Buying Investment Properties Off the MLS

Mike: This is the FlipNerd.com “Expert Real Estate Investing Show,” the show for real estate investors, whether you’re a veteran or brand new. I’m your host, Mike Hambright, and each week I bring you a new expert guest that will share their knowledge and lessons with you. If you’re excited about real estate investing, believe in personal responsibility, and taking control of your life and financial destiny, you’re in the right place.
This is episode number 350 and my guest today is Jim Zaspel, a Philadelphia-based real estate investor and a friend of mine. As you know, the market is more competitive than ever right now, and finding deals is challenging. But those that are committed to their own success, and you should be, always find a way. Now, today, we talk about finding deals on the MLS. Now, I’ll admit, I have historically not really focused on buying deals on the MLS. But today, Jim has convinced me that I’ve probably left a lot of opportunity on the table.
We’re going to talk about Jim’s process to find deals and make offers, which you can ethically steal from listening to today’s show. He’s created an automated process for his team to make 30 or more offers a week targeting MLS deals, very targeted deals, which is netting him an extra deal each and every week. Now, if you’re looking to grow your real estate business, and I know you are, you don’t want to miss today’s show. Please help me welcome Jim to the show. Jim, welcome to the show, my friend.
Jim: Thanks, man. Glad to be here. I just wish I had a fancy, cable-suspended microphone like you’ve got there. I’d be as cool as you, man.
Mike: Yeah. Well, one can dream, Jim. One can dream.
Jim: One can dream. That’s right.
Mike: Yeah.
Jim: Meanwhile, these earbuds are working miracles.
Mike: You know what’s funny? When I started my podcast, I was following certain podcasters and there are the diehard guys that have all these mixers and stuff. I’m like, “What is that?”
Jim: Right.
Mike: So literally, I do this with a Logitech webcam. Three hundred and fifty shows, a Logitech webcam, and a nice microphone.
Jim: There you go.
Mike: But other than that, not too high-tech. Awesome.
Jim: Cool.
Mike: Well, hey, before we get started, why don’t you tell folks a little bit about your background, how you got started in real estate investing, maybe what you did before you were in real estate, and then a little bit more about what you’re working on right now?
Jim: Yeah. So one thing I’ll just say I like about my story is, you’ll hear, I’m kind of an idiot. I’m nobody special. I was homeschooled all 12 years, a college dropout, and before real estate, I had a . . . I started mowing lawns for neighbors when I was 12 years old. That grew into a legit business. When I was 20 years old in 2007, I grossed almost half a million bucks in the landscaping business and netted like $75,000, $80,000. I thought I was the shizzle, man. Because I thought, “Man, what other 20-year-old
” I didn’t know any other 20-year-olds making $75,000.
Mike: Right.
Jim: Of course, I was working 80-plus hours a week. So when somebody explained to me, actually, I had like two full-time jobs at $35,000 a year, I kind of wasn’t as excited. Then, 2008 rolled around and my company gross income fell by 50%, my net income fell by 90%, and I would’ve made more money on Welfare. So thankfully, I guess you could say, I was still living at my parents’ house at the time because it was crazy. I had a negative net worth. I had finally read a book my dad had bought me three years prior on how to make money in real estate. It was a [inaudible 00:03:39] book.
Mike: Oh, okay.
Jim: I spent $5,000 of my last $7,000
Again, counting credit card debt, I had a negative net worth. I had $7,000 liquid, spent $5,000 going to a seminar. When I went to the seminar, I didn’t know how to spell “real estate.” I thought it was one word, I kid you not. Like I said, nobody special here. But I was like, “You know what? If other people can do it, I can do it.” I guess it’s that persistence and tenacity, and the confidence that . . . So I did my first deal, and it was a wholesale deal in March of ’09, and since then done close to 300 deals, mostly rehabs now.
So now, my wife and I, we still wholesale a house every 10 days or so. But we do about five rehabs. We sell about five rehabs, sometimes more, every single month. So a little more than one a week.
Mike: That’s awesome. That’s awesome.
Jim: Yeah.
Mike: Talk a little bit about . . . So this is one thing that I believe is interesting, and I hope everybody gets this at some point. I want everybody to have . . . I teach a lot on financial freedom through real estate investing. I mean, we’ve done 350 episodes. I do that because I’m passionate about sharing my message and passionate about spending time with friends like you, to share your message about how people can use real estate to achieve their success. But there’s one thing that’s always interesting to me.
