Build a Real Estate Business, Not a Hobby

Mike Hambright: Welcome to the flipnerd.com podcast. This is your host, Mike Hambright. And on this show, I’ll introduce you to VIPs in the real estate investing industry as well as other interesting entrepreneurs whose stories and experiences can help you to take your business to the next level. We have three new shows each week which are available in the iTune store or by visiting flipnerd.com. So without further ado, let’s get this started.

Hey, it’s Mike Hambright with flipnerd.com. Welcome back for another exciting VIP interview where I interview some of the most successful real estate, investing experts, and entrepreneurs in the industry to help you learn and grow. Today, I’m joined by Kent Clothier, one of the biggest names in the real estate investing industry. And today, we’re going to talk about how to turn your real estate investing business from a hobby into a real business.

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Mike Hambright: Hey, Kent, welcome to the show.

Kent Clothier: Hey, man, thanks for having me.

Mike Hambright: Yeah, yeah, glad to have you on. So I certainly can’t do an introduction to do you justice, and I know a lot of folks know who you are, but why don’t you kind of give us some background about how you got into the real estate investing and how you got to where you are today?

Kent Clothier: Sure man. I got involved in real estate investing I guess January of 2003 down in South Florida. I actually came from a grocery wholesaling background, believe it or not, and got into this industry kind of by default probably in a lot of ways your listeners and viewers have where I went to one of the little seminars events and signed up and just became extremely passionate about it, started applying a lot of the stuff that I knew from my previous background, and turned a really small wholesaling operation into a really big wholesaling operation over the last 11 years.

And along that way, we developed some really cool systems and helped a lot of people. So whether it’s lead generation for buyers or sellers, or money, the systems that we’ve developed internally has turned into a lot of really cool products for a lot of other investors out there.

Mike Hambright: Yeah, and I know you’re going to talk about it today. I mean it’s so critical when folks are trying to turn their operation into a business to have systems. Whether you buy a franchise or buy tools from you, or create them yourself, unless you create those systems, you don’t really have a business, you have a job, right?

Kent Clothier: Amen, brother. You said a mouthful right there.

Mike Hambright: So I know you want to talk today. I know you’re really passionate about helping people turn this into a sustainable business and maybe getting out of whatever situation they’re in. Getting out of a job they hate or being able to provide for their family and do things that maybe they never could by working for somebody else. Where do you want to start? Do you want to talk about how to kind of make that transition out of a job into real estate investing for those that are kind of looking to do that?

Kent Clothier: Yeah, I know a lot of different people come at the industry from a number of different angles. I think probably the lowest barrier of entry is people come in whether it’s through a webinar, whether it’s through a book, website, whatever the case may be. They get a little taste, get a little excited, and they go off, and they just start accumulating stuff for a lack of a better way of saying it, and don’t’ really treat it from the very beginning as a business and then they wonder why their aren’t having that kind of success.

So I think probably the biggest thing that I’ve seen over the years, and I’ve certainly experienced it with our students over the years, is that treating this truly as a business, and you know this better than anybody, like a franchise would or any of those types, where you come in and there are systems, there are disciplines. There are activities that you have to do every day. There’s a methodology. There’s a process. Those things are critically important to success in my opinion.

Mike Hambright: So how do you advise people to kind of get started, because a lot of folks a lot of times don’t know where to get started or they know all of the information, it’s just knowledge, and they’ve got to turn that into action and go kind of make that happen.

Kent Clothier: Yeah, I can tell you a book, well, I’ll give you two books here that really changed my life in a very powerful way. One is called the Alchemist by Paulo Coelho, and it is not a how-to book. You can probably read it in about 20 minutes, but when you get to the end of it, it will, if you’re anything like me, will have a profound effect on you, and you’re realizing that the element of time is actually working against you. And so we have a very finite amount of time out here. We all do. And when you come to terms with that, and you realize that, as Steve Jobs said in his Stanford commencement address that we’re already naked. We have nothing to fear. You might as well go for it. You’ve got one shot at this. Go get everything that you can.

