Joe has three more great pieces of wisdom to share with us from his interviews last week. We also get an update from Theo on his properties, which he is selling, but tune in to find out why. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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TRANSCRIPTION
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. We don’t like that fluffy stuff, so we don’t get into that fluffy stuff.
With us today — well, we’ve got Follow Along Friday, so of course, Theo Hicks. How are you doing, Theo?
Theo Hicks: I’m doing good, Joe. How are you doing?
Joe Fairless: I’m doing well, and looking forward to this. Today we have two topics of conversation. One is three lessons that I learned from interviews that I did last Thursday, and then separately you’ve got some exciting news with your real estate portfolio, and we’re gonna talk about that.
As a refresher, Best Ever listeners, Follow Along Friday – the outcome of it is for you to learn alongside with us the lessons that we’ve learned as we’ve gone through our real estate endeavors, whether it’s me interviewing people on the podcast, where on Thursday I interview about nine people… So I interview a whole bunch of people, I extract some lessons learned, and then I talk about them on today’s episode. Or things that we’ve come across as real estate entrepreneurs or real estate investors, and Theo is gonna be talking about what he’s doing with his portfolio, and we’ll just be talking through that.
Number one, one first lesson that I documented to talk about today – Dan Plowman, I interviewed him… And again, these three people – I have one lesson per person; they’re episodes I don’t believe have aired yet. They will air in the near future, so definitely check out their episodes.
Dan Plowman, he has been in real estate for 28 years. He is from Canada, so don’t hold that against him — no, I’m kidding, Canada people… He had just really insightful things to say. His primary focus is coaching real estate agents and brokers, so I took the conversation that direction, because that’s his primary focus now. And one thing that he mentioned – he’s like “When I got started doing real estate as a real estate agent, I would go door to door and try and get people to either list their house with me, or maybe they know someone… And it wasn’t working. They saw me coming from a mile away. And what I did was I realized I needed to change the pattern. When I started the conversation, I needed to say instead of “I’d like to list your home”, “I don’t wanna list your home. I’m here because I saw a lot of homes in the area, and I see that…” — in this case if they have their home listed for sale by owner, I forgot to mention this, he goes up to the for sale by owner homes.
Those for sale by owners, they intentionally excluded a real estate agent in the transaction, and they get a lot of inquiries from real estate agents saying “Hey, I wanna list your home.” So he’d go up to them and he’d say “I don’t wanna list your home. I’m here because I saw a lot of homes in your area and I can send more clients your way, because I sell a lot of homes in your area, which will help you sell your home. You do your thing, and I’ll just send you leads.”
They’ll say, “Oh, that’s interesting. What’s the catch?”, and he’d say “Well, here’s the catch…” And I’m paraphrasing all this, but just to illustrate the point. The catch is that if I am sending people your way, I need to look at your home, just so I can get an idea of what clients of mine would be interested. So he goes in, looks at the home, and then… One more thing. He’ll say “The only other thing I ask is for anyone who looks at your home and they don’t purchase, well then just send them my direction, because I could find some places for them.”
So he would build his database by adding value to these for sale by owner people and making a deal with them that no one else was offering. He would send leads their way, and he’d also help them with the contract if needed when they find the buyer… But in exchange, he would be getting all these leads that they’re generating, and that person would be sending them his way.
So on the surface the value exchange is valuable for both parties, but in addition to that, what would end up happening a lot of the time is the for sale by owner person would not sell their home, therefore would reach out to Dan to then list the house. And I asked him, “Well, how many people did you actually send to these for sale by owners that actually worked out?” He said, “It happened multiple times…” Actually, he said three of them that he can remember in the first year, where he did send people to the for sale by owner and the for sale by owner agreed on the purchase price and they closed the deal. But by and large, what happened is he would get a listing from that for sale by owner because he established that relationship, and then also if that did not happen, he would get new leads from people who were visiting the house.
Theo Hicks: That’s a very fascinating strategy. I always love hearing these very unique strategies to leverage a no… Because if someone’s selling their house by themselves, and as a real estate agent if you’re asking for their business, they’re saying no, instead of just saying “Okay” and then passing on that… Figuring out some unique strategy to get them to say yes, or get other people that they know, or essentially find some way to turn that no into a yes. That’s a very unique way, because as you mentioned, in some instances they’re literally turning that no into a yes, but in other instances they’re thinking “Okay, well, you’re not gonna let me represent you, but let’s put together this win/win scenario where I’ll add some value to you, in this case sending you clients, but then you’re also sending me other people that I could potentially represent as well.” That’s fascinating. Great thinking.
