The Science of Flipping - Episode 133: From $1.5m to $4m in just a couple of years – Interview with Scott Oots

Episode Date: November 8, 2018

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Welcome to the Science of Flipping podcast. I'm your host, Justin Colby. What is up? What is up, everybody? Welcome back to the Science of Flipping. I am your host, Justin Colby. And as you can see, I have a special guest on this episode as I normally try. I'm not sure if you're watching this on YouTube. I don't know if you're watching on social media. I don't know if you're watching it wherever, or if you're actually on iTunes, watching or listening to this. This is all about being able to introduce you guys to the systems, the structures, the tools needed to be very, very successful in the real estate business, whether you're just getting started or you're an experienced investor looking to scale your

business. And so with that segue, I brought on my guy, Mr. Scott Oots, who has built something really, really special in Southern California, where a lot of people would say it's impossible to be a successful investor there. Too much competition, all that. And so, my man, what is up? How are you? What's going on? Apparently, you're having a great day. Yeah, man. I'm doing great. Excited to be here. Excited to talk to you for a little while. So yeah, great day here, man, locking up contracts, buying houses, you know, in this tough market that people say is impossible. Impossible, bro. It's just too difficult. It's, you know, too much competition for us to do this.

More for me, man. More for me. Amen to that. So listen, we've known each other now for years and years and years, and there was a point in your business that you were having a tough time. And let's, let's talk about that really quickly. Just about what was able to get you kind of to that. How did you reboot? What did you have to do to, you know, get out of that tough time? What did you focus on? What were the changes you made? I think my big thing is, you know, tough times come and go. People think that running a business is all just fun and games all the time, right? Everything's perfect. Nothing goes wrong. You don't have a bad month. That's crap. I mean, you have so many bad months. It still happens.

I mean, even we're probably going to hit $4 million this year in wholesale fees. And earlier this year, we had a month that it was a negative. We lost money. It happens. And for me at that time, I mean, it was just leaning on my network. You know, I look at this and say, what am I doing wrong? I sit in my business every day and I look at everything that I'm doing, right? And sometimes it takes that outside perspective to really look at it and say, Hey, idiot, you missed this. Right. And that's what you did for me at that time. Right. You came down, you flew down here, you sat in my office. We really quickly figured out what the hell the problem was because from an outside perspective, you noticed it. Right. Um, and then we're able to say, Hey, let's go out and get a steak dinner like we did that night because we were done. We knew what we were doing. It's business is fun. I have such a good time with this. I have such a good time with my business, but there's still stressful times, right? Yeah.

The bigger you get, the stress doesn't go away. The stress gets more and more and more. You can streamline stuff. You know, you can have other people take on some of that stress, which is kind of nice as you get to that point. My team pretty much runs everything for me now. They're literally over here working and I got a guy basically running my business. I'm out of my business probably 90% of the week. I'm here to do other things, have fun, go on vacations, and these guys are here working their ass off and succeeding. Well, that's a huge thing. And a lot of my listeners are at that point. I get a lot of comments on emails or whatever it may be like, how do I hire? How do I get out of my day to day?

And one of the things I always suggest is don't do that too quickly. I think people forget when you are scaling and growing and money starts to come in. they're like, okay, well, I need to hire all this out so I can live the life. And I can tell you, if I had to go back, one thing I would do is probably slow down my scaling because ultimately I started too early. I, you know, the revenue wasn't quite there. And so it would hurt my guys because there wasn't enough revenue to pay there. You know, all that type of stuff. You have to be really careful when it comes to scaling your business and when to do it. And my first argument will be, if you can't bring in a quarter million dollars a year, you can't hire, right? That's my first baseline fundamental of this business. I agree with that. I mean, look at the times in the boardroom and stuff like that. I mean,

the biggest questions we always get from people that are in there is, when do I hire? Is it time for me to hire? It's like, bro, you've done one deal. Right. Hold on, slow down. And I agree with you. I look at that with my business.

