Epic Real Estate Investing - Justin Colby and The Science of Flipping | Episode 105

Episode Date: May 12, 2014

Justin Colby of The Science of Flipping Podcast joins Matt today to discuss "flipping." ------------------------- Download Matt's free real estate investing course "How to Do Deals | No Money Required" at FreeRealEstateInvestingCourse.com or text FreeCourse to 55678 "Click" what interests you most:  Education Properties Income   Coaching Learn more about your ad choices. Visit megaphone.fm/adchoices

Broadcasting from Terrio Studios in Glendale, California, it's time for Epic Real Estate Investing with Matt Terrio. Mm. Yeah. What's up? Hello, and welcome to another episode of Epic Real Estate Investing. If this is your first time, listen to the show, welcome. Super happy that you're here. This is the place where I teach people how to escape the rat race by investing in real estate.

You see, I changed one thing just one time, and I escaped. that dreaded rat race, I escaped it forever. And the thing that I changed, I changed my focus. I changed my focus from making piles of cash to making streams of cash. And that right there, that focus, that focus changed me forever and it changed my life forever. Meaning, I no longer work for money. Don't do that anymore. My money works for me. And ironically, something else that I discovered during this journey is that it doesn't necessarily take money to make money. I think that's a really big myth. What it actually takes is the ability to solve problems. If you're a problem solver, that's more than enough. That's all that you need to learn how to make money or to make money.

So if you can solve problems, you can make money. You do not need money to make money. And if you adopt those two mindsets of focusing on making streams of cash instead of piles of cash, and you focus on solving problems to make your money. Financial freedom, that's going to be yours in a fraction of the time. It's taking 95% of the population to do it. If they ever reach freedom at all, and most of them are not. Now, if I had to start from scratch, if I were to do it all over again, I'd do it exactly the same way.

Knowing what I know now, looking back and in hindsight, I do it exactly the same way. And I do it exactly the same way, whether I had money and credit to get started with or not. You see, while I was finding my way, I stumbled upon 12 different strategies of investing in real estate with little to no money. And in hindsight, being forced to get started that way, being forced to do that, like having no other options, I didn't have any money, I didn't have any credit, I only, I didn't have any options. I believe because I didn't have any options, that made me a better investor.

And I want to make you a better investor as well. and what I mean by that is most people, they never get started investing in real estate because they think they don't have the money to do it. And those that do have some money to invest don't have the foggiest idea as to what to do once they run out or what to do when they hit their maximum loan amount. And that's such a small, very small box that people reside in. Your money and your credit, those are just. two ways. Those are just two resources to

invest in real estate. It's just two. I found 12 ways that didn't require money or credit. And I know there's many other ways out there that I don't even know about. So don't let something like the absence of money or a good credit score get in your way. Because there are more ways to invest in real estate without your money or credit than there are with it. It just takes a little bit of know-how, a little bit of education. You just take that know-how. followed up with a little bit of sweat, and I say all that to say, I want to make you a better investor. So I put the first two strategies of the 12 that I use, the two that I use, or the 12 that I use regularly, I put those first two, the two of which I believe are the easiest and fastest

strategies to a paycheck in real estate. I've put them into a free course just for you. It's absolutely free, it's whole and complete from A to Z. And you can access that course at free real estate investing course.com. Got it? Free real estate investing course.com. And if you're just so pumped up and fired up right now and you can't wait to get back to your computer, you can go ahead and you can text free course to 55678, right there on your phone. Text free course. That's all one word. There's no spaces in there.

Text free course to 55678 and you get the course right there on your phone. All righty. So before we get into today's show, we got a great one for you. I got a great guess for you. I want to go ahead and I want to take a moment and express to you my gratitude. You guys rock. You really do. And thank you.

You know, over the last seven to ten days or so, I've had a lot of challenges with time and technology. And, you know, it's been rough. And you all have been so understanding. And aside from all of that, what we did is we added 100 new members to the Epic Pro Academy. And, you know, if you're tuning in for the first time, we just finished a long two-week celebration. It's only supposed to be one week. It's only supposed to be five days. and it turned into two weeks because of technical challenges,

but the celebration of our 100th episode, our one millionth download, and the opening of version 2.0 of the Epic Pro Academy. And I think it was a huge success. I really do. Now, I know there are many internet information marketers out there that may consider that a failure by 100 memberships. And in their world, you know what? Those numbers might be very disappointing.

Might be very disappointing to them. But I'm not disappointed, not at the least. You see, I'm not interested in math. massive quantities of people. I'm not. I'm interested in quality. That's such a difference. And depending on what your focus is,

your outcome is going to be very different, just with that little distinction there. And after so much correspondence back and forth these last few days with the Epic Pro Academy members, both the old and the brand new ones, the epic community, it's just that. It's quality. I mean, just the fact that you're listening to me right now

and just the fact that you're open to a more mature conversation of streams of income as opposed to piles of income, that speaks volumes about you. And don't discredit yourself or don't sell yourself short. That conversation about streams of income, it sounds great, but it takes a whole lot more discipline to create. It takes some real focus and some real determination. It takes some character to create that, because especially if the people around you are are making piles of money and you're focused on streams of money, it'll appear in the beginning.

Like a lot of the other people that around you making the piles of money, they're going to be having a little bit more fun before you do. And that can be difficult. That can be challenging. So the fact that you're open to that conversation and you're still here listening to me right now, that speaks volumes of you. Now, I can certainly teach you how to make money fast in this business. I make fast money in this business and I'll teach you how to make money fast in this business

as well. I mean, and also, there are no shortage of gurus out there that can and will be more than happy to show you how to make fast money. But I'm more interested in teaching you how to make money permanently. To me, it's not really, it's not all about get rich fast. It's about get rich permanently. And having said that, you will get rich fast here. You'll get rich faster here than just about any other option that you've got out there. You can make money fast, absolutely, but make it fast and make it right so that it lasts. Because, you see, it's a lot of work in the beginning if you're just getting started or getting restarted.

It's a lot of work in the beginning. But if you start with the right focus and the right mindset, you'll only have to do that hard work once. I know, I'm preaching to the choir right now. You guys, you all know this stuff. We've talked about it for a long time. I've been here about almost four years now. I know you guys know this stuff.

I'm speaking to a quality community, and I'm honored to share what I know with you. And I'm honored to interact with you, and I look forward to more interactions with you. All right, let's go for another hundred more episodes, another million downloads. And again, I'll just end with thank you.

