Maximize Your Rehab Profits

Mike: Hey, it’s Mike Hambright with FlipNerd.com. Welcome back for another exciting Expert Interview where I interview successful real estate investing experts and entrepreneurs across our industry. Today I’m joined by my friend Jordan Fisher, he’s a California real estate investor. He’s also a managing partner of Inspire Capital Management, he’s a lender.
Jordan is really an expert rehabber in his space. In fact, a lot of people call on him to rely on his guidance for putting out a great product. And if you want to maximize your profits on your next rehab, you need to listen to this show. That’s exactly what we’re going to talk about today, is how to put out a great product and how to maximize profits on your next rehab deal. Before we get started with Jordan, let’s take a moment to recognize our featured sponsors.
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Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers, or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.
Hey Jordan, welcome to the show.
Jordan: Oh thanks Mike. Thanks for having me. Appreciate it.
Mike: Yeah, great to see you my friend. So it’s interesting, we were talking a little bit before the show about some of the stuff you’ve been up to and for those that didn’t listen, Jordan was on the show almost 200 episodes ago. So this is kind of a Round 2 with Jordan. We were talking about one of the things that you are an expert at which is rehabbing and it’s interesting how many people think they’re good at rehabbing. But they put a product out that just doesn’t move and people start to question “Why isn’t this moving, why isn’t this moving?” and they think it’s everything but them or their product, right?
Jordan: Yes.
Mike: So I’m glad we’re going to talk about this today. For as much as rehabbing has been a big part of my life, we really haven’t talked to a lot of guests about rehabbing.
It’s tended to be a lot more about wholesaling and effective team management and using your IRA to invest, lots of other stuff. But if I think about all the topics and the importance of rehabbing, we really haven’t spent a tremendous amount of time on shows talking about that, so I’m excited.
Jordan: Oh good. Me too.
Mike: So before we get started, for those that don’t know you yet, tell us a little about you and your background.
Jordan: Jordan Fisher, I’m in Pasadena, so Los Angeles market. We do things all over Southern California and also some things in other parts of the country. I’ve been in real estate investing since, well I guess when I was younger a little bit, but full-time certainly since 2007.
Mike: You came out of the corporate world, right?
Jordan: Yeah I did. Big in the corporate world. Mostly advertising and brand strategy stuff. So I always thought of real estate and real estate previously and my passion came back and been loving it ever since.
Mike: It’s an interesting connection to be a brand guy that thinks about product and thinks about positioning and stuff like that, and then to be a rehabber, that doesn’t sound like a stretch.
Jordan: You know, it really helps me a lot because I’m always thinking about positioning and leverage is a big topic that we’ll discuss today. And that is really a big thing in terms of brands or gaining leverage or finding where a brand had leverage in the past and lost it’s way. That’s what I used to do. Like the Converses of the world that were popular at one time and lost its way, to find a way to get it back with things that it already has, that people appreciate about it. The same thing with rehabbing a house. I just try to figure out what the brand has, what the house has and then do things right to bring it to light.
Mike: I think one of the things that’s interesting, I’m sure you’re going to talk about today, because I’ve rehabbed a couple hundred houses myself, and it wasn’t intuitive to me early on. So what I’m saying is, it wasn’t intuitive to treat houses differently based on who that customer might be.
So what happened was, we tried to not rehab stuff that was too far above the median price point because my contractors just weren’t good at it. Then when we rehabbed something that was under a certain level, we just over-rehabbed it every time. It took me awhile to learn that, that I think a lot of rehabbers go into a house and they start thinking about what they would like if they lived there, which has nothing to do with who might buy it.
Jordan: True. There are lessons to be learned definitely. But yeah, I think you always have to keep that buyer in mind. Not only like how much money they have, but in terms of how they’re going to buy the house, with cash, with a loan, conventional, FHA. You really have to think about that because that will really, it should really dictate some of the decisions you make in the house.
