The Science of Flipping - Interest Rates SPIKED! What Now?

Episode Date: May 10, 2022

The #1 training and coaching system to launch, grow, and scale your investing business!𝐋𝐞𝐚𝐫𝐧 𝐌𝐨𝐫𝐞: http://www.thescienceofflipping.com Become a 𝐓𝐒𝐎𝐅 𝐈𝐍��𝐈𝐃𝐄𝐑 and get access to exclusive training and resources:https://insider.thescienceofflipping.com 𝐈𝐍𝐒𝐈𝐃𝐄𝐑𝐒 𝐆𝐄𝐓 𝐅𝐑𝐄𝐄 𝐀𝐂𝐂𝐄𝐒𝐒 𝐓𝐎: ✔️ Science of Flipping Academy  ✔️ All the systems and software I use in my business✔️ All the tools you need to run your business ✔️ All my Scripts, Contracts, Spreadsheets✔️ Special Discounts✔️ And Much More... 𝐇𝐚𝐯𝐞 𝐚 𝐪𝐮𝐞𝐬𝐭𝐢𝐨𝐧?Get immediately connected with a team member on messenger:http://split.to/tsof-messenger 𝐁𝐞𝐬𝐭 𝐑𝐞𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐅𝐨𝐫 𝐖𝐡𝐨𝐥𝐞𝐬𝐚𝐥𝐞𝐫𝐬✅ 𝐁𝐞𝐬𝐭 𝐑𝐞𝐚𝐥 𝐄𝐬𝐭𝐚𝐭𝐞 𝐒𝐨𝐟𝐭𝐰𝐚𝐫𝐞: http://bit.ly/tsofsoftware✅ 𝐁𝐞𝐬𝐭 𝐃𝐫𝐢𝐯𝐢𝐧𝐠 𝐟𝐨𝐫 𝐃𝐨𝐥𝐥𝐚𝐫𝐬 𝐀𝐩𝐩: http://bit.ly/tsofd4d✅ 𝐁𝐞𝐬𝐭 𝐒𝐤𝐢𝐩 𝐓𝐫𝐚𝐜𝐢𝐧𝐠 𝐒𝐞𝐫𝐯𝐢𝐜𝐞: http://bit.ly/tsofskiptrace✅ 𝐁𝐞𝐬𝐭 𝐓𝐞𝐱𝐭 𝐁𝐥𝐚𝐬𝐭𝐢𝐧𝐠: http://bit.ly/tsoftext✅ 𝐁𝐞𝐬𝐭 𝐃𝐢𝐫𝐞𝐜𝐭 𝐌𝐚𝐢𝐥 𝐒𝐞𝐫𝐯𝐢𝐜𝐞:: http://bit.ly/tsofmail✅ 𝐁𝐞𝐬𝐭 𝐃𝐚𝐭𝐚 𝐏𝐫𝐨𝐯𝐢𝐝𝐞𝐫: http://bit.ly/tsofdata 𝑾𝒉𝒂𝒕 𝒕𝒉𝒆 𝑷𝒓𝒐𝒔 𝑯𝒂𝒗𝒆 𝑻𝒐 𝑺𝒂𝒚 𝑨𝒃𝒐𝒖𝒕 𝑱𝒖𝒔𝒕𝒊𝒏: “Justin is one of the best trainers in this space. He really gives everything to his tribe.”– Brent Daniels (TTP) “Justin’s ability to connect with people and help them understand what he is teaching, is unparallelled”– Kent Clothier (REWW) “We have been in the trenches flipping homes in Phoenix for over a decade, he is one of the best to do it.”– Sean Terry (Flip2Freedom) 𝐀𝐛𝐨𝐮𝐭 𝐉𝐮𝐬𝐭𝐢𝐧:Justin Colby is the founder of The Science of Flipping Podcast and The Science of Flipping Coaching Program and is an active Real Estate investor having flipped over 1500 homes in multiple markets across the U.S. Justin runs an 8-figure real estate wholesaling business that closes 20+ deals each month in multiple markets across the U.S and has helped 1000s of clients learn how to become successful real estate investors. Justin subscribes to the philosophy of "Wholesaling To Wealth" and is the foundation of his coaching program which teaches you how to get started wholesaling or streamline and scale an existing wholesaling business as well as build long term wealth through wholesaling, flipping, and building a rental portfolio. Subscribe To Justin Colby:http://youtube.com/justincolby View All My Videos:https://www.youtube.com/c/JustinColby/videos  