I think I scaled partially at the right time, maybe a little early. But what I did wrong is I gave away too much to start, right? I'm like, man, I'm bringing people on. I was so set in the mentality that I never wanted to go back to a cubicle again. And I didn't want to have the bosses that I had in the past, right? I wanted to be different from the people working for me. So I said, hey, I'm going to make sure everyone working for me is making a ton of money. They're killing it. And I gave away too much, right? So I look at it and say, man, I started everyone out so high that it was just draining everything we were bringing in. My sales team now, they're still in the same structure

they were on because they kill it for me. I'm not going to go change it, right? Like it's not, it's not worth it. Those guys are killing it. The new guys that come on have a different structure. Now do I say, yeah, I potentially paid too much in the beginning? Yeah. But would I have got the quality people I have now? Maybe not. I've got a great team. So I'm happy to pay them what I'm paying them at this point. And they made great money, six figures for each of them. But going back and looking at it and saying, okay, I followed a lot of the guru mentality on some of it, right? I heard it from a guru. This is what you should pay people.

I'm like, there's no other way. This is it. They succeeded with it. I have to do it, right? And I think that's what even people listening to us right now. People listen to everything we're saying and they say, hey, I got to implement that. Well, implement your own version of that, right? Take a little bit of what you're saying.

Take a little of what I'm saying and come up with the way that you want to do it. Don't follow to a T because then all you're doing is trying to create somebody else's business and you're not going to succeed because I guarantee you, you don't know A to Z of everything that person is doing. You might know A, you might know C, D, but you don't know anything else in between, right? And that's the problem is people try to follow in everyone's businesses so much. Break out your shell, but learn everything you can learn here. And if I would have known what I know now, I probably would have waited another maybe

three months to hire. I think that would have potentially really put more money in my business. But my thing was that I hated getting on the road. I hated getting in the road. I hated getting in that car, driving to appointments, California traffic. Oh man, I was going to get some really bad road rage. So I'm like, I'm hiring someone to take this over. So let's talk about two things. Let's talk about where you're getting the deals, what marketing you're doing. And then you, we just talked about pay structure.

How have you currently set up your pay structure? Let's not worry about what you did. What are you currently doing for pay structure? Okay, so My in-office team. Well everybody I have I incentivize based on performance of the company So that's what I've shifted to in the past It was okay You get a three thousand dollar base salary and a commission now What I've tried to do is cut out the base salaries as much as possible. So my sales team now, I'm starting sales team out at $3,000 a month for

90 days to get their pipeline full. But what happens is they can turn off that $3,000 at any time and go 100% commission, but they can't go back to the $3,000. Now, so let's say I hire a new guy tomorrow. So let's just say I hired Bob, right? So Bob comes on board. I say, Bob, you got 3000 bucks a month for 90 days, zero commission. Get out there, start killing it. Here's your leads. Go for it, right? Give them all this training. Bob comes to me a weekend. He's like, dude, 3000 bucks a month. That's crap. I want to turn this off and I want to go to commission. Great. So I start them out at 12% commission. Now the 12%, when they get paid out, I subtract acquisition

costs from the deal before I pay them out and then they get their 12%. So if we get a $20,000 spread, if our acquisition cost is $5,000, then 20,000 minus the five, then they get their 12% on that. But the rule I made is I found that some of my smart sales guys gave me that opportunity. They're like, I got like four deals in the pipeline I'm going to sign tomorrow. So I'm going to turn off my base salary today and get commissioned tomorrow. So basically I said, when you turn it off, it's a two week delay, which made a pretty big difference. So that's their structure. Dispositions, the change I made lately is I incentivize them on the spread. So they don't get paid on any spread under 15 grand. 15,000 to 25,000, they get 250 bucks.

