BiggerPockets Real Estate Podcast - 63: Automating Your Investing, Long Distance Rehabs and Spec Building with J Scott

Episode Date: March 27, 2014

Today on the BiggerPockets Podcast we are thrilled to bring back one of the most popular guests we’ve ever had, J Scott. Last time we dug into the process of house flipping, but today we dig much deeper into the “business” of real estate investing and explore ways to automate your real estate investing business so you can spend less time working and more time doing the things you love. We also learn all about J’s venture into house flipping at a distance as well as his foray into spec building (and the lesson’s he learned… and things you should avoid!) This show is incredibly inspiring and can help any new or seasoned investor improve their game – especially the 5 tips for automating your business, found toward the end of the show! In This Show, We Cover: How J chose his location for long distance flipping The difficulties of rehabbing at a distance Incredible tips for finding great people to work for you Why J’s advice is “don’t trust anyone…” Getting bids on your work the easy way How to make the permit process MUCH faster and easier A step by step financial breakdown of J’s recent spec build The “best answer” Brandon’s heard on the podcast ever… J’s 5 tips for automating your business And so much more!  Links from the Show Real Estate Rewind: The BiggerPockets Community Book!  The Book on Flipping Houses Diary of a New Construction Project PlankIsland.com What Is The Best Interior Paint for Landlords and House Flippers? (Hint… It’s Not What You Think) Tweetable Topics “Nobody cares about your properties or your assets more than you do.” (Tweet This!) “Great people tend to associate with other great people.” (Tweet This!) “By automating things in your business, it frees up time for your family.”  (Tweet This!) “Do the things that are most important, don’t do the things that aren’t important.” (Tweet This!) Books Mentioned in the Show Real Estate Rewind: The BiggerPockets Community Book!  BiggerPockets’ The Book on Flipping Houses by J. Scott BiggerPockets’ The Book on Estimating Rehab Costs by J. Scott Diary of a New Construction Project Ebook by J. Scott The 4-hour Workweek by Timothy Ferriss The E-Myth Revisited by Michael Gerber Connect with J Scott J Scott’s BiggerPockets Profile J Scott’s Website: www.123flip.com  Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast, show 63. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com. Your home for real estate investing online. What's going on, everybody? I'm Josh Dorkin, host to the Bigger Pockets Podcast. podcast here with my co-host Brandon Turner. Hey, Brian. Hey, Josh, good morning. Good morning to you as well, sir.

Thanks. How are you doing? I'm okay. I'm okay. You know, live in life, excited about today's show. We've got our second repeat guest, so it should be fun. Yeah, today is one of my favorite people, actually my favorite investors of all time, Jay Scott, we're going to talk to. Because last time I felt like we could have gone on for like 12 hours a year ago when we interoper. We interoper. We interstate. reviewed them. So today we go on for 11 and a half. So, you know, have a seat. This is going to be a long, I'm no, no, no. But I agree. Listen, I mean, a year ago when we first started doing the podcast, I don't know that we necessarily knew what the heck we were doing. And I think we've come a long way. I mean, we're still improving. We're still getting better. But we've definitely come a long way.

And I think we get to cover some really cool stuff in the show. But for today's show, we do talk with Jay Scott. Jay is one of the more active members of bigger pockets. He's a big-time rehabber. And Jay has, Jay's done some really cool stuff over the past year, like flipping at a distance in Milwaukee. He's done a bunch of rehabs at long distance, which is really interesting to hear about. He's also done his first spec build. And we get to talk about that and learn a little bit more about what it takes. So definitely dig in, listen all the way through. We've got some really cool stuff. And Jay is just amazing when it comes to sharing really actionable feedback and tips. So you definitely want to bust out a pen on this one. Otherwise, I just want to remind you,

this is show 63 of the BiggerPockets podcast. And you could follow the show notes at biggerpockets.com slash show 63. In those show notes, we're going to have links to everything that we talk about in the show. And otherwise, definitely make sure if you, you haven't already to leave us ratings and review on iTunes, that certainly helps us get a little more visibility for the show and bring in better guests. So we appreciate that. One thing I want to jump in real quick and say is if you're somebody that listens to like part of the show but never actually finishes it, Jay shares something at the end that is just incredible. It's the five, I don't know what you call it, the five aations of automation. That'll make more

sense later. But he's just got five tips for automating your business. It's an incredible advice. So if you, yeah, listen to that part of the show. Incredible stuff. Yeah, definitely want to listen to the end. That was probably one of the last things that we cover in the show. So, you know, stick around. Otherwise, today's quick tip is we have been putting together what we dubbed the Bigger Pockets Community Book. And that thing is now out and live.

And I'm going to let Brandon really quickly tell you all about what that thing is. Cool. All right. Well, it's called Real Estate Rewind. It's basically we asked a bunch of people on the forums, what would you do if you could go back and start over and do it all again, knowing what you know now? And this was 12 different seasoned investors talking about what they would do differently. I think it's a fascinating book and it's 100% free. So if you want to get it, just go to biggerpockets.com slash community book.

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All right. Well, let's jump into this. We've got a great show and let's get it started. So, Jay, welcome to the show. Hey, guys. Great to be here. Thrill to be back. Great. Yeah, we're glad to have you here. It's been a solid year since you've been here. I'm sure you've been through a lot of stuff. So I think we're going to talk about kind of what you've done and where you're going today. Yep, for sure, for sure. Well, before we do really quick, about a year ago, Jay and I had hopped on a call longer than a year ago and talked about putting out a book. And I'm proud to say last March 2013, we did.

We put out the Bigger Pockets book on flipping houses and its companion, the bigger pockets book on estimating rehab costs. And you can find those at biggerpockets.com slash flipping book. But these things have been amazing. We've sold over 10,000 copies of the books, which is absolutely spectacular, particularly for an independent publisher like Bigger Pockets. And so I'm really excited about that and I'm super proud to be associated with. And I just want to take this opportunity to thank Jay for being part of the team with that.

Thank you guys. It's been a tremendous experience. We've gotten some tremendous feedback and thrilled that we were able to pull it off. All of us have done a great job. Agreed. Not me. Not me. I just read the things. I don't know how I got a yeah, I got roped into this. But, you know, it was a great book. I mean, I recommend it to everyone all the time. So, and speaking of books, I figure this is a good time for me to, you know, jump in and, and announce that we actually have another Bigger Pockets book coming out here in the next month that I actually wrote a lot of. So anyway, that's what you've been busy doing. That's what I've been to be working. Slaving my nights and weekends for the last six months doing. So anyway, that

is coming out soon. I don't know exactly the date, but I just wanted to give a little teaser that I expect every single one of you who bought Jay's book to buy mine. Nice. Nice job hijacking Jay's podcast. Yes, you know, I got to get it in where I can. So me and, I'm coming for you, Jay. How many copies did you say sold to that one? We hit 10,000 a couple weeks ago. All right. So I'm going for 12. And not only that, but we've been number one in Amazon real estate for much of the last year.

So we can get all the bigger pockets books in the top five at Amazon and crushed competition. That would be cool. Oh, and that book that's coming out is not the one we talked about in the Quick Tip today, not the community book. That's another book that we just released today that the community wrote. That's not that. So anyway, expect it in the next month. But all right. enough self-promise.

Yeah, yeah, enough self-promise. All right, thank you. I've been hours and hours and weeks and years on this project. It's amazing. All right. Enough. All right, moving on. Jay, let's get to you, man. This is all about Jay.

So in the last year, what really pops out from here are a couple things. You know, first, you've been doing some projects in Milwaukee. We'll get into that. This spec build where we did this thread and we put out an e-book about out pretty much soup to nuts this entire build that you've done. So I want to talk. The diary of a new construction project. Diary of a new construction project.

And we'll link to that in the show notes at biggerpockets.com slash show 63. And otherwise, I want to talk about the business of real estate investing. And from there, really go into what you've got planned for the future. So let's start at the beginning. Let's start on this Milwaukee thing. You decided that you wanted to expand your business and ended up, partnering and getting into the flipping biz at a long distance in Milwaukee. Why did you decide on Milwaukee?

So it all kind of came about right after the bigger conference, Bigger Pockets Conference a couple years ago. Built some relationships there and met somebody that we started talking. He flips houses. I flip houses. And we said, hey, let's consider doing this together in a different part of the country from where either of us lives. And it kind of took a life of its own.