When you get to the point to where you’re making far more money than what you need to survive . . . some people make a ton of money and they still blow it all, so that probably does qualify for them.
Jim: Broke at a higher level. Right?
Mike: Yeah. But the interesting thing for me is you get to a point to where you’re kind of playing, what I say with the house’s money. You’re taking bets on yourself and trying to grow things. The interesting thing is I feel like, once you’ve gotten to a point to where you made money, and you probably saw this in your landscaping business, is you knew it was possible to make money. Right?
Jim: Right.
Mike: So you could lose everything tomorrow and, within a year, you’d be back.
Jim: Yep.
Mike: You might be doing something a little bit different, but that’s just . . . When you’ve kind of proven yourself as an entrepreneur, I think that’s one of the great things about it is you get this confidence to say, “Well, it can be done. I just have to figure out how to do it.”
Jim: Right. It’s totally true. In fact, after a couple years in the business, I had almost 50 rentals, almost 50 units that I’d acquired almost with all no money down strategies, lease options, seller finance, [inaudible 00:05:59] money deals. But I was 22 years old, stupid as could be, cocky beyond belief. Before I knew it, eight tenants were paying me out of almost 50. That’s not a very good ratio. Right?
Mike: No.
Jim: So I lost all those houses and I broke all sorts of promises and found myself $200,000 in debt. I buried my head in the sand for a couple years, and then dug myself out of that, made everything right, and it’s awesome to not have to worry about that. So you mentioned something about rentals before the show. Managing it and staying on top of it is not one of my strengths. So that’s why we do some of that now, but I’ve got other people to do it. It’s not up to me.
Mike: Yep. So today, we’re going to talk about essentially buying off the MLS, sourcing deals off the MLS. I have friends that buy off the MLS and they teach buying off the MLS like you do, but it’s not something that I’ve ever done. So I’m excited to learn more about this. Because the people that I know that do it well, they always have systems in place. They have a process for how they can automate things. So I’m excited to talk about it. Let’s kind of get started. I mean, first off, for those that think it’s not possible, tell me why it is.
Jim: Sure. I’ve got a friend. His name is Won, W-O-N. He’s a cool dude. He’s in my area here, near Philadelphia. I told him one time, I said, this was a couple of years ago, where we were doing deals, Montgomery County. He said, “Oh, Jim. There’s no way. There are no F-ing deals there. You’re going to starve if you try doing deals there. There’s just no deals. Everybody is buying.” [inaudible 00:07:28] like Yogi Berra, like the ballparks are crowded. That’s why nobody goes anymore. So I said, “Okay,” and I just smiled. That was like 100 deals ago in Montgomery County.
So first off, and this might sound silly, but I started with the mindset that there are deals there. Sometimes when you start off with the conviction of belief that something is possible, like you said, you have a way of figuring out how to do it. Then, next is I realized when we started doing deals on the MLS, my goal was not to become an employee for myself again. My goal is not to be as busy as can be. So one question I always ask myself, and it’s the one thing I train my students to do and I’m sure you do the same thing, is anytime I do anything, I always ask myself, “How can I have someone else do this?”
I can’t have somebody else being on a podcast for me, but I can have somebody else go search the MLS. I can have somebody else go look at the houses for me. I can have somebody else estimate the repairs. I can have somebody else write up the contract. I can have somebody else crunch the numbers, submit . . . I can have somebody else do everything. So for us, right now, it takes almost 30 offers to get a deal out of the MLS. So imagine if I were doing all that myself.
Mike: Right.
Jim: So I’m glad I’m not. First off, it’s really time management intense. I’m intentional in how I spend my time. So a lot of times, people say it doesn’t work, because they went and made eight offers or 10 offers, and didn’t get a deal. That happens to us every week. So do you want me to get technical here in terms of some different things that we do?
Mike: Yeah. Dive in. Dive in.
Jim: Okay.
Mike: Dive in. Yeah.
Jim: So first off, I’m going to start basic, and then go a little bit deeper. I’m not a licensed agent. My wife is and I’ve got a few that work for me as employees that are. But my MLS acquisitionist, Nicole, she’s awesome. She sets up . . . We give her the ZIP codes that we want to work in.
