Investor Cheat Code Podcast with Mike Simmons

In this episode, I interview Kenny Estes. Kenny is a successful real estate investor who specializes in buy-and-hold real estate. He has a very strong finance background. Kenny started his investing career while in college, and continued it it as a hobby for a number of years before going full-time. Unlike many investors, Kenny does not invest in his own town because the price of real estate is less attractive than where he actually invests.

Kenny was a really fun guy to interview, and has a lot of great insight into the world of real estate investing. He has a very realistic approach to real estate investing and is definitely not about hype, but rather about real world, down to earth, practical advice.

Overview of Kenny’s Business:

1. Primarily invests in South Bend, Indiana.

2. Spends a lot of his time talking to investors, procuring funds, and making sure his investors are well taken care of.

3. Now starting to look outside of the South Bend market.

A typical deal (case study) in Kenny’s business:

Commercial unit

$700,000.00 investment

Triple net lease

Cashflow per year- $74,000

10% return /year

What are the biggest mistakes that new real investors make?

Getting started too early. Some gurus make it sound too easy!

Not understanding the risk involved.

Taking on too much debt too fast.

Don't understand that investing is a job.

Advice for new real estate investors:

Should to be passionate about real estate

Find a mentor

Do (know) the numbers. Trust those numbers.

Plan your business with the thought of it lasting for the rest of your life.

Links

http://peartreeproperty.com – Kenny’s website

BiggerPockets – Great place to start looking for mentors

Google Drive – Document management

 

Today we're going to finish up our Flipping 101 series and talk about managing the rehab and selling the property. Obviously, these quick episodes offer some actionable steps and basic information, but they're not in-depth. If you really want to study a subject, I suggest you search for more detailed past episodes or even sign up for one-on-one coaching or a training program.

I feel like I could spend a month-long series talking about managing a rehab because it really is one of my strengths.

The most important aspect of managing a rehab is actually being there. If you're starting out, you might want to visit every day. Problems pop up every day and you want to always be aware of what's going on and address every issue immediately. You also need to make sure that you're in control. That doesn't mean that you have to be bossy or mean, just that you work with your contractor and know that this is your project. Make sure that you have a timeline of what you expect from your contractor, so they know that they're meeting your expectations. There should be milestones along the way to motivate them and make sure they're always on track.

Show up, have a plan, be in charge.

Now, as far as selling the property, that can be as simple as using the realtor you used to buy a property to sell it. It's a good business practice and a realtor wants to be hired to handle both sales. You're not obligated to do that, but it builds good relationships and that realtor will want to sell you more properties in the future. You can also sell the property yourself: put it on craigslist, mention it at your local RIA, put it on the MLS, put up a sign before you're finished with the rehab. These are all valid ways to sell your property, but the fastest and best way to sell is to make sure that the ARV you used when you bought the property is still accurate. You can go up a little to give yourself room to negotiate, or go down a little to get people interested and create a bidding war. Either way, you should discuss these strategies with your realtor if you're using one. And don't be afraid to adjust your price if it's not getting any traction.

Today we're going to continue talking through the basics of house flipping and we're going to focus on hiring contractors. For most new contractors, this is the scariest step of the process after putting in a bid on a property.

Hiring a contractor needs to be taken very seriously, and it can be daunting, especially when you don't know anything about the work that needs to be done.

The fastest and easiest way to find a contractor is to put out an ad. What I do is I put out an ad on Craigslist which says: "Looking for a contractor to do complete home renovation. All applicants should have a builder's license and builder's insurance." When anyone applies, they need to show you proof of those things. When you interview people, you need to ask for references and even drive to see their past work. The next part of the process is to actually bring them into the property and have them give you a quote. You need to do this with a few contractors so you can compare quotes; I even suggest bringing them all in at the same time. Give them all the same information and give them a deadline to give you a quote. That is your first opportunity to see if they can meet deadlines. Once you get the quotes in and have an idea of who you want to go with, double-check their references. Be suspicious of quotes that are much higher or much lower than the rest.

