Finding good deals in real estate is all about doing good marketing. In this episode, host Jason Bible and co-host Robert Orfino provide insights and tips on how to effectively market for real estate deals. They talk about single-family real estate investing along with the changes happening in the market. At the end of the day, an excellent real estate investor takes what the market gives and applies his skills in a way that maximizes profitability.
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Marketing For Real Estate Deals with Co-host Robert Orfino
We’re going to talk about marketing. There was a grocery store chain and I can’t remember if it’s Kroger, Albertsons, whoever it was. Their predictive analytics were so good that they figured out if you bought these six products at a certain time interval, they knew A) You were pregnant and B) They could nail the due date within two weeks. How this all came to fruition? There’s this Middle American dad and his daughter starts receiving from this grocery store with these prenatal products and the baby stuff. He goes to the store and rips this manager like, “My daughter’s not pregnant. She was sixteen.”
Assuming that the $36,000 a year grocery manager has anything to do with the analytics on them.
He said, “This all comes from corporate. I don’t have a degree in applied statistics. I’m so sorry. We’ll make sure it doesn’t happen.” About a week later, “Dad, guess what?” That’s how good some of these things have gotten. How do you apply that to real estate and who are buying and selling houses? One of the things I noticed that Redfin had a big billboard at 1% listing. You’ll hear people say things like, “They’re trying to get ‘market share.’” Here’s the problem with the single-family real estate business is a $300 trillion business. It’s the largest asset class on the planet.
140 million single-family homes in the United States.
There’s nothing bigger than single-family real estate. The challenge is it’s so big you’re never going to have that large of a market share. What they’re trying to do is collect data. Over at Keller Williams, Gary’s huge into the data. They’ve got that little tip back and forth with Zillow where they have to audit all their data every six months. The reality is that the data is more important than the house is. They’re trying to figure out who this homeowner is and how likely they are to sell and then how do we target that person less expensively through our marketing.
It became very apparent to us that Keller Williams is not a real estate company. It’s a data-mining company. It chooses to manipulate that data in which way to become profitable. Keller Williams will be one of the largest mortgage companies in the entire country. They have a product based on data that is far superior than almost any other person out there. I hear a lot of it, “I can match that. I can do that.” Yes, you can but not now because you’re charging $5,000 in fees and all these crazy interest rates. You’d have to completely change your business model and your product model to compete with Keller. What you don’t even understand as a mortgage person is that Keller has been collecting data and is about to destroy your industry and nobody sees it coming.
It’s a classic example. One of the things that you will find is that in 2019, no business is successful unless it’s a fully integrated business. For Keller Williams, it makes a lot of sense to offer mortgages and retail services. Adding all that stuff in so it’s a one-stop-shop where you can get everything that you need for this house buying experience. One of the things that we had talked about is, do we put the real estate industry on its head and offer a home store? Could you drive to a physical location in your city around where you wanted to live and when you walk in the door, it’s literally like a car dealership? It’s like, “Here are all the houses we’ve got. What color do you want in the rooms? We can redo the tile.” You’d have all these different options in neighborhoods in which you want to live for used homes because the reality is we can’t build new homes anymore.
I’ve heard it mentioned a thousand times. I’m just not sure.
Implementation is tough. How do you find deals? That’s a question I get all the time. Maybe I’m just spoiled because we’ve been doing this for a while. I opened up my email inbox and I go to HAR and there they are. Are they free houses? No, that means you got to put a little money in. One of my philosophies is we’re not going to recommend something that we haven’t ourselves done before. I don’t think that’s good for people.
Even if it’s one day ahead of you.
If I’m one day ahead of you, I’ll tell you, “I did this and it totally worked.” One of those deals is I had this idea where if I had raised private money and I had bought a 75% to 80% deal. I’m $20,000 out of pocket. If that property cashflowed that over the course of two years, you would have appreciated so much that I could refinance it and get all my money out.
It’s 15% easy. Plus, you already got 20% in and you’re going to pull out 35%, 40%.
I got this deal and we’re in the middle of refining it. It’s one of these deals where when you get emotionally involved in a deal because I love the neighborhood and the house. I’m like, “Let me see why I bought that thing at.” It was a 78% deal when I bought it. After Hurricane Harvey, I’m all in at $110,000 and it was worth $140,000. For all intents and purposes, it’s an 80% deal. I probably would have been $20,000 out of pocket. What I did is I went to a private lender and said, “Would you finance the rehab and the purchase and then I’ll refinance you out in a year or two?” They said, “Sure, let’s do two years.”