Mike: Okay.
Jim: Then, we have a list of 47 different keywords that we use to search the MLS. So if a property pops up for sale in that area that has “REO,” “bank-owned,” “handyman special,” “investor special,” any of these other kinds of keywords, then what we do is we go ahead and that pops up on our radar. So that’s the first level of prescreening. It gets on our radar. Then, next
Mike: So [inaudible 00:09:46] it gets on your radar. How do you
Jim: It gets on our radar because we set up a drip-feed on the MLS so it’s like an automatic search. So if a property comes up for sale, and it’s in our certain ZIP codes and the listing description has one of these keywords in it, it generates [inaudible 00:10:01] Mike: Okay. Which is an indication that there’s probably equity there.
Jim: Yeah. Equity and distress.
Mike: Like you have a couple [inaudible 00:10:05].
Jim: Yep. By the way, one of our favorites, and it’s different in every MLS, but we set it up where the owner’s name contains the word “estate,” like “Estate of John Doe.”
Mike: Yeah.
Jim: So a lot of times, they’re distressed. But the challenge with bank-owned properties, a lot of times, is all the investors want to buy it here, and the bank starts the price way up here. Right?
Mike: Yeah.
Jim: Whereas, with an estate deal, they don’t have all the limitations that an REO agent does.
Mike: Right.
Jim: So they can drop a price by $100,000 if they’re convinced of the value in taking the offer.
Mike: Yep.
Jim: We love estate deals. So we set up all these keyword searches, and then so once a day any new property that gets hit, it gets sent in an email to Nicole, as well as our overseas VA. That VA puts on a spreadsheet in Google Drive the property address, the listing price, as well as the Zestimate, Zillow-estimated value.
Mike: Okay.
Jim: Which, Mike, you and I know is not worth diddly.
Mike: Some indicator.
Jim: But it’s some indication as to value. Right?
Mike: Right. Yep.
Jim: So if the Zestimate is $250,000 and they’re asking $260,000, it’s probably not a good deal. Right?
Mike: Right.
Jim: So that’s just the first level of prescreening. Then, what he does is we have it all procedurized out for him to research and put in the next column the mortgage balance, and the year it was taken out. So at a glance, just looking at line after line, instead of clicking through a million clicks, we can do some sorting and identify very easily which ones are distressed, which ones are worth looking after.
Mike: Okay.
Jim: So that’s kind of how we go through the MLS, lots and lots of leads. That’s how deals get on our radar to start with.
Mike: Yeah. That’s great. That’s great.
Jim: Yeah. Then, what we do is we take those properties, or Nicole takes those properties, and she’ll pull comps on each of them. If they fit certain criteria, in terms of a spread between the ARV, the after repair value, and the asking price, she’ll dispatch a field agent to go look at the properties.
Mike: Okay. So, for example, you’re probably making an estimate on repairs. Like saying, “It’s this much below the asking price, and we’re going to assume that it needs a minimum of $10 a square foot, or $12,” probably some estimate to.
Jim: Yeah.
Mike: Because you know every house needs work. I mean, as a rehabber, you know that.
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. . . probably some estimate to . . .
Jim: Yeah.
Mike: Because you know every house needs work. I mean, as a rehabber, you know that. Right?
Jim: Yeah, absolutely. So Nicole, oftentimes, will do a mockup. We have a rehab calculator we use. She’ll do a mockup and crunch the numbers, and then see what’s worth pursuing.
Mike: Okay.
Jim: [inaudible 00:13:30] script for her to call the listing agent. If there’s not much of a spread, but it’s a piece of crap, she calls the listing agent. We have a script for her. Then, a big thing that was hard for me to get over, Mike, was this idea of having somebody else go look at the house, buying houses without actually seeing them myself.
Mike: Yep.
Jim: [inaudible 00:13:52] Mike: I’ve been there.
Jim: Yeah. Right? But as a business owner, if you want to go from self-employed to a business owner, where you get a seven-figure net income business, you’ve got to let go of some stuff. So what I did was I actually created a checklist because I got tired of missing things. Like the field agent would take a video and I wouldn’t notice the HVAC system, the wiring, or whatever the thing might be.
