Jeff: That happens to have been trial by fire but on the most part it’s been just trying to network with people that I have been fortunate enough to meet here in the area and I ask a lot of questions. It certainly doesn’t hurt to go see a property where someone has an open house or go meet with a builder or meet with a Realtor. That doesn’t cost you any money to do and it’s amazing what you can learn when people just start to tell you everything that they know. It doesn’t cost you a penny to get them to start talking to you.
Doug: Right. A lot of investors are worried about having to put a significant amount of money into a deal. They see a property that’s worth $70,000 and they think that they actually have to come up with the $70,000 out of pocket. How do you get around this? Where do you get your money for the deals?
Jeff: Well the very first property that I did we were actually living in the property. So in that case, you have a lot of flexibility if you can actually do it as owner occupied. And I’m fortunate enough to have good credit, so buying a house as owner occupied I didn’t put a penny into it. I had 100% financing, I knew there was equity in the property from the day that I bought it and so from that I was also able to leverage and pull some equity out of it after I did the remodel and was able to take some of that money and move it into some additional properties.
Now with the particular property that we’re speaking of that I found on MyHouseDeals, I’ve actually had to pull in a partner that was actually helping me with some of the finance because it was honestly a little bit bigger project then I could handle myself. But even looking at it from getting someone else involved that has money and is willing to invest in the project and it really required me to have a good understanding of what I was going to do but it really was a pretty simple sell. I just called him and explained to him what the opportunity was and obviously I’m giving up a little bit of my own profit in that but if I still stand to make $50,000 to $70,000 on a piece of property having to bring in a partner I don’t have any complaints about that.
Doug; And that’s the right mindset to have. Okay and how confident are you Jeff that you’ll make $125,000 on this property? Where did you get your numbers and how did you verify those?
Jeff: Well again the property is in a neighborhood that I’m extremely familiar with so I’ve got really good feel for what the comps are in the neighborhood and I have about a year’s worth of history on the comps. In addition, there are a number of properties that are in the neighborhood that are brand new. People have come in and bought the existing properties, torn down the house and built brand new construction homes that range anywhere from $700,000 to a million dollars for a 3,000 to 4,000 square foot house.
In this particular area, I kind of saw a void in the property value that I’m ultimately going to be improving this property to, adding square footage to get it to 2600, I’m going to be able to go in and sell a property in this neighborhood that’s 2600 or 2700 square feet and sell it for $525,000. I know that I’m going to have about $100,000 to $150,000 less than the rest of the market and I’m really not offering a whole lot less square footage and we’re remodeling it from the steps up. So in that situation I look at it and say okay I’ve got about $125,000 and of course I have some repair costs and Realtor fees that I’ve got to take into consideration. If I get it on the market at the right time, then we should be fine. And worst case scenario is it slides all the way towards the summer and we have to reduce our price a little bit. But properties in this neighborhood don’t stay on the market too long and given all that information I feel pretty confident that we’re in good shape.
Doug: Very good. How did you find your contractor to do the repairs? And also after its all been repaired how do you plan to go about selling it?
Jeff: From a contractor’s standpoint some of it has been trial and error. Again, I’m trying to get my referral networks to try and get people to refer a contractor to me. It’s interesting, you would think that there are a lot of people who are in the real estate business in one way, shape or form right now and it seems like every day I talk to someone who is new getting into it but people are very willing to share their resources with you. I don’t get a sense that people are so competitive that they’re not willing to pass on a referral. And I’m certainly willing to do that because it seems like if I’ve got contractors that I use and I know that they’re looking for work and I can get them work, the next time they’re on my jobsite working with me they’re a little bit more aggressive and a little bit more willing to work with you.
Some of that has come through referrals, some of it has been honestly driving through particular areas and seeing people on jobsites, maybe a particular trade that I don’t have a really good handle on and I’ll pick up the phone and call them and maybe I’ll walk on the job and ask to see their work. It really comes from a number of ways and I don’t think that you’re ever at a point where you have crews that are the only crews that you’re ever going to use. I think in order to be successful in any business, you have to look at additional resources and additional options because things change.
And relative to reselling the property, in this particular market what my plan is to immediately put…create signage and do some listings with the property on my own. Do a for sale by owner on the property and then if it goes all the way to completion before I have it sold, then I’ll probably consider using a Realtor to put it on the market.
Doug: That sounds like a good plan. How did you actually convince the wholesaler to sell the property to you instead of some of the other people who may have called about the same deal?
