Rich Dad, Poor Dad, and in that book the idea was to create cash flow to escape the rat race.
And our whole goal getting into real estate was to buy rental properties as our cash flow to eventually escape the rat race, and we’ve had that goal and maintained that goal to this day. Now we did discover flipping houses along the way there, and that’s been a big part, obviously a big part of this podcast and our business as a whole and what we do.
But, we also buy and manage our rental portfolio, which we are going to talk to you about today. But before we do that, I’m just going to break down what our rental goals are and what they look like today. But before we get into that, let’s just talk a little bit about the benefits of a cash flow rental property, okay.
Andrea: Yes, lots of benefits.
Doug: So, number one: if you were to go buy a stock or buy gold, you know buy gold or silver and then sell it later on, you’re hoping that it goes up, and you have to go buy it with cash and just hold it there, hoping that someday it will go up, and you can sell it for more.
Well, if you’re going to buy a rental property, number one, you can buy it with cash, but a great benefit is you don’t have to buy it all-cash. You can put a down payment and get financing on that property. So, you can get a loan, and it’s easily available, especially if you have a normal W-2 job, you can likely qualify for a 20 percent down payment, get financing for the rest, and acquire a piece of property.
The second benefit is that you can rent that property; somebody can pay you to live there. So you own this asset, and they’re paying you to live there. Essentially, they are paying the mortgage for you, as long as the numbers work out. So let’s say you rent that property for 20-30 years.
That tenant has been paying off that loan the entire time for you, and eventually you own this asset free and clear, which you only paid 20 percent for (because you got financing on it), and likely it has appreciated in value. Who knows? Ten, fifteen, twenty times or a huge amount over what you paid for it.
Maybe it didn’t appreciate at all, but in that case it doesn’t matter. You still have a free-and-clear asset that’s worth something that is paying you cash flow every single month. Plus, there are tax benefits and all kinds of other benefits, but that’s just a few of them. That’s why we like rental properties so much.
Andrea: Yes, as Doug said we have known we wanted to purchase rental properties for a long time now, but we actually started buying rentals in 2008, and that’s about the time we started our flipping business as well. And so we had originally heard all of this different education, and we decided that we were going to flip two and keep one. Which is a great goal, in theory.
Doug: Sounds good, yeah.
Andrea: But the reality is, it just doesn’t always work out to do it that way because maybe your third one each time isn’t something you want to keep. So, our goal’s shifted and changed, and we decided that our end goal would be ten properties. If we can get to ten rental properties, that will be perfect because once those are paid off someday, that’s all we will need to live on. It’ll be perfect.
Doug: Yeah, and that’s a great goal by the way. And that is probably more than enough for 95 percent of America.
Andrea: Well, we got to the ten properties pretty quickly, and so we decided to up the goal to 25. So, within a couple years, we hit 25. Okay, well let’s try 50. Is that crazy? Let’s try for 50. So our new goal became 50, and we have surpassed 50. We’re actually at 57 right now, 57 doors.
So our new goal is to pay them off. So that was exciting. It’s exciting to reach those goals, but it’s a lot of hard work. So how did we get there? Well basically, for the first five years that we were flipping properties, our income increased substantially from the flipping business, but we kept our lifestyle very minimal. We did not increase our lifestyle. We put literally every dollar, every spare dollar, towards rental properties.
Doug: Yeah, because we knew our ultimate goal was to acquire more rental properties and not just to increase our income.
Andrea: Yeah, so it was worth it to skimp, and save, and cut back on things, or not buy a new car or whatever it was to reach these goals. It was worth it to us. So we basically purchased the majority of these 57 properties within five years, between 2008 and 2013.
And people choose to buy rental properties in different ways for different reasons. Some people save up and pay all cash; some people use bank financing; some people have partnerships and whatever they choose to do.
But for us, we knew that California had pretty much bottomed out. It was the bottom of this market cycle, and prices were as low as we had ever seen them, and possibly as low as they may be in our lifetime, and we wanted to get as many as we possibly could during that time frame. So we are self-employed individuals. We knew that qualifying for a bank loan was probably going to be near impossible, and if we did qualify for a bank loan, we were only going to be able to get four to ten.
Doug: Yeah, I think four was the max at that time.
Andrea: Yeah, and so the method that we used to purchase so many properties was to use hard money loans.
Doug: Yeah, there was a local lender that we knew here that we knew about, someone well-respected in our area who was also an investor themselves, this whole company and an educator, one who we learned a lot from.
Andrea: Called the Norris Group.
Doug: Yeah, their name is the Norris Group if you haven’t heard of them, a phenomenal company that I highly, highly recommend. But they have the hard money loan program, actually several programs, and one of them was this “long term rental” program.
Andrea: Yeah, so they basically would lend 60-65 percent of the after-repaired value for five to eight years, and their loan program has since changed. I think it’s now a three-year term.
Andrea: But at that time, that felt really safe for us to be able to pick up these properties for that period of time, and then we had five to eight years to decide what to do to fix that loan, basically.
Doug: This was the time when all of the banks had just died and were going under. There was no other financing like this available that we knew of.
Andrea: Right. And so the coolest part about this is the fact that because they were willing to lend based on the after-repaired value, 60-65 percent, we could buy these for not a whole lot out of pocket.
So let’s say the after-repaired value of one of these properties was $100,000, and we’re buying this REO from a bank that the bank had taken back on a foreclosure for, let’s say, $55,000, because we did this all day long in 2009. So we’re buying it for $55,000; it’s worth $100,000. They would give us a $60-$65,000 loan. The property needed $10-$15,000 in repair and then plus our closing cost, so we could be out between $10-$15,000 out-of-pocket. It worked great.
Doug: Yeah, rinse and repeat. So we would try to do this as much as possible.
Andrea: Yeah, so we are now starting to refinance these into commercial loans that are fully advertised, and we’re taking advantage of the great rates that are out today and paying off other properties. And it worked out beautifully for us.
Doug: Yeah, the plan is in action and working currently as we speak. We just closed on our first commercial loan on a package of these properties, so really exciting stuff. Now, one of the common mistakes that people make when they’re wanting to get into rental property is they’ll get a property and say, “Oh House X we’ll rent for $1,250 per month, and my mortgage payment is going to be $1,000 per month, so guess what. I’m going to have $250 per month of positive cash flow. Yes! That’s great, let’s get it!”
Err, wrong. Not going to happen, a very common mistake. In fact, I would be willing to bet you’re probably losing $200-$250 per month on that property if those are the numbers. The reality about rental property is that you’re probably going to have expenses that total somewhere between 30 and 45 percent right off the top of whatever your rent is, just due to the things that you’re not considering like property taxes, insurance, maintenance, vacancies.
All of these things add up. They’re not all going to hit in one month’s time, but over the time of owning the rental property, those expenses are real. And 30 to 45 percent, in our experience, is an accurate number. Now I go into this in great detail in the free gift that we give on our website when you subscribe.
In fact, there is a three-part video series on analyzing deals, and the entire third segment of that video series is dedicated to analyzing rental property, and I go into detail on the expenses, and what they are, and what to expect with that. So just know that going into it.
When we were initially buying these rental properties, we were really looking for anything that was cheap enough that we thought we could get our hands on that we could buy in 2009-2010, because the prices were so low. They’d been cut in half, and we knew they would go up.
But what we look for now has kind of changed, so depending on what market you’re in currently, where you live, things are going to be different and are going to vary market-to-market if you’re looking to buy a rental property now. So I’ll touch on it real quickly: there are three components to rental property that you want to consider when looking for a property.
Number one is the property itself. What type of property is it? Is it a new house? Is it an old house? Is it a condo? Is it a mobile home? Does it have two bedrooms? Does it have four bedrooms? One bathroom, two bathrooms, a garage? All of these factors are pretty important because those are features of the home that a potential tenant will look for, and it’s going to affect what the property will rent for. And also where is it located? Is it a desirable area? It is a good area or not a good area?
Andrea: Some things you might want to consider also is the school district that it is in. There is a particular neighborhood in Rancho Cucamonga where literally on the same street— is it the school district or is it the zip code that changes? On this one street, it changes the value by almost $100,000.
Doug: Yeah, literally across the street is one awesome school district, and then if you go across the street it’s another school district that is not as good and not as desirable, and the values change by about $100,000 we discovered.
Andrea: It really boils down to knowing your market, and your cities, and the different details about them.
Doug: So anyway, number two is the financing available. If we didn’t have the Norris Group loan available to us that we used to acquire a lot of these rental properties, our strategy may have been a little different. If you have an endless amount of financing by some other means, that’s going to maybe affect what you buy, and how many you can purchase, and these kinds of things, and what type of loan you can get (if you’re going to be using a loan) on these properties.
So that’s a big component when you’re considering rental property: the financing. And of course the third would be the tenant. And this is one that people just don’t even think about until after they get a property usually, but it’s something you want to think about before. What quality of tenant, if you will, do you think you can get with this property?
And you may think, well it doesn’t matter if the rent is for $1,000 or for $2,000. What difference does it make as long as you know what the rent is? That’s not necessarily the case because with a lot of types of properties in certain areas, you’re going to have certain challenges, and higher turnover, and things like that that are going to cost you money essentially.
Andrea: For example, one of our highest cash flowing properties is our biggest management headache. So is it really worth that cash flow some months? No.
Doug: Absolutely. A lot of months no, so definitely something you want to consider. Now, what’s our recommendation? I mean, today we don’t necessarily go for the cheapest price for the highest rent. That’s not necessarily what we look for. You want to consider all things.
So what we’re looking for is a good, desirable house in a decent neighborhood with maybe some upside potential for appreciation. That’s going to be hopefully a good school district, and at the end of the day if you have financing on it or whatever, you’re going to be cash flow positive after all of the expenses, at least around $200 per month out of the gate.
So that way you’re not counting on appreciation or anything like that. It works from day one. That’s a very general description, but for the most part that’s kind of what we look for in a rental property.
Andrea: So we highly recommend that you consider adding rental properties to your investing strategy, because it is basically creating long-term wealth. Whether you decide, “Okay, we’re going to set aside this much money per month, and every year we’re going to try to buy one rental property, or every two years we’re going to buy one, or every five years.”
Someday when you go to retire, you’re going to be so thankful. It’s something you can even pass onto your kids or your grandkids, and for us it just feels like the simplest and safest way to build long-term wealth. The stock market these days rises and falls constantly, and the latest investing trends are here today and gone tomorrow, but as Mike Cantu actually says, “shelter never goes out of style.”
Doug: People always want a roof over their head and a place to live.
Andrea: They need it.
Doug: And so why not provide that for them?
Andrea: After talking about Mike Cantu so often we really need to bring him on.
Doug: We will.
Andrea: He’s the greatest.
Doug: We’ll have him on here eventually. So that was rental property in a nutshell, very much a nutshell. Again, I go into much more detail on analyzing these rental properties in the free gift. Please head over to our website and get that, but we’re headed out to the Mastermind meeting, and we really look forward to that, and we’ll report back how that went. Other than that, anything else?
Andrea: Nope. Our website is spousesflippinghouses.com, so you can just go enter your email address, and that three-part video series will be emailed right to you.
Doug: Alright, so go check it out, and we will talk to you soon.
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The post Episode 10: Building Cashflow for Financial Freedom – How We Bought 57 Rentals & Counting! appeared first on Spouses Flipping Houses.
Nov 18 2015
Rank #13: Episode 26: Interview with Mike Cantu – Part 2
Episode 26: Interview with Mike Cantu Part 2
by Doug & Andrea Van Soest | Spouses Flipping Houseshttp://traffic.libsyn.com/spousesflippinghouses/SFH_026_Interview_Mike_Cantu_Part_2.mp3
Episode 26: Show Notes
Here’s part 2 of Doug’s interview with Real Estate Legend, Mike Cantu. If you haven’t already, make sure to listen to part 1 so you don’t miss all of the great advice from one of our top Mentors.
Here’s a Few takeaways from today’s episode:
- Mike’s process for making tough decisions in real estate investing
- What causes many investors to fail and how to avoid it
- Mikes Advice on working with a loved one
- Traits successful investors tend to have
- Mike’s advice for someone new to real estate investing
Episode 26 Transcript
Doug: Welcome back to the Spouses Flipping Houses podcast, Episode 26 today.
Andrea: We are back this week with the second half of our interview with Mike Cantu. He is one of our most respected mentors, a really great guy. He has over 30 years of experience as a real estate investor. He’s been super successful, and he is chalk-full of wisdom.
Doug: Definitely, definitely. You’ll really want to stay tuned for the second half of the interview. Mike gets into his decision making process when it comes to tough decisions in this business. He talks about working with his daughter and working with his brother, so you have that aspect of the business there.
Good stuff, get your pen and paper. You’re going to want to pay attention. But first Andrea, fill us in on the drunk driver situation.
Andrea: Yeah, you know it turns out that it’s really not that big of a deal, and we thought it was. We got a call from our contractor saying that a drunk driver has driven into the back of your property. You’ve got to check this out. And so we did.
Naturally, we totally freaked out and it ended up being not that big of a deal. A drunk driver did crash into our back fence. It took out our fence and the neighbor’s fence, so it kind of stinks but not really that big of a deal. We’re in escrow, and we’ll just fix it and move along.
Doug: Good. So the car didn’t hit the house, no damage there?
Andrea: Nope. It didn’t even go into the yard, just knocked down the fence.
Doug: Okay, driver’s okay. Everybody’s good.
Andrea: I have no idea about the driver.
Doug: And then we had an interesting conversation with our six-year-old yesterday as we picked him up from kindergarten.
Andrea: Yeah, he sort of uncovered that our middle son, our nine-year-old, is following in his father’s creative childhood entrepreneurial footsteps.
Doug: I’m a little bit proud, just a little.
Andrea: So we’re driving home with our son, our six-year-old son Owen, and he says, “I can’t wait to get home. After I finish my homework, I’m going to play this certain game on the Xbox, and I got to the next level. I can’t wait to play the next level.”
And we’re like, “Wait a minute. You’ve been stuck on that other level for so long. How did you get past it?” And he said, “Oh well Weston helped me.” And we said, “Wow, what a great big brother you have. That was so nice of him.”
And he said, “Well yeah, I had to pay him.” Wait a minute, back it up, “He made you pay him to help you get to the next level?”
“Oh yeah, just a few dollars.” Well he’s six, so to him dollars, he doesn’t really recognize the value quite yet. And we said, “So how many dollars did he charge you to get to the next level?”
“Fifteen.” Oh my goodness.
Doug: So I’m looking at Andrea at this point, and I’m half boiling inside that one son was taking advantage of the other son, but then I’m half smiling and proud that wow, that’s a great way to make some money that he discovered.
Andrea: Off knowledge that he had that his brother didn’t have and was quite willing to pay for.
Doug: So I, in good conscience, could not be the one to discipline him on this because yes, I’m guilty as a youth of charging my younger brother twenty-five cents, only twenty-five cents…
Andrea: Yeah we have some serious depreciation in order.
Doug: …to play a game in Nintendo, so inflation has really kicked in for the video game knowledge.
Andrea: Yes and your little brother was so loyal that he would set quarters on your Nintendo if he played it when you weren’t home.
Doug: Hey you know, he thought I had hidden cameras, which I’m glad he thought that. He was a good paying customer.
Andrea: Did you charge the neighbor kids too?
Doug: Yes, I think I had a sign with a little jar that said $0.25 per game, so pretty much anyone who wanted to venture in and play my Nintendo, you’ve got to pay up. You know what I mean?