Mike: Right.
Jim: So I created a checklist for the field agent to follow. Now, so the way the process works, Nicole identifies these deals that are worth pursuing. In the next step, she dispatches a field agent who is a licensed agent, to go look at these MLS deals. We pay them an hourly, plus a bonus if we get an offer accepted. So this is typically somebody who’s newer in the business, doesn’t have a lot of experience. They just want to get some gas money and go look at ugly houses. That’s how they get their thrills.
Mike: Yeah. Since you’re buying in certain ZIP codes, or you’re primarily buying in one area, you have a couple of kind of go-to agents, I assume?
Jim: Well, we have about five different field agents that go look at the houses for us.
Mike: Okay.
Jim: Then, when we buy them, we buy them through my wife’s license.
Mike: I see.
Jim: Okay? All right?
Mike: Yeah.
Jim: So the reason it has to be an agent to go look at it is because it’s listed on the MLS. We just want to avoid any complications, and then we buy it through my wife’s license.
Mike: Okay. Then, they get paid?
Jim: Yeah. They get paid, [I think it’s] $500, $1,000, something like that, the minimal.
Mike: Okay.
Jim: So the field agent takes the video. Nicole sits in the office, watches the video, goes through the checklist, estimates the repairs from an eight-minute video. I’ve trained her on how to do that. So now, that’s how we’re able to make 20, 30 offers a week without Nicole or me going to look at any houses personally, and able to really leverage ourselves in terms of making a lot of offers.
Mike: Right. Do you still have . . . One of the things about the MLS, when you’re buying directly from a seller . . . Well, in any instance, you always have like an option to terminate or there’s some escape hatch there if you need it. So you’re using the best information you have to buy. But then, if your offer gets accepted, do you do a little more thorough investigation of it? Or what do you do there?
Jim: Yeah. I do. I learned that lesson the hard way. I walked from a $7,500 deposit not that long ago so we adjusted some internal procedures. So now, what we do is once the offer is accepted, that’s when I personally watch the video to make sure it’s good. If it’s questionable at all, meaning there’s lots of water damage or something like that, then we have one of our trusted contractors go look at it and give us a quote.
Mike: Yeah.
Jim: That’s all within the three-day period we have to put up a deposit.
Mike: Right. Perfect.
Jim: So offer gets accepted, Jim watches video. If it’s questionable, a contractor goes and looks at it, and gives me a quote. I want somebody we’ve used on dozens of houses, and then we go from there. That way, it protects us a little bit.
Mike: Yeah. That’s great. I coach a lot of new investors or newer investors, and there’s always this fear for new people of they’re afraid to make an offer because it’s almost like, “What am I going to do if I get it?” You know, it’s like . . .
Jim: Yeah. Right? It’s like, “Oh, crap.”
Mike: You want to be able to buy with confidence. Right?
Jim: Right.
Mike: So you just kind of teach people a way to buy with full confidence, but you have some period there where you have an option period or you have the right to kind of terminate. So what that means is stop worrying about it 100% of the time. Worry about it 5% of the time, when you actually get something.
Jim: Right. Totally true. So for us, in order to be competitive in the MLS, it’s got to be no contingencies and big deposit, all that kind of stuff.
Mike: Right.
Jim: But for us, when we accomplish that is that three days we have to put up a deposit.
Mike: Right. Yep.
Jim: So the three days is all the time we need. We get somebody out there to get the quote, and if there’s anything weird about the property. I can tell you, in the last 100 houses we’ve bought off the MLS, I’ve walked from two deposits. That’s it. So the $10,000 from the two deals, somebody might say, “Well, gosh. That’s $10,000.” Well, the way I look at it is it’s a couple million dollars of profit I was able to realize because of having that process in place. I’ll gladly pay $10,000 to make $2 million.
Mike: Yeah. It’s a cost of doing business at some point.
Jim: Yeah. Totally.
Mike: So talk a little bit about kind of competition, and this is going to be different from market to market. My impression of why I haven’t really pursued the MLS is that there are some people in my market that have just a machine. Like I think they essentially are just making blind offers on everything that hits the MLS.
Jim: Right.
Mike: I see it. I list properties for full retail value that are rehabbed and everything. We start getting hammered with all these offers for 70% of what we had it listed for.
