In real estate, you have to learn from experts and rely on their expertise to guide you into closing top deals. Host Jason Bible and co-host Robert Orfino are some of the few experts you can lean on when it comes to going through the nooks and crannies of real estate, especially in Texas. In this episode, they happily share the story of how they made a one-million-dollar deal. They talk about the many smart ways they were able to seal it and offer great insights about looking deeper and researching before passing on a seemingly unlikely deal. On the side, Jason and Robert also touch on some points on wholesaling, finding deals, and the real estate market.
Listen to the podcast here:
THE Deal: We Made $1M With Co-host Robert Orfino
You were buying more furniture. I do not want to buy any more sets of drawers from the manufacturer. We can find those easily enough on Craigslist and on the Facebook marketplace.
You have a rule and it’s pretty good.
I don’t want anyone’s mattress, box spring or big fluffy couch. I don’t want it. I don’t want a leather couch because you don’t know who is living in there. Even if I bomb it, I still don’t want it. If it’s a desk, an office chair or it’s a chest of drawers, a bureau, that type of thing, I’m okay with that.
I’m still kicking myself, there was an Adrian Pearsall couch that was on Craigslist for $800 and I didn’t pull the trigger fast enough. I got too much stuff going on. It’s mid-century modern stuff and that would look so good in the new office. I’m ordering stuff for the office so I’m not ordering any of the Airbnb stuff and I haven’t checked my email. I haven’t seen if our Wayfair people have gotten back to up, but we’ve been putting the Airbnb stuff together. Do you want to give us an update on Ivy? I didn’t know if it had already been booked and I don’t think it’s been out there 24 hours yet.
We had it out for about two days and we’ve got first we had three inquiries, one booking and I think we’re going to get another booking. That one made $136 a day. That’s for the suite and there’s another suite. We do the suites at 50% occupancy, we break even there. There are four other bedrooms to rent as well. We have to run that at about 31% occupancy rate to break even.
I want to put all this stuff in perspective for the non-real estate people out there. Go talk to your multifamily real estate guru, your storage guru, your mobile home park guru and say, “At what percent occupancy do you break even?” I guarantee you if it’s anything less than 70%, they’re probably making something up. To break even at 70%, at 75% even is relatively too difficult. Disney is 73%. In Disney, rumor has it they run a tight ship over there. To break even at 31% is not bad. It’s hard to screw that up.
We had a couple of things during the regular stuff. We got a green tag for the gas line but that’s going to lead us to who are hiring next, but no one called to get the gas turned on and it had to do a pressurized test. We would have been live except there was no hot water.
That won’t get you a lot of five-star reviews. That’s a cute CenterPoint thing so I’d like to give a big shout out to all my friends at CenterPoint. If you don’t have gas hooked up for 60 days, 90 days, 100 days, they pull your meter. In order for them to put the meter back in, they want you to repressure test. You’ve got to call a plumber to repressure test the gas line.Many people these deals are advocating on wholesaling as a means to call themselves as investors. Click To Tweet
It’s not just any plumber. It’s one of their plumbers.
You’ve got to pressure test the house. This is a $1.5 million house, it’s not like some piece of junk in the middle. You’ve got to re-pressure test it and then they come and put the meter back out.
They put the green tag, around on top of the old green tag. I’m going to do one little tweak here. I moved to this state to be free of government regulation. It’s so clean because the state has nothing to do with this but the mud district stuff that I’m paying, I’m like, “This is a lot of money.”
Do you know how many highway patrol or police officers I saw in Colorado and Utah? I counted. There were five. Two whole states and I was there for two weeks.
I saw seven. I got home from Lake City.
I drove in and as soon as we pass the Texas border, it was like a dozen guys. I was driving all over the state of Utah with zero supervision and all of a sudden, we get into Texas and there are a hundred highway patrol guys.
Everyone still drives 100 miles an hour in and out of car. That’s my biggest thing.
It’s so funny. Literally, you crossed that border and the green flag drops. You’re doing 85 and you’re coming in from New Mexico and then all of a sudden, it’s like, “Boys, 105, let’s go.” I’ll tell you where it’s especially bad. It’s when you’re coming in I-10 from San Antonio and there’s that section where there’s like a bridge or something and the concrete changes color. You’re cruising along at 75 or 80 and then all of a sudden it’s like, “We’re almost to Houston.” You’re like 30 minutes from Katy and all of a sudden you’re seeing mommy wagons doing four-wheel peel outs at 90 miles an hour. They are smoking tires right there when you pass Hennessy. It’s the Hennessy motor sports. We ought to be doing 130 miles an hour down the street here. It is definitely a unique state. I think it’s not the people of Texas, it’s the state. There’s something about the boundaries. That is when you enter the state, you are no longer able to move to the right. Every other state I’ve driven in, they’re so good at it. You’re coming up and they can see you coming, they go over to the right. When it’s one of those passing lanes, everyone’s on the right but here, nobody cares and it drives me insane. It’s illegal to pass on the right. I don’t know if anybody’s been ticketed for it in Texas but it’s not legal.