Mike: Yeah. So let’s start talking about that in terms of how do you profile a house to decide who that buyer might be? Like you said, sometimes is this a deal that would probably go FHA or is this something that’s going to be a conventional loan and those ultimately help you decide what you’re going to do to the house, how you’re going to price it at least, right?
Jordan: Yeah, it’s more or less reverse engineering. You know how some of the best wholesalers I know, and you’re one of them as well, you guys like reverse engineering.
You’re thinking “Who are my buyers, what kind of product they want?” and then you find that product and you just turn it over and you know you have a home run when you turn it over, right? It’s the same way when you do a rehab. A lot of people don’t do that. They just find a deal, rehab it, and then see if they can sell it. They’ve got a great product and you’ve really got to think about it the other way around.
If you’re looking in a certain area or a certain price range, you have to think who my buyers are, right? “Who are my buyers?” “How are they going to buy this project? In cash, with a loan, FHA?” Whatever they’re going to buy it as and how much can they pay and are they sophisticated? In this price-range, is that a price-range that people love to see great design or not only appreciate it, but understand it. Or do they just appreciate it because they would have no sense of design themselves but appreciate good design.
You have to understand that because that will really… it doesn’t mean your product is going to be poor, it doesn’t mean your product’s not going to look good or not look good. It just might mean about what kind of materials you might put in a kitchen or a bathroom. What extent you might go to, to rehab a certain part of the yard or a certain part of the house just so you spend your money more wisely.
Mike: So give some guidance on how you think through that. Is it based on purely price point or the part of town that it’s in or talk about how you start to make decisions.
Jordan: Sure. Definitely price point is important. You have to think about number one, probably how people are going to buy it. I’m in Los Angeles for an example. The average price in Los Angeles for a house is right around $450,000 now. And at $450,000 you can get a conventional loan at 4.19. So that’s like a one loan product, usually a first-time buyer in that price range. So if you’re going to buy in that price range, let’s say 350-550 for example, just as an example in that price range, you know it’s most likely going to be a first-time buyer. They’re most likely going to do one loan, it’s most likely going to be a conventional loan and you have to think about what does that mean?
They’re going to be excited. You have to think about that. They’re going to be excited, it’s their first house, they’re not going to be knowledgeable. This isn’t someone that’s already bought a house, who has a realtor, but who says I already bought a house, I know real estate. And so they’re going to do certain things in their inspections and everything else because they’ve already bought one house and had problems or didn’t. That really impacts a lot of things.
Then you’ve got to think about the location. Where it’s at. Is this a location that is appreciating? Is it an area where people are very educated or not educated? Is there, in this location, a lot of houses rehabbed and well-done or is it all out-dated stock and people don’t pay attention to the detail or take care of the stock of the house. Those things really impact what kind of things you might do to the house and how much you might spend.
I’ve run into a lot of… I run a fund too, so we fund a lot of fix and flippers. So I’ve run into a lot of people who just way… because we look at a lot of deals they ask us to fund, who are just way over-estimating what they think the house will sell for. And it’s more, they’re not thinking about those things like how are they going to buy the house and the location it’s in. They’re just not paying attention to those things.
Mike: So some obvious examples are, give some examples of something on a first-time home buyer house that you probably would never do because the person won’t… it’s not like you’re tricking them, like they never thought about this so I’m going to sneak it past… it’s that they don’t care about it.
Jordan: Really the realtor obviously is going to guide them a lot because it’s a first-time home buyer, but chances are, someone who’s bought a second house or a third house, they’re going to do all kinds of different inspections for example. They might have a grading inspection, they might have a mold inspection, they might have an argon inspection, they might, besides the normal general inspection, they might have a chimney inspection, all these different things because they’ve had problems in the past, other houses with these problems.
A first time home buyer probably won’t know that and a realtor will probably say “Here’s my… I’ll give you my general inspector, I don’t have a chimney… I don’t have all this stuff” so you have to just understand what they’re going to be looking for. You’ve got to understand also what they’re willing to pay and how much money they might have on the sidelines. So that was one other thing too I didn’t mention.