25,000 to 50,000, I think it's like 500. 50,000 to 100,000, they get like 700. And then anything above 100,000, they get 1000 bucks. So it incentivizes them to get the larger spreads, which is taken, you know, a year ago, our average wholesale spread was 25 brands, we're actually about 75 grand now. So we've seen a huge shift in how we're doing things by incentivizing people on that. Then in the office, we have someone that does our escrow stuff for us because we have escrow in California. She basically gets a $2,500 a month base salary, which will continue for her.

And then she gets $75 for every file she works on for us. Personally, this is my phone, my leads manager. She gets $3,000 a month. And then she gets $100 for every appointment she books for my sales reps that we get the deal. So you can kind of see how I did it. Everyone's incentivized based on that closed deal and nobody gets paid until we get the money in based on that stuff. So if a deal falls through, I don't pay it out. Right. So I'm not taking a loss for the company. As I've heard other people that are like, Hey, I'm going to throw a $50,000 salary out to you. And they're still stuck paying

that. Then their overhead gets to be 150, $200,000 a month. And it's like, you can't run off that, right? You have to run out. You have to look at your profitability. What is my profitability? And try to make sure that you're making money because you may have a down month. You still got to pay those bills even if you don't bring in the money. So. Nah, 100% agree on everything you said. I love that. So how do you work that two week delay? Do you still pay them the $1,500 for that two weeks? So they turn off the three grand that two weeks, you still pay them the 1,500. They don't get any commissions, but anything after that, now they're full tilt. Correct. And what we do is we have kind of a handshake

agreement that says you don't push those deals out two weeks. You have to be honest. If you got those deals in the pipeline, you got to put them forward. Because to me, the biggest thing I have with my staff is honesty. I trust my staff. If they tell me something, I trust them. Give me a reason not to, then we got another problem. Sure.

But if they push those deals out that early in their employment cycle, they're only here 30 days and they're pushing deals out that early in their employment cycle, they're only here 30 days and they're pushing things out and not being honest. And if I find out somebody else is going to have that opportunity, right? Uh, it's important. And I, I tell my team all the time, like, just gotta be honest with each other. Even if you don't want to tell me something, tell me, because if I find out you didn't tell me, then we got a problem. No doubt. No doubt. Just like any relationship, right? Is, is I'm with you. I trust you until you give me a reason not to. So I agree a hundred percent.

So let's jump into what I've really, um, focus on now for all my avenues of educating, which is the marketing side, right? Is you've always been, you've never been shy about spending money. Uh, so what are your key marketing strategies currently, again, in a market that people can't find deals, right? So whether it's one, two, three, what are your strategies? So my marketing strategy is currently shifting just because we are in a shifting market right now. So what I did a month ago, I'm probably already going to change in the next 30 days, just because we're testing things in this different market. A year ago, I would have said 99% PPC, drop everything else, we're good to go. Sure, glad I didn't drop everything else because PPC is like 30% of my business now. And direct mail is

actually my biggest portion. So anyone that says stop direct mail, it doesn't work. I would love for you to come see me so I can just slap you across the face. Honestly, keep telling people that because as everyone's dropping out of direct mail, I'm killing it with direct mail. I just increased almost 150,000 pieces a month. I mean, we are killing it. Every dollar we spent on direct mail, we're bringing in like 14 or 15 bucks now. It is killing it. So this is one of those things where everyone started saying for the longest time, like, don't do direct mail. Don't do it. It's saturated. These yellow letters don't work, stuff like that. Okay. But everyone stopped it. I kept going and now I'm getting a bigger return than I ever have on. So PPC is small for us, but we still do it, keep it going.

