The real estate industry has evolved and has adapted apps that go as far as generating listings and calculating investment risks. In this episode, Robert opens our eyes to market trends that are actually happening before us. He notes that consumers Orfino will always be eager to adjust to whatever is new in the marketplace and this is what many investors are doing especially with wholesaling. As the convenience of technology lures many, transacting deals face to face with a real estate agent is still more productive.
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Market Trends with Co-Host Robert Orfino
We’ll talk a little bit about market trends, things that are happening. Amazon entered the marketplace. They are going to be a partner in the home buying space. We’ve seen this before. We’ve seen this technology come about. These guys enter the marketplace. We have all these trends and all these easy apps that will help people buy or sell their home. I know a real estate agent that use one of those apps and sold his home within two weeks. He didn’t go out to the wholesalers. He sold it on an app with a 93% ARV. That’s going to put a little crimp into some of the wholesaler’s businesses, some of the larger people out there. They’re going to start competing with Amazon. The issue is however, you have time to shift your efforts from wholesaling into wealth building. Wholesaling is not wealth building. Flipping is not wealth building. Buying and holding is wealth building. Investing is wealth building. You’ll have some time for that. I’ve been around long enough where I’ve seen this cycle before.
In 1997, I bought my first home and I was a little late to the game. At the time there were a whole bunch of agents and listing agents out there that were only going to do 4%. You can buy your house online and we can sell your house online. You don’t have to pay 6%. You only have to pay 4% because technology was going to sell your house. I can’t even remember the name of those companies, they’re gone. Do you remember the 2% agent out there? When technology hits the marketplace, there’s a group of individuals inside the marketplace called early adopters. Let’s take the iPhone for example. You know the early adopter because this guy or gal was the first person you ever met with an iPhone. They couldn’t stop talking about how great it was and this was the greatest thing ever. It completely changes the world.
Is anyone interested in giving up their iPhone X or their Samsung 10 Plus to go back to the original iPhone? Does anyone want to swap phones with me? No, you don’t, because technology keeps moving. These people couldn’t wait to get the iPhone. There are real big enthusiasts into this. It’s every industry that releases product lines every year. I don’t care if it’s iPhones or if it’s a knitting needle. “Did you see the new knitting needle that came out? It’s got a soft grip so we don’t get calluses.” These are the people that were building computers in the ‘80s out of boxes. They go, they buy and they get it done. After that comes the early adopter. That early adopter will be not far behind the enthusiasts. They will see the reviews in the tech magazines online and say, “That looks cool. I’m going to go get that.” The early adopter in this marketplace drive Tesla. Even though Tesla’s been around for fifteen, sixteen years, those early adopters are driving those Tesla. Mostly, people would argue it’s on their side because they haven’t been in production, Tesla’s still in the early adopter stage. We haven’t gone to mainstream. We don’t have the infrastructure to go mainstream. We don’t have the infrastructure for one out of four of the cars on the road to be electric. They will be breaking down everywhere. We’re still in the early adopter stage. From there we start hitting the mainstream.Real estate markets go through cycles. As this cycle is going through, the real estate market is on the rise. Click To Tweet
Inside that mainstream, that’s when you’ll see a good example and maybe not so much in this market, but in the California and New Jersey marketplace. Only in 2019, our solar panel hits the mainstream in California. We know that these panels can go on almost every single house in the country. 40% of all rooftops in this country are good for solar. The market place potential for solar is 40%, but only now in California has it hit the mainstream. Meaning it’s talked about in the supermarkets and ads. It’s everywhere. It took them a good twenty years to get there. The problem when we bring it back to real estate and this technology stuff, it’s purple and blue door, buy it, sell it and move it. All these companies out there are putting money in and they’re trying to do all these things. There’s one of two things happening. Either there is a technology shift and you believe that which means you’d be an enthusiast or you understand that these guys are just going out and grabbing the seed capital that’s sitting out there.