And speaking of interaction, I've got a few announcements just about that, about interaction. So tomorrow night, Epic Pro Academy members, you've got a coaching call. It's our first real coaching call of the year because we've been closed down for a while. So go ahead and log into the academy,

click on the coaching call button, and then the schedule, the instructions, and the password can all be found right there, and I'll go ahead and I'll see you guys tomorrow night. Now, I've been getting a lot of requests lately from people here in Southern California to have coffee, to have lunch, to have dinner, to have beer and hot wings,

my absolute favorite. And I definitely want to hook up and meet every single one of you. But what that does is it puts some real stress on my calendar. So I'll be hosting one of my famous or infamous, depending on how you want to look at it, one of my famous Grub and Grow Rich events right here in Glendale. It's just one city north, one city up from Los Angeles proper. And that will be held here on June 4th, June 4th at 530 p.m.

And so you can just go to grub and grow rich.com. Grub and grow rich.com, you can get the details right there. And we'll eat, we'll drink, we'll be merry, we'll laugh and have a whole lot of fun, we'll talk real estate. and then specifically though that night we'll be talking about cash flow and we'll be talking about investing in places other than your own backyard and how to do that correctly and lastly we've got our next property tour on the calendar we'll be dropping in on the Cleveland market this time and that's July 31st and August 1st so go get the details there at epic real estate tour.com and if you missed any of that and you likely did because that was a lot of information don't

worry, it's all in the show notes, and this is episode number 105. And you can find those notes at Epic Real Estate.com forward slash episode 105. All righty. Now, let's go ahead. Let's get on with today's show. I've got a great guest joining me today. He's a very successful investor in the Phoenix, Arizona Market. He's host of his own podcast, The Science of Flipping. He's got a really different mindset than I with an approach to investing, different strategies than I. But still, I've learned a lot from him, and I have no doubt that you will too. So please help me welcome Mr. Justin Colby to the show. Justin, welcome to Epic Real Estate Investing.

Thank you very much. I'm very happy to be here. I'm happy to have you here, too. You know, I get a lot of questions, I guess, around fixing and flipping. And I don't cover too much of that. I cover mostly how to turn cash into cash flow through basically wholesaling first and then taking the profits from there to turn it into cash flow by buying and holding. And I don't, I think I maybe had one or two people before that have come on the show and talked about fixing and flipping.

Actually, yes, definitely two for sure. But I haven't done that in a long time. So I just wanted to check in with the fix and flipper and give the audience another perspective of what there is to do in real estate investing. So thanks for taking time out of your busy schedule to join us. Oh, not a problem. I'm always happy to give back and, you know, giving to all your, your listeners, I'm happy to answer any questions you may have and give everything I got. Super. Super. Well, let's start with how did you get involved in real estate investing?

Yeah, it's a fun story. It wasn't fun at the time, but looking back on it now, it was pretty fun. You know, I started in traditional real estate back in 2005, I started selling new homes as a real estate agent, so everything was going phenomenal, of course, for about a year and a half. And as we all know what happened, the market tank. And I was a circumstance like everyone else. I was another statistic. And my good friend and I both were just talking entrepreneurial wise about, you know, life and being entrepreneurial-minded. And we decided to go full steam ahead into real estate investing in 2007. He was working for KB Home at the time. I obviously was a real estate agent, and we both basically said, we're for the most part going to stop what we're doing.

I completely stopped what I was doing because the market made me stop, right? He was able to hang on to his job a little bit longer, but we both went in full time, full steam ahead. I personally had no income coming in, neither did he, and it was a struggle. And, you know, it took us, as the story goes, it took us nine months to get our first deal done. And, you know, we did everything. We lost our home. We lost our cars. We went through it.

And looking back now, I actually can appreciate what we went through because it was able to get us to where we are now. And so as the story goes, you know, we did two deals our first year. We made a whopping, I think, 15 grand, and we decided to invest in coaching. We understood we were very intelligent. We both have degrees from very good universities. We were hard workers, but something wasn't clicking. And we decided that, you know, if we're going to do this and with ourselves and push hard,

we need to invest in ourselves. And what we did is we invested in some coaching. mentoring. And it only a short couple calls with our mentor. And next thing you know, the year after that, we did six flips. The year after that, we did 20 flips. The year after that, we did 46 flips. The year after that, 96 flips.

Last year we did 50 flips here in Phoenix. We also became developers last year. We're currently developing 79 townhomes here in Mesa, Arizona, which is a city of Phoenix within Phoenix. And so, you know, it was a great story to tell now and on your podcast to your listeners. But, you know, when you were going through that, that is not easy. So I got started, me and my business partner got started back in 2007. And, you know, as the story goes, you know, we invested in ourselves.

We learned, you know, you don't know what you don't know. And so we finally learned through some mentors. and took off like a rock ship. Super. Awesome. Well, congratulations for hanging in there. Yeah. You know, you really got started or probably one of the most difficult times in all of history for real estate.

And that's really what it was. You know, we would get all these accepted approvals, right? Like today, you know, you'll tell a listener, a student of yours, and you'll say, you know, you make these offers and you're going to be dealing with a home owner and you can, you know, market with the homeowner. and you can, you know, market with the homeowner. Well, when I got started, the homeowner turned into the bank because the person who had the home, quote-to-quote, had or owned the home, was in default. And so now we were negotiating for three, six, eight months at a time.

And so it was just a crazy time, crazy, crazy time to start our investing careers. Right, right. Yeah. And, I mean, just the whole, the whole real estate industry was depressed. The, all the naysayers were out there, the finger waggers of saying, I told you so type thing. I told you real estate was risky and, you know, it just wasn't a good vibe all around and

to get started to switch from an agent to be an investor at that time. Because even in 2007, the crash that we've experienced, you know, prices weren't done falling yet, you know, so it's hard to make money in real estate when they're falling. It's okay when they're stable. It's okay when they're rising, but it certainly takes a very unique strategy and approach when they're still in the midst of falling. Absolutely. I couldn't agree more. And that's, you know, the idea there is always, you know, have multiple exit strategies, you know,

be able to make the right investments that you know are secure so you have multiple exit strategies. Right. Right. So I'm intrigued by the one part. You got started and I think there's a great lesson here and hopefully we're going to pull it out of you. Okay. That first year, you know, you just, you're no longer an agent. Your income is minimal, if any.