You can easily lose money if you hire the wrong contractor, so take this step seriously. And if you have to, you can always fire a contractor halfway through a job. It's not fun, but sometimes it has to be done to cut your losses.

Today we're going to continue the Flipping 101 series that we started yesterday, and we're going to talk about knowing what to offer on a property.

What's difficult for some people is that they don't want to look ridiculous. They don't want to feel bad about giving a low offer. You have to get past that mindset and understand that this business is a numbers game. You can't be concerned about what your offer will look like because often, your offer has to be low.

So how do you know what to offer? You can use a few basic rules to get started and as you get more experienced and start understanding your business and your costs you an modify that and adapt.

A common rule is called the seventy percent rule. It goes like this:

figure out the After Repair Value--let's say it's $100,000

multiply the ARV by 70%

subtract the cost of renovation--let's say it's $20,000

In this example, you can offer up to $50,000 on that property in order to make a profit after doing the renovation. This rule is very generic and will keep you out of trouble in terms of not bidding too high. But in some markets, you'll never get a deal because it's far too aggressive.

If you want to go one step further, you can can follow this formula:

figure out the After Repair Value--let's say it's $100,000

multiply the ARV by 90% (that's 3% for the buying realtor, 3% for the selling realtor, 4% for the closing costs)

subtract the profit you want to make--let's say you want to make 20%

subtract the cost of renovation--let's say it's $20,000

In this case, your offer again comes out to $50,000, but this formula allows for you to decide what kind of profit you want to make. I suggest that you also subtract any holding costs that you anticipate or any financing costs (such as interest payments for a private lender).

You can use any method you want; just make sure that, whatever you offer, you've accounted for everything.

 

This week we're going to talk about various aspects of house flipping and give you some basic guidance. Today we'll start with the first step you need to take if you're interested in flipping houses: finding deals. I've talked about this before, but I want to make sure you have a good foundation. A lot of people will give you different advice and a lot of it will work, but this episode will teach you the basics and help you get started.

My opinion is that the best place to start if you're new if to find a good, investor-friendly realtor. Not every realtor is investor-friendly, so think of meeting an realtor as an interview. Meet a few and make sure the one you work with understands what you're looking for. A lead that's solid for a realtor is not necessarily a good deal for an investor. Sometimes realtors have a hard time understanding that difference, so you need to educate them and teach them to look for what's important for you. They need to look at the After Repair Value and calculate the numbers of a potential lead the way you would, taking into account every possible cost including commissions, closing costs, renovation costs, holding costs, and even potential seller concessions. So to find a good deal, find a realtor who understands the way you need to work and who is ok with putting in a lot of low offers.

Another way to find deals is direct marketing. To do that you're going to have to spend some money upfront. You're going to buy a list, send out postcards and letters, and have a way to respond to calls. I'll probably do a show in the future with more detailed information on that, but feel free to email me if you need guidance.

You can also just talk to people in order to find deals. Go to RIA meetings, meet wholesalers and other house-flippers, talk to your friends and family. Network as much as you can so that people send you deals when they stumble upon something.

The cheapest way to find deals is to drive for dollars, which means driving through your target area and looking for houses that seem to be in disrepair.

All of these ways are solid and you can build a business on them. Finding a good deal is the first and hardest step, but get out there and use one these techniques today!

In this episode, I interview Sharon Vornholt. Sharon has been investing in real estate since 1998. She is also a blogger, coach, online marketer, and a regular contributor of articles for several national sites for real estate investors.

At the start of the show, I let everyone know that Sharon is a highly successful real estate wholesaler. She did not start as a wholesaler; she started her career in real estate with a successful home inspection business back in 1991.

Sharon then worked as a rehabber and a buy-and-hold landlord. She did it all this part-time while running her home inspection business.

She became a full-time wholesaler back in 2008 when the market crashed. Sharon struggled to figure out the whole rehab thing early on. She knew people from her local REIA, and called on them when trying to sell a house. It was also around that time that she became aware of the fact that, in order to be a successful buy-and-hold landlord, she would have to have 50 or more properties; that thought did not make her happy at all.

Because wholesaling is such an active type of real estate investing, Sharon shared with us that her long-term passive income strategy is teaching others through product creation.

