It’s four stars out of five for buy and hold in the market right now. With that, you should seize this opportunity to buy and hold properties more than flips. Robert Orfino details some of the deals and flips he has done and reveals information on how the Houston marketplace is shifting. He also lets us in on his and Jason Bible’s portfolio and what they are currently into as well as their plans. He also talks about lenders and how they are coping with the changes. The market is peaking. That is why you need the right information as much as possible to make the most out of it.
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Buy And Hold Deals with Co-Host Robert Orfino
“What happens when this market shifts?” is a big question that people are starting to figure out. We had Charles, our wholesale liaison. He talked about, “We’re not finding a lot of flips.” There are not a lot of good flip deals out there but there’s a ton of buy and hold. We also know some flippers that are out of the business. They’ve shifted to buy and hold or they’ve shifted to acquisitions, meaning I can go ahead and do a lot of wholesaling myself and set up my call center team. If something does come in that’s hot, maybe we’ll flip it ourselves. For the most part, we’re going to be pushing product out the door. For sure, there are at least three of those guys who have pretty fairly large operation that has shifted. If you’re a contractor, you’ll always do flipping. Our world is a lot weird.
We have house flippers that come from two different areas. They’ve come from, “I watched this stuff on HGTV. I went to the big seminar. I bought the $25,000 backpack and now I’m going to go ahead and start flipping homes because that’s what I’m meant to do. I can’t wait to quit my day job or I already have quit my day job. I’ve got a little bit of money saved. I’m going to go do that.” That’s dangerous. There are the other people over on the other side who are like, “I’m a contractor and this is where I came at it from. I’ve flipped homes.” For me, I flipped between Fannie, Freddie, Colony and Blackstone. I flipped about 250 homes. I can do this for myself. I’m doing all the work. All I’ve got to figure out is the money in the acquisitions. That’s a little naïve at the beginning, but that’s what this business is about.
We talk about it all the time, always find money, always find deals. If everyone else is looking for money and deals, I’ll get into looking for money and deals. I found a few and I started flipping. I become a flipper outside of working for someone else. I have a construction background, which is like what we talked about, which means I’m not scared of anything. First one floor to four floors as long, as wide, none of that stuff scares me. I’m very aware of how the construction works and the mechanical works. I came from that background. I looked at it and said, “I can fix this for $35,000. I can do this for $40,000.” You beat up the subcontractors and try and lift their quality up.
Those are the two types of flippers. If you’re the latter, the contractor guy, you’ll always stay busy because you could go buy one house, buy a piece of dirt and build it out. You’re buying yourself a job for six months or for a year. Those contractors, those flippers will always do well. The contractor does his own flips. Maybe he does six, eight flips a year himself. Maybe he runs his crews out for another four or five other investors. He’s doing twelve jobs, one job a month, anywhere between $30,000 and $50,000, sometimes $100,000. That’s good little business. That’s $1.5 million construction business. At the end of the day, he’s going to make an extra 6%, 7%, 8% on the house that he flips.
Houston Market And Portfolios
Over here, the backpack people, you’re into it. Now you’re coming into this market in Houston. This market is shifting away from the flippers. Will there be flips? Yes, but not the ones that you need. Not the three-bedroom, two-bath that you buy at $150,000, put $50,000 in and sell for $300,000. That house is becoming very difficult to find. As a flipper, you’re going to see this little shift. Can I go up to Lake Conroe? Yes, I can do that. I can’t find anything in EaDo anymore, so I’m going to go up to Lake Conroe. Good for you. You’ll be able to find a shack up there for $70,000, $80,000. You’ll be able to fix it up for $60,000. You’re all in for $130,000. Hopefully, you’ll sell for $200,000 or if you’re under that $130,000, $150,000 mark, I would tell you to seriously consider renting it out.
Nonetheless, you’ll be able to move out of that market. We’re talking this market right here. When I came to this market a few years ago, I came out here with flipping in mind. I met a lot of flippers. We did some financial stuff around flipping, but the market has now shifted. You have to adjust. We always talk about buy and hold. That is for sure our strategy. We don’t discriminate. Single–families are great, but we’re not interested in putting them in there. We still recommend them for people that have less than three properties. Go get a few more single–families because you’re going to build wealth.
We want to get the multifamily. We understand. Our perfect portfolio for an individual would be three four-units, meaning you have twelve doors. Three four-units and your personal residence, which will be four mortgages in your name. You’d hopefully get a Fannie Mae mortgage for those four units. You’re still going to need 25% down, but it’s going to be a 30-year fixed. It’s somewhere around 5% to 6%. That will be a 30-year fix. You’ll have those twelve. Hopefully, they throw off about $200 a door, maybe more. $200 a door is what I’m looking for on that scenario. That’s $2,400 a month easy, but those things will also build wealth. I’ve got those twelve. I have them in my personal name.