You have no money and you get started investing in real estate. And it takes you nine months to get your first deal done. So let me ask you, when you're starting off with, no money, such as your situation, like what did you do back then? What was your first action steps? We only knew, and I use this term a lot, we didn't know what we didn't know. So we knew how to work hard, we knew how to do grassroots marketing, and we knew how to network. We had no money. We had no credit. We lost our homes, right? And we were the example of someone who was able to do it with no money, no credit. And what we did initially is we leveraged our ability to work hard and to network.

So we went out and met with every single real estate agent that we possibly could. And I literally remember spending full days at Starbucks. And at the time, you were able to, that's how no money I had. So I would go in the morning, I would buy the largest cup of coffee they had, and at the time, and maybe they still do this, but as long as you don't leave the Starbucks, you can continually have free refills all day long. That just goes to show you how little money I was working with. And so what we would do is we would get on any of the websites, Zillow being one of them, and start calling, cold calling. some of these real estate agents to set up meetings to see if they were on board with what we were trying to do, which at the time, we were trying to flip short sales with transactional funding. So we talked to them about how we were able to buy the deal. We had funds that were good

for a day, and then we'd line up the second buyer, and we'd go through that explanation all day long until we would find a good real estate agent. Once we found a good real estate agent, they ended up giving us, we became admins to their MLS, which opened up even more doors for us because we were able to then at that point open up more real estate agents and continue that type of marketing. And then through the real estate agents, I did the best I could to simply ask questions about, you know, do you have any good contractors that you'd like to put me together with. So maybe some of these we would buy and actually fix and flip. Do you have any good lenders? Do you have any, you know, and so I would just continually build a relationship with them

and ask questions that hopefully at some point would pay off, like having a good contractor, like possibly having a good hard money lender that we could call on, you know, so on and so forth. So those days really paid off. And I didn't do anything that creative or unique. I just realized I'm going to use what I have, which is my ability to network, to leverage the fact that I have time, and I'm going to go after it. And I'm going to start with the real estate agents. And then we started doing the same thing with title companies. We would go and attend all of their free daily workshops that they do, right? They had a bunch of them at the time.

Of course, of course, right? So then that would open up more doors because at the title companies would be loan brokers, real estate agents, hard money. I mean, everybody, because they wanted to hear what these companies were going to say. So again, I just leveraged our ability to network because we had no money for marketing. Right, right. No, it's the – it's funny. I think the – I wish there was a way to really measure this. But from my experience, the best leads have always come from.

networking have come free, as what I'm trying to say. You know, it's more work, it's more effort, it takes some sweat, it takes some face-to-face belly-to-belly-belly. But those best leads and that best business has always come to me from who I've met face-to-face in the relationships that I've created. Exactly right. Right? Exactly. And that was the only way I knew how to do it. And it sounds like we had a very similar beginning. That's not how I started investing in real estate, but that's the moment in time where I really started to make great money is because, and you probably had this advantage as well, because you were a real estate agent, and you could, you could empathize with the pain of realtors. They were all scared to death, and they had,

none of them knew what a short sale was or how to do it. And once they finally tried to work one or two, they realized they didn't like it. And so it was very easy to use realtors as your lead generation. Oh, yeah, absolutely. And there were, you know, You know, so many realtors were a product of their environment, meaning they made a bunch of money because the market was good. They didn't even really know what they were doing, right? They kind of just fell into it. And so when the going got rough, they would do anything they could for a deal, you know, because they went out and they bought the $100,000 car and they have the, you know, a million dollar home and all these things because they just basically fell into money. That's how good the market was.

And so you're right. I mean, they would be willing to almost do anything. So I just, as soon as I was able to paint them a vision about what we were trying to do, they were all about it. You know, and we only wanted the ones that were kind of hungry, you know, that really understood it, that we're willing to work with us. We didn't want someone who had a big book of business still because they weren't going to be hungry for us. We wanted someone that, you know, was really hungry to earn money. Right. Right.

Yeah, it was actually shooting fish in a barrel at that moment. Oh, of course. Would that strategy work today? It being the, what, the transactional funding? Is that what we're... Oh, we're prospecting realtors for their short sales. Oh, my gosh. I live...

The way I talk about it, there's only two ways to get deals. You spend, well, it's marketing, right? So you spend money marketing for your networking. Right. That's it. And we still, to this day, leverage networking each and every day to find deals. It's unbelievable. Like you said, it's very hard to track the results necessarily of how many deals come through a potential meeting.

But it's unbelievable. I mean, we focus, as much as money as we spend on marketing now, we do double that in networking between events and so on and so forth. So they answer to your questions, absolutely. Right. Get out there and talk to every real estate agent, go to every single title company, and especially if you have the time, you know, and that's the caveat. We had the time.

We just didn't have the money. Right. What would your approach be today now that the real estate environment has changed a little bit, the short sales aren't in abundance like they were. The banks aren't negotiating and aren't as flexible as they were back in 2007, 2008. What would be your approach to networking with realtors today? You know, I think I would probably say the course. Obviously, the vision I would paint would be a lot less about, you know, the quick flip

transactional funding. It would be all about either me and my company. truly acquiring the property for a fix and flip and or having the ability to, quote-unquote, wholesale, where I have a bunch of buyers looking for deals and possibly talk to me the agent saying, instead of me just handing you my friends and my colleagues and buyers looking for deals, why don't I be the lead on this? Obviously, you're obviously going to get paid because you're going to be representing me. But if, for whatever reason, the deal doesn't come to fruition, I am 90,

I'm 25% confident that my buying network will make the deal come to fruition. So it would be a lot more about either I'm going to do it and or my network is going to do it. But either way, as an agent, you're going to get paid. Mm-hmm. Mm-hmm. I love what you just said there because that's the exact coaching that I give. You have to always reassure that the agent is going to get paid because that's their biggest fears that they're going to get cut out of the deal some way. And if you can...

Yeah, and that's what they're in it for is, you know, everyone's, in it to make money, and especially agents, right? Exactly. So you got to make sure their security is making sure that they get paid. And so as a buyer, I always utilize that. I am much more the carrot. You know, I dangle that carrot in front of them. You know, I've had agents that I'll actually give the listing back to them to make

sure I got the deal. Right. If you get me this deal, I'll give you my listing when I'm done. Right. And that gives them the carrot to say, oh, God, I want to get this through because not only am I going to get paid here, I'm also going to get paid here. Indeed. That's the carrot works well with the realtors.