Joe Fairless: It is. It’s an age-old problem, but here’s a solution to an age-old problem that a lot of real estate agents currently have, or even maybe wholesalers can implement this… I’m not close enough to wholesaling to know, but I’m sure there’s some things there. And even if we’re not a real estate agent or wholesaler, it’s just the thought process that is behind this solution. Okay, here’s a problem; now, what are some creative ways where I can help this person who would initially have their guard up against when I come across them, what are some solutions I can come across that it’s actually a win/win?” I absolutely love that.
Theo Hicks: And one more thing before we move on… This is more specific to this specific strategy for real estate agents – especially with all these online listing services, it’s a lot easier to list your house by yourself today, than it would have been 20 years ago. You can list it on Zillow or Craigslist or whatever, and then you can probably find a contract you can download for free somewhere online… So this is something that is probably gonna be more and more common, [unintelligible [00:08:18].06] there are probably gonna be more and more for sale by owners in the future… So instead of just being an agent throwing their hands up in the air and being like “Oh, I guess I’ve gotta find another career path”, you can follow this exact strategy.
Joe Fairless: Yeah, great point. This is very topical with all the technology that’s coming out. This will be more and more relevant. The longer this episode is on this podcast, the more and more relevant this insight becomes… That is a testament to how strong of a thought process or a solution is.
Alright, number two… Okay, Best Ever listeners – do you have a hard time finding apartment buildings? Are you looking for apartment buildings? Are you struggling to find a good deal that is a 10 or 15+ unit apartment building? Well, here’s a solution, and it is a specific example… Antoine Antoine Martel, a 23-year-old real estate investor based in Los Angeles, California; again, his interview will be coming out shortly. He found a 20-unit property… But before I get into that, let me tell you the process for how he found it, and then I’ll tell you a little bit about the property. How he found it is what I wanna focus on – what he did is he never purchased a large property before, but he did start in college (his senior year, I believe) finding deals that are out of state.
He ended up in Memphis, Tennessee; you’ll have to listen to the interview to hear the whole back-story, but I’m just giving you the cliff notes version right now… He negotiated with his parents, they invested the money in a property in Memphis, Tennessee, it ended up doing well, and now he’s got a turnkey business that they buy properties, fix them up, then sell them as turnkey investments… But along the way, he wanted to also buy a larger property, and he found a 20-unit property. And how he did this – this is what I wanna focus on; how he did it is a process that can be replicated by anyone listening to this episode… And when you replicate this process, it’s likely going to lead to an apartment building.
So if you want an apartment building, then this is a process you can replicate. Here’s the process. One, he looked on LoopNet and he found the brokers who are listing properties on LoopNet, and he made a list. This assumes that you have identified markets that you’re investing in. If you haven’t identified markets you’re investing in, there’s a step before number one, and that’s figure out the markets that you’re investing in. Once you do that, number one is find the brokers on LoopNet and make a list.
Two is you call all those brokers, you introduce yourself. He has an e-mail script, he also would e-mail them, and you can listen to the interview and you can hear the e-mail script that he used. He called them, and he e-mailed them. Then every two weeks – and this is the key part of the process; every two weeks he would call or e-mail those brokers and he would follow up with them, and he would change up the wording for how he’d follow up with them. If for example he just had a property that he sold, then he’d say “Hi, broker XYZ. Just had a property that sold. I’ve got cash that I’m looking to deploy. I know we’ve talked before… Just checking in on if you have anything within this criteria”, and then he’d list out whatever he’s looking to purchase.
Or in some cases he would say “Hi, XYZ broker. Just following up… We just liquidated this property and here’s a screenshot of the funds that I’m looking to deploy.” And he at this point — he’s 23 years old now; as I mentioned, he started when he was a senior in college, so we’re talking about a very short timeframe here… But at this point he had the ability to do a screenshot of a little over a million dollars. Now, clearly, that is not something that most people have the opportunity to do when they’re starting out, but he had built his business… So he took the screenshot and then he leveraged that screenshot for all the follow-up interviews. He would say “Hey, I’m looking to deploy this money.” Whether or not he still had that in the bank account or it fluctuated I’m not sure, but he had that screenshot, so it added validity to him following up, like “Hey, I’ve got the money. I’m ready to rock and roll.”
Now, if you don’t have a million dollars in your bank account this strategy still applies, so I don’t want that to turn people off… You don’t have to use the screenshot example. The point is that he had multiple ways of following up, and he did it consistently every two weeks. I asked him “How many brokers did you have on the list?” and he said “Twenty brokers were on the list.” I said “How long did it take for you to follow up with them every two weeks?” He said “30 minutes max, because I had it down to a system.” He did this for nine months. Nine months. He did this for nine months, every two weeks.
