The Science of Flipping - Episode 177: 60 Deals in First Year Wholesaling

Episode Date: December 11, 2020

Are you new to wholesaling and wondering what it takes to get to 50+ deals per year? I bring on a couple of buddies to talk about how they went from 0-60 deals in their first year wholesaling real estate!

Welcome to the Science of Flipping Podcast. I'm your host, Justin Colby. What is up, everybody? Welcome back to the Science of Flipping Podcast. I am your host, Justin Colby, and I have an incredible interview with two absolute high performer real estate investors out of Colorado. This podcast is all about strategies, tools, systems, tips, tricks, and processes for you to become a successful real estate investor. And these two boys I have been working with for quite some time and they are the real deal.

I have Mark and Adam with me out of Colorado and Colorado house buyers. What's up boys? How we doing? Doing really good. Excited to have you with us and drop some knowledge here on this podcast. Excited to be here. Yeah. So I'll do my best quick 30 second pitch of where you guys come from and how long you've been doing it. And then you guys can kind of, uh, support what I've said, but I know you guys have been doing this quite some time, but you two started partnering back in 2017. And I D you know, out of the gates, you guys were doing a lot more kind of either scraping builds, spec home builds, high end rehabs was kind of where you guys started with your partnership,

correct? And now it's really transformed into like a whole full circle real estate investing business. Is that pretty much on par? Yeah, exactly. I mean, we started, I guess, both of our experience prior to Mark and I getting together three years ago. Complete gut jobs on the flips flips a lot of second story additions we call pop tops and uh new construction spec build homes you know 4,500 5,000 square foot houses and uh I guess over I think we met with you about a year and a half ago and realized that we had some holes in our game and uh only had limited exit strategies. Cash flow was always a concern of ours. So we were looking at different ways to grow our business. And out of

that came wholesaling and wholetailing, you know, and then for the first time this year, we started doing kind of quick flips, paint carpet kitchens, which we had never done before. Yeah. And it's been great kind of working with you for the better part of over a year, I guess. But to see the transition of where you guys were and where you are now, I think the key that I've been able to see with you guys is being able to have consistent flow of deals. Now, maybe they aren't as profitable as let's say some of the spec homes. Didn't you guys just collect like a quarter million dollar check

on one of these homes or a couple of them? Didn't you guys? Yeah, I think most of our spec builds, we obviously have certain ROI we're looking to hit, but those are kind of our big hitters. The caveat to that is that they don't hit consistently they're more spaced out um obviously trying to do 10 to 12 new construction builds at a time so it's nice when they hit however with the whole um you know covid we stopped purchasing for a certain

period of time not knowing the direction of the market and everything. So that's hence why we introduced multiple exit strategies to our business with wholesaling, wholetailing, quicker fix and flips, easier, you know, 30, 60 day, 90 day hold time versus the 18 months to 24 months holds for our new builds or spec builds yeah and that's what most people don't understand is that yeah the 250,000 300,000 paydays are great but that's two years

worth of work so you know it's that up and down of cash flow can we pay mortgages can we pay our lenders you know where that's been the biggest struggle in this business, you know, from when I got started, even, you know, in this year has been the first year that we really don't worry about that too much. And that comes from the wholesaling component. And like you said, increased deal flow. Yeah, they're little smaller projects, but if we're turning them you know in a wholesale case it's called 30 days to get paid or the quick little flips 60 to 90 days to get paid and we get 30 35 40 000 rips at a time you know that pays the bills for us and then you know when these

monster projects hit you know it's great and you know but we've kind of shifted our business from the profitability in our business running on those big paydays to those big paydays being gravy and paying Mark and I and having the smaller stuff pay for our business. Yeah, I think that's one thing that as a whole, I firmly believe in. Like I talk a lot about how people want to grow their business, but then they grow their operational costs, but they don't actually grow their wallet. The key here is to be able to have, like you guys are talking about, right? So you go from spec home builders and you have these big hits, right? Quarter million, $300,000 hits, which I know you guys do that, but they take so long to get there, right? And so you need to be able to cover those operational costs to get to those bigger hits. And a lot of people don't have that perspective. And so, you know, they don't

