Epic Real Estate Investing - Outsmarting the Competition in a Competitive Market with Koko Kelejian | Episode 198

Episode Date: March 28, 2016

Today Matt welcomes back friend of the show, Mr. Koko Kelejian.  Koko is a Los Angeles-based investor with a knack for spotting trends and adapting his business appropriately.  Take advantage of his wisdom as he shares tips on networking, competition, and limiting risk on today’s podcast.  You don’t want to miss it! ------- The free course is new and improved!  To access to the two fastest and easiest strategies to a paycheck in real estate, go to FreeRealEstateInvestingCourse.com or text “FreeCourse” to 55678. What interests you most? E.ducation P.roperties I.ncome C.oaching   Learn more about your ad choices. Visit megaphone.fm/adchoices

Is Wall Street failing to meet your expectations? Has your 401k tragically turned into a 201k or worse? Don't panic. You don't have a money problem. You have an idea problem. We're cashflow savvy.com, and we'd like to share with you a new idea how one small shift can transform your financial future

and accelerate its arrival. Go to cashflow savvy.com to get this new idea that Wall Street doesn't want you to know about. cashflow savvy.com. More control, less risk, cashflow savvy.com. This is Terrio Media. Casting from Terrio Studios in Glendale, California, it's time for Epic Real Estate Investing with Matt Terrio. Hello, and welcome. Welcome to Epic Real Estate Investing, the place where I show people how to escape the rat race using real estate. Just got to shift your focus from making piles of money to making streams of money, change that one thing just one time, and you are on your way to financial freedom.

It's not the most exciting path, I promise you that. It's rather boring, but it is the fastest. And that there is a promise as well. And once you get there, life then becomes exciting. And that's what we're all of. That's what we're in this for, right? Absolutely. On the phone today, I'm joined by a fellow investor and a very good friend to discuss high end flipping, surviving in a competitive market. and the future of real estate. Please help me welcome to the show, Mr. Coco Collegian. Hey, hey, Matt. How you doing?

I'm good. How are you? I'm awesome, man. Doing great. Always awesome, dude. Thank you. You back. You back.

So, repeat visit. Love to have my favorite people back on the show, and you're one of the great ones. So let's just kind of catch up. I mean, it's been probably a year, I guess, since you've been on the show. And you're in Los Angeles, and you're doing high-end fix and flips. And so how's the market treating you? Oh man, the market is hot, hot, hot, hot in LA. Anybody that's living in LA right now probably feels that like so hot.

It's like the asphalt's hot, the market's hot. What makes it a hot market? What's your definition of a hot market? There is no inventory right now. So inventory from last year to this year has already decreased probably like half percent to 1%. We essentially have just over four months of inventory right now on the MLS. That means that we can blow through that.

that so quickly four months is like you know there's nothing so the norm is is is way past double that even triple that that's the normal so right now you got no homes on the market and even better is no rehab homes on the market so when something comes on the market that's renovated and looks beautiful every Tom Dick and Harry wants to get into that property so that's our homes fly off the shelf right that's a good position of being if you find in the deal it is right and that's a tough part right that's the tough part yes exactly So what are some of the things that are working for you in an ultra-competitive market like this in finding deal?

You know, I think relationships really stand out right now. If you've got some good relationships that you develop, of course, over the years with different agents and so on, you get those deals coming to you. Of course, your sphere of influence is really, really big. That helps, you know, bring referrals, and a referral is better than, of course, any type of lead that you can generate on your own. And with that said, of course, there are wholesalers. You know, there's wholesalers that are working in the L.A. market, you know, ad nauseum, you know, tying up properties all day long. And, in fact, to be honest with you, I'm recording today, I'm waiting for a confirmation on the property we just picked up in Hancock Park. I mean, the thing looks like a teardown at $890,000, you know.

So 50 offers on this property, you know, 10 plus offers that were just basically. basically in the running neck and neck. And one of my wholesalers bought it to me, and so we took it down and we got in there. But that's just what the competition is right now. I mean, 50 offers on a property at $900,000 practically is ridiculous. You know, so. If you know you have that kind of competition that you're headed against,