Really important, how much money these buyers might have on the sidelines to pay for things that the appraisal doesn’t have to or if there’s a per diem and they’re taking too long to close, can they pay that penalty every day it goes on. Or they’re going to say “Hey, it’s been 45 days, we’re out of money. We can’t even pay the penalty. Want us to close or go away?” You have to think about those things ahead of time and if you do, you’re kind of reverse engineering like we said and you’re going to keep your leverage all the way through from start to finish.
Mike: In my experience, it took a while to learn this, but for example, we would have a tendency to not, in a first time home buyer loan, like entry-level maybe a little below the median price point even, we would have a tendency to, for example, not replace windows because the person doesn’t care about efficiency and nice, new windows that are easier to clean. They would rather have granite in the kitchen, for example. So we would make some of those trade-offs based on what we thought that person might care about. They don’t really care about energy efficiency as much as a nice clean remodel.
Jordan: We talked about this before the show. We do sell a little bit to different markets. Sometimes you’re selling things where there’s an added value still there, there’s equity in the house and I do a lot of things where I’m trying to sell to… I’m selling more and more at market price. I’m selling to the absolute top price and quickly.
So for that, I totally understand the trade-offs you’re talking about. I just, in my market a lot of things we do, we choose to do for that retail as much as possible. So we are doing everything in the house, so we don’t leave one stone unturned. When I say leverage, I don’t like to give a buyer a bat to hit me over the head with. What I mean by that is, I don’t like to have them walk in a house and see something unfinished. Even if it’s just the caulking. They forgot to put the caulking where two pieces of marble or two pieces of granite or cords meet or they forgot the light switch is just a little bit this way instead of straight.
I know it’s something simple, I know you could fix that in one second. It’s just that you might as well put a bat on the table in the bathroom or a bat in the front door leaning against the door. It’s like “Here, pick this up and hit me over the head with it” because that’s what they’re going to do and you’re going to lose your leverage. They’re going to go “Bam, Jordan. Why wasn’t that done?”
It’s not that you couldn’t fix it and you can’t say “Oh no big deal, just put that in the contract and we’ll fix it.” Because I’m also a broker and I sell a lot of houses for other investors. So what I find often is, I will walk into a rehabbed house and I look at all these unfinished things and what I’m seeing is bats on the table. And what I’m thinking is “You know what? I’m going to sell this house and all these buyers are going to come back at me and want to hit me over the head with it.”
When I go to the investor and say “Look, why don’t you fix that or fix that now before we get involved?” They say, “You know what? If they want that fixed, the buyer, just have them put in the contract. I’m not spending any more money until they ask for it in a request for repairs.” So you know what? That’s the dumbest thing I ever heard.
You know why? Because people won’t even put an offer on the house. If they see a light switch turned like this, it just triggers a cycle in their mind to say “Well what else is wrong in this house? I was excited about this house, excited about the price, excited about the pictures and then I walked in and saw this light switch turned this way and I know, what is behind these walls? If you didn’t pay attention to that detail, what else am I not seeing?” All of the sudden it goes from positive to negative and they start seeing every little thing wrong in the house that might be there because you can’t fix every little thing. And it’s a bad cycle and you lose all your leverage.
I say it’s a seesaw. I like to stay on the top of the seesaw at all times from start to finish. This is from, when you do the product, I try to teach investors, when you do the product, the product is of quality, it’s a great product and you keep it all the way through, through the loan, through the escrow, through the recording until it is confirmed, you keep that leverage the whole time. And little things they get in the way of like, light switches or just in terms of what you say or how you sell it or how you deliver the final product, how you price it, when you have an open house. It makes a difference in your seesaw coming down like this and it’s tough to get it back up.
Mike: So given that you’re in LA, you’re in a higher-price market, relatively speaking, so how does that differ with FHA type deals because I know you’re trying to get premium pricing. And of course when you try to do that on an FHA deal and if something doesn’t appraise, you can get screwed pretty quickly.