I don't know of another approach that works better than that. There's two things that you kind of have said that I admire about you, and I think there's a lot that my audience can learn from, is first of all, you prospected realtors. And from what we're saying right here, like both of us kind of got, I don't know if you, got your start here. I definitely really picked up momentum during this. this period doing the exact same thing. And I didn't know that about you until just now.

But it could almost come across like, oh, that's the new place to prospect. We should go talk to realtors. And you and I know how many realtors you have to actually talk to to make a click, right? How many did you have to talk to before you found a few that would actually work with you and you found good working relationships? Oh, my, I don't even know. I honestly don't. It's countless, isn't it?

It's countless. I sat there all day for weeks. on end, you know, and then you'd get excited about a specific realtor, and next, you know, they go dark on you. You're like, okay, I guess it wasn't as great as I thought it was, right? And so, absolutely, I mean, let's put it this way. Be prepared to work, right? That's the idea.

You've got to get out there, sit at that coffee shop and meet and meet and meet. Right, right. You know, what would you say to a brand-new investor who says, I went to three open houses this weekend and none of the realtors will work with me? I guess I would laugh. Right. Not in a mean way, but, you know, listen, you're trying to get into real estate, and you're trying to make a business out of it, and you're trying to be an investor.

It's going to take work. You know, you're not going to be able to go meet three people and then go him and ha about, woe is me, that it didn't pay off the way that you or me or anyone else was telling them. You know, you're going to have to go meet hundreds of realtors and be consistent at it, just like you probably would talk to your students about consistent marketing. You need to be consistent at it. You can't go to one meeting and expect to go, you know, build some great incredible relationship that gives you, you know, three or four deals a year or a month.

It's just not going to happen. So you need to be able to continually stay steadfast and have the fortitude to meet with realtors and to continue networking. Mm-hmm. Mm-hmm. So you said a word there, fortitude. And obviously you have some because it took you nine months to get your first deal. What would you say to the new investor that says, I've been trying this for a month and a half and I haven't got a deal yet?

Yeah. Yeah, well, try another seven and a half months on top of that before you start complaining to me. So let me ask you specifically, Justin. What was it that kept you going for nine months without a deal? What did you see? What did you hold on to? What was your purpose? What was your reason?

What gave you your drive? It was a commitment to myself That this is what I wanted to do This is the industry I wanted to be in And I wasn't going to give up You know, and I somewhat related To like a working actor Right, you're in California, right?

So you probably have heard or you know someone But it's like They go to audition after audition after audition I mean You know, the Brad Pitt's of the world Or Denzel Washington Or these names that you would know You know they are the star stars

I can't even go back. I dare anyone to go back and talk to them about all the additions they went to or the silly little things that they did before they were finally picked up. And I bet it would be very relatable to what we have to do in real estate. Real estate is a dog-eat-dog world. And if it was easy, everybody would do it. So that's why everyone doesn't do it. They want to do it.

They want to be on Flip This House. and I want to be on the TV shows and all these things, but the reality is this isn't a get-rich-quick type of industry, right? You can absolutely 100% without a doubt get incredibly wealthy and rich and create an incredible amount of wealth for you and your family, but it will absolutely take fortitude and work and a desire to make it happen. and I told myself I was going to do it. I told my business partner I was going to do it,

which means he was able to hold me accountable and vice versa. And there's just no giving up. If you want something bad enough, you just don't stop doing it, right? And that's the reality. Right. So it's somewhat within the person. You need to have that kind of within you to say, I'm not going to give up, right?

Like I was sleeping. I was 26 or 27 years old. at the time. That's an adult, right? I'm not home from college. I didn't just graduate college. I'm not 21 years old. I'm an adult. And I'm sleeping on my buddy's couch because I can't afford rent. And I told myself, I was going to become a successful real estate investor. Hell or high water, nothing was going to stop me. And that's really what it was. I just gave myself and my business partner that commitment. And we wouldn't stop. And sure. You know, we had enough top ramen and hot dogs and, you know, Starbucks coffee to kill somebody.

But, you know, eventually it paid off because we invested in ourself ultimately and realized we didn't know it all. And we're able to learn some of the techniques and strategies to move forward and really become a success. You know, just lost my train of thought down. Something you were saying, you were saying, fortitude, da-da-da-da. Oh, and also I can tell from your speech and just your tone of voice is you had a belief in the sense that you knew real estate worked. So you had, although you had the drive, you had the desire, you made the commitment to yourself, you knew you were in an industry, you were driving a vehicle, so to speak, that you knew would get you there eventually if you just kept driving. Absolutely. Right?

Where did your, I don't know, where did your belief that real estate was what you wanted to? wanted to be in. Where did that come about? He's back at UCLA. I went to UCLA. Oh, I'm sorry. I'm sorry. I'm sorry. I'm a Trojan. I'm a Trojan. That's why I'm saying that. But go ahead. And you mumble under your brother. Yeah, but my partners are brewing, so we have this conversation all the time.

Good. Well, I'd now officially like your partner more than you. Okay. So back at UCLA. Back at UCLA, we work out every day and we were just talking. about what we're going to do when to graduate and whatnot, and his father was a developer. And so he said, hey, why don't we go into real estate? Like, you go do whatever you're going to do after college. I'm going to go learn real estate and let's go start a real estate brokerage. And I was like, that sounds great because I just have that natural entrepreneurial quality

about me. Like, I've never had an employer, ever. I've never had a job. I've always been an entrepreneur forever. After college, I ended up owning a sales company. doing door-to-door sales for business to business like AT&T and UPS. And from there, I went straight into real estate. I've never had an employer.

I've always had a 1099. I've always been an entrepreneur. So it just really, I gravitated to it, you know, and I would read, you know, I was actually an English major at UCLA, go figure. And so I would read, and, you know, Donald Trump would put out a book or, you know, I would read Kiwisaki's book. and, you know, then they would put out multiple books, and I'd continue reading. And, you know, at the time, there was some people on TV promoting real estate investing books,

and then, you know, online. If you remember, I'm sure you do, some of our good friends, you know, and colleagues in this industry, were big online back in 2005 and 06, you know, and the short sale boom and all the short sale products and whatnot. And, you know, you would see them and you'd see their lifestyle. You'd see all that, and you'd say, dude, if this guy can do it, I can do it, right? And that was just my mentality. If this guy can do it, I can do it. I think that was their sales pitch, too, right?

