Texas has been one of the best places to invest in real estate in this country. Taking advantage over this fact, Jason Bible and his partner in crime, Robert Orfino, welcome you to Texas Real Estate Radio Network where they talk about all things Texas and real estate. April Fool’s aside, starting the first episode on April first follows the momentous streak of companies who opened on this very day – from Ronald Wayne to Steve Jobs. Jason and Robert gather their luck and share it with you as they set you up for success in your real estate ventures. Get ready to be equipped with a handful of wisdom as they bring their own experiences and insights. Learn more about single-family real estate across the country, a certain 10 cap deal, and why there is nowhere in the country where the grass is as green as Texas.
Listen to the podcast here:
Introduction: Why Start On April’s Fools
We talk about all things Texas, and one of the best places to invest in real estate in the country is right here in Texas. We want to tell you a little bit about ourselves. I’ve been a real estate investor here in Houston, Texas. I bought and sold over 500 houses. I do small apartments and Airbnb. We do some private lending. I’ve been in this market since 2013 and it’s been a lot of fun. We’re looking to expand into other markets and do a little bit in Dallas. We’ve got some other properties in South Texas. I won’t tell you exactly what markets because I don’t want to steal the thunderbolts. We’re real estate investors and we enjoy the business of real estate. We’re going to share with you what it is that we’ve done to become full-time real estate investors and begin to build wealth for our family, friends and our networks. Rob, why don’t you tell us a little bit about yourself? Why don’t you give us an introduction of who Robert Orfino is?
I’m also a real estate investor. I’ve been doing this for a few years. I didn’t get into it the way you found your path. I was thrown into it because of massive debt at the beginning of the recession. I figured out that real estate was going to be a way I could climb out of that hole as a lot of people found that out in the last few years or in the last 100 years. I climbed out of that hole. I got my debt structured right. I started getting some investment properties. I saw the opportunity here in Southeast Texas and I decided to jump in my Jeep and drive from Los Angeles to Houston and in about two days, we made it. I’ve been here buying properties and investing. Everything has worked out well. This is for sure the greatest investment market in the United States.
Let’s talk about what you did in California because that’s important. Texas and California both have these stigmas around them as it relates to real estate. When I first went to California to speak at one of your events, you said, “Everybody, this is Mr. Texas Real Estate.” Everyone is like, “A guy from Texas.” When you come to town and say, “Here’s Robert Orofino, the California Investor.” Everybody goes, “A California investor.” It was always funny. Those two states, whenever you hear about someone who’s an investor in either one of those states going to the other states, it’s a big deal. It’s oil money from Texas. It’s lots of wealthy tech money from California. Why don’t you explain a little bit about what you did in California and some of the funds that you worked with and how you developed your investor discipline when you were in Southern California?
The world is falling apart. It’s 2010 and everything is bad. I do have a construction background. I was a third generation contractor. My grandfather was a mason. My father was a roofer and framer. I swore to him I would never get in the business, but I’ve found myself in it in about 2010. What I was able to do was have an opportunity to work with Fannie Mae and Freddie Mac as a SAM contractor. In 2010, we probably did about 45 and most of 2011, we did about another 100 cleanups. We call them blow and go, just painting carpet, new toilet seat and we’re done with the house. At the end of 2011, Fannie Mae decided in Southern California, they were not rehabbing any homes because it was only investors buying anyway. They were leaving them as is. In 2011, through the grace of God and the universe and all that good stuff, I met a gentleman who was processing homes for the hedge funds. We always heard the hedge funds are here.
I met a company that was acquiring, rehabbing and doing disposition for them. We got to work for Colony Homes of America as their contractor on-site and then a little bit of a Blackstone, which is Warren Buffett’s company. I simply reversed engineered what they were doing and realized, “Look at those margins.” I had to figure out the money part of it and that took a while. They are massive assets. What we’re able to do was reverse engineer what they have going on. We decided to take that to a new market place because in 2013, the California market went up 35%. The retail real estate went up 35% in a thirteen-month period.
I can tell you, for our audience out there, California and certain other parts of the United States, Seattle is another good example where we had 3% a month appreciation for years. It was wild. You’re riding this wave. How many houses did Connie buy at one time?