Jeff: I honestly think it was timing. They had only had it out on your website for a couple of days. They had an offer from an out of state investor, if I recall correctly, that basically was a little flaky on them. The guy actually did a little bit of background on me and I got a little sense that they were a little concerned that I wasn’t going to be able to close the deal because they didn’t have a track record with me. And I just asked them to meet for a drink and we met face-to-face and I was able to have a good conversation with them and I think they got comfortable with that real quick and that this was something that I was serious about and we were going to be able to close on.
Doug: Now what problems, if any, have you faced with some of the wholesale deals and motivated seller leads and how do you overcome those? For example, have people been tough to reach or have you found some of the numbers to be inaccurate and if you ran into some of those things how did you overcome them?
Jeff: I think the only challenge really is just that you have to be realistic about some of the spreads that people list on the website and you have to remember that things are open to interpretation and what you may perceive needs to happen to a particular project may be a little bit different then what the seller thinks needs to happen.
So I think what’s important is just to look at the property and what the seller is asking for the property and evaluate it based on the average rather than trying to figure out what somebody else is saying is necessary.
Doug: Rather than going by their repair estimates and after repair value, is that what you’re saying?
Jeff: Absolutely. I tend to try to look at things on my own and use my own experience to try and evaluate that.
Doug: I would definitely agree with that. Now as far as their asking price, how flexible or inflexible have you seen these investors being when you make them offers and or are you even making them an offer if it’s less than their asking price?
Jeff: Yeah I always offer what I tend to think is a fair price. I always negotiate on just about everything so I’m always going to start with a number that’s a little bit less and frankly I think with the wholesalers one of my first questions is are you negotiable on the price or aren’t you? And it always depends on their situation. If they’ve got 4 offers from people who are interested they’re probably likely to say that they’re not negotiable. On the other hand, if they’ve been sitting on it and it’s starting to eat their lunch a little bit because they have the money tied up in it sometimes they’re a little bit more willing to work with you in trying to get the deal closed.
Doug: Final question for you here Jeff. What tips would you give to a new real estate investor just getting started and really doesn’t know how to go about pursuing these properties? What should they do?
Jeff: That’s the million dollar question isn’t it? I think probably just to be careful and just try to work within the means that you’ve got. As I said earlier, you asked about the money I had tied up in it and the first one I did I didn’t have any money tied up in it because I did it with the house that I was living in. So given that, you know I certainly mitigated my risk there because I was going to be making a house payment anyway. So why not find something that has equity in it and do some work with that and use that as some kind of a learning tool. But I think as in anything that you do starting out is that you just try to learn as much as you can by talking to people and research and keeping your ears open and trying to get yourself involved in a project that has limited risk.
Doug: Very good. I’d like to summarize some of the very important points that you made here Jeff. You mentioned that you find your contractors just by pulling your car over when you see a project that is under way and trying to find that person like the plumber or electrician, maybe someone laying tile that you can use as part of your team and getting them on your team. That’s very valuable.
Another thing you have done is you’ve brought in partners, for example, for this big deal that you got from myhousedeals.com. You weren’t afraid to give away part of the profits in order to secure the deal. Better half of something than all of nothing.
Also, you mentioned that you have looked at a lot of houses to find the ones that work for you. When you look at that many houses and make that many offers things are bound to happen.
In addition, you haven’t let the sellers’ estimates deter you. Even if their after repair value was inflated, even if their cost to repairs was too low, you have ignored those and you have come up with your own numbers and you’ve made an offer even if it was below their asking price. That’s what I see over and over with the most successful investors on myhousedeals.com. They still make the offer even if it’s below that person’s asking price. And they don’t get discouraged even if some of the seller estimates are incorrect.
And the most important thing here Jeff is that you have taken action even though you felt that you didn’t have all the education that was necessary. You don’t have to know it all. You don’t have to know about short sales or subject to investments or all the little nuances of lease options, for example, before you buy your first property. Just go out there and take some action, wholesale some houses, rehab some houses and get those basics underneath your belt. Learn as you go. And even if you make mistakes day after day and have to feel the pain of those mistakes, just do your best and know that you’ll eventually make fewer and fewer mistakes and reap bigger and bigger profits.
But I’m very proud of you Jeff and I’m glad the website is working for you. It appears that you are well on your way to enjoying a successful and highly profitable real estate investing career. You’ve already bought 4 houses in the first year doing it part time. So you’re very well poised for when you go full time.
Jeff: Well thank you. I appreciate it and your website has been a very good tool for me.
Doug: All right well thanks a lot Jeff. Have a good day and keep buying those houses!
Jeff: All right thanks a lot Doug.