Jim: Right.
Mike: So there are some people that have figured out just kind of auto-offering stuff that makes it kind of a competitive space. Just talk about, I guess, maybe how competitive your market is and what you do differently than the competition to beat them out.
Jim: Yeah. My market is very competitive. By the way, I probably [inaudible 00:18:53] I didn’t realize when we started how dark my face is on the screen. [inaudible 00:18:56] everything works out all right.
Mike: No. You’re fine.
Jim: All right. Cool.
Mike: Very handsome. Very handsome today.
Jim: I wasn’t looking for that, man. Not from you, anyway. I shouldn’t have said that. Anyway, our market is very competitive. So if you go pull comps on a property in our market, your active, pending, and sold transactions on the MLS, about 5%, maybe 10% of those comps, maybe 15%, are going to be active listings. So you pull 30 comps, you’ll have about five active and the rest are pending and settled.
Mike: Okay.
Jim: So it’s very competitive. Not a lot of inventory.
Mike: Right.
Jim: Yes. It is extremely competitive in Philly and around Philly, where we do most of our business. So how do we . . . We get some people submitting these automatically generated offers. I’m not saying I’ve never done that. We do, do it sometimes. So it’s a great way to get deals. But a lot of those deals fall through. So we have a system. We set up a machine. We do a machine in place. It’s two-fold. The one is a spreadsheet for tracking the offers we make, following up until they close. Two, it’s a full-time person who’s got specific procedures to follow. They have scripted emails, scripted texts, scripted everything so that we’re able to make offers quickly.
Mike: Right.
Jim: So the machine is very important. I will tell you that we get more than half of our deals from the MLS after they’ve been on the market for at least 60 days.
Mike: Okay.
Jim: A lot of times, they’ve actually fallen out of contract. There’s one deal we did that was a Hubzu property. So hubzu.com is an auction site. We don’t get tons of deals there, but we get a few a year, maybe five, six a year tops. So it’s worth doing. We made an offer right away. It got rejected, and then it went pending. It went back to active. We resubmitted the offer, got rejected, went pending. Then, went active, submitted the offer, resubmitted the offer three weeks later a couple of times, and then it got accepted. So it went pending to somebody else twice before we got it.
Mike: Right.
Jim: That happens a lot. What I described earlier about setting up your MLS automatic searches, a lot of guys do that. But not very many people, or not nearly as many people follow a property until it closes, which is . . . In my opinion then, if you’re going to make a business out of buying deals off the MLS and you don’t have a process in place for following up on offers for months, many months if necessary, you’re going to cut yourself off at the knees, or even somewhere else.
Mike: Yeah. It’s like twisting a knife in somebody’s side when a deal falls through. Right?
Jim: Yeah.
Mike: So it’s like you have a better opportunity. There’s more motivation that kind of presents itself when those happen. Talk a little about
Can you share your process a little bit? Are you using somebody, like a virtual assistant or somebody else, to physically call people and check in? Or do you have some automation of, when something happens, where you can trigger an email to the agent? Or kind of what are you doing there?
Jim: Sure. We’re still a little bit archaic. It works. I’m not embarrassed to say that. Actually, we’ll make money on the MLS. So we don’t use, right now, Podio for our MLS deals like we do our off-market stuff, the automated follow-up emails. Our process is, I’m going to say it, it’s a little embarrassing, pretty archaic, but it works. It’s a Google Doc. So I explained earlier how this one virtual assistant takes the first crack, identifies the hot leads. Then, if it’s of interest, I have an assistant who puts it on their one tab of that Google Doc spreadsheet. Those are ones that she makes an offer on. That tab is getting cleared out every day.
Mike: Okay.
Jim: Or at least every couple days. Well, let’s say we make an offer on a property, but we get rejected, that goes to a different tab. Then, she enters in the date the offer is submitted and the spreadsheet is programmed so it automatically shows up, I think, in red. That property, that line, shows up in red if that date is three weeks ago or more.
Mike: Okay.
Jim: So then, every single day, she looks at that one tab, at the ones that are in red. She’ll go pull up that [inaudible 00:23:05] the link to that address in the spreadsheet. She’ll pull it up and see if it’s pending yet. Or if it’s a pending property, she indicates on another tab of the same spreadsheet what the closing date is going to be.
