The Science of Flipping - Adapting to Shifting Market Conditions in Real Estate | RJ Bates III

Episode Date: April 25, 2023

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Yo, yo, what's up, everybody? Welcome back to the Science of Flipping podcast. I'm your host. If you're watching this on YouTube, you should be. Go to YouTube or justincolby.tv. You will see I am with already a good friend of mine in a very short amount of time. RJ Bates is in the house.

What's up, brother? What's going on, man? Thanks for having me. Dude, you know, we were just joking about this earlier. In a very short amount of time, you, me, and Cassie have just been like, we've become like family. And it's been kind of cool to do because that's a very hard thing to do in our space.

Yeah. If you don't know RJ and Cassie, you need to. They have a television show. They have an incredible social media game. YouTube's cracking. I mean, these guys, the reason why he is on right now is because he is a major, major influencer in our space, but he's the real deal. And that's the only people I'm going to have on our podcast is people who are really in the business. So I'm excited to have you, dude. We just wrote one of your podcast episodes. So I'll make sure

everyone not only follows you on Instagram, but YouTube and goes and follows you on your podcast. So that will definitely happen here in the show notes. And I'll give you some time to talk about that. But if people don't know who RJ Bates is, besides a two-time closer champion with the belts to show, let them know. Let them know who you are and what your background has been for the last eight years or so. Yeah. So born and bred here in Fort Worth, Texas. Cassie and I, we've been entrepreneurs for 13 years now. Full time in real estate since 2015. So eight plus years now. Feels like a lot longer. But we nationwide virtual wholesaling is the main thing that we do. But we also do flips.

We own rentals. We do seller financing. We've done Airbnb in the past. Pretty much anything that you could do in single family real estate, we've done. Like you said, more recently featured on A&E Zombie House Flipping. We bought a country club here in East Fort Worth. We've been really blessed to be able to do anything and everything that we've wanted to do inside of real estate since we got started. And that's why we got started in this, man. We saw the opportunity that it would

allow us to achieve our dreams. And we're right in the middle of doing that, man. I love every single day. Dude, I think this is where you and I resonate the most and why we very quickly became so close. It's just the philosophy we have behind this entire life, right? You and I firmly understand the value of real estate, where it's going to take us, the wealth it's going to create and the journey it's going to have along the way. You know, we were just talking about how being more open about our losses, right? And how I, you know, I'm always talking about the seven figures I lost on my development, multi hundreds of thousands of dollars on a multimillion dollar flip. Talk a little bit about your experiences with the growth and taking a big swing at the bat

and maybe that not working out for you. Yeah, my big swing of the bat was deciding in 2018 that I didn't need to wholesale anymore because I was really good at acquiring properties. But simultaneously, I also came in contact with private money lenders. And so without putting together any systems or processes or any SOPs, it was, hey, we're now the nationwide virtual flipper. We're nationwide virtual landlord. You know, I mean, we're going to do this. We had tons of flips going on in Alaska, Hawaii. No, really? Oh, yeah.

I didn't know that about you. Oh, yeah, dude. My childhood best friend, Elijah De La Garza, lived in Hawaii. So he was like, dude, if you're doing real estate and I'm a contractor, maybe we could do some flips. We did two flips in Hawaii. We made like six figures on the first like 75 000 on the second and then of course what do you do after you do two individual flips

and make really good money you go by 12 at once duh yeah yeah and then and then we didn't make any more money um that thing transitioned to a buddy of ours that we went to high school with was in Anchorage, Alaska, and said, I see y'all are doing stuff in Hawaii. Why don't we do stuff in Anchorage, Alaska? Because I'm a realtor. So we started doing stuff in Alaska. And that transitioned into us buying like 15 properties in Anchorage, Alaska. Also not good um same thing in Arizona Ohio Mississippi Alabama Oklahoma Texas I mean we owned all over the place and at the end of the day I was just a really bad leader um I was really

good at what I was doing which was buying properties and raising private capital but i essentially just bitched and moaned and screamed at everybody for not doing their job when i really didn't put them in a position to succeed and uh the the book that changed my life is right behind me extreme ownership um i read the great book by the way oh yeah the chapter there's no bad teams just bad leaders um i was running in the morning listening to it on audible and uh full-on sprint sobbing like a 13 year old girl man just uh i knew that chapter was about me and that's when we had to make changes um and and luckily you know listen we we had to go to some private money lenders and ask for their grace to allow us to pay them off in time. And everyone worked with us over the course of it.

