The Science of Flipping - Episode 27: Deal or No Deal | Real Estate Investing Podcast

Episode Date: March 7, 2014

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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 27. I am your host, Justin Colby. Thank you guys again for tuning in each and every week to this amazing podcast. I can't believe we're already on episode 27. On this episode, the subject will be deal or no deal and how to focus your time, energy, effort, and money on which deal. Because as you listen throughout the weeks, you'll start to realize deal flow will start coming. If you're listening to me and taking my advice, you're going to have to start making some

very big decisions on whether this is a deal or no deal. So today's podcast is going to be all about how to look at those deals and figure out if it is a deal or no deal. Again, if this is your first time here, I'm your host, Justin Colby. If this is your first time listening, get over to our website, thescienceofflipping.com and download our free ebook, The 15 Most Costly Mistakes You Can Make As A Real Estate Investor In Today's Market. This is the same ebook that I wish I had when I first started and I wish all my friends and colleagues also had so we didn't make so many darn mistakes. Now also, if you're interested in hearing more from me, working closer with me and my team and asking my questions, feel free to shoot me an email to info at the science of flipping and I'll make sure to answer

each and all of your questions. If you're looking to really take your game to the next level, we have a coaching tab on the website. I only take very few amount of students. It is very high end, high level stuff to get your game to the next level. But if you're interested in speaking with me and my team about working closer with us, go to the coaching tab on the website, thescienceofflipping.com, and go ahead and put in your information and I'll make sure my personal assistant gets back with you to set up a time that we can get on the phone together. Now, what is this podcast all about? Again, if this is your first time, this podcast is all about taking your fix and flip business to the next level

so that you no longer are working in your business, but you are working on your business. So often I hear from my students or if I hear from other fix and flippers that they're doing all of the aspects of their business. And it's very, very common in real estate investing for that to happen. You go market the deal, you go find the deal, you raise the money, you swing the hammer, you're doing the rehab yourself, you put it on the market, you sell it, so on, so on. You do all of it. Well, what this podcast is set up to do each and every week, I give you systems to implement into your business so you are not doing that any longer. I can't tell you how many times me and my business partner, Eddie Rosefield, which you hear from now and again on the podcast,

have gotten deals done while on vacation, while traveling, while not even in the state of Arizona or even in the city of Phoenix, we're getting deals done. And it's because we have focused over the last six or seven years on completely systemizing our business so we no longer have to be here to get these deals done. A lot of people don't know how to implement those systems. Today's podcast, we will be talking about whether it's a deal or no deal. I have students and even colleagues of mine who they will invest hours on each and every deal that comes across their desk.

I don't believe in that. I believe in choosing and handpicking the true deals and systemizing it and replacing ourselves. So we have an acquisition manager. We have a lead intake manager. We have an agent relationship manager. We have a project manager. We have a sales manager. You know who I manage and what I manage? I manage the three or four people that need to fulfill those roles. Everything else is managed by them. Over the last two years, I'll just use, we've done over 150 flips. We're developing 79 townhomes out in Mesa, Arizona. There's a lot of components. This year alone, we'll wholesale 100 to 200 deals here in Phoenix. We'll flip another 30 to 50. I mean, there's a lot of components that go into

our business. And so if we didn't systemize it and we didn't put people in that place, we would be doing it ourselves. And there's no way to have that business running at that high level without the systems and the people in place now if you don't know who i am or what we've done here at phoenix wealth builders which is my real estate investing company. I have a partner, Eddie Rosefield. We have really gone from starting in 2007 and not getting any deals done to now having flipped well over 300 houses here in Phoenix. We're developing 79 townhomes. Just in the last two years alone, we've flipped over 150 homes. But the thing is, now that we've had the success, it didn't always start that way, right? And so what I hear time and time again from my loyal listeners is they're so impressed with how much they can relate to me that we're cut from the same cloth.

We didn't get our first deal done for the first nine months. Nine months of no paychecks coming in. And when we first did our first deal, it wasn't exactly like we made six figures. I think we made seven grand. And then the next deal, we made another seven grand. So in one year, me and Eddie made $14,000. Let's round it up to 15 for fun. You take the taxes out of that, come on. It's not even livable. But what we were able to do

is look at each other dead in the eye and say, we are going to make this work. We will not give up. And we committed and we had fortitude to push forward. We invested in some education. We learned how to create the systems in our business through that education. We created incredible relationships through that education. And year after year, we've been able to double our business. So we've been able to go from two deals in the first year to six deals, to 20 deals, to 46 deals, to 96 deals, to now last year we did 50 deals and 79 townhome development and wholesaled 15 properties and it keeps going and it gets bigger and bigger. This year, we're going to be able to flip 30 to 50 homes, but we're also implementing and have already started and have already succeeded in wholesaling homes here in Phoenix.

