The Science of Flipping - Adapting Real Estate Strategies in Changing Market Conditions | Lawrence Malloy

Episode Date: February 23, 2024

Lawrence Malloy is the owner and operator of a seven-figure real estate investment company, Ethical Home Buyers. In addition, Lawrence is also a national speaker, author, investor coach, mentor, and president of GOREIA (Greater Orlando Real Estate Investors Association). Throughout the past 16 years, by using his various dynamic approaches to marketing and negotiations, he has bought and sold over 500 properties from as low as $3,000 to as high as $1.6 million.  

All right, Science Flipping Podcast listeners, as always, this episode is brought to you by Rocketly.ai. If you're looking for a seller lead generating system that has automation in AI bot and has sellers coming to you, then Rocketly.ai is your choice. Make sure you head over to the website, fill out an application and schedule a demo now to see the power of rocketly.ai yo yo what is up science flipping family welcome back to another episode of the science of flipping i have another incredible guest someone i consider a close friend of mine and who is an absolute boss down in the tampa bay orlando central florida who's been doing

this 20 years lawrence malloy is in the house. What's up, dude? Hey, what's going on, man? I really, really appreciate you having me on. First and foremost, I just want to say thank you for allowing me to come on your podcast and spread my message. I really, really appreciate you. Yeah, bro. Well, we've known each other a long time now and better part of six years or so, five years, six years. years and uh no listen my thanks got to go to you you just had me down um in your ria he runs the ria down in orlando so if you are listening to this or watching this on youtube make sure you are joining his ria down in orlando if you're in the area but you had me speak to roughly 30 something people and it was awesome you have a

great community out there and you have great people in the space. So thank you again and I'm happy that we get to collab here on this episode. We're clear there was like 75 people there but 75. 75 is the number. So that's good dude. It was a great crew. You have a great

following there. So you know you're the man and I tell everyone in that space everyone needs to be a part of that. that RIAs. It's really powerful. It's a greater Orlando RIA. And we work really, really hard at it. We've been in business for several years now. I think I've owned it for five years or so. And then it was running before I took it over. So we work really, really hard at that. And it's a great space for investors to come and network. We have new intermediate and advanced investors all over the board. And we have a good support of business vendors that will come in and help you on your journey,

depending on what you need. So it's a great space for investors to come and network with other like-minded individuals. Love it, dude. And as always, my man looks fresh wearing the newest fashion forward outfits, the shoes, the hoodies, the watches. Him and I are the lawn to like in that sense. So excited to have you, bro. But let's jump into it. So you've done this now for 20 years. You've been around, you've done a lot of deals, you've seen a lot of things. So let's jump into the last 12 months, right? I think anyone who's been around for any amount of time, we've realized the change, right? We probably felt it 24 months ago and we've gotten ahead of it to some extent. What and how has your business changed just in the period of the last 12 months?

So great question. So essentially our government is trying to tank the real estate market, raising interest rates. So obviously, when that happens, there's going to be less people that are ultimately selling. Why? Because they can't sell and go somewhere else and go buy something else. So it just slowed down. There's less people that are selling in general. The last couple of years, we were really spoiled because people were just selling because they could sell. It's like, wow, my house is worth that much. Sure, I'll sell it. I don't care. And I'll go move somewhere else, do whatever. I'll sell this one. I have a low interest rate, so I can just go buy something else, take some of the proceeds from that sale, and just apply it towards a down payment on another

property. And I have this really low interest rate. They're like, yeah, sure. But now we're not in that same market. So just our overall numbers, we're a volume company. So we do roughly anywhere from 20 or 30 properties we're working on at any given time with buying, selling, rehabbing, rentals, whatever it is. And it's just kind of slowed down. Now we're closer to like 15 or 20 properties that we're working on right now. So a third of our production has kind of slowed down, which we still do good. But one of the main reasons is as the market stuff isn't selling as quickly because interest rates are higher, so not as many buyers in the marketplace. So the key for

me is I really want to scrutinize my numbers and make sure that I'm buying these properties at the right price. As we all know, you know, you really win when you purchase the properties in that initial negotiation. So back in the day, a year ago, you could buy something. And even if the numbers weren't that great, the market would erase some of your mistakes because the market was still going up at the time. So you could buy something, maybe the numbers were a little tight, but then all of a sudden you are holding onto it for a couple of months while it's being rehabbed. And then you sell it and all of a sudden you made all this money. Why? Because the market erased some of that mistake. Now it's going the opposite