I know this isn't the first time that you had that much competition for a property, what are some of the things that you do to separate your offer and get your offer to get serious consideration? I mean, other than just higher prices, there are other things that you can do? Yeah, absolutely. I mean, you know, I mean, everybody tries a multitude of things, of course, trying to make sure that that agent, of course, you get there first and make sure that that that agent tries to double in that transaction. Obviously, some agents love to do that, you know, but then some don't. You know, some don't want to actually be involved in that type of situation. You've got to fill them out and you've got to take a look at their track record and see, really have they been doing that in the past? Is it the first time they're doing that? How many deals are they really doing? Are they really doing? You know, so players in the game, you can usually check, them out and, you know, it seems like L.A. is a really large area, but the reality is that the players are not that many. You know, you can tell repeatedly who the listing agents are that

are bringing good deals to the, to the area and so on. But the other things, of course, you want to reduce your contingencies. You want to make yourself really easy to work with. You want to perform as you promised. And you know what? Putting extra EMD down never hurts, right? So we got 3% down, you know, whatever, that's 24,000 bucks or what have you. You know what? Double that up. What's the difference? You know, doesn't make a dip.

I mean, you know, if you're going to close, what's the difference? You put double that down, 50,000. Hey, you know, this guy's serious, you know? And those are the things that we try to do. Of course, sending over proof of funds, showing history of what we've done in the past. All those really add a lot of credibility to you and your offer so that you're not just maybe trying to wholesale it, right? You're actually going to perform. and of course you've got a track record of doing deals and so on and so forth.

Right, right. So you have to go, you have to do some extra stuff with this, you know, looking for the agents that will double end. That puts you inside with a particular type of agent. You want to be easy to work with. I think that's a huge one. You want to be likable, right? Absolutely. You want to be like good.

Yeah, you want to be a cool dude. Yeah. Keep honoring your word, like actually following through. That is ginormous. If you go through with one transaction with an agent and you don't follow through, you'll probably never get another offer accepted from them again. Right? That's a truth.

Yeah, man, that is a truth. That's a biggie. It's not such a, a lot of people are concerned with that that they don't follow through when they're working with private sellers, but that dynamic just really doesn't exist there very much. When you're working with an agent, though, that will sting you. Their earnest money, yep, more of that. It's refundable anyway, as long as your contingencies are in place, but then you can remove the contingencies.

I imagine you don't go in without contingencies. you just reduce that time period, right? Absolutely, absolutely. And there's a couple tricks in regards to that. You know, one, I'll give you right off bad. For instance, if you are purchasing in your name or your LLC or whatnot, and you've got funds that are coming from an EMD from another source. So let's say, you know, I'm purchasing in my ABC LLC,

but then I'm going to send over my EMD from another source like my corp or whatever. What we can do is we can send those monies in. And of course, ESCO has to have a escrow instruction from that person in order to apply those funds to that escrow. So the reality is most people don't catch that. And if you never sign that document, those EMDs can be returned to that tender. So. Okay. Explain that one more time.

That's a good one. It was a good one. I don't usually share that one. But for you, my man, you know, for you. Yeah. Nobody else is listening anyway. So we're good. Yeah, right? No one's listening on this podcast.

Only 100,000 people right now. You know, the way we do it is essentially I'm buying from my ABC LLC, right? And so I'm going to send out a $30,000 RMD. I'm going to send it for my C-Corp or for my personal account or just some other entity besides who the vesting is on the transaction. So it's coming from another party that's unrelated right now, at least, to them on the transaction. So now whoever sent those monies has to sign a document and escrow instruction to advise escrow to apply those funds to my escrow. So what we'll do is not sign that document, right?

And it's just another, you know, a leg up just in case things go south, just in case things go wrong. You know what? You can say, hey, those monies came from my investor. Do they never sign the document to apply those funds to my escrow? So reality is you got to send those monies back. So. Got it. Got it.

Yeah. Okay. So it's just, you're under contract with one entity and the funds come from a different entity. That's it. That's it. Okay. And then as far as proving that, it's just retracing the wire. Is that enough proof for them?

Yeah. I mean, you can confirm that the wire was received, but they'll, of course, see where it came from. It's sometimes a different bank or regardless of it, they'll say from the name of that entity that was wired from. And so, you know, any good escrow company will require an escrow instruction from that person to apply those funds. Super.

That's a good one. Yeah. Cool. So, you know, use that guys. Deadly. It's one of those, it's one of those, what do you call the, what you got, the, what you got, scruly little clauses that you can get out of. Yeah, yeah, totally, totally.