And we're going to recover that. It's just, California is a very tough market with PPC small force but we still do it keep it going and we're gonna recover that it's just California is a very tough market with PPC we had it nailed down before now we're definitely running into problems with it but we'll increase it we do our voicemail drops as well see returns from that and then we do cold calling so those are really the four channels we're really working right now to try to get our income in but direct mail is i mean by far killing it for us so people okay and by the way we didn't even script this just so we know but i'm experiencing the exact same thing you are bro i swear to god it's like people ran from

direct mail and maybe because i've been talking about cold calling so much and you know sean and josh and so many people are doing the rings like all that stuff all at the same time kind of came out and I think people realized they could save some money and dude our direct mail is killing it so I almost don't want this podcast to come out because we're literally like oh back to direct mail right well just hey guys don't do direct mail anymore right but the But the reality is, well, wouldn't you agree? The reality is you can never just depend on one. I think anytime I've ever gotten in trouble in my business, I was a one trick pony. Like when I first, well, not the first time, but the second phase of my business, I was only buying from auction. And then the hedge funds came in and that crushed my

business. Then we became a one trick pony in marketing and was so heavy on direct mail. And it went from a true 1% lead callback ratio to like half a percent to a half of a half. And then, oh my God, I got to figure out my business. So now I have six pivotal marketing strategies that I work, which is obviously PPC, direct mail, cold calling, bandit signs, ringless voicemail, voicemail drops, and a street team. And between them all, we just did the numbers last week, dude, I'm a 7X business. If you throw all of them in the bucket, all the dollars spent, all of the returns coming back in, again, that's top line revenue. I'm not taking out anyone's salaries and everything else. That is a true 7X business, which anyone and their mother

would love. Yeah. Agreed, man. And I think when we talk about the masses with things, right? I mean, so back when I started, direct mail was the thing to do. Everyone was sending those handwritten yellow letters that are really printed, but they look handwritten, right? Everyone's sending those things. And then people started saying, oh, there's this new thing, RVM. Okay, no, everyone shifted to that. Oh, there's this new thing, cold calling. Everyone shifted to that. And it just keeps going, right? And this is where I think that we're all such sheep sometimes is we all follow just everything. We need to carve our own path a little bit because by carving our own path and mixing it up, so not just going, turn off direct mail, go to RVM, turn off RVM, go to cold calling.

You and I both have successful businesses that are bringing in the income and we're both sitting here saying we're not doing one thing. So if anyone listening to this is still doing one thing, look at it and really look to see what your return is and look at what you're not doing. And I understand when people start, the big thing is money, right? I don't have the money to do it. I'm doing RVM because it costs two cents a drop instead of a mail at 40, 50, 60 cents, whatever you're paying. And I understand that. But I just did my meetup group

last week and I got some killer people in there. One of the guys in there says, Hey man, I'm handwriting all my letters. I said, wow. Okay. That's a lot of time. You know? I mean, the way I try to look at everything I do is revenue generating, right? How much money is it spending me to get the return? He's handwriting literally with a pen and paper and then stuffing his envelope, stamping his envelope, sealing his envelope, mailing it. And I said, how much are you worth an hour? He just didn't know, right? I said, well, let's just say you're worth a hundred bucks an hour as a business owner, just starting out. Now, would it be worth it, depending on how much time it takes you to write these things, just to drop them for 40, 50 cents to a mail house and let

them mail them for you. Because in that amount of time, you can go drive for dollars. You can cold call, you can drop voicemails, you can do all of these things. And that's the thing is like people get so one sided on how they're doing things. You got to open your mind up and be open to other opportunities. I hear people that are skip tracing to get phone numbers and they're cold calling. You already have the phone numbers. No doubt. Throw them in RVM too. Utilize them every way you can because if it costs you say 30 cents to get a phone number

and you're using it just for cold calling, that costs you 30 cents to use that, right? Or if you use it RVM and cold calling, now it's 15 cents a piece. Utilize your marketing budget and try to see every area you can hit these people. Do everything you can do. Don't just do one channel. And I think Sean Terry would agree with us. Kent would agree with us. I think it's so important to make sure that you diversify and don't just follow. Don't just follow everybody and assume that they know what they're doing because I'm in a competitive market. Things that work for you in Phoenix may not work for me here. I don't use bandit signs, man. I got 200 of them sitting on the other side of this wall over here and they've been sitting there collecting dust for two years