And before we knew it, we were investing in Milwaukee, Wisconsin. And I can get into a little bit of reason why we pick Milwaukee. It's actually, it's interesting. But ultimately, between January of 2013 and right now, we've rehabbed or we've purchased, I think it's 16 or 17 properties. Many of them we've resold, some we're working on currently. Rehabing at a distance has been one of the, the biggest challenges I've faced in real estate and maybe in business in general. Rehabing at a

distance really, it takes such a unique set of skills. And honestly, the last year has been more eye-opening and more educational for me than any time since I first started doing this business. Well, let's actually get into that then. Why was it so tough? I mean, I've never flipped a house further than 20 miles away. So for guys like me who have only flipped locally or people who have never flipped. What is so difficult? It's going to sound cliche, but it really boils down to there's nobody that cares about your property, your assets more than you do.

And when you're flipping houses, you rely on a lot of people to help make you successful. Nobody does this in a vacuum. So you rely on your agents. You rely on your contractors. You rely on your inspectors and appraisers and project managers and GC. And there are all these pieces that have to come together. perfectly in order to flip a house. And when you're far away, you're basically letting all the kids play by themselves and hoping they don't break anything. Yeah. Yeah. So the key is having at least

one person on the ground where you're doing all this that you can trust essentially with your business. And finding one person is tough enough, but it's even better to have two or three for people that you can trust with your business, because there really are so many moving parts that if somebody is keen on not seeing you succeed or they don't even need to want to see you succeed, if they're indifferent to your success, they can really drag your projects down. And so that means having contractors that are really tuned in to doing what must be done, even if they're not being told minute to minute, hour to hour, day to day what to do, they need to be trusted to make the right decisions. And your real estate agents need to be trusted

to be doing the right thing. And your stager needs to be trusted to do the right thing. And if everybody's not really on board and driving towards the same set of common goals, things break down quickly. Yeah. Well, so, you know, from my perspective, I see the difference between the long distance flip and local is oversight. And because all those same, things can happen locally as well, right? I mean, if you're, if you're asleep at the wheel, you know, and your stager's not doing their job, well, then you're going to have issues or your contractor. So it seems like something where you really need to have boots on the ground pretty consistently until you build up those relationships where you do trust those folks.

You've been at it for a year now. Have you guys found that that, that, local person who can really be your eyes and ears, or is that still a struggle? So we have. We found a couple people that fill that role in different capacities. We tried finding one person that could do everything. And what we found is if you can find the perfect person to manage your rehabbing business in a different location, most likely they're good enough to be doing it on their own and they don't need you. So what we found is it's pretty, tough to find that one perfect person that can do everything, that can handle the acquisitions, that can handle the rehab, that can handle the staging and handle the selling, that can manage the

contractors, that can manage the real estate agent, that can manage the appraisers and inspectors. If somebody has the skills to do all that, they're probably not going to be working for you. They're going to be competing with you. Yeah. So what we found is we've had to break up the business into some big components and find different people to run different aspects of the business. For example, we have our carpenter turned out to be a great leader. He had built a great rapport with a lot of our other contractors.

He actually recommended a few of the other contractors that we have been using on the projects. They look up to him. So it wasn't too tough to transition him into the role of project manager as well as carpenter on the projects. But he doesn't have the business knowledge. He doesn't understand how to analyze deals. he doesn't understand how to find deals. He doesn't understand the staging, selling, and marketing stuff on the back end.

So while he was great at the day-to-day rehab stuff, we had to find somebody else, in this case a real estate agent, who could fill in as the person kind of running everything on the purchase side and on the sales side. So basically we had our carpenter managing day-to-day. We had our real estate agent managing the acquisition process and the disbursement process. And then we had to find somebody else local that could help us with the financing piece. There are plenty of national lenders, hard money lenders, private lenders out there. But when you want to scale, it really helps to have local lenders, local hard money guys,

in the areas where you want to invest for a couple reasons. One, they know the area, they can make quick decisions because they know the area and they can analyze the deals quickly. but two, they're a great resource when it comes to looking at a deal and perhaps noticing things that you might not notice if you're not local. They see how different areas trend and so they can say, hey, this area, it might look good, but you go one or two streets over and things get rough real quick. Be careful. Look out for various things. So having guys on the ground that really know the financing piece and the lending piece actually helps a lot. So what we were able to get...

Well, I was going to say there's two things that I want to point out from what you said. First of all, you talked about the hard money lender being a really good asset to have because they understand the area. That's something that I wish I would have, looking back on my early flipping done better job of. Like, I had a couple of hard money lenders turn me down for loans. And I thought, I mean, I was like, oh, they're an idiot. You know, this is clearly a good deal, which then turned out later not to be a good deal. So I think people need to trust their hard money lenders a lot more and not think of them as an opponent you got to. you got a beat or talk into, but an asset, exactly like you said, because they probably

understand the game a lot better than you do. Oh, great advice. Yeah. It's so important. And yeah, I'll look back and I'm like, man, why didn't I just listen to that guy? Like, I should have, you know, whatever. I mean, well, it's hard when people say no. It is very hard. Yeah. That's the issue, right? Yeah. And it comes. Go ahead. No, no, I'm sorry. I've had a lot of people that have come to me that have said to me, hey, I'm looking to do this project. Can you can you finance it for me? I say, well, what other avenues have you tried? And more times than not, they'll say, well, I talked to a hard money lender and they weren't interested, blah, blah, blah, blah, blah. That's all I really need to hear. Because if a hard money lender, if somebody that does this professionally and knows the area, a local hard money lender,

if somebody that does this professionally and knows the area wasn't interested in the deal, well, they know something that either I don't know or I need to know. And that's generally enough information to know it's probably not a great deal. You know, that's just a really good tip for people that are looking to lend money as well. I think that's a really good tip. Yeah. I think that's a good tip. You can say it one more time. I can repeat it one more time.

Yeah, come on. Hey, one more topic you mentioned. I know you're probably going to get to this, but you mentioned in the last podcast we did, and we bring this up all the time because I like it so much. When you're trying to find a contractor, you said show up at, you know, Home Depot, six in the morning or seven and see who's at the pro desk. I thought that was a great tip. If you're long distance, how did you find your contractor, your agent?

How are you meeting people at a distance? What did you guys do in Milwaukee? So my number one tip for finding great contractors, and this is probably true in any industry, great people tend to associate with other great people. Great people tend to recommend other great people. I've always said, if you can find one great contractor, you can find a great crew. Because a great contractor isn't going to risk his reputation by recommending somebody who isn't great. So the hard part is finding that one great contractor.

And to do that, yep, like I said, hang out at Home Depot at 6 a.m. Even if that means flying to the city where you're rehabbing and spending a week or two there, finding that first great contractor. But once you find him, he's going to introduce you to other guys who are just as good. And they're going to introduce you to other guys who are just as good. I've been lucky. Most of the contractors I've used in every city where I've rehabed houses, they know each other. They've worked together before. They recommend each other.

And not only does that mean you get a great group of contractors, that means you get a great group of contractors who are accustomed to working with each other, know each other's idiosyncrasies, know how each other works, are comfortable picking up the phone and calling each other if there's a schedule change or if they have a problem or if they have a question. And when your contractors are willing to interact with each other and call each other, that goes a long way towards taking the burden off of you of being the middleman. Oh, definitely. Yeah. So that reminds me of like in the book the four hour work week, which is not about real estate at all.

But Tim Ferriss talks about if you have a business, if you can get your people on your team to interact with each other and not have you as the bottleneck, your business runs so much more smoothly. And that's a really good example of how we can apply that to real estate. Absolutely. I don't have that. I've never really had that in my in my business. Like I'm always the bottleneck because I don't know. Half the guys, you know, half the guys I work with don't even have cell phones. I'm not like, they don't own a cell phone, which. Yeah, that's, that's astonishing. Yeah. Well, half the guy I think I used to work with. I used to work with. I used to work with. That's exactly. That's exactly. So I got this guy to go off of the point Jay made. A good friend of mine's named Krister. He's a like a designer does like house plans and stuff. Like he's the guy now every time I need somebody. This isn't the guy that tried to sell you. the bad deal that we talked about in the show before. No, this is a different guy. Because that was your best friend who tried to rip you off with that deal. This is Krister. And I'm going to give a plug.

It's Plank Island Studios. Amazing guy. So he just says, I call him up and say, hey, I need a plumber. He's like, here, I got A, B, and C. Call these three guys. I mean, they're not cheap. They're not the cheapest guys. But they are the guys that he works with on every project.