Jordan: You can and obviously if you don’t have to sell to an FHA buyer, I’m not a proponent of it.
Mike: You prefer not to.
Jordan: It’s mostly because if something wrong happens in the escrow or if the escrow goes past 30-days and you have a penalty in your counter that says the buyer has to pay a penalty for every day it goes over, those buyers typically don’t have funds or their appraisal hasn’t come through. Those buyers don’t have the funds, that’s why they’re taking an FHA loan, that’s why they’re paying the PMI [inaudible 00:14:38]. They don’t have the funds to make it up and then you lose your leverage all of the sudden. You’ve waited 30 days, 40 days, you have a buyer on contract, ready to go and they have problems. You start all over.
But if you do have an FHA buyer, there are certain things you can do still, to make sure you keep the leverage all the way through. These things work really in any market. It’s just about, you’ve still got to deliver a good product and if you know it’s an FHA buyer that means FHA needs certain things done in a house to make sure they’re done. It’s going to be much more crucial, critical on the inspections. You may have two general inspections or two appraisals.
So you just have to understand that and know what to do ahead of time because the worst thing to do is be caught. Most investors, they’re calling me like “Oh, they’re doing another appraisal?” What did you expect? This area is all FHA loans, they have to do two appraisals, you’re selling it in 60 days from when you bought it. All these things are known things. It’s like Christmas happens every year, you knew it was coming. It’s a holiday on the calendar. It’s already there. It’s nothing new, so don’t be surprised.
You’ve got to think about these things ahead of time, so you can be proactive. Put things in contracts ahead of time so that when they do come up you have leverage rather than caught off guard.
Mike: Can you give some tips on… talk about some of the things you could get hit with if you’re using an FHA buyer, FHA buyer that you need to plan for?
Jordan: Things like… I mean we don’t do a lot with FHA buyers, but I can tell you the things. I do help a lot of other people. Certainly like two appraisals, so a second appraisals.
Certainly things like if an FHA buyer, FHA inspector, if it’s an inspection for an FHA loan, things need to be buttoned up. Just know this, just keeping it simple, things need to be buttoned up in a house. You can’t be doing things half-assed. Everything has to be finished, everything has to be clean, everything has to be as it should. You can’t have missing things that are like, “Big deal, have them ask for that in a request for repairs” or “Have them ask for that in a closing cost credit.” You just can’t.
By the way, an FHA buyer almost always is going to ask for a closing cost credit because they need the closing cost to help them close. So when you’re selling the property for whatever, $200, $300, $400,000, all the sudden the request for repairs, they want a 3% closing cost credit. You’re like, “Well, it’s not really $400,000, it’s 3% less.” They’re like, “Well, can I counter that out?” and you say, “Oh no, we’re not giving a closing cost credit,” and the buyer goes away. Why? Well because they need it because they can’t afford to close otherwise. You just need to figure these things in to your numbers to make sure you’re going to be profitable and you’re not stressed out.
I tell investors all the time, you know this, Mike, rehab, it’s a lot of mind space. You make a lot of money but it’s a lot of mind space, a lot of moving parts. There’s a lot of timing involved to get all the moving parts working and time when you borrow money to closing. It’s just very expensive. So you really have to think about things ahead of time so you don’t have these problems. The worst thing you can do is get a house and while you’re doing the rehab, while you’re spending so much money and time and energy trying to get things done, is worry about “Am I going to make money on this property?” Is that stressful. You don’t want to be there.
You already know money is there, it’s just about how much money and you should be pretty sure about how much money you’re going to make. It should only be a bonus when you sell it for a lot more than you thought you would. It’s a very good way to be conservative on your ARV, your after repaired value, what you think it’s going to sell for. Be very conservative and so when it sells for more, it’s just like a home run. Nothing like estimating so high and being like “I don’t know if we can make… we’ve got to sell it for this or we don’t make any money” and that’s a terrible place to be.