If you pass to the right, you have the sound. If you beep your horn as you pass to the right, you have to make some notification that you are going to be passing on to the right. I knew because I got a ticket and I had to take the class. I got a ticket there and you were in the car with me.
I thought he got you for the emergency vehicle thing.
He did but in order for the points in my insurance not to be all affected, I had to go to driving school. I went to driving school. If you’re passing to the right, you have to notify me, you have to put you into a little honk or wave or something. They don’t say we have to do it, notify, which is funny because the driving school classes were all California videos. I’m watching these videos and I’m like, “That is not Texas. That’s Sylmar. I know where that is.”
They’re all probably old chip videos.
They’re old. They’re like, “You could be on this computer.” I’m like, “I’m not on that computer.”
Whatever software that’s running, they don’t make anymore. I got this desktop at home. I got a notification and it said, “Windows 10 will no longer be serviced. You need to upgrade the X, Y and Z.” I’m like, “How long have I had this computer?” It gets to be like my dad. “I bought this eight months ago.” “That was five years ago.” Let’s talk a little bit about real estate. The best real estate show on the planet and we’re not even talking about real estate. I did a deal. This is probably the best deal I’ve done in my career, but I’ve done a couple of deals like this in the past and there’s something that Jim Rohn says and it’s totally true. He talks about the law of large numbers. You’ve got a gentleman that was essentially trying to buy data for energy audit, you guys were doing back a million years ago. If you get enough data together, you start to recognize patterns. You have to have a data set that’s big enough. The sample size absolutely matters. To give you a great example. You’ll hear this from real estate gurus. “I’ve got the best postcard,” “I got the best yellow letter,” or “Every time I send this email to agents, I close a deal.” To be quite honest, they don’t have a data set big enough that says that works.
To their point, correlation is not a causation. That’s their big issue.
These real estate guys don’t know the difference between those two things. We bought something in the hipster side of town. I sent an email to a Millennial hipster and I said, “What am I supposed to wear for this Millennial hipster picture?” They sent me a list and I was like, “I need to look like Waldo from Where’s Waldo with the beanie, the goofy hat and scarf.”
We’ll tell the story but the one saddest thing that we observed to the wholesaler was probably his best deal.Understanding the market comes down to being trained to look at some things with a perspective of long-term wealth and not immediate cash. Click To Tweet
It wouldn’t surprise me at all if this is the best deal he has ever done.
He essentially gave away $1 million in equity for about $50.
I paid him $44,000 for $1 million. I got on Facebook Live and I’m like, “The heartbreaking part about what’s going on in this marketplace right now is you’ve got a lot of people who are espousing wholesaling as a means to title yourself as an investor.” It’s so weird. The group of people that are attracted to this kind of business is so different. My buddies that are physicians, when we go out for dinner, drinks or whatever, the language that I hear in real estate every day is very different than any other field. Did you not get enough hugs when you were a kid? I don’t know. It’s so weird. The education and conference wholesaling crowd group has this need to be seen. I feel like a lot of these folks are not comfortable in their own skin. These are not those guys. They’re just a wholesaler. They’re young dudes and they’re trying to get started in real estate and all that sort of stuff.
God bless them for it because it’s a tough road that they’re heading down and it’s usually because there are not a lot of other options. I understand it 100%.
The problem is that you’re on Facebook or you’re at the real estate club and here’s some guy that gets up on stage, it’s flashy and we got this big conference, we’re doing this and we’re doing that. You see this guy on stage and they’re training these people to be broke. We bought $1 million for $50,000. I’m not talking about $1 million several years from now. I’m talking $1 million in the next couple of months. I get on Facebook and I get so much flack about it like, “Why are you telling that to people not to be wholesalers?” I’m like, “Where are you in this business?” “I’m in this business because I want to create wealth. I want to buy a few rentals.” I’m like, “Do you realize you’re doing the exact opposite of what you want to do?” Here’s the problem. When you buy stuff like what we buy, you can’t get on Facebook and show a big check, brag, and be a little ashy. I had no check. There was no check. I picked up $550,000 in debt so there was no check for that.