They all work together. They all recommend each other. And I'm finally in that group for the first time in my life. And it's totally transforming the way that I run things. Yeah, I highly recommend it. I can totally agree with you, Jay. Yeah, and the other thing to keep in mind is great contractors, really respect customers and clients who do things the right way. The guys who aren't going to ask them to make up for their lack of planning, hey, I need you to come in on Sunday because I didn't schedule right. Or those guys who don't pay on time. They don't like those guys that don't pay on time.

If you treat your contractors well, if you're professional, if you pay them on time, they're going to love working with you. And they're going to prioritize you over their other clients. They're going to get their other contractor friends. They're going to come to you and say, hey, I've got a great Mason. And I'd love for you to use them on an upcoming project. Or I've got a great plumber that I know you like your plumber, but this guy's awesome. And he'll give you great prices.

And your contractors will actually start bringing you other contractors to use. And so treat your contractors well. Be a model client. And they'll be model contract. That's great advice once again. That's awesome. Well, so let's talk a little bit of, you know, a few things that you said in there are really relevant, not only to house flippers, but, you know, a lot of people like to buy properties at a distance for buy and hold. And I think everything that you said applies, which is, which is awesome. How often were you going out to manage these

projects? You know, you still had people that you trusted, but assuredly, you're wanting to go out and see things with your own eyes. So, you know, over the course of the year, how many times do you think you went out to visit and oversee and manage and scope people and, you know, the whole kit and caboodle? Well, like I said, this was a tremendous learning experience. And one of the things I realized was if this was going to work,

I needed to be there as much time as I wasn't there, especially if we wanted to scale. So for a good portion of the first six, eight, 12 months, I was there 30, 40, 50% of the time. As you can imagine, I have a family, I have two little kids. That was tough. And I mean, the story I like to tell to illustrate the point is I got a phone call. This was the second project we were working on. I got a phone call one day from my carpenter who said, we have an issue.

I said, what's the issue to? And he said, the kitchen doesn't fit. I said, what do you mean the kitchen doesn't get? Basically, the cabinet layout we had come up with wasn't going to work. There was some load bearing structural support in the kitchen that would have been several thousand dollars to move around to get the kitchen layout to work as we originally envisioned it. We had ordered our kitchen cabinets. They're getting ready to come in. And basically, our existing layout wasn't going to work. Whoops. He's asking me, what do you think we should do? He's sending me pictures. We're doing FaceTime so I can actually see a layout of the kitchen. I'm asking him for measurements.

And I'm at a total loss. I knew the house. I could visualize it, but I just couldn't come up with any ideas just from looking at pictures or being on FaceTime. My wife looked at it. I mean, she's fantastic at that. She couldn't come up with any ideas. and the project was essentially coming to a standstill until we figured out what to do with the kitchen because it was going to be a two-week lead time on the new cabinets if we had to change out the cabinets.

We couldn't do the sheetrock until we knew what the layout was going to be because we were opening up some spaces. So I literally booked a flight the next day to fly out there just to figure out a kitchen design. Only took me about two hours once I was there. but the fact that I had to spend $600 on a flight and pick up and fly out on about 14 hours notice, it was tough. And if you're going to rehab at a distance, those are the types of things that you're going to run into. No matter how experienced you are, no matter how experienced your team is, these are the types of things you're going to run into it sometime or another.

So be prepared to handle that. Yeah. Hey, I've got kind of a deep question for you. I want to know, like, was it all worth it? You know, like, you say you were gone half the time and, you know, you missed your family. Would you think it was worth it? Would you do it again maybe if you were to go back in time? So, in general, the answer is yes.

So I would certainly rehab at a distance again. I still do some projects in Atlanta. We can talk about the fact that I've now relocated from Atlanta. I still do some projects in Atlanta. But that's because I have some partners down there that aren't. local who I trust unconditionally. I know that they can manage things and run things. What I'm finding is, with Milwaukee at least, we were never able to find a set of people that could manage the business, that could manage the rehabs anywhere near the level that we

needed. And I'm sure a lot of people are asking, hey, Milwaukee can't be any different than anywhere else. Either you can or you can't. But actually, Milwaukee was somewhat different than a lot of other places. It's not a real estate town. I've never seen a place with as few rehabbers as Milwaukee has. A ton of buy and hold investors. There's a lot of great buy and hold inventory there, but very, very few rehabbers. I was very involved in the Ria there. I was very involved in a lot of the contractor networks there. And what I found was contractors weren't accustomed to investors. The investors weren't accustomed to rehabbers because they were all buying whole guys. So Milwaukee was a very, very difficult place to find a team of people that really understood how rehabbing worked and could manage the business for us.

I'm not saying it would have been impossible, but the price we would have paid and the time and effort that would have gone into finding those teams to essentially allow us to extract ourselves from the day-to-day operations just would have been enormous. So I think what we found is that for the time being, we're going to slow down and perhaps pull out of the Milwaukee market. But certainly that doesn't mean that I would never rehab at a distance. And like I said, we could talk a little bit about this. We're still doing projects in Atlanta where I used to live. I have some trusted partners down there who can manage things. So what I would say, if I can go into sort of advice mode here, I would say the only thing harder than rehabbing it is. distance is rehabbing at a distance if you're not experienced. So I would say anybody that's looking

into rehabbing, certainly start in your backyard, start within a half hour, 45 minutes, at most an hour from where you live so that you can pop into the properties at any time. You can be intimately familiar with what's going on on a day-to-day basis. And then if you decide to branch out, choose locations where one are easily accessible, someplace where you don't normally have to pay $700 for a short flight on short notice because you will be taking some short notice flights. Places where you have people that you know and you trust because building the team from scratch is really, really tough.

So I'm not saying don't do it. And I'm sure there are people out there that are smarter than I am and that are better rehabbers than I am. But certainly I would say put together your plan before you decide to jump into long distance rehabbing because it is quite, quite, quite the exercise in creating a self-sufficient business. And you might want to get that. That might be Milwaukee calling.

Sorry about that. So you're going to keep on doing your thing possibly at a distance Atlanta. It sounds like you've got some projects that you're wrapping up in Milwaukee. Any kind of key tips on avoiding mistakes? to avoid or things like that beyond just the contractor side of things in rehabbing at a distance? Yeah, I'd say the biggest one is don't trust anybody. Don't not, I should rephrase that. Give me a no, no, I don't trust you. Go away. Trust but verify. The concern in my experience wasn't so much that people were purposely or intentionally trying to do the wrong thing or trying

to screw us. Nobody was doing that. But there are a lot of people that didn't really know what they were doing, even though they represented that they did. So there are a lot of things, a lot of little things that would go wrong that would drag out the rehabs, that would compromise the quality. Not so much again because they were looking to sabotage the projects, but more so just because they didn't understand what we were looking for, what we needed. They couldn't make the decisions that we were entrusting them to make because they just didn't have the experience. So, yeah, the biggest issue is that you want to trust the people. And I think a lot of people that invested a distance put too much trust in their local resources,

the guys with boots on the ground. And then it's too late before they realize that maybe I shouldn't have trusted them as much as I did or assume they knew as much as I thought they did. Yeah, I think that's really good advice. I mean, again, I did that on buy and hold, and it was a terrible experience for me, trusting people, putting too much trust in the wrong folks. And so I'm glad that you brought that up. Is there any advice that you have on how to do the verification? You know, whether it's on, you know, property management, it's one thing. Contractors, licensed bonded, recommended by other folks maybe. did the RIA come in handy and this contractor network that you mentioned,

were those helpful in the verification process of who's good and who's not worth it? Yep, absolutely. And again, it wasn't so much people that weren't trustworthy and weren't trying to do the right thing. We actually didn't have any problems with that. Everybody was really motivated, gung-ho, tried to do the right thing, worked hard. like I said, you find a couple of good contractors and the rest will fall into place. We found a great real estate agent and that just kind of fell into place. So it wasn't so much a trust issue as it was they didn't understand the level of quality we're accustomed to.