We lost a lot of money. We had to go sell properties that we had equity that we were keeping and we planned on keeping just to pay some debt off. Sure. It was a tough couple of years, man. And listen, we're still kind of reeling from that because there's scars sure there's scars for making those types of mistakes so every time it's like we buy a new property it's like okay was it really that because we had too many or are we not good at this and every now and then you know we got we do really well and

it's like okay we we don't suck at this. It was just, you know, we got ourselves. Like I always say, you guys, you know, make more money and you lose. And you always win, right? And so you guys are so skillful that even if you can have a tough couple of months or even a year or two,

you're able to rebound because you're so good at what you do, you can go out and regenerate. The thing that in our space is so common is we create, we find the hustlers. They all want to hustle and go get deals done. And we all have that. You have it. I have it. Like I know if I go lose money, I will go create more money to cover that loss. Right. And it's something that you and I were talking about earlier about, you know, having those losses, people get to make a decision. Do you quit and leave the business or do you stay in the game and keep getting back up? And you and

Cassie and myself, we are those dogs, right? We keep getting back up. And I didn't want to start this episode on, geez, Justin, this has been depressing. You're losing money. RJ's losing money. Geez. Listen, guys, what we're trying to do is be real with you is to say, we want you in the space. We want you making a lot of money, but there's a lot of work that comes with that. And there's a way to do it in the way that you don't have to be the RJ or the Justin to lose the money, right? I would make the point, not knowing all the intimate facts about those deals and those dates and whatever, you went for a swing of the bat, which was larger than your current experience. And not just incrementally larger, like 10X larger than your current experience. That's my guess, because it's the same thing that happened to me.

I went and did 96 rehab flips in one 12-month period. I was on fire. There wasn't a single, no one could tell me shit, right? Like my shit didn't sink. I made all the money. I'm the best flipper in the world. That of personality right so the very next year I get presented a development play 79 townhomes I've never developed a damn home not one but I think because of my ego I can do this and I started chasing the money because I was like oh well if I can do this on

flips look at how much money I can make on this development. Right. Well, that was a issue because I had no experience doing it. I was seeing such a big swing of the bat that I wasn't even in the same game anymore. It was like a 10x fold on relatively to what I was doing with flips. And I got hurt. And I'm guessing you would probably say the same thing about all that that we just discussed, correct? Bro, we were just overextended.

I mean, you talked about, you know, when you have a loss, go back and learn, right? You're either earning or learning, right? So the learning experience there was we didn't buy bad deals. Looking back, it was like, holy crap, crap man we really shit to stick on this like some of these were really good deals there were signs where we would buy so because then for months not even touch them because we just didn't have the manpower totally i mean that's huge that was it and then it became one of those things where it's like okay we need to buy another deal because if you're not buying, what are you doing?

And then you talk about the cash flow aspect of flipping houses. And ultimately, this is why I resonate with your education and what you teach. We should have not stopped wholesaling. That should have been our revenue generating machine. We got away from that, went into just flipping and just rentals. There was a lot of lessons to be learned there. The overextension, the cutting off of the main revenue source that should have never been cut. I mean, at the time, we were multiple six figures a month in wholesale. And just whack that because it was like, well, no, we're not going to be

multiple six figures. We're going to be multiple seven figures because we're going to go flip all these houses. Right. And that's what happens. Hubris, right? You know, we get kind of caught up in the success we have and we can make all this money. And we're like, we can do it no matter what. Right. So let's just pour on the gas.

And that's part of what this episode, your podcast is so valuable. My podcast is so valuable is because you guys can learn from these mistakes, right? Not just what list can I pull? Fine, we can help you guys with that kind of stuff. But how did we get hurt in our 15-year career or his eight-year career? He's done millions and tens of millions of dollars in real estate. He's actively buying. I think you just bought a golf course or a country club.

Yeah, and also, you know, going back, I mean, I think I did the numbers the other day. You said you're at 2,200. I think we're at 1,650. So impressive, bro. I mean, for eight years of business, that's incredible. And it's like, that's a lot of transactions to go through. And to see how many of those transactions literally just went to repaying the losses

yeah you know i mean just the amount of work that we had to go back and do so the lesson that i always want people to to learn by listening why i'm so open about this is is like hey it's okay to slow down you don't have to sit here and feel the pressure of like hearing me say 1600 deals or you 2200 or anybody else on social media. Don't compare yourself. Comparison's the thief of joy. And my joy got stolen for years because I was trying to be someone that I wasn't ready to be yet.

You know? Bro, I love that. And I might steal your comparison as the thief of joy. I might steal that dog. I'll give you credit. I'll be on stage. My boy RJ says, I'll give you credit, but I might have, people need to hear that, you know?