They bought 2,600 homes in one day in Los Angeles County.
We’ve got a little bit of real estate experience here and that’s probably a good introduction to the Texas Real Estate Radio Network. We are going to have a ton of guests. Our intent here is to build a body of knowledge between you and me, the friends of ours and colleagues that we have a lot of respect for in this industry. Share that stuff throughout the radio, through our podcasts and through our Facebook page and YouTube. I’m looking forward to bringing in a handful of our colleagues to do interviews, “Why are you in flipping? Why are you in wholesaling? Why are you in apartments? Why are you doing storage facilities? What makes you different than anybody else in the marketplace? Why is this asset class something that you’re interested in?” Share with folks the miracle that is real estate investing in Texas.
I’m looking forward to diving in deeper and figuring out why that miracle happens, whether we’re getting representatives from the energy industry or local historians and understanding how this was all built out. The fluctuations in this market and why we’re counter-cyclical to the rest of the country. I’m interested in exploring and learning about that.
You mentioned the countercyclical nature of Houston, Texas. I’m reading it all. I’m on a handful of blogs and forums. I’m on a bunch of different Facebook groups and everybody is whining and crying about a possible recession, which I always find funny. Everyone is predicting a crash. There’s going to be a big crash. I keep looking at this and I’m like, “Nobody predicted the last crash.” There’s going to be a mild slowdown in the economy, but everyone is freaking out in Houston. I’m like, “Houston, Texas is countercyclical.” What do you think happens when oil hits $80, $90, $100 a barrel? There’s a whole lot of brand new pickup trucks to get sold in this city.
I’m like, “Let the market slow down a little bit. It’s not necessarily a bad thing.” That’s the idea behind the show is that we want to build this body of knowledge every day, at least five days a week. You guys can come in. You can follow up on Facebook and all that other stuff and get caught up with what’s going on in the marketplace. It will be a Texas-focused, but we’ll have a bunch of our friends in from California, New Jersey, Florida and some of the other big states that we’ve got our eye on after we’re done with Texas. The interesting thing is a lot of people think, “You guys are going to invest in Texas forever.” I’m like, “Probably not.” The market’s going to start to get to be too expensive. We’re going to have to move on to something else.
It’s important to understand because a lot of that money is flowing out now of Seattle, out of the Bay Area, out of Southern California and out of Denver. The Denver market is done. People have this money and they’re looking to place it somewhere and once again, the eyes are on Texas.
The last event you and I spoke at in California, we get on stages with 100 people in the room and there’ll be a Q&A, “Jason, Mr. Texas Real Estate, where should we be putting our money? What should we be investing in California?” I tell them, “A moving van.” I’m like, “You cannot put your money in this state anymore. It’s over. The game is over.” One of our colleagues there, Bruce in California, he’s the economist for real estate. He said the same thing. He’s like, “It’s over. In California, you’re done. It’s time to move on.” Wait for the next crash, then do some investing. Everybody does recommend Florida, Texas and maybe some parts of Arizona, but I see some weakness there.
There are some markets we like outside of Texas but not as good as Texas, Raleigh-Durham.
There are certain things I like about Oklahoma City. To bring it back to the Texas focus, the idea here at this show is to promote the idea that if you live in Texas, you do not have to go invest in Chicago or Philly. Part of the reason I want to do this show is to explain to all the people in Texas how spoiled they are. It’s a market in which you can work and make a great income. You can deploy that capital against real estate and build real wealth with it.Housing is just not affordable anymore, whether you hate it or love it. Click To Tweet
There is nowhere in the country where the grass is as green right here. That’s it. This market is best. What we’re going to see over the next few months is a lot of 1031 money coming back to the state. The Affordability Index is something that we follow in Southern California because it gets to a point where you people can’t afford a house. The last I looked, the median home price in Los Angeles County was $600,000 and that had come down $5,000. $600,000, that’s insane. How do you afford a house in LA County? The answer is you don’t. It’s becoming Hawaii, where you’re going to have to double up families and houses and things like that. You can’t afford it. There’s only going to be a certain amount of people who do. It’d be the haves and have nots. That market will correct itself. It will drop down to the mid-fives again so that people can afford to live where they work. That becomes the issue.