way as the market's coming down just mistake. Now it's going the opposite way as the market's coming down just a little bit or whatever. It's come down already like a good 15%, like already. So since a year ago from now, come down 15%. Assets that were selling for 300 a year ago are now selling for like 250,000. So it's already come down. So you got to be really, really careful on your numbers because if you're locking up deals that are tight, by the time you're done rehabbing them, it could be the rehab costs a little bit more at the end of the day than what you were expecting. You were thinking 30,000, 35,000. Now it's like a $45,000 rehab. Market's coming down just a little

bit. So all of a sudden you thought it was going to be a bigger spread. Markets come down. Rehab costs a little bit more. Now you're really kind of thinning out some of these profits. So there's a lot of things that are changing, which is really, really important that you're being diligent on your numbers and you're being very careful on what you're buying and what you're passing on. Yeah. So my model, right, is to buy things that are going to ARV under 300. That is the top value. Now, really my number is 250. If I'm being really honest, I say 300 because they can still work and we just sold one for 269, but really's $250 and under. And what I mean by

that is it creates a great flip or rental. So either way, I'm going to win on my exit, meaning I can keep it because the rents are right, even at 8.5% interest, 9% interest, even though the rates have changed, I'm underwriting conservatively assuming those rates. And if it's still pencils, then I'll just keep it in my portfolio. Conversely, I can also flip it because I'll make somewhere between 40 to $50,000. Now I will flip a property. My target is always 50. I don't really want to fool with rehabs until I can make 50 grand. That's always my target. Will I do a deal and make 40? I will, but my target will i do a deal and make 40 i will but my target will always be 50 um and it's because that price point gives me two exits to keep it or to flip it what is your model in the central florida

like what are you buying versus maybe just wholesaling because it's not a model that you would be willing to buy so i like that what you just said. I really really like that strategy as well jay um, one of the things that I also Like is doing, you know up to 350 000 the reason why and i'm buying it like a mayo formula max allowable offer Is because it gives you some it gives you enough profit margin where if you do go over On your rehab budget or if you have to reduce the price a little bit, you're still making quite a bit of money on there. You know, the ideal goal is to make 20% of the after-appear value. So at 350, a good $70,000, and you're still landing right around that $50,000 if kind of the numbers fudge here or there. And the last time I checked, 50 is 50.

But one of the main things that I'm doing is I'm really being picky on the projects that I'm picking up. So back in the day, people will take on these crazy rehabs. They're like, oh yeah, you can make it $350,000, but you got to add this room. You got to do this thing. You have to do all of these crazy things to it versus now I'm doing easy projects. That's the key, man. The key is knowing what to purchase and what to pass on. If that is probably the number one, if you're going to be a rehabber, I would say understand what to purchase and what to pass on because there's so many deals that on paper it will pencil out, but then in reality and from experience and doing over a thousand properties,

the experience tells me, ah, you don't want to mess with that one because you're going to run into this issue, this issue, this issue later on down the road. And it's probably not worth your time, effort, or energy at the end of the day. Yeah. I mean, listen, I've been in those deals where I think I'm going to be in and out of them like four months. And all of a sudden, a year later, you're still dealing with it. And you're like, why did I do this? And then sometimes you got to do it. And then you don't quite learn the lesson. And then you got to do this shit again. And you're like, oh, I know better this time. So now it's a hard conversation with my acquisition reps because they'll come in here. I got this deal. And then as I underwrite it, I may say, hey, you know, we, I got this deal. And then as I underwrite

it, I may say, hey, you know, we can't buy that one. And then I just have to explain to them, you know, they sell me on why I should buy it. And I sell them on like why I can't or why, you know, we shouldn't buy it based on my experience and insight, which brings me to why it's important to make sure that people stay following you very closely and make sure they're in your universe very, very closely because there's insight versus information. And those are the types of things where just because you can do something doesn't necessarily mean you should. And having a mentor, coach, consultant that's close by you is going to help you avoid some

of these costly mistakes. And mistakes come in two forms. They come in monetary, and then they also come in time. So if you lose six months of your life, like that is a cost. Maybe not the expense that you see on paper, but it is a huge cost. And we're not just talking about losing six months. It's the stress. It's the anxiety.