If I can do it, you can do it. I'm pretty sure it was. I think 99.9% sure it was. So, yeah, so, I mean, it literally, those two factors about seeing them online and basically saying, okay, if this guy can do it, I'm doing it. And secondly, you know, just my appeal to the rubber to, Sockies, the Donald Trumps, the people that were putting out books at the time and reading them and learning the kind of the art of the deal, which I love.

I just naturally gravitated to it. Awesome. So you did two deals in your first year and worked your butt off, and then you got a mentor or a coach, and then it really kind of opened up for you. You tripled your business the next year and did even, and almost tripled it again the next year after that. What was the big breakthrough that coaching gave you? You know, it was funny. The quick answer is going to be systems.

It gave us systems. And, you know, we were running around like chickens with our head cut off. And we were smart. We were hard workers. But we didn't have the directions and the systems. And I say that emphatically because our business is 100% revolving around systems these days, right? It is all about, I mean, we truly look at ourselves as in the business of sales and marketing or marketing and sales rather than real estate.

We see real estate as the widgets for where we want to go. That is the vehicle. But if we can't find a deal, then we're never going to have that vehicle, right? So we are really in the business of systemizing our business and systemizing our marketing and net organization and blocking and all that goes along with running a company. And all we needed legitimately was it took us two calls with our mentor and we were off. It was the simplest little things, you know, about specifically, I can't give you an idea, but the idea is something as simple as, you know, well, why are you not going down to the auction courthouse step

and meeting with buyers so you have buyers to buy some of these deals that you get in contract. Why don't you do that every day? And me and my partner would be like, oh, well, I guess I don't know that, right? Why don't we do that? That's a very easy system to follow. Every morning you go down, you spend two hours at the courthouse steps, you meet in Greek, hands, exchange cards, boom. Right, right.

Right. Yes, the word systems is this big buzzword in business and everyone likes to refer to it. But let's get specific. So there's one example of a system. A system is just something that you do every day in the same way every day. Tell me, give me an example of, say, your most powerful system, the system that, you know, your business would really suffer from if you are without it today. It's a rehab management.

That's our number one system right now. Okay. Being a fixing flipper, and that is the majority of our business, and quite frankly, it is really what we've done for the last six or seven years. We now have systems all the way throughout the deal. From the time that we close, we have our deal runner or a property runner, go change lock immediately. From that point, we have our property runner also take pictures and do a video, a pre-video.

We then assess both the pictures and the pre-video. our project manager then lines up multiple, quote-unquote, interviews with contractors regarding this job. So he then invids all of the contractors work, so we don't even go to the home. He lines up the meetings. He has the contractors walk it, and he does all the negotiation with their bids. So that system is very fluid. We still have not stepped foot in that house. Right.

And I guess a point to that is we did 50 flips last year. I walked into two of them. Wow. Because of our system. And I say that specifically because of systems that we've implemented. So on this rehab management system, is this something you created or somebody give this to you? We've created it. And how long did it take to create that?

Six years. Six years. Okay. Perfect. I mean, the reality is it didn't actually take six years, but it was it was. We didn't get around to it until we started doing a certain amount of volume and realized we were doing everything. Right. Like, and that will kill you if you do everything.

If you don't outsource and if you don't create systems into your business, you're going to, it's not a business. It's a job. It's a high-paying job. Right. We didn't want that. So there's two of you in your business right now, right? Yeah, being my business partner owned the business. Okay.

And what type of volume did you get to before you had to hire a project manager? Once we did 20 deals a year, it was, we were done. We knew we needed a project manager. I mean, it got to a point of we were running around ragged. Got it. Because, you know, in our business, fix and flip business, because you're dealing with the contractors and subcontractors, and you name it, there's so many people to deal with.

So the first thing that we started doing, before we even had a project, manager is we made sure the contractor that won the job hired all of his subcontractors. He did it all. I didn't want to have to meet with an electrician, a roof, or a pool guy, a painter, blah, blah, blah, blah. He's got to bring all that to the table for him to win the job and obviously be a very competitive price. Right. But we would pay that contractor a little bit more than we would pay another contractor

who didn't do that. So that was the start of it. And then once we were able to start doing that, then we realized, well, we need someone to manage these deals because we're doing so much volume. So then we brought in a project manager, and then they started doing the workflow with the contractor, negotiating the bids, the workflow, the payment schedule, the benchmarks they had to hit, so on and so on. Right. And that's really when we started to take off. That's what got us to the 46 deals, the 96 deals, the 96 deals. last year the 50 plus the 79 unit development is because we really had time freedom.

We were able to get our time back. So even though we were paying a little bit more per deal, because we had now a project manager to pay, and the contractors were probably a little bit more expensive because they were a complete contractor, right, with all the subs included, we then were able to, we at that point were able to do more deals. So though they aid into our profit a little, not a lot, but a little, we were able to do two deals instead of one because we had all the time back or four deals instead of two. Right, right.

And that's key. And I'm sure you vouch for that and talk to your students. This is all about creating a lifestyle, right? We have a friend that says life by design, create your life by design. So that's what it's all about, you know, is being able to vacation and whatever else that you want to do. And fix and flipping can be very time-consuming. Let's be honest. I mean, if you don't have these people in place, you're doing it all.

You know, that's just how it is. Right. So a project manager in your business, in this particular system, we're talking about that person's got a lot of responsibility. You've got to put a lot of trust in that person. You've got to not just in their character, but also into their competence. How did you find that person? Oh, absolutely. I mean, so not that they necessarily run our business by any means, but you do need to have someone who is the right fit.

Right, but how did you find that person? Oh, oh, I'm sorry. So we've gone through a couple of them, just like anything else, just like you would go through realtors or just like you'd go through whoever. Property managers. Yes. Property managers. I can relate. Had to work with some bad ones before I found the good ones.

And so, you know, today's project manager just happens to be my business partner's brother. But before we had him, we had another gentleman who was great for a short amount of time until he wasn't great, right? And so, and that's how the story goes is, you know, to get your business or to be a part of your business, everyone does everything they can. project managers, property managers, contractors, oh, yeah, I'll give it to you for this number, and it's going to be the cheapest in all these things, and that's great for a couple. And then they realize that they can't live off that or that's not making them any money or whatever. They're losing money, and things start changing, right? So, like we like to say, the contractors are really good for about 18 months.

