The Science of Flipping - Episode 12: Where do I start finding deals? | Real Estate Investing Podcast

Episode Date: November 8, 2013

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Welcome to the Science of Flipping Podcast. I'm your host, Justin Colby. Welcome, welcome, welcome everybody to the Science of Flipping Podcast, Episode 12. I am your host, Justin Colby. Today, guys, we have a very special subject matter, and that is where should I be investing? I get a lot of feedback from you guys, and a lot of rookies and experienced investors are like saying, where do I know I should be investing? That's what I'm going to be covering today, guys, is where should I be finding and flipping deals. That is today's subject. So I'm excited to go over with you about the strategies and systems to use about that.

If you're a first-timer to this podcast, I highly suggest and recommend getting over to thescienceofflipping.com. Again, thescienceofflipping.com. There you can get your number one e-book on the market today. This is the e-book that we created that is the e-book we wish we had when we first started. It's the 15 most costly mistakes a real estate investor can make today in this market. Guys, if I had this e-book, our lives would have changed a lot sooner than they did. You need to get over to the website, thescienceofflipping.com, and download this number one e-book, the 15 most costly mistakes a real estate investor can make today in this market. Guys, again, if you're new here, this podcast is all about creating a lifestyle that you want, creating a lifestyle by design.

A lot of us fix and flippers out here, we get too caught up in the minutia of the day to day business. We're swinging the hammers and we're raising the money and we're finding the buyers and we're working with the contractors and going over bids and we're doing absolutely everything in our business. Well, this podcast is all about creating a business that you can outsource and systemize and replace yourself in so you can work on the business instead of in the business. So you can be working on the business from Italy instead of in the house swinging the hammer repairing the repairs. Guys, this is all about a lifestyle by design so you can work from

the couch of your own home, so you can work from a different state, a different country, and still buy, rehab, and sell deals while you're not even in the same state or not even in the same home that you're investing in real estate. I have several good friends that invest in real estate outside of the state that they currently live in. These systems work, guys, and that's what this podcast is about. Create the lifestyle, be able to travel, be able to spend time with friends, be able to enjoy life, you know, instead of working your nails down to the bone, if that's the saying, I think. But that's what

this podcast is about, is creating the systems so that you can work the flipping business in a systemized fashion so that you don't have to be doing every single aspect of the business. Guys, if you don't know my story, and I know a lot of you guys do, but again, if this is your first time to the podcast and you happen to click on this podcast, I'm your host, Justin Colby. Me and my business partner, Eddie Rosefield, started flipping homes in the Phoenix market in 2007. It was not always puppy dogs and rainbows. We took our lumps. It took us about nine months to get our first deal done. It

took us another couple to get our second deal done. It just did not go over. We didn't shoot out like a rocket. It took our time, and we've made mistakes along the way. Since then, guys, last year we did 96 flips. This year we're doing about 50. We're also a developer and building 79 townhomes out in Mesa, Arizona. So things have changed immensely. But the reason why things have changed immensely and the reason why we're considered a great success at this point is because we started to implement systems

into our business. And now we are a great success. And if you take a photo in time and capture that one single moment, you would say we are a success. And we are. But photo in time and capture that one single moment, you would say we are a success. And we are. But it wasn't all puppy dogs and rainbows. And we've taken our lumps. And we've had to fight through the mistakes and make mistakes. But once we started systemizing our business, we really started to take off. Guys, I've coached, between Eddie and I, we've coached thousands of people on how to systemize or fix and flip business. We successfully have flipped over 300 deals over the last, whatever that is, almost seven years now. We know what we're doing.

This podcast is giving you the systems to take what we know, the mistakes that we made, so you don't have to make them, and go out there and take a business that you might be flipping 10 deals a year and start flipping 25 deals a year. Or maybe instead of flipping one or two deals a year, maybe flipping five to 10 deals a year. That's what this podcast is about, guys. That's what we do here in Phoenix, Arizona.