We did get paid at closing. This is another real estate guru thing. “You could buy houses and get paid for it at closing.” That’s true. It’s something I don’t like to teach because some unscrupulous people can take advantage on lenders. We got paid to buy these properties meaning there was a difference between what we bought it for and what they lent to us for. They wanted to give us some start-up construction money even though we don’t have any construction in the loan, I think that’s what they were doing. I have these lenders I’ve been working with for a gazillion years, I borrowed a zillion dollar from them. They’re very professional savvy and we’ve got a great relationship. We had a wholesaler bring us a deal and it’s nine units. That’s why we’re talking about hipster stuff and dressing like Where’s Waldo with the long sleeve shirt, the scarf and a beanie, despite the fact that it’s 100 degrees outside. We bought nine units for $550,000, whatever the number is. It was $550,000 for nine units. It’s four single-family houses, a duplex and a triplex. We bought essentially the corner of a block and we’re looking at a couple of different options.
This came to us months ago. The owner didn’t seem like he was all that interested in working with the wholesaler.
I think he busted out multiple times, meaning It didn’t close multiple times.
This was not a guy who wants to sell onesies and twosies. He wants to sell the whole package.
I found out according to some of the stories that I heard around the title companies is that it sounded like an inherited deal and some of the heirs were collecting red. It turned into a giant nightmare. They were like, “We’re so done with this thing.” This deal was under contract, multiple wholesalers, multiple times and people couldn’t close it. We get the initial call from one of our wholesale liaisons. I went and drove it and I walked to that property. I walked another one near downtown and I said, “I don’t want the other one near downtown. It’s a complete mess but this one I like. How do we get inside?” The seller and the wholesaler essentially go dark on us for about a month. Merrill is in town. If you remember when Merrill Chandler was in town, we did a weekend seminar with Merrill over commercial credit and all that other stuff. We get a text message that says, “They can meet you at 2:00.”
Robin and I jumped in the truck and we had over there. We finally had a number. I don’t think they gave us a number until Sunday. We knew they wanted to sell it. We’re like, “Okay.” We get a number on Sunday and I don’t even think we’ve stopped the truck yet before we had pretty much decided we were going to buy it if it came within these two numbers. We pull up, it’s a typical property down there. It needs everything. Were like, “Let’s buy it.” We contracted it. The weird thing about the contract was because the owner was so skeptical that it would close, I had to send him a $6,000 wire, non-refundable. Even if it didn’t close because of title issues, he’s like, “Thanks for the $6,000.” We’re not big fans of it but it was a great deal.
We decided there and then on that Sunday afternoon, we were buying this deal.
We made $1 million buying one deal, not up the 200-unit apartment complex. We bought it on a nine-unit deal, four single-families, a duplex, a triplex and a little quarter. The wholesaler brought us the deal. We paid him $44,000 so we can make $1 million. It sounds like a pretty decent trade.
Our original plan was we were going to take the three single-families and we’re going to add on 500 to 600 square feet in the back because it’s a deep lot, completely renovate them and go to market with a 1,500 square foot house, which we believe would bring us about $325,000 to $330,000 somewhere in that neighborhood. We’re going to do that. If we sold those three, we would make about $200,000, maybe a little bit more $250,000. We have $250,000 to fix up the other units and get those ready for rentals. Now we’re looking for $500,000 in the purchase so we need $500,000 to purchase the properties and we needed another $400,000 to flip. Our ARV is still $1.3 million to $1.5 million. We’re very conservative that we are going $1,375,000. That was our very conservative ARV. We’re still at a 65% deal. We’ve got to get $900,000.
He called me and said, “I have an idea.” I said, “What’s the idea?” He says, “I’m looking at this market. I’m looking for our comps at $300,000 but you know what I’m noticing?” I’m like, “What?” He’s like, “I think these single-families can sell right now as is for $160,000.” I was like, “To investors?” He’s like, “Nope. Write on the MLS because that’s what I’m looking on.” I’m like, “Really?” All of a sudden, we’ve got three properties and that investors would love even at the $160,000. There’s a play there. We’ve got to do a limited amount of work next to nothing. We were talking about health and safety, FHA minimums. Getting that stuff up running and put it on the market.
We think we could sell those three easily. I see one pending right now at $180,000. It’s in the same condition of the properties we have. I see lots, the last lot sold for $120,000. We could take three of those single-families at $160,000 apiece, which is $480,000. We’re all in at $550,000. We sell those three at $480,000 less $550,000. It means we bought a duplex, triplex and a single-family for $70,000 in EaDo.