I asked him “In month eight what were you thinking?” You can listen to the interview, you can hear what his internal dialogue was in month eight, after being turned down for eight long months. But he did this for nine months, and then in the ninth month he followed up with a broker during this two-week process that he always did, and the broker said “Well, actually I do have a deal. Here’s some information.” He said it really wasn’t much information. He said, “Make an offer and then I’ll send you the financials.” [laughs] That’s always whacky to me, but for whatever reason, that can be commonplace… So he just made some offer, and the numbers worked out, and they figured some things out, and financials aligned etc. He closed the deal.
You can listen to the interview to hear more about the property itself. But the point of this conversation today is making a list from LoopNet brokers, following up on a consistent basis every two weeks with those brokers, having something interesting to say every two weeks; just change it up slightly, and then do it over a period of time. When you do that, then it’s likely to lead to a deal. Most people — now, Best Ever listeners, you’re an exception clearly, because you’re investing your time to listen to this podcast, so you’re doing stuff that most people wouldn’t do… But most people won’t make the effort to do this consistently over a long period of time.
The key is just getting a couple deals, because when you get a couple deals, you’re in the game, and then there’s momentum that builds. But most people won’t take this methodical approach, and that’s what I wanted to share.
Theo Hicks: Yeah, I’m gonna skip my comments on this one for now, because I’m gonna come back to this one when I talk about my properties that I’m selling.
Joe Fairless: Lesson learned number three – this is Ed Hendrickson. He’s a real estate entrepreneur. He does a lot of things, and he’s right now working on his website HardMoneyProject.com, so you can go check it out… But he has experience fixing and flipping, among other things, and one thing that came to light during our conversation is I haven’t been asking the right question to get the true picture of a fix and flip project’s profitability… And what I’ve been missing in my questions is, well, one question, and I’ll tell you what that one question is in a second, but let me give you the example first.
So he said he bought a property for $280,000, he put $40,000 into it, so all-in $320,000. He sold it for $420,000. I assume, incorrectly, that he made $100,000, right? 420k minus 320k equals 100k. Easy math. What he said is — because he has experienced working with hard money lenders, he said “Well, there’s a lot of hidden fees that hard money lenders have”, and what you should also ask people is those profits that we’re talking about on this fix and flip, does that factor in your carrying costs? Because there’s an example that he gave, about his fix and flip – he bought it for 280k, he put in 40k, all-in 320k, sold it for 420k – Hallelujah, that’s $100,000 profit… But not so fast, my friend, because there’s a real estate agent fee, there’s carrying costs (about $4,000/month), there’s staging costs that are factored into those carrying costs, there’s taxes… So all-in it was about $4,000/month, plus he had the real estate agent fee, and he made about 50k-60k. Now, congratulations, that’s still a lot of money on a fix and flip, but it’s not 100k.
It’s important that I continue to educate myself, so that I can ask intelligent questions. Ask a dumb question, get a dumb answer. Ask an intelligent question and you get a better answer… So that’s a question I’m going to incorporate in my fix and flip interviews, making sure that the costs that they mention that they’re all in on factors in the carrying costs, because that can eat away a significant amount of the profit.
Theo Hicks: Yeah, I’d imagine that’s probably the biggest issue for people that wanna become fix and flippers, and really I would say any type of real estate investor is not fully understanding all the expenses that go into it. When you hear someone say “I put in 40k”, one of the main things that people focus on are the renovation costs, and then what’s the ARV after that for rentals or for fix and flips… But as you mentioned, there’s a lot more that goes into it than just the renovations. Some of those things got listed here – staging costs, for example; who would have thought about that, unless they’ve actually either done it before, or they are working with someone who’s done it before, which goes back to the importance of if you’re gonna go into a new investment niche, you should probably be working with someone that’s done it before, so you can get the inside information, so that you make sure that you’re buying the deal at the right number.
Joe Fairless: Yeah. Tons of hidden costs in every asset class and every type of business model… It’s just being aware of what those are. In that interview he actually gave us five or six hidden costs that hard money lenders might have when you’re getting a loan from them… So anyone who is getting hard money, you must listen to that interview. And again, it’ll be coming out soon, within the next 30 days.
Theo Hicks: Yeah. Well, I think those last two lessons are pretty timely and it would be a good transition to me talking about my three fourplexes that I am listing for sale. I think they’re gonna have the “Coming soon” tomorrow, and then they’re gonna be live on Wednesday of next week.
