Good-Better-Best Rehabbing

[00:00:00] Mike: Hey everybody. Welcome back to the show. Super excited to talk to you today because I brought my friend on Kevin from MFS supply. They’re our supplier to real estate investors all over the country, thousands and thousands of real estate investors from HVAC systems and all sorts of stuff. But most importantly, we want to talk about different quality levels of rehabbing, right?

Based on where we are in the market cycle. The market cycle right now is very different than it was four or five years ago. And probably very different than it might be in the next year or two, who knows when that shoe will drop, but we’re going to talk about kind of rehabbing the different quality levels and how to maximize your profit on every rehab.

Professional real estate investors know that it’s not really about the real estate back. Real estate is just a vehicle to freedom. A group of over a hundred of a nation’s leading real estate investors from across the country. Meet several times a year at the investor, fuel your state mastermind to share ideas on how to strengthen each other’s businesses, but also to come [00:01:00] together as friends.

And builds more fulfilling lives for all of those around us on today’s show, we’re going to continue our conversation of fueling our businesses and

our lives. I’m glad you’re here.

Hey, Kevin, welcome to the show,

Kevin: Mike, how’s it going, man?

Mike: Good to see you, buddy. Um, so I’m excited to talk today about this cause you know, I think a lot of people that rehab are kind of flying by the seat of their pants, making it up as they go along and therefore very inefficient and maybe leaving money on the table.

And uh, you know, where we are in the marketplace now. You know, not, not that you should ever want to do those things, but, um, I think professional rehabbers, uh, eventually find a way to get this stuff under wraps and so excited to talk about that. I’ve rehab the hundreds of houses myself, and I love this type of discussion.

So, but Hey, before we get started, why don’t you just tell us a little bit about your background?

[00:02:00] Kevin: Yeah. So my name is Kevin . I work over at I’m up to supply. I’ve been working here a little over five years, um, you know, invest in myself as well. So kind of a good understanding of, of renovation and wholesaling and, um, just, you know, from being in the space, um, a little bit, our company is we’re a national wholesale distributor of renovation materials for investors, apartment complexes, contractors across the country.

Mostly specializing in cabinetry, lighting, plumbing, HVC appliances, pretty much anything interior finished wise. We, we supply nationally. So looking forward to, you know, kind of diving deeper into, you know, different rehab levels and, um, you know, ways that investors can really save on the material spending and, um, the relationship aspect of it as well.

Mike: Yeah. Yeah. And that stuff is the relationships are, you don’t realize how critical it is until you are in this business, like for real. Right. And so, uh, it is important and you’re, you’re, uh, you guys, MFS are a sponsor of investor fuel, and that’s why I wanted to do the show to kind of share you with the outside world as well.

Um, [00:03:00] so we’re going to talk a little bit about, uh, different kind of quality levels of rehabbing. And, uh, I’ve done this myself as I kind of told you when the first. Few years that I rehabbed, it kind of started like 13 years ago, I guess, 2008. Um, when we did rehabs, I had so much pride in the quality of the rehabs that we would take everything to the nines, like all out, every time stainless, everywhere, every didn’t like skip anything.

But, you know, that was a different, that was a different time in the market where the market was down. It was basically a, uh, a buyer’s market at that point. Right. And so. Um, they had control. So you had to kind of stand out, but that’s not, that’s not where we are now. So let’s talk about, maybe we’ll talk, start talking by about where we are now, which is more of a seller’s market, right.

Where there’s a lot of limited supply. So the rehabs don’t necessarily need to be, you know, top-notch, uh, even finding a house that’s available is hard these days. So maybe let’s start talking about, you know, what you might do differently during a sellers market. Like we’re in now.

Kevin: Yeah. So I think that’s, you know, a great point you made [00:04:00] about, you know, the difference with, you know, back then when it’s a buyer’s market, some of the finishes you’re putting in versus sellers market.