Andrea: Well you started young, what can I say.
Doug: Well if you haven’t visited our website we have a free gift for you: SpousesFlippingHouses.com. Notice I didn’t say “www.”
Andrea: Good job. And then also, if you would leave us a rating and review on iTunes we would really appreciate it.
Doug: Yes so definitely do that. It really helps us out. Also keep sending in your questions. We’re getting feedback from people, and we love it. We’ll have another question and answer episode coming up ahead, so send in some more questions and we might address it in a future podcast.
Andrea: And you can send those questions to firstname.lastname@example.org
Doug: Alright, so that’s enough chit chat. Let’s get into the interview, the second half of the Mike Cantu interview.
Doug: One thing that I’ve heard you talk about over and over is that lifestyle and overhead has taken down more investors than you know. Could you touch on that a little bit because you had a good point about keeping your overhead down?
Mike: Yeah, and Doug I’ve witnessed that over, and over, and over again, and the first time around most people make a lot of money, they want to show it off. It’s part of human nature; it’s part ego-driven. I’m not sure what else it is. But people want to show the world how well they’ve done, drive the fancy car, be in the big house in the right neighborhood, and fancy clothes.
And it’s just upgrade, upgrade, upgrade, and you know I made the comment about food/shelter/clothing and beyond that and a few upgrades, it’s all scoreboard after that. I have always tried to be self-sufficient and have things sustainable.
Sustainable is one of my favorite words that I feel very fortunate that I haven’t had to have major, major lifestyle cutbacks because of finances. But then again, I’ve never lived a really high-profile lifestyle. I like the sustainable part of it.
A couple of scenarios here: I live in a nice neighborhood. It’s a 1903 house made out of rocks, looks like Fred Flinstone’s place, but it’s on three-quarters of an acre, and there is a 1950s stucco house off to the northeast on the property. Most people don’t even know that it’s on my property, but that house runs for $1,500 a month, and the property is paid for.
All of utilities, property taxes, everything to do with this property where I’ve lived for years is about $500-$600. So there’s a thousand dollars in positive cash flow on my own residence. Then I have the place in Huntington Beach where I spend the other half of my life.
It’s two duplexes on a double lot downtown, walking distance to the beach, pier, and Main Street. But one of the rents there covers that entire four-unit property. My daughter, and her husband, and my grandson I gave them one of the units. I stay in one of them, and there’s two more units.
And one of the rents there covers property taxes, gardener, water, trash, all of my utilities, everything to do with everything, and there’s money left over plus the rent from the other units. So both of my living arrangements pay me monthly rather than cost me monthly.
And that’s very sustainable, and I try to live my life like that. My office house down the street, my corporation rents that from me, but there’s also a lifelong friend that has a travel trailer that he lives in there. I call it my one-space trailer park, and the income from the one-space trailer park covers all of the utilities and everything else on that property.
So my existence isn’t a dream; it’s at best or at worst a breakeven, and most of the circumstances actually pay me. So I thought I tried to carve out a lifestyle that everyday there’s a lot of money left over.
Doug: Yeah I think you’ve painted the picture before to imagine a bathtub and you turn on one faucet. And most people have a drain there, and everything coming in that faucet is going right out the drain, and that’s kind of the 30-day cycle you’re talking about.
Mike: Yes, and there’s such a glaringly obvious answer to that problem. With one faucet, one drain, and they’re usually about the same size with nothing left over, so 100 percent of the income goes down the drain. The glaring obvious solution to that is to line the walls with many more faucets, to have tub spouts coming out everywhere and turn them all on full blast, and watch your tub overflow.
Doug: And the thing with that also is don’t increase the drain size too much.
Mike: We want to shrink that drain size down as much as you can. I know early on I shrank mine down to the point of making the decision of growing my own vegetables and sewing my own clothes. But be very, very, very consciously aware of the monthly outgo.
And I’ve always tried to run a low overhead, and I’ve realized you can only get it down so low otherwise you’re going to start doing a lot of minimum wage activities that I have no interest in doing. Those have to be delegated, and then you’re going to create some overhead there but just a manageable overhead.
A good example Doug is a good friend of mine who, oh in about 2005 out in the Palm Springs area, had a bricklaying business and at lunch one day, he told me his overhead was $50,000. And it was part of a fixed overhead, and I thought unbelievable.
Then he smiled, and he says, “But we bring in $150k.” And I thought you know, that’s not such a bad business model, but I wonder if it’s sustainable. And the answer to that question was a big fat no. But when the market changed, that $50,000 stayed the same, and I remember months where he’s bringing in $10-15,000 paying out his $50, and yeah that tent folded up a long time ago.
So back to that word sustainable, such a key word.
Doug: Yeah, very good lessons in that. I want to shift gears a little bit and talk to you about your decision making process. I had a problem come up a few months ago where we had a property under contract, and we were moving in on the purchase, and it was going to be a great deal for us. And then the seller at the last minute called and backed out, basically broke the contract, and I suspected it was because he had another buyer that came in a little bit higher than we did.
So it was frustrating, and I called you up for advice, and you had an interesting way of dealing with situations like that. Can you go into that?
Mike: Oh sure, well first of all Doug, I want to tell you that it’s my philosophy that I like to leave a trail of happy people in real estate. And an unhappy seller prior to the close of escrow will remain an unhappy seller after close of escrow. So if things aren’t right, I’m not going to force a sale.
I have never sued somebody for a specific performance to close a real estate deal. I’ve had several deals fall apart over the years because of other investors offering more, and that’s always a frustrating one but for the most part, if they’re not happy with me and my proposal and everything else, I’m going to let them out of the deal.
But my decision making process that I shared with you that day Doug, there’s four people in my life, very, very successful real estate entrepreneurs, all very different people. Between the four of them, there’s close to a 150 years of combined experienced, and I am very close with all four of these people.
And when I have a real estate challenge and I’m not sure which direction to go, I will start to question: What would Mick do? What would Earl do? What would Bruce do? And what would Art do? And with a little bit of thought and a yellow pad, within five minutes 100 percent of the time, I have my answers.
And I’m a little bit like each of those four people. Now Mick and Earl are more alike, and Bruce and Art are more alike, but yet they’re completely different people. Earl and Mick are more men of principles, and they do a lot of things just based on principles. And Bruce and Art are sometimes the path of least resistance, sometimes it’s common sense, but I’m looking for four different answers when I ask that question.
And quite often I catch myself smiling when I ask that question thinking, I know exactly what Earl would do. I know exactly what Mick would do. So yeah, I look to the people that are living the life that I’ve always wanted to live, and their thought process and their decision making process have led to where they’re at now, so yeah, those four people are a huge influence on me.
And I can solve 90 plus percent of my real estate challenges just by sitting down and going through that exercise. What would Art, Mick, Earl and Bruce do? How would they handle this?
Doug: That’s fantastic. And you respect all of those four people in different ways.
Mike: And I love to have lunch with each of those four people, but they’re so different and so unique, yet they’ve all carved out their own niche under the great umbrella of real estate. They all live real estate from sun up to sundown. They’re all financially free, and they have a great life because of it.
Doug: That’s fantastic. Well this show, our podcast, is called Spouses Flipping Houses. It is centered around people, not just spouses, but loved ones— brother, sister, father, son, partners— partnering up in the business and doing that with that added dynamic. Now I know you don’t do the business with a spouse, but you have worked closely with your daughter and your brother I believe.
Doug: Can you talk on that?
Mike: Oh sure, let’s touch on my daughter.
Mike: Early on, I told her she was going to learn two things. She was going to go to community college, and I said well I’m not going to force you into anything; however, real estate is going to be part of your life. You’re going to learn management and if you’re too lazy to learn management, I’ll give this job to someone else when I’m done with it.
And that was the last thing she wanted to hear, so I thought okay, with this look on her face she’s going to become a very good property manager. The other thing I told her is you’re going to take college-level psychology. That is one of the most important classes I think I’ve ever taken, understanding human nature, why people do what they do.
I think it’s our job in this business to size up people: tenants, sellers, everybody in this business. Our job is to size them up and figure out how we can go about dealing with them. So I got her through the real estate principles. She learned the basics, and I got her through psychology, and I think she was 19-years-old when she came to work in my office.
I encouraged her to follow her passions, and she investigated quite a few things. Found out she didn’t want to do this, didn’t want to do that. She wanted to be a jockey, and then went to jockey school for a little bit and realized that’s a very dangerous sport. She still loves her horses but doesn’t want to be a professional jockey.
So she came to work in my office Doug, and I want to say that was about 2008. The market had just fallen apart, and we got 21 months of working together. December of 2010, she ran into some medical challenges that took her out of business for a year. Recovered from all of that, and then she got married.
Then she got pregnant, then had a baby, and as far as I’m concerned she’s still out on maternity leave even though my grandson turned two back in February, and she has another baby on the way due in June.
Doug: Hey, congratulations Grandpa!
Mike: She hasn’t been in my office for several years, but that 21 months that we did work together, we got together, bought and sold some houses, retailed some stuff, wholesaled some stuff, and we kept some stuff for her. And I realized that she was going to be out of the office for quite some time.
We had a five-year plan and like I said, we didn’t make it to the two year mark, but we did get enough houses together to where in the last few years, I’ve sold some of her houses and paid some of the other ones off. And right now she has four houses that are paid off, and she’s got some other houses still.
Everything cash flows, but it’s created over $4,000 a month net income, and that’s not bad maternity pay for being a full-time mother.
Doug: No, not at all, not at all.
Mike: And there’s a lot more upside potential. There’s still more houses to sell and more cash flow to create. So working with her, I told her I’m going to share my motivation. I don’t want to pay for everything for you for the rest of my life. I want to get you financially free.
So this is going to work for both of us. Every dollar you create, that’s a dollar that I get to keep.
Doug: Now how did that dynamic go? I mean, you know she’s your daughter. Are you telling her what to do? Is it a touchy work environment there? I mean I guess everybody is going to be different, but how did that work for you guys?
Mike: Yeah, at first I learned some lessons working with her, but you know she is my daughter. She does still have some tender feelings there, and tone of voice is everything. And if I have the wrong tone of voice she could have a meltdown over it.
I realized that I’ve got to really watch what I say and how I say it but of all the years in my office, those were definitely hands-down the favoritest years, seeing her every single day and being able to work with her and create a future for her.
And I know that there’s round two of that, but right now it’s all about being a mother, and expanding the family, and everything else. I’m glad we laid a solid foundation to where she’s got her core income. Her husband has got a great job; he works full-time. But her income isn’t too far off of his income.
And she wakes up and does whatever she wants or whatever needs to be done to be a mother.
Doug: That’s great. That’s great. I’m sure she’s grateful for it.
Mike: And my brother is a licensed general contractor, one of the best dealmakers that I know, and he’s finishing up a big job right now. But that plan is he’s going to be back full-time, and I’m going to be doing joint venture deals with him. We’ve already laid out the plan.
He’s been in real estate over 20 years and like I said, he’s one of the best dealmakers that I know. He’s got great people skills and a great toolbox of real estate skills.
Doug: So for anyone considering going into this business, or bringing in a loved one, or working with a loved one, would you have any words of advice for them going into that?
Mike: Well, now that has to be broken down into categories. First of all, if it’s a husband and wife, Jack Easton, who has been a big influence on me, is one of the most successful real estate investors I’ve ever met. He spends about half of his life travelling to exotic places with his wife, and it’s a wonderful existence.
But I’ve learned so much from Jack about working with a spouse, that the first question is find out what they don’t want to do.
Doug: Good advice.
Mike: And then take that off of their place.
Doug: Very good advice.
Mike: Now I’m speaking to the man and the wife, and the wife figuring out what she wants to do. I don’t have a wife, and I’ve never worked with a wife, so I’m not an expert in that area. But I have watched a lot of people that have gone down that road, and there seems to be a common theme, and that is the wife does what she wants to do if it’s pertinent to the business, and the man figures out how to do everything else.
You’ve got to cut the business off at some point in the day. You can’t live it from sunup to sundown, 24/7. Real estate in my world Doug has always been a means to an end. It’s certainly not the end-all. Once again, it’s not the houses that do it for me. It’s the monthly income.
You know, I’ve often said that if you take the money out of the equation, that my 35-year love affair with real estate will come to a screeching halt. I am in it for the money, and I make no qualms about that. I do this strictly for the money.
It’s an immediate goal, and it’s got to work for both people. My attitude is you let the wife pick and choose what she wants to do, and you do everything else or find someone else to do everything else.
Doug: Yeah, I think there’s a good lesson in that for anyone. If somebody is forced to do something they’re miserable doing, it may not last that long. It’s going to cause problems.
Mike: Right, but I do think it’s always good to do it once. Everybody in this business needs to do everything once that they pay somebody else to do. Mick gave me that lesson early on. Everything to do with the rehab I had to do one time.
I had to change out an electric panel while Mick sat in a lawn chair and used the stick and pointed, and it was terrifying because I got shocked good as a kid, and I still fear electrical to this day, and I did a complete service panel change out and lived to tell about it. So I encourage people to do everything once.
Jordan and I rehabbed a house. We spent the summer of 2009, a couple of months her and I, rehabbing a house on, I remember, it was on Lawrence Avenue. And she learned a lot. I loved working with her. I didn’t miss doing that part of the business, but I thought nope, she should learn how to do it one time, and it was great father-daughter bonding time.
Doug: Yeah and you can appreciate the next person who has to do it, and what they’re going through, and understand a little bit better.
Mike: I’ve also heard this: I heard Jordan on the phone, and she said, “Oh my dad loves real estate. Me? I like real estate. I love dogs and horses.” So I think that’s the difference. I am more passionate about it than she is, and she sees it completely strictly as a […] goal.
I’ve always used the analogy “money is a lubricant that lets you slide through life and without it, it can be rough.” And she has the lubricant mentality that you create the cash flow, you can do and live life the way you want. I create the cash flow so I can get out there and create more cash flow.
Doug: What are some common traits that you see amongst successful investors today? Are there some common traits you would be able to pinpoint?
Mike: Now, let’s define an investor first Doug. I read more than once two numbers that stick with me. The average real estate entrepreneur lasts about 18 months, and the average landlord lasts about 2.2 years, so those are two humps that everybody in this business that hasn’t been around that long should make it a goal to get past and not become the statistic.
Doug: So maybe let’s define it as people who have gone longer than that and surpassed the statistic, maybe three or four years full-time.
Mike: Yeah, okay several traits. First of all, persistence. I am an extremely persistent person and working with Mick Blackwell for years makes about as persistent as they get. He’s just relentless, gets out of bed while it’s still dark and he’s like that Eveready rabbit that they wind up in the morning and at six in the evening, he’s still going forward. So persistence, that is absolute key.
A desire, not just desire, but a burning white-hot desire, an obsessive desire, and a plan, a direction, a vision. There’s got to be a roadmap that you’ve laid out, and you’ve got to have that burning desire, and you’ve got to be persistent about it because you will be knocked down every single day, somehow one way or another.
Oh I heard I think it was a Japanese saying that you get knocked down seven times, get up eight. That’s always been my philosophy like the punching, no the clown guy, but he had the punching bag as a kid. It had sand in the bottom. You’d lay into him, and it’d pop right back up.
And I think that’s the story of my life: get knocked down, get back up and keep on going. So not giving up is an absolute, absolute key component of that Doug. I’ve been more than once in a position where I thought this is a turning point, how do I recover and keep going in my chosen direction here?