because we don't put them out. It's not worth it. The city's here getting smart. They're setting appointments with the people, showing up at the house to catch you. It's not worth it, right? I can go to LA and go throw them up on the telephone poles with the other hundred that are up there, piled five out from the pole with them on top of each other. It doesn't make any sense, right? You guys take your time with the bandit signs out there. I'm going to go knock on these doors and I'm going to get the house. So next time a person drives by those bandit signs, it's too late. I've already got it. Right. Do something different. Be creative. No doubt. So what was the one thing to wrap this up? And I like to keep these short because when I listen to podcasts, my attention span is small. So I figure all my tribe is the same way. What is the one thing that

from the day, you know, when I came in and spent two days with you from where you are now, what was your revenue then? Cause I think I remember, but I want you to say it so I don't misspeak into you on the pace to do 4 million this year. What was it then? Now you're on pace to do 4 million. And what was the one thing, if you had to attribute one thing that changed from that time to where you are now? So what was that? Answer those two questions. So if I'm correct, thinking of the time you came in, I think we were somewhere around 1.4, maybe 1.5 per year. The big thing just comes down to team, man. Hiring is the hardest part. And a lot of people experience that as they start bringing people in, making the wrong choice, trying to hire too quickly, because you're,

you want it now, right? There's that slow to hire quick to fire mentality, you have to kind of adapt. And I give everybody every chance I can give them. But ultimately, we had just some people that didn't fit with our, our team. And I look at my team right now and I'm like, man, we are one dysfunctional group, but we have a lot of fun and we make a lot of money. Um, we have an environment that most people don't fit into, you know, throw football around the office. We do things like that. Um, we do things differently, but the team was my biggest shift. You put the right people under you, the people that actually care about the company making money. Those are the reasons you're going to increase, right?

We started looking closer at our marketing and started deep diving into every single list we were mailing, everything we were calling and started saying, what was our return? This one made us only a 5% return. Ditch it. The one that made us 100% return, that one right there, boom, we're going to double that. We're going to go for these ones that are giving us the return. Most people just send mail out aimlessly, right?

We use CallRail religiously. We have a different phone number in there for every single mail piece. So if we have a vacant list and we're mailing a yellow postcard that has a different phone number than that same vacant list and a white postcard because we want to see which one works the best yeah we spend a lot of money on call rail but it really helps us make sure that we're putting our

marketing dollars where it needs to be which is key and again i can't say it over and over again this is a marketing and sales business period and whoever wins the marketing game is going to win this game right and so for those of you out there like, God damn, Scott's doing $4 million. Like start somewhere, right? Get your first deal done, but realize it's about having multiple marketing strategies.

Everything, rewind this when you're watching it. Listen to what Scott's saying. It's the same thing I've been saying. I'm hoping you can, you know, a lot of times people need to hear it from someone else. So I'm glad that you said know a lot of times we will need to hear it from someone else so I'm glad that uh you said everything you said dude you obviously are crushing it so happy to see that um and you're doing so you're making a huge impact in this space right now I know you guys are holding events and you're educating now and you're doing meetup groups and I couldn't be prouder of

you and what you've been able to build you and your beautiful wife is awesome awesome. Where can, I mean, if someone had a question for you, if they wanted to reach out, where can they find you, dude? Oh, they can reach out to me on Facebook, Scott Oots, Instagram at the Scott Oots. And the last name is O-O-T-S. Everyone spells that wrong. So even Sean still says it wrong to this day. I think he's got like a hundred variations

of how he says my last name. He calls you Scott Oots this day. I swear to God. He says it every, everything we do, it's always different. So, uh, yeah, it's actually only spelt one way. I love it. All right, y'all. Well, I appreciate you, dude. Thank you for spending time with me. I know your time is very valuable and, uh, I'll see you here very, very shortly, dude. Appreciate it. All right, man. Good to talk to you. Later.