For those of you that missed Merrill Chandler, what he told us on that two-day weekend was to optimize your FICO score and your personal credit profile is a better way to look at it, no more than four mortgages in your name. There are a lot of lenders out there, Fannie and Freddie people that will tell you, “We can go ahead and lend you up to ten properties in your name.” Only to have the other side of the coin, Merrill saying, “Don’t you dare do more than four.” We are reorganizing our portfolio, pulling some of our single–families out and putting them into the fund. We’re looking for four units. We saw this at the Portfolio Builders Club.There's not a lot of good flip deals out there, but there's a ton of buy and hold. Click To Tweet
The only thing that Jason and I will not put out to our groups or put out to our buyers is fourplexes because we want to look first. We’re being completely honest with you because we want to get three for our wives and three for us. We want to adjust our portfolio. It doesn’t mean that our other reps aren’t out there finding fourplexes all the time and bring them to their buyers. They are but we would maximize twelve units and your homestead in your personal name. You can do that in this market. It’s a very good market to find them. These may be in Baytown, Texas City, Richmond, who knows? They may not be in EaDo. They may not be in the Heights. They may not be these killer deals inside the Loop. We have to go out.
When we go out, we’re still going to make $200, $250 a door. If I can make $1,000 a month from each of the four units, that’s a beautiful scenario. It’s $3,000 easy every month. You know the way that we take those properties. We take them and we try to hit all the CapEx issues right up front. We’re in the market. We think this is a good market of four out of five stars to do that. I’d also like to get five Airbnbs in my personal portfolio. These five Airbnbs, the fallback would be if it all goes to pot, I can still rent them and make a couple $100. That’s why I have an Airbnb in Texas City. If all went to pot, I could go ahead and put it back on the market and make $300 versus making $2,000, which is what I project to make there.
We’re looking for five of those. Those you may find in EaDo. Those you may find in the Heights. We have one coming up in the Heights. We’re waiting for some title issues to get fixed, but it’s a great deal. We’re going to do Airbnb. If Airbnb doesn’t work, we can turn around and rent it. There won’t be a problem. Five of those and the three quads in my homestead is what my personal portfolio looks like. Everything else, we’re going to go ahead and put into the fund because we think we’re having a little bit of a shifting market. We still think it’s a great market for buy and hold, but we’re seeing it’s gone from a four to a three for flippers. We talked to a lot of people. If you’re a contractor, you’re going to do well. If you’re the guy who buys a 1,200-square-foot house in the Heights and you make a 3,000-square-foot house, you’re going to do fine.
We’re talking about the Houston marketplace and how it’s shifting. If you’re going to go to some of these developing neighborhoods, you’re going to also get to do very well. If the flippers are congregating in some of the worst areas of town, they’re doing well. There’s some gentrification going on right there. The shocking thing about it is the gentrification going on is not some master plan. This isn’t a Howard Hughes Development. This is the only place I can buy at $0.50 on the dollar. That’s where that gentrification goes because this is the only place we can buy. We can still buy it for $100,000. I can put my $80,000 in and I can sell it for $292,000 or $300,000, which is that sweet spot for the first–time home buyer here. You’re under that $329,000 mark and that’s where people will go.
You’ll have people that are flipping in those areas and they’ll do well as well. That person who’s still looking for the EaDo, the Heights or doing the million-dollar stuff, it’s going to shift a little bit. We are blessed with the size of the market. Even though you’re going to see a shift, they won’t feel like it for some people. For sure, the wholesalers are having a little tougher time now finding some flips. What does that all mean? Our strategy is buy and hold. We still love the market. We think it’s a very good market, four out of five stars. We think for flips, it’s three out of five. It’s still good. You’ll still find a random deal.
We’ve come across two or three. We still have to do about three more. We’re looking for three flips. Some of them get a little tight, so three flips and when we have our selling agent, Mr. Texas Real Estate, we’ll either do ground up or one every month. We know they will be a little tight. We’ll be flipping houses because we’re supporting another business, which is what the contractor, the broker and the agent does. We buy a house and it doesn’t need to be the 20% margin because my whole business is in flipping, real estate and construction. We’ll be doing some of that out there. However, we still think it’s a four out of five for buy and hold. You should be buying and holding everything.