Now, we will not be a wholesaler. We will be a fix and flipper. That is our business, but why not have two departments of your business? They work hand in hand. So, we have started the systems, developed the systems, and I teach all of my students that if you're a fix and flipper, you might as well have the ability to wholesale deals that don't pencil for you. You see, time and time again, we'll look at a deal, and this is what we're going to be talking about today, guys. We'll look at a deal that doesn't make sense, sure, but is it a home run? Is it a grand slam? Is this the creme de la creme of deals?

Well, if it's not and you don't feel great about it, figure out a way to wholesale it. Build your buyers list. Be able to send out a couple text messages or a couple emails and make sure that you can get some consistent money in your real estate business. Because so often, fix and flippers, myself included, yes, the paydays are much higher than wholesalers. So we will fix and flip a home for $20,000, $30,000, $40,000, $50, 50, $60,000 at a pop. And wholesalers will do three, five, 15 most. And if they're really good in certain markets, you can make more, of course.

But for the most part, fix and flipping gives you the higher paydays, but they'll come a lot fewer and far between. So that's not sexy. But you know what? If you listen to me every week, and listen to my systems and you implement my systems and you get some questions answered, you are going to start marketing and finding more and more deals that may not pencil for you as a fix and flipper.

But if you can build a substantial active buyer's list, maybe some of those deals you wholesale out and make a quick $5,000, $10,000 pop, $3,000. For some of you, you'd be happy to make $1,500 and that's great. Have that ability. I constantly harping on my students about don't put all your eggs just in one basket. I think last year without having a wholesale business or even a real department, a wholesale department, we wholesaled I think 15 deals last year. It probably put another $75,000 into our pocket. Have that ability. This year alone, we're going to be able to close, I think this upcoming week, we're closing three wholesale deals or maybe two.

One, we're going to net about $10,000. The other, about $30,000. That's a big, quick week. So anyways, guys, what it's all about is when you are listening to me and you're taking my systems and advice, and if this is your first episode, again, go back and start at number one and listen all the way through. You are going to start coming into whether it's a deal or no deal. So the reason why I'm so passionate about this today is because this week, one of my high level students, and again, if you're interested in talking to me about becoming a student or working

closer with my team, go to the website, thescienceofflipping.com and make sure to click on the coaching tab, put in your information and I'll make sure my personal assistant reaches out to you and sets up a conversation with me to review what your business looks like. So one of my students came in and emailed me this deal. We started talking about this deal and it's a fourplex out in California and my student's in California and he started saying, hey, the numbers look really, really good. It looks like it's worth about $260,000. It rents for about $3,000 a month.

We start really reviewing this deal and one of his lenders that he was going to buy this deal with made him get an appraisal, required it. And I said, you know what? I'll leave my student's name out since he probably is listening right now and he knows who he is. But I said, you know what? I don't think that's a bad idea. I think at the end of the day, the worst thing that happens is the appraisal comes back short and you don't buy the deal. The best thing is it comes back with the numbers that you want and it's a smoking deal. Go ahead and buy it.

So a couple weeks go by and he emails me this last week and he says, okay, the appraisal came in short. It came in exactly what I'm buying it at, which is very common usually because they'll ask for the purchase contract. It didn't come in at the numbers I thought it was worth. What should I do? And I said, hey, you know, I got to be honest. You've been following what I've told you to do step by step and you've been active and you started to see the results and deals are coming your way. And this deal doesn't look as fruitful as what you thought it first was. My honest opinion is pass on this deal. Now the key to what I just said is pass on the deal. It is still a deal. I think the appraisal came in at 183 grand. I think he's buying it at 180 grand.

And so $3,000 a month is a good cash flow opportunity. However, the way his business was structured or is structured and what he was going to do with this home no longer necessarily made sense for him. Because it all comes back to how is your business set up now if he was strictly a buy and hold type investor this deal may have made sense enough for him to pull the trigger but he is also a fix and flipper and in fact to buy this home he was going to sell another home just to acquire this home and And I said, wait a minute,

you're doing too many things. This is not necessarily a good smoking deal. My honest recommendation is for you to move forward on other deals. Do not acquire this deal. Now, some of you out there who have a good rental portfolio, you might be thinking I'm crazy. And that's okay too. Understand though, this individual has multiple aspects to his business. And for him to utilize all his capital to pay for this one property takes him out of the game for the remaining of his other departments in his business. So my true suggestion was, you know, you're paying retail for this. This is not a deal. Let's go find you a deal. And that's when you move. Now he said he needs to think about it because the cashflow was still pretty good and it is still pretty good.