And you know, most people think that going from start to success is going to be a straight line, and it’s nothing like a straight line. It’s like an airplane flying from the East to the West coast, but 98 percent of the time, that plane is not on the straight-line track.
It’s correcting, getting back on track, 98 percent of that flight is correcting, correcting, correcting. And that’s the way my real estate has been. You cannot ever take your eye off the prize. Every day I wake up, and to this day I still have goals, and those goals are what got me going early on and keep me going to this day.
You’ve got to have some direction; you’ve got to have a reason, and you’ve got to have some goals.
Doug: And do you write your goals down?
Mike: There’s got to be a “why.” Why, the word “why,” is such a powerful word that it is usually the tipping point of whether you do something or you don’t do something. If you have a strong enough why, you will do whatever it takes. And I have several whys but like I mentioned earlier, being a single parent and having a young child means failure is not an option.
That was absolutely my attitude. Of all the things that could go wrong, failure was just unacceptable.
Doug: Yeah that’s just good stuff, good stuff. I don’t want to take all of your time here. We’re going to start wrapping it up, but would you have, if somebody who is fairly new getting into this business, maybe they’ve done a deal or two but they really want to grow your business. You’ve just listed off several great traits that you see amongst successful people, but what kind of advice would you give somebody like that today?
Mike: That wants to continue to grow their business?
Doug: Yeah they’ve maybe done a deal or two, or maybe not quite done a deal yet but they really want to get a rental property, or build a portfolio, or start flipping houses. I don’t know, what kind of advice can you give them?
Mike: The best advice I can give there Doug is to continue to grow your education. I have been in education fanatic most of my real estate career. Ten percent of what I earn is fair game to put back into bettering myself as a person, bettering my real estate skills, bettering my toolbox, but for bettering.
And the education process takes a while. It’s not cheap. You want to search out the best education you can find. Be very careful of who you learn from, and my requirement is they always have to be doing what they are teaching and they have to have something to show for it.
I didn’t ever want to hear about the guy that used to do it, and had a bunch of stuff, and now is teaching because he needs to eat. That’s not the guy I want to learn from. I want to learn from the person that doesn’t have to teach, and I think it keeps going back to the education part.
Looking back on my life Doug, as I grew education-wise, I grew real estate-wise. There was a very proportionate growth between the two of them. I don’t ever remember expanding huge in real estate without new education to back that up. So it’s reading books— I’m still an avid reader. I read an hour a day.
I still go to at least three real estate seminars a year. There was a point in time where once a month I was heading off to some other state for a weekend class. I was just obsessed about getting the information, witnessing what it has done for other people. And I would think that I need some of that myself.
So I give it the education, that is what separates people. I get asked questions all of the time, and I smile and think I’m happy to share this because those are good questions. And I too had those same questions at one point in life, and I was constantly trying to put the puzzle together, searching.
And it was a combination of going to classes, reading books, and associating with other real estate investors and hearing their real-world/real-life stories. So as someone who wants to grow, go to the real estate clubs, associate with like-minded people, try and become part of a Master Mind group, and just treat it as life or death.
That if you’re going to survive in this business, there are no shortcuts. You’ve got to be well-rounded, and you’ve got to plan the time.
Doug: That’s fantastic. Great stuff Mike, in fact, speaking of education, you had some courses. Is there still a way people can buy those from you?
Mike: Yes, now I’ll give you a quick conversal on those Doug. As you know, I have “Don’t Get Voted Off Real Estate Island,” which was everything I have done as a real estate entrepreneur— the good, bad, ugly, rentals, wholesaling, retail, philosophy, attitude, game plans, strategies. It’s pretty much my whole life outlook on this business.
It was originally going to be a three-day class, got shrank down to two, and now down to one. I crammed it all into one day. I have never advertised or promoted that course, but a week does not go by that I don’t sell between one and three of “Real Estate Island.” And then I have my rental properties and management course.
That’s the one Bruce Norris talked me into doing and they hosted it. We actually ended up doing it twice because it sold out both times. I didn’t want to do it a third time so we recorded it, but that is my rental program from A-Z. It starts, it’s not all detailed. It’s philosophy, attitude, from the thinking about going in the business to everything to do with it down to the paperwork.
Now the thing about my courses Doug is that they’re both $397. They come with a lifetime money back, no questions asked, guaranteed. I have always put that out there that a fraction of one percent of my income has come from education materials that I’ve sold, and ninety-nine point something is from actually doing what the education that I’ve sold teaches.
And I tell people, “If they’re wheeling you into the convalescent home and you still haven’t figured it out, send the course back, and I’ll give you a 100 percent refund so you have some bingo money.”
But it does come with follow-up, and I encourage people to continue their education, and I jokingly ask people if they’ll sell me the course back. No one’s willing to sell it back, and I’ve never had one returned. So it is packed with life changing stuff if you apply it. It talks a lot about student philosophy, but I personally think it is priceless.
Doug: We are living testimonials of the rental property management course of yours. That is hands-down everything you need, really, when you’re starting in real estate and investment or rental properties. It’s very thorough and a great product.
Mike: And that Doug, that course is my interpretation of Mick Blackwell. I mean he was my big influence. Mick has collected over 100 rents as long as I’ve known him up until the time he sold his apartment, and I went to the “Mick Blackwell School of Management” real world for over 20 years of being business partners with him and seeing it everyday to where it worked for Mick, it worked for me.
And it’s not my favorite thing to do but at the same time, I spend literally less than a couple of hours a week dealing with my rental properties. Not all the vacancies, a little bit more time involved, but Kim answers the calls. I’ve got Justin out showing the houses, and I oversee the maintenance and repairs of them, but we’ve got a system that works now that we’re on pretty well. And we run a really tight ship.
Doug: Yeah and speaking from a landlord’s perspective, that is a fantastic place to be. That is amazing that you can do that with so few hours involved.
Mike: And I can tell you Doug, it has a lot to do with what it is that I’m managing. That has a whole lot to do with it, and we didn’t touch on that one. But over the years, my philosophy has been a John Shaw quote from many years ago. He always said, “Every year, go through your portfolio. Take your worst house out to pasture and shoot it. Replace it with a better house.”
And over the years, I have upgraded, upgraded, and upgraded. I’d get rid of two houses in a “C” neighborhood and trade them for one house in an “A” neighborhood. And then got most of the debt removed from these houses to where a good house in a good neighborhood, well maintained at about 90 percent of market rents.
The odds are that’s going to be a pretty hassle-free, well performing rental house, and I’ve learned all of this the hard way. Early on, I had all of the wrong houses in the wrong neighborhoods. I used to spend 30 days a month attempting to collect rent.
My old job title used to be rent stalker. I stake out a house all day long to wait for the tenants to come home. They’d pull in the driveway; I’d pull in behind them. They’d get out, go in the house. I’d knock on the door, and nobody would answer. And I realized that things have got to change here, and it’s been a constant evolution over the 34 years I’ve been in business trying to create the ultimate for me.
Doug: And you know, but everybody has to start somewhere, and that was your starting point. And you realized that early on— that you needed to upgrade that.
Mike: Oh yeah. I would not have made that 2.2 year mark as a landlord had I not had a vision of some sort.
Doug: Right, right.
Mike: Yeah I’ll never forget the house I had in a bad neighborhood in San Bernardino, one of the first houses I had with Mick. And after beating about the fortieth applicant, I thought, I wonder if I’m going to meet someone who has a whole mouth of teeth.
And it was just, I think the first twenty people combined didn’t have a full set of teeth. And I just thought, I think I’m not in the right neighborhood because these are not people I want to deal with, live next door to, or communicate with. And I learned that lesson over, and over, and over.
One of my big questions for a rental property, if I’m going to keep it, is what’s the draw? What draws people to this house, and what type of people is this house going to draw? Like the Laverne house is a block and a half away from the University of Laverne, that’s where my older sister went to college.
And I thought, no, that’s an A-plus neighborhood. I know what the draw here is.
Doug: Yeah, yeah. Is MikeCantu.com where they can get those courses?
Mike: Oh yes, yes, yes. Back to my courses as I got way off in the commercials. Back on track Doug.
Doug: That’s alright. I want to give people a chance to get this because I mean for $397, it’s about the best $397 you’ll ever spend if you’re wanting good, solid real estate education from someone who is doing it.
Mike: Yeah, and if anyone decides they want both courses, I’ll knock off a hundred bucks. You have to pay full price for both of them, but if they send the course back, I’ll include a check for $100 because it does go through Paypal. It is MikeCantu.com.
The whole purpose of that website is to have my two courses available and like I said, I don’t promote, advertise, or anything else, but I don’t think a week has gone by ever since I’ve done those courses that somebody hasn’t ordered them. It’s all been word of mouth, just like you’re doing right now Doug.
Doug: Well those courses came about because people begged you to put something in that they could buy I think, so we’re grateful for it.
Mike: What I’ll also tell people is that I seriously do some consulting. It’s $200 an hour, and 90 percent of the people that want to consult, I tell them once they find out what they want to talk about, “Oh that’s in Real Estate Highlander” or “that’s in the management course,” and for twice that amount, you get unlimited follow-up. And two hours of consulting, you’re not going to get a fraction of what’s in those courses.
So I encourage people to buy the course first, do all of the follow up and consulting, whatever they need. And then at that point, if we still need to meet one-on-one, we can do that.
Doug: So that’s M-i-k-e-C-a-n-t-u.com
Mike: Exactly, and I’ve been told I win the award for the worst website on the Internet. But like I said, I have not been to my website in years, and years, and years. I have no idea what’s on there. Excuse me, but Kim runs all of that, and he’s constantly taking courses to the post office.
We do send them through priority mail, and I always instruct her to wedge everything she can as free bonuses in there, extra CDs. I’ve got some of my favorite talks I’ve done at real estate clubs. She usually wedges those in.
I’ve written several articles for the Morris Group. We always include those, so anything to make it a good experience we wedge in that two-day priority mail box.
Doug: Well that’s awesome. Thank you Mike for taking the time. We really appreciate it.
Mike: Okay. Doug it was a pleasure, and I look forward to talking again in the near future.
Doug: Sounds good. Take care, have a good one.
Mike: Okay, you too. Buh-bye.
Andrea: So that is it for this episode. Thanks again for listening. We hope that you enjoyed Mike’s wisdom as much as we do. He’s such a great guy, and we’ll talk to you next week.
Doug: Take care
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Apr 14 2016
Rank #14: Episode 24: Behind the Curtain of Our Business!
Episode 24: Behind the Curtain of our Business
by Doug & Andrea Van Soest | Spouses Flipping Houseshttp://traffic.libsyn.com/spousesflippinghouses/SFH_024_Behind_the_Curtain_of_Our_Business.mp3
Episode 24: Show Notes
Today we’re rolling back the curtain to our business. We want to share with you the “behind the scenes” look of our current business operation. For the first 4 years it was just Andrea and Myself doing everything. Today, we have a team of professionals and experts all helping us run and grow our business. If your curious to see what our business looks like ‘behind the curtain’ this is one episode you won’t want to miss!
Episode 24 Transcript
Andrea: Welcome back for Episode 24. Today we are going to take you behind the scenes of our business and kind of show you the breakdown of how we do things, and who works for us, and just sort of how all of that looks in our operation. Doug just made me laugh so hard that the soda I was drinking came out of my nose and my sinuses, and they’re still burning. So hopefully we can get through this.
Doug: We need to wipe off the mic still. So yeah, we’re going to go behind the scenes of our business today, and yes we do sit around in our pajamas and work from the couch, sometimes but not all of the time.
Andrea: Sometimes, but not all of the time. But it does sometimes happen.
Doug: But it is nice on a rainy day with a cup of coffee. But anyway, yeah we’ll get into that later. But I just got off the phone with my best friend from college; actually he was the best man at our wedding. His name is Eric, just a really, really good friend of ours, and it reminded me of way back Andrea, of our beginnings of entrepreneurship if you will.
We were actually engaged, and Eric gave us this book. We’ve mentioned it before on the show so a lot of you know of it: Rich Dad Poor Dad, by Robert Kiyosaki. He gave us this book, inspiring us to think differently. It kind of blew his mind, so he told us we had to read it.
We read that book, blew our mind, just completely opened up possibilities of future, investing, retirement, real estate, just things that we had never really thought about. And here we are, early twenties, just kind of not thinking so much about the future.
We were just working our jobs, living in the present, which was all fine. But this book really opened up the way we think and kind of directed us in the path of starting our own business and eventually getting into real estate. And you know, it all comes down to when Eric gave us that book. Right?
Andrea: Pretty much.
Doug: Yeah, and Eric actually has terminal cancer. And so he’s had it for a while, and it’s getting closer to that point where they’re having to make hard decisions and do things, and it just was so good to talk to him. In a lot of ways this podcast came from being inspired by Eric.
We actually got to take a trip with him and his wife and some other friends to Hawaii last year, and on our way back just after spending some more time together with Eric and our friends, it just inspired us to do more with life while we are here. You know, cause you just never know what can happen, what’s going to happen, what’s going to be going on next week with your family health-wise or anything.
And the podcast was one of those ideas that came out of that, that inspiration on the way home.
Andrea: Eric himself is really such an inspirational person. He’s one of those people that lives life to the fullest every day.
Doug: Full of energy.
Andrea: Yeah, and even though he’s facing death. Really, that’s what it is and to know that he has this time frame, and he doesn’t even really know how long he has, but yet he’s so positive and upbeat every time you talk to him. He’s not concerned about himself; he’s concerned about everybody else.
I think he just has impacted us in a way that our lives will never be the same, and we’re super appreciative.
Doug: We are. We get to go see him next week, so we’re really excited about that too but not to get too serious in the podcast.
Andrea: That was a little serious. Let’s cheer it up a little.
Doug: This is about flipping houses, and that should be fun, and it is. And also, not just flipping houses, but we talk a lot about rental properties and things involved in the investing world around real estate. And speaking of owning rental properties, there are good days, and there are bad days.
And this week we had a bad day. There seems to be this trend, and I’m not going to get off on a political rant here, but there’s this trend amongst cities in Southern California at least where, let’s face it, a lot of the cities are broke. The financial downturn hit them really hard; their taxes are way lower; they overspent. They have all of these problems.
So they’re looking for avenues of income in any way they can get it and unfortunately, landlords are an easy target. So what cities are doing these days is they’re requiring people who own rental properties to jump through all sorts of hoops and pay all sorts of fees and fines.
Well fees and go through these programs, these rental programs, where you have to register your property and pay ‘this much,’ and you have to have an inspection on your property, just because it’s a rental property. And they’ll come in and say, “Oh yeah, by the way, this is not to code. That’s not to code. You have to get this permit, and you have to get that permit. You have to redo this. You have to fix your roof because it doesn’t look good.” I mean just endless.
Andrea: It feels so unfair because they would never do that to a regular homeowner. They could never go by and say, “You know what. We don’t really like your roof, or we don’t really like that thing on the side of your house. You need to change that.” Unless you’re in an HOA-type of an area, that’s never going to happen to you.
But landlords, they’re kind of really picking on us.
Doug: Right, so you know they demand to come inside your property once a year, disturb your tenant, disturb this house that has just been sitting there for years, and years, and years not causing anybody any problems. And ultimately, it ends up in a lot of repairs, a lot of costs, and just a lot of hassle.