And I'm going to put on another version of that. As Tony Robbins says, see, I do give credit. People overestimate what they can accomplish in one year and they underestimate what they can accomplish in 10. And so, you know, I know you support this, but what I try to tell people is like, build the business that fits your life and where you want to be going.

Everyone wants to be in a rush to go make six figures a month or whatever the number is. Don't be in a rush. Slow down and do it right. You know what I mean? Now, I say that, but I also say done is better than perfect. What I mean by that is don't go take such a big swing at the bat. Be okay with singles. Yeah, I'd be okay with a double. You don't need to come out of the gates and try to create a seven-figure a year business. I didn't make seven figures a year in real estate for at least seven years, seven. Right. Um, and so I just want people to understand,

build the business you want. You don't need to go, you know, Oh, I'm going to be the next RJ or the next Justin build. What can you can sustain. Um, and it's really important. What, what else would you tell someone? Maybe, maybe, someone? Maybe you can have some insight on this. We just talked about how the shifting market has really affected a lot of people. What's your take on that? How are you pivoting? What are you adapting to the current market conditions

in your own business that maybe some people who are active could take away from this? Yeah, I think there's a couple of things to notice what's happening in the market. I mean, November, December, January, we're pretty rough for a lot of people to be honest. I mean, a lot of people just flat out and just left the industry.

Yeah. And, and that's sad because I know myself on my podcast, I've been saying it for probably three years by a it's coming guys. It it's coming. And when when it hits it's going to be swift and it was now we had no idea that it was going to do be because of an increase in interest rates because of inflation we didn't know what was going to cause it but it finally happened uh so a couple things that we've done when we're negotiating with sellers the conversation on

purchasing via you know sub 2 seller finance that is a much more frequent thing that we're doing right now because the the what our buyers are telling us is is that we're more open to buy via terms creatively than we are cash. Some buyers are flat out saying, we are no longer buying cash. We're only going to buy on creative terms. So that's step number one, having that conversation and also understanding that more sellers are open to having that conversation because of what's happening. There is a transition happening with the sellers now where they understand this isn't what was happening the past five or six years, or actually

decade. They're understanding that there's a transition in the economy right now. So that's the big thing is creatively having those conversations. The other thing is, on properties that we're purchasing, we're limiting the amount of inventory that we're going to have, even while doing a TV show. We're limiting the amount of houses that we're buying for flips. Also, when we're buying rentals, we're also one of those people that are saying we're only going to do it if we can get it on terms. And then the other thing is, is we're creating a lot of notes. So we are turning around and we're willing to sell our finance rather than keeping them as rental properties. That's just because it's eliminating some of that overextension that we had in previous

years, where quite frankly, we didn't have the manpower to be a good landlord or be a good flipper. Well, it's easy to be a good bank because you don't have to worry about tenants and toilets. So those are some of the transitions that we've made. Yeah, I love that. I mean, that's something everyone should be rewinding right there, right? If you were advising someone to get started, what would be your advice? What strategy? What marketing strategy? Should they go national? Should they stay local? What would be your advice there? Yeah. So first and foremost, I think you need to pick a couple of markets. I wouldn't say like, Hey, you're going to go nationwide. Um, let's, let's pick some strategic markets. You

know, if you're in, you know, the far Pacific coast is the far Atlantic coast. I'm probably going to say, Hey, we need to push you a little bit closer to the center. You know, we're going to talk about the Midwest. We're going to talk about Sunbelt. Those are going to be easier places for you to get deals. OK, so for me, it's always about the eliminating the factors that can hold you back from success. And normally the first thing that people struggle with is getting a deal so let's let's slap you in a place that's easy to get a deal in ohio and indiana michigan like dude sometimes you

can just flat out just talk to a seller and they're just going to tell you hey i'm willing to sell it to you for twenty thousand dollars and it's a good deal okay so push you in those areas. As far as what kind of marketing, okay, two years ago, it was SMS all day long. Now, not so much. Regulations have come down. You can't push the volume that you need. So for your outbound marketing, it's going to be cold calling. Okay, you're going to pull your list. You're going to do cold calling.

I want to transition you off of cold calling and have a VA do that for you as soon as possible. But outside of that, we want to get you to a point where you have a budget in which you can create your own inbound marketing leads, whether that is PPC, Facebook, YouTube, whatever it is, we use third-party services for those. Speed to lead for PPC. It allows you to cherry pick the leads that you want. So you can literally go in there and say, I'm looking for a deal in Tulsa, Oklahoma.