It’s interesting when you look at new home construction. What does it cost to build a house? I’m convinced that’s what’s driving a lot of our increases in prices. I hear people rant and rave about it, “It’s the fed. There’s all this cheap money. There are hedge funds.” I’m like, “It’s supply and demand. It’s that simple.” Let’s talk about what’s going on in single-family real estate across the country, in particular Texas. We talked a little bit about how the supply side of single-family real estate is highly constrained. I love telling this story. I drive from Houston to Pensacola, Florida or Destin, Florida every year for a summer vacation with my family.
We can’t fly because when you go on a beach vacation, you have to take everything with you. You can’t take a swimsuit and throw it in a carry-on bag. You’ve got to take the barbecue pit and all the furniture. We drive through obviously South Texas, Louisiana, Alabama, the panhandle of Florida and Mississippi, some inexpensive places to go through. What I find, Rob, is there’s not a single market that has a large track of homes being built for less than $200,000. You’re a past construction guy, what is the cost of new construction run in these days, just the house?
The cost or you want me to add in the margin?
For someone to build a house before the land, you’re going to hire a GC or a builder. It doesn’t matter. What’s it costs to put the thing on the ground?
I would deliver a B level house for $95 to $98 a square foot.
Let’s call it $100 a foot. If your average house these days is 2,500 square feet, you’re looking at $250,000 for four walls and a roof. You add in the pad. You add in all the civil engineering that has to take place.
You get it in and getting to all the Division 0 and Division 1 work.
You’re probably at $250,000 before you’re even close to breakeven.
That’s why builders are very hesitant to pop in these new houses. What they’re working on is going to be C level houses. They’re going to nickel and dime. You get back to that old model. You walk into the showroom and here’s the crown molding and here’s the sink and here’s everything. There are Formica and vinyl in there.
You’d like painted walls. You would like a floor covering.
The accent wall was $700. You wanted a door between the toilet and the master bedroom. That was a famous one. They would have the commode right there and then open to the master bathroom. They would charge you $350 to put a door there.
We’ll be back at that model, but I don’t think it will be at the $250,000 house. It’s $300,000, $400,000 because there’s no money in it.
No, there’s not unless you’re getting the land for free. Some people held onto their land rights for the last ten years and have options. They are going to execute those options and make a lot of money because they have the land priced ten years ago. They’ll be able to come in. The builder is going to build around $75 a square foot. It’s going to try to add on about 20%, 25% margin on top of that and they’ll make their money. The problem is, as much as this market needs $180,000 houses, it makes no sense to build a $180,000 house.
You can’t get it. You and I went out in a Texas submarket. We met with the folks that run the Section 8 office there. What I found fascinating is the government through Section 8 is buying land, infill lots and they are building houses. They are building three twos. The product we looked at was pretty decent. I thought it was a C plus B minus. It was a house I’d live in. It’s not gorgeous, but it is a nice asset. When he said, “We’ve already bought 5,000 lots. We’ve got a dozen of these houses on the ground right now. Our plan is to continue to build these.” In the back of my mind, I’m thinking, “There are certain neighborhoods in some of these submarkets that you’re literally going to have government housing dropped in the middle of your neighborhood because housing is not affordable anymore. You’ve got to love it or hate it. I don’t think there’s anything anybody can do about it. It’s not like an apartment complex going up.
That’s the issue. In some of these markets, the housing demand has not been met because of that low level and affordable housing becomes an issue. You can go back to the major cities in the late ‘70s. In the 1970s, public housing was a major problem. People needed a place to live. They needed to work in the city. You saw the great suburban exodus, people leaving out of the city. It’s an economic issue. Hopefully, there are a bunch of people smarter than us working on it versus having this haphazard patchwork of affordable housing going up. That’s a little bit frightening.The eye has a tendency to believe their own lies. Click To Tweet
When I saw the model, I was like, “I get what they’re trying to do because they don’t have a better solution right now.” My next thought was the federal government would step in, trust me. It might not be under Trump, but they will absolutely step in. We’re going to talk about the conservatorship that is Fannie Mae, Freddie Mac and some of the things that are being discussed on Capitol Hill right now because it goes right to this issue. It also goes to the issue of when I hear people say, “Jason, the market is so hot. There’s going to be this big crash.” I’m like, “Where’s the crash?” We don’t have enough houses.