It's the sleepless nights. It comes in many many many different forms so yeah i was just gonna say i don't know how the hell you've escaped 20 years of this business with all that hair on your nugget but bro i'm still jealous i lost all mine we all know that so i i would tell you you know i have some great pictures of you back in the day with a long like it looked good out in san diego i have some good ones i'm gonna start posting them some some throwbacks. Now, the reason why I try to keep it out, I want to hear your understanding or philosophy, I guess. I believe people who are going to buy my flip at the end purchase, right? So the owner occupant, when they're going to go

get a loan for a property that's $250,000 or less. And the interest rate is 8%. Nah, for an owner occupant is probably close to seven and a half, seven, just depending upon whatever. But it's still an affordable home. When you start to get into the 400s, 500s and 600s, I believe right now that is the market that's going to be the biggest hit is somewhere between 400 and 700. I think that middle class, what people used to be able to afford is no longer affordable based around the increase in interest rate. Are you just avoiding that like the plague as I am? I'm not avoiding it. I'm just underwriting every deal. So it has to be the right house in the right neighborhood, in the right marketplace. So like perfect example. And that's why I'm a big advocate. Like I don't do nationwide.

I don't buy nationwide. I buy in my marketplace, which is actually six counties that I've been buying in for 20 years. And that gives me some insight. Once again, it's about insight, right? So like if I know a neighborhood in South Tampa where I currently live, $400,000 to $700,000 isn't shipped for a house just because of the location. But if you go take that $400,000 to $700,000 house on the outskirts of Tampa, one of these outer markets, then that's a luxury house out there. And that's where people are going to get screwed at. And that value is going to have to come down. You're going to have to

reduce the price. I mean, there's a lot of things that will happen because not as many people are buying in those areas. So they're sitting on the market a longer time. So once again, these are just kind of insights. So closer to city center, more valuable real estate, but the further out you get, it may be a little bit more challenging. So I'm not avoiding it. I'm just taking Orfew $400,000 to $700,000 out at the beaches. Not a big deal. People pick that up all day long, secondary homes. So I'm just really looking at it for what it is versus not even doing deals and not even looking at them at all. Because there's some good deals that are out there, but they're few and far in between. What percentage right now does your business look between purchasing, really purchasing for either a buy and hold flip

or wholesaling? What percentage on both are you at right now? So most of the stuff that I'm buying now, I'm buying and I'm reselling. So buying it light rehab and then reselling. I'm looking for some properties that actually make sense for cashflow for rentals. I think that's an amazing opportunity right now. I'll give you a perfect example. The market's just come down, right? It just come down about 15%. So an asset that you used to be able to buy on the open market that was just $300,000 has now come down to where that same asset is selling for on the open market $240,000. Open market, this is through an age on MLS, like values have just come down. If you could pick up that asset for $200,000 or $190,000 because

you're a good negotiator and you're able to pick up that asset and hold on to it long-term, all of a sudden put it into your portfolio, let's say two, three, four, five years down the road, whatever it is, where do you think it's going to go back up to? Yeah. At least 300, right? Because it was just there. So however, and let's say you pick up 10 of those assets and they're just long-term rentals and you're picking up the right assets. So just because you let's say you pick up 10 of those assets and they're just long-term rentals and you're picking up the right assets. So just because you can, doesn't mean you should. So if you pick up a rental property and it's a hundred year old freaking frame bungalow house, and it's a three, two, but it's a hundred years old and blah, blah, blah. Like I don't love that asset

versus trying to pick up a cookie cutter house that all of the hedge funds are picking up that are easy, like the layouts already there, like it's a newer house, 1980 and newer, like that's a better, safer bet for me to pick up that asset. If you can pick it up at 200, 190, once again, which isn't a hard negotiation at the end of the day, I think those are the assets to hold on to. And you pick up as many of those as possible until the market adjusts back up. So there's an equity play there. So you pick it up for 190, all of a sudden it's back up to 300. You could sell it off if you wanted to, you can pull a line on it. There's a lot of different things you could do. In addition to that, the tax benefits that you're going to make off of it, even if you don't have a crazy cashflow, like that's the least of my concerns right now, more is the equity play as well as the tax savings on it. Yeah. Does that make sense to you?