Mike: All right.
Jim: So the point is, all she’s got to do if she enters the data correctly is, every single day, follow up on the properties that show up in red. Look it up and if it’s still active, resubmit the offer, and if it’s pending, move it to a different one, and then set a reminder to follow up the day after closing. If it still shows up as pending the day after scheduled closing, she’s on the phone saying, “Hey, listen. Your other offer fell through. We’re still here.”
Mike: Right. Yeah.
Jim: I don’t know if that makes sense. But that’s how we kind of stay on top of these deals.
Mike: Yeah. Absolutely. Absolutely. I mean, a lot of people . . . I was talking to somebody else about this recently. I was talking about as a business owner, automation. So sometimes we talk about systems or processes. Well, systems and processes, and automation . . .
Jim: No human involved.
Mike: . . . doesn’t necessarily mean a scary amount of technology. It could just be you have a system in place for how a virtual assistant does something. It could be a checklist. Right? But truthfully, I think a lot of real estate investors went from like no technology like five years ago, six years ago, to caveman with laser gun now. A lot of people have technology and they don’t know what the hell to do with it.
Jim: Right.
Mike: So I think the balance is somewhere in the middle. I mean, I think it’s funny that we talk about low-technology means actually picking up the phone and calling somebody. But it’s like this is a relationship business. Right?
Jim: Yeah, it is.
Mike: A lot of people forget that, hey, you have to have a process to get things done. But it doesn’t mean you need to have robotic automation that just happens without you, necessarily. It might happen without you, but it can still happen with maybe somebody else on your team.
Jim: Some human involvement. Yeah.
Mike: Yeah.
Jim: Our entire MLS buying process is all documented and scripted. Like the Google Drive folder contains spreadsheets and Word documents. That’s it. That’s our process for different scripts.
Mike: Yep.
Jim: Again, one of the mindsets I was taught and I totally agree with is you cannot expect what you do not inspect. My wife and I, we run the business together. We used to get frustrated when somebody would drop the ball in doing the business, and a big mindset shift for me was, “I’ve got absolutely no right to be frustrated with a team member or employee if what they were supposed to do wasn’t documented in a procedure checklist or something like that.” Right?
Mike: Right.
Jim: Even if it’s common sense. So taking that level of responsibility, 100% ownership of your business and not passing the buck to somebody else, or you think they didn’t do the job well enough. What that does is it forces you as the business owner to really up your game and think through in a lot more detail as to what somebody’s job is and how to empower them to do it.
Mike: Right.
Jim: What it does in terms of them is enables them to do a lot more increase to volume, because they don’t have to rethink anything. Just copy and paste, put in a first name, done. Right?
Mike: Yep.
Jim: Again, a lot of the stuff could be done with the automation within Podio, and we’re working there. But I’ve got bigger fires to put out right now.
Mike: Yeah. The other thing it does as a business owner is, in the event that you have turnover, which we all do, like somebody comes and goes, you have these processes and procedures for how you do something. So now, instead of having to reteach a new person everything, you can say, “Review these documents,” or, “Watch these videos,” or whatever you did to kind of document that process, “and just let me know what questions you have.” Because at that point, you have almost operating manuals for how you do certain things in your business.
Jim: Not almost. We do. Yeah. We absolutely do.
Mike: Yeah. Right.
Jim: Another thing we do is we like to have two people know how to do everything in the business. So for buying deals on the MLS, there are two people that know how to do it. For putting a listing up, even though my wife is the agent, there are two other people in the office who can do that, who are good at it. Right?
Mike: Right.
Jim: For calling sellers, for taking inbound calls, [inaudible 00:27:08] two people know how to do it. It makes people perform better and it’s just security on our part. It’s irresponsible to not do that, in my opinion.
Mike: Yeah. That’s true. Because most of us as real estate investors, if you’re not a one-man band or a one-woman band . . . which I think we all hope that you get beyond that, so you don’t have a job, you have a business.
Jim: Right.
Mike: But even for me as a small business, there are certain things that happen in my office or whatever, like something happens in the bathroom. Well, it’s like, “Oh, I’ve got to contact the landlord.”
Jim: Right.