With Southeast Texas, with the Texaplex, 890,000 people move here a year. Almost a million people move here a year.
If you are not familiar and you are an investor, you’d like to be an investor. You need to become familiar with the Texaplex plan. It is the concept. We know it’s absolutely true that nearly eighteen million people will move to Texas over the next fifteen or so years in between Houston, Dallas, Fort Worth, San Antonio and Austin. It’s called the Texaplex plan. It’s that triangle. It’s the equivalent of the entire state of Ohio moving into that triangle. One of the things I love saying is if you think real estate is expensive now, just wait. The Trump tax plan is now being priced into the market. The New York luxury market has fallen 25% in the last year. It’s only going to accelerate. It’s only going to get worse.
We’re talking about a deal that we passed on because you’re allowed to pass on some deals out here. We looked at it on paper. We didn’t drive out there. It was up near Livingston, which I’m finding out is close but not close. We took a look at it. We looked at it on paper. It was 24 units. It was served to us at a ten cap. What made it attractive was the owner financing. However, when we looked at that submarket and drilled down, we found that a ten cap there is not so good. My friends in California and New Jersey or Illinois or Seattle are freaking out right now that we turned down a ten cap, but we did. Ten cap is essentially 10% leftover after everything is paid for, not including debt. With the owner finance involved, it might be attractive, but we probably wouldn’t need it that around fourteen, fifteen. Would you have done it at a fourteen?
If it’s around fourteen or fifteen, I go out and look at it. The other problem with that deal is it was advertised to us as Livingston. I’m down with Livingston. When I looked at a map and the address, I was like, “This is not in Livingston. This is in a submarket of Livingston, which last time I looked, I don’t think Livingston has an airport. I’m sure it does for the guys who are flying private.” They were like, “I totally flew into Livingston.” Your G6, G7 or G8 or whatever did not fly into Livingston. It’s a great area. It’s a nice area in Texas. I like it up there. This was a submarket of Livingston and I’m like, “I’m a hard pass on this one.”
Not to say that we’re passing on everything. We certainly are very attracted to small apartments, those five to call it 120 units, that small range. We like them dirty. We like them broken. We’re not afraid to go in and roll up our sleeves and turn this underperforming asset into a C-plus property that does a twelve or fourteen cap.
I know a lot of guys that do apartments that are scared of the half vacant, it’s a war zone, figuratively and literally. I’m like, “I love that stuff,” because I know no other investor on the planet. There’s a handful of us that’ll take it down. That’s great because it scares all everyone else out. It makes the price reflect the condition. There’s one in Dallas right now, Mr. TC sent me. I went and looked at the property in Dallas. It’s between 150 and 200 units. I’m driving the property. I’m like, “This is right up our alley.” It’s half vacant. It’s got vagrants living on it. Half of it was boarded up. Streets were torn up. It’s so torn up that I’m like, “I’m glad I drove my truck,” because you could see the cars are torn up. I’m sitting there and I’m like, “I like this deal.” Demographically, there were some and the reasons I didn’t like the deal is it was in a bunch of other apartments. When I looked at it, looked at that deal, I’m like, “This is the deal I like.” I like this stuff. I like a torn up.
I like the apartments where the cars come with it. There’s usually a car sitting in the back lot somewhere with four blown out tires.
You could tell when it rains. There are debris around the tires. Our eight unit has one of those. There’s a BMW. There was a truck the last time I was there that was in the back. BMWs are not the ultimate driving machine sometimes. They’re expensive to fix.
The ultimate cat bed is what that was.