Now, I think what I see common, you know, in a lot of flips and jobs guys are doing is, you know, they’re getting away with putting in just the basic entry level, like all new cabinets, countertops, appliances, you know, pretty much. Putting in the bare minimum for a lot of these price points, especially in markets where, you know, you have lower HRVs where you can really get away with putting in just the bare minimum and, and, you know, within 24 to 48 hours, you’re getting, you know, 20, 30 showings, you know, kind of offers over asking.

And it’s, it’s very simple for investors, not, which is, you know, definitely a good thing to have going on. It’s definitely a good problem to have, but. You know, I think with, with forbearance and, and everything coming along in the market with, you know, maybe Q3 Q4, and we start seeing some uptake in inventory and, you know, the market turning over to a buyer’s market, I think investors really need to standardize the spec and really start to stand out and differentiate themselves within the market.

[00:05:00] Um, you know, regards to getting, you know, specific, you know, interior finishes that are going to stand out and really positioning themselves to, to be, you know, continue to get those over asking, you know, For houses and whatnot, but to really stand out.

Mike: Yeah. Yeah. That’s, it’s all, it all comes down to supply and demand.

Right. So I, when, uh, when the supply is low, um, people are willing to tolerate like, For example, if you’re, if you’re in the desert and you’re like, you know, you’re thirsty, um, you’ll take any kind of water, as long as it’s clean, you don’t care about the brand, right? But if, if you walk into like a store and there’s a million types of water and there’s a ton of supply, Um, then you can be selective about you’re like, no, I really want like Evian or you, I really want, you know, something that’s like better.

Right. Um, but when you’re, when you’re in the desert or like, I go to the Dallas stars games, we, you know, they sell, uh, it’s like Disani or something. It’s like $5 a bottle, but it’s the only thing, you know, [00:06:00] Beer soda, or if you want water, that’s your only option. And so I have to pay whatever it is, even if it’s not what I want necessarily.

Right.

Kevin: Yeah, exactly. I think it’s, you know, that’s a good analogy to use. And I think with housing, um, you know, it’s kind of the same way. It’s like, you know, depending on like, you know, every market is different price points in their visa and whatnot. Um, but you know, for say here in Cleveland, I know like you can get.

Um, you know, a nice home for, you know, the mid, mid to high two hundreds, um, where you could pretty much, like, as of right now, we’ll get away with putting in, you know, some cheap cabinets or, you know, you can get away with putting on some low end stainless or basic finishes. But, um, you know, I could see down the road in a couple of months where, you know, that price point is, you know, maybe going up a little bit more and some of the finishes you want in there, money to look at putting some granted in, or some soft close cabinets or, you know, nicer high-end.

Um, you know, appliance brands. So I think it’s, you know, good to kind of keep up with, you know, whether you’re looking over on like Zillow or realtor, looking at different price points in [00:07:00] AOVs and what finishes are going and selling and, and really staying up with the trends is, you know, I think it’s almost pretty cookie cutter.

When you look at some of the flips and colors and finishes, people are using that. Yeah.

Mike: One thing that’s a little different in this market. I think then, um, Uh, in the last, uh, w like maybe 2006, seven or so before the market kind of pops is I feel, and this is probably very Marcus really you’re in Cleveland.

So maybe this isn’t quite the case there, as it would be in an area like Dallas, that seems like it can do no wrong with population growth and stuff, you know, is that there’s, um, there’s people pushing the envelope really with their rehabs. They’re like doing just that insane rehabs, like putting a ton of money in.

Like really customized. And I tried to stay away from that during the last thing. Cause I, I didn’t want to try to create a Mark, you know, basically push the envelope. I wanted to always kind of follow what somebody else had done, which I think is the safest thing to do. But there’s a couple of guys actually there’s even somebody in an investor, if you will, you know, that’s uh, here in Dallas that they [00:08:00] do like a hundred K rehab they’re probably could have done.

You probably could have gotten by with a pretty nice rehab for 40, but they’re like. All new cabinets, everything, everything, everything,

you

Mike: know, doing some colors that are a little bit, uh, not, um, generic, like what, like I tend to do just kind of simple stuff. And so there’s probably some opportunities where people in markets that are really, really hot right now, especially in a little bit higher price points, uh, neighborhoods like not, you know, entry level homes, maybe like move up type homes or to kind of push the envelope with what the use of materials to you, I guess.