And so this week we got a letter from another city that we happen to own several rentals in that they’re beginning this program, and they have tracked us down, and called out our properties by name. And they will be requiring us to join their program.
Andrea: I think they’re going into the public records and finding all of the properties that have a tax address that’s different from the property address, and then that’s how they know. So that’s how they’re finding everybody.
But trying to look at it from the bright side you know, I guess this will force our hand to maintain properties better. Not that we don’t maintain them well, but it’s going to require us to do things that we might not even have done otherwise.
Doug: Yeah that’s the bright side. That’s the way to look at it. No that is true, and that is their angle that they’re improving communities, and neighborhoods, and that’s how they sell it to the general public maybe. But I don’t know; it kind of seems unfair sometimes.
Andrea: Yeah, just another reason why you have to buy your properties right from the get-go because you have to have some room in there. You have to have some flexibility because you never know what is going to happen.
Doug: Very good point. Yeah, we could have bought this property on a really thin margin for cash flow, banking on nothing changing, and then something like this totally out of your control can come in and all of the sudden wipe out several hundred dollars a year in cash flow. And that could have changed the decision you made to potentially buy that property. So yeah, good point. Buy it right.
So now that we’ve thoroughly inspired everybody to go out there and buy rental real estate.
Andrea: Just keeping it real, just got to keep it real because like you said, there are great days in this business where it is a lot of fun. But then there are hard days too. There’s stuff that happens that just plain stinks.
Doug: The realities you have to deal with. So let’s go into the main topic. Let’s talk about our business and what we look like today. Let’s go back to the past. So when we first started flipping houses, it was in 2008, and of course it was just Andrea and myself. It was just us.
And we literally did everything, which is not a bad thing. I mean that’s how most people start, and that’s how you should start, but we stayed that way though. We flipped houses until 2008 all the way up to 2012 just you and I.
Andrea: Yeah, and we’re big fans of keeping it simple, so I wouldn’t say to go hire anybody right away. Keep it just you for as long as you can really, until it comes to the point where you are ready to scale and you just cannot do it anymore by yourself.
Doug: Yeah. I think there comes a point in everybody’s business when you’re trying to grow that you are sort of getting in your own way if you’re not hiring some help or expanding. And we’ll go into a little bit of that later here, but it was just us doing everything.
And we worked out of our house the first four years or five years actually that we were flipping houses. But today it looks very different, so we’ll get into how that happened. People ask us a lot about our team and what our operation looks like, so we’re going to roll back the curtain.
I always picture the Wizard of Oz and like there’s this little guy kind of running the whole thing. But we’ll just share what our business looks like today. It didn’t look this way six months ago; it didn’t look this way a year ago. It may not look this way in six months or a year from now.
But currently today, this is kind of how it looks and what we do. So let’s get into it.
Andrea: So about two and a half or three years ago we decided it was time to hire an assistant that would help us out full-time. And because we worked from home, we really didn’t want to bring somebody into our home because that’s just weird.
I mean, maybe it’s not weird for other people but for us, that didn’t feel comfortable. So we started looking for office space, and we found a great little place not too far, like two miles from our house, and it was a newer office building type of a setup that was kind of cool, and our neighbor actually was renting another suite in that building.
And so it was kind of fun to know somebody that was already there, and so we decided to go ahead and rent that office space. We got our assistant in there. Did we just have one at that time?
Doug: Yeah, we hired one assistant. She was full-time, administrative, kind of helping us out with a lot of paperwork and things, so it was just one at that time. We had one room in this little suite.
Andrea: So to make a long story a little bit shorter, that office space ended up coming up for auction. And we knew immediately that we wanted to try to buy it because if we had our choice, we would actually move our working space into a different suite within there that had some different rooms, and a little kitchen area.
Doug: That was a little bigger.
Andrea: A little bit bigger, and then we could rent out all of the other suites within there, and it would cover our whole payment. So we got super excited about it, and Doug went to the auction. About 10 or 12 people showed up so we thought for sure we weren’t going to get it, and sure enough we got it for less than we had even hoped to.
Me and our assistant were like on the other side of the wall because they performed the auction right there in the office building in the suite that we wanted. Me and our assistant were listening through the wall like, “What number are they at?”
“Did we get it. Was that us? Was that Doug?” It was really exciting.
Doug: Yeah, it all happened so fast, and we got the property for much lower than we had hoped, so that was really exciting. And then we’ve been in there now a total of about two and a half years. We’ve owned it for about a year, and we’re still there. And it gives us a little bit of room to grow if we want to.
So it’s kind of a cool thing, and we rent out the rest of the suites just like we had planned.
Andrea: So the cool thing is that now we have a working space at work, and we have a working space still at home, and so we have our choice. Some days we’re more productive at the office; some days we’re more productive at home, but it’s nice to have that option.
Doug: So let’s be real. I mean we have three young kids. We have kids from junior high down to kindergarten, and we love working from home because we can be here with the family, and we love being those kind of parents. But in the summertime when the kids are all home, let’s face it. I’m down at the office.
We are down at the office as much as possible in order to be productive, just because it gets a little loud around here sometimes. So it’s nice to have the option. All right, so enough about our office space. Let’s talk about our team, our staff, and who they are, and what are there roles.
So there’s me. Initially, again it was Andrea and I. We were everything. So today it’s kind of been segmented off. So there’s me, and what my main role is right now is managing the acquisitions side of the business. My entire role is to get deals.
There’s a lot involved with that, so I manage our sales team, our marketing that goes out. I’m responsible for sending all of the marketing out and finding new avenues, anything I can do to generate leads to potentially get deals. That’s my role. I also take on training the sales people that we have.
I will train them on how to analyze a property, how to properly value it based on the comps, and I’ll teach them a little bit about what I know about negotiating with people, and just sort of the ins-and-outs of dealing with people and acquiring property. I handle that training.
I’ve also developed our Podio system. We’ve mentioned Podio in the past, and it’s our software that our entire business runs through. And so I’ve developed some systems and some things in there that will make life easier and help automate a lot of the processes that we have in sending out offers, and tracking leads, and things of that nature.
And then my other big role is what I call ‘dispositions’ or selling the properties. When we wholesale houses, which we do a lot of, I’m responsible for selling them and marketing those properties to our potential buyers, getting them interested and coordinating them to take a look at the houses, and inspect them, qualifying them, and getting the properties sold. So that’s kind of my role today.
Andrea: Man, you’re busy.
Doug: I am busy, but it’s better than being bored. I like what we do. It’s fun.
Andrea: I’ve got to say that I was joking. You really keep it in check really well, so I appreciate that.
Doug: Oh, thanks. Well let’s talk about your role. You’ve evolved a lot over the time of our being in business, so what is your current role today?
Andrea: So I have three main roles within our business, and I always say that I’m a full-time real estate investor between 9 and 3 because getting the kids off to school in the morning is kind of my first priority. I want to make sure that they get sent off joyfully, and that we’ve had a great morning together, and then I pick them up at 3 o’clock and try my best to give them my attention until they go to bed.
So I will take some calls here and there during that time frame, and I’ll check emails again after they go to bed, but I’m pretty much working from 9 to 3 for the most part on most days. And so you mentioned that my role has evolved, and it most definitely has, and I think I’m loving what I’m doing now more than I ever have since we’ve been in this business.
Doug: Yeah, I think you’ve found your genius-zone.
Andrea: I don’t know about that. But it’s been so fun.
Doug: No you have. You’ve settled into this role. I think it’s really good. Go ahead.
Andrea: Yeah, so probably about in November I would say, I took over in the project management role with our rehabs. It just made sense because I had done interior design school, had learned a lot about design and the psychology behind it, and working with contractors, reading plans. I’ve done a lot of drafting myself and that sort of thing.
So it just made sense if I was the one creating the design plan for the house, and I was also the one there making sure it was being implemented correctly. And so I’m loving that so, so much.
My second role is I’m doing all of the design, which we already kind of mentioned in the last one, and sometimes this is more involved. Sometimes it’s less involved. We have a lot of projects that we do that is like “clean it up, same old paint, same old bathroom, same old kitchen” that we always do.
But then sometimes we get those really fun ones that take more time, but I really love those projects where we get to be more creative. So that falls under my role, and then I’m also a licensed agent, so I list all of the properties that we sell after they’re fixed up.
Doug: Yeah, which can be a lot of time in itself depending on how many properties we have listed and in escrow at any given time. That can take a lot of time as well.
Andrea: But we’ll talk about our other employees here too in a minute, but our assistant helps out a ton with that so it doesn’t all fall on my shoulders, which is really nice.
Doug: So the third member of our team, and this is the first person we hired on a full-time basis, is our assistant. And to just say that she’s an administrative assistant is really doing her a disservice because she handles a lot of the administrative processes and things that go on.
She does all of our transaction coordinating, so all of the paperwork and phone calls that need to take place when we get a purchase and also when we’re selling a property. She takes on that role, so essentially our acquisition team will get something under contract, and then we hand it over to her.
Andrea: She wears many, many hats.
Doug: She does wear many hats. Kind of the heart of keeping things running in the business and this person also does property management for us. She does a lot of the rent collection; she’ll take phone calls and deal with tenants.
We do have another part-time assistant that helps with some of the leasing of properties and taking some of the phone calls as well, but our administrative assistant here is the main point of contact for all of our tenants and handles 90 percent of all of the property management roles.
Andrea: So then the fourth member of our time is our inside sales person, and so why do we call her ‘inside sales.’
Doug: That’s a term for on the phone. It doesn’t go outside of the office, if you will.
Andrea: Okay, so this person actually was our very first hire. She was not full-time at first. We hired her on HireMyMom.com. We had heard on another podcast that it was a place to find virtual assistants, and so we hired her just to scrub lists, and I think she built our original website and just to do a little bit of things like that.
But the more work that she did for us and the more we got to know her, we realized wow, she’s really good on the phone and she’s a really hard worker. It would be great if we could give her a larger role, and I wonder what that could be. And one of the things we were really looking into taking off our plate at the time was returning phone calls.
So we were having all of the leads come in to a recording service and having to call everybody back, and comp out those properties. It was taking a long time, and Doug also discovered that she had had previous real estate experience, so she knew her way around comping up properties and things like that.
So Doug asked her one day, “Hey, would you want to try out doing some phone calls for us, calling people back?” Sure enough, it turned into a really great situation, and she is our full-time inside salesperson.
Doug: Yeah, so she literally screens all of the calls. Any calls that come in from any of our marketing pieces, she gets through those. She listens to the messages, calls people back, answers them, calls live, kind of filters and determines motivation, does some negotiating, and sends offers to people who might be out of the area or properties we aren’t actually able to access and meet in person with the owner or seller.
She takes on that role, does the negotiating, sends offers, and locks up deals that way. So she’s our inside salesperson, and she’s great.
Andrea: Then our fifth? team member is our outside salesperson.
Doug: Yeah, outside sales meaning leave the office, at least that’s my understanding of it on why it’s called that.
Andrea: At least that’s what it means in our office.
Doug: So this is another role, again, that I used to do, and it was just taking up a lot of time. It’s a necessary and important part of what we do in acquiring property, but I was getting in my own way because you can only spend so much time doing that. And then when you’re doing that, you’re not doing other things that need to get done.
So we’ve got an outside sales guy that we hired about six weeks ago, and it has just been working out phenomenal. So what he does is go on appointments to meet with owners and sellers of the property that get scheduled from our inside sales rep, so she will schedule him appointments.
He’ll go meet at the property, negotiate the purchase, and get the agreement signed, and then he’s onto the next one. And that is his sole role. So he’s driving all over Southern California everyday and seeing all kinds of houses, and just meeting with people constantly.
Andrea: I think that a lot of ‘mom and pop-type’ investors could really benefit from hiring this type of person, but they’re very reluctant to do it because they’ve always been in control of that role. And it can be really challenging to give up… Doug’s raising his hand…
For a lot of reasons, maybe you’re really good at it, and so you’re afraid that whoever you hire might not be as good at it. And I think that actually, that is what most people’s hang-up is. And I know Doug would never say that about himself, but really it was true because he would build such great rapport with people.
And you don’t know if you can duplicate that, and sometimes you don’t know how to train someone else to do that, that thing that you just naturally have in your personality. And so we’ve been lucky with this person that he’s been able to do that kind of in a similar way that Doug does it, in a way that represents our team and our company the way that we want to be represented. So it’s been a good fit.
Doug: It’s been a great fit, and the reality is he may go about it differently than I do, and that’s always going to be the case. But he’s really good, and he’s probably better at it than I am. So I’m so glad we took that step to get this role filled because it has relieved such time from me and has been a great thing to allow our business to grow. So that’s been a huge acquisition for us.
Andrea: And then last but most certainly not least, is our sixth team member, and that is our tech guy. Not a very fancy title, maybe we should consider giving him a better title, but this person is very valuable to us for a lot of reasons. But first and foremost, he produces this podcast.
Doug: Yeah, we just get to push ‘record,’ and play and stop, and then pass it on to him. And the rest kind of just happens.
Andrea: Our random giggling and when we pause because we don’t know what to say, and he makes us sound much better than we really are.
Doug: Well we need all of the help that we can get.
Andrea: Yes, we most definitely do.
Doug: And he’s listening to us right now, so be careful what you say.
Andrea: And then he also does a lot of website stuff and just really all of the tech stuff for us. Our brains don’t function in that capacity.
Doug: Yeah, and that is his forte, that’s his skill, and it’s been a huge benefit to us and our team. So he’s a valuable member at this point, and that’s really our staff. We have a lot of other parties and people that we work with on a part-time basis that aren’t necessarily ‘employees.’
We don’t pay them directly, but we use their services, and they really are a part of our team as well, honorable mention to our title and escrow companies. We’ve been very loyal to our title people and our escrow officers and in turn, they take care of us. They go above and beyond in working for us.
They understand our process and the transactions that we have, and they will go the extra mile to help us out when needed, and that’s just been a great relationship there.
Andrea: So that’s pretty much it. You don’t have to start with this many people. It was a couple years’ process of getting our team in place and like we said, it was just the two of us for a very long time. And we functioned great that way, but there does come a point where you need to get out of your own way, like Doug said.
Doug: Yeah if you want to grow.
Andrea: So in our next episode we’re actually going to talk about when to grow, how to grow, who to hire, and I think that’ll be really good and helpful, so stay tuned for that one.
Doug: Stay tuned for that one.
Andrea: I’m going to put some pictures of our office up on Instagram, so if you don’t follow us on Instagram you can check us out over there. Also check out our website for a free gift.
Andrea: We will be gone next week for Easter. We’re headed out to Nashville and South Caroline to visit my sister and some friends.
Doug: We get to see Eric out there. It’s going to be great. So we will catch up with you in a couple of weeks.
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Mar 17 2016
Rank #15: Episode 18: Landlording 101: A Crash Course for WINNING With Rental Properties
Episode 18: Landlording 101: A Crash Course for WINNING With Rental Properties
by Doug & Andrea Van Soest | Spouses Flipping Houseshttp://traffic.libsyn.com/spousesflippinghouses/SFH_018_-_Landlording_101.mp3
Episode 18: Show Notes
We have found that the majority of properties we purchase tend to be from BURNT OUT landlords. With about 8 out of 10 American millionaires having found their wealth from Real Estate – according to a survey of U.S. Millionaires by Morgan Stanley – renting-out properties can be a GREAT long-term strategy for building wealth. In today’s episode, we’d like to give you a quick crash course on how to build wealth through Landlording and NOT get burnt out in the process.