think through the idea of, Hey, let's get some consistent revenue coming in with wholesaling, take on smaller projects that have quicker turns. And then when these big hits come, it's gravy on top, right? So that they have the ability, just like you guys do now, where you can essentially cover your operational costs, including salaries, et cetera. And those bigger distributions for yourself personally come when you hit that 12 month long scrape and build or pop tops, whatever the case may be. And you can add another quarter million dollars to that top line that essentially goes to your bottom line. And that's really building the right

way. People talk about building, growing, and scaling. In my opinion, that's where you guys have made over the last year working with you guys, you guys have made this leaps and bounds because you can now essentially just cover your cost every month and your bigger chunks come at the end. What has been the biggest learning curve in that process, changing your business model over the last year or so? I think the biggest curve is just, you know, obviously have an open mindset of we are active real estate investors. The biggest thing I think is just knowing that there's other opportunities out there that we either overlook because we just

think hey let's build or hey let's do a full gut remodel whereas there's other projects that we would probably overlook or just push to the side because we didn't have any interest in it where there is actually money at the end of that deal whether it's a wholesale a wholetail a quick flip um there's a different exit strategy that we can actually take down um and turn a profit i think that's the biggest thing is about a year ago we were kind of overlooking a lot of opportunities that we didn't think had any real profit at the end because we were looking at the bigger, bigger hits and the bigger projects. So, yeah. Right. Yeah. What's, so what would be one, you know, strategy process that you could, you know, say or offer up to the listeners that like has made that transition easier for you,

whether it's marketing, bringing more leads, what, what has helped with that to get your deal flow consistent, getting these smaller pops? Maybe it's a $10,000 wholesale, maybe it's a $30,000 rehab. What has been the biggest pivot for you guys? Yeah. I think the two things really is the education and the marketing. You know, looking back at our business and when we got started and both Mark and I started personally farther along than that is we almost started backwards we got into the big flips look negatively upon wholesaling or the quick easy flips like you know mark said they just weren't as sexy like it's they're kind of boring but it it's cool it's nice collecting the checks. So it was being exposed to different people in the industry, people like you,

uh, you know, being part of masterminds and things that basically calling us out and go, Hey, wait a minute. You guys, you guys may know what you're doing in one area of the business, but you're not touching these other areas that can be extremely profitable. Um, we stopped marketing for about a year and a half. We were buying 100% of our deals off the MLS because we could pick and choose

and at times pay more than other people because we were putting a huge value at our capital improvement into the property. So it started with two things. It's first getting the education, seeing where we were exposed and getting around other investors that we could learn from that would share marketing strategies with us. So let's say we weren't doing anything or didn't know anything about pay-per-click, direct mail, online marketing, text messaging. This stuff was completely foreign to us.

So it was surrounding ourselves with, you know, other people that were doing far more than we're doing and, you know, taking that knowledge and taking action with it. You know, that's the biggest thing Mark and I will do is we'll learn something we're continuously looking to learn and we'll take an action on it immediately. So that's what's been, what's, what's allowed us to completely change our business over the last year with all the troubles that people say of 2020.

2020 is far and away our best year. I mean, we've more than doubled our business this year. I know other people out there are struggling, but it's because we look at dispositions in terms of we generate a lead from marketing. We go, okay, can we wholesale this thing? Can we rehab it? Can we wholetail it? Can we possibly keep it as a rental? Or is it a scrape and build opportunity?

So when a lead comes in, we analyze it five different ways and then can take the appropriate action from there. Hey, do we need cash this month? All right, let's, let's wholesale it. Are we, are we good? You know, let's, does it, you know, generate three times the amount of profit? All right, let's keep it for a rehab. So we have those options that you look back at it last year. We didn't have, we just didn't know anything about. Yeah. One thing that you said that really hit home is, is where I think a lot of people find challenges where you guys have really like heated to my my suggestions is you would just take action. You wouldn't overthink it. You didn't try to overanalyze it. You didn't question it. You guys just simply are action takers. Right. And that speaks to the fact that this year, when most people are saying it's the craziest, hardest, toughest year ever, you guys are actually saying, this is our best year ever. And we only continue to want to

grow from here. I would give you guys the credit to say is that's because you're implementing. That's because you're executing, right? You're not trying to think through what's the best strategy. Now you do think through some things like, should we pull this list? Should we start this straight? You think some way through, but you also just start going. And as you're going, you are learning and pivoting real time. That's credit to you guys because that's where most people fall down. They overanalyze it. They question whether they should do it. They see a cost to it. I mean, you guys are running how many marketing strategies as a moment in time right now? I think we've got five different strategies right now.

