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Getting Started, Private Lender Foreclosures, We Are Hiring with Robert Orfino
Getting Started Week
We’ve got a couple of themes in this episode. We are going to get started with getting started, and then we will talk about foreclosures and we are hiring. If we don’t hire fast enough, I’m going to lose all my hair. We had a great event. We had six or seven people. It’s a perfect size for the Private Lender Summit. We’ve got to share some of our best practices. There were a lot of lenders that were surprised when we were talking about foreclosures, real estate investors getting foreclosed on. I’m looking at a lot of economic data out there. There are a lot of real estate investors that buy properties to flip or wholesale. Rob, you and I know the best flipper and wholesaler in town, and they don’t do this. I see this with a lot of flippers and wholesalers where they are buying things and they are betting on the comp like, “This thing is going to appreciate in value such that I can buy it at $0.75 on the dollar and it will be a 70% deal by the time I sell it.”
I’m becoming aware of that in this market. It’s the shade of California in 2014, 2015. The market had already stabilized and come up 35%. Everyone was buying and they were winning because the market was still appreciating. They didn’t have good deals at the time of purchase.
We sell the same thing in Seattle and in Denver.
I see that here and it’s certainly feeling familiar.
You said it best when you said we would know when we are there when the first hard money lender comes out and says, “We will fund 75%.”
If they do 75% ARV, then all of a sudden that warm market shifted. That’s a reality here. We are getting there. If you are reading and you’re flippers, where are your ARVs at? Most of them are probably making their own acquisitions. Meaning they are not buying from wholesalers or they don’t have agents bringing deals. We will do a flip here and there. We will do ground up but that’s mostly to keep our real estate team with listings. It’s not our business anymore but I’m curious to watch that. I’m curious to see what’s going on with flips because we’d been looking. One honest to goodness flip came across our desk in the last few months and the guy snaked us and sold it to New Western.
It’s a 75% to 78% flip, which they will lose money on. It’s a matter of time. This market is changing such that if you are flipping houses, you’ve got to be careful.
That’s not what I’m saying. I’m thinking if you are flipping houses and you can get the funding, that on the outside of it, there’s going to be a 3% to 7% bump in the ARV.
That’s a maybe.
That’s what I’m curious about. I don’t know, nobody knows.
This is one of those things that make commercial real estate different than single-family. I catch these guys in a lie and it’s the gurus. They will say something like, “Doing X, Y and Z in single-family is speculative,” then I will get a private placement memorandum that has 5% increases in rent rolls over the next few years. I will see lower cap rates and then I see some others. I’m like, “You’re running this off some future projections.” I’m not opposed to saying, “This thing is going to be worth this much more in this number of years.” Let’s apply the same scrutiny and the same due diligence to single-family as we do multifamily.
I told you about the conversation I have with my doctor. We started talking about real estate. I said, “We were doing this fund. It’s 9% and we do equity kicker.” He was like, “That’s low.” I was like, “What are you getting?” He was like, “I’m 15% to 20%.” I was like, “Is that what they are telling you? How many times have you gotten 15% to 20%?” He stopped and he said, “None.” I was like, “Great.” We had someone else look at our numbers and I was like, “You are not adding in any appreciation. You are not adding in any increase in rent.” He was like, “No. This a snapshot. This is static right here.”
I will agree with you there. People who do those syndications are wary. That’s the biggest problem. There are going to be people in the Quest room and they are going to say 30% return, which first of all, FTC would be freaking out if they are in that room. People are going to get up there and talk about guarantees and a whole bunch of other stuff, which I know better because I get schooled by our attorney and they don’t. I’m curious about those commercial deals if they are paying out 30% to 35% like they were advertising.
I’ve been in a lot of rooms where a lot of syndicators got up there and talked about, “I’ve got a hotel, then I’m converting the condos in Vegas, 200 units, 50% return.” A couple of years later, I know people who put in $10,000 to $15,000, “How did that work out?” “He wholesaled it. We never even got to the conversion. He sold it off and we made 10%.” I’m like, “That’s disappointing.” I agree with you on that stuff that people can be wary. As Tom says, “We can all be millionaires on the spreadsheet.”