Here’s a Few takeaways from today’s episode:
- The Importance of Knowing the Costs Involved & the Percentage of Expenses You Should be Prepared to Pay
- Why You Need to Keep Your Properties Maintained
- How to prevent Tenants from Nickel & Diming you
- Simple Tips for First Time Landlords that Will Make Your Life Much Easier
- How to Choose Your Tenants Wisely
- Why you should charge security Deposits
- Our basic pet policies
- What you should do BEFORE handing over the keys to your new tenants
- Why you should play the role of the Manager & NOT the Owner
- How to keep your Sanity as a Landlord
- Why you MUST take charge and enforce late fees
- The importance of taking LOTS of pictures before move-in day
Episode 18 Transcript
Doug: Welcome back to Spouses Flipping Houses podcast. My name is Doug Van Soesen, and we are excited to be back here today with Episode18.
Andrea: Yes, Episode 18. This has been the week of the squatters.
Doug: Yes it has. What is a squatter, for those who don’t know what a squatter is?
Andrea: A squatter is a person who moves into a house that doesn’t belong to them, and they kind of camp out there for a while.
Doug: And sometimes squat in there.
Andrea: Yes, actually they do squat there.
Doug: Literally, there is evidence of the squats.
Andrea: Oh man, that’s too funny because I haven’t even had a chance to tell you yet because we’ve been so busy, but we’ve been working on this house that’s actually in a nice neighborhood in Riverside.
Doug: A very nice neighborhood.
Andrea: A historic neighborhood, but we’ve had some issues, so we’re waiting on permits. We’re going to be doing an addition to this house, so it’s kind of stalled for a while, and so we’ve had it closed up pretty securely, and we’re just kind of waiting. And that’s…
Doug: Trouble, to have a vacant house for too long.
Andrea: For sure. If they don’t see signs of people working there or a lockbox, and they’re worried that a realtor might be coming through to show it, there’s a good chance somebody is going to break in. So it’s been sitting there a while, I show up with a contractor last week, and we kind of had to bust in the backdoor.
I realized somebody had secured it in a way that we hadn’t secured it; that was kind of funny. We walk in, and the smell just knocked me out because the windows had been secured, and the doors had been secured. And so some guy had broken in there, luckily he wasn’t there when we walked in, and he’s totally been camping out in this house.
The plumbing has been turned off because it’s disconnected. In fact, it kind of goes right out the back of the house into a pile on the ground, but it’s not really been flushed out. So he’s just been using the bathroom, just filling it up. Ugh! It stunk.
Doug: I mean this is a total construction project house too. It’s not like it’s a house that’s basically done.
Andrea: No, and it’s filthy. It was filthy when we bought it. It’s even worse since it’s been sitting this long, so you know the guy is just living in this place, and I feel bad for him that that’s his option. He has nowhere else to go.
So the funny thing is though, Chris and I are walking around just thinking man, this is nasty. I can’t believe someone is sleeping here. I guess it’s a warm place, and that’s what they’re needing, but in the corner, I see this really nice backpack. So the dude’s stuff is in the house.
This nice Adidas backpack, and then his clothes are folded in a nice stack there.
Doug: He’s got style.
Andrea: He’s an organized squatter. So he’s got O’Neal shorts and these nice surfer shirts all stacked there neatly with this nice backpack.
Doug: Hey bro, gotta go surfing during the day, and gotta have somewhere to crash at night. Right dude?
Andrea: So we nicely took his belongings and set them in a nice pile outside the house and screwed the door shut.
Doug: That was very kind of you. Did you leave a note, like thank you for watching over the place and wish you luck in your new dwelling?
Andrea: Didn’t want to make him mad and have him cause any damage, and you know he didn’t do any harm to the house.
Doug: Typically, squatters aren’t the worst thing in the world. They’re really probably just people who don’t have a home, and they don’t have anywhere to stay, and they’re just looking to for somewhere to sleep. And they come in at night usually. They’re not even there during the day.
Andrea: Yeah, I mean maybe he was working. Who knows? Because all of his nice belongings were there.
Doug: Who knows, maybe he was keeping people out who were going to be worse. He was house-sitting. We have another house that is very similar although not quite as nice of an area that we’ve now removed squatters from at least three times from this house. But it’s the same people. And from what the police say, they just go next door and squat at the house next door for a while until we’re no longer on site.
And because the house is a big construction project, lot of ways in, you can break in pretty easily, and they’ve just been coming back and keep moving back in.
Andrea: We’ve had this a lot over the years, different squatters in different properties, and it’s never been too much of a problem. I hear stories of people who have squatters that move in and then produce a fake document of a lease that they supposedly had, and then they have to actually evict the squatters.
Thankfully, we’ve never had anything like that and really nobody that has caused too much trouble.
Doug: Yeah, usually in our experience they haven’t caused a lot of trouble. They’re just there to sleep, but yeah, it can be a problem. And you know what, it’s just a reality of this business.
Andrea: Par for the course.
Doug: Par for the course, something you deal with, something we’re still trying to navigate through on the best way to deal with it, and it’s always an adventure.
Andrea: Absolutely. So that leads us to our topic for today, which is Landlording 101. So we kind of have noticed that a good majority of the people that we buy houses from are burnt out landlords.
Doug: Yeah, they’re probably dealing with squatters. No, actually they could be squatters if they’re tenants and not paying rent, something like that. Yeah, but it’s a good point. A lot of the houses that we end up buying are from people who’ve just been burned out owning that rental property for one reason or another.
Andrea: So we want to talk about how you can be a good landlord and not get burned out. They say that eight out of ten millionaires in the U.S. I guess, or maybe in the world, have found their wealth in real estate, or 90 percent of the world’s millionaires. I think something like that.
Doug: Yeah, and I’ve heard that statistic multiple times on different things that the vast majority of wealth built in this nation comes through real estate.
Andrea: So you have to figure out how to do it, and then you have to figure out how to keep and maintain it. Yeah, exactly.
Doug: So we’re excited to talk about landlording today, because if you want to build wealth with rental properties, which is an amazing strategy, a great thing to do, you’ve got to know how to do it. And set things in place so you’re not going to become that motivated seller someday.
Andrea: Right, and we love flipping houses. It’s fun, but really that is our means to be able to hold properties, which is our long-term end-game plan.
Doug: Right, exactly. So you know, this is not an overnight wealth building strategy. This is a long-term play. This is for the long haul, especially if you’re getting financing on your rental properties. It’s something you’re going to be involved in for a while if this a strategy you’re going to go for, so it helps to have things in place to make it an easy, enjoyable process for you.
Managing rentals takes good management, whether that’s going to be you personally managing it or whether you’re going to hire somebody, a property manager or somebody else in your own in-house business. It takes a good person to manage these rental properties. It’s not something that you can just run on autopilot.
Andrea: Yeah I think that’s where a lot of people go wrong. They think they can buy their rental properties and sail off into the sunset, and you can sort-of sail off into the sunset if you have somebody else managing them. But they have to be managed.
Doug: Right, exactly. So let’s get into it. We’ve got four tips here in our Landlording 101 course.
Andrea: Actually each tip has a whole lot of things. It’s going to be like a one-day seminar crashed into 30 minutes.
Doug: We’ll go over the basics of it here. So the first one is to just know the costs involved with owning a rental property. Don’t think that you’re just going to buy a house, and the rent is going to be $1,200 a month. So a lot of people just glaze over it and go, “Oh yeah, $1,200 a month. So I’m going to make $1,200 a month.”
Andrea: Or, “Oh my mortgage is $1,000 a month, and I’m getting $1,200 per month, so $200 per month cash flow. Sweet!”
Doug: Yeah, no way!
Andrea: You’re losing money.
Doug: If those are the numbers, you’re definitely losing money. People don’t know the costs or they don’t understand the real costs involved, and obviously there’s a mortgage cost, and there’s property taxes. Those are the two costs most people know about already and are aware of.
But there are far more costs that will happen, do happen, and you have to account for them in rental properties, such as vacancies, maintenance, turnover. Different things like that that just cost money, a good percentage of money. So a good rule of thumb that we go buy is 30 to 40 percent off the top of whatever rent you’re getting, you need to count that as expenses.
Andrea: And that does not count your mortgage.
Doug: That does not count your mortgage. That’s absolutely right. The 30 to 40 percent accounts for taxes, insurance, maintenance, vacancies, and management fees. We give a range of 30 to 40 because obviously, some properties that are newer aren’t going to have as much maintenance, maybe that cost is a little bit lower.
Other properties that are older require a lot more maintenance; maybe you have more turnover in certain types of properties. So the expenses can vary, but a general rule of thumb is 30 to 40 percent depending on the type of property you have. You want to plan on that being your actual real cost in owning that rental property.
I go into a lot more detail on this and these costs and breaking them down in the video series we give out on our website. If you haven’t seen that, go get it at SpousesFlippingHouses.com. It’s the “Analyzing a Deal” video course. I think it’s Video #3, not sure, but I go into detail on all of those costs.
So a good mentor of ours, Mike Cantu, who we’ve quoted many times on this podcast.
Andrea: He needs his own podcast. We’re just quoting him.
Doug: He really does. I’m trying to get him to write a book. He’s got so many great stories and one-liners. He’s just filled with those, but he says that all property is cash flow. Some are cash flow positive; some are cash flow negative. It’s so true.
Your property is going to cash flow one way or the other, so why not make it on the positive side. So know your costs going into it.
Andrea: Okay, so the second thing is that you want to keep this property maintained. This is your asset. You don’t want to let it break down. You’re going to want to do those yearly maintenance-type things like going in once a year to change the air filters, and check the smoke detectors, and things like that for multiple reasons.
One, you don’t want these maintenance issues to build up and then you have a big problem later, and then for two, it allows you a chance to get your eyes on the property and make sure that these people are maintaining things and taking good care of your house.
Doug: Kind of like changing the oil in your car, you want to do the best you can to make sure you’re maintaining it.
Andrea: Right, and if you have a lot of rentals, it could be a full-time job going around and inspect the air filters of every single property all the time. And to be honest, we don’t always do that, but if we had three or four properties, for sure we would do that.
Doug: Yeah. So it kind of depends on your operation, and how many you have, and how many people you have helping you in order to get that kind of stuff done.
Andrea: And if a tenant is calling you saying, “Hey, this is broken,” or, “that’s broken,” you want to take care of those things within reason, and we’ll talk about that in a few minutes here probably. But you want to take care of those things for the same reason. You don’t want problems to build on top of problems and then have a huge issue that you don’t have enough money set aside for.
One big maintenance issue can wipe out your cash flow for the whole entire year, like if you need a new roof, or a new air conditioning unit, or you need a new water heater. It can wipe you out for a whole year’s cash flow. It’s gone. So you really need to stay on top of the little things so that they don’t become big things.
Doug: Exactly, and to that point, especially like a leak. If someone says, “Oh, there’s a little leak in the ceiling. I don’t know if it was rain, or under my sink is dripping.” Take care of those things right away because that little leak can turn into a very expensive problem later on with mold and water damage and all kinds of stuff like that.
Andrea: At the same time, you don’t want to let tenants nickel and dime you for things that they have broken. So you have to differentiate between whether or not it’s an issue of something in the house that’s wearing out or if it’s something in the house that the tenant has broken.
If they’ve broken it, then they need to fix it and repair it. But if there’s a leak or something that’s just wear and tear on the house…
Doug: From normal use.
Andrea: …that’s normal use, then you need to take care of those things right away.
Doug: Yeah, mini-blinds breaking in half and windows breaking, or…
Andrea: Ceiling fan blades.
Doug: Or ceiling fan blades falling off, that’s just not normal wear and tear. Somebody hit those things. Holes that show up in the wall, you know that’s not normal wear and tear. Those were damages caused by the tenants or their guests, and they’re responsible.
Andrea: And they need to take care of those issues.
Doug: Yeah, we’ll go over that a little bit more later on.
Andrea: So one thing that makes life a little easier is having hard surface flooring. We’ll usually do carpet flooring in the bedrooms, but in the main living areas of the house, we’ll almost always do tile or laminate wood flooring. If maybe you bought a house, and it’s already got something that’s good enough for a tenant, decent carpet or whatever, and you can go with that for now.
But if you have the opportunity to change it out or it needs to be changed out, I would definitely go with some kind of a hard surface flooring, because people live hard, tenants especially. And if it’s carpet, you’re going to be changing that out all the time. But if it’s tile, you can just clean it.
Doug: Yeah clean it, sweep it up. It’s a little more expensive putting it in, but it is well worth it if you’re going to own this rental property for any length of time.
Andrea: So another tip is that the less things you can have in the house that can break, the better. So I think a lot of first-time landlords think they want to provide conveniences for their tenant.
Doug: They’ve got to trick it out.
Andrea: And they’ll have a nice tenant if they have all of these conveniences, but really, what they’ll discover is that’s just more opportunity for things to break, and they have to replace them. So an example of that would be ceiling fans, which Doug kind of already talked about, almost always get broken. It’s kind of funny how that happens.
Doug: It’s amazing how ceiling fans break.
Andrea: You really don’t need them. You can just have the light fixture up there. If they want to install a ceiling fan, then that’s great, but you don’t have to provide that.
Doug: When we were renters, we would go to Lowe’s and buy a fan, a stand-up fan, when you’re hot. That’s normal! People do that.
Andrea: Also, garage door openers, not necessary. It really is just another thing that can break. So you might think you need to provide that for them, but you really don’t. Also, washer and dryers, I think that’s a convenience that a lot of new landlords think that they need to provide, but you really don’t.
If we buy a house that comes with a washer and dryer, and we’re intending for that house to be a rental, we will pretty much always pull them out because we know that is an expensive item that’s going to probably break.
Doug: Right, no it’s not necessary. People kind of expect to bring their own washer and dryer.
Andrea: Right, and also microwaves. So we only provide the basic appliances— a stove, a dishwasher if there’s already a slot for one, and if there’s not, we don’t. We don’t provide a refrigerator; we don’t provide a washer and dryer; we don’t provide a microwave, because those are extra conveniences that have the opportunity to break, and you will be fixing them.
Doug: And this may vary for you depending on what market you’re in, or if you’re renting to student housing, or you know. We’re talking about the general three-bed/two-bath blue-collar working class neighborhood.
Andrea: Right, and then when you are evaluating a property that you think might be a good rental property for you, take into consideration the age of the home. The older that it is, the more maintenance there will be. So it doesn’t mean don’t buy an older home for a rental. We have tons of them, and they make great rental properties.
But you just need to factor that into your equation that if it’s older, there just are going to be more things.
Doug: Absolutely. The third main point to consider as a landlord is selecting the correct tenant.
Andrea: Yes. This is the number one thing that can make or break your experience as a landlord. I think we tend to sort-of even brand our properties based on the tenant that we have at the time.
So for example, we had this property out in the high desert on a street called Tatum, and when we bought it, I believe it came with some tenants or maybe it was the first set of tenants that we put into that property. They were horrible; they made our lives living hell, and we hated that house.
We talked about it all the time: “I hate Tatum. I can’t wait until we can sell that house. It’s terrible. It’s a terrible house.” Well guess what? Those tenants moved out, and some decent tenants moved in, and we don’t think about Tatum anymore. It’s not on our hate list.
Doug: No, it’s back in our good graces. It’s so true. The tenant is really more than half the battle when you’re talking about the whole scope of a rental property. A very, very important piece here, so don’t gloss over this. Don’t just throw anybody in your house.