They didn't understand the schedules we were accustomed to. They didn't necessarily know what materials we used and what we wanted the finished product to look like. And really the only solution to that problem is to actually be there. on the ground and teach your contractors and your real estate agent and all your team members, what it is you're looking for. And that's not something that can be done from a distance. So anybody that's going to be rehabbing long distance, I would suggest carve out six months of time where you don't mind being in that location 50% of the time or 60% of the time or 80% of the time for the first six months. If you can find a great project manager, if you can train your

contractors, if you can really create a symbiotic relationship with your real estate agent, ultimately, there's no reason you can't put the whole thing on autopilot. But to think you can do that without spending a good bit of time, several months, with those people before you kind of put it on autopilot, that's, it just, it can't be done in my experience. Gotcha. Right on. Great advice. Great advice. Let's move into this spec bill that you did. First off, the thread, if you haven't seen this thread or the ebook, again, we're going to link to it in the show notes of biggerpockets.com slash show 63. You've got to take some time and go through this. Whether or not you ever want to go into spec building, there is an incredible amount of information to be learned from checking this thing out. Jay literally details what he did from day one till day, like, 365. It took like, I think, a full year to do this thing.

he's got copies of receipts and contractor statements and bids and photos of befores and afters and graphs and all sorts of stuff. So definitely check that out. Did you mention it was free? I don't know if you said that. I did not. It is totally a free ebook and thank you for bringing that up. And again, we'll have those linked on the show notes. So Jay, why is spec bill? Why did you decide to do this? So we were looking for something a little bit bigger, something new to try. I hate to say I was getting bored because, honestly, I never get bored in real estate. But I was looking for something a little bit more challenging. And I have a friend slash colleague slash another investor in Atlanta.

Somebody actually met on BP a couple years ago. and we've kind of worked together in parallel, not partnership, but in parallel on several projects in the past. And he comes from a long line of developers, and yet he had never done any new construction in his real estate business. And one day he came to me and said, hey, I'm thinking about doing a new construction project,

would you be interested in partnering? And like I said, I was really interested in trying something a little bit bigger, a little bit more challenging. So I said, yeah, let's do it. And it was just a few weeks later that we found our first project. And that's the project that I detailed in Dyer of a new construction project. That's awesome. That's great.

So you guys decide to do it, jumped in, you know, full out. What worked? You know, certainly you're coming into this thing with some knowledge as a rehabber. So you know generally how to fix up a house. But tearing one down and building from scratch. has got to be different. Tell us, A, what's the difference? And then B, let's kind of cover, you know, how to go. So tearing down a house and building from scratch, there's a lot that's very similar to doing rehab work. In fact, once you get the frame up and you're left with,

essentially, the mechanicals and the sheetrock and the paint and the finishes, that's all the same. And we had done that many dozens of times. My partner had done that many dozens of times. The pieces that we had never attempted before were the demo of the original house, which you tend to think, hey, what can go wrong? All you're doing is knocking down a house. It's easier to knock one down than it is to build one up. But actually, there's some interesting developments there. Foundation. There's a lot to be known about foundations that until you really dig in.

I get it. Dig in. Dig in. comedian. I was punny. You guys. New low. It's one of those things that

you don't know what you don't know and you don't know the questions to ask. And same with framing the new house. So basically going from a blank foundation to a framed house. Now, once we got the demo done and the foundation completed and the house framed up, Like I said, the rest was just like a big gut rehab, which I'm not going to say is easy, but we've done it enough times that it wasn't too concerning.

But just getting bids for the demo, getting bids for the foundation, getting bids for the framing of the house, it was an interesting process because like I said, you don't know what you don't know, you don't know what questions to ask. And I actually learned something that I think a lot of new rehabers will find very valuable. And this is something that I kind of have done over the course of my career, but I've never been able to articulate it like I can now. I found that there's nothing wrong with, and I know the contractors out there are going to hate me for saying this, there's nothing wrong with getting one or two contractors out where basically you tell them,

I have no idea what I don't know. I have no idea what questions to ask. Walk me through the process. Tell me everything there is to know. and then give me a bid. What I found is their bids are usually going to come in higher than other guys because they know you don't know anything. They know you have nothing to compare them to. But after talking to them, you're suddenly going to know all the questions to ask.

You're going to understand the process. And then you can bring in other contractors and you can actually speak more intelligently as if you actually know what's going on and you've done this before. And their bids will tend to be a lot more realistic because at that point they, think you know what you're doing. Yeah. Well, and, you know, on the point that that there's going to, they're going to have an issue with it, I think if they actually gave you a reasonable bid and didn't inflate it because they thought that you were green, then the, you know, that's great.

But by the fact that they're doing that, to me, they're just, they're asking to lose business, you know? A hundred percent. And let me tell you something. If I get an equivalent bid or even a close bid from some guy that spent an hour and a half talking to me and explaining his trade to me versus some other guy that just came in, answered some questions, got our specs and gave us a bid, I'll go with the guy that spent the time with us. Of course. Ten at ten times. Unfortunately, what I found is a lot of contractors, especially in the new construction side of things, they will take advantage of people that don't know what they're doing because they think, hey, this guy doesn't know.

questions to ask. He certainly doesn't know what things should cost. And so a lot of times we saw inflated bids from the first few contractors we brought in because they could tell how naive we were. How many bids do you now, now that, well, I'm going to ask on both rehab, I guess it's the same thing. How many bids do you get for knocking down a property? How many bids do you get for, you know, putting in a foundation? I mean, do you do three bids, five bids, 10 bids? So we will tend to get as many bids as are necessary to be comfortable that we really know what things cost. We've had times where we've had one or two companies come in, give us bids, and talking to other investors, we find out, yeah, that's about what you should be paying. And then we're perfectly happy not

to get any more bids. We're not just looking to get guys out there to compete with each other to waste our time. As much as contractors don't like wasting their time to give bids, we don't like wasting our time having to stand there and walk through our scope of work with with 20 different contractors. So if we can talk to one or two contractors and be comfortable that the numbers they gave us are reasonable. And generally the best way to do that is to talk to other investors and find out what they're paying, then we're happy to just get one or two bids. And then there are times where we'll start to get bids and we'll have some bids down at around $4,000 and other bids at around $20,000. And we have to figure out where the discrepancy lies. Are they using different materials?

are they interpreting the scope of work differently, are they engineering a solution differently, or is one company just a lot more expensive than another company? And until we can figure out why we're getting bids all over the place and the level of bid we need and the solution we need and the materials we need, if we have to bring in five or six or eight contractors before we're fully comfortable, that what we're committing to is the right solution to our problem and at a good price, we'll bring in five or six or eight contractors if necessary.

So we don't have a – I know a lot of people say get three bids, and I think three bids is great if you're doing more of a retail-type job where you know that all the contractors you're bringing in are kind of the same level, same quality. But as an investor, some of the contractors we bring in are going to be retail contractors. Some of the contractors we bring in are going to be small mom and pop guys. that just specialize in working with investors. And when you can't compare apples to apples on the contractor, you have to be able to compare apples to apples on the bids.

Well, you know, one. That is a great advice, by the way. That is a great advice, yeah. Well, one, just story to go along with that. And I may have told this on one of the early episodes of our podcast, but there's two roofing companies in my town. I mean, there's a lot more than two, but there are the two largest roofing companies in my town.

Very few people know this. But when I was a contractor, I found this out. They're actually owned by the same person, like one's a father and one's the son. And I learned this because they're the two largest. So the first in the phone book, they got the big ads. They advertise it everywhere. So the majority of people in my town will call both of them and go get two bids. And amazing, it happened to me.

I got one bid for 18,000. And the other one came out at 17,500 and something. And it was like, oh, okay, well, that must be what I'm going to pay. Well, I went and got a third bid. It came out at three. I mean, like, that's how big of a difference there was. And these guys do that, this racket all over town. It's amazing.

And I tell people this now in my town and they're like, I never knew that. I thought they were expensive, but they were the same as the other guy. It seems illegal. I feel like I should like do something about that. Yeah, that's what's like price. Yeah. It's, I mean, they may be good companies and they probably do good work, but they're so much higher than everyone else and they get away with it because they're they just. People do two bids.

People do two bids. Yeah. So if they were smart, they'd get the third number in the phone book and have that bid coming at 12,000. People think they're getting a great deal and they're still paying $10,000. That's exactly it. Yeah. So, well, anyway, so I don't know if what people are going to take from that, but make sure the companies aren't owned by the same guy, I guess.