Right.

Kevin: Yeah, pretty much the high risk, high reward, you know, aspect of it. You’re gonna be taking down walls and bringing properties to the studs and, you know, really trying to make it pop. Um, and you’d want that, you know, that highest price point area to kind of push the RVs a little bit more and, you know, spend the extra couple of thousands of dollars and, you know, materials and, um, you know, let you know.

Let the house sit for a little bit, you know, with it being, you know, might take a little bit longer to do all that, but I think, you know, investors and, you know, contractors that are doing that, [00:09:00] um, I think you just need to make sure you position yourself on the market and kind of know, you know, don’t maybe go too crazy and spend, you know, a ridiculous amount on, you know, $10,000 appliance package, you know, or maybe, you know, the bumping up from a 2,500, uh, you know, five, six K you know, kind of finding that middle ground of, yeah.

I want to make this space, you know, A lot nicer, but I don’t need to make it too, too nice to overprice myself. And when you’re looking at, you know, your sheets at the end and your spread is a lot thinner than what it would have been of just doing a standard, you know, hotel or something simple, you know, being conscious of that.

Right.

Mike: Right. Yeah. I think most people just need to look at, you know, I like to look at sold comps, like what what’s recently sold, how high a quality was it? You know, how, how much would it cost me to get to there? And we just, you know, ultimately. Um, look at what’s the return on that investment, right? If I just leave it as it is, I wholesale it, I cleaned it up a little bit.

What do I think my profit will be like, let’s look at some houses that sold like that, [00:10:00] that were, you know, a little bit, um, you know, not rehab quite as nicely, or maybe not rehab at all. What could I give word on the, on the MLS? And if I really go all out, how much could I make there? And, you know, what’s the, is that additional investment worth it, right.

Just to kind of see what is somebody else done before? How do I just replicate what they’ve done? Yeah, exactly. Exactly. Yeah. Yeah. You said a word just a minute ago that it was a, an interesting one and that’s packages, right? What package? And so at the end of the day, I think, you know what I think back to my first, probably 10 rehabs or something back in 2008, um, I was at home Depot or Lowe’s picking stuff out manually and like trying to find fans and.

You know, it was just a mess. Like that’s, I think a lot of people that started off with rehabbing or out picking stuff out, and then it got to a point to where I don’t do that, like ever, ever. Um, but part of it was, we had kind of packages. Like we really had like a, you know, an AB package. I know some have like a good, better, best.

Um, but we had kind of a package, I guess, for rentals. Then we had a package for rehabs and [00:11:00] we just kind of said, Hey, if the ARV is over this price point, that gets packaged being everything else kind of gets packaged J. Which you know, was, uh, I’ve known people that have like skew books and like exactly what the materials are.

And then sometimes it’s just real loose. Like, Oh, we use satin nickel fans and this kind of quality level. But, um, you know, I know you work with a lot of real estate investors. I’m assuming some of the best ones have kind of packages of supplies that they use appliance packages and stuff like that based on the level of rehab.

Right,

Kevin: right, correct. Correct. And, you know, I think. You know, basing off your packages are the good, better, best at all, Lutes to, you know, the one thing investors wish they had more of and that’s time, you know, every single day, you know, investors are, you know, you wake up early and you go to bed late and then it’s like, you know, where’d the day go.

So, you know, one thing too, Really work on internally with your processes. Is it standardizing a spec, you know, kind of like you hit the nail on the head there with the good, better, best, um, you know, not over-complicating [00:12:00] it trying just to say, Hey, like, you know, here might be finishes and colors we use for, you know, an IRB at the 200 level it’s stick to Chrome, which might be a little bit lower on versus something a two 50 would, you know, said nickel, brushed nickel, and then, you know, maybe go to a black mat and really just.

Trying to standardize a spec, whether it’s getting a part number, um, you know, from a local hardware store, you know, that’s something we do internally here is, you know, building on a spec for our clients on, you know, what they, you know, is a good, better, best for, Hey, here’s a good quality of, you know, appliances or cabinetry or some lighting and plumbing, you know, um, looking at different ways to really save investors time by, by standardizing packages and, um, you know, really drop shipping.