Super. Okay, so a property that you're under contract for for $890,000 and it's a total fixer upper in Los Angeles, what do you expect to make on that? I mean, what's the spread on that? What would fair market value be? after repair? Well, you know, the ARV on something like that is about 1.35, you know, and so, but that basically is, I mean, we're at 1,500 square feet right now, and so the majority of the items that were taken on is essentially we're taking on to build and add square footage to. So we're looking

at building essentially 500 square feet to the back of this house. So most of the times we're adding a true master bedroom and a true master bathroom. And the master bathroom, what I'm talking about with like almost like an 8 by 10 room, you know, it's like a bedroom. right. It's got a jacuzzi, a spa or whatnot, a big shower, the two people can shower in, dual vanities, you know, the whole nine yards. Because the reality is a lot of these homes that are built in the 20s and the 50s, they don't have a true master bath at all, you know, if they even have one. And they definitely don't have a true master bedroom. It's not big. So we try to make the bedrooms somewhere the vicinity of like 15 by 15 or, you know, so on and so forth. So that's what we're doing. But, you know, when you top out at 1.3, 1.35 million, you divide that by 2,000.

square feet you're looking at like $675 a square foot you know that is a high price per square foot you know so I mean it doesn't take a rocket scientist to figure out that even if I build a 200 a square foot you know the rest is gravy right so that's where we're really making the profit on on a transaction like this and and the honest truth is a lot of folks are buying these to scrape them and just basically build a new 4,000 square foot monster right yeah right you know Right. So which is what we've done. We just finished one in Studio City right now.

It's at 4,500 square feet. So same situation. We kept the wall, one wall up, and we call it a renovation. But really it's ground up construction. Right. So I've been pretty much totally oblivious to what's been going on in Los Angeles, even though I live here. But I remember, like just after the bust in 2007, 2008, that, you know, you just could not build a house.

house and then sell it for a profit. I'm taking it. That has changed? Tremendously. Tremendously. Tremendously. Yeah. Yeah, tremendously.

I mean, people are building right now, you know, the good builders are somewhere, it depends on the product, of course, but, you know, if you're building in the areas, like Studio City, Hancock Park, Sherman Oaks, Encino and so on. The price per square foot in these areas is teetering somewhere between like five to 600 to square foot, depending on if you're south of the boulevard or north of the boulevard. But most guys that are building in developers, they're building somewhere between 2 and 250 a square foot. So once you add, you know, land value and holding costs and so on and so forth, you know, I mean, then we try to squeeze like 300, 300 plus on one of these transactions, you know.

So it's not a bad deal if you can get in and get out within, let's say, 7 to 8 months max. Right. You know? So, and then most of the guys that that I know. they've got three, four of these going at one time. So a lot of private dollars coming into these transactions. Got it. Yeah.

Let's back up a little bit when we were talking about finding deals. That's really the essence of this whole business. If you can find the deals, then you have a business, right? I mean, you really just control the show if you've got the deals, especially in a market like this. So you went back in and you were saying you're really coming from relationships. And I profess that tremendously here on the show and inside of the academy. This is a people business.

Every piece of real estate you buy is going to be from another person. Everyone you're going to sell. It's going to be to another person. So the relationships are really important. So there's a fast way to generate leads, which we talk about direct marketing. We talk about roadside signs. We talk about pay-per-click. We talk about flyers and stuff like that.

Knocking on doors, coal-calling, all those different ways to generate leads fast. but I really do have always believed that, you know, relationships and networking is the best way. Because in times like this, it's everything. So when you're doing your mailing campaigns, I always say start networking, creating those relationships while all of that stuff is going on also because you're going to need it. So with all that said, are you intentional about networking? Are you intentional about creating that or were you at one time? And if so, how did you go about it?

Yeah, absolutely. You know, intentional, you know, knowing a lot of people in the business makes a huge, huge difference. Because what can happen is right now with my current model, you know, I'm getting brokers and agents being referred over to me. And so they ask questions, like, well, can you go ahead and refer me to anybody you've done business with? You know, and I'm like, absolutely. And, you know, I can easily send a list, you know, I just sent an agent, a list of, you know, like seven to eight agents and three or four homeowners that I've done business with. they would have nothing but great things to say about me. And that's paramount because I actually found out that she called every single one of those referrals.

So that makes a huge difference because now you've got credibility from third party, right? Right. Giving you validation that not only that due transaction with this gentleman, but he performed as promised, et cetera, et cetera, et cetera. That's rare that many people will do that and call your references, check on them. They just simply don't have the time. But, you know, we're working with her seller. And so the seller was, you know, a good friend of theirs. So they want to make sure they went above and beyond the call of duty to make sure they vetted us and to make sure that we perform.