Again, our website is thescienceofflipping.com. Our company that flips the homes is Phoenix Wealth Builders. Feel free to go by their websites, guys. But let's just jump right in to the subject at hand here. We have many, many students here in Phoenix as well as across the country. Between the economic changes that happen in real estate and whether it's political or it's economical or whatever reasons that markets shift, a lot of what people will start questioning is, how do I know I'm investing in the right area? Is this the hottest market to go to? Is this the right neighborhoods to go to? Why am I focusing here? Should I be focusing here? Well, let's first and

foremost start with one major point that a lot of my students brought up at one of my masterminds several weeks back, which was the hedge funds seem to be killing their market. They're coming in and buying everything possible. Now, I've been dealing with that here for two, three years almost here in the Phoenix Valley, but now a lot of other people are starting to see that same occurrence that the hedge funds are coming in and they're just beating up the market. Well, that's probably a pretty good market to be jumping into, don't you think? If they're buying all their homes in zip code 85258, that's the only zip code you see all their homes that they're buying. Well, wouldn't that probably suggest that's a pretty good area to buy homes yourself,

knowing that they're a good buyer for you? So I wanted to address that because it's come up so many times that these hedge funds are, you know, my business is failing and I'm not sure what to do about these hedge funds and they're kicking my butt right now. Well, follow their lead. If they're in there buying, then you should be in there buying. Think about that. All these people do is try to analyze money

and where the best place is to spend the money for a rate of return on their money. That's all they do. That's all they focus on, right? So if you decide I'm going to follow their lead, go to the cities and towns that they're going to, invest in the same neighborhoods that they're going to, invest in the same neighborhoods that they're investing in, well, shoot, you might not even have to do full rehabs.

You might be able to just tie it up and wholesale it and do a quick flip. We've done that several times here in Phoenix and more than several times, quite frankly, but that's a very valuable way of investing right now is what we call kind of wholetailing. I mean, you know, that's a very valuable way of investing right now is what we call kind of wholetailing. I mean, wholesaling, wholetailing, sometimes we take down the home, we own it, but we know there's a hedge fund that would buy it. So we just send it off to the hedge fund. Once we own it free and clear, we don't touch it and we sell it to them. Wholetailing. Follow the hedge funds. A lot of people get scared about it because they feel like they're getting beaten up by the hedge funds.

Well, they're a great buyer, right? So you know if you're able to get a good deal, if you're able to rehab it to a good level, they'll buy it from you and rent it out. And they'll buy quick and they buy cash. It's a good idea to figure out where those hedge funds are going. Now, along the same lines, guys, first and foremost, I highly suggest any of you who don't

have MLS access right now, go get MLS access. That is very, very important. How do you do that? I'm not telling you to go out there and have to go take all the classes to become a licensed real estate agent. What we were able to do is we were able to become an admin to our realtor's account. It cost us about $250 or maybe $300 to become an admin, but we got our own username and password on his account. And now we're able to utilize it in a manner so that we can look up certain materials, so we can see the listings, so we can update the listings if need be, and so on and so forth, right?

So that is a great suggestion, is to become an admin of the account. A lot of people, if you know realtors, it's against the law to use their MLS access. If you have a brother, aunt, uncle, whoever, at the end of the day, will they allow you to use it? Yeah, probably. But you have to be very careful because it's against the MLS law for them to do that. So I'm just going to give you that warning.

That's the best I can do is tell you they can get fined and lose their license and all that. But I do know a lot of investors that have an account that they're just using their wife's account because she's licensed and got access and so on and so forth. So that is available. But you really do want to get MLS access. And the reason, this is the main meat and potatoes of this podcast right now, the reason why you want MLS access is because it's going to tell you three or four things. Under the search criteria and advanced search criteria, you will be able to find where all the cash closings have come from per zip code. Cash closings per zip code. You will also be able to find where the conventional closings per zip code come from, the FHA and VA. And you want to see where the highest amount of cash and conventional closings have come

from. Why do you want to see that? Well, first and foremost, you want to figure out where you are going to have the quickest sale you can possibly get. And again, I can't tell everyone out there who's listening to me right now, because I know I have listeners from the East Coast to the West Coast, how to exactly utilize their MLS. But I will tell you it's under the search parameters and you can go in and you can look up per zip code how many cash closings, conventional closings, FHA closings have happened over the last six months per zip code. And what I would highly suggest you to do, now remember this is the meat and potatoes here. If you are thinking, where should I be investing? Where should I be buying and flipping homes? Where should I be wholetailing homes? Maybe where should I be taking a couple of these homes and just wholesaling it? I suggest going after the highest

percentages of cash closings per zip code and conventional closings per zip code. Because they are the easiest closings. Obviously, cash is as easy and quick as it gets. But conventional would be the second easiest. FHA the third, VA the fourth. But you want to focus on the easiest, quickest closings possible. And it's all within the MLS access. So what's the next point? You know, where else, you know,

a lot of people would say, well, where else can I get that information? Where else can I get that? I don't have MLS access right now. Title companies will also give you that information. They may charge you a penny per lead or a penny per info or whatever. It's very minimal, but they can also give you that same exact information. You can go to your title company and go ask them for a list of the highest cash closings per zip code. They'll sort it out for you. they'll say 85258, 85259, 8525, or 85260, so on and so forth. They'll show you all the cash closings. That's where you want to be investing. Now they'll even show you what addresses had those cash closings.