I always like to look at it, “What is the reality? What do we know?” This is what I know rent is. This is what I know rehab is going to cost. I have no idea if rents are going up or they are going down. I don’t know what cap rates are doing. There’s a lot of playing in spreadsheets, but when the rubber meets the road, what is going to occur? You are going to see a lot of flippers and even some wholesalers go out of business because we do have this little 5% to 6% per year appreciation. What worries me about the flippers is typically, they are in the $300,000 plus bracket.
$500,000 plus. That’s terrifying.
It is a whole different area. I drive around The Heights and it looks like everybody is building something.
They are all running at that $350 a square foot which is not real.
They are doing it in a 65% ARV on a ground-dumped construction. I’m sitting there watching it.
Their ARV is off by 25% to 28%. That’s what we got sold and we were pitched. We looked at it and we were like, “This is a $250 square foot neighborhood.”
Rob and I bought a property and we looked at a couple of others. We were standing there. We pulled up the neighborhood, and we looked at what’s selling and what’s on the market. I was sitting there looking at this thing, and this is $250. You think it’s $350 a foot and there’s no way. Let’s talk about getting started. How does one get started in real estate? You’ve got to know your number. We’ve got to start with the number.
You’ve got to know the end. What’s the end?
When you say the number, what do you mean by number?
You’ve got to figure out what your life wants. Where do you want your life to be and how are you going to get there?Opportunities are finite, but dreams are infinite. Click To Tweet
That is the hardest part of this whole thing. What are you trying to accomplish? It’s because you are going to spend time and money investing. What is it you are trying to do?
I see it on Facebook. People are like, “I’ve studied. I’m ready to be a wholesaler.” I’m like, “No, you are not.” They’re like, “I’m ready to quit my job.” Please don’t do that.
Why do you want to be a wholesaler? Is your job that bad? Don’t get me wrong, some of you have some awful job, but is it that bad? You feel bad because you don’t have a choice.
Let’s get started. You’ve got to know your number. My number went down a little bit. Something happened. We overpaid on one of our mortgages and the escrow went down. It’s now like $12,600 and something. I doubled that number. $25,000 is what we are looking to do passively each month. We can get there. We are running the other way.
We are buying a lot of properties. We’re closing three.
The problem is we are closing three, two are funded. One we’re self-funding, which we need to roll that out.
We’ll refinance it. Let’s talk about getting started. First, you’ve got to know your number. This is not like to know your number at a real estate seminar and what’s clapping, “I’m going to be a gazillionaire.”
Do you mind if I tell you my two claps?
Go ahead and tell your two claps story.
If you are in a room and someone says, “Everyone, two claps.” You immediately get up and run out of that room as fast as possible because they are going to sell you a $35,000 coaching program. Run into the lobby, cut your credit card up, and then you can go back if you want. Get out of two claps, $35,000, run.
I met a guy who spends almost $200,000 on real estate education. He was sharing with me the story of him and his wife. They bought and sold some houses and they paid the debt down. He was like, “It was a mountain to get over.” I was like, “You are still married. That’s good.” He said, “It all worked out.” You’ve got to know your number. This isn’t running to the back of the room and signing up for the seminar. This is why when we started our real estate education, it was goofy because everyone has a different number and they’ve only got one program. “Here’s your house flipping program. Here’s your wholesaling program. Here’s your buy and hold single-family real estate. Here’s your apartment program.”
“Opportunities are finite but dreams are infinite.”