And actually, I mean, the point you made was the best way to find that out is to talk to other investors, right? Like a guy talking to me, I can tell them that. Say, don't use these two companies because they will rip you off. That's how you figure out. Don't rely on the contractor as the end-all, be-all price setter. I'll tell you, if I have a reputable investor, somebody that I know and trust recommend a contractor, I get one bid. And I normally won't even negotiate it. If he says, hey, use this guy,

I call that guy and say, hey, you were recommended by so-and-so. And he says, oh, great, I'll come on out. And he gives me a reasonable bid. And I can go back to the first investor and say, hey, does this sound reasonable to you? And he says, yes, I'm not going to get another bid. I mean, the reputation thing, the referral is more important to me than anything else in this business. I use bigger pockets for that all the time. Anytime I'm looking for somebody local, you know, I wish I had done this before I'd gotten screwed a couple times. But, you know, anytime I need somebody to do work for me, I go on bigger pockets. I'll hit up some of the local folks that I know and say, hey, I need somebody who can do this. When I get a recommendation, if it's somebody that I know does good work, if it's, you know, an investor in town who's who's rocking it, I just, I don't go for another bit. I mean, it's pretty, pretty easy. So that's great, great advice. Thinking about wholesaling or flipping your first property, but not sure where to start. The truth is, deals don't just fall into your lap anymore. You need to go out and create opportunities.

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that the thing that goes wrong can sink your entire project. Luckily for us that the only things that went wrong were the things that cost us a little bit of money here and there. The first biggest thing that went wrong was we brought in our architect, we brought in our foundation company, and they were both pretty convinced that the existing foundation on the house that we were knocking down could stay. We all thought that there was a brick foundation, and we all assumed that there was cinder block behind the brick,

so there was a course of brick, and then there was cinder block foundation behind the brick. And when we knocked the house down, we could leave the cinder block. Maybe the brick would crumble, but we could at least leave the cinder block foundation and start building from there. I post some pictures in the diary of a new construction project. Basically, when the house came down, what you saw was the brick just crumbled. Basically, this entire house, it was only a 1,200 square foot little ranch house, but this entire house was being supported by literally one course of bricks all the way around.

Had lasted 100 years, so clearly it was pretty strong. but basically there was one course of bricks and when the house got knocked down all the bricks crumbled and basically the foundation was gone. So we went from assuming we had a usable foundation that we could start from to having to essentially start over on the foundation. Yeah. And how much time did you lose due to that? A decent amount of time because we had to go back to the permit office and get permits for the foundation work. and then we had to get bids on the foundation work. Not so the time was less important than the money on that one.

That was a pretty expensive mistake. Ultimately, that cost us about $9,000. Gotcha. So on a $160,000 project, there's 6% of your budget right there that we would have had to spend either way, but had we known a little bit sooner that we were going to have to spend that money, we could have cut back in other places. Well, and you also had all the holding costs and the cost of money that went along with it. So it wasn't just that 6% was it?

That's absolutely correct. I mean, anytime you add time to a project, and for this project, every day was pretty crucial. It took us about six months to get our permits approved. Wow. Is that typical? City of Atlanta is really, is notoriously tough to get permits approved. Ultimately, and we can go back and talk about this in a minute, but ultimately we ended up using what's called an expediter who is somebody whose job it is to help us get permits. And once we brought her in, the process went a lot more quickly and smoothly.

Let's actually talk about that. I've never even heard of that before. Sure. So a lot of big cities, they have these things called expediters. And these are people who are intimately familiar with the permit process for that particular area. A lot of them used to work for the building department. Some of them actually still work for the building department and moonlight, even though I assume in a lot of places that's frowned upon.

But these people, you hire them to essentially take your plans, take your drawings, and submit them to the city for you. And before they submit them, they'll look through them as if they were approving them. And they'll say, yeah, you need to do this differently or you need to add this, or you need your engineer to stamp this, or you might work. want to reconsider that so that before you even try to submit, you generally have something that's more likely to be approved. Then they'll take them down to the permit office and the permit office will give feedback, but they'll give the feedback to the expeditor instead of to you. So the

expediter really knows what it is that needs to be changed. There's no, you don't have to worry about not understanding the changes that are needed. And the whole process goes a lot more smoothly. We were lucky that the expediter we chose had spent many, many years. working in the permit department. So not only did she know exactly what was needed, but she could take our plan, she'd walk into the permit office, and whereas we'd have to sit for three hours to wait for our name to be called to even meet with somebody, she'd just walk them right behind the counter and hand them to somebody. So there was that kind of, that she had that in at the permit office that just made everything

go a little bit more smoothly. What did it cost? It was, she was $1,000. And we found that the pricing Well spent. Yes, yes, the $1,000, I mean, that was that was two or three months of holding costs.

But more importantly, what we found is we bought this property on January 1st. It was maybe the second. Took us six months to get permits. We didn't break ground until June. It takes three or four months to build a property. You're looking at not listing it until

October, November. Those are the winter months. You don't want to be listing a property in the winter months. So had we been able to list the property a month or two sooner, we may have made an extra 10, 15, 20. In this case, we likely, if we could have listed three months sooner, we probably could have made 30 or 30 or 40,000 more on the property. Wow. So that extra, even if it's only 10 or 20K, that extra 10 or 20K, the $1,000 it costs just pales in comparison. Yeah, that's fantastic. Yeah, why don't we actually, since we're

talking about the numbers a little bit, why don't we go into that? What did you buy it for? I guess, yeah, originally would you buy it for? How much to cost to fix up and then sell it? And whatever you can share with that would be awesome. Sure. So that property, let me bring up my spreadsheet real quick. So we paid $30,000 for that property. And that was the house and the land, correct?

That was the house and the land. Basically, my partner was driving around the area. I honestly don't know exactly how it came about, but he met the owner. The owner was looking to get out. He was willing to sell for about 30,000, which was about market value for these really old rundown houses in this area. It's an area that a lot of investors had started moving into. And so a couple streets over, there were a bunch of new construction projects. The house right across the street was a new build. So it was certainly a neighborhood that supported new construction, yet had a lot of really old rundown houses selling in the $30, $40, $50,000 range. So we picked this up for 30,000. Ultimately, the entire build cost us $161,000. It was a 2,700 square foot, two-story colonial type house, and we ultimately sold it for 270,000. So you're 191 in and you sold it for 270,000. It was $191 in, sold it for $270 after all holding costs, everything. I think we made somewhere in the $58,000 range.

Oh, okay. Okay, so your billed costs were $161. What were the holding costs? Holding costs on that one. I'm looking at my spreadsheet. We didn't have a whole lot. We had about $1,900 in property taxes. We had $1,000 in insurance.

and then we had about 580 in utilities. So total we were right around 33, 3,300 in holding costs. It really wasn't that much. We paid cash for the property. So we didn't have any financing costs in there, which certainly would have changed the numbers somewhat. So, yeah, that's the nice thing about new construction is you don't have to worry about insurance costs until you actually start the build, which is normally halfway through the entire process.

you don't have to worry about utility costs until you're almost done with the build. Obviously, property taxes is an issue, but normally if you're knocking something down, the value of the property before you knock it down is pretty low, and they're not going to reassess it until after it's sold. So generally, property taxes for something that's new construction is considerably lower than what the value of the new construction itself is. I've got two things that kind of shout out at me right now. First, you bought this for 30K and you sold it for 270K.

Did the area support, obviously the area supported the comps. Was this like the $30,000 POS house surrounded by a bunch of $270,000 houses or what did the area look like? So the area was actually a whole bunch of $30,000 POS houses with two or three of the $300,000 houses kind of thrown in. So this was an area where investors were just starting to jump in. It was an area where I have a friend, another BP member, who had built two houses, two streets over, and sold those for nearly 400,000 because you go two streets over and the neighborhood improves drastically. So this was kind of, you could call this a path of progress type neighborhood where last year, two years ago, you couldn't build a $300,000 house. next year, two years, three years from now, every house is going to be a $300,000 house. And we just kind of got in on the front edge of that.

Are you going to be buying more of those houses because I've got some money I can give you? So it's funny. My partner, we just bought two more lots, about three streets over from there. Nice. So we're going to be building. In the good direction? Yes. We paid a little bit more, but it's in the good direction.

so we should be able to sell them for a little bit more. And we can probably use the exact same floor plans that we use from this one. So we've got some economies of scale there. Some more spec builds. Yes, more spec builds. There you go. So, I mean, maybe that kind of answers my question a little bit, but I guess I wanted to ask the same question I did on the Milwaukee project is, was it worth it? I mean, $50,000 some thousand dollars for a year of work.

It doesn't seem all that great for, you know, what you usually do for flipping houses, which might be $30,000 for a six-week project. But what's your thoughts on that? So I look at this as a means to an end. If somebody would have said to me on a flip, you're going to spend a year working and you're going to make $60,000. Don't get me wrong. 60,000 is amazing. And I'm not sure we've ever, this was the most I think we've ever made on one of our deals.