We can probably talk about this for a long, long time, the reasons why, but I would just say the main reason why — again, I learned a lot of lessons on these deals, I’ve talked about most of them on this podcast already, but I did not do proper due diligence before I bought these properties. I got really excited when they hit the market, I went and saw them the next day, I bought them a little bit below the list price, but I didn’t know what I know now.
I didn’t fully underwrite the deal, I didn’t take the historicals and project out a five-year business plan… I kind of just said, “Okay, well the rents are this. I could probably raise them to this. 50% expenses… This deal makes sense.” And over the past year I keep running into the issue of the property is finally fully occupied, or I finally don’t have a maintenance expense for the month, and I finally am picking up momentum, and then something happens, and then I know that I’m not gonna make any money for the next three or four months. Then that 3-4 months passes, and maybe during that 3-4 months another issue happens that adds another couple months to that… Or I finally get to the end and I’m just like “Oh, yes! Cashflow!” and then something else happens.
This most recent time when something else happened, I’m just like “Alright, let’s take a look and see what these types of properties are selling for right now”, because it makes more sense — instead of putting in this much more money in the property, kind of just sell them and get my money back, make some profit out of this thing and take that money to buy one 20-unit property in Cincinnati, and actually do it right this time.
Joe Fairless: Okay, lots of questions… And I think we should focus on this next week, because we don’t have time to dive into it on this call. So I’m not gonna ask any questions, even though I have a lot of questions. How about we bring this up next week?
Theo Hicks: Perfect.
Joe Fairless: And then we’ll do a deep dive.
Theo Hicks: Yeah, because again, I could definitely talk about this for a long time.
Joe Fairless: Yeah, because it’ll be an important topic to discuss.
Theo Hicks: Yeah.
Joe Fairless: Cool.
Theo Hicks: Alright, so we’ll put a bookmark in that for now and we’ll talk about that next week. And hopefully they’re sold by next week, so it’s got a happy ending. It will have a happy ending regardless, but we’ll talk about it next week.
Joe Fairless: Okay.
Theo Hicks: So trivia question – last week’s trivia question was about the nation’s most expensive residential listing, and I listed off some of the features of the house… The answer – and this is really surprising – was 250 million dollars.
Joe Fairless: What did I say, like 90-something?
Theo Hicks: I think you said 70-something, but around there. 250 million dollars.
Joe Fairless: Where is it, Beverly Hills?
Theo Hicks: It’s in Bel Air. Apparently, this property was listed maybe a year before it was — because it has been listed for a while now… And it was listed at — I can’t remember exactly what it was, but it was at least 50% higher than this price, so they took it off the market and then reduced it to 250 million dollars.
Joe Fairless: Oh, let me go run and make an offer. This sounds like a steal.
Theo Hicks: Yeah, seriously… This week’s trivia question — so we recently wrote a blog post about the markets with the most Fortune 500 companies, and while I was doing my research for the article I found an interesting tidbit that will be the trivia question this week… So the question is “One out of three (so approximately 33%) of the Fortune 500 companies are headquartered in how many MSAs?” A third of the Fortune 500 companies are headquartered in how many metropolitan statistical areas? So not into a specific city, but–
Joe Fairless: Four.
Theo Hicks: Okay, four.
Joe Fairless: I’ll say four.
Theo Hicks: As always, either submit your answer to info@joefairless.com, or submit your answer in the comments section below this YouTube video if you’re watching this on YouTube. The first person to get it correct will receive a signed copy of our first Best Ever book.
And then lastly, the Best Ever Apartment Syndication review of the week – if you buy the book on Amazon, leave a review and send us a screenshot; not only will you receive a link to download a bunch of apartment syndication resources and documents, but you’ll also have the opportunity to have your review read aloud on the podcast.
This week’s review comes from John Fallon who says:
“This is a well-written, clear and actionable book. A great book for those just getting started on their apartment syndication journey. I’ve read several other apartment and real estate investing books, and most are two parts motivational speeches, one part content. This book, although acknowledging the importance of mindset, cuts right through the fluff and get straight to the process of apartment syndication, while layout a clear path from start to finish. A great book and resource to have in the library.”
Joe Fairless: That’s right, we don’t like that fluffy stuff, like I mentioned at the beginning of the show. Theo hates that fluffy stuff. He’s a chemical engineer…? Is that what your major is?
Theo Hicks: Yeah.
Joe Fairless: He’s a chemical engineer, and they hate the fluff. Thank you so much for sharing that, and investing your time to write that on Amazon. You could be doing other things, but instead you chose to take some time out of your day and write it, and I sincerely appreciate it.
Best Ever listeners, I hope you have a wonderful day, and we’ll talk to you tomorrow.
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