There are a lot of dreams out there. I will give you a great example of this. I did a little research a few years ago. Everybody wants to be in multifamily. I was chatting with a couple of people. They were like, “It seems like everybody wants to be in multifamily.” I said, “Yeah.” How many multifamily properties get closed in Houston, Texas in a month? It’s over 100 units. Whatever all the gurus are teaching, I want to know how big the marketplace is. When anybody sends a business proposal to me, I have two in my inbox for breweries. I can’t wait to invest in a brewery but I don’t have the gut to have it yet, where I have to invest in learning. I’m not that guy. I’m looking at these PPMs and looking at what their marketing and sales strategy is. I don’t have the gut to have it. All these guys got the gut like, “I’ve got to do this deal.” Here we are. I’ve got to be a multifamily investor. Every weekend in this state, I guarantee you there is a multifamily seminar going on somewhere. With 100 units and above, this is how you get rich with apartments.
The question I always ask people is how big the marketplace is. Can we have another craft brewer here in Houston, Texas? The answer is yes, but at what point is the market saturated? It’s the same question I’m going to be asking multifamily. What point are we saturated with multifamily? I’d like to look at how many deals are available on a monthly basis? In Houston, Texas, one of the largest markets in the country, if not the largest market in the country. There are seven to ten a month. That’s it. There will be a seminar. I’m sure there will be 200 people.
They are going to tell me to go to St. Louis. St. Louis got three to four a month. All 60 of you, let’s go to St. Louis and fight over three deals.
You are not the only one in the seminar. There are about 40 more of those across the country that all want to go to St. Louis.Your best thinking gets you to where you are. Click To Tweet
I studied the gurus. Those big multifamily rooms are not about buying multifamilies. It’s about the investors. It’s about raising money. That’s what it’s about. There’s nothing wrong with that at all. You’ve got to have some cojones on you if you are going to charge $25,000 for someone to lend to you. I’m going to charge you or other $35,000 so that you can be $100,000 participant in my syndication. That’s an amazing model. I give them all props.
How do you do that? It’s like paying your salesmen to sell you a car.
Here’s another model in this business that blows me away. It’s getting people to pay you so they can be bird dogs for you. “We have a $497 training class, which makes you cold call for me.” That is an amazing deal.
We are bashing the gurus a little bit because when people talk about getting started, they think, “I need to get educated.” No, you don’t need to get educated first.
I think they do. They don’t need to pay for it.
The education I’m looking for is let’s talk about the number. Let’s put together a personal financial statement. Let’s put together a budget. Where’s all the money going? Where is it going in relation to where you want to go? You may not need as much money as you think in order to do what you want to do.
The takeaway from this episode is to know your number. What do you need? What does that monthly net look like? If you had that ideal lifestyle, what does that look like? Most people throw out, “I need $50,000 a month.” I’m like, “No, you don’t.”
One of my favorite things is when someone says, “I want to make $100,000 a month.” I will say, “How do you want to earn that?” “I want to be 100% passive.” Your best thinking got you to where you are. With all of your efforts combined in earned income, are you making $100,000 a month? The answer is no. Let’s start with that first. Let’s start there and then when we get to $4,800 a month “passive,” I like investment income, that always is better because none of this stuff is passive. We had a handful of private lenders at the office and one of them said, “I’m a brand-new lender.” He’s done three or four loans already. He said, “What I’m beginning to realize, even as I lend my money to guys like you all to do deals, is that the only way to be 100% passive is to invest in a fund.” I said, “You are smarter than most that you figured that out in a few months.” It’s not investing in apartments as a passive. It’s not investing in single-family as a lender. The most passive investment you can do is investing in a fund. That’s it.
We are hiring. I put it out there because I was lazy. I didn’t do the Indeed. I’ve got to do the Indeed stuff. I didn’t do that yet. I stood out there to motivate me to get it done. I was getting pinged all night long. Random people are like, “I can do that job.” Let’s talk about it. We have two commission only real estate agent positions within our Mr. Texas Real Estate team. One is going to be working with buyers. A lot of hand-holding there.
We’ve got a lot of people that follow us that want us to help them buy properties. We need a buyer liaison, someone to work with buyers. We’d prefer somebody who’s got some real estate investing experience. They’ve got to be a licensed agent.