And here's going to be my whole next point. Guys, this is where you want to build your buyers list. Right here, cash closings, conventional closings. These are the investors who are also buying homes. These are where the hedge funds are buying cash. These are where investors are buying rental properties that maybe you can buy, put some lipstick on a pig and sell as a rental investment. These are great areas to buy homes and to build a buyer's list of cash investors, of conventional people buying homes, second homes. You're going to get two things from utilizing the MLS and looking up where all the

cash and conventional closings are. You're going to find the right area to be investing in and the right area to be spending marketing money in, the right area to be putting in offers, but you're also going to find the right area to build a buyer's list. This is where you want to start doing direct mail, doing online marketing, doing bandit signs to build a buyer's list in these zip codes. This is where you want to start investing, and that's what I highly suggest you need to be focusing on if you're questioning, where do I start? Where is a good place to invest?

Or if you're questioning, you know, this area seems to be dry. I've been working this area long and hard and I need another good place to invest. I need to grow. I'm at a point of expansion. I have multiple rehab crews and I can grow some more. Why don't we get into two different zip codes, three different zip codes, four different zip codes, or even cities for that matter. If you're saying you can grow or if you're even asking where do I start, these are two great suggestions for why and how you start in these areas. You do it because they're cash closings and conventional closings and how you use direct mail. You go to the MLS and you find

the highest number of cash closings, the highest number of conventional closings, and you start going after the sellers. You start going after the buyers in the areas using direct mail, online marketing. These are the areas you want to start investing. This is very, very important. You don't necessarily want to start out by saying, I want to be in the best neighborhoods. Here in Phoenix, Scottsdale, or Paradise Valley are incredible neighborhoods. This is where there's a lot of high wealth individuals.

This is very nice neighborhoods to invest. But that doesn't always correlate with the most closings or even the most cash closings or even the most conventional closings. And I didn't even mention, maybe you need to just start before you even look at cash and conventional, just start with what was the zip code that had the last or the most closings over the last six months. That's where you start. The most closings over the last six months. Now you start to refine that a little bit. Okay, out of those closings, how many of them were cash? How many conventional? How many FHA? How many VA? And my second point to all this, before I wrap it up, and this is going to be a shorter podcast,

but my second point is if you're an experienced investor out there, you may need to look at, okay, how do I diversify my portfolio of investing? Meaning, what we've done here in Phoenix is there's a very broad spectrum of price points. You can buy a $100,000 house, you can buy a $2 million house. In California, there's no such thing as a $100,000 house. New York, there's no such thing as a $100,000 house, right? So we've relied very heavily over the years on the lower price point, the $100,000 house. Well, the lower price points don't always give you the largest returns unless you buy the deal really good, right?

So what we've done is we've said, okay, we've run on very high volume. Over the last two years, we're going to do about 150 deals over the last two years. That's some very high volume for a fix and flipper, someone who is not a wholesaler. What we've done is said, hey, let's mix it up a little bit. Why don't we do some lower price point homes, but also let's jump into a little bit of higher price point homes. They take longer. You need to adjust for the cost of holding and adjust for the cost of money and so on and so forth. And you might need to go to a city to add on and get the permits.

But now you're diversifying your type of portfolio. Now, again, why would we choose certain areas? And it just goes back to point number one. I want to go to areas where there's the most closings, the most cash and conventional closings within that area. That's it, guys. It's no secret. It's not that we do anything different. We just want to find the areas that have the most closings, period.

And in those areas, who has the most cash closings? And it might not be one in the same. The area that has the most cash closing doesn't always mean that there's going to have the most closings. The zip code that has the most closings may not have the most cash closings. They might be high in the FHA. Now you have to make a decision. Right? So, again, it's not rocket science. You just simply go out there. Use the MLS.

If you don't have access to the MLS, get it. Ask a friend, a family member. Become an admin to a realtor's account. Right? And then use it or go to your title company. They have the same exact list. They'll be able to produce the same exact list. Very, very easy. Very easy. All right, guys. Well, that's it for today. I've been your host, Justin Colby. It's always a pleasure. Things are going really well. Life is really good. We live a very good lifestyle.

This is why we do this podcast. I'm excited to keep giving you tidbits of information. This podcast is a little short, guys. But that's okay. There's some very good information in this podcast. I will see you on the next podcast. That's all for me, Justin Colby. I'm out.

Peace.