Cereals all in one, because that way it’s not like, you know, you and your contractor go to Depot and, you know, as overwhelming is going to Depot is there’s a million different idols and people there. And you know, you’re trying to pick out this and that and Oh, this part isn’t, you know, at this home Depot.

So let’s go to the one 10 minutes away and grab it there. And it’s like, you know, by the time [00:13:00] you’re got your materials for a rehab, it’s like, Well, there goes a day and a half worth of work, whereas, you know, trying to find and build relationships with other suppliers, you know, having a good flooring guy and, you know, good, um, you know, supplier for cabinets and everything else.

Having someone like us, who’s a one-stop shop solution who could, Hey. Here’s all the finishes. I want ship it to the property, get it there and you know, a week or two, and you know, that way I’m not wasting my time and running up and down the Isles and stressing out over, you know, what part is where, and you know, which is, it can be overwhelming.

Yeah. Once

Mike: you get a system down and you can walk into a house and say, you know, here’s the appliance package I want, let’s just use the same one, by the way, we would typically be like, repeat the last one. We did repeat the last 50 we did, right. But, uh, once you can kind of walk through and say, okay, we need, you know, we need 47 new outlets.

We need like 17 new switches and you just kinda do, these are the skews you need. And so I kind of liken it to, uh, you know, there’s some, uh, grocery sites now to where you [00:14:00] can just go in and order what you ordered previously ordered. Like it kind of keeps all the stuff it starts to build, like. You kind of eat this stuff all the time.

You probably need more of this. Right. And you just kind of build up a like this, these are the types of materials we use over and over and over again. One of the best parts about kind of having packages or a common approach to signal of the same materials is inevitably, you’re going to have a few things left over and you just kind of roll it into the next package, whether it’s paint or other materials, it’s like.

Uh, we, we had some extras here. Like no problem. We’ll use them on the next one. And if you’re customizing everything every time, then you either got to deal with returns or waste. Cause you just like stick it in your back room somewhere. It’s never be seen again. And it’s just total waste.

Kevin: Right. For sure.

And I’d see, you know, what you just said about having like wastes and whatnot. I know some investors that are a little larger and more scaled that have maybe a small little garage or warehouse where they’re just nonstop storing the same skews. It’s like. You know, they got their different four or five, six different crews, you know, run into the shop.

And, you know, they literally walk into the [00:15:00] shop. It’s like their own mini home Depot. Lowe’s where they have, you know, all the shelves and the there’s the same plumbing fixtures are using here and lighting and, you know, same outlet, switches, and covers. And it’s just kind of like, you know, grab for each property and you kind of go on.

So I know some of the more developed guys that we work with on that, um, just from a time saving standpoint and just organization, it’s like, they have like almost. Like some sort of like algorithm of like under the excuse, which is to replenish and, you know, keep rinse and repeat and keep ordering. And that way our GCs are in and out and, you know, getting these houses turned as, as fast as possible.

Mike: Yeah. That’s awesome. That’s awesome. So talk a little bit about, because you obviously worked with a lot of, I think most people, especially if you shop at home Depot or Lowe’s like sometimes people build relationships with somebody in the, at the pro desk or somewhere else. But, you know, I think a lot of people are just transactional and they’re just going from deal to deal, dealing with different maybe contractors sometimes or different suppliers.

And, um, like you said, I think one of the, one of the challenges is you. Thank you can get something at a home Depot [00:16:00] or Lowe’s is like a big box store and you show up and you’re like, you need five or something and they only have three and you’re kind of running around. And I think one of the benefits of working with you guys, you’re kind of centrally located, you know, what you’ve got or what you don’t have.

And, um, and I know that those relationships are valuable because you can call one point person that can kind of say, Hey, we don’t have any of this right now, but here’s another one. That’s just like it or whatever it might be. I mean, talk a little bit about the. Value from your perspective of having relationships with, uh, with rehabbers.