I bought the property. I’m nothing out of pocket and it doesn’t cashflow. I’m paying her 8%, 9% interest rolling. Some paying at $975 a month plus tax, insurance and HOA. I’m probably making $200 or $150 a month. That’s not profit, that’s net cashflow. Profit wise probably negative $100 a month. If this is the first time you’ve ever know these calculations before, every single show, no one calculates profit. They all talk about cashflow which is not profit. They don’t have CapEx in there. They’re all like, “$500 a month in cashflow.” You don’t have vacancy, make ready, OEM cost. You don’t have $500 in costs a month.Flipping and wholesaling is not being real estate investors. Click To Tweet
Every year, you’re going to charge the air conditioner $175.
You might go up there and clean it. It’s $300 to get that service. I can brag and say, “I did a no-money out of pocket with an infinite rate of return that’s making me $200 per month.” That’s not true. That’s a problem. I bought this house 80% deal. I’d be about $20,000 out of pocket, but we waited for the market to appreciate such that it’s at $170,000 to $200,000 house or refinancing it. We’re getting our private lenders money out and we’re no money out of pocket.
We’re doing a lot of that.
What I think a lot of people miss is they’re like, “I’m going to be $20,000 or $30,000 out of pocket.” I’m like, “You might be or you can raise the money to do the deal and then just refinance out.” The way I look at marketing is that the market is going to dictate to me what the prices for a piece of real estate. Unless you’re willing to spend an inordinate amount of money on marketing, which I did at my former company. At one point we’re spending $100,000 a month in postcards, yellow letters, AdWords campaigns and it totally works. You could buy deals cheap but you’re building a real real estate business. You’re not acting as a real estate investor. As a real estate investor, I take what the market gives me and apply my skillset to do it in such a way it’s profitable for me. It’s much easier for me to go to HAR and say, “I’m going to be $15,000 or $20,000 out of pocket. I want to buy this one and then refinance those properties in the future to take my cash out and do it all over again.”
I’ve got two properties I’m looking at and I have some very good investors and lenders that are okay anything under $50,000. I put out two equity participation notes and the same thing, no money out of pocket. They’re going to put in $28,000, this is owner finance. We’ll be good. We’ll be able to take the owner out and catch the back-up payments and then sit on that thing for three years and take out $40,000. There are lots of ways to skin the cat. None of these will make you a genius. Everyone is doing the same thing and call it different things. You can say you have a secret but it’s all the same. It’s the way you market your skillset.
We love the big words. We love cashflow. We love wealth in five years, but at the end of the day, you’ve got to find that deal and you’ve got to get the money for the deal. Two things that everyone should be doing every single day, looking for cheap money and looking for good deals. That all comes back to marketing. If you are able to market yourself to get those private loans, you probably add another $10,000 onto the whole deal. You can pay closing costs and all those loan fees. They will add more equity into that thing when you come out of it. There is a play. We’ve talked about, “Let’s go buy these two properties and sit on them for two-and-a-half years and then roll them out.”
I’m watching these wholesale guys, maybe I got a whole lot of them on Facebook but they’re driving me crazy. I’m sitting and watching like, “If you want to make $100,000 to $200,000 a year, just buy five or six rental properties and sell them two and a half years from now.”
They can’t because they’re broke. A little thing we did and I said, “You know all the players in this market, everyone that’s in high school.” I don’t care. You name a name because if you know them and they’re on Facebook, they’re in high school. They have radio shows and have big clubs. Here’s the big litmus test for me, I don’t care how big this guy is, a flipper or a wholesaler. Let me talk to your CFO. They’re like, “Do you mean my bookkeeper?” You’re still in high school.
Your in-house accounting. I’m like, “No, your actual CFO.”
We’re all at that same level. Even if you’re beginning, you are no farther than three to five years away from the kingpins in this business.
It’s not that far. We did this weekend retreat one time and this guy comes up to Tom and he goes, “Jason just gave his marketing presentation for six hours.” It’s about six hours and that’s the short version. He goes, “What’s the real secret?” Tom goes, “That’s it right there. There’s about 60 hours of work. You’ve got to implement all that and you can find all the 65% deals you want.” He must’ve asked him ten times before he got so angry, he said, “Get out of here.”