It makes sense to me for sure. And so when you are, so again, the real question, if you're doing how many deals a month total, and then what percentage of that are you just wholesaling off to someone else or that you're buying yourself? I'm wholesaling like zero. I'm keeping like, look for them. I'm buying all of them for myself. I don't wholesale. I've never been a big wholesaler. It's just, it's hard because I'm like, why am I going to wholesale this deal to someone else when I could just take it down myself? And I have the infrastructure, the project managers and the contractors, everything else to just kind of do the rehab. There's some that every once in a while, I'll buy something and wholesale it off just because whether we have all these projects going on,

or sometimes the work is just, it's too much work for, I think, for my team that I want to take on. So I'll wholesale it off. I love wholesaling to other contractors because they have the crews that it kind of gives them an opportunity to make some money on a deal that they're actually invested in. So I'll wholesale something that's like a very, very heavy rehab, but it's few and far in between. Like most of the stuff we like to take down ourselves and, you know, rehab or do whatever we're going to do with it. Sometimes I'll rehab, I'll wholetail a few things here and there, but even wholetailing is not as, um, it's, it's not as consistent as it was, you know, a year ago, two years ago, just because there was a lot less

inventory. So people were buying anything and now you just have that same luxury. So you're talking about running a rehab business at scale. And so let's talk about kind of what that looks like now, granted many listeners most likely are beginners more so than 15, 20 years like you and I have, right? So we have to take that into some level of perspective of how you can start to grow and scale. But if you are going to start and grow and scale, and you need to leverage your time, what's your first suggestion to those that are contemplating whether they're going to go? Do they hire VAs? Do they hire local? What would be the role first, just as a question to start? That's really a loaded

question because I like an in-house executive assistant for your first hire, bar none. And the reason being is for many, many years, I ran with just me and an executive assistant for many years. And basically an executive assistant, they can do everything. Like this is someone that's a highly, highly skilled at working with C-suite employees or teams or whatever. And so they're very detail oriented and they can handle a lot of different tasks. So the idea is you teach them what to do. You start them off. Hey, I just need you to do this one thing. And then, okay, I learned that. Okay, let's add this. Let's add this. Let's add this. And you can build upon that person and you can actually build them. So you find someone

with the right characteristics. I like in-house just because they can do 90% of business and 10% of personal. And your main job, if you're getting started in this business, is to be locking up deals. That's probably an owner's superpower, is to be able to get on the phone and lock up that deal. That conversion process is probably by far the biggest skillset that you need in this business because that's how you're going to do more deals. So anything outside of that, which is sending contracts, opening mail, there's answering the phones. Even if you push out marketing and have people calling into you, you still want to have your executive assistant that's

answering the phone, filling out the lead sheet, building rapport. I'll tell you a funny story. So, you know, as A-type personalities, we always think we're the best at every freaking job that's out there. Like, oh, I'm the best person to lock up deal. I'm the best person at talking to the sellers. I'm the best person at doing all these things. And that's what I really thought. This is some bullshit that I actually really thought, right? You bought into your own bullshit. Got it bullshit got it exactly yeah so then all of a sudden I teach my executive assistant how to hate someone's gonna call in and then here goes a leachy and ask them this questions and your goal is to build rapport and your goal is to get all of these questions answered you know and so

then my sweet, awesome executive assistants would get on the phone and they'd get really good at bonding with the person, whatever, and building rapport and getting all the questions answered. If someone's like, hey, well, what about this? Or what about that? And they wanna get deeper into a question that they ask,

my executives, hey, would just say, hey, I'm not sure I'm just, you know, the executive and admin assistant here. Let me go ahead and take down this information. I'll pass it along to the owner. And then I'll have him give you a shout if you're, if he's interested in the property. So we were never guaranteeing callback, but she would get all the information. And I was like, damn, she got like really, really good at this. So this is the thing that holds people back from scaling is sometimes they make the wrong hire. And then they think, Oh, you know what? I'm going to, you know, I knew really good at this. So this is the thing that holds people back from scaling is sometimes they

make the wrong hire and then they think, oh, you know what? I'm going to, you know, I knew I was the best one at doing this. This other, no one can do it as good as I can. And the reality is, they probably just made the wrong hire versus like, if you take the time and train someone properly, you'd be surprised. And my executive assistant is way better at all the stuff that I have her do. Like she's just really, really, really good. So what about the people that are like, I get a lot of people that basically want to outsource the sales out of the gate. I want to hire a sales guy. What are your thoughts on those people who are like, oh, I want to hire a sales guy first?