You want to do a background check and obviously, you want to check their credit. We just have a rule in our business— absolutely no evictions. That’s just what we do. Other people have different rules on that, but if you were in a situation where that happened at one point, didn’t pay your rent and got evicted, the chances of that repeating are too high for us to risk.
So that’s one of our policies. So you want to check their rental history, and there’s a couple of ways to do that. Not only do you want to call their current landlord where they’re living but more importantly, you want to call the previous landlord if you can get that information, the place they lived before where they’re living now, because that’s likely where you’re going to get the real story on this person.
Think about it. If you’re calling someone who is renting to these people and maybe they’re really bad tenants, and this landlord is just anxious to get rid of them, they might be tempted to just tell you what you want to hear so they can get these tenants out of their place. Right?
So not that all landlords do that, I would say that most don’t, but it’s definitely possible and definitely could happen. So check with the current and previous landlords on these tenants. And I would just ask them one question. You don’t have to go into every little detail, just ask one question: Would you rent to these people again? If they apply for a house, would you rent to them again?
And just let them talk; see what they say. The other thing you want to check is make sure they have reliable income to be able to afford the rent. This is a very important part of renting a property. Can they afford it? A general rule of thumb is about three times the rent for their income.
So you kind of want to make sure that you’re not going to be putting them in a tight spot by paying their rent that they have no other money to live on because likely, there could be problems later. So make sure that they have a sufficient income and that their employment appears to be a reliable source of employment that will continue to be able to pay you your rent.
Another thing that’s important is you need to know your fair housing laws. Do not discriminate. There are serious laws about this and serious penalties. You can’t discriminate based on race, religion, occupation, anything like that. Now you can have your standards for renting your property, but you need to be consistent with those standards.
Apply them to everybody who might be considering renting your house. You’ve got to hold the same standards to them, whether it’s income standards, no pets, whatever it is that you’re doing, keep the same standards.
Andrea: Yeah, and you mentioned you’ve got to know your housing laws. You need to know all of the laws and guidelines that apply to you, as a landlord, because I can guarantee your tenant will know them because they will know the ways to get around them. So you need to know what you’re talking about.
Doug: Yes, because they will. So yeah, you’ve got to be well versed in that.
Andrea: There are certain people they call professional tenants, and they will know the laws better than you do.
Doug: They will, and don’t get overwhelmed by that or frozen and not want to pull the trigger on a rental property just because of that. It’s pretty easy to get familiar with them. Most of them are common sense.
Andrea: A lot of it you’ll learn as you go. You’ll learn with your first property.
Doug: Yeah, another thing we recommend is definitely take a deposit. And here’s a little tip on the security deposit: don’t make it the same dollar amount as the monthly rent. And here’s the reason for that— that could get confused as a rent payment, like a first month’s or last month’s rent payment or something. Make that number very different.
I would say going over what the rent is. So if the rent is going to be $1,000 a month, maybe take a $1,200 security deposit. There’s laws in your state, and you have to know what the maximum security deposit you can charge is, so don’t exceed that. But definitely take a security deposit.
You want people to, number one, have the money to be able to put the deposit in and still afford the first month’s rent, and make sure they have some reserves. But you don’t want to confuse them that they’re actually paying a month’s rent in advance or something.
Another policy that we would recommend is, we just have a no cat policy.
Andrea: No cats!
Doug: No cats. We’ve seen the damage cats can do to a house. Actually, we’ve smelled the damage cats can do to a house.
Andrea: Yes, there is just nothing that can get out the smell of cat urine. It is pungent and terrible.
Doug: Nothing against you cat lovers out there. You know, they’re cute and furry and can bring lots of joy and happiness to you. I understand, but they don’t do well for your carpet.
Andrea: It’s not just the carpet. It soaks into the walls. It is bad.
Doug: Everything. It is bad and even with dogs, we’re very choosey. First of all, your insurance company may not cover dogs. You have to check with your insurance policy.
Andrea: For type of breeds.
Doug: Yeah, for type of breeds. What we do, because we know that dogs cause damage— we love dogs, we have dogs— but dogs cause damage to houses and yards. They just do, so you can either increase the deposit, security deposit required, or charge an additional pet deposit.
What we do is actually call it a “pet rent,” but really we increase the rent, the monthly rent amount if you have a dog by just a minimal amount, $30-$50 a month. And the great thing about that is that you get to keep that. So if they give you a pet deposit, you may have to give that back at the end if their pet doesn’t do any damage. But the reality is, their dog peed somewhere in your house.
Doug: Or chewed something up, or yeah.
Andrea: So the pet rent, you get to keep that.
Doug: We don’t charge an extra pet deposit; we charge a pet rent, and that’s monthly ongoing. So if they’re there for any length of time, that’s just rent. You’re keeping that money every month, and it’s not refunded. So that’s what we do.
Another thing that is extremely important when you’re signing up a tenant is to meet with them in person and before you hand over the keys, you want to go over the lease agreement and your house rules, your expectations on everything in grave detail. Spend some time with them, making sure they know when rent is due, how to pay the rent, where to turn off the water in case there’s a water problem, where to turn off the gas if there’s a gas leak.
All of the different things that could come up, make sure they are aware, that they have the phone number to call for if there’s a maintenance problem or if something comes up that they know who to get in touch with. They have your address, all of the different things.
You’ll hear excuses later on: “I didn’t know where to…I didn’t know who to call or who to send it to.” Don’t let that happen. Another thing that’s good to do is play the role of the manager when you’re dealing with tenants, even if you’re the owner of the property and the sole decision maker. Play the role that you’re the property manager.
Andrea: It just takes the heat off of you.
Doug: Takes the heat off of you, kind of gives them the sense that you’re on their side as well, that you answer to somebody else and can’t make the call all of the time, that you’ll have to go back and ask permission if there’s something that they’re trying to negotiate or what have you. That you’re not the bad guy.
Andrea: And then you also, maybe there’s something they’ve asked you and you need to think about it. It gives you a minute to think about it. You’re not on the spot to answer right there, because you can let them know that you have to check with somebody else and get back to them.
Doug: Got to check with the owner; got to check with the money man/partner, whatever you want to call it. Just play the role that you’re the manager.
Andrea: And then our fourth and last point about keeping your sanity as a landlord is to have good systems in place, and there’s a few ways you can do that. First of all, you want to have a Google Voice number so that the tenants do not have your personal cell phone number. That’s huge.
Doug: The last thing you want is them calling you during dinner or just being caught off guard, not knowing who it is that’s calling. If you have a Google Voice number…
Andrea: Right. You’ll know, even if you don’t necessarily know which tenant it is, you’ll know it’s a tenant and whether or not you want to take that call at that moment.
Doug: And you can direct that to another number later if you have somebody else that you want to take calls. You can, without having to change the number, just forward it to them.
Andrea: Yeah, and then the second thing is your rent collection. You can do that in a lot of different ways. They can mail you a check; they can direct deposit it into your account. However you decide to do it, just make sure that you have a system for it that’s trackable, that your tenants know and they can expect exactly what they’re supposed to do, and that it’s all spelled out for them.
There’s different ways of managing your rent collection too, different kinds of software. There’s Buildium, which we actually use, and that’s a great one. But that’s probably for if you already have several rental properties because you have to pay a fee to use that one.
You can just use a simple Excel spreadsheet, whatever it is that just keeps things organized for you to be able to track when the payments came in, so you can start recognizing if there’s a pattern. If certain people are late, you need to see that and track that information.
We’re building something out in Podio right now, and once we have that we might share that with you as well, but there’s Quickbooks. There’s lots of different ways of doing it. Just pick something, and stick with it.
Doug: Yeah, something that works for you depending on how big your operation is.
Andrea: Then the fourth thing is to charge and strictly enforce your late fees. You know, it’s kind of funny, I noticed a parallel between parenting and landlording.
Doug: Oh, so true.
Andrea: So many similarities here. You need to do what you say you’re going to do. So like with your kids, “If you do that one more time, you’re going to get a time-out.” And then they do it again, “Did you hear me? I said if you do that one more time, you’re going to get a time-out.”
Well guess what? They’re going to do it one more time, and one more time, so same thing with being a landlord. If you tell them the rent is due on the first, it is due on the first. If you don’t have it by the third, they have a late fee. That’s just the way it goes.
Do it the very first month they are late, and then they know that you mean business. You’re serious, and it’s not going to happen again.
Doug: Yep, set the standard from the very beginning. That’s definitely the way to do it.
Andrea: And then lastly, you want to take lots of pictures before they move in to note the condition of the property because they may have discrepancies when they move out: “I swear that hole was there when I moved in. I’m sure it was.”
So you want pictures to have proof of the condition that the home was in when they moved in.
Doug: Yeah, because you’re not going to remember. It’s going to be difficult to remember, especially if you have multiple properties, of what the condition was really like. So pictures or video would be really great.
Andrea: Well, with pictures though, you can print those off and have them sign off on them. So you’ll do a walkthrough sheet, you can let them walk through and see anything that they want to point out, say, “Hey, this was here. I didn’t do this.” And then you both sign that sheet. You both have a copy. And then it’s documented.
Andrea: So you know what’s funny? A lot of people who listen have been sending me Facebook messages and emails letting me know that they actually take notes as they listen to our podcast, and I just realized. So it’s making me be more aware of how I go through my points here, and I just realized that I said number three, but I didn’t say it was number three.
And then I didn’t say it was number five, so if I’m totally confusing you, I’m going to go back through it. Number one, under have a good system, was have a Google Voice number. Number two is your rent collection. Number three is a software system or some kind of system to track those things. Number four is basically follow-thru. Charge and strictly enforce your late fees. And number five was take lots of before-and-after pictures.
Doug: Yes. Rentals can be a great business. We’re really excited about building our retirement through rental properties, and we encourage people to do it, but landlording can sometimes be so difficult, if you don’t know what you’re getting into, that it just turns people off to the whole rental business.
So we want to help you be successful in your landlording endeavors, and hopefully these tips will kind of set the foundation for that.
Andrea: Yeah, and you don’t have to love every aspect of landlording. It’s okay if there’s certain parts that you really hate, then you can hire somebody else part-time to help you out.
Doug: Train somebody else to do that.
Andrea: Because to be honest, yeah there’s parts of this that aren’t fun, but we’re not going to stop doing it because we know that the outcome and end is so worth it. So just hang in there if there are parts you don’t love. Get help.
Doug: Absolutely, and remember that the tenant is your partner in this whole investment that you’re doing. They really are. Treat the tenant with the respect that they deserve. Treat them like the people that they are, and help them help you in a sense.
They are your partners in this deal, so take care of them and hopefully they’ll take care of you.
Andrea: Yeah, you know there’s this guy out here in Southern California who’s kind of a real estate legend in the investing world here, and his name is Tony Alvarez. And I was lucky enough to spend a few days with him a couple years ago, learning different real estate things from him, and one of the things I was most impressed by him about was how much respect he shows to his tenants.
And he expects them to show the same respect to him, but he does cool things, like at Thanksgiving time, he would give them a turkey. A lot of them were low-income families, and he’d give them a turkey or drop off Thanksgiving dinner fixings to them, or different little things that just go above and beyond, and they want to stay with him.
So he had this one single mom that was kind of outgrowing the little house that she was renting from him, but she liked him so much that she went to him and asked if he had anything else, anything bigger. She wanted to stay with him, which is pretty cool.
So if you can do that and build those relationships, and have tenants respect you because you respect them, it will make your life so much easier.
Doug: Yes, absolutely. Great example. And you know, if it just doesn’t work out— you’ve put a tenant in there, and it’s just not working out for whatever reason— let them go, have them move out, and start again. Go back to the people store as Mike Cantu says, and just do it again.
Like the example of the property we have in the high desert earlier, it’s now one of our favorites because we have a great tenant in there. It really does make a huge difference.
Andrea: So I think that’s all we have for you today. I’ll recap really quick. Number one, know your costs involved. Number two, keep that property maintained. Number three, choose your tenants wisely. If I could say that five more times, I would. And number four, have a good system.
Doug: Absolutely. Well, great episode today. We encourage you to go check us out again at our website, SpousesFlippingHouses.com. We got some feedback this week, and we really appreciate that.
Andrea: Yes, thank you so much to everybody who sent us an email. I really enjoyed reading them. Thank you! I feel like the nicest people in the world are listening to our podcast, and I’m really grateful. Thank you so much. So keep the emails coming if you have any questions or any other ways we can help you out.
My email is email@example.com. And that’s A-n-d-r-e-a at SpousesFlippingHouses. You can also go to our website, check out the free gift, and other than that, have a great week!
Doug: Take care!
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The post Episode 18: Landlording 101: A Crash Course for WINNING With Rental Properties appeared first on Spouses Flipping Houses.
Jan 28 2016
Rank #16: Episode 5: Interview With Justin & Tara Williams of HouseFlippingHQ & The 8 Minute Millionaire
Episode 005: Interview With Justin & Tara Williams of HouseFlippingHQ & The 8 Minute Millionaire
by Doug & Andrea Van Soest | Spouses Flipping Houseshttp://traffic.libsyn.com/spousesflippinghouses/SFH_005_-_Interview_with_Justin_and_Tara_Williams.mp3
Episode 5 Show Notes
Today we interview our long-time friends and very successful House Flippers / Entrepreneurs Justin & Tara Williams. Justin & Tara have built a business that is a house flipping “machine” that has flipped over 300 houses in the past 3 years. Justin & Tara are masters at creating systems that run like clockwork.
They also enjoy helping people get in the right mindset for success in their new podcast 8minuteMillionaire. Learn how they have done all this while raising 3 young kids and taking lots and lots of “family time”.
Here are a few takeaways from today’s episode:
- Duplicating yourself can transform your business
- If you can master acquisitions, you can get rich in Real Estate.
- Balancing your marriage and Business with your spouse is like a teeter totter, each person takes turns lifting the other one up.
- The importance of finding a “why” that is bigger than yourself.
Resources mentioned in this show:
- Justin referenced the book “The One Thing” by Gary Keller.
- Justin’s Real Estate Investing podcast is HouseFlippingHQ.com
- Justin’s training program is HouseFlippingFormula.com
- Justin and Tara’s new podcast is 8minuteMillionaire.com
Episode 5 Transcript
Andrea: Welcome to Spouses Flipping Houses, episode five. We are so excited today, we are doing our first interview with Justin and Tara Williams of the House Flipping HQ podcast, and their new podcast that they’ve just launched, 8 Minute Millionaire. Both are awesome podcasts, and we happen to know them personally and know that they are awesome people–
Doug: [simultaneously] Great people.
Andrea: –they’re very inspiring. They’ve done some really cool things, become really successful in a short period of time, they’re both just total go-getters, and I am very excited to talk to them today.
Doug: And they are married. They are spouses. [chuckles]
Andrea: [chuckles] So Doug, what’s going on in our business this week?
Doug: So, if you’ll remember we listed a couple houses last week, I think we talked about it on the last episode, and put them on the market, and within about probably three or four hours, we got a full price offer on one of the houses.
And that’s really exciting when that happens, we tend to think, “all right, this property’s going to generate a lot of interest and get a lot of offers. And in years past, or months past, we may have just jumped on that offer because it was full price, but there were some things about it that weren’t great, they were asking for some credits back, and–
Andrea: Kind of a lot in closing costs they wanted.