We talked about the market shifting while you’re away. I said one of the big indicators this market is absolutely shifted is when hard money goes to 75% ARV.
Has it gone there yet?
Yes, I got a phone call. A private lender but it has a website. I’m going to make him a not so private lender. Two and a half points, 9%, 75% ARV. The market is being pushed. He lives right in your neighborhood. He wants three, two, and two. He’ll do four, two and two, four bedrooms, two baths and two-car garage. He wants all that row house built. That’s his sweet spot. He’s not interested in doing a two, one. He’s not interested in doing an apartment’s and he’s not interested in doing anything remotely outside of the Houston Metro area. Alvin and Texas City, no good.It's a waste of your energy and resources if you're focusing only on the box. Click To Tweet
Alvin is one of those secret hotspots. Alvin is pretty legit.
I’m like, “How about Lake Conroe?” He’s like, “I’m not going out that far.” I’m like, “I see why you have to go to 75% ARV because you’ve reduced your market.”
It’s like, “I want to buy everything in Katy that’s a three, two, two at 75%” You’re like, “Good luck.”
It’s interesting seeing a lot of those happening. I hung up that phone, I was like, “Very interesting.” Everything we’ve been talking about is happening. Our shock is how fast it’s moving now. Even though some of the retail prices aren’t reflecting that and the investor market is shrinking.
The investor market for buy and hold which is the real investor market. Flipping and wholesaling is not being real estate investors. That market is being compressed. If you’re one of these gurus that are teaching wealth to single-family real estate. Your days are numbered. That marketplace is shrinking so fast. The reason it’s shrinking is because it’s appreciating so rapidly which is why we got pushed into Airbnb for a number of our properties. This one I’ve had for two years went from $142,000 and appraised it at $170,000 but I sold it at $190,000. What do you do at that point? It’s renting for $1,350 a month. It’s not going to rent for $2,000 a month. If you’re a real estate investor and you’re in a “good market” that’s got an HOA, the school district is good, you can send your wife to go pick up the rent at 8:00 at night and you don’t have to worry about her safety.
Those neighborhoods are $200,000, $225,000, $250,000 houses and rents haven’t caught up. The reality is that until more inventory is brought on board, those houses are going to continue to appreciate rapidly and you’re not going to be a single-family real estate investor for long. If your business model is single-family real estate investing, you’re going to get stuck into some unsavory neighborhoods to cashflow. Which is why we’re doing small apartments and Airbnb because those little duplexes up to about 50 units are an absolute gold mine. The rent appreciates. Here’s where things get interesting because nobody tracks small apartment rent appreciation. If you guys want to pull that from CoStar or you can manipulate the data a little bit from HAR, look and see how much that has appreciated.
In almost every small apartment that we’re doing, we’re readjusting the rents at a 30% increase.
My Stafford duplex went from $750 a month to almost $1,200.
We’re adjusting to the market because there are lazy owners that we’re buying it from. They’re family owners. They don’t do a lot of work. It’s not that there are all these great class A, 24 units. Jason says, “It’s a gold mine. There are built-in pools and doorman.” “No, it’s because mom and pop ran it and they don’t owe any money on it. $800 a month per door was all fine and dandy for them.”
I’ll never forget that Texas City Property we looked at that was built in the ‘50s. It was still in the original owner’s family. The original owner was 90 something. Her son was selling it. He was in his 70s. That thing run into the absolute ground. If you look at me, “What were they charging for that?” It’s $300 a month. When you start looking at market rents and it’s seven or eight. That’s where the marketplace is if you’re looking at margin. It’s so funny to me when people say, “I’m going to wait until the next real estate crash.” I keep telling them like, “You do realize there are other ways to get into a market place that’s undervalued.” That’s what that means. I want to get into an undervalued marketplace, ergo real estate crash. Why don’t you go into a market space that’s not that crowded like small apartments?
You can market to it the same way you would to single-family properties. You can narrow down. Usually I would value this somewhere around $7,000 to $25,000, but it’s only free.
Come see us in the Heights and send Rob a text.
It’s 281-401-9008 for this once in a lifetime experience.