Those companies will make a ton of money raising capital, round one, two, and three. “We’re going to revolutionize real estate. There are 140 million single-family homes in the country. That’s 140 million potential customers that we can make 1% on.” We have a marketplace of $100 trillion and we can make 1% on that and everyone gets excited and starts pumping money into that. When you look at the actual numbers, you’re like, “I’m not certain that this is working.” We can look at Amazon. Amazon didn’t make money for a very long time. Jeff Bezos could buy a quarter of the country if he wanted it. It took him many years to get there. Amazon didn’t hit the mainstream until probably about a few years. I would say probably with the introduction of Prime when the delivery became free. Now, Amazon is everywhere. They bought Whole Foods and they’re growing, but that first many was a run.
Going Through Cycles
Here’s the problem with technology and the real estate market. Real estate markets go through cycles. As this cycle is going through, The real estate market is on the rise. There are some market sectors here in Houston that slowed down, but overall, the market trend is up year over year for the last few months. Will there be an adjustment or moving down? Will there be affordability? Will mortgage rates go up? There’s a whole bunch of unknown factors in there that drive our business more so than just the cost of fuel. Amazon’s model is affected by the cost of fuel. The same thing with Walmart. They freak out when diesel goes up because they have to move product everywhere.
That’s a big one and maybe some state sales tax could be another factor for them. When you’re talking about merchandise and going out. They can always find more workers. They can always optimize. They can always become more efficient so they can push back those trends. For real estate, there’s a whole bunch of unknown things. It’s the federal government, finance, interest rates, FICO scores. We always go through cycles and we always averaged up through a series of ebbs and flows. We’re going up, but there are little valleys that we hit before we go back up. I’m not certain that that technology can withstand those ebbs and flows because historically they haven’t.
A new company comes out, “It’s a $100 trillion market. We’ll make it 2% on this marketplace. It can be great.” Everyone is excited. They pump money in. You see these new signs everywhere. You see them on the shopping carts in the supermarket and the car wash station. Everyone is talking about this new type of real estate agent or brokerage that only charges 2%. What happens is they don’t survive the downturn. In real estate, houses have problems and homes have memories. I do not believe that people are willing to put their memories through a database online. If the house has a problem like my friend sold his house. He had a few weeks to get out of it. He’s moving and all his other stuff. That was a perfect outlet for much better than a wholesaler. Are these big trends in house buying online a mass-market appeal or is it going to be pushing the wholesalers out of the market?
On these real estate technology trends, what happens is when the next downturn comes, can you get through it? We’ve talked about this over and over. Houses have problems, homes have memories. Do you think someone wants to sell their home filled with memories? There’s a pantry in the kitchen and you see little Jimmy’s height marks. They marked it off here when he was aged three. He was three foot here and four foot and five foot. He was 6’4” in high school. Little Jimmy’s life is sitting there in the pantry because that’s where we measured everyone’s height. Do you think someone’s going to take that home and do that cold data analysis? Not until it becomes a house. I don’t care if your counting on Millennials because at some point they will fall into the same trend of being a mom, dad and a family. Their house will have memories and it will become a home. The real estate business will still going to be 90% face-to-face. You’re still going to need an agent. You’re still going to need to sit down at the table. You’re still going to need to hold someone’s hand through the process. I’m not sure technology is going to replace that.What happens in real estate is that houses have problems and homes have memories. Click To Tweet
I got an article that someone sent me and we were looking at the trends. There’s a lot of technology inside our business. It’s funny how the actual retail side of real estate is slower on some of the technology trends than the wholesalers. I know real estate agents that are cold calling for listings. They’ve always cold call, but they’re embracing the technology by either outsourcing it or setting up some technology so that they can make 1,000 calls a day or 100 an hour and just sit there and pick up the phone calls where people pick up. Real estate agents have always sent the postcards with their picture on it and “We’d love to list your home.” We’re seeing them hitting them with three or four different pieces in a pretty clever and designed funnel, even though wholesalers have been doing that for years.