After 18 months, something usually starts to change. Their bids get higher. They're less responsive. thing happens. They have a meltdown because of how many deals we do. And so, you know, at this point, we're keeping our fingers crossed, but Eddie's brother has been a great fit. Now, the thing about Eddie's brother is he had experience in framing. So we had to give, he had a learning curve that he had to go through. But he has been incredible once he wrapped his head around it and got really a hold of what we were doing.

he has been incredible. And because of his ability, we've actually started to give him more responsibility because now he's more integrated into our development as well, as well as our flip, because he's really, you know, wrapped his arms around this and really understood how important these systems are.

And so now he's implementing systems and bringing them to us to say, hey, these type of systems would work really good when we have the development going on. We have five flips going on and all these things, right? So there's no easy way to find a contractor, a project manager, a property manager, right? It's you interview. You maybe give them one deal if they pass all your interview tests, and, you know, you see how that runs a little bit.

Maybe you give them too, and you start to test them a little bit with actual work. But there's no easy way necessarily to go find a stellar property market. manager, project manager, you know, contractor. Right, right. No, definitely, it's hard work. It's networking. It's a lot of interviewing, a lot of trial and error. I can certainly relate with that.

When you started with a project manager, for example, you know, Eddie's brother that you're talking about right now, you've got a steady flow of deals coming through to him. Do you compensate him with a flat salary or do you give him a piece of the deal? We give him a fee per deal, and that fee gets broken up into two. So we give him half of it when we acquire the deal, and we give another half when the deal is fully rehabbed. Got it. So, again, you know, the numbers are pretty good. I mean, if you're doing a volume deal, you know, even at $1,500 or $1,500 per deal, you know, you know, 2012, we did not.

I mean, it's a six-figure job, you know. Interesting. That's good. Thanks for sharing that part of your business. So you're doing... Oh, absolutely. You're doing a lot of deals. You're doing really high volume.

So you've got to find the deals to even do that kind of volume. So tell me how you're some of your favorite ways of your finding deals that's working for you today. Yeah, our number one is direct mail. That is absolutely without a doubt our number one. And the reason being is because the deal comes straight to us. wholesalers, MLS, auction steps,

I consider those to be lead generation sources because someone is getting paid within that deal. And so the best and most

efficient way we have found is direct mail. So for example, this month we're going to be sending out 20,000 mailers.

Wow. Right? So 20,000 mailers should probably net us six to 10 deal. and so that's really the ratio that we've been able to break down after tracking and so on and so forth.

So some months we're closer to 10, some were closer to 6, and I think this month we're going to do five. Well, I guess, yeah, we have five in the works, and obviously I can increase. So yeah, direct mail has been our number one go-to. Now, if a wholesaler, we do back to networking, right? have networked from the time we got here. So we're on every wholesaler's list. So if a wholesaler poses the deal that we see the zip code and we like that zip code and we start to look a little bit about the price point, we will absolutely buy from

wholesalers. And we don't care how much they make as long as our numbers work. Right. Right. Me too. And, you know, then you have the auction steps, which here in Phoenix, you know, the hedge funds came in here and crushed us as far as the ability. to get deals to auction steps, and they're still here, so that's difficult.

And then we get deals from the MLS. We just got one this last week where our acquisition manager is writing offers on deals that he finds on the MLS, active, pending, you know, expired, canceled, whatever it may be. And so we probably get, I don't know, a deal a month from that. Okay. So we traditionally will get the majority of our deals through direct mail. So, so 20,000 mailers, are you doing letters, postcards? What's your weapon of choice?

You know, we do letters. And I have a funny thought about this. I'm more of, and maybe you would agree with this, but I'm more of a volume person. So we've actually brought our mailing in-house. We hire someone full-time to print and stuff and write envelope. And so right now, including her salary, the paper, the ink, the whatever, it comes out to about 44 cents per mailer that we send out.

So we've got it down very, very cheap. That being said, if you are unable to do that, which most people are unable to do that, I would highly suggest doing a postcard. And the only reason why I say that, because I think we would all agree, letters tend to get a better open ratio that even myself or yourself probably throw away postcards in the mail because we understand it's usually something that they're selling. If you're able to reduce the cost of your mailer and do twice as many, in my opinion, you will ultimately get more deals out of it, even though the open ratio may be less.

Does that make sense? Totally, totally. And you may disagree, and I know a lot of people have different views on this. Right. But this is what we tend to do here in Phoenix. You know, a lot of people, some people, if you know, they'll use, like, UPS mailing, right? Because your open ratio is like 100%. Right, right.

You know, they'll put it in a FedEx or UPS because everyone opens those. Right. Four or five bucks a pop. Right. So, but your open ratio is huge. Sure, sure. Okay, so, you know. Let's see.

So are you doing like yellow letters, those types of letters, or are you printing letters? We're printing letters on just typical, you know, word style paper documents. Okay. Keep it simple. Super, super. And then who are you actually mailing those two? Because that's going to determine your open rate or having an impact on your open rate as well. What lists are your favorite lists?

I always love any time there's equity. I mean, obviously, for obvious reasons. So I tend to go after high equity-free and clear absentee homeowners, but then I also get more granular. So I'll actually go over or I'll actually get a list that is specific to mortgage origination date, meaning when someone bought the home. And I'll actually go after those who bought the home prior to 2003. Got it, got it. And that's what's really going after. Right.

in Arizona you probably don't have this and you're in the Phoenix market right? I am, yeah. Okay. So you probably don't have this issue. But in other parts of the country, you know, there's not as many dwellings there. And sometimes it's difficult to create a list of a significant size enough to create a business off of. Do you, would you consider expanding the market area or increase the frequency of the mailing? That's always kind of the debate.

Right. I tend to say increase the frequency because the end of the day, you don't, if you're, especially in the fixing flip arena, you're not going to go drive two and a half hours every day to go rehab a home. Right, right. You know, and neither are your contractors. Right. But then you'd have to go out there to go find local contractors around your area. So, you know, expanding your reach necessarily. So if you're a little bit more of a rural area, I would say whatever that store amount is, maybe hit them more frequently. Just because, you know, like we don't go out of a certain range.