Issues With Lender
The other issue here becomes the lender. I had to do more due diligence. We’re figuring out some things. We have a lot of private lenders that have been trained to do first position, 12%, “I want one point at 12% or no points at 12% or two points at 12%.” Jason and I have a bank now that does 9%, no points. They’ll do 80% of the acquisition and 90% of construction. It’s still a little light but that’s okay. They’re at 9%, no points. What does it mean when the market shifts for private lenders who have been taught to only do first deed, first position loans on flips less than twelve months? Some of these guys now are going to be taking twelve, fifteen, eighteen months because they’re going to have to do some major renovations or they’re going to do some ground up. We know that the permit office is backed up. It takes a while to get through that process. What does that mean to them?
What you’re going to see is the same reaction from the casual flipper. They’re off the bus, FortuneBuilders or the Dream Weaver Academy or whatever it is, all those other guys, those students are going to be, “Where are the deals?” They are private lenders who are used to one in twelve, two in twelve. I’m talking about private lenders, not hard money. I’m talking about private lenders, mom and pop, grandma, grandpa, who are lending out of their Roth, lending out of their 401(k). They’re going to come across the same things. It’s going to happen in a market where the investors had been trained that you should ask for two and twelve on a one-year first deed, don’t allow a second. You should get that all day long. That’s not happening anymore.
Those guys are pumping that stuff out. Derek, Brecht, these other guys are constantly cranking this stuff out. They’re not taking two and twelve money. They’re working hard to figure out the eight, nine and ten. That’s where we’re at. We have takeout money at 5%. I have a conversation with a bank, I found long-term fifteen-year financing on unwarrantable condominiums at 3.5%. There are not going to be enough places to put the money. When I can go and go through the work with the bank, get all my stuff in there once a year, like going to the proctologist. You’ve got to go in there, open up all your files and show them everything. Let them run your credit.
The two banks that we’re working with for the takeout stuff are like, “We’ll run your credit once a year and we’re good.” Maybe not even the second year because that’s always a big deal about getting your pulls on your credit score. What happens to those private lenders? Where does my money go? I’ve got Roth accounts. I’ve got a 401(k). Where does that money go? When these lenders have been taught to two and twelve on the first position flips in less than a year, I’m not sure that whole crowd that comes off that bus is going to be as productive as they were for the last few years.
Housing starts are happening here. They’re not happening inside the 99. On the exterior of the 99, drive that big round loop. You will find outside of Houston, development after development popping up. All of a sudden, the market is doing some things that we weren’t used to a few years ago. You have to be aware of this stuff. We’re working with lenders and they’re like, “I want one point in 12%.” The answer is, “No, I’m not doing that. I’m good.” The last thing I’ll say is I still think that our strategy of buying around the refineries, whether they’re Airbnb, single-family, multifamilies is strong. I took the back way, maybe it’s the most popular way, from Texas City to Surfside. I had to go down to six and the 523. In the middle of nowhere, there’s a refinery plant. There is so much construction going on at that plant. I don’t know the mechanisms of that, but there’s clearly a large building going up.
You can see the turnarounds are happening on some of the machines. This is in the middle of nowhere. They are so busy. There are many people working there that they’re parked on the side of the highway. There are massive parking lots that are full. Beyond capacity in their parking lot, the workers are now parking on the side of the highway. It’s big. When I tell you that this market is shifting, it’s not shifting to a collapse. It’s shifting upward. It’s going to a peak. Jason talks about it all the time, those of you that are waiting for the next down cycle, you’re going to wait a while. What’s happening, and for sure in California, it’s happening in the New York and New Jersey market, the last two markets I was in, is it’s not collapsing.
I can’t tell you how many people in that Ramada Inn at the Newark Airport. It’s a great REIA club. Glen has one of the best clubs in the country. There’s nothing attractive about driving the access road in the Jersey swamps near the prison by the airport with pollution and litter everywhere to get to this little Ramada Inn. There’s nothing good in that restaurant. It’s horrible, but you’ve got to go because this is where all the deals and the deal makers are. I sat in that room for a few years and everyone told me, swore up and down, the next crash is around the corner. I’m waiting for the next crash. I have seen it here.
What they didn’t realize is you’ve got to have a peak first. The market is up in New Jersey. Don’t tell me it’s not. When I say New Jersey, I’m not talking about Millville, Salem County or Cumberland County. I’m not talking about those places. That’s Virginia down there. We’re talking about 195 in North if that means anything to Houston people. What happens is that market is still moving up. We are almost past the recession. I have a property out there I bought for $440,000. It is now worth about $392,000. I’m very close to fully recovered. We have to go beyond that and start peaking. People that are waiting for another downturn are probably out of the business.