Mike: Absolutely. So what are some other things you want to talk about in terms of how to maximize your profit on deals?
Jordan: A few things. I would say when you buy the house, number one is be conservative, as I said, in your after repair value, what you think you can sell it for and the time you think it’s going to take from starting to sale. So if it’s like “Oh, I’ll do this in three weeks and sell it in a month and a half.” You know you might, I mean you might. But I wouldn’t use that as for the basis of your numbers. So be conservative in your after repair values and how long you think it’s going to sell. How long you take the money? How long it’s going from when you buy it until you sell it.
Number two, deliver a quality product. I run into a lot of investors who I walk into a house, I was just in one last month in my area, where I was like “Oh, this house is done okay.” I looked in the kitchen and there were no appliances, zero. Now I talked to the investor and I said, “What happened to the appliances? Are they being delivered? Because I’m about to list the house.”
They said “Oh no, if the buyer wants some, if it’s an absolute mandatory condition of the purchase, have them put it in the contract and ask for appliances.” And I was like, “You know what? This is the reason why, number one, when you don’t put appliances in, it looks like it’s a flipped product.” I always say, don’t make a house look like it’s a flipped product because when people know it’s flipped and it’s relative, they know you bought it for one, recently, one amount and your selling it for a lot more.
Now I know that when people walk into a rehabbed house, it’s not it’s pretty obvious it’s been rehabbed. You don’t have to hide that. It’s just you don’t want to make it obvious that you just bought it and you’re just selling it. Because then it looks like you probably, maybe cut corners, didn’t do things as well as they should, moved so fast and going to make money while this person is paying, over-paying for the property.
So I walked into a house and I looked around and there are no appliances and that’s when I said, “People aren’t even going to make an offer on this house because there’s no appliances.” They said “Well let the person choose the appliances. The wife’s going to come in and want her own appliances anyway. I have no business choosing them.” That’s the dumbest thing. Put in appliances.
If it’s a market with stainless steel appliances, put them in at their location and price range, put them in. Maybe you don’t have to put a refrigerator in because the wife will generally want to choose the refrigerator, but definitely have an oven in there, maybe a microwave, a range, a dishwasher. Put those in there so at least the product looks finished and ready to go, because otherwise it doesn’t look finished and you just put a bat, a Louisville Slugger on the kitchen table and I guarantee they’re going to hit me over the head with it. That’s the first question, “Where’s the appliances?” I have to answer that. You’re losing your leverage on the seesaw.
So when you start a project, make sure it’s finished correctly. I run into people who look in the front yard and it’s not done and they say “Well I already ran out of money. I spent my budget, and so we did everything but we’re not doing the front yard because I ran out of money.” It’s not going to sell. Now it’s going to sit on the market. When you start a house, you’ve got to finish. You estimate, you over-budget? Guess what? You’ve got to finish because the key is, it’s not over until it sells. Your pain is not over until it sells.
So if you’re spending too much money, you’re not going to make as much money as you should or hopefully you’re not going to lose money. But hopefully if that’s the case and it’s just the numbers are getting high, finish the house in a way that will sell the house quickly without giving buyers bats to hit you over the head with.
Mike: Yeah and save yourself some holding costs. It’s interesting that you say that because I, we had a time, it was very rare for somebody to come into our office ever that we were selling a house to, and this was just kind of a random, I can’t remember exactly what happened, but the buyers came in to drop something off in our office. It was an option fee or something like that and I wasn’t there. And they started talking to our office manager and said, “Can we see the pictures before you rehabbed it?” And she was like “Oh, sure” and she pulled them up which we’re pretty buttoned up. When we buy a house, we have a bunch of Dropbox folders, before pictures, closing docs, contracts, we have everything totally organized. And they were just, I mean they still ended up buying the house, but they were just horrified at it.
A lot of times when we buy houses, we buy some pretty rough houses and it’s just that they are way out-dated. The people might have been hoarders or slobs or who knows. They see around the washer boxes and the laundry room, there’s a bunch of mildew or something because something was leaking or whatever. Stuff that’s like, hey, you can make that go away pretty easily. But when people see that nice new-looking house, they want to assume it was always a beautiful home like that which isn’t always the case. But I understand what you’re saying.