Mike: There are certain things that happen that you’re like the CEO, which sometimes you’re the Chief Bottle Washer too. Right? So I think it’s important that more than one person know how to do those things.
Jim: Right.
Mike: I found myself for a long time, my people would come to me, and I was like, “Well, let me just give you the contact information for the landlord, and if you ever have a problem, you contact him. Why does it have to come through me?”
Jim: Right. We’ve got a few rules. One is everything has got to be written. I always ask myself, “How can somebody else do this?” Then, every time we have a problem or a situation, or a challenge, or something like that, we’re always asking ourselves, my wife is great at this is, “How can we avoid this situation in the future?” The answer almost always is a checklist, a system, a process. Put something in writing. Right?
Mike: Yeah.
Jim: Make it known that this could be prevented with something else. Another rule we have in the office, one of our core values is, “Own it,” which means seeing every task through to completion and taking complete ownership of it. One of the things that means is everybody knows that it better not come to me or anyone else, any of their other colleagues, with a challenge, a question, or a problem if they don’t have an accompanied solution. Right?
Mike: That’s right. Yeah.
Jim: Some of the new hires
Even if it’s a solution that they don’t have the authority to make a decision to implement it, they’ve got to have an idea.
Mike: Yeah. “What do you think we should do? What’s the solution?”
Jim: Yeah. Some of the new hires wind up.
Mike: I do the same thing. I need to get better at it. I don’t even know where I heard that at like a year ago, but I started to talk to my team and say, “Look. We can’t grow what we’re doing here without getting me less involved. So don’t bring me a problem. Bring me a solution to a problem.”
Jim: Yeah.
Mike: I think it forces people to think through what they would do. A lot of times in the process of just thinking about it, they solve the problem and maybe don’t even need to tell you that was ever a problem. Right?
Jim: Totally true, man. Totally true. I swear, sometimes when you just write down the problem, literally like physically with a piece of paper and a pen, sometimes the answers jump right off the page at you. The same thing will happen with team members.
Mike: Yep. Well, hey, I want to talk about some of your rehab stuff and your construction process in just a minute. But before we go there, one last thing on making offers on the MLS. Do you feel like when you’re making more and more offers, you start to . . . of course, you could build a bad name for yourself like with agents, that you never actually perform or you always back out of deals.
Jim: Right.
Mike: “That’s the guy that always locks it up with some unrealistic price, and then comes back and tries to renegotiate it 100% of the time.” People can build a bad name. But what have you done and what can people do to build a good reputation so that more agents want to look at them when they see your deals come across?
Jim: Right. One, our offers are solid. The only weasel clause is that three days to put up a deposit. Two, I’ve trained my team members well on estimating the ARV and the repairs, etc. so that I feel confident in the offers that they put out, because 20, 30 offers a week go out without my knowledge. I’ve never even heard of the address. Right?
Mike: Right.
Jim: So it really comes out of training them well, equipping them well so that the numbers that you’re basing your offer on are real numbers. They’re not going to change for that property.
Mike: Okay.
Jim: As evidenced by we backed out of two deals in the last, I don’t know, three, four years, MLS offers, so really our ratio is pretty dang good. I do attribute that to quality team members who have also been trained very well.
Mike: Okay. Great. So let’s talk about the rehab process a little bit. I know that some people in my market, or some common belief in maybe other markets is you don’t get as good of a deal off the MLS because there are so many eyeballs on it. So, therefore, when you rehab, you might have to kind of cut some corners or skimp, because there’s not enough meat on the bones there, or whatever. But I know that yours are not that way. So talk a little bit about your rehab process and how you determine how far you’re going to take the rehab.
Jim: Sure. That’s a big question. So one, I would agree that we typically get better deals that are not on the MLS, through direct mail or something like that. But there are inherent challenges in doing that. But we use general contractors to do . . . So our contractors, there are three models. One, the employees who do the work. Two is to hire the subs directly. Three is to have general contractors who have their own subs. When I say, “have general contractors,” it means they’re their own business owner and they have their own network of subs or employees. Right?
Mike: Right.
Jim: That’s the model we choose because it’s the most easily scalable, and just the way I think. I try to think a little bit bigger, and I do attempt to. So it’s easier to scale more quickly doing that model. That way we’ve got a real estate business, and not a construction business. Right?