There's one, just came in the day, property's vacant, the condition is poor, and they need to sell ASAP. It's gonna cost you $350, but that's worth it. That is, I will pay $350 all day long to have an opportunity to have that conversation with that motivated seller. That's where I tell people, really, you need to start there because that allows you to have good quality conversations and then you can refine closing and getting the deals out of contract. I You know, again, this is why we're so

in agreement across the board. If you guys don't know, well, I'll tell you guys, but you know, RJ and Cassie and I literally met six months ago in Milwaukee. We were just together again, San Antonio. This is a very fresh relation, but everything we are talking about, we're always in alignment and I couldn't agree more. You need to start slower. Don't spend a bunch of money. And as you get to a place of income, go after the motivation. Right now, there's opportunities like Privy where you can be online. I'm in Miami. I can be making offers in Ohio, to his point. It's a lower end market. I like markets that are 30% under the national median. So at some point, the national median was right around 400 grand. Maybe it's a little lower now, but let's just call it 350. I want to be in markets

that their median is 30% lower than that or more. That's a good market to me. Cleveland, Ohio, Akron, Ohio, Cincinnati, you name all the cities in Ohio Ohio you're going to find that market great market great price point so he is absolutely dead on here I mean this whole last you know 10 minutes you guys need to be rewinding and you know listening to again because it's exactly what you need to be doing right as someone that's currently doing it national now what is your national business look like as a moment in time well you know i i always talk about we're always active in all 50 states because we are we have data in all 50 states so we have a team of cold callers our vas that are always hitting that data and and i'll give you a

little bit of a tidbit on how we do that it It's very simple. We will say, okay, we have 10,000 records in Cleveland, Ohio. One VA is going to call through all 10,000 of those records. When that VA finishes that, they're now going to call a nationwide list. And that nationwide list is going to be on a motivating factor. So we're going to say nationwide pre-foreclosures, nationwide bankruptcies. And so now they're going to call nationwide, hit all of those. That's where you're going to get the random seller in South Dakota or Montana or something like that. Majority of the time, we're hitting those markets that we've talked about, Midwest,

Sunbelt, and then other markets that we know we can have big pops in. We know we can have a really good deal in Portland, Oregon, Phoenix, Arizona, Denver, Colorado, Seattle, Washington. But we know it's going to be a lot harder for us to get deals there. So that's what we're doing as far as cold calling goes. Our closers are here in the office. They're waiting on those leads to come in from the VAs. And then they're constantly calling the BBC leads, the Facebook leads, and the YouTube leads that we've generated, and then just doing their follow-ups. And so we have a team of three

acquisition, three dispositions. We have a TC, we've got a boatkeeper, an assistant, and a GM, and then we have myself and Cassie. So that's what I love that because one thing I think people are listening like, man, you must have this massive huge 20 people in the guys. I'll tell you, he's doing it right. I built that damn, you know, 20, 30 people in the office, huge office space, operational cost was bloated. You do not to make millions to be clear, RJ. You do not, to make millions, to be clear, RJ and Cassie make millions. To make millions, you essentially need a team of seven at most.

Yep. Millions, multiple millions, right? At most. I'll take it a step further than that, Justin. You go back to 2015, okay? This is the first year that me and Cassie went full-time on january 1st we had only done four wholesale deals in our life when we went full-time okay we worked at a barnes and noble i closed deals walking around in the parking lot love it and we made 750750,000. Come on, man. The next year, we kept going at the Barnes & Noble

because at this point in time, I just fell in love with Barnes & Noble. I still love it. I mean, you want to see it. You love your coffee and your book. I get it. Have a little snack, read a book. Happy Boys, it's walking around in Barnes & Noble. And for those who say you can't judge a book by its cover,

they've never met me. I judge a book by its cover they've never met me I judge all books by their cover so the next year we went seven figures plus at the Barnes & Noble and it was just me and Cassie and a couple of remote employees that were essentially scouting

and finding properties for us so yeah you don't need this big team to be able to do seven figures. It's not necessary. Bro, I love it. Well, for the sake of time, brother, let's tell everyone where they can find you. Let's make sure they know you have a podcast. Let's make sure they know you have a YouTube channel. Let's make sure they can find you on social media. Yeah. So the podcast is Titanium Vault, hosted by RJ Basestudio. We're on apple spotify audible pandora i mean everywhere you can find it uh check us out there again remember five star reviews um and then you know

youtube tiktok instagram facebook you know rj base the third find me on there if you want to see some of the like funniest videos of someone talking to a seller, go follow me on TikTok because I have some great videos on there from years and years. And then every now and then I land a contract. So follow me there. Brother, I appreciate your time as always. Love both you and Cass and I appreciate what we're going to do. You're going to see a lot more of me, RJ, and Cassie. That is for damn sure. These are the real people. They're the people you want to be following. I appreciate you, brother.

Thank you.