On transaction fees, let’s call it $100,000.Correlation is not a causation. Click To Tweet
For $100,000 we essentially bought five doors, six doors. Those properties need maybe $150,000, $170,000.
For rent ready, it will be a lot less than the flip.
It’s $250,000 for a duplex, triplex and a single-family house.
We know the single-family is worth $300,000 after we renovated it.
The duplex and triplex are pretty big houses, probably in the fours if we were to turn around and flip it. $1.3 million, we’re in for $250,000 so we made $1 million in equity on those deals. The interesting thing is rent comps right now is at $1,100 a door. We picked up $1 million in equity and almost $80,000 a year in gross cash. Net, our real profit would be about $60,000 a year for those deals. I think a lot of people saw it and they passed on it. It scared the snot out of them. We’re obviously still doing this deal. We’re doing the rehab and all that other stuff. The deal scared experienced lenders. This is another deal where there’s so much of it like we’re renovating a block at this point.
When you’re there as a lender, you’re a regular all human being, you’re not like a bank. People talk about investing and they put it on a spreadsheet. It’s very different when you’re standing in front of the cockroach-infested apartment complex where the veil is off. Now you own this thing. Here’s the reality. Now we get to see it in real-time. There you are standing in the full brunt of your real estate investing decision and the problem is most lenders are not hardcore out there like you and I are doing. Here you are, you’re a newbie real estate investor and you bought this thing or you’re trying to buy it. You’ve got your lender out there, you’ve got your banker, and they’re all freaked out. There are a lot of people I saw that deal that passed on it.
The part is the most interesting to me is how many people passed on that deal because now that we’re talking about and we’re sharing the numbers, people are like, “I would have done that deal.” No, you wouldn’t because it’s probably in your inbox somewhere. You just didn’t see it because there’s so much work that’s got to get done. It’s an entire block. Most investors, even the guys that squawk on Facebook all the time, don’t even do that much rehab in an entire year and now they’ve been given this project that’s a total mess. We crushed it on that deal. It’s a great deal. I hope it’s not the biggest deal we always do obviously we want to do bigger ones and it will be but it’s a great deal. It’s going to be a fun deal. I do want to buy some more down there between you and me.
It’s another neighborhood, we definitely want a flood.
You were talking about a hotel down by one of our properties and I’m like, “I think I’m going to walk in there and see if I can find who the owner is.” I want another hotel. It’s a good little deal. That’s how we made $1 million in one deal. This deal is a great example of why I sold my wholesaling and flipping business.
What I want to talk about this part is how do other people get these deals? Because it was out there.
I don’t think they’re a part of a mastermind or whatever guru.
I’m not using it to pitch to mastermind. I can remember being in the pool when you said, “I’m looking at the exits and I think it’d be easier to sell as is and recoup 90% of our investment right off the bat.” I know that was an amazing, genius move. I’m like, “I certainly never even thought of that.” I haven’t seen the power deck on that presentation. That is amazing. It comes down to understanding the market which you spent a lot of time doing. When you’re in these markets and you’re looking at these deals, you’re looking for multiple exits, don’t box yourself in which is the wholesaler can only box himself or a flipper. I’ve got to make it nice and sell, and get my $50,000 at the end. It comes down to being trained to look at some things a little bit differently and with a perspective of long-term wealth and not immediate cash.
Deals like these are the reasons I sold all those companies. Let me explain to you why. We had enough transaction volume over in the Houston house buyers in that business very early on. In fact, our first big package of properties we bought was a twelve-house package in February the first year we were in business. One of the things that I recognized when I started putting all the numbers together is that there’s enough equity in here in which we can wholesale or flip out of these deals and pay off all the underlying debt on 20% or 30% of the portfolio. If you’re trying to figure a real estate out and what are you guys talking about? Here’s why you want free and clear real estate. You can use that to cross-collateralize other deals, cash and collateral.
If I want to go buy an apartment complex, instead of taking my 20% down and paying taxes on that, I know everyone talks about 1031 exchanges, but I’ll tell you, it is so hard to get that to work in multifamily. Instead of taking that $1 million out, paying taxes on it and putting up $1 million into a deal, I could simply go to a bank and say, “I will pledge to you this $1 million asset.” They’ll go, “Okay.” Most banks will do that. They’ll go, “That works for us.” One of my biggest frustration when we built that company is that we would get these packages about once a year where you could pay off 20%, 30%, 40% of the portfolio, have a free and clear cashflowing asset that you could use as a financial instrument to continue to grow their parts of your business.