Right. And do you guys know what usually the cost of that monthly as a moment in time? Yep. You want the total marketing budget that we're spending currently? Yeah. We're spending what we're doing. Total budget right now is about $30,000 a month. I love that. I love that. Combination of direct mail, cold calling, text messaging, and two PPC platforms. And so I know the answer, but I want you guys to say it. What is the threshold of whether, because I also know you've tried different things that have and have not worked. What's your threshold for keeping a marketing strategy on board in terms of the

success rate for you guys? I think for us is we'll try anything if anybody's had success with it. We typically give like any campaign 90 days, 90 days for, you know, from start to finish to see the lead quality, you know, run appointments, type of lead, all these things before we, you know, cancel out or just give up on it. Can't try something for two weeks and not get upset when there's no deal for two weeks. It takes a little bit more time than that. So most of our campaigns, and we've failed miserably this year, we've tried Facebook ads, different social media strategies that we're kind of always testing and split testing these things. And we've shifted just within the last year, all these strategies, but we've realized if we're not doing it, if we're not consistently marketing, our deal flow will dramatically decrease.

And that's the one thing in this business is we need consistent deal flow. And I think November, if we get the one today, we'll have our best contract month since we've been doing this wholesaling thing. We'll have seven deals this month, which is great. We're loving it. How long have you guys technically been wholesaling? Just a year and a half. We started our first marketing campaigns June of 2019 and I would say it's taken 15 months now to actually figure in figure it out and dial it in and no excuse me nowhere to make the necessary tweaks to drive leads and to put a system in place I mean yeah I went for the first six to 10 months,

we were just spending money. We were getting returns. It was paying for itself, but we weren't getting that 3X return that we're after. Ultimately, we're trying to get to a 4X return. I would say really over the last 90 days of us taking the time and to look into where our weaknesses were and put a system behind it that, you know, between Mark that's running acquisitions and our leads manager are following, we're now seeing the success of it after the third month of that being in place. Now it's taken a year and a half to get to that point. Um,

which is why, you know, it's, it's important to keep spending that money on marketing, even if you're not seeing the returns right away. Because a lot of people will just quit. We know that if it works for somebody else, we may not know exactly right now how that works, but we'll figure it out. And we'll spend the money and put the money behind it until we can figure out what works for us

and what works in our marketplace. Too often people will quit. You know, they'll spend two grand on a mailer campaign, get nothing out of it. And they go, ah, direct mail doesn't work. We quit. You know, we're committed, you know, for the long haul. We plan on this being our business for, you know, at least another decade. So it's important that we figure it out and grow our business from there.

So we're going to continue to spend the money behind it, continue to make the necessary tweaks. Yeah. There's so many great things that I could even unpack. Believe it before you see it. You just run on faith that it's working for someone somewhere. I know we can figure it out. We're smart guys. We're hardworking. We can get that marketing strategy to work. I love that. That concept, I believe through and through is you have to do that. But one thing I think is paramount that you really said is to never quit. And I think, although maybe it took you guys 12 to 15 months to get to where now again, in November, seven deals, seven contracts in one month. That's a lot by the way, but you also, you know, didn't quit right in between that time. And I think that's a lot of the,

the people in our space, they give up, right. Because they're not seeing the immediate gratification. Right. And so they would say, oh, this doesn't work. This doesn't work. And I can't quite get there. And so they don't continue. And then they, you know, the three feet from gold kind of mentality is they quit right before that deal or that month where you're going to get seven deals. Right. And then they say, oh, my market's too tough. You know, Justin's a coach, whatever, whatever they would say. Right. And that's kind of the secret to success is sustainability, right? Like fortitude.