Jordan: It’s a really good example. When you’re eating a steak, you don’t want to show someone the cow that it came from. Here’s the cow.
Mike: You don’t want to watch a slaughter house video while you’re eating a steak.
Jordan: Now look at the steak on your table. It’s like relative. Let me ask, a lot of people do things in a transaction from start to finish, from when they start the product to when they sell it, that put a hurdle in their way. They don’t think about that. What they think about is, I’m just giving information. I have all this information, I’m very proud of the product I did. So I want to share, “Oh yeah, we did that and we did that and look what it was before and now look.”
You don’t want to put hurdles in your way to get you a pat on the back. A lot of people will take a pat on the back and say “Oh here’s the pictures, didn’t we do a good job?” You know what? I’m willing and I tell investors all the time and realtors to “Give up any pats on the back, any kind of accolades until after the recording is confirmed.”
At that point, after you’ve sold it, you can record confirmed, you’re no longer on the house, you can take all the pats on the back you want. But until then, give up all the pats on the back to maintain your point on the seesaw. Give it up. I don’t care if it’s easier for you, if it feels good. Give it up completely and just keep your position on the seesaw until it’s recorded. After that point, you can do anything you want. But not until then.
Mike: Cool man. So what are some things you see people do that we haven’t talked about yet that you would say are mistakes? Where they’re kind of missing out on some profit potential, missing out on some leverage, some of those things?
Jordan: Definitely a lot of people, what’s his name? Robert Kiyosaki, he always said you make money when you buy the house. Now a lot of people you said “Well I make money on the buy.” Well it is true. Certainly you make money at the price you buy it at, that’s really important. But the other half is you make money when you sell it. There’s a lot of time and wasted profit and wasted headache and repairs and contract and legalese that goes involved because people don’t pay attention as much to the sell-side as to the buy-side.
The sell-side is so important. A lot of people price properties wrong, they show them wrong, they list them wrong, they have open houses wrong, they just do everything in a way that they feel like “What do you mean? I didn’t do it wrong. That’s the way that things are done. When a realtor has a house they list it on the MLS and they have an open house or brokers open and we put a lockbox on it and show it. And what do you mean? That’s not wrong. That’s the way that everyone does it. What do you mean?”
Say well, “Why do you think that’s correct? Just because everyone does it that way that doesn’t mean that’s correct. You’re taking your leverage, what everyone else does is, like this. You’re being like this and you’re losing all your leverage.” In order to maintain leverage way up here on the seesaw, you’ve got to do things a lot differently. So a lot of people will, again do all those things wrong.
A good example when you said pictures of an old house, a lot of people I see, this is very common, when they do a rehab of a house, they’re so proud of it, you look on the MLS and there’s like 35 pictures. Like 35 pictures? I guarantee you, your buyers are not going to like all 35 pictures.
Why don’t you just show, the front of the house, the back of the house, one bedroom that’s staged, the kitchen, the living room and maybe both bathrooms and be done. You know why? Because those are the meat and potatoes that will get people in. You want to whet their appetite but not satisfy them. You just want them to come to the house because they’re never going to make an offer until they walk, step foot in the house.
So I always say, do everything to get people to step foot in the house as soon as humanly possible. That means pricing is really important. That means the pictures you show, whetting their appetite, but not giving them the full picture. That means how you describe it and making it very tantalizing but not everything to get them to come. All kinds of things.
You’ve got to get people in the house before you can have a conversation about selling it because you’re not really talking about numbers of selling the house until someone says “I’ve been to the house, I saw it and I loved it. What’s it going to take for me to buy it?” or “Here’s my offer. I don’t care what number it is. I want to reserve my seat at the table so I have a chance to buy it.” At that point, then I can go okay. Now we’ve got something to talk about.