People that were complaining, “There are no more deals. I’m going to wait for the next downturn. It’s definitely going to happen.” It hasn’t happened. It’s the same thing here. “No one can sustain these prices. These prices are getting too high.” No, they’re not even close to peak. It’s the affordability index, which is the real measure of a market. California, they’re at peak, maybe post-peak for about a year. A lot of those $1 million and $2 million houses are taking a slide. I have three very good friends and former students out there that were only in that market and it is not good. One dude wrote a big check at closing because that market is sliding down.
Here, we’re still climbing. It will be harder for the investor as the market grows, not as it shrinks. It gets easier for us as it shrinks. As it goes up, as it starts hitting a peak, as the medium price here in Houston goes to $300,000, $329,000, $350,000, it becomes harder for us because there’s a whole bunch of new ground up. Everyone realizes that the real estate market is up. They think there’s value in their property. We are blessed with properties out here and people from Texas, nice big V up the country, all the Midwest. A lot of people don’t feel like there’s value in their property.This market is shifting, not shifting to a collapse but upward. Click To Tweet
On the Coast, that little smile community in the United States, everyone on the Coast believes their house is worth $1 million. That’s why it’s hard to wholesale in those markets. In the middle, here’s how to look at it. If you’re in a market where the house is looked at as a liability versus an asset, you’re in a good market. When you’re in a market where everyone thinks their house is an asset, that’s a tough market. That’s the distinction. California, Seattle, Portland, Phoenix, Vegas, Atlanta, all the northeast, they look at it like their house is an asset. There’s something there. I can trade this for something.
In the Midwest, it’s more of a liability. It’s a payment every month and the liabilities are easy to take off for people where assets are hard. If we become a Houston market where the house is looked at as an asset, we’re in trouble. All of those wholesale strategies go out the door. It’s simply call centers and door–knocking. What happens to private lenders? They’re going to have to adjust too like most people are. They’re going to sit out and go back to the stock market or buy some turnkey properties in Indiana or something like that where they’ll be promised 9% and only gets 6%. That’s what happens in these markets. That’s what the shift is happening.
I watched a show and these kids were playing a game. I’m trying to think back. I can remember, it was at the age where you still went outside and played games. We would play Manhunt, people call it fugitive or whatever. We would play that all summer long, nonstop we would play Manhunt. It was from Harding to Brian Terrace from William Street up to Bellgrove was the area. If you are out of bounds, you lost. You had a team that would go hunt down people and bring them back to base. If you were free, you could run and tag the base and free everyone. I remember night after night of Manhunt. During the day, we were always building a clubhouse. There was no need to ever have the clubhouse. It was just building the clubhouse.
You’d come in, covered with dirt, bruised up, bugs and all that other stuff. Your mother would throw you in the shower before you had to eat. You’d eat, spent a little time inside and you’d be running out the door because Manhunt started at 7:00 and you’d play manhunt. There wasn’t baseball for us. There weren’t big TV shows. It was Manhunt. We did that all summer long. I’m wondering what you played. We tried to play Kick the Can once. I don’t remember the rules of it. I can remember those summer nights. We’re getting into those summer nights. I don’t think kids are outside playing these summer nights anymore. They’re online doing their thing or playing Call of Duty.
I can remember getting thrown out of the house. You are not allowed to be in the house. You were like, “Go out.” “I’m good here.” “No, go out.” “I’m reading this stuff.” “No, go out.” We’d go out and play. I’m wondering if anyone else had those summer nights and what you would be playing at. I can remember somewhere around 8:30 to 9:30, the ice cream truck would come by. In our neighborhood, it was Mister Softee. I’m not sure you guys knew Mister Softee. I can still hear the music in my head. Here was the problem in my house. It’s such a life metaphor.
The Italian ice truck would come in the afternoon. That was Little Jimmy’s. Little Jimmy would come in the afternoon around 2:30, 3:00. We’re all sweaty and hot and we hear that music. We’d run back home, “Mom, Little Jimmy’s.” My mother would say, “This means you can’t get Mister Softee tonight.” What do you do as a kid? It’s immediate gratification, “That’s okay. Lemon cherry.” You eat the Italian ice cream and your lips will be all stained red for the afternoon or your tongue would be blue and someone always get bubblegum. I didn’t like bubblegum. Lemon cherry was my thing. At 8:30, here comes Mister Softee.