Like people, a lot of times ask me, how did I get to where I'm at 13 years later? And it's like, well, I fucking didn't quit. Like I kept getting up off the mat and there's times you're going to lose. And there's times that you're going to take losses or a flip doesn't work out or a marketing strategy, but like you keep going. And I think Tony Robbins says it best when he talks about people overestimate what they can achieve in one year, but then they underestimate what they can achieve in 10. And you guys are proving that. So like out of the gates, I've known you this whole time. Right. And worked with you. I knew where your initial year long goal was in the wholesaling space. And quite honestly, that's the exact example. You overestimate what you can achieve in a year, but then you underestimate what you can achieve in 10. And a year into it, we're starting to now see some of that success that you guys have been

working towards, right? It just didn't happen right within that first year that you thought it could. But man, 15 months later, you absolutely are on your way to that actual goal, right? Yeah, definitely. I mean, yeah, you know our goals for this year. We came nowhere near it. Right. However, though, you're having the best year you've ever had in business. Yeah, yeah.

And I mean, it goes back to having those multiple exit strategies because we're not a one-trick pony. We're not just wholesaling. We're not just no longer just rehabbing or just building it's blending you know all five of those things together and building a real business you know something when you know one thing's hitting you know that's going to carry some of the other things that aren't hitting and that's you know can go back to the multiple marketing strategies as well so So it's really, Mark and I had to learn this whole side of this business that, you know, for years we just never did and had a negative mindset towards.

And it's, you know, it's having the mindset of if somebody can do it, I can do it. That's it. That's 100% and not quitting. You know, you can go back to our backgrounds and athletics and competition of you know we're not going to give up so if somebody else can do this business i mean we're going to work we're going to outwork most people i say we're just as smart if not smarter than most people so we'll figure it out i mean it's very simple it's you know we're going to out hustle you we're going to outwork you we're not going to quit we're going to keep moving forward i mean for example we're going to outwork you. We're not going to quit. We're going to keep moving forward. I mean, for example,

what time are the text messages flying this morning? I love it. You know, 6.30 in the morning, text messages are flying back and forth. People are already working. People are up like, it's Monday morning. It's not a, oh man, it's Monday. It's like, hey, let's get up.

Let's go to work. Let's get this done. You know, that's our mentality. We're very impatient, the two of us. We're very impatient. We want results. We want them quickly. And if we don't get those, hey, what's the next step to get those results? Because it didn't work last week. All right. What are we doing this week to fix that? Adjusting. Absolutely. Got to make those adjustments, those pivots. So if you weren't rehabbing and you were going to wholesale all the deals that you got this month, how many more did you acquire for your own rehab portfolio this month? So where I'm going

is like, if you didn't rehab at all and you wholesaled every deal for the month of November, how many deals would you have got for the month of November? Do you know that number? Because I know you guys took some down for your own rehab side. We took two down for rehab. So five would have been wholesale. Right. So you would have had seven wholesale and nine total, right? Two, right? And what was the difference between your wholesale versus rehab like why did those two run into a rehab model um well we kind of analyze it a couple different ways i think the biggest thing is you know can we make a fifteen thousand dollar wholesale or can we make a fifty thousand dollar rehab we're just going to hold that property for a period of time. Yeah. The one up in evergreen. I mean,

we had one that was a high purchase price. I mean, it's a $700,000 home that we're going to flip and turn, sell it for eight 50, not a whole lot of wholesalers out there looking for, you know, a $700,000 property that they got to put 20 grand into. But that's the value of the marketing and having multiple exit strategies is, you know, that's a particular deal that we'll make 60,000 bucks on with a quick paint carpet, finish some flooring, have the private money to use for that, that, you know, a lot of people can't do.