There are deals that we look at and we’re like, “This is going to be a no-go here.” We killed another deal because I believe we’re going to be able to get it cheaper in the next six to twelve months. It’s a 100 plus unit apartment complex. One of the things I’m seeing with real estate investors when they start to get scared, there’s a lot of fear out there. They’re getting scared that here’s going to be a big crash. It will be 2008 all over again. What I’m seeing them doing is retracting from certain submarkets. I’ve got a property right now. I’ll say it’s in a Class A area of town here in Houston. The seller, he and I hocked a couple of times. This is a great deal. I’m not even going to mention what side of town it’s on. He said there are only two or three guys he’d be looking to sell the property to and we’re one of them.
One of the things I found fascinating in having this discussion is he’s owned this property for decades, he and his family have. He said, “We never experienced a downturn in this submarket.” I said, “It makes total sense.” That’s why it’s reflected in the cap rate. It’s a beautiful piece of property. Those properties may go on sale. They may be for sale, but they’ll never be on sale. He explained it to me that way. I loved it. Let’s call him Jim. I said, “Jim, I’m totally stealing that.” He said, “Jason, it’s for sale but it’s not on sale.” I’m like, “I got you.” Meaning, “Here’s my number, take it or leave it. I don’t care.” He was very polite about it. We may take it at his number. I think that particular piece of property, they will tear down and put a tower on top of it.
That was a wealth-builder.
We may be the ones that build the tower, who knows? When you look at deals like that, you’re willing to dip in below ten cap, five, six. It might make some sense. I don’t want to say that would be a portion of your portfolio that is recession-proof because I don’t necessarily buy into being completely recession-proof. It certainly reduces your risk when you’re in one of the nicest submarkets in the city and surrounded by nice Class A product. I’m still nifty. I bought one in my backyard, literally like in my backyard at Sugarland. I was watching one of his shows and when he put the property up on the screen, I’m like, “I know where that’s at.” He’s like, “I bought this at Sugarland, Texas.” I’m like, “Who in their right mind would buy that?” I was like, “Because it’s going to be a great property for 100 years.” When folks talk about, “What submarkets you should be buying in? We’re looking for gentrification. We’re going to be the pioneers in this submarket.” I always tell them it’s a bad idea.
This is not an April Fool’s show. We’re totally building this thing out. We got a little bit of flack from some people, “Who starts stuff on April 1st?” There are a handful of companies out there that you and I have a tremendous amount of respect for. Let’s talk about at least one company that I have a massive amount of respect for that started on April 1st. It’s founded on April 1st, 1976. Let me give you the first guy’s name, Ronald Wayne. Steve Wozniak, the Woz and Steve Jobs started Apple on April 1st, 1976, on April Fool’s Day. That is one of the reasons we picked April 1st. It’s fantastic.
It’s also the fiscal year for a lot of business.The worst lie you could ever tell is the one you tell to yourself. Click To Tweet
We had this joke going around in the last place I worked. There was a guy that calls it a physical year. It would be a fiscal year and physical year. I thought it was his accent until I started getting emails from him, “The physical year,” and I’m like, “Is that what you call calendar year?” He was a project manager. I’m like, “Can you explain this?” “The physical year starts on April 1st.” I was like, “Okay.”
It could be April 1st, we break ground. Winter is over. It’s starting the physical work.
The physical year is when you’re breaking ground. You have the golden shovels out there. We had this little joke going on in the project team. It was like, “This guy thinks it’s physical year.”
Communication is only 7% words.
Let’s talk about something you brought up. You were doing a little research for the show and you said, “Have you heard about this whole thing going on over at Theranos?” I’m like, “Yes, we’ve been following it for two years and I think that CEO should be in jail.” Why don’t you give a summary of what Theranos is, the CEO and that whole business?
I’m taking the opposite. She’s a genius because her idea was magnificent. I don’t think the technology was up to speed at this point and probably another twenty years we’ll see it. It may not be as small she wanted. The problem is when we get our blood drawn, I’m over the age of 50 now. Every time I go anywhere, they’re pulling a pint of blood out. You go into the hospital and they take your blood out and they’d run this test. You’ve got to send it off somewhere and they’ll do the test. They sent the results back. It can take anywhere between 72 hours and maybe five days. Sometimes they screw up and you got to go back.