I think it's just a matter of people have fear that they can't lock up deals or they can't learn or they don't want to learn how to lock up deals. And I don't love that. I think if you're in this business, I honestly think that you should hop on the hustler of your business into the CEO, I think a big part of this is being able to lead your team. And one of the main ways I've been able to gain the respect of my team is because I've been there, done that, and I'm able to lead them from the front and not telling them what to do. So not only do I come over the top with kind of giving them some additional training here and there, I'm able to talk intelligently about that process. I also provide additional sales training that isn't my training, but an outside. So we have a consistent training for them all the time. And on top of that, if they have additional questions, then we'll talk. I also

have a sales manager. So that is one of the biggest... What's crazy to me, Justin, is when people outsource their sales to a virtual assistant, their acquisitions to virtual. Just like that's one of the most important parts of your business and you have to treat it as such. So not only should you do it, I think that you should also have sales training for people. And I also think that you should consider getting a sales manager as you get up and going. And when I say sales manager, not a competing sales manager, someone that's literally there to support, answer questions, motivate, do all the things, but not necessarily someone that's on the phones trying to make sales as well. But that's, you know,

once again, we're talking about levels to this, you know, to this game, and that's a further advanced, you know, strategy or advanced team member. Yeah, I think, you know, my philosophy is I never want people to hire like it's the last hire is the acquisition person. And the reason being is the phrase goes, you make your money on the what? The buy. Right. So you need to be the best. And if you're the business owner, you're the one in the space. Even if you're doing this part time, you need to hold on to the acquisitions for as long as you can because it's your business. It's your baby. And even if you don't feel like you're the best, you need to become the best and study it and understand it and hire a coach and things of that nature. But if the saying is true, and you and I both believe it is, I don't want people hiring acquisitions.

In the first two or three hires, I don't want them to because you make your money on the buy. That's where the negotiation happens. Now, the only extent I'm willing to kind of say, all right, well, someone is a massive, massive introvert and they just know they are not the right salesperson. But they're a great operator. They're a great integrator. They have the vision to build the business. Fine. But I'll tell you, very rarely does the integrator operator have this crazy entrepreneur visionary side that they want to build something big. So it's a very rare breed that has the visionary side willing to build it, but they realize their strong suit is not sales.

That's rare. That doesn't come along a lot. But you get those types of people quite a bit that they want to do real estate investing because they see the numbers. So you get those introvert kind of operator types that understand the math behind it. So they're like, okay, I want to do this thing because the numbers make sense. So I a thousand percent agree with you wholeheartedly. One asterisk I would say is if you were to come on and start doing acquisitions, not you, but like an investor coming into the business and you hire an executive assistant and you're teaching the assistant how to do all of the

paperwork, minimum wage activities, things that you're taking that's causing you to take time or whatever else, you're teaching them how to do all that. I don't mind someone bringing on an acquisition rep that's working alongside of them so that they can train the acquisition rep. You're still the main person. You're still doing acquisitions yourself, but being able to train one person to bring them up so that you can be doing deals and they're doing deals and you guys are collaborating. So I don't mind that on a small business scale, like an executive assistant plus an acquisition rep, like that actually is not a bad team to, you could do a million, just a million of business off of those people. And even if you're teaching that person

how to do acquisitions or you're teaching them how to do dispositions as well to kind of free up some time, the reality is, is your executive assistant can do dispositions. Like there's just a lot of things that you can do. And I'm all about this is one thing you will absolutely learn about me is I'm all about how much profit are you bringing to the bottom line? There's no ego involved in my game. Like I'm not, oh, yeah, I need this big old business with 40 people, 50 people, whatever. At the end of the day, I want to know how much money am I putting into my pocket? Am I running a lean, mean machine at the end of the day that's putting more profit in the pocket? That's the thing that I'm most concerned about at the end of the day. I see a lot of people, I got to scale and do these big business and beat on their chest because they