It's just too far. You know, our project manager or, you know, property runners are all those people. Now they're driving an hour, hour and a half, two hours to go get to the property each and every day. it's just not a sustainable thing. Right. One deal here or there, sure. But, you know, I would really stay within your county, your area, and touch them more. That would certainly depend on your exit strategy, though.

I mean, you're absolutely right with a fix and flip type thing. There's a lot of logistics that have to move long distances. That would be a challenge. Of course, of course. And I know, you know, in the buy and hold game, that may be a completely different argument, right? Just, you know, maybe the argument you would make is, you know, have a farther reach. Right. You know, go wholesome to an extent.

Even a wholesaling to extent, if you don't have a whole lot of work to do on the property, then you probably don't have to do a whole lot of traveling to the property either. Oh, absolutely. Right. You know, we're wholesaling a deal that's about 45 minutes away from us. So we had one drive out there, take the pictures, get the lockbox all set up, so on and so forth. And that's really it. Now the buyers are able to go access it, whatever, get a contract goes to

escrow, the next time we'll probably see the property is won't close and we have to remove the lockbox. Awesome. Awesome. So let me, let's go deeper into this. With the, if we were going to go, if we're going to take the frequency route, how often, or what's the, yeah, how often should you mail? What do you think so the, what number is too much?

At what point is it too much. That's what I really want to say. I mean, weekly is too much, I think. at that point, people would just get pissed off and throw your stuff away regardless. I think the right number is probably every three weeks. Three weeks, okay. I know most people probably do it once a month, but, you know, I can make an argument you could mail every two weeks. I mean, I think a lot of that has to do with someone's budget, first and foremost.

You know, a lot of people, especially like myself, when I first started, I had zero budget, right? So it kind of depends upon a budget. But when you do figure out your budget and you do figure out what that looks like per mailer, you need to remain incredibly consistent. And then I always make the point, once you get a deal done, take 15% of your net profit and put it towards your marketing budget because that just means you're going to be able to send out more or more frequently. Right. Right.

I like it. So if you're going to send them to every three or four weeks, are you sending them the same thing every week? You know, I'll usually send them the same thing probably three months in a row. So that would be, give or take, you know, three or four mailings, depending upon what day of the week and whatnot. But, and then after that, I change it up a little bit. So, like, I just met with my team this morning that we're sending out, what, 20,000 mailers this week, and we're going to do it the first week of every month for, what is that, three straight months. And then what we'll do, we're going to go back to that same list and send postcards with a slightly different message on there

because it may just register more, right? So, yeah, I will go back and I'll change it up, but I want to be consistent to start. Right, right. I've heard this other debate, and let's see where you stand on this, And you might have already answered the question, but maybe we can clarify just a little bit more. With when you're mailing, do you want to appear that it's coming from the same person every time or a different person every time? Personally, I stand on, I want them consistent. Okay.

I want them to know I'm real, to know my company, to know I'm around, to know me. You know, I do everything short of putting my face on the dang thing, right? I want them to know we're stable. Right. you know that we're not going anywhere that when we make you an offer it means that money is there to buy that home right even if it's not right so wholesalers are those who may not have any money starting out even if the money isn't there to buy the home you want your perception to be that it is there and that you are real and that you are going to fund this deal

because it gives the seller confidence to take your office offer. Right. So that's where I stand. Okay. Consistency. Right. I like it.

Have you done any testing to where they're, you know, in the, in your mail piece, driving them, say the differences between driving them to a phone number where you pick up the phone or where it goes to voicemail or where it goes to a recorded message or where it maybe goes to a website? Yeah. So what we traditionally do is we use, and there's a lot of different software's out there, we have ring central. and I think we have grasshopper.

But what we will do is we will set up a local phone number and we do not answer the phone call. Okay. Because it e-mails us anytime someone calls in anyways. Okay. So even if they don't leave a message, we have their number. Got it. Got it.

And so we always want to be calling them back. Super. Do you have, is it an ASAP call or do you have some sort of formula system and how you call them back? I mean, we have our acquisition manager or lead take manager on that one. When we're calling them back, there's a lead intake. They have a very

systemized way of calling. We have a lead intake sheet, and they simply say something like, you know, sorry we missed your call, I wanted to get back to you. I'm assuming you're calling in reference to a mailer that you received. And then the seller says, yeah,

how much are you willing to offer me on the home? Right. And then we say, okay, well, before we get there. Let me ask you a couple questions to see, you know, what we'd possibly be willing to pay, right? And then we go through the entire lead intake sheet. In the psychology that we always want to make them realize is their home is going to take a lot of money to get to mint condition. And so the questions a lot of times, yes, I do ask, how long have you lived there? How much do you all want to do? Is it free and clear in all those qualifying questions? But then I'll also ask,

questions such as, how much do you think it would take to make your home to be in mint condition? Because they psychologically immediately go to, oh, wow, well, I would need a new kitchen and new cabinets, a new floor, and then they start to, within themselves, they start to realize why my offer is going to end up where it's going to end up. Right. That's a great question. I like that one. I hear a lot of them

and every time I hear when I write it down I incorporate it and I'm going to borrow that Justin. Hey, it's all yours. Okay. I ask a very similar question but I like the phrasing and the actual words

is that using mint condition because that does imply it's going to cost a whole lot more in the way than I was asking it. How do you ask it? I'll ask them what repairs do your house need and when they go through it

I'll just go and what else and what else and what else and I'll keep digging until they give me everything and they'll kind of say oh yeah well this could probably use some work and I said is there anything else that might need some work so I just go deeper and deeper and then I asked them so you know how much do you think it would take to to get all that up to repair all that and so that's where it goes but I I more drag them out more on the volume of whatever every single thing that needs to be repaired and then I'll ask them to put a dollar sign to that So what I might say now is do that same thing, drag them out to everything that needs to be repaired, and then say, okay, what would it cost to take all of those issues and turn them and convert them to mint condition?

Right, right. So now we get the both. We get all the breadth of the repairs, and then we get the maximum dollar to fix the repairs. Yep. I like it. Yep. That's just off the top of my head as you were talking. I was like, oh, that's how I'm going to do that now.