Mike: Sure. Yep.
Jim: That’s our model. Then, in terms of how far we take the rehab, we’re doing a house right now that’s a $200,000 house. We left the laminate floors in the dining room. They’re in good shape, but we left them there. We left the Corian countertops in the kitchen. They’re nice. They’re in good shape. It’s $199,000 house.
Mike: Yeah.
Jim: Now, if it were really ugly, we’d put granite in. But we’re confident we’ll be able to leave it there. So the finishes we put in that house, obviously, aren’t the same as the $817,000 house we sold last week. What we do to determine that is really simple, I like to keep things simple, college dropout here, is I like to look at the sold comps. I pull up comps. What’s sold recently in that neighborhood, those price point houses. Take the ones that took more than 20 days or so to sell, I throw them aside. What sold in less than 20 days? What do those houses have in common? What types of finishes, types of design? How many bathrooms? What’s the layout like?
If you do that, that’s how you can literally go into any market and know with confidence what the house should look like, in terms of finishes, in terms of design, without having any experience in that market.
Mike: Yep.
Jim: That’s how we do it in a nutshell.
Mike: Yeah. I think, having rehabbed lots of houses myself, I feel like, especially newer investors, they’re always trying to build a house to make it the nicest house on the street, but maybe the nicest houses that they’ve seen. It’s like, “No. You just need to be one step ahead of the competition in that neighborhood.” Right?
Jim: Yes.
Mike: You don’t need to over-rehab.
Jim: No.
Mike: So it is pretty common. You probably see this too. It’s very common for us to get a contract to buy a house and the house across the street or down the street a little bit is for sale. For us, to wait through that period, we close on and we rehab the whole thing, we put it on the market, and for ours to be sold before theirs and all we did . . .
Jim: At a higher price.
Mike: And a higher price, or sometimes even a lower price if we engineer. But we just beat them at whatever the game, its quality or price, or some mixture of the two. Right?
Jim: [inaudible 00:34:35] Yeah.
Mike: So you don’t need to . . . It’s like that old joke about the two people are together . . . I’m going to totally botch this joke, by the way. There’s a bear that starts chasing them and one like bends down, and starts lacing up his shoes and says, “What are you doing?” He’s like, “You can’t outrun a bear.” He’s like, “I don’t need to outrun the bear. I just need to outrun you.”
Jim: Totally true, man. You didn’t botch it, man. You got it. You nailed it.
Mike: No. It’s something like that. Rehabbing is the same way. I don’t need to be the nicest house that anybody has ever seen in their life. I just need to beat those couple of competitors that are right around me. Right?
Jim: Totally true. Totally true. That’s so important. I mean, our houses, they do sell at the top of the market or above it. Like I wonder how the heck they appraise, but they do. So ours are the nicest in that neighborhood, not the nicest houses in the city.
Mike: Right.
Jim: But in that neighborhood for my exact competition, they are the nicest. Year to date, I think our average sales price was 4% higher than what we thought it would be when we bought the house, which was pretty sweet.
Mike: Yeah. It’s a crazy market right now. There’s stuff selling for prices and people bidding each other up. I’m like, “How did that happen? I don’t know, but I like it.”
Jim: Yeah.
Mike: But we all know that you’ve got to be careful because it’s probably not going to last forever.
Jim: No. It’s not. It’s not.
Mike: Yeah.
Jim: Cool. It’s cool stuff.
Mike: Jim, well, if folks wanted to learn more about you, I know that you have some education out there. You’re teaching people how to model what you’re doing and how to rehab better, and things like that. Where should they go?
Jim: Sure. We’ve got two resources. One is my blog. It’s jimzaspel.com. I imagine my name is somewhere around this video [inaudible 00:36:14] Mike: Yeah. We’ll add a link below the video.
Jim: All right. Another one is that checklist that really prevents you from missing repair items on a house before you buy it is really important. It’s a basic tool, but it’s pretty thorough. You can get that for free at jimsrehabchecklist.com. Jimsrehabchecklist.com, my gift to your audience. My way of saying “thanks” for showing up.
Mike: Awesome. Awesome. Well, we’ll add links for both of those down below the video. Jim, hey, thanks for joining us today. Good to see you, my friend.
Jim: My absolute pleasure, man. Appreciate it.
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