The other one is a person that you will personally train to show them where the deals are on the MLS. That is something like you will get fifteen leads from you once a week. That week will be you negotiating, following up, getting those under contract, finding out where the real deals are. Is this a foreclosure? Is this a short sale? Why is this 270 days on the market? You will have to investigate all that stuff and you will have to do negotiations. You will have to run through our little checklist of this is how we’d like to buy it. If we can’t buy it this way, we can do this, and all the way down you owner finance and all these other issues. Those are the two real estate positions we have. You have to be a licensed agent. They are fun if you are good at it. If you like being the people person and helping people out, then that buyer’s rep is going to be great. If you are a numbers guy who wants to sit in a bunker somewhere and make phone calls, that’s going to be another great position for you as well.
Running numbers and talking to people on the phone. We’ve got one where you are meeting with people in person. The other one, you are talking on the phone and working directly with me. I will show you where the deals are at.
You are going to have to go out there, run out, look at the condition, take some pictures, and get it all ready for us. The other thing is this show, we need a production assistant. We need someone in here at 6:30 with us to do a little research and then to take a lot of the content. As you might be aware, we do a few Facebook Lives once or twice a day. It’s a passing thing. We have a lot of content. We need someone to help us manage that content. They will need to have some experience with web design and be a little technical on that side. They are also going to have to do a little research for us like, “Tomorrow we want to talk about this. Can you pull up some data on that?” It’s going to be a PA/web fulfillment, moving that product over. We have a system for our show came out.
It’s finally on iTunes and it’s everywhere podcasts are sold. That is where we are. We officially launched. The only one that matters is iTunes, to be honest with you. I guess Google Play. We are everywhere podcasts are sold. We need someone to help us curate and aggregate content. Do you like that? That’s like a Fortune 100 talk. It’s like a CMO level talk. They are the Chief Marketing Officer.
We are looking for someone to help us with our loan. We want someone with loan officer experience. We are not starting a lending company, but we need someone to help us prep all these documents. There is so much. We have our commercial real estate agent doing all that documentation and putting all that together. That doesn’t allow her to go and buy commercial real estate.
We need somebody that sits in the office. They will sit physically in my office. They will have a table across from me where I whip them to get Excel spreadsheets done because I don’t have time to do it. Those are four positions we’ve got. Give them the number to text.The only way to be 100% passive is to invest in a fund. Click To Tweet
It’s (281) 401-9008 or direct message us on Facebook.
Any of those people that are interested in those positions, they can send you a personal message on Facebook or they can also send it to the number. I had an interview with Asia. We did an interview with an investment advisor. He’s headquartered in Bangkok. He covers the Asian markets. Getting started. The first thing is let’s take stock of our personal finances. How much money do we make? How much money are we spending? Where do our dollars go in? Let’s put together a personal financial statement. How much is in our IRA? What’s in the Roth? What’s in 401(k)? What’s in the Coverdell account? What’s in the 457? What’s in the bank? Where’s all the money at? What is our house worth? How much equity do we have? Let’s put all that stuff together.
You will have a good snapshot. Most people don’t want to look at it because they think their life is horrible. It’s not where they want it to be. They don’t understand the step one through 25 and so it looks insurmountable. They don’t want to look at those numbers but they need to start there. That’s step two. Figuring out where you are starting from, looking at those numbers, and then realize, “This is the life I want.” You don’t need your vision board. You can have a vision board, I don’t care. Vision boards are fine. You can vision board your brains out. What is that new lifestyle going to cost me? I’m not too far off. I’ve had months already where I’ve exceeded my lifestyle number. I’ve got to do it consistently. That’s probably step fifteen, sixteen I’m on.