The deal actually looks still very strong for what he would purchase it at. But in my mind, looking at all the deals I've done and being able to look back and say hindsight 2020, I can very easily tell you the deals that I would have passed on looking back. Not necessarily because I lost money or we didn't make much money or whatnot, but because if you really are finding your own deals, there is going to absolutely be those deals that are no brainers. I mean, home run grand slam deals for all those that are out there listening that have built a decent size business. You know what I'm talking about. And for those who don't,

and you're just getting started, understand you will find grand slam home run type deals because you're going to market for them yourself. And so that is why we're having this podcast is because my true belief is if you're truly finding your own deals and you're not going out there and utilizing lead sources, which lead sources are the MLS, the auction courthouse steps, or trustee sales, wholesalers. These are all lead systems. If you are finding your own deals through bandit signs, online marketing, direct mail, you are going to come across home run grand slam deals, period. I'm slamming my hand on my desk because i know it i've done it i do it daily so when a deal comes up that yeah it kind of makes sense but the reality is not a home run grand slam i say pass on it be patient

good things come for those who wait right So not only did that happen this week, and I said, okay, I need to talk about this on a podcast. I get a call last night from a friend of mine who has invested in a couple rentals, but I wouldn't consider him necessarily a real estate investor like I am, or for those of you out there listening to me would be considered real estate investors. And he says, hey, listen, I have a couple different opportunities here. I'm thinking about this and I'm thinking about that. And how does it look like in Phoenix versus Memphis versus Dallas versus Chicago and all these other cities? And I have some capital and I really want to figure out where I should be investing it. And so he gives me a

couple opportunities. And he's a good friend of mine. So I spend some time with him because I don't want him making a rash decision. He gives me these opportunities and he says, okay, this looks like this, this looks like this. And I say, listen, at the end of the day, you're not in any desperation to make a move. Why don't you choose the best one that's going to be the best long-term decision? Because the reality is he had several different opportunities that some were great quick-term decisions that probably would have given him a good, you know, in the next year or two years, a great rate of return on his investment. But he's buying these

for a long-term hold. He doesn't ever necessarily want to get rid of them. So I said, why don't you take a look at the one or two or three that actually are a lot more long-term plays because that's your intention. Focus on what your business looks like, right? So if you are going to truly buy and hold these and you have no intention and no care of appreciation which phoenix is a great market because it appreciates so not only if you can get eight nine or ten percent on your money um but you're going to experience the appreciation then you sell it in two three four five years um great decision that wasn't his intention he literally wanted to buy and hold a portfolio.

So you no longer want to care about the appreciation, right? But you need to take a step back and realize what are your ultimate goals. I talk about this constantly with students about your goals and why are you making decisions and does that fit within the goals that you're trying to reach, right? So I spoke to him specifically about that and I think we came up with a pretty good plan because there are two of those properties and opportunities that he has that are great smoking deals for a long-term hold. And so once we were able to refocus on what his business looked like, those really were the only two options. That was really the only two avenues that really, really made sense for what he wanted to do.

Because there were great home-run Grand Slam deals for his long-term hold business. So if you combine the two experiences that I had with my high-level student and a friend of mine who's looking to just buy another one or two rental properties, the idea is there can always be deals, right? There's always going to be these deals, but they're not the home run grand slam deal. They might be a retail deal. They might be able to be a decent deal but I'm of the mind frame that why do any deal that's going to cause you stress or heartache

or you're kind of questioning it. Don't question it. Go do the deal that you want that truly makes sense for what your business looks like. My student's business has multiple facets. He's a fix and flipper. He's a buy and hold. And he does a very small volume of wholesaling.

So for this deal, for his fourplex deal, it did not make sense. It was going to put all of his eggs in one basket. And then he'd have to reformulize his business. It was not a deal. It was not a home run deal, so to speak. So I would say that was no deal. My friend had three or four or five deals that we were looking at and really it got whittled down to two deals. The other three or so were no deals. And it all depends on how you're looking at it and what your business is and how it's set up. So that really is ingrained whether it's a deal or no deal. Let alone, guys, if you're,

you know, the obvious answer is if it doesn't pencil, well, then it's a no deal. No duh, right? No duh. If it doesn't pencil, if there's no money in it, no duh. So I'm not even talking about that. I'm talking about how your business is set up because you're going to get deals that come across your plate constantly. The reason why me and my business partner have set up a business where we fix and flip, but we have developed and have a wholesale side of our business. We are developers. We're developing 79 townhomes. We have multiple facets to our business. So we can handle each and every deal that come across our plate.

The home run Grand Slam deals, we are fixing flipping. The ones that are still deals, but they're not home run Grand Slams, we are wholesaling. And then the opportunities that do come for us to scrape, tear down a home and rebuild, or simply develop a piece of land, now we are able to do those. Develop multiple sides of your business and you're going to be able to look at so many more deals. Deals, deals, deals. That's what this is all about, guys. All right. Well, I hope that was helpful. This has been, man, podcast 29, deal or no deal, what to do with them. And again, if this is your first time listening or even if you're at a point in your business where you're like, God, I really just need a little bit of help to get to that next

level, I'd love to possibly work with Justin or even speak with him for an hour or so. Go ahead. Get to the Science of Flipping. Put in your information. Email us. Email my personal assistant at info at the Science of Flipping. And we'll get right back to you guys. So I've been your host, Justin Colby, signing off for today.

Have an incredible week. Go out there and figure out whether it's a deal or no deal. I'm out of here. Peace.