Sharon explained that as, a wholesaler, the most important aspect of your business is marketing. Sharon is an expert marketer, and she shared tons of great information about marketing and its importance in real estate.

When I asked Sharon for a typical day in her business, she said that she tries to keep a tight control over the very beginning and the very end, but the middle of the day is often unpredictable. She did share a tip about when to look at houses; basically, she tries to look at houses between 11:00 AM and 3:00 PM in order to avoid rush hour traffic. That's a great tip for any real estate investor.

The biggest mistakes that Sharon sees new investors making is that they pay too much for their houses. New investors need to go out on the field and look at houses, so they can become familiar with their target areas, the rehab that needs to be done, and the cost of that rehab. Sharon also mentioned the importance of networking and real estate groups in your local area in order to build your contact list and make connections with people in the industry. I could not agree with her more! Networking is huge for any real estate investor, and especially for new real estate investors.

Sharon went into very good detail about her business and how she has made it the success that it is. Particularly for wholesalers, the information she shares is incredible! She also gave an ingenious strategy for finding people to put on your wholesale list.

LINKS

LouisvilleGalsRealEstateBlog.com – Sharon’s website

Probates and Absentee Owners: Your Fast Track to Real Estate Riches – Sharon’s free Report.

DropBox.com- file sharing software

Fiverr.com – Get anything done for $5.00 on Fiverr.

Postlets.com – create great flyers

Oovoo.com – create great videos

Today I'm going to wrap up my week-long series on wholesaling. The last basic step in the wholesaling process is finding buyers. You've generated leads, the leads have come in, you've fielded those calls, called sellers back, seen some houses, made some offers, and you now have a signed contract. Your next move is to find an investor that you can sell or assign the contract to.

There are a few different ways to do this:

Double Closing/Simultaneous Closing

Close on the house yourself through transitional funding and then the end buyer buys the house from you.

Assignment Contract: That's how I've handling my wholesaling business so far. I get a house under contract (signing a purchase and sale agreement with the homeowner) and then I send the buyer an assignment contract that assigns my interest of the original agreement to them. I get paid an assignment fee.

But before you get to all of this, you need to find a buyer. To be honest, this hasn't been a problem for me and it probably won't be for you if you're already a house flipper. I already have a wide network of investors I know, so when I find a deal all I have to do is pick up the phone or send out an email.

If you don't have relationships with investors already, what do you do? Here are a couple of helpful tips:

If you find a truly good deal and you get it under contract, you will not have a problem selling the house. 

If you get a house under contract and no one seems to be buying from you, you probably don't have a good deal to begin with. You've either estimated the ARV too high, the repairs too low, or both. The investors looking at your deal are looking at the numbers themselves and they're not agreeing with your calculations.

Where do you find buyers?

Craigslist: It's easy, free, and everyone uses it whether they admit to it or not. You will get a lot of junk responses, and you can weed those out by asking for a non-refundable down payment. If they won't do that, they're not actually planning on buying the house.

Local RIA Meetings: Go to those meetings and start introducing yourself to people. They're a great way to meet investors and each person you meet might refer you to more investor friends.

Online Advertising: Things like Google Adwords and Facebook ads cost money, but they can be useful. I suggest you start with just Craigslist and RIA meetings. Chances are, if it's a good deal, you'll have people lined up to buy the property.

Today we're going to continue the conversation on wholesaling and discuss the third step in the process: meeting the sellers.

After you've generated leads and handled your incoming leads, it's time to actually meet motivated sellers.

When you do that, your have two primary jobs. The first is to look at the house and get a better sense of what the repair costs might be. If you're already a house flipper, that should be easy for you. If you're not, make sure you take a ton of notes and pictures so you can estimate costs . I have talked about calculating costs in great detail in past episodes, so make sure you listen to those again. But other than calculating costs, you need to create a relationship with the motivated seller. You want to try to find common ground and you want to be likable. Be on your best behavior; behave like you would if you were meeting someone important to you. You don't have to go there all dressed up, but it doesn't hurt to look clean and presentable. Be polite, friendly, and engaging. Be the best version of you that you can be. That comes naturally for some people, but others are not comfortable meeting new people, and if that's the case wholesaling is not going to be very easy for you.