But if it were a typical flip and you told me it was going to take a year and we'd make $60,000, well, we normally make $25,000, $30,000 for months. So it wouldn't be what I would consider a great deal. But this was a learning experience for us. And I think my partner and I both went in with the attitude. If we make nothing, if we break even, it'll be a tremendous success because if you can get a free education, there's nothing better than that. So we were thrilled, made the $58,000 on us.

And again, we would have been happy if we broke even. But moving forward, there's a couple things we can do differently. One, like I just said, economies of scale. So we just picked up two adjoining lots, a couple streets over. So in this case, we're doing two properties that will take the exact same amount of time. We'll submit for permits at the same time. We'll use the same floor plans. We'll probably get cheaper build costs because our contractors are going to come in and we're going to say,

hey, we want to use you on two projects at the same time right next door. So they're going to be willing to cut us a break on the build costs. And so the guys that are doing, the guys that are a lot smarter than we are are doing the same thing, but they're building 30, 50, 100 houses in a subdivision. So we've gone from one to two, and hopefully in a couple years we're going from two to five to ten to building Holt subdivisions, and that's when the economy's a scale really kick in. And instead of making $60,000 a year, you're doing 20 houses in the same subdivision, and you're making $50K off of each, and there's $1 million a year. Now, here's my fear about spec building, and I think this is probably a lot of people's fear, is when you look back on the economy, what it did in 06 and 07, it was the spec builders who got left holding the bag, right?

It's the people, I mean, like, out of the entire, like, real estate market, it feels like they were the ones that at the end, if you're, it's like musical chairs, right? If you're the one without a seat when the market comes down, you're left with a property that you're upside down in or whatever. Nice analogy, Brandon. Thank you. Yeah, a musical chair. So what do you do to prevent that? Are you worried about that or what are your thoughts?

So what I do is I lose sleep. I'm not going to lie. On this first spec build, that was the best answer, by the way, I think I've heard on this show. Yeah, I can't really, I wish I had some Buddhist philosophy here. I could throw out about how to relax and never have to worry about stuff like this. But it boils down to that that's a real concern. And for us, the way we kind of mitigated is that we're scaling slowly.

I think both my partner and I would have been comfortable from a pure construction standpoint to go out and buy 20 lots and build 20 houses instead of going out and buying two lots and building two houses next. We just from a pure economic standpoint, from a pure economy in that part of the country, I mean, Atlanta has exploded again the last. year, year and a half, neither of us are comfortable doing a ton of these projects all at one time because we don't want to put all our eggs in one basket. So I think moving forward, there are going to be certain parts of the country that I think are a little bit more amenable to spec builds and new construction. I think right now Atlanta is probably at risk of having another correction. So we're taking things slowly there.

We are getting ready to start our first luxury build in Atlanta. so that's another fun thing that we're doing. But my partner who has had a ton of lots that have sort of fallen in his lap the last couple months has actually turned down a lot of deals. And because I'm living in Maryland, I'm kind of looking to him to make the go-no-go decisions. But he's turned down probably 50% of the deals that have come along just because he doesn't want to, and we don't want to get over-leveraged. and overburdened with land knowing that there could be a correction in the near future. That's great. Yeah. Smart. Smart. Smart.

Well, that's fantastic. Again, for anybody who is interested, Jay's got this entire spec detailed in the diary of a new construction project. Again, a free ebook from BiggerPockets. And you can find the link to that at biggerpockets.com slash show 63. Really quickly, let's dive into this business of investing and scaling your business. I'd like to start with automation. And we had talked about that a little bit before the show. And what does that mean?

How do you automate your business and just in general? And then maybe you can give some tips for folks who are listening as to how they could go about automating their own. Yep. So I'm a big fan of automation. I am by nature very lazy and like to work as little as possible. And I found the best way to do that is to kind of put my business on automation. autopilot as much as possible. And when I say I'm lazy, it's not really lazy.

I just like to do other things besides work in addition to work. And by automating things in my business, it frees up some time to focus on other stuff like family and other projects. I found that there are essentially five areas that I think about when I think about auditing business. The first is delegation. So I think most of you. People should be familiar with that term, but it basically boils down to don't try and do everything yourself, whether it means letting your contractors do more work, whether you hire employees in Atlanta and Milwaukee.

Both we had full-time project managers whose job it was to manage the rehabs day to day. And I could then extract myself from that part of the business. Certainly I'd get phone calls every day and I wanted to get phone calls every day, but I didn't have to interview contractors. I didn't have to be at the houses for hours of the day, managing contractors. So just delegating has allowed us to free up a lot of resources. We have in areas where we don't live. We have a separate real estate agent. We have the same closing attorney that we use for every deal.

And basically, our entire team knows each other. And so they can communicate with each other without us being involved. So delegation is the first big area of automation. The second one is replication. So I like to do things the same way over and over and over again. I know people that every time they start a rehab, they're excited about going to the supply shops and to Home Depot to pick out the materials they want to use for that particular house and pick out what paint colors they want to use for that particular house. I kind of go the other way. I like to use the same materials in every house.

I use the same paint colors in every house. we use the same flooring, we use the same appliances, we use the same countertops, and the reason for that is we can negotiate prices one time, and our contractors don't have to ask us, hey, what light fixture do you want to use in the dining room on this house? And when they don't have to ask me that question, I don't have to answer that question. And I don't have to figure out the answer. I don't have to spend time in Home Depot. So by replicating our rehab materials and process on every deal, we save a lot of time.

Well, you know, a specific example of this, I wrote a post a long time ago, probably a year ago, called, like, what is the best paint color for landlords and flippers to use? And so I did this test where I tested, I think, like a dozen different types of paint, different quality, different sheen, different brands, different stores. And in the end, what I came up with was every single paint used two coats of paint to cover a decent wall. And in the end, the cheapest one was Walmart color place. And so I said in this post that I used that on everything. It's called, yeah, country white is at Walmart. It's pre-mixed. I love it.

I use it everywhere. I've since changed that a little bit because half the time Walmart's out of it. So I'm actually looking for a new color right now. But I exactly what you mean. Like I use the same color. That way, any rental we go into, and this is for flippers, rentals, whatever, any property we go into, I'm like, oh, that's the color, it's country white. If there's a whole, a whole needs to be patched, go get some more country white. We just buy it in, you know, big five-gallon buckets and always use it. Well, the nice thing is you've got it handy, you know, it's never like, hey, oh, well, I've got 16 cans of unused, you know, pedal gray and whatever, rose, whatever, but, but you're, you're never going to have cans that go unused, right? And, and it's like the restaurant business.

You don't want to have product that you're purchasing that you're thrown away. Yep. Yep. And even stupid little things like you get to the end of a project, you're doing the punch list, and your project manager calls you and says, hey, we need to do some touch-up paint on this house. What color do we use? I don't get those phone calls because we use the same color on every house.

Yeah. So replication has been a huge help for our business. And again, going back, one of the other big advantages to replication is negotiating prices. So we can buy five sets of appliances at once for cheaper than we can buy one set of appliances. So we can negotiate prices on larger volumes of stuff, especially when you're using the same stuff over and over and over. That's great. The third area of automation, prioritization. So this basically involves do the things that are most important, don't do the things that are least important.

This is the thing that I think a lot of people have problems with because the things that are most important are often the things that are least fun. I know a lot of people that will spend a lot of time focused on the aspects of the business that they really enjoy and they put off the things they don't enjoy, even though the stuff they don't enjoy might be the most important. So what I find is a lot of times I will not prioritize things like finding new deals and finding money. Even though finding new deals and finding money are the things that actually make money in this. business. So I found that by prioritizing appropriately, you're automatically going to be spending less time when the things are less important. You may not enjoy the stuff you're doing as much, but you'll get more accomplished in a shorter amount of time. Like, for example, installing a fence or something like that by yourself. Exactly. Exactly. Exactly. Josh is ripping on me because I spent

my weekend installing. It was for my own house, my own backyard, keep my puppy in. Okay. But that's a great example. I mean, there are a lot of people that want to, that want to be using, that want to do the work themselves as opposed to using contractors. And by prioritizing, they realize that their time is better spent doing the things that are making them $200 an hour, as opposed to doing the stuff that's saving them $10 or $15 an hour. Yeah.