But until then, I’ve got nothing to talk about. Who cares if I have a beautiful, rehabbed house? Who cares if it’s the only rehabbed house and it’s the only house for sale in this neighborhood that everyone wants. You know what? I still don’t have any leverage until I get people to the house, they look at it, like it and send me an offer. Then we can say “I’ll take yours but not yours.” “I’m going to talk to you, but not you.” At that point I have a lot of leverage. But until then, I have zero and a lot of people think they have leverage when they do a house and you don’t have leverage until you do all these things to put you at the top. So again, it’s more like leverage to me because if you don’t have leverage, that’s when you get beaten up. I don’t like to get beaten up with bats.
Mike: You know what’s interesting? I’ve never done this before. It’s such a hot seller’s market right now that this makes sense. So it’s interesting when I see it. In my neighborhood, the neighborhood I live in, which I haven’t done many houses in, a little nicer neighborhood than I typically do houses in. But I’ve seen a lot of houses now, before they actually put them on the market, they’re putting the “coming soon” sign out, which for a long time I was like, “The houses sell like that. Why do they have to say they’re coming soon? Just sell it.”
But from a leverage standpoint of what you’re saying, I think what happens is they start to get contacted and people are fearful that once they do list it, I’m not going to get it. So they’re probably willing to maybe offer more, maybe negotiate less, maybe negotiate less repairs and stuff because they’re fearful that this house is pre-market and that’s the only chance I’m going to get. Any thoughts on that?
Jordan: It’s not a bad strategy. But I would just change it a little bit. A better strategy instead of “coming soon” is actually not announce it, but once you put it on the market, don’t show it. This is what I do a lot. I say to people once you put it on the market with great pictures, great description, no one can see it for a week. Why? When you put “coming soon” on, no one can see it, but they don’t know when it’s ready. They might see it when it’s not finished. They might stop by which is not a good thing.
When you put it on the market and say “Okay, here’s this great product and it looks great” and people say “Great. Let me make an offer?” and you say “Oh no, you know what? There isn’t any showings until next week.” They go “Yeah, but what do you mean? We want to make an offer today.” “Well come next week. It’s from 2 until 4 on Saturday. A lot of people will be there. I suggest you come then.” “Yeah, but my buyer’s out of town, they won’t be able to come.” “Well then I suggest you come because with the price that it’s at and you can see the pictures, looks like it’s going to be a hot property. Do what you can to make it there.”
What you do is you create a lot of pent-up demand which is different than a “coming soon” because it’s already on the market and people, you frustrate them without being personal. It’s just not ready for a week. So they’re like “I want to see it” and you’re like “I’m sorry, it’s just the first showing is next Saturday. Come then.” “Okay, I’ll come.” “That’d be great.”
I like to create a lot of pent-up demand and everyone at the house at one time for like a two-hour period. That way everyone can see it at the same time, they see what’s going on. The go “wow.” So when they come and ask me, “Hey Jordan, what’s it going to take for me to get this property?” I don’t have to be personal because I don’t like to be personal in real estate transactions. I just say “Look, you can see what I see, there’s 100 people here. Obviously this is a hot house, people seem to love it, price is low, I would make the best offer you can.”
Mike: Create a little bit of a frenzy.
Jordan: Yeah, I love to do things like that. I love the selling side. I think a lot of rehabbers just focus on the buying and rehab side and they forget that the sale side has got so much power. People leave a lot of money on the table.
Mike: Yeah, I’m guilty of that. For as many houses as we’ve rehabbed, I would say absolutely when the rehab was done, we would hand it over to whoever was going to list it and we’re kind of out. Just let us know what happens.
Jordan: Well a lot of investors do that and what they do is they get houses from agents and they say, “Hey, if you give me the house, I’ll let you sell it on the sell side after I rehab it.” While that makes a lot of sense maybe in getting inventory, I don’t think it’s a good idea to just relinquish control. You may want to pay that person off to get out of the way or just do what you say or whatever so you control the side. But I think if you’re not controlling the sell side or working with someone who really understands that well, not a normal agent, someone who understands it well, I think you’re looking for problems.