But I can let you in on a secret: I'm not very social by nature. I have to work at it. If I have someone I've never met before, I try to be the best version of me. That's what you need to do when you're meeting a seller.

So when you meet a motivated seller, create that rapport, look at the house, and take interest in what they're saying. Sellers will often start talking to you about the history of the house and problems they might be having with it. Take interest in that and listen. They're going to be more likely to sell the house to you if they like you as a person.

Ideally, you'll want to make an offer right then and there. When you're new, that's not that easy and that's ok. Create a rapport and follow up as soon as you can.

Today we're going to talk about the second step of the wholesaling process: handling incoming leads.

If you already have experience as a house flipper and understand how much it would cost to renovate a house, that helps tremendously. Typically, as a wholesaler, you are selling to house flippers or buy-and-hold investors. So having an accurate sense of rehab costs makes you very valuable to other investors because they can trust you.

I think that if you're a house flipper and you want to try wholesaling, you'll find that to be a very natural transition. In addition to having experience calculating rehab costs, you also already know a network of house flippers you can sell to. But that's not to say that you can't be a wholesaler otherwise!

So, let's say you followed the advice in yesterday's episode and have started getting leads in. What do you do? It depends on your availability. You most likely have another full-time job so you can't answer every call yourself. You can have every call go to a live assistant working for you or go straight to voicemail where they can leave their information for you. There are a few companies that can handle calls for you. I use PATLive and have virtual assistants field every call for me and gather the information. You can tell them what questions to ask and what information you will need.

That information gathered by whoever you hire usually goes into a Customer Relation Management software. There are tons of options out there; a couple of popular examples are Zoho and Podio. Both are good options for small business owners. Whatever you choose, you need something to handle the information that comes in. You could have your assistant just send you an email and then put everything into a spreadsheet, but I would recommend using CRM software instead.

Then, you as the wholesaler need to call the seller back quickly. Talk to them personally and find out more about the property and their motivation. Hopefully they turn out to be a motivated seller who is really interested in selling their house soon. And remember, you have to call them back quickly because you're not the only one sending them postcards!

Tomorrow, we'll be talking about meeting motivated sellers.

This week we're going to be talking about wholesaling. As you know there are three major ways to invest in real estate: house flipping, buy-and-hold (rentals), and wholesaling. For the last several years I've primarily been a house flipper, but I recently started doing some rentals and wholesaling. In real estate, I think it's important to be diversified. I was taught by my mentor to focus one area of real estate before you branch out, and that's what I've done.

So, I've recently started wholesaling. Wholesaling is newer to me, but my experience in house flipping is incredibly useful. It's a different mentality, different mindset, and different pace. This week I'm going to share some of the things I've learned about wholesaling: what has worked for me and what hasn't so far.

The first step in wholesaling, as in house-flipping and buy-and-hold investing, is generating leads. In the past, I have primarily used realtors to find leads. Recently, that has become harder, so I've turned to direct marketing. The difference is that, while a house flipper might need to find a house at say 60% of the ARV, a wholesaler will need to find even better deals. If you as a wholesaler want to sell me a house at 60% of the ARV, you will need to buy it for at least 50% or 55% of the ARV.

I have been blown away at the results I've been getting from direct mail recently. If you're not using direct marketing, you really should be. Essentially, you get a list of properties that meet certain criteria, such as houses with absentee owners, and you send them letters. One of the easiest ways to find these houses is to use a service like ListSource. You can then upload your list to a site like Yellow Letters or Click2Mail, chose what you want to send, and have them send everything for you.

Another way to find leads to wholesale is to create your own lead-generating website, using a service like Lead Propeller. Nowadays, when people want anything, they search for it online. If your website comes up in the search results when people are looking to sell their house, that's a fantastic way to bring in leads. This method is underused by investors, and I think it's going to explode in the next few years.

Tomorrow, we're going to talk about how to handle leads once you get them in.