So, yeah, so going around and meeting, you know, people at some of these engagements is, I think, paramount. You know, if you're going to be in Aria, you know, going out, shaking hands, you know, meeting people, telling them what you do. And you can develop these relationships that you never know where they're going to turn up, you know, where they're going to help you out. And that's happened time and time and time again. And I've been in the business since 2004. So it's been a minute, you know. But back in the day when we were writing loans and then doing short sales and all sorts of goods. We met a lot of people.

And like I said, you know, I'm in the San Fernando Valley. So the valley's not that big. So what happens is you run to the same people again and again. My best advice to your listeners would be, you know, make this intentional, you know, to go out, have a business card, coordinate with people, follow up with them. After you meet them, if someone gives you a business card, you know, what's wrong with sending them an email? the next day, right? Hey, it's good to meet you. By the way, this is what I do. If you know, you ever come across something that makes sense for both folks to work on together, give me a

shout, you know, and it just goes to show you what you said earlier, you know, that, you know, be a good guy or whatnot. That's just what you are, right? So people want to do business with that type of person. Right, right. Super. Cool. So, uh, what do you see for, for the future? What I see for the future? Oh my gosh. You know, my crystal ball is in the shop. right now. But if I were to look back, you know, I figured that this year is going to be pretty hot as far as the L.A. market is concerned. And, you know, stuff across the country, what's happening is the equity markets are taking hit. And because of that, people are finding safe haven in real estate. Just something that's happened, actually, it's starting this year

in the next, actually this month, I believe it's March. Miami, New York, and L.A., the IRS is doing a test, basically test run. Because a lot of high-end properties in Miami 3 million plus and L.A. and New York, 1 million plus, they're going to track who's buying these properties because a lot of shell corporations are coming in and buying high-end property. And the money's coming from overseas. So they're testing it for the next six months because they're figuring out these shell companies are just bringing in funds from all over the world to buy high-end real estate and our hot, hot markets, you know, to hang on to them and shelter themselves from the coming. storm, the global storm. So what I see is, of course, this year being an election year,

I don't think that things are going to go crazy. I think the Fed is going to stay pat. I don't think they're going to do anything. And the reality is right now they're testing the banks for negative interest rates, which is, you know, unbelievable. Negative interest rates. Right. They actually have a test that they're doing right now. It's kind of a stress, they call it a stress test to the banking system. And what they're doing is they're asking them, sort of like the Y2K test, you know, when everything was supposed. to go crazy when we rolled into 2000 because the computers couldn't handle it. But basically what they're doing is they're saying, look, you can get to a 0% interest rate.

But what if we get to a negative, a negative half or a negative one? What's going to happen to your system? Can your system handle that? Because they're not poised for that. Because what typically happens right now is when a bank is lending, you know, X number of dollars, they have to, you know, keep reserves at the Federal Reserve, right, in regards to what they're lending. So the backup funds. But what's going to happen is if rates go negative,

then they actually have to pay the Federal Reserve to keep those funds with them, which they're not going to want to do. So that means they're going to try to obviously take those funds out and then hopefully put it into the economy, lend more, stimulate, business growth, blah, blah, blah. So they're testing that right now. So what I feel like could happen is some of the global markets, what they're doing, especially overseas in Europe, Greece, you know, Spain, Italy, you know, et cetera, what could happen is they could cost some real undue pressure on the global markets,

and that'll, of course, affect us like China, you know, what's going on there. If that happens, you know, investors will obviously flock to real estate a little bit more because it's a tangible asset. You can hold onto it for a while. But, you know, we're fearful of what the mortgage markets might do. You know, I don't think rates are going to go up, but is there going to be a pullback on lending itself? So those are the things that I'm concerned with. Those are things that I'm looking at globally.

And it does have anything to do with the local real estate market, you know? Right. It doesn't mean that people are going to default and there's foreclosures coming or anything like that. It has nothing to do with that. But access to money makes all the difference. And right now, you know, even the California Association, excuse me, National Association of realtors came out and said, you know, people are feeling the stress of rising home prices but not rising wages.

Right. Right. There's only a certain amount. You know, and in California here in LA, you know, people are paying more than 30% of their net wage in rents. And a lot of folks can't buy, right? But they have to rent. So, you know, all these are factors like millennials.