I love my mom, but she would bust your hump. She’d go get a banana split and sit and eat that whole thing right in front of me teaching me that life lesson. You can understand why I’m a bit of a smart aleck. I get it from my mom. She would eat that whole thing. She’d be like, “I told you, you could have waited.” I’m like, “Come on, give me some.” She’d always give me a little bit at the end. She loves all the whipped cream and the cherries and sit there. She’d have an iced tea, her Parliament 100s and Mister Softee. Back in the day, your parents would sit on a stupid night. That was a thing. They would sit outside. It will be her and it will be my other friends’ parents. Mister Softee comes and we couldn’t get it.
My friends, Frankie and Johnny, they’re named after the Elvis movie. They had grandmas. They used to hit grandma up for the Little Jimmy’s and mom and dad up for the ice cream. It was such a great play. I’m wondering what kids are doing now. I saw it on TV and I’m like, “Kids go out and play. I don’t think they do.” I see a lot of people my age out at night. They’re all walking, huffing and puffing and trying to fight back time. I was driving out at 5:50 AM. I was like, “There are a lot of people on the streets here.” Obviously, before it gets hot. I’m wondering what games you played.
Everyone played a little Manhunt, running out there. We played baseball during the day. I wasn’t all that athletic until high school. My hand-eye coordination didn’t hit to summer after eighth grade. For some reason, I could get the ball on my mitt. It wasn’t high school until I got into sports. When we were kids, it was Manhunt and building a fort. I don’t see it. I’m wondering if it is. I know that I bought my nephews on for Christmas laser tag. They ran around like maniacs in the night playing the laser tag guns. I saw a little bit of that. I was like, “I’m wondering if people do that.” I’m wondering if you have kids, do they go out at night? Are they playing stuff? Is the summer like we remember it or is that gone?
We’re down there at Surfside. We’re at the beach. I remember my time at the beach. I’m wondering if it’s the same. It looks the same. Maybe in the summer, it’s changed a little bit. I see the houses they’re renting down at Surfside for the summer. They look like the houses my parents rented in the ’70s. There are no wide appliances, squeaky beds, wide shower, plastic liners, shower outside before you come in, that type of thing. Summer at the beach is pretty much the same. I’m not sure if it’s that way in the suburbs anymore.
Let me know if your kids are going out and playing. Let me know what you played. Hide and seek was hide and seek. “Mother may I,” was another one. “Red rover, red rover, send Ricky over,” remember that one? I did a lot of that stuff. Early high school, we started building ramps. We lived on a hill so you could get a ton of speed on your bike coming down the hill. We built a big ramp. We lived on a street that no one drove by. The only reason for you to drive on our street was to park. You would drive and park and go to the house. We built this huge ramp and people were getting such big air because it was down the hill.
I didn’t have a creek. I had a river. It was the Passaic River, which was highly polluted, but we still played there anyway. Along the banks, there was dirt, there’s a lot of red clay by us. There was brown, dark gray muck. One day we discovered a boat that was in the muck. We were like, “If we can go and fix it while there’s low tide and then high tide, it will raise up.” That was our genius idea. We started this whole great elaborate plan to do this stuff. Within the first hour, Frankie fell in the muck. He was covered in this gray, nasty biochem, horrible thing. We couldn’t stop laughing. We were making fun of him horribly. He freaked out because he’s wearing his school clothes. Do you remember that? You had school clothes and play clothes. He’s wearing his school clothes, realizes that it all hits home. He’s like, “This is bad. What am I going to do?”
This is back in the day, I have no problem with the fact that my mom and dad spanked me. My mom and dad chased me around the house with a wooden spoon. You’re going to get the wooden spoon on your butt. This was in that era. We knew what was coming. He was going to get it. It was not going to be good. We run up the hill because we were at the top of the hill and at the bottom of the hill is a river. We’re running up the hill. He’s freaking out. He’s like shaking himself off like a dog. We’re all trying to avoid it because we all realize we’re in our school clothes too.
He comes up with a brilliant idea to jump in Pat O’Donnell’s pool. Pat O’Donnell was a little bit younger than us. He was fine. We played with him. He was definitely freaked out about his parents. He would not go down to the river. He would not climb up into the stormwater drains. We’d go exploring in the sewers and all that stuff. Frankie decides that he’s going to jump in the pool to clean himself off. He jumped in this crystal blue pool and turned it muck gray. It worked. Now he had just wet clothes. He had to explain why his clothes were wet, not stuck with all kinds of gray gunk. He turned the O’Donnell’s pool gray and we all got in trouble from that. That was not good. This was the summers that I had. I’m sure most of you had some fun summers too.