the interest rates are going up. Buyers can't afford the interest rates going up. But if I can math it out for them, that is the same payment as it would be if they're renting. Now they can see the value. They own the home and they're paying essentially for what would the same thing as for rent, but it's also paying down the principal, it's paying interest, and they own the actual home. Yo, yo, welcome back to the Science Flipping Podcast. I am your host, Justin Colby, and today's episode is about what to do with the interest rates that are jumping up at an all-time high. The Fed just increased a half of a point. So there's a lot of questions out there

that I've been asked about. What should we be doing? How are you changing your business? Should there be change? What's happening? So let's answer some of these questions and get to the point of how this can affect you, me, and the investors alike. Now, if you are listening to this on iTunes, make sure you give me a five star review. I'd greatly appreciate that. And make sure you get your butt over to YouTube and subscribe because there's a really cool video of this exact podcast where you can engage with me. You can talk to me. You can, or you can't talk to me, I guess, but you can see me talking. And there's some really cool features that my video editor does on these podcasts. So make sure to pay attention to that. Now, what I will tell you

is I'm getting a lot of questions from students as well as prospective students that are just saying, hey, how are you changing your business? I know you do a lot of wholesaling and flipping and buying and holding. And so let's jump into this. The first point I'm going to tell you guys, and it should always be the case, is you never, ever, ever want to be a one trick pony. My students who are heavily fixed and flipping right now, I'm cautioning them. I'm telling them I've been there before. I've seen this type of thing happen, right? Where the money has been incredible for them for the past five, six, seven, eight years. They cannot do wrong. Essentially everything sells for top dollar. They're making way more money than they ever thought even possible. But I'm saying, listen,

this is where the hogs get slaughtered. The greedy do not do well in this area because they're buying based around maybe trying to see if they can get another 10% on that market value, even though it hasn't really happened. There's nothing proving that to be right. So they have been winning is the reality. They have been getting that done. They have been making even way more money than they even thought when they first is the reality. They have been getting that done. They have been making even way more money than they even thought when they first bought the property. So that's speculating, okay? That's the word I was looking for right there.

That is called speculating. This is a very, very dangerous business model, business habit. I encourage you not to speculate, and especially right now. So many of my investors, I can think of one student specifically, she buys very, very heavily from wholesalers. And that has been awesome for her over the last five years. She has absolutely murdered it financially. And I'm always congratulating her, and she's a highlight student, and she's doing so well.

But I'm also letting her know, here's where you want to de-risk yourself. Don't be a one trick pony. Okay. Don't go into every single wholesale deal and figure that you can buy it from the wholesaler. You now need to try to find deals that are direct to homeowner. The reason being, uh, you don't have to give away that margin that gives you some cushion okay the margin is the wholesale fee right and so instead of her constantly buying from a wholesaler I want her to now start implementing some marketing strategies so she can have her very own deals I got caught in this trap years and years ago I only bought from the courthouse steps and then when the hedge funds came in I couldn't buy anymore because it could years and years ago. I only bought from the courthouse steps. And then when the hedge funds came in,

I couldn't buy anymore because it could outprice me. Then I only bought from wholesalers and I realized I was doing flips and making 10 grand after 90 days. Well, that's a whole lot of work to do 10 grand to make 10 grand. Then in the marketing space, I was only doing direct marketing.

My point being is don't ever be a one trick pony. That is first and foremost. Now, the second part here is going to be, I guess, a little more philosophical, right? Is that essentially to make sure that you can weather the storm, you have to be fluid. Bruce Lee talks about how being fluid like water. Well, that's as entrepreneurs and real estate investors specifically, we need to be fluid. Meaning, there are times where rehabbing, such as the last 5, 7, 10 years, can be the very best business model because you can make the very most money. Then there are times, like right now, that it could get a little more risky, right? Meaning your end buyer is having

a harder time getting a loan. So now you put something up because you put it at top value, trying to make as much money. And all of a sudden you're going to have to start doing price decreases, right? To try to find a buyer that can afford your home and get the loan that you need to, or get the loan that they need to get and buy their home. So you need to be able to flow with what's happening in the times. This goes back to point number one,

which is really making sure that you're wholesaling, flipping, and buying and holding. In fact, right now we're doing more creative finance deals than I've ever done before because of what is currently going on in the market. There are people that still need to get out of their home. There are people that are open to doing seller finance. There are people that need to buy a home, but they can't go get a loan. So there's two deals right now that we're doing where we're actually going to buy it. And then we are going to sell or finance it off to the buyer, right?