Millennials are moving back in with their parents. They want to buy a house, they can't afford to buy house, and they can't even afford rent, because in Rent and Studio City is $3,000 for a 13 to 1,400 square foot apartment. So these are the pressures that I'm looking at, and I'm thinking, look, you know what, this Mary Ground will slow down, obviously, and it'll stop. The question is, is it going to come to a screeching halt because of some outside factor, or is it going to just come in for a soft landing, and then we continue on this path? Because the mortgages that were written in the last five to seven years are, you know,

some of the safest mortgages out there. Right. You know, you've got 20% down. You've got FHA backed. You got full documentation loans. So the reality is I don't see a foreclosure crisis coming. It's just what's going to happen with the ceiling, you know? So traditionally in L.A., in Southern California, when we hit 17% affordability, the market goes the other way.

That means only 17% of the population can afford a median price house, which right now in L.A. is about 500,000. Right. So when we get below that 17%, things start going the other way. Property starts sitting on market for a little longer. Now you got 90 day to 120 day, you know, average sale times. Right. And what will happen? That just means that, you know, it turns into a buyer's market and so on and so forth.

Mm-hmm. So, yeah. Got it. So what are, so that's what you're looking at. Yeah. I'm glad your crystal ball isn't working. It certainly revealed a whole bunches now. So what is something that you're doing,

are there any actions or stuff that you're doing to shelter yourself in case of something like that should happen? It's funny that you ask that, actually, yeah. Okay. We are. We are actually, yeah. We're working on a new model right now that we're advertising, we're pushing out there.

It's essentially working with homeowners to make it a win-win situation. We're basically coming in. and we're going to renovate that house on our dollar and pay all pay for the entire renovation choose the fixtures choose the design elements and so on and so forth and we will only get paid once the property sells okay so it's kind of a win-win because typically what happens is the homeowner ends up in california friends or in soCal they end up putting somewhere between like 30 and 50, 60,000 more into their pockets versus if they sold the property as is. Because most properties right now they're coming on on the market, I would say 90% of those

properties need some of renovation. It could be as simple as new kitchen and bath or it could be the whole nine yards with flooring, you know, paint this, that the other. Well, most homeowners don't want to do that. They don't have the money to do that. They don't have the ability as far as design and so on and so forth. education to do that they certainly don't have the time to do that so that's when we come in we do all those renovations for them and then essentially we're

partnering with them on the resale and so that's how it works and awesome you know it's a win-win yeah how many of those have you done so far more than 10 more than 10 and they worked out yeah and they worked out really really good so it's it's been it's been great for the homeowner and it's been great for us and you know the brokers love it because they're selling properties for higher than originally anticipated. Right. And of course they've got a renovated property that they're selling right out the date.

Right. So there's no real, hey, it's going to be on market for a long time and I got to drop the price and I've got unrealistic seller and so on and so forth. Right. Right. So basically you're, well, I'm seeing here, you don't have to buy properties really anymore, right? You don't. You don't have to make the purchase.

Holding costs. Right. Reduces everything. And then you don't really have to get it at a super discount either because you're just kind of partnering with the, hey, you're not even, that doesn't even come into play anymore. You're just partnering with the homeowner. And, ah, nice, dude.

You pretty smart guy there, Coco. Don't tell anybody. I won't. Again, it's just between you and me. All right. Okay, just between friends. Nobody else listening. Good, good, good, good, yeah.

All right, dude. Absolutely, yeah. All right, man. Well, it's been an absolute pleasure. Again, and I know we'll see each other soon. You have a great weekend. Say hello to Gina. Give that family a big hug for us.

Absolutely. Absolutely. We'll do this again. Hey, yeah. And if anybody, any of your listeners are in the LA area, you know, and they want to send me a deal. Hey, I'm more than happy to listen. Perfect. Where should they send that?

Well, you know, they can send it to Coco at pricelift.com. That's price, PR, I-C-E, and then Lyft, dot com. K-O-K-K-O, of course. And, you know, we've got a long, long history of selling property. for top dollars. So my wife Gina's got a brokerage. I moved the 20 million last year. So she's been hot to trot in the market. Yeah, not doing too bad, you know. So all those investors are looking to sell properties, get rid of those pretty quickly for you. Fantastic. So Coco, that's with the K and another K, at pricelift.com. Send your LA deals there. He'll crush it and get you

paid. All righty? Absolutely. Wholesale is welcome. It was welcome. Perfect. All right, bro. Take care. Thank you, my man. Appreciate it, man. You bet. Take care. Bye. Please stand by. We've got overhead to pay. We'll be right back.

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VAs for real estate.com. All righty. I'll see you next week. I'm Matt Terrio, living the dream. 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. For more top business podcasts, visit C-Suite. e-sweetradio.com