have a big office and they have all this expense and all this team and everything else. And at the end of the day, they're not putting anything in their pocket or they're stressed the fuck out because they have all this overhead expense, the market shifts, and all of a sudden you're not doing as much business and you can't cover your overhead. Yeah, I think this kind of goes back to the point that I make regarding active income versus passive income, but it's really about go create a bunch of income to pay yourself, right? So I pretty much have a hard line in the sand of saying, if you can't make 250 grand a year, you probably shouldn't be hiring anybody. Now, I like the executive assistant thing. That was something that we adopted years and years and years ago. It was our first hire ever in real estate,

and it worked out wonderfully. So I do like that. But really, you need to make sure if you're going to do this as a part-time hustle or full-time, make sure you're making real money. Not just saying, oh, I made a million dollars, but you paid yourself 80 grand, which by the way, I've done that. I've quite literally had that experience. And it's not a fun experience, right? To, yeah, sure. It looks cool on Instagram or whatever, but really you're like, oh my God, I'm barely paying my bills. And that's not just a fun place to be. This circles back to why they should be in your world, in your community or my world, my community. It all circles back to that, right? Because you need to be able to ask someone honest questions where they can ultimately give you some insights to,

hey, that makes sense. That doesn't make sense. Or bounce questions on that you can trust that's in your corner that's not going to bullshit you and actually give you real information. Like when people ask me questions, I give them real insight versus, you know, pine the sky stuff, which is what you'll find on the internet a lot of times, like theories versus actuality and what you can actually do versus what you can't do. There's no doubt. Let's leave everybody with a little bit of 20 years experience, as we talked about, of how do you see your business going into 2024? Any pivots, any changes, any modifications, any adaptions

relative to what you've been doing in the last four to five years? I think it comes down to just being very diligent in what you're doing. There's a lot of uncertainty in the marketplace. So this isn't the time to be taking these big risks or these big swings when there's uncertainty in the market. There's a lot of people that in the past 12 months had taken big swings because the market was doing really, really well. And now some of that stuff has come into fruition. Oh, I'm just going to take this big swing on this property. I'll refinance it later. And now some of that stuff has come into fruition. Oh, I'm just going to take this big swing on this property. I'll refinance it later. And now all of a sudden, interest rates

are so high, they can't even refinance it. They're trying to figure out what to do. The market's shifting. We're not in a consistent market right at this moment in time. So what I say is just be a little bit more cautious on what you buy because you can find yourself out of the business before you find yourself in the business. And another thing is just making sure like if you're thinking about scaling, understand it's a process. All of this stuff is a process at the end of the day. So nothing's happening overnight. People are going on the internet and they're seeing other people that they think, oh my God, this guy built this business so quickly. They're doing all this stuff and

they're trying to compare their situation with someone else's. And it's a totally different situation. Don't compare yourself with anybody. Go at your own pace. And at the end of the day, make sure that you are not taking these crazy risks in this moment in time. Now's not the time. Now's the time to, you know, you obviously, we all take risks. We take calculated risks. And if I could give anybody advice, it's you better be a part of a community that you're able to bounce some ideas off of and be as vulnerable as possible. You go to the side because you want to get the information that you need in order to be successful. Absolutely. I think that's great

advice. That is why my science flipping community, your greater Orlando Ria is available. Like for those of you that are in the central area, make sure to go to greater Orlando Ria and make sure to be following my guy, Lawrence Malloy. What's your handle on Instagram? My handle is the Lawrence, L-A-W-R-E-N-C-E Malloy, M-A-L-L-O-Y on Instagram. Definitely putting out a lot of good content. And I'm just, you know, I'm really appreciative that you have me on here today to be able to deliver this message

because I think a lot of people this message because I think a lot of people need it. I think a lot of people are just struggling right now trying to figure out what to do, what not to do. And the biggest thing is you have to be involved in a community. You have to follow true investors that are actually doing deals. You're an operator. I'm an operator in business right now for a very long time. It's very important you follow the right people. Yeah, man. Appreciate you. You are busy.

And so thank you very much for your time. Thank you for the compliments, my guy. Appreciate you. And that is the end of this episode. Be aware of the next episode coming out. Peace.