She came up with this little thought that, “If we just took a small drawing of blood and we are able to use the best technology to identify the problems in your bloodstream.” There are 200 different tests they were going to run to the blood. They are going to be able to do it in this little box they called the Edison. The box was too small. They were stuck on these certain things. The idea was great and you could turn around these results in hours versus days. For sure, our world needs that. However, it took on this other thing, this Silicon Valley, “She was the female Steve Jobs.” Everyone wanted a female Steve Jobs. Those are being pushed. Her company went up to $9 billion in valuation.
They weren’t even within sniffing distance in developing this technology.
They had 23 of the 200 tests.
I’d have to go back and review some of the articles and some of their disclosures. They were like, “We’re almost there. This is going to work out great.”
We talk about DISC all the time. She would be a high D and a high I. It’s a dangerous combination because the I has a tendency to believe their own lies. The worst lie you could ever tell is the one you tell to yourself. She believed her own nonsense and because she was a D, she was very forceful. She got into this downward negative loop of, “Everyone’s against me because I’m doing this world-changing thing.” The world is not against you, we just want to see what’s going on.
The world is not trying to take you down. Let’s have an open and honest discussion about what’s going on here.
The honesty was the big part. All of a sudden, these people hunkered down. They have the bunker. Everyone is against them. Are you in or are you out? Are you for us or are you against us? All of a sudden it becomes this chaotic, crazy and blowing people away. It’s like, “We want to know is my test results correct?” What wound up happening is because they couldn’t get an accuracy, they were taking the blood and then getting an outside source to do it or you are using the same old equipment and then claiming that it was this little magic box? Unfortunately, people want to believe in a magic box. They always do, whether it’s blood or computers or garbage or whatever it is. People want to believe that there is a magic box.
In my world, in energy, there was a magic box you could put right outside your electric panel. What would it do? It was a capacitor. It would slow down the electric usage from your washing machine. It’s that nonsense. It was sold at every flea market in the country because it was a magic box. This was a high tech magic box that came out of Silicon Valley from a person that they were rooting for, that they want it to hold up there as a Steve jobs figure. Unfortunately, it all fell apart.
There are two big lessons out of this. One is the negative feedback loop in that organization. You couldn’t question anything. It was that whole us versus them nonsense. It’s us versus them and are you in or you’re out. We’re going to go to war with you. It’s like, “No, nobody’s going to war.”
When you hire a lot of smart people, there’s a thing called professional curiosity. That’s going to question things. How is it working? Unfortunately, they couldn’t give good answers.
The second thing is the magic box. I want to talk about the magic box for real estate. You go to the weekend seminar, you get pitched on the $9.97 package and there’s this magic box. It’s the magic binder and it’s going to make you rich. The magic database, the magic website, the magic coaching program and the magic yellow letter. “I’ll become a better wholesaler if I get that postcard.” If you want to follow us on YouTube, it’s Mr. Texas Real Estate. We do a vlog where you could see the behind the scenes of Rob and I running around town doing real estate. You’ll get to see the daily machinations of what it looks like to run a real estate company. You can also follow us on Facebook under Texas Real Estate Radio Network. We always walk in properties we own.
If you have any deals that you want us to take a look at, shoot them on over. Facebook Messenger is the easiest way to find us.
Facebook Messenger or you can send them to Jason@MRTXRE.com. We’ll have some events that we’ll share with you guys. We do a webinar once a week and we’ll share that with you. If you guys want to sign up on our email list again, you can go to Texas Real Estate Radio Network on Facebook. Shoot me a message or give me your email address and we’ll add you to that group. We’re here to share with you the good news of Texas real estate, to invest in your backyard. A lot of our audiences are here in Texas. You don’t have to go to Philly. You don’t have to go to Chicago.
You don’t ever want to go to Chicago for real estate. It’s the toughest city to do business. It’s the worst in LA, the worst in New York.
It’s a tough market. We want to share with you the good news that is Texas real estate. If you’re a real estate agent, if you’re a real estate investor, if you’re somebody that wants to turn real estate into your career, this is your home for everything real estate related here in Texas. If you’re looking to invest in Texas and you live outside of Texas, this is the show you want to tune in to. Shoot me an email. If you’ve got any questions, I would love to answer them.
Have a great day.