If you can work an Allen wrench and you are a pleasant company, you’re welcome to join us in the air condition suite of our new offices.In 2019, no business is successful unless it's a fully integrated business. Click To Tweet
Here’s the biggest thing and this is one of the smartest things I’ve ever heard Jason put to paper. Everyone out there is chasing the box. There’s the, “I want a three-bedroom, two-bath, two-car garage. I want it $1,500 square feet. I want it in this neighborhood.” Everyone is focused on the box. “Don’t bring me a six-bedroom. I can’t wholesale that. Don’t bring me a two-bedroom. Those are the only rentals. I want the three, two or the four, two or the four, three. That is the magic box I’m looking for.” It’s all wrong because the data doesn’t support motivation in the box.
Just because you have a house doesn’t mean it’s never for sale.
What happens is you start narrowing down to three, twos and you send postcards to husbands and wives whose kids are in junior high. No way they’re moving for the next seven years. It’s not selling, you’re wasting it.
I get them at my personal house. All our rentals, I’m like, “Do you have any idea who you’re mailing to? I’m not selling anything.” My wife gets the cold calls since they have all the call centers and she’s like, “You do know who you’re calling?” Some guy at San Diego is like, “Do you want to sell your house?” She hangs up. They’re chasing the box instead of chasing the people.
If they knew who was living inside the box, they would never call your wife but they do. It’s a waste of your energy and resources if you’re focusing only on the box. What you need to focus on is who lives in the box. The most motivated category for home sales are single women over the age of 65, non-owner occupied. Most of them live in Florida. If you want to focus in and do a mail campaign or a cold call campaign, you’re going to take the data that’s out there from everyone, three, two, that’s fine. You’re going to take that list and you’re going to scrub it against a very expensive list that breaks down the demographics of who lives in the box.
The National Association of Realtor says that women over the age of 65 who own houses will sell their house in those next five years. If you get that person to the kitchen table or you get the phone call, for sure there’s a one in five chance that they’re selling that house. You just have to be the person gets in to sell it to. The motivation is statistics. For them, it’s always a house. They are no longer thinking of their home. They got grandkids and the emotions have shifted to their grandkids, not their children in the house.
This is the house that their children were raised in. They’re retired and the husband has passed away and they’re living in Florida.
The joke was you could do door-knocking campaign in Saratoga.
If I were a brand new real estate investor, wholesaler, I find the market I want to do my business in. I would figure out where in Florida has the highest concentration, those non-owner occupants. I fly to Florida and knock on the doors. I’d say, “My name’s Jason. I buy houses in Texas.” They go, “You’re in Florida.” I’m like, “Yes, I think you own a house in Texas. I’m interested in buying it.” They’re like, “What?” I guarantee you, nobody else is doing that but it works.
For us, the owner versus the box is probably a smarter strategy. You will reduce the amount of marketing costs dramatically. You’re going to go from nine to one ration. You’re going reduce your 1,500 person mailing lists down to 150. You can spend a lot of money on that 150 because that is going to sell their house in the next five years. You have a 20% chance that it’s the year.
How awesome would it be if you put together a door hanger campaign that says, “I’m going to be in your neighborhood in a week?” A $500 round trip flight out to Saratoga and knocked on a couple of doors for an afternoon. You got the rental car and flew back. You’re out of pocket for $700. You’re probably going to pick up a house for two.
The same as 1,500 yellow letters.
They’re getting all the postcards and phone calls. You’ll go from marketing to sales fast.
I’ll do it on a Tuesday, Wednesday afternoon because they’re not working.One of the big indicators this market is absolutely shifted is when hard money goes to 75% ARV. Click To Tweet
Everybody’s hanging out. That’s the best marketing tip of single women over the age of 65, non-owner occupants.
For a single man, it’s over the age of 70.
Yes, because they refuse to sell.
They hold out a little longer.
Over the age of 65 and they’re selling those houses.
You can set up call centers and billboards or if you’re like us or just looking to put together some small portfolio, then you can target. You will find a lot of single women over the age of 65 who owned small apartments.
If you want to see behind the scenes of Airbnb and you can work and turn an Ikea wrench, we have the place for you. Send Rob a text to 281-401-9008. You could see what it looks like. You get to help us take that beautiful particle board furniture out of the wrapper. That was the big secret tip. We’ll see you guys next time. Thanks for reading.