Doug: Kind of a lot in closing costs, and the financing wasn’t the best type of financing, that we like to sell to, so we decided to be patient and wait, we wanted to let it be shown to the masses for the weekend, so we really let it go like three more days or so, and–
Andrea: Which is a little risky because sometimes they’ll continue to look at houses over the weekend and might find something even better…
Doug: Might find something else, yeah, it just depends, we’re not saying to do this every time, but we decided to be patient and wait, and it was shown a few more times over the weekend, and sure enough, yesterday, Monday, we got another full price offer, this one much better.
Andrea: No closing costs, conventional, 20% down…
Doug: Yeah. Better financing, no cost, regular thirty day escrow, solid buyer, full price. So, we’re going to go with that one, and I’m glad we waited, that’s a significant difference in the net that we would have received with those two offers. So that was really cool, and we also locked up another wholesale deal last week, so that was good to have. So it’s been a busy weekend for us. Been good. But we’re really excited to get into this interview.
Andrea: Yes. It’s good stuff. So let’s get to it.
Doug: [simultaneously] Let’s get right to it.
Doug: Super excited to have our guests here today, we have our first interview of our podcast.
Andrea: And we’re setting the bar very high.
Doug: Very high, there’s nowhere to go but down from here.
Doug: We have with us today Justin and Tara Williams, two friends of ours, and actually we met back in 2010, or late 2009… do you remember Justin when exactly that was?
Justin: All I know is that our business exploded after we met you guys, so…
Justin: So yeah, I think it was around 2009…
Andrea: I think Tara and I were both pregnant with each of our third kid, so.
Doug: Yeah, we knew that they were investors and they lived close to us, so we just got together and said, “Hey, let’s go to a Chipotle and see if we can work together, since we’re both in the same business and we live in the same area, let’s go meet.” [chuckles]
Justin: I went to the b House, I kept your key…
Justin: It was the way I met you too I just kept your key, and…
Andrea: That like the date thing, you keep the jacket? You keep the key to his house.
Doug: But anyway, we had a lot in common, and we could tell immediately that Justin and Tara were good people, and people of integrity, and people that were going somewhere, they were movers and shakers, and I knew immediately that hey, we can do something with this guy, we’re going to be friends for a while, and we can get along.
So we’ve been doing business together in some form or another for the last five years, really.
Justin: Yeah. I bought my first rental property with you, right? We did it together, with you guys.
Andrea: That’s right.
Doug: We did. We bought two together actually.
Justin: Yeah, yeah we did a few together, you taught me how to — actually I learned a ton, we learned a ton from you guys. Rental properties, I remember you came over to our office, and taught me the right way how to analyze properties for the first time.
[Doug and Andrea chuckle]
Justin: Because I was just doing whole selling before and I didn’t really care, and then I remember you came to my very first retail flip, because I was scared to death, it was like the most basic retail flip, and you were kind of laughing, and so, anyway…
[Doug, Andrea, and Tara laugh]
Justin: It’s been fun working together. You guys have been…
Tara: Yeah he shares that story all the time, it was big for him.
Justin: I’m working on a book that I was writing this morning, and you’re in it, man. [laughs]
Doug: Oh really?
Doug: Oh very cool. [chuckles]
Andrea: Also about that lunch meeting I was going to say, what I think is really cool, you know what they say, “behind every successful man there’s a great and hard-working woman”…
Doug: A better woman. Something like that.
Andrea: We knew that to be true also from meeting you guys. Just how awesome that Tara is, and it’s been so fun to see you now a part more publicly, because we knew what an integral part that you were, but to see you be more of a presence in your business publicly through your podcast and your new podcast has been so exciting.
Doug: None of this happens without Tara, so…
Tara: Yeah I’ve just been hiding publicly for a while, and now I’m like, “here I am!” Ahh!
Andrea: Right. That’s awesome.
Doug: Well we’ll get into that new podcast that you guys have as well, but I wanted to mention that, that may have been your first retail flip that you were doing, Justin, but I think you’ve done, what, over a hundred houses you guys, over a hundred houses per year the last couple of years?
Doug: Just incredible numbers that we’re going to talk about, so… we’ve kind of done a little bit, but hey why don’t you guys tell us a little bit about yourselves, your background, and then how you got into real estate. I’ve heard the story many times, but I want to hear it again, because it’s always a good one.
Tara: You want me to share?
Justin: Go for it.
Tara: Well I was just thinking the other day, because I went running this morning, and it’s so funny, because we met at BYU, and there’s two sides to our apartment, there’s the guys’ side and there’s the girls’ side, and then there’s like this bridge in the middle, this open area.
And at 5:00AM in the morning, pitch black, rain, sun, shine, snow, whatever, two people would come walking out of their apartments. And it was me — we didn’t really know each other — and then I would see Justin going to football.
And I think it’s funny now that looking back, out of all the hundreds, thousands of people there at BYU, the people that we saw were each other, already being hard workers at 5:00AM in the morning.
Justin: Me by force, Tara by choice.
Tara: Me by force if I wanted to go on a date, I had to–
Tara: So we met there, and we dated, and I fell in love with Justin, we started talking about real estate, and–
Tara: –I wanted to talk about it all the time in our marriage… oh wait, wait…
Doug: Are you sure that was how it went?
Tara: No we had a lot of things in common. We got married, and we started a Dish Network business, and I was pregnant with our first son, and teaching elementary school, and I quit that job, and we started that business, and we were going to make a million dollars within the first year, and take over the world… and instead, we ended up with $120,000 of debt… with a brand new baby, and we had to move to California, and we had to dig ourselves–
Justin: Well not had to– we had to move to Bakersville, which is different…
Tara: Bakersville, that’s even worse. [laughs]
Justin: Having to move to California would not be a bad thing.
Doug: “Had” is the optimal word there. You were forced to move to Bakersville. [laughs]
Tara: So we moved there, and the goal to start the Dish Network company was to build up enough capital so that we could get into real estate, because we’d heard that that’s where you– where a lot of people acquire wealth.
And so… the Dish Network business taught us a ton about working hard, and how to work with people, and how to start a business and do all those things. And then we transitioned into real estate, and…
Justin: And we realized we didn’t need to make a bunch of money to get into real estate, right? [chuckles] We didn’t have any money and we started anyway.
Tara: We started with no money, and leverage other people’s money… so we got into real estate, and it’s been pretty awesome.
Doug: Yeah, and you had this business… how did you not get overwhelmed with that kind of debt?
Tara: Oh we were overwhelmed.
Justin: Oh, we were overwhelmed.
Tara: We were working our guts out, and we just knew we had to get it done.
Justin: Backs were against the wall… were living in an– we couldn’t even afford our own place, we moved in with a family and other employees, 2,000 square foot home, our son slept in the closet of a small room that we’d share, we had no choice.
We just had to get up and make it happen, and what’s interesting is I’ve seen a lot of people over the years; when you look at the route of where they started to being incredibly successful, it’s when their back was against the wall, and they had no choice, and they just made it happen, I just find that kind of interesting.
Tara: And if you look back over all these years, there are so many times and so many situations where we could have said, you know what, let’s quit, we’re not doing this right–
Justin: [simultaneously] Let’s go get a job.
Tara: — we fell, we’re going in the hole, we’re going backwards… but we just held onto that belief, that we can do this, we can totally do this, and we just followed people–
Justin: Maybe I should be an appraiser, or something…
Andrea: So what was it that shifted your focus to real estate? Because you guys were doing really well with the satellite business… what was it that changed your mindset towards real estate?
Justin: Well, we were always interested in real estate…
Tara: Our minds were always open to it. It’s like when you learn a new word, you see it everywhere, and so we were always open to it, and so when things would– friends would mention something, or we’d hear something, we’d read it or check it out, or…
Justin: Yeah, I read the book — we read the book, “No Money Down”–
Doug: Is that Gary Keller?
Justin: –as we were transitioning, yeah, and then I had a friend, the only guy I knew that had done anything in real estate, and this guy was one of those guys who’d move in the house, live there for a couple years — so nothing big at all, right?
Small potatoes, but that’s all I knew about. And I called him up, and he told me about this call he was going to listen to on something called “short sells”.
I had no idea what a short sell was, I had no idea, but I thought, “oh that’s cool, this guy’s going to share free information with us,” and I remember he did sixty questions in sixty minutes, and we were blown away to all the information he was sharing, and he was kind enough to… for only $2,000, let us attend his seminar, and then line up to work for him.
Doug: What a nice guy.
Justin: But to me, seriously, at the time I didn’t know any of that stuff existed.
Justin: I was totally oblivious to it, and I was pumped that someone was willing to share their knowledge with me, for how we can make millions, for only that price, so… hopped on a plane, didn’t even hesitate, signed up that night, and then we spent another $15,000 on his coaching program…
Andrea: Is this the one where you won the car?
Andrea: Awesome, yeah, you have to tell that story.
Justin: Yeah, so, go ahead Tara.
Tara: Well… so we got coached by this guy, and we’d fly to Kansas City, and we’d have these mastermind meetings, and they were good, we’d still learn information, but we started to notice that we were the ones doing the business, and so we would do half the coaching at these seminars.
[Justin, Doug, Andrea laugh]
Tara: And the guy, we’d talk to him, would sit there and be like, “yeah, yeah… yeah, that’s what I would do. That’s good stuff, guys.” And they’d be like, “How do you do this?” and the guy would give those people feedback, and we would be like, “Well actually we’re doing this”.
So there was a competition within the first year, and whoever did the best in their business was going to win this car, this Chrysler 300, and so he had another seminar, and there were a bunch of people there, and we had to get up and present our business model and what we’d done, and… they go to announce the people, and we’d won. We’d won a car.
Tara: I have never won anything like that in my life. We’d both not come from money, and I was driving around like I was on cloud nine.
Justin: We were so excited.
Tara: Got a trophy and a big poster, and… but we never got the car. Because who knows what.
Justin: He said he was going to send it to us, right? He didn’t know who was going to win, so he had to take care of some things, going to send us the car, and… it never came. [laughs]
Doug: You got the wrong address, for some reason…
Justin: Yeah, I don’t know…
Tara: Somebody got a really nice car in Bakersville. It wasn’t us.
Doug: But what I hear between the lines, you had a terrible experience with the prize there, but… and even though it was a really costly seminar, you guys… it got you started, right?
Tara: We still got information, it still fed us enough.
Justin: We have no regrets. Later we found out the guy hadn’t invested in real estate for six years, so… my point, to anyone who’s looking for education, do you need a mentor?
Do you need a mastermind? Yes, these things are all good, but having that been said, there are good ones that are actually doing the business [laughs], and that’s probably where you should focus.
Doug: So you go from doing short sales to a hundred deals a year. Can you tell us how your journey’s been? How have you gone from that to what you’re doing now?
Justin: So when we started out we were doing short sells, and we were doing whole selling, so we didn’t really have any risk on these deals, because we actually started out in 2007. We were literally starting to hit that peak, and then the ahh, free fall.
Which is actually kind of a blessing, because at the time we didn’t know about guys as you and I know like Bruce Norris, and people who would kind of tell you what was going to happen.
We started out with whole selling so fortunately all the deals that we did for the first few years, we had virtually no risk into it. Which is a great way to start out, in my opinion, as you’re learning the business… and then, it was interesting because we were kind of on top the world… it took a while to get going, it took seven months to get our first deal, but we were like, “yeah we can move out of Bakersville, we’re making good money, we’re out of debt finally…”
Tara: Moved to Orange County…
Justin: Moved to Orange County…
Tara: By the beach…
Justin: Yeah, moved to the place of our dreams… and then we moved down here and we still had some momentum going, but in Bakersville, we are the king of short sells, we had all these things going on, and what happened is we moved down here — short sells were changing, we had moved to a different location, we no longer had all the contacts that we had, and at the end of 2009 and 2010, it started to be not the best years.
2010 was a pretty rough year, and that’s when we started to transition, because we were learning a lot of things, we were learning about trustee sells, I went and learned from Mort Hannigan, we were learning about buying on the MLS, believe it or not, we never had bought houses on the MLS as crazy as it sounds, we didn’t know how to properly analyze deals, which is where you came in and helped us out a lot…
Doug: So the cheese was moving.
Justin: Yeah, the cheese had moved and…
Tara: [simultaneously] The cheese was moving.
Justin: But this is a lesson I’ve learned, if you move with the cheese but try not to move too many things at once. We moved the way we were buying, we moved our house physically, we moved– all these things happened at one time, and it was like we had to start over. So it was like the perfect storm.
Tara: Yeah. We lost our major employee.
Justin: Yeah. Yeah, 2010 was a really… tough year. In fact, it’s pretty funny, whenever we look at our… when we bought our house now in San Clemente, our loan officer looked at our– he needed three years, for some reason, even though they only considered two, but he looked at 2010…
[Doug and Andrea chuckle]
Justin: …like $40,000 or something like that, and then the next year was multiple six-figure, and then the next year was like seven figure income.
Tara: Yeah. [laughs]
Justin: And he was like, “What in the world are you guys doing? Whoa, whoa, whoa, what happened?” he had all these questions he had to ask, and we just had to… anyway, it was pretty funny.
Justin: But yeah, it was a low year, but we got into trustee sells, and once we learned those things… so many times we could’ve quit, once again… I remember Tara crying on the bed one night, because we were going to have our third son born any day, and we were like, “uh, we don’t know how we’re going to–”
Tara: I was crying on the computer, I’m like, “what credit card can I open? I need another one…”
Tara: “…give me some money, somebody!”
Justin: We didn’t know how to pay the rent, and at the time we had started buying rental properties, because back then we thought, “okay, we’ve got to buy rental properties,” we had all these things going on, “we’ve got to buy rental properties”, and you remember this, we had this one challenge, and “we’ve got to buy rental properties so we don’t have to worry about flipping anymore…”
But then after we bought all the rental properties we ran out of capital to… we hadn’t made a lot of money from the rental properties yet, and so that’s when one day we decided, okay, we have to sell four of these houses that are supposed to be rental properties, and we did not want to do it. It was like, kicking and screaming, I did not want to sell these rental properties. I had the… the bug was bitten…
Justin: …and I… just keep buying rental properties. But once we sold those houses, we made more money from those four houses than we would need to pay for our expenses for over an entire year. And they were cheap houses, too. And I could buy all those houses I wanted at the time. So buying wasn’t a problem.
I knew we could make good money from flipping them, and it just — we had the epiphany, we were like, “what if… what if we could do this every month?
What if we could make more money than we need for an entire year every single month, and what if we could systematize it?” And that’s what our focus went to, and that’s what we did.
And in 2011, we ended up purchasing 60 houses, which was more than we had done the previous three and a half or four years combined, and…
Doug: Wow. So 60 houses in 2011?
Justin: Yeah, and then from then on out it was average of about 100. We’ve had a little bit more and a little bit less some years, but close to 100 or more a year, since then.
Doug: And in 2011, that was– you had mentioned trustee sales. So you were buying at auction, correct?
Justin: Yes. That was our main way of buying in– and we started doing that at the tail end of 2010, and we just located– and that’s the thing about this business, you’ve got to get started somewhere, enter the corridor, and then you adjust.
But I never would have discovered what I discovered had I had not just taken action. So where I thought I wanted to buy trustee sales was not where we ended up buying most of our trustee sales. I remember even having you over one time, and showing you like, “hey, look at this, Doug, we could buy these houses here and no one’s bidding on them,” and it was pretty awesome.
So we bought a few rental properties that way, and then every day I would see houses that I could buy but I just didn’t have the money. So then once we got that piece taken care of, we were just off to the races.