There you go. And then the next part about the psychology of that is they think, as most people would, that you're going to go buy it from Lowe's or Home Depot or somewhere, and you're going to pay retail for all this. So they're going to say, okay, well, I guess that would cost probably $80,000. In your head, you're like, well, actually, it's going to cost me about $40. Right. But it's good for them to think that way because they're not used to realizing that contractors have wholesale flooring

and wholesale cabinets and they're just used to retail. Totally. So for them, it probably would cost $80. And so the whole psychology about making it mint condition really tends to do an incredible job getting them to realize why your offer and your number comes in where it comes in. I love it. I love it. So we've been doing this for a while and I've enjoyed every second of it, but I'm going to let you go. I know you're a busy guy. But real quick, is your business is growing and it sounds like it's growing steadily each year.

you know, what do you see coming down the pike? How do you see your business developing or being modified in the next, I guess, 12 to 18 months? That is a great question. And it's so funny that our business has basically doubled every single year we've been in business. Not only in deal flow, but obviously money, right, in income. and more than doubled in those circumstances. So, you know, to paint a picture where we're going in the next 12 months, we are basically building a complete company, real estate solutions company,

meaning we are currently fix and flippers. We also are developing 79 townhomes. And so the only division that I see that we need to really implement is more of a wholesale division. because it ultimately leads into both of those other divisions, you know, even if it's land. Well, we can develop it, right? So we are currently working towards building a complete system and developing the wholesale business as a part of our business. So we'll have three departments in our business.

And I think last year we probably wholesaled 15 deals, you know, just because for whatever reason, whether all of our money were in other deals or whatever, we just sent it out to a couple other, you know, fixing flippers that we knew and they bought them. So it really wasn't a business, but we realized the value of that. And so this year already, I think we've completed, which is not a lot, right? So understand, I don't find it to be a lot, but already we've completed, I think, five or six wholesale deals. deals this year. So our goal will be to be anywhere between 100 to 200 wholesale deals as we work through this year. And that might be aggressive for the time being.

But I think we've always been aggressive. We've always had that fight and know we can do it. So it'll just take some time and some patience. But I really do see us doing anywhere from 100 to 200 wholesale deals, probably 30 fixed splits this year just because we'll slim down a little bit on that as we have. have our development because that takes a lot of resources, obviously. And then the next 12 to 18 months, they'll out of our development. So I think that's really where our business is headed.

Awesome. Awesome. What's your temperature on the hedge fund activity at your auctions? Do you think they're going to stick around much longer? What do you think is the future for, you know, these massive institutions that have bought all this real estate in the last few years? They're moving around a little bit throughout the country now. I know they're pretty heavy in Atlanta right now.

I think they're going to be heading to North Carolina is what I've been hearing. So, you know, they still are here to a certain extent, but definitely not as much as they've been for the last two years. So, you know, it's hard to predict that. You know, they kind of have a mind of their own because now what they need to do is fill all the tenants, because they're obviously in the buy and hold game and waiting for appreciation. Right. So now that they've bought, you know, thousands and tens of thousands of homes here in Phoenix, Now they have to fill it and do exactly what you do best, right?

And so, but they just have tens of thousands of homes. Totally. So they're not built for that. They don't have the, they're not in real estate. They're in, you know, investing money. So it'll be interesting to see how it all pans out. Absolutely. And what I think is really interesting that they, they've totally overlooked and did not see

is that, you know, when you look at a Phoenix market, you look at the Las Vegas market, you look at Florida market that had so much construction during the boom. boom, one of the biggest reasons that those markets did experience such a bus was that there weren't enough people to live in all those rental units. Right. And they're going to, they've got that coming. You know, it will be interesting. It will be absolutely interesting.

I'm actually interested to see if they need to start liquidating. I think so, too. I think there's a potential for that too. I think they're institutional lenders and the members of their REITs and their hedge funds and stuff are, I think they're. going to grow impatient with stagnant growth. Absolutely. It's not going to grow unless you got tenants in there.

The other thing I think they missed out on, because I saw the, what's that, 2009 or 10, I think, when Warren Buffett came on and said that the greatest investment in America right now is single-family residence, he'd buy 200,000 if he could only find a way to manage them. Right. And it seemed like, you know, we had a 5% national appreciation the very next day in real estate. And they all missed the second half of that statement if they had the capacity, if he had the capacity to manage them. Sure. And here they are.

Yeah. And, you know, again, we haven't seen any type of issues as of yet. I know internally they have plenty of issues with doing this. But, you know, the cities and whatnot haven't really seen an issue. The only issue that is happening is because they can't get to them quick enough, they're almost turning into how the REOs and short sales used to be. So yourards are all overgrown and, you know, all these things because they can't get to them quick enough. Right.

That's the only issue I'm seeing as of yet. But, you know, again, being that, you know, this is what we do full time, I'll be interested to see what really does happen because the numbers that they bought at in the margins that they were buying at are insane. I think they're going to take a bath on a couple thousand of them here in Phoenix for sure, just to liquidate, you know, cut their losses. You know, I think they did buy whatever, probably 10,000 good deals that, you know, they still bought at a very low point, so they'll be good for them.

But I think they'll realize that towards the end of last year when they were still just banging them out, I think they're just going to take a bath and they're going to cut their losses and sell for loss and move their money. Yeah. Like you said, it'll be interesting to watch. Yeah, absolutely. I made that prediction almost from day one, and I looked like I was probably going to be wrong for a couple years,

but now it looks like it's actually going to... We'll see. That's right. We will see. I've never been really good at predicting the future, but this is something that I saw... I feel like I saw as having that conversation with myself before I heard anyone else having it.

But we'll see. I'm excited. Not that I want to see anybody fail, but, you know, they are the man. They are the machine. And we're just a couple of poor little guys out here trying to make a living, right? Trying to make a dollar out of 15 cents. Exactly. Super.

Well, Justin, I had an absolute blast talking to you. Thank you for being very gracious with your information and sharing so much. I think there's a lot here where there's good takes on. So thank you so much for that. that. If you want to learn more about Justin, obviously he knows his stuff. He does have his own podcast. And if you're listening to mine, you can probably find his. His is called The Science of Flipping. And that's with Justin Colby, Colby with a C, C-O-L-B-Y, not like Kobe Bryant, no, Colby with a C. And awesome, Justin, let's do this again, okay?

Absolutely, brother. We'll talk soon. Okay, take care, bud. Bye. Bye. You've been listening to Epic Real Estate Investing, the world's foremost authority on separating the facts from the BS in real estate investing education. If you enjoyed this show, please take a minute to visit iTunes and share your thoughts. Thanks for listening. We'll see you next time here at Epic Real Estate Investing with Matt Terrio. This podcast is a part of the C-suite Radio Network.

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