You’ll see these Facebook posts where it says something like, “A journey starts with the first step.” No, it doesn’t. It starts at the origin. Where are you starting from? Where are you at? Once you figure out where you are, then you can figure out what your destination is. A lot of people don’t start with where they are. They are like, “I want to be over here.” How far are you away? You have no idea. You’ve got to start at the origin. How many years is it going to take? I love telling this story. My old boss, Bob, when he first took over the department that he was running back when he was a young professional, got the entire department together. A lot of people wanted to pursue additional academic training. Some people did not have an undergraduate degree. They wanted an undergraduate degree, some wanted a graduate degree, and some want to go get their PhD.
He put a calendar up around the conference room of the next several years. Some of these folks were in their 50s and let’s say they want to get a graduate degree, a Master’s in something, and then a PhD. Part-time, that’s a few years, plus they wanted to get certifications, they want to get all this other stuff. What he did was he said, “What are your goals?” “These are my goals.” He said, “You’re 52 and you want to do this and this. You will not be done with your academic piece for a few years. You are going to be 60. By the time you’ve got to the third or fourth person, nobody wants to look at the calendar anymore.” It’s incredibly painful. That’s when you realized there is only so much time. It’s the only thing you don’t get back. The reality is that you got to take stock of where you are at now and then we’ve got to say, “We want to get here by this time. What are the activities that I need to partake in during this time period in order to meet this goal?”
How do you do it with only nineteen hours a week to do it then?
That’s essentially what you’ve got. You’ve got about nineteen hours a week, unless you are crazy dedicated, which most people can’t run at that pace. How are you going to retire? That’s a great question for all the gurus out there that say you can retire in a few years or less, which is true. You can totally do it. How do I do that working on my real estate investing business for nineteen hours or less a week? What do I need to be doing every hour, every half-hour for those nineteen hours? If you ask those people that question, I don’t think they will give you a clear answer. What do I need to be doing for nineteen hours?
We’re talking about getting started and your number. What’s your number? Granted that people tell you their number is $100,000. “I want to make $100,000 passively.” You make $100,000 a year and then you are making $100,000 a year passive. That’s not bad. That’s a decent little gig. Here’s where life gets scary. Let’s go ahead and assume you’ve hit your number, now what? You played golf for a couple of weeks. You go, “I’m bored. I’ve got to find something else to do.” You’re driving the wife crazy.
You’ll wind up fighting with your wife. That’s what retirement is if you have nothing planned for your retirement. You’ll wind up fighting with your wife or you start making your own fly-fishing lures. That’s when you’ve got the big magnifying glass. You sit there and that’s it.
“Rick, what are you shaking your head for?” You hear it. It’s like, “You’ve got to go do something. You can’t hang out at the house.”
That’s not good. I will tell you a story. I will get the backstory at one point, but my dad hit the lottery. He retired. What he did was he made birdhouses for the flea market to keep him busy. The cost of the material, and not even labor, was $12 and he’d sell them for $10 because he was bored. Finally, my mom chased him out of the house, “Go get a job. Get out of the house.” He went back and did what he knew how to do. He was the kettle guy. He was a millionaire running the kettle.
People keep asking me like, “Why do you keep doing all this stuff?” I’m like, “What else are you going to do? We figured this thing out and we’ve got to keep doing it.” Are we supposed to retire at 40? I want to live to like I’m 90.
I’m going to sling hash. I will cook breakfast and I will ski in the afternoon.
I’ve got ten years until my youngest one is out of school. People are like, “Are you not going to travel the world?” I can’t. We’ve got boy scouts. We’ve got swim teams up and they are now in a different league. Where am I supposed to go here? I’ve got some responsibilities here. They make it sound like, “You are going to live this playboy lifestyle.” You’re not.
Joe McCall does the thing where he drives around Europe in an RV and home-schools his kids. I’m like, “That sounds like a lot of work.”
It sounds like too much work.
If you are looking for those positions, you can go ahead and direct message me or give that number a text and we will talk about that as well.
It’s been a decent show. We spent too much time probably bashing gurus but I’m okay with it. It makes everybody else feel bad. We will see you.