Tara: One thing I think too that Justin’s really good at, is he’s always looking– he’s always one step ahead, I think. A lot of times people get stuck in their business in the trenches, and they’re so down– they’re out rehabbing the houses, or they’re doing things they shouldn’t be doing so that they can’t step back and then also look into the future.
So, Justin would have never figured out that the homes in the high desert were such a great price. He was analyzing these houses, and I remember him saying, “Tara come here, check this out, look at all these houses, this can’t be real, right?”
Justin: But no one was buying them.
Tara: But if he had been down in the trenches, he wouldn’t have figured that out, because he would’ve been too busy in the business, and so he was always thinking forward, seeing patterns, looking for different things to go, “hey, this is going on, let’s move with this.”
Andrea: Yeah that’s definitely something that we’ve noticed about you guys, is that you talk a lot about the whole… pay attention to who’s moving your cheese, but you really actually do that, you’re always focused on what’s coming next and being prepared for it, and I think that’s really cool.
Andrea: Another thing we really admire about you guys is your systemization, and you’ve talked about that a little bit, but–
Doug: Oh yeah. The king of systems.
Andrea: You are the king of systems.
Andrea: And so, how have you applied that in your business today? Because there’s no way you would have been able to scale the way that you have and in such an incredible way without having really good systems in place.
Justin: Yeah, so, recently we were listening to this podcast, and this guy was talking about Tony Robbins and the primary question, and basically what that means is, is, Tony Robbins basically says that there’s a primary question that we each have that drives most of the decisions that we make on a daily basis.
We ask ourselves this question time and time and time again, and for some people they might say, “what’s wrong with me?” Or what are some of the other questions people say, Tara?
Tara: “Can I do this? Do I have enough time? Do I have enough money? Am I good enough? Am I smart enough?”
Justin: “Is it worth the risk?” Guys like Tony Robbins, I think he says, “how can I make this better?” some people say “how can I add value here?” And I realized at that time my primary question is things like, I’m always saying things like, “how can I systematize this? How can I get someone else to do this for me?”
Justin: I’ve been literally asking that since I was a kid. I would get my little sisters to do all my jobs for me, by, like I would make tickets for a fake carnival that they could go to, and even though the work in creating that carnival was more work, it was enjoyable for me.
So my passion– I honestly am not passionate about real estate at all. I don’t really care about real estate other than the house we live in, really.
Justin: But I am very passionate about systems. I’m very passionate about the process. And I am willing to make more time up front and invest that into creating a system that will later on pay me back in huge dividends.
People always focus on the ROI, the return on their investment of capital, we like to really focus on the return on investment of time invested, which I think is… what is that, R-O-… anyway, something like that.
Tara: I think another big thing too is that a lot of times when people can’t systematize or don’t want to, is that, there’s two things: they’re afraid to let go of something, they want to control something. That keeps you stuck.
And then also, they’re also afraid to have open conversations and train and be blunt with the people that they’re working with.
And so even if they go for a minute, “okay, I’m going to let go, and I’m going to systematize and I’m going to train someone else to do this, and let go of the reins a little bit,” then that person starts to do that job, and then they go, “oh, my employee’s driving me crazy, and they’re not doing this,” and I’m like, “well, did you tell them that?” “Well no, I mean…”
Justin: You don’t want to hurt their feelings.
Tara: [simultaneously] “I don’t want to hurt their feelings.” So they have this enabling relationship where now the employer is now stuck with this employee that they can’t do anything with because they’re not open and they’re not training them, and they’re not leading them… so usually fear and then not having open conversations is what keeps people out of the systematizing freedom.
Doug: I can certainly relate to those last two things you just said, Tara. In fact I think I called Justin six months ago about that very–
Doug: — very topic.
Andrea: I think they had the very exact conversation that you just had.
Doug: Yeah we’ve certainly learned a lot about training our team and systematizing, and one thing I’ve always been impressed with what you guys do is empowering your people to make decisions, and helping them to grow in their roles, in a way where you’re certainly not– you’re managing your business, and your team, but you’re not micro-managing them to where they don’t have freedom to make decisions because they’re smart people. You try to hire people who are smarter than you, from what I’ve heard.
Justin: [chuckles] Yeah, either they’re smarter than you, or they become smarter in a certain capacity. And at first, one of the hard things that people have with letting go, like when I hired Vanessa for example years ago, I think it’s going on six years now, I may have been better at analyzing a deal than her at the time, but if I wasn’t willing to teach her that, and let her do that on her own, she would never get to the point where she is now, where she’s better than me, or, even if she’s not better than me, she puts a lot more time into it, so she’s able to get much better results.
She does it consistently and persistently on a regular basis. And I might be working on another business, I might be at the beach with my kids, or be at Disneyland, and that process continues to go, those things continue to happen, because we built that machine, if you will, and now it continues to work.
And now we can choose if we want to expand the machine, or improve the machine, but the machine will work, regardless of what we choose to do with or without us, the machine will keep working, and that’s true freedom to us.
Doug: Can you tell us a little bit about the machine? You don’t have to go into–
Justin: No, it’s a secret!
Doug: Give me the blueprints to the machine! No, you don’t have to go into detail, but people are probably going, “how in the world can you flip a hundred houses a year?” and you literally buy them and fix them and sell them, you’re not just wholesaling or anything like that.
So can you tell us a little bit about what your team looks like? What kind of machine do you need to be able to do that?
Justin: Yeah. So I’m happy to get into as many of those details as you want. I did used to cover all those details, I’m like short of breath by the end, and when I heard the primary question I realized, it’s not so much about exactly what you do, it’s more the mindset that you have that number one it can be done, and every day you’re constantly thinking on every single little tiny thing, and how can you outsource that?
So yeah I’ll give you a few examples though. As far as acquisitions, acquisitions in this business is probably the single most important part of a business, as you know, Doug, and we purchase lots of houses from you — I should have said we purchase lots of contracts from you, because I don’t want to get anyone in trouble here.
Justin: But acquisitions, buying houses, is the single most important part of this business. If you can master that one thing, you can become rich in real estate. Even if you’re not the best rehabber, or the best at getting financing, or any of that, it doesn’t matter right? Because you can wholesale, and you can do, anyway, all these other things.
So I decided a long time ago that the number one thing I need to focus on is having a method, a system, for acquiring properties. And so I just thought about, “okay, what are the things that take the longest amount of time?” And at the time, we were buying a lot of houses on the MLS, and trustee sells. So I created a system for doing that.
But let’s not talk about trustee sells, that’s like a whole bear in of itself. We’ll just take MLS for example. One of Vanessa’s primary responsibilities when she wasn’t doing other basic things that I didn’t want to do such as utilities and paperwork and insurance and just all that stuff that just takes a lot of time; lock boxes, and… all those things should be outsourced, first of all. Every little thing that you can pay someone $10 to $12 an hour, you should not be doing.
Tara: Absolutely. [chuckles]
Justin: But then I also needed her to have something– we needed her to have something she could do when she wasn’t doing those things. And I thought, “okay, you’re going to put all your focus into acquiring properties.”
So she would be scouring the MLS, making offers, and it took us a little bit to get her trained on how to analyze those, but once she was trained on how to analyze those, I did not want to hear about or look at the property until she either had a contract or she had a counter back from the seller.
And that one thing, as simple as it might sound alone, literally probably saved me 20 to 25 or 30 hours a week in time.
Justin: I mean think about that. If you were up every day scouring the MLS, or in today’s terms, because people are more focused on working directly with sellers, sending out marketing, taking calls from dead beat sellers… and just doing all these–
Doug: It is time intensive, yeah.
Justin: — analyzing properties that they send you, sending out offers, all of these things, if you can eliminate that? Literally, in your business you should be spending most of your — if you’re a solo person, that’s where you should be spending most of your time.
Now if you can eliminate that, all of a sudden you’ve basically duplicated yourself. And then all you need to do is be the final person to give the stamp, to give the go-ahead.
Or to say, “oh, we’re really close on this counter, can we make those numbers work?” or, “I’ve got a guy who might be willing to pay a little bit more than what I’m willing to pay, maybe I can wholesell it to him.”
So in acquisitions, that’s a huge part. And as far as rehab systems, I’ll try to make this quick, but basically, we try not to do– we try to have all the houses we do be pretty similar. We’re not doing any super high-end stuff… the goal is to be like Ford, right?
The goal is to have every house be so identical to where we can use the materials list and use the same materials on every house, we like to use the same general contractor if possible on every house, and then something else we do, something else we use is a price list, which kind of allows us to say, “okay, we’re willing to pay X amount per square foot for paint.”
So, to make an example, because I know some people might get confused…
When we started out doing this, if the house was 1500 square feet, we would pay about $1500 worth of paint for that home. And I noticed these patterns — now, prices have gone up a little bit, but that’s just an example.
So it’s like a dollar per square foot for that house. And I noticed these patterns are the same for laminate wood flooring, for tile, for carpet, for — there’s all these patterns, it costs about the same across the board, yet every time we worked with a different contractor, we would end up haggling and going back and forth, and getting multiple bids, and then there would be price creep later on, and all this stuff… and we just decided to eliminate all of that by agreeing up front on what the contractor was willing to receive for compensation for these different items, and that’s really helped us a lot.
So, those are a couple little ideas, little tips for you, to give you an idea of some of the things we do.
Doug: Yeah, actually I’ve heard you talk about that before, it keeps a good system to keep your contractors on the same page of what you’re expecting to pay.
Justin: Yeah, yeah. So.
Andrea: Now how do you guys work together and balance being married and being parents? Because we can vouch for the fact that you guys are an awesome family, you guys have three really cool kids, you spend a lot of time together, you guys get to take trips and travel and you have a good relationship with one another, and you also have this thriving and very successful business. So how do you guys balance those things and those dynamics?
Tara: Well it’s really easy.
Tara: I mean, it’s just so simple. No, I think we’re constantly… we were even talking about this the other day on the podcast, it’s almost like there’s this line in the middle that you want to stay on.
It’s like, “okay, things are great with my relationship with my spouse, I feel connected to my children, I feel like I’m helping others and looking outside myself, I’m growing, I’m developing, the business is going well…
And I feel like within those little areas, you’re constantly going back and forth, like, “okay, I’m a little off…” and you’re kind of a little off… so you have to put focus onto those, and they come and go. Sometimes Justin and I are having a great day, sometimes we’re at each others’ neck.
Tara: But I think the things that keep us connected as a family–
Justin: We’re not quite as nice as you guys.
Tara: You guys… there’s a little more–
Justin: There’s a little more sass over here.
Tara: –there’s a little more spitfire over here.
Tara: But I think our focus is always, the business is here to support the family… and our number one thing is always, he and I are number one, and our children are always number one, and sometimes it’s easy to get distracted in the business and we get excited, and there’s ideas, and you know what, it’s harder to be a mom than it is to own a business.
Justin: Way harder.
Andrea: For sure.
Tara: Sorry. But that’s just how it is. So sometimes it’s just easier to be like, “you know what, I’m going to work over here, you guys are driving me crazy,” but you have to stay focused on those things, and so we’re constantly– you have to be very open in your communication.
Justin: But it’s important for people to realize there’s never going to be that perfect balance, because I think if you think that, you’re always going to be disappointed.
Tara: You’ll be frustrated.
Justin: We call it a counter-balance. I think even in ‘The One Thing’ by Gary Keller, I think he talks about counter-balance. Because one minute, you’re like, “okay, we’re too far over here, let’s focus on over here…”
Justin: You’re always going back and forth. But, yeah, I just think knowing your — we’ve had moments, we’ve gotten a lot better now, because we have a lot more fun in our life, but there were times when we had to set rules for me for example…
Justin: …because I would talk about business twenty-four seven. So we set a rule that after 6:00… we had to get really anal on it, right?
Justin: Which is not ideal, but sometimes you’ve got to do that, you’ve got to set those boundaries, and I was not allowed to talk about it after 6:00PM. Now sometimes I can’t get her to shut up about it, but…
Doug: The roles have reversed.
Tara: The roles have–
Justin: But now we go on more vacations, we take more days off, we’ll do things, so we don’t fill that need… it’s more intercalated a little bit to where it doesn’t feel like a burden. But there have been times where we needed those strict rules.
Tara: I think the thing is too that we both really — I just am addicted to progression and learning, and I think this world is so exciting, and there’s so many cool things to do, within my family, within my relationship with Justin, within the business, and we’re both on that same page it’s like… I see some people dating some people and they’re watching their TV, and they’re on Facebook, and they’re just floating along.
And I feel like Justin lifts me up, and then he’ll teach me something, and then I lift him up and teach him up, and I feel like we’re just this little teeter-totter that you just lift higher, and then I go up a little bit, and he’s off one day, and I’m off, and–
Justin: She’s always higher than me.
Justin: She’s letting me try to catch up.
Tara: So it’s this cool relationship of — we just push each other and stretch each other, and keep going, “here’s an idea, let’s use it!”, and we–
Justin: We’ve always had big dreams. I think dreams are important. I remember since the day we got married, I remember talking about someday wanting to run an orphanage, or work with orphanage– all these different things, and I think when you have those goals and dreams that are bigger than yourself, it just helps you just keep pushing and driving even on the days that are a little harder.
Andrea: Do you guys do the vision boards, and– I know you’re big into written goals, right?
Tara: We don’t do a lot of vision boards, my brain is a big vision board.
Justin: Here’s the thing, we’re–
Tara: I’m constantly wanting to do all kinds of things.
Justin: I don’t know what it is, but sometimes I have to literally– or we both have to stop reading and learning for a couple days or whatever, because we’re too wired. If I read–
Doug: You can go off in too many directions.
Justin: Yeah or if I read business books at night, I get too excited and I don’t sleep well.
Justin: So I think vision boards and goals and all this stuff are very important and necessary in a lot of cases, but I just see a lot of people… they get that dopamine from the vision board, creating it, they get it from thinking about it, they’ll shout, “I’m going to do this and this and this!” and like, “okay, now let’s go get that cheeseburger.”
Tara: Then they’re so tired, they can’t actually do the goal.
Justin: Just do it. Or they don’t reach the goal right away, just take action, just do it.
Doug: Right, and I think it’s the same for some of those people which go to seminar after seminar after seminar and never really take any action, just get the same satisfaction from, “oh, I learned something else!”
Justin: We are big on goals, though, I remember when I had the goal of buying a hundred houses, and that happened. We had a goal of making a million dollars a year and it happened, now our goal is to make ten million dollars a year by the time we’re forty, and, some people think we’re crazy and they’re like, “why do you need that much money?” We don’t know why. We just…
Tara: We like opportunity. I would love to do some big things in other countries or something, and I feel like those give us the ability to learn how to administer those kind of things, to work with people, and then to also have freedom with money and time.
So I feel like we’re just developing ourselves so we can learn and grow and be good people now, but at some point really help other people to a larger degree as well, or make an impact.
Justin: And we’re Christian, and who knows what God has in store for us?
Justin: If one of our abilities is to run businesses and make money, then we can maybe do some things with that someday. He’ll use us in those ways that– with the skills that we use.
Doug: That was good stuff. Yeah, what I’m hearing is, you have a very important why. And that might be broad and general, but you have things you’d like to do and you’re working towards, it’s not just about making that almighty dollar next week.
Andrea: And yeah, I think when the why goes outside of yourself, not “why? So I can have this nice car, why? So I can have this fancy house.” But because you’re wanting to help others and do really cool things with y