Wholesalers Versus Real Estate Agents
The problem for the wholesalers when they compete against agents is this, as our good friend, Rich Nickel points out, “A good listing agent is going to close north of 75% of their appointments.” They’re going to pre-qual that appointment. They’re going to make sure that everything is set up right. They’re either going to have a strategy to be the first or be the last. It’s two different strategies there. You don’t want to be in the middle and they close. When that real estate agent comes into the off-market and starts competing with the wholesalers that are using their own technology that they have spent time and time to develop; the CRMs, the mailers, the slide calls, the text calls, the agent closes much more.
We’re seeing technology inside our offices. People are using these technology that has been taught by Sean Terry and Kent Clothier for a very long time. It has hit Keller Williams, eXp, RE/MAX. Keller Williams has an in-house system that has a 33 touch marketing program. You’re an agent, so you have your bonafide and your license. You feel good. You’re a realtor. You can go out there and you can beat up on the wholesaler every single day. These guys will fly by night. None of them stay around in the market. They’re desperate for money. There are all kinds of bad things about it. There is a great push against the wholesaler. The number one being, “I’m the real estate agent. I’m going to get you top dollar.” The wholesaler wants to buy your house at $0.50 on the dollar.
A smart real estate agent, if they come up against the time crunch, “I got to sell this in three weeks.” “I’ll buy it from you.” That’s the smart real estate agent. He sits down at that listing appointment and has everything covered. “Do you want traditional listing? I’m your guy. Do you need to sell this thing in three weeks? I’ll I have someone who will buy it now. He’s going to buy it a little cheaper.” “I got to sell this thing in a week.” “If we have a clear title, we’re good to go.” That agent knows a short-term financing guy. We have a couple of private lenders that only do short-term. They can buy that house in 60-day note. The wholesaler going in there are battling. The industry has taken their technology and now they’ve got a hard argument to make. It comes down to rapport building and being in state and all that good stuff.
Real Estate In General
We also looked at the real estate in general. The second quarter for Texas was great. 100,000 homes were sold and the four major markets all rose year over year in price. Houston was up 3.8%. Statewide, the housing price went up 2.9%. San Antonio had the largest gain in the market, 4.3%. Austin price rose 3.1% and Dallas, 1.9%. The minimum home prices in Houston is $249,000, in San Antonio it’s $234,000, in Austin it’s $325,000 and in the Dallas, Fort Worth area it’s $280,000. There are more listings in this state. Austin inventory as normal is pretty tight, 2.7% months. That’s not a lot. Home sales and prices are up. This is the trend that we’ve been talking about over and over. I’m just a little shocked. I think it’s happening a lot faster than I anticipated. When Jason gets back we’ll have our little Pow-wow Monday afternoon and we’ll go through this stuff. This is one of the points we’ll put on our meeting agendas. This market might be moving faster than we thought.
We already know it’s very tough to find a flip, even though I have one and I got a wholesale one too. If you’re interested in a flip in EaDo, we’ve got some pretty decent numbers. Text us at 281-401-9008 and I’ll hook you up with Charles, our wholesale liaison. We have one flip and possibly two more. They are all pretty similar, small houses between 900 square feet and 1,100 square feet. The play there would absolutely be adding on off the back, adding on a third bedroom or fourth bedroom master’s suite. You’re going to have to upgrade the rest of the house. It’s not for the newbie. It’s not for the faint of heart. It is absolutely a rehab. This is a good one if you’ve got a good contractor that can do the add-ons. We think the ARV, depending on the size, you end up with between $280,000 and $325,000. We’re priced somewhere, depending on which lot you’re picking, between $145,000 and $160,000. We have one for sure and possibly three off-market flips.If real estate apps are out there and moving, the people that are going to hurt the most are wholesalers, not agents. Click To Tweet
We’re going to do our due diligence and talk about it. We have a wholesaler networking hour. That’s for active wholesalers in this market. If you’re a big giant wholesaling company, you’re not invited. We’re just doing this because we know it’s lonely for the people that are doing it by themselves. If you’re the one person who’s a wholesale or you’re running around and it’s a little bit lonely, make sure you check out the show. You’re welcome to join us for a cup of coffee. We’re getting a title company coming. If you’re a big giant sweatshop wholesaling company with your acquisitions, your depositions and your marketing crew, that’s not what we’re doing this for. We’re just hanging out for an hour drinking coffee and talking about what’s working in the marketplace. We don’t need fifteen different peacocks starting around the coffee place because they work for a big bad wholesaler.