Mike: Awesome man. Well any final words of wisdom you want to share on rehabbing or tips or advice?
Jordan: I think people don’t understand the private money side. Private money is a big part of rehabbing. Whether you getting it from an individual or a fund or whatever it is, it’s a big part and it usually ends up being about a quarter to a third of profit. It just is. A lot of people don’t figure out, really think about really how much that would be because they always think they’re going to finish in a smaller amount of time and they’re going to sell it for a lot more than they do because they’re just very optimistic and excited.
I think the more you just look at that part of the equation and understand private money is really there to help you, but you’ve really got to know your numbers. Private money can only do so much and I think that’s an important point that you just make sure you’re really fine-tuning that stuff.
Mike: It’s interesting because when I think about personally of all the deals I’ve done, I’ve never actually used traditional hard money. I’ve always had access to bank money at a better rate, or friend and family-type money and so I’ve been blessed in that regard. But I know there’s a lot of truth in capital that constrains you, that holds you back from doing less deals. I think people get hung up on “Well, I’m paying so much money to my lender.” It’s like yeah, but it’s enabling you to do potentially almost an unlimited number of deals. Capital is not your constraint now. So if you look at it from a volume perspective, how you could even have some money, how you can leverage that up to do many more deals.
Jordan: Look at all those partners. Whether it’s a title escrow or even your private money person as like, you’re just bringing another person on your team who doesn’t just provide money, but maybe they can help you, give you just a second pair of eyes. But to the rehab, are you selling it for the right price? You’ve got a whole team who is interested in your success. So you’ve got to look at those. I think people just look and they get money and they get escrow and they think “Okay, they do their job and it’s my thing.” You’ve got a whole team of people, you should use that team. It’s only going to benefit everybody.
Mike: Absolutely. Especially if you pick the right one and I know this is how you are just from our conversations in the past of, you really get involved just like your experience with selling homes is you really try to be an adviser to that person too about how to maximize their profit. Because one, I know you enjoy it, but two, it helps ensure that you’re going to get your bait back.
Jordan: Yes, the private money, whether it’s individual like you’ve had or a fund, they make a lot more money the quicker the money comes back, not the longer it’s out. I think that’s a misconception of people like the mob breaking bones and stuff. Private money or an individual or a fund or something like that, the money, they make a lot more money the more it turns, the more they can lend it out and comes back, lend it out comes back. Not lending it out for a long period of time, you’re having trouble and you’re paying interest and struggling and they’re just happy because it’s not coming back. No.
They make more money when the cycle keeps coming back. So they’re interested in your success so a lot of people forget that, think like “I’ve got to pay this private money every month” and this is where… that’s pain. When they have to return the pain, they’re like “How can that person help me?” They actually have an interest in me selling this property. So if you think about it like that, I think you can find a lot of resources maybe you didn’t think you had access to.
Mike: Awesome. Well Jordan, if folks want to learn more about you, what you’ve got going on, how do they get a hold of you? Where do they go?
Jordan: They can probably email me. I have a site, InspireMyCapital.com or you can reach out to me at [email protected], that’s probably the best way to get a hold of me and I’ll be happy to answer your questions. I do like to help. We do a lot of looking at deals. We do that all day. People send us deals to look at and we just give them our honest opinion and it’s not just like “Yes, we can do this” or “No, it’s not going to work.” We often say like “Well, it looks tight, what do you need? What’s the scope of your rehab? Why do you think you’re doing that in that market? That looks like you’re under-estimating or overestimating.” We try to help because it’s a team. Real estate investing is not a single-person entity, I don’t think. The more you have a team and think about it like that, the more successful you’ll be.
Mike: Awesome. Jordan, thanks for joining us today, my friend. Good to see you.
Jordan: Oh you too, Mike. Thank you for having me.
Mike: Take care. I’ll talk to you again soon.
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