So, real quick. Go ahead. Okay. So real quick. So the fourth piece that I find important for automation is segmentation. And that basically means figure out the major components of your business and treat them differently. So for us, we look at our business as having four major components. There's the acquisition piece, which is finding properties to flip and to buy, the rehab, the selling and the marketing, and then fourth, the raising money.

So those are the four areas. and we treat those four areas very differently. I'm responsible for the acquisition and the money raising. We have a project manager who's responsible for the day-to-day rehab, and my wife or real estate agent, depending on what market it is, is responsible for the marketing and the selling. So we're very careful to segment our business in very discreet pieces so that we can then go back to the first thing I was talking about,

which was the delegation. And then number five on things you're going. you can do to automate your business is documentation. So write down everything you do. If you do something more than once, write it down so that somebody else can do it for you. And all of these go hand in hand. I mean, the documentation is there so you can delegate. And the segmentation is there so you can replicate.

And so all five of these pieces kind of go hand in hand. But when it comes right down to it, there's delegating, there's replicating, there's prioritization, there's segmenting, and there's documenting. And do those things. and you'll find that your business is a lot more an autopilot than it currently is. That's fantastic. Yeah, that's incredible. That's really good stuff.

And I like that because it's all about like the whole e-myth theory, you know, or like idea of working on your business, not in your business. And people don't run their real estate, at least a lot of people, including myself, tend to not run it like a business. We run it like a hobby. And so, I mean, that's a constant struggle with every investor that I know. It's how do you run it more like a business? How do you run it more like a tech stuff?

startup or more like a Fortune 500 company. Like what are they doing to make it work and scale and how can I apply that to my own business? So very cool. Let me just throw one other thing out. I had lunch with a guy that I originally met on BP and then who I, who goes to the local Ria. And I've met him there a couple times. We had lunch today. And we were talking about his flipping business.

And he lives in Maryland, but he flips in a different state for the most part. And basically his entire business is automated through virtual assistance. And I'm going to try and get you to get him on the show because I think a lot of people would be interested in that. But just throw that out there right there. Virtual assistance, if used correctly, can be a huge boon for improving productivity and automating your business. Can't wait to hear that one because I'm a big-time skeptic. I mean, we use VAs once in a while. But there's some things that I just wouldn't use them for.

and I'm fascinated to hear how different people do use them. So it'd be very, very interesting. Well, with that, listen, we covered a lot of stuff here. And, you know, I think the feedback has been fantastic. Why don't we move on to our... It's time for the fire round. All right, so the fire round, these questions, actually I changed it up a little bit today.

These questions don't all come from the forums. I added a couple of them in just because I wanted to know. Last week we did something for the first time, and I thought it went really well, so we're going to kind of do it again. The fire round is, what would you do sort of fire rounds? So these are scenarios, real-life ones that either I or other investors I know have come up against. So we're just going to fire them at you and see what you would do in these cases. So I will begin with number one. During the middle of a house flip, your contractor calls and tells you that he underbid the project

because there were some things he didn't expect once the demo started and now needs an additional $20,000 to $30,000. What do you do? The first thing I do is I never use that contractor again. So my contractors know that I'm a pretty reasonable person and I understand mistakes happen, but $20,000 or $30,000 is quite a bit of money. So I also recognize that being spiteful and standing on principle doesn't really help your flip get done. So I bring in some other contractors. I get some other bids. If I determine that his number is actually pretty accurate, I'll let him finish the job.

And I won't fire him on the spot, but I probably won't use him again because ultimately that's something that's going to hurt the business. But if his numbers would I be spending on somebody else anyway, I'd rather have the guy that started the project. finish the project, if it all possible. Yeah, fair enough. And it sounds like, you know, a $20,000 under overbid is probably not going to happen that often if you're doing your job of screening these guys and screening what they're bidding on. Yeah, and the other thing is if the budget's off by $20,000, then I made a mistake as well because as somebody in this business, I need to have a pretty good idea of what it costs to get

things done. So if he missed it by 20 or 30,000, there was probably something that I missed as well, and it would have been difficult for any of us to have figured out. So I might give him the benefit of the doubt there. Your contractor doesn't show up for three days in a row. He's working on other projects, not the second house that you guys respect building. Is there a question in there? Yeah, what would you do? Figure it out, man. Come on. Seriously? Do I have to spell it out for you? If a contractor doesn't show up without a good excuse one day, then a different contractor will be there the next day. So I wouldn't give a guy three days because if he's taken three days, that shows a lack of respect and a lack of professionalism. And I'm a big fan of if you're going to fire a contractor, do it sooner rather than later, because they don't get better, they only get worse.

and that's not a dig on contractors in general. There are a lot of great contractors out there, but the bad ones, if they start out bad, things are only going to go downhill. So if some guy doesn't show up and doesn't call, generally we'll have him replaced the next day. And I think that applies for all components of life. I actually had a contractor I was using as a developer

for bigger pockets back in the day, and he didn't show up for work one day, and I called and called and told. and turned out he was in jail. So he had a good excuse. However, he was summarily fired for the reasons that put him in jail. Nice. But yeah, I mean, I think having, you know, having a one-day standard is probably a pretty good one.

I don't have a zero-tolerance policy, but it's pretty close. It served as well. Yeah. All right. After purchasing a house to flip, you discover that the basement it leaks really bad when it rains. Maybe you bought it at the wrong time of the year. You didn't notice it.

How do you go about fixing that? What do you do? I've actually had that happen several times. And I lick my wounds and move on. Spend the money you need to spend and don't make your problem, your end buyer's problem. I would rather, I'd rather spend extra money, potentially lose money on the project, but do a quality of rehab that my end buyer doesn't have to worry about the problems that I ran into and just fix it. And there are times when it's nobody's fault.

I mean, certainly if you're buying it from a private seller, they should have disclosed that. But more often than not, you're buying it from either a bank or you're buying it from an owner who doesn't live in the property, maybe an absentee landlord. And they honestly may not have known about the problem. And even if they did know about the problem, part of an investor's job is due diligence. and things like that come up. So you lick your wounds and you move on. Yeah, the reason I ask that question, actually, I have some friends up in Tacoma, Washington,

who bought a flip from somebody who flipped a house. And after they bought it, their basement flooded. And they're pretty sure that the flipper knew about it and covered it up because there was a lot of signs of reoccurring problems with moisture. And now they have no basement. And they have a one-bedroom house now instead of a four-bedroom house. So it's sad. I mean, I can't tell if it's a contractor or not,

but it's a, I like to hear that you say that, you know, bite the bullet, fix it up, do it the right way. Where's, yeah, but where's, I guess the question is where the line is, right? So if maybe they tried to fix it, and I'm not taking any one side on this particular one, you know, did they try and fix it? Where was the inspector? You know, is, my guess as, you know, as a buyer is, hey, the inspector is going to find these things. You know, did the inspector fail to do their job? You know, I, I think there's a million different. different variables that kind of come into this thing. Yeah. And that's one of the hard parts too about like if you live in an area where you have a rainy season like we do.

They bought their house, I think in the middle of summer, there's no rain. We have a drought for three months every summer. And so how do you know? I mean, if it's all covered up with sheetrock and carpet, I don't know. That's tough. And again, I don't know who do you blame for that? I don't know. Jay?

It's, yeah, every situation is going to be different. And certainly if you're buying from another. investor slash rehabber. You're going to be a little bit more skeptical that it was a problem that wasn't known about than if you're buying from a homeowner. And again, if you're buying from a homeowner, you're going to be a little bit more forgiving if they don't disclose everything because, no, they're motivated not to. But when you buy from another investor, again, we have our reputations and it's investors

like that that can give the rest of us a bad name. And so again, I'd say you just have to lick your wounds and move on and you do the right thing so that your reputation doesn't end up the same way. Well, here's another question. Sounds like it's probably one from Brandon's personal experience. Maybe Saly. Thanks for providing me with these great questions to ask Brandon. So a roof has one layer that's maybe 12 years old. It's very specific.

Not 11, but 12. not leaking very small shingle curls. You estimate it has about eight years left on it. Do you replace cover, tear off? What do you do? Oh, I don't do anything. So generally, my rule of thumb is 75% of useful life for replacing stuff. So typically a water heater, they expect to last about eight years. If it's under six, I won't replace it. Assuming that there's no indications that it's nearing end of life any more quickly. HVAC system tends to be about 20 years, so if it's less than 15 years, I won't replace it. Roof tends to be about 20 to 25 years, so if it's less than 15 to 17 years, I won't replace it. Certainly, if it looks like it's more worn than what the age would indicate, so if there's a roof leak or if there's a rusted outwater heater, even if it's not as old as the 75%, I will replace it. But assuming everything tends to be functional and looks to be pretty good, if it's less than that 75% of its useful life age, then I won't do anything.