Kevin: Yeah. And I think that’s, you know, the name of the game in real estate it’s relationships, you know, whether it’s from, you know, an investor, an investor or your suppliers, or, um, I think that’s the main thing that, you know, a lot of real estate investors succeed is, you know, the people that they know, um, you know, something that we do well, you know, with our companies is really just.

No telling you the good, bad, the ugly, you know, kind of let you know upfront of, Hey, you know, we might not have this skew, but you know, might have a comparable one here. Um, you know, I especially [00:17:00] see this evitable with, you know, a lot of, you know, with the investor fuel. A lot of the investors we have are, are, you know, in different markets and investing all across the country.

And it’s, it’s very hard to. You know, kind of have a relationship with someone who has the national capacity that could ship to any market and, you know, standardize the spec. So, um, something that’s, what we do exceptionally well at is, um, you know, working with investors or contractors and, and really, um, kind of letting them know upfront, like, Hey, like here’s, you know what we have, here’s what I see common and like this air, you know, price point air view of a property and, um, you know, maybe opening their eyes up to trying something a little different.

So I think, you know, having relationships with. Suppliers is huge. Whether it’s, you know, somebody, your protests, your home Depot Lowe’s, or a local flooring or national flooring carpet company, or someone like us who can do national as well. That way, it just makes it easy. Where if you have any issues, it’s like, you’re not scrambling to figure out all right.

Like what do I do to get it resolved? It’s Hey, you call this person, you call this person, you know, they get it done.

Mike: Yeah. And there [00:18:00] have been a lot of supply chain issues over the, through all the COVID stuff. For sure. I mean, a lot of materials that are delayed. I saw somebody post a picture the other day from a.

From a big box retailer that said, you know, with appliances, they’ll be delivered. If you order them today, there’ll be typically ready within a week to three months or something like that, which is like, uh, that’s a, that’s a huge range. That’s not, I mean, you can’t even operate that way as a reality.

Kevin: Right.

Yeah. And that’s something we’ve, we’ve definitely seen, um, with COVID is, is a lot of issues in supply chain. And, um, I think personally, and what we use experiences, especially with Lisa at appliances, you know, you’ve seen an uptake in the cost of goods sold with the price points on those HBase has been a struggle lumber it’s been outrageous.

Um, I think what, you know, with the manufacturing plants being shut down for a few months, you know, at first with COVID it’s like, you didn’t really realize it because it’s like. You know what they were doing six months prior to it, they were fulfilling and fine. But now that the effects of some of those manufacturing plants, you know, [00:19:00] shut down for, you know, a couple of weeks or months, it really puts a hurting in the business with some inventory standpoint.

So I personally think. The raising of costs of goods sold and freight spend going up exponentially every day. Um, I think something to note is, you know, you might be seeing an uptick in, you know, the pricing of homes starting to slowly creep up as well, just along with, you know, the cost of goods sold is going up.

Yeah, no doubt. Yeah.

Mike: That we definitely have seen a, maybe not so slow creep, uh, lately, but inflation is a real thing. Everybody acts like there’s no inflation going on, but in materials, like it’s, it’s amazing. Um, so for sure, yeah. Um, You know, one of the things that I say when I first started investing, I think I had, I don’t know if it was because I was in corporate America.

It could just be a personal issue, but I really had, you know, more of a, probably a lot more of a scarcity mindset. Like I’ve, I’ve like done 180 return, you know, over the past many, many years, but I used to look at like my contractors. And my [00:20:00] lenders and my suppliers and everybody is like, I gotta put the screws to him.

I gotta like, you know, beat them up on price and all this stuff. And I think, um, you know, for people that are listening to this, if you, if you’re still at that point, I just, I promise you things get way better. When you start to figure out how to collaborate and cooperate and think of your lenders, your suppliers, um, contractors that work for you as, as a valuable part of your team, because they can make your life a whole lot easier and better.

Honestly just makes everything a lot more fun than constantly thinking that, uh, you know, you gotta put the screws to somebody because they’re going to do it to you or take advantage of you if. If you’re not watching them. And so those relationships are definitely important. So, uh, Kevin, you you’ve been, you know, speaking of relationships here, obviously we have, uh, this family and investor fuel of people that have just built, uh, amazing relationships with one another with our suppliers, with, uh, we really have, you know, just, just a, uh, an amazing kind of mastermind or group association of, of, uh, just awesome entrepreneurs.