One was another bigger rehab that again, there's things that we can do within our business, you know, a lot of people can't do. One was another bigger rehab that again, there's things that we can do within our business, you know, being the fact that we are general contractors and have the experience that the average fix and flipper can't do or walk away from. So, you know, if that deal comes through our pipeline, we'll send it out to our list. If nobody bites on it, you know, we're know we're buying at a deep enough discount that it works for us so yeah um kind of the model recently has been all right whatever comes through let's try to wholesale it first you know and then see what see what we get out of it and if we don't like the the number the assignment fee that's coming back, keep it for ourselves. Or, you know, we don't do,

we've been having a lot of condos come through for lead source. We don't really care to do condos. So we have some buyers that, you know, we actually found last month that, you know, they're taking two condos from a site unseen. So it's, you know, it's building that buyer's list, finding out what other people will take, you know, that we don't necessarily want to do, you know, it's building that buyer's list, finding out what other people will take, you know, that we don't necessarily want to do, you know, whether it's a part of town, a price point, you know, really not interested in renovating a condo to make a $20,000 profit on a flip when we can make a $15,000 assignment fee. So kind of, we, we analyze the deal on an

individual basis as it comes across our desk. Yeah. What's been your biggest profitable month this month? I know you close some pretty heavyweight, uh, were they brand new builds? Were they scraping builds? So scraping builds. Our most profitable month for the year was August or September. It was a $500,000 month.

I love it. And I love it's in the middle of a pandemic. Yeah. With all the nonsense that's going on that we discuss all the time, you guys have a $500,000 month. I get it. It took a while to get there, right? There were new built. Totally.

But listen, if you could just do that, you know how many people are listening right now that said, if I could do one of those a year, it changes my entire life. Oh yeah. 100%. It's worth learning that skill of, okay, how do I go buy an old house or a piece of land and take a chance, learn the skills necessary for it, learn how to value the deal and go for it. I mean, that's everybody got into this business as real estate investors to see what they can do and build a dream. You know, that's it. You know, get your business humming through wholesaling or fix and flip and go learn the skills necessary and take the chance. You know, take the educated guess that the educated guess that with the neighborhood,

with the cost, it doesn't even have to be appreciating. Just if things stay today the way they are and you're buying at a deep enough discount and you've got a 20%, 25% margin built in there, I don't see the market changing, especially in Denver by 25 25 over the next 18 months you know well and you talked about discounts the only way to get discounts like that is direct to direct to homeowner very rarely are you going to go and i mean rarely do you find it on the mls

or buy it from a wholesaler right more often than not it happens right a wholesaler doesn't know what he has and he sends it out for a number and you're like, well, that's because you don't know to build. So I'm going to buy this because this is a great build opportunity. Same thing sometimes with realtors, you know, they'll put a piece of land on and they don't know, really know how to calculate or the seller doesn't care. Right? So sometimes it can happen. There's no doubt. But when you're direct to homeowner, that's where you can get your discounts. That's when you can make the decision. And it gives you the three exit models, right? The wholesale, wholesale, rehab, or even in your case, you know, scrape and build like direct to homeowner is the way to go.

Yeah, for sure. Yeah. And that's getting those opportunities that we didn't have a year and a half ago. I mean, I don't know what the final tally will be that we put together this month or this year, but it'll be somewhere, I think around 60, 50 to 60 direct marketing deals that we've closed that didn't exist for us previously. That's half of where we want to be and that's half of what we'll be next year. I mean, let's just call it what it'll be next year but you know i mean let's

just call what it is first year in wholesaling you do 60 deals yeah that's phenomenal i mean i did two so put that into perspective yeah we were able to learn from you though so that that thing is leveraging people not i don't i don't like to use the word leveraging because i look at it as almost taking advantage of it but learning from others that have done what you've done previously and had success and find guys that you can learn from, you know, take what they've done and, you know, multiply it. So absolutely. Well guys, I appreciate you coming on. I know you guys are busy guys. You guys have all these deals to close. So thank you guys very much. Do you guys want people to follow you or find you,

whether it be on social media or anything you guys want to share out there? Yeah, we can put, if you guys want to follow us on social media, Instagram is Mark Buys Denver. And I'm just Adam C. McKenna. So first and last name and then Colorado House Buyers. Colorado House Buyers. On Facebook and Instagram. Right on. Good. Appreciate it, boys. Yeah. See you. See you soon.

Appreciate it. Later.