That's a really good rule of thumb. Is that kind of a standard house flipper rule of thumb, or is that just kind of what you do? Never heard it before. So let's call it the 75% rule. Let's call it J 75% rule. There you go, man. There you go. Well, the reason I did ask that question, this is a flip I did four or five years ago. And it was really hard to sell. It's a really difficult flip to sell. And at the end, I started thinking that maybe the reason why is because from the outside, the roof was not new. The whole house was new. It looked beautiful. But from the outside, the roof looked 10, 12 years old.

And I always thought maybe that was a reason that I dropped so much in value. I mean, there's no way really knowing. That's because it was rough, not a roof. It was a roof. What do you say? Wait, what? Make it fun of my accent. Okay, all right.

All right. Yeah. All right. All right. So let's move on to the end of the show, which is our Famous Four. All right. So the Famous Four, these are questions that we ask every guest. And yes, Jay, we did ask you these questions last time. But just in case things have changed in the past year, which they tend to. I'm going to ask them again and we'll see if things are different. I definitely have a bad memory. So I probably don't remember what I said last year. All right. Well, this will be fun then. All right. Number one, what is your favorite real estate book? my favorite oh i'd say the advanced copy of the book that uh that you sent me about two weeks ago

that you're getting ready to release i'm pretty sure i can't say the name oh come on you guys make me say this disgusting how much butt kissing is going on in here what the heck guys it's true have you read it josh i have not i haven't even gotten a copy brandy won't even send it to me which which is funny because i'm publishing it it has to be perfect it has to be perfect it better be it's not quite Well, we'll make sure that by the day it's released, you get a copy. Yes. You will agree it's the best business book you've never read. I'll even autograph it for you, Josh.

Nice. You guys are so sweet. All right. So your favorite real estate book is a book that does not yet exist. That's fantastic. What about your favorite business book? The soon-to-be-author biography of... So it might have been the same one I said last year, but I'm a huge fan of the four-hour work

week. I've in many ways modeled my business and the way I do business after a lot of the principles in that book. Certainly there's a lot of fluff in there. But if you really, if you think about why he's saying what he's saying, Tim Ferriss, that is, in the four-hour week, it can really help you automate your business. So I'm a huge fan of the four-hour work. So you actually read that book? Okay, good. Just one of the few. One of the few. John to fill on page 29 on that one. I am. I've given up all hope. I've given up all hope. All right.

So question three is always, what do you do for fun? What do I do for fun? Probably the same answer I gave last year, but it's pretty much family, family, family these days. I will say that I recently moved from Atlanta back to Maryland, and the week I moved back, they opened one of the largest casinos on the East Coast with one of the nicest poker rooms. And everybody, well, everybody that knows me knows I'm a big poker.

fan. So occasionally when I can get away from the family, I'll play a little bit of poker at the new casino near me. And other than that, pretty much hanging out with the family and the two little kids. So in other words, Jay's taking advantage of those folks who aren't very good at poker, taking all their money in the poker room and giving them his famous stare. The Steinhorn stare. There it is. There it is. All right. Final question of the day from me. What do you believe? sets apart successful real estate investors from those who fail or give up? Taking action.

And I'm guessing that's probably not a unique answer right there. But really, what I found is those that don't succeed, generally don't succeed because they don't actually get off their butt and do anything. General rule of thumb is I don't know anybody that's done one real estate deal. anybody that's done one real estate deal has probably done five or ten or fifty. If they haven't, they will. So my thought there is make yourself do the first and everything will snowball from there. Great advice. Good advice.

All right, Jay, lastly, where can people find out about you once again? www.123flip.com. That's one, two, three, FLIP.com. That's my blog and website. I don't sell anything, but for the last six years, I've chronicled every flip that I've done in gory detail, all my financials, pictures, analysis, spreadsheets, everything. I kind of look at it as, hey, here's all the mistakes I've made the last six years.

Don't make them yourself. Nice. So feel free to check that out. Awesome. Awesome. Well, listen, fantastic, fantastic show. Once again, I guess I'm not going to regret having you back on, as I thought I might.

But now, listen, we're really, really honored to have you back and definitely appreciate you taking the time. Of course, like I said, really excited that we continue to sell a lot of books on the flipping book. It really is a phenomenal book. One more thing really quick before we let you go. You started a thread, and we're going to point to this thing on the show notes. We started a thread about bigger pockets.

And here's my self-interest coming in. It was about how important to roll bigger pockets, bigger, I can't even say my own company name, how important bigger pockets has been in your business. And you talk about all these deals and partners and money and all this stuff that you've done on the site. For those people who are listening, who might be fans of the podcast, but who haven't taken the time to create an account and to actually participate. Because I like to end the show always saying, hey guys jump in parts of spade it's really good for you you're somebody who does that and it's

paid off in spades for you can you just kind of tell us a little bit about that sure sure um so i've been part of bigger pockets since i think 2008 just before i did my first deal um i credit bigger pockets with helping me get through that first deal and then the 60 plus since then um but the the biggest benefit i've gotten from bigger pockets has certainly been the relationships that i've built so like i mentioned lived in Atlanta for a long time, just moved away recently. Two of my closest friends in Atlanta I originally found on bigger pockets. They've become friends. They've become partners.

One of them I mentored and is now doing as many deals as I am. And the other one is my partner on all the new construction stuff. I've probably been, between the two of them, I've probably been involved in 50 deals that we've done in some capacity together. I've purchased houses from BP members. So just in the last two months, I've purchased houses from four different BP members as wholesalers. I've wholesale houses to BP members. There have been three or four houses that I've wholesale two BP members.

I've borrowed money from BP members. I don't know exactly how many. It was like three or four or five BP members that have come to me with private money offerings. And so I borrowed money from BP members. I've loaned money to two different BP members. Are you getting paid back on those? He better be getting paid back. So one has been fully paid back and the other one has been paying routinely monthly interest for the past year or so.

And I would love to keep loaning to BP members. So I'm probably feeling my inbox is going to get flooded now. I'm very picky. If you want to borrow money in an area where I've lived, I'll highly consider it. I found a GC that I worked with in Atlanta on probably 10 different projects on BP, a fantastic general contractor. I've had two people from BP that I have mentored and that are both doing very well now. And anybody that's done any mentoring knows that you learn as much doing the mentoring as you do getting mentored. So that to me has been...

You're talking about real mentors. You're not talking about the guys who charge a lot of money to, you know, take advantage of people. No, those are coaches. No, those are gurus. There are three levels that are mentors. Those are the people that do it because they know you, they like you, they want to help you and they don't charge you money. They're the coaches. Those are the people that charge you money, but have your best interest in mind, probably local and they're not ripping you off.

And then in my book, the third category is the guru, and those are the guys that are doing it just for the money. And they're probably charging you a lot more than they're there. what their material is worth. So I'm okay with a mentor, certainly. I'm okay with coaches. Stay away from the gurus. Let's see. And like I said, I've moved to Maryland recently.

I found a BP guy that we're probably going to start doing some spec builds in the next month or two. So somebody else. And then I guess the best relationship I've built off of bigger pockets is with you guys. You help me release my book. You publish the book. And that's been a life-changing. for me. That's awesome. That's awesome. Well, there you go. And all that is from just being active and participating and being involved in the community, posting at some kind of regularity and interacting

with people answering questions, that kind of stuff, right? I have, absolutely. And I have lunch once a week. I try and sit aside one day a week to have lunch with with some new person. And I'd say 90% of those people come to me through bigger pockets these days. Okay. That's awesome, man. Really, really, really great. And you said it so I don't have to. really quickly, if you are listening to the show still, hopefully you are, definitely jump on to iTunes and make sure to leave some feedback for us on the Bigger Pockets podcast. Those ratings and reviews really help us. Just get on there, share your honest feedback and help spread the word about the show. So that's it. Jay, thank you so much for coming back and we look forward to seeing you back

on Bigger Pockets. Thanks, guys. Thrill to be here. I'll see you again next March. Yeah. All right, then why don't we close us? All right. All right. I'm Josh Dorkin. Signing off. You're listening to Bigger Pockets Radio. Simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Be sure to join the millions of others who have benefited from Bigger Pockets. Your home for real estate investing online. Thank you all for listening to the Bigger Pockets Real Estate podcast.

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