Would you mind just kind of sharing your thoughts? You’ve been in investor fuel for a little while now. [00:21:00] Just your thoughts on, uh, investor fuel.

Kevin: Yeah, absolutely. So we’ve been in part of us feel for almost close to a year now. Um, I can’t have anything other than great things to say. Um, I think what the interesting part about it is the accountability of the whole due to, you know, a lot of these other groups or conferences you go to it’s once or twice a year where, you know, the investor fueled family, it’s your meeting once a quarter.

So you’re doing those four. You know, structured ones where they also have events where you can meet outside and go on different ski trips and other fun activities that they include you in. So, um, I think the fact that they hold you accountable, that when, you know, when that next 90 day comes like, you know, Hey, here’s your numbers, here’s where you’re at.

Like, what are you gonna do changed next time we meet. And, you know, the next time we do ever meetings and you know, the hot seats or whatnot, it’s really holding guys accountable to, you know, Holding up their end of the bargain and doing their best that they can set to keep growing and having different personalities, um, from different markets across the country, all in there at once.

It definitely helps having picking different people’s [00:22:00] brains. And, you know, the, the unique thing about it is, you know, every one of us has our own special, unique gifts and talent, and, you know, someone might be better at, you know, Just one specific in the list, they’ve done the other person. So you have different personalities and indifferent people to pick for, you know, someone’s got to rehab, someone got a wholesaling, someone that’s going to off market properties, lead John’s.

I mean, you have so many different people in that room that are, are experts at what they do. Um, and whether, you know, you’re just beginning or you’re, you know, advanced investor, um, you know, different people are going to bring you to different levels of your, you don’t think your, your mind or body can take, um, which is great about

Mike: it.

That’s awesome. Well, we’re glad you’re a part of it. And, um, and looking forward to seeing you at the next meeting. So Kevin, if folks wanted to learn more, if you’re not already using a Memphis supply, you guys work with thousands of real estate investors already, but for those that are not working with you, or maybe they have in the past, and they just haven’t been lately because they lost contact with the connection or whatever, what’s the best place for them to go or [00:23:00] the best way for them to connect with, uh, with you or MFS.

Kevin: Yeah. And I’ll, uh, put my input what the drop link below at the end. But, um, our website, we have two different ones. We have MFS supply.com. Um, also we have MFS solutions.com, which is more of an e-commerce, um, investor friendly website. Just kind of displaying all the pricing and information we have on blacklist skews and different items we’re bringing in.

And, um, you know, I’m always available to talk and, and grow and build their lists and partnership with, with any investor. It doesn’t matter if you’re local here or you’re in the West coast. You know, I’m always loved talking with connecting with people. So feel free to call or email or text or whenever.

Sounds

Mike: great. Well, we’ll add all the links and contact info down below. So everybody, Hey, appreciate you joining us today. Hope you got some good value out of that as the market kind of shifts here, you need to prepare for, uh, that’s that’s one of the benefits of being an investor fuel or being in a group like ours is we’re all talking about the shifts.

When is it going to happen? And we have members all over the country. It’s obviously [00:24:00] tends to kind of happen more on the coast and the higher dollar markets like California. So we kind of learn and start to look around corners because you know, we have a hundred plus members and a hundred. A hundred heads are better than one.

For sure. If you haven’t yet talked to us about investor field, we’d love to jump on a call with you. Just go to investor fuel.com. You can schedule a time to chat with us and learn more about whether it’s a fit for you and whether we’re a fit for one another. So appreciate you a bunch. We’ll see you on Monday.

Are you

Mike: an active real estate investor? If so, and you want to latch onto the power of surrounding yourself with over a hundred of the nation’s leading real estate investors. All committed to building stronger businesses and living richer fuller lives. You should jump on a call with us to learn more about investor fuel.

Simply visit investor fuel.com to get started. [00:25:00] .