This deal is a perfect example. I’ll tell you what happened back in those companies because we were always wholesaling and flipping. We were always spending more marketing, growing, getting bigger spending so we would liquidate those assets. We’d make $300,000, $400,000 $600,000, put it back into marketing or hiring people or starting our real estate education company, all that stuff. You start looking at an aggregate. Unless you’re going to do that strategy for ten or fifteen years, it doesn’t make any sense to build a business that way.
Grant Cardone admitted, “I’m finally where I said I was the last several years. I’m finally here and I’m still hustling and faking it until I make it.”To find deals, you got to be out playing the game. Click To Tweet
Now he’s made it. That’s the part where I looked at how much time we were spending researching, buying houses, buying and grinding it out and hitting base hits. You hit this thing, this is like the bottom of the ninth grand slam, win the game. That’s this deal. I don’t want to tell you it’s a typical deal. “Join our mastermind. We got ten of these.” That’s not how this works. What I can tell you is how do people find these deals. You’ve got to be out playing the game. Back to your point, being a part of a group of people who are playing this game. When you say, “Jason, I’ve got this deal,” we sit down and look at it and say, “This is what I think we can do.” I’ll give you a great example. We were chatting with Bob when he came down to Surfside with us and he’s flown all over the country. He’s been to all the gurus. I’m like, “What do you have?” He’s like, “I got mom’s free and clear house and we have this studio apartment, but I haven’t quite finished it.”
I’m like, “I don’t know what you’re doing literally, but you need to get in your truck, you need to go finish that studio apartment. You need to finish the rest of the house then you guys need to move into something else.” The problem is that most people, they only look at one strategy. That’s why I think it’s so detrimental to the real estate investor especially early on in their career when they say things like, “You shouldn’t do Airbnb because it’s a hospitality business. You shouldn’t flip. You shouldn’t wholesale, you shouldn’t buy sub-to. You shouldn’t do owner finance.” I’ve said in the past, don’t do those as sole businesses. If you’ve got a pretty good toolset in your tool chest and when a deal like this comes along and you go, “What are we going to do here? We need $1 million. We need $1 million on nine assets.”
The way we raise money, it’s typically from one investor unless it’s coming from our fund. Who’s going to lend us $1 million for one thing? Is there a better way to structure the deal in such a way that the result is the same, but it costs us less time and we have to bring in less capital. If this is the first time you’re hearing something like this, it’s probably like, “This is complicated.” It’s not as complicated as it sounds, I’ll tell you that. You’ve got to work inside a group where you look at all your options on one of these deals and you say, “This makes sense.” A great example is our Heights property. We’re converting it into an office in Airbnb. That’ll be a $1 million house in the next couple of years.
On that market when it gets opened and all the hipsters in that side of the area goes crazy.
You miss out on opportunities if you’ve got this myopic view of what real estate should be. That’s my biggest complaint when I go to real estate classes. When I listen to podcasts and radio shows and all that other stuff, everything is so myopic. This is the only way this works and I’m like, “No, it’s not.” I know it’s not because we made $1 million. I know there’s another way this can work and it can work a lot better. You’ve got to be open to those things. That’s what’s helpful.
Having a group to bounce ideas off, like you and I were bouncing ideas off on that. I believe it was a Monday afternoon, I remember distinctly. We were bouncing ideas, “What if we did this? What if we do this? Why don’t we wholesale it right now? We started to put floating it out there before we even had the thing close. We got hits.
Here’s the other crazy thing. I haven’t done this. I totally want to do it in my career. If you get a portfolio large enough, you could literally wholesale that portfolio and close at the same time in such a way that all you get is free and clear real estate. You need a bigger port. You need 20, 30, 40, 50 at least. I realize that’s crazy advice. If you’ve ever heard that before, you probably haven’t heard it before, but don’t worry. Not everybody does at their first deal. We can try now. If you’ve got 30 units, send them to me.
We’re not doing this to do one deal although the deal we did, you can do that. I want to add one of those every other year, it’s not bad. If we can get two or three of those, you’re pretty.
We have dinner with some investor friends of ours, I forget how far Lake City is from Galleria. I was chatting with Eric and then I get in the truck and I click it, and I’m like, “It’s like a legit hour.”
I avoid going up 45 now. I go around at 80 even though it’s going to add another seven minutes. At least I can keep cruising. There are no problems.
You’re going down 45 and then coming back up the Beltway and hitting 288 in the Beltway and all that. This whole city is under construction and it’s never going to end. My next thought is when is that Tesla truck coming out with a self-driving. I might tweet Elon. We need to take a picture of the traffic, “We need that self-driving truck down here in Texas ASAP.”