And so they're going to give a percentage down and then we're going to math out a payment. So it's essentially like they're renting, but really it's a mortgage payment to us. So being fluid really allows us to be able to monetize each lead, to be able to be flexible in different markets. Now, like I said, most investors over the last five or 10 years have been absolutely murdering it. So if you got in this game within the last five or 10 years, I'm hopeful that you've been murdering it because you deserve it. But also realize here comes some waves. I don't believe there's going to be a big foreclosure crash. I don't believe in all that kind of stuff.

There's too many economic points that would say that there's not going to be. However, I believe that crazy speculation of could we get an extra 10% by flipping it, that is going to go away. We're going to see some softening of this appreciation that has been happening. So if you stick to your core buying model, right? And your core model and make sure that you could take in leads and be able to diversify how you exit them, then you won't have as much trouble as people who are one trick ponies. As I mentioned, even those that are buying rentals, I have another client, great client.

He only wants to buy rentals. This is his only business model. So I work with him about finding as many leads as possible so he can buy as much as possible. So this week he's been hitting me up about, hey, these lower price point homes that I'm buying in the South and in Alabama and Oklahoma and

Mississippi and Louisiana, they're really not making a whole lot of sense right now because when things go wrong, like an air conditioner or a roof, it really takes away any profit I would be getting over the next year or two or three. I said, you're right. And he said, okay, so those are easy for me to buy cash because some of these homes are literally 20, $30,000, $40,000. I can buy those cash. But now I have this other model. This is my student talking that he just bought a $2 million Airbnb, right? But the challenge now is his financing is changing. So now the profit margins on the Airbnb are getting more challenging. And basically what I was telling him is very similar to what I was telling you. And what I'm

saying on this episode is just going to be, you need to be able to diversify. Having the lower price point homes, having the higher price point homes, you need to overlook all of it as a business model. And sometimes the lower price point homes are going to be easier. You can even do seller finance with them. You can get good numbers with small amount of money in, but then also you have these higher price point homes where you can make more money monthly, but there's going to be challenges with your loan that you're going to be getting on that price point. And so I told him he should be diversified across all kinds of price points, right? The $20,000, $30,000 price points in markets that have those deals, great. The $2 million

high-end Airbnb, great. But he should also be in more of the middle price point of a rental, like $150,000 to $250,000. He should have a portfolio that any given time he can continue to make profit margins. Very similar to what a hedge fund would do with stocks. They diversify what type of stock so they can look at their entire portfolio and have a certain earnings year over year. Now, that's one scenario, right? This is all predicated on what is going on with the interest rates. So I just told you one of my biggest pivots, if you will, in me being fluid is now I'm doing more seller finance deals. Not I'm buying seller finance more, which I am actually, but it's

actually I'm buying it and then selling it as a seller finance. Why does that make sense? It makes sense because the interest rates are going up. Buyers can't afford the interest rates going up. But if I can math it out for them, that's the same payment as it would be if they're renting. Now they can see the value. They own the home and they're paying essentially for what would the same thing as for rent. But it's also paying down the principal is paying interest and they own the actual home. So when things like these interest rate spikes start to happen, I'm just looking at my entire business model, right? And I'm figuring out how I can make sure I'm diversified. I heavily do cold calling as a marketing strategy heavily.

I have a great cold calling floor out in Mexico. Um, It's not my floor. It's a company I use. If you want to know that company, let me know. I'm more than happy to suggest using them. They're phenomenal. I do heavy pay-per-click advertising on Google. I do heavy pay-per-click advertising on Facebook. I do heavy text messaging, right? So I'm diversified in how I'm getting my deals. I do email marketing campaigns to realtors. I use Privy now because it just hit my world like a Mack truck. So I'm super excited about using Privy. I diversify how I'm acquiring these deals. And then because I can diversify my exit strategies, I'm never really at risk, even if interest rates go up. But overall, that one point

is why wholesaling is such a brilliant model. I can wholesale 10 to 20 deals a month. I don't have any money invested. I have zero risk. It makes sense. But it should never be your only business model. I bought 14 rentals. I say this all the time. I bought 14 rentals last year with none of my own money. You think that makes sense for me? Think that would make sense for you? There's money everywhere. You just aren't looking for it in the right place. So listen, guys, if you like this,

smash the like button on YouTube. If you're not subscribed yet, go to youtube.com forward slash Justin Colby. Make sure you subscribe to my YouTube channel. I've enjoyed this. It's a hot topic right now. And I look forward to continued conversations about this. I'll see you on the next episode. Peace.