The Early Majority, The Late Majority, And The People That Simply Won’t Do It
We’re not a big fan of wholesaling, even though there is a purpose for it. There is a need for it in the marketplace. There is a way to work it, but we’re talking about cash. Wholesaling is going to be cashflow. It’s not wealth and we’re going to go over that. It’s going to be wealth versus cash and some of the things that we’ve come to and figured out. The market trends are going to be pushing. If this technology stuff is out there and moving, the people that are going to be hurt the most are wholesalers, not agents. The people that are trying to sell their house, which is about 7% of the marketplace, will take a look at that. Once they understand that these people are buying at 90% ARV and the wholesalers are trying to buy it at 60% ARV or less, I think it hurts that sector of the market. Do you have to worry about it in the next few months? No, maybe not even in the next few years. At some point, when we move from the enthusiasts to the early adopters, which becomes about 20% of the marketplace, you’re going to have serious impact.
Purple door and all these other companies don’t frighten me because we do buy and hold and we’re in the retail space. If you’re a wholesaler, I would be looking at those trends saying, “There’s going to be some issues here.” If you’re a wholesaler and you like the transactional part of the business and you like a check every month, then you need to seriously think about moving into an agency. Get your license and sign up with Keller or someone who’s got a lot of training. When those apps hit the 20% early adopter part of our market, that’s when you’re going to see a hit to wholesalers. There are a lot of transitional workers in this city.
It takes a while for the market to shift, but once it gets going and there’s nothing that’s holding it up, then the market starts speeding up. That’s one of the concerns that I have. This market is maybe moving a little faster than we thought. It may not be an eighteen months supply. It may be a twelve or fifteen months supply until it starts becoming hard, until we get into the direct marketing business. I have a partner that bought about 500 homes. He’s pretty smart on the marketing business and maybe two, three years before we have to do it. I’m confident that my partner can get us some off-market deals. We’re running it through networking, the stuff off the MLS and scraping things here and there.
The Technology And Tools
Wholesalers are a vitally important ingredient to this marketplace. It’s amazing to see that both the technology is hitting that 7% of the market. The technology that good wholesalers have been using for five, six, ten years is being deployed into the retail space. Jason and I went through our orientation on Keller Command and we heard about the 33-touch CRM. Jason stood up and said, “You guys have no idea how expensive that is.” It’s tens of millions of dollars of technology that Keller gives through its agents for nothing. There’s no need to buy anything else. This system works and we’re deploying it. We’ve got someone in our system. We’re sending them off with a 33-touch versus a wholesaler that gets a buyer lead and maybe does a text and doesn’t do any follow-up. That technology is out there and it’s going to help our industry. I don’t think we’re going to see great shifts in the industry because, at the end of the day, people have live in homes, not houses.
We talk about this all the time. We can try and make it as clinical, clean and introvert-friendly as we can, but at the end of the day, it’s still a person-to-person business. We just have better tools to track our efforts. We’re talking about any trends that are positive in this business. It’s the tools that are available to you as a wholesaler, as a flipper and as a buy and hold. There’s a ton of software out there that does it for you as well. There’s project management software, the texting software, the slide calls leave a message software, all these other things for marketing. The technology is helping our business. I don’t see a big shift and I’m not terrified by a great market shift. What I’m nervous about is that this market is growing faster than I thought it was. I’m not worried about purple door, green door or rainbow door. I’m worried that this market is moving. I’m worried about that medium price hitting $300,000 within twelve months. This has been The Texas Radio Network. I hope you have an awesome day.