When you just kind of come to that realization that all of the things that are holding you back, that paralysis and that flood of information begins to just kind of move out of the way, and you start taking actions that quite frankly scare you. And you know this as well as anybody as I’m sure a lot of people out there that are listening and watching know this is that the life of an entrepreneur is not that we don’t have fear, that their aren’t things out there that absolutely terrify us. It’s the fact that we overcome it and that we fight through it and that is the very first step. I can’t even tell you how many really, really smart broke people I know especially in this industry.

And then on the other side, really, really dumb rich people, meaning that it’s rarely about what you know. It is almost always about the actions that you’re willing to take. And so I would tell anybody that the very first step is just realizing that you’re going to have to do things that scare you, and you’re going to have to understand that time is not on your side. Don’t act like tomorrow is promised. Go push yourself. Go do things. Go get a property under contact. Go talk to a cash buyer. These things are the actions that are ultimately going to lead you to where you want to get to, but nothing will happen if you don’t do those.

And the second book, I would tell you that this book was really powerful for me. It was the E-Myth by Michael Gerber, The Entrepreneur Myth. That book changed my life forever where I began to really look at my business as a business. Evaluate everything I was doing versus what is typically the life of a real estate investor is we get trapped into thinking, well, if I stuff these envelopes and put the stamps on them and hand address them, I’m saving money, or if I don’t paint the house myself, I’m saving money.

And all of these things that, again, work against us from a time standpoint when you just frame it in the terms of you can’t work in your business and work on your business at the same time. So when you start working on it, now you’re actually treating it like a business versus working in it where you’re treating it like a hobby. Those are two things that I can tell you when you start making those mental shift, things happen.

Mike Hambright: Yeah, so what advice do you give to people to just kind of get out of the gate and so let’s just maybe start with lead generation? And I’m a big plan of goal planning. Like if you don’t know what you’re trying to accomplish, in this business, it’s really easy to back into, there’s some fairly tight industry rules of thumb of if you get this many leads, you can convert this many into buys, and maybe every once in a while one falls out with title issues, but you kind of reverse engineer how many leads you need to get. And based on how much money you want to make and what you’re going to do with the houses, whether you’re going to wholesale them or rehab them, then you can essentially figure out how much you need to spend on advertising to hit your goals ultimately.

Kent Clothier: Well, I can tell you I probably have a completely different school of thought than just about anybody else out there. And in fact, I would argue that it’s probably the single biggest reason why we have been as successful as we have over the years is because we just march to a different beat of the drummer here. And I can tell you, we start with the other direction. Very few people realize that the industry right now that about 40 percent of the transactions are happening with cash box. So that is a huge market segment. That is a massive amount of people that are everyday writing huge checks for property.

So one of the big shifts for me is that I found myself when I started wholesaling deals, I was in the transaction business meaning I would buy it or I’d get it under contract, and then I would immediately try and go flip it to somebody, and hope that I found somebody and get it done, and that was the way that I was doing it. Everything changed when we went the other way. When we said, let’s go start with the people that are actually buying. Let’s go start with the people that are paying cash, and let’s just fill orders for them. Let’s just bring the deals to them that they want, and so we started pushing our business that way.

And this is the same thing that I would tell anybody starting day one is that when you start with cash buyers, the beauty of this is if you’re a brand new investor, the cash buyers are already buying. They know exactly what they want to buy, where they want to buy, the price they want to pay, what’s their appetite for rehabs or not, neighborhoods, everything. They’ve got this punch list that they’ve already created, and they buy multiples. So in other words, we figured out over the years that the average cash buyer buys about two-and-a-half houses from us and the same with our students out there, between two and two-and-a-half.

We know that our average wholesale dealer roughly about ten grand. So if you just do simple math at two houses for every cash buyer at ten grand, every cash buyer is now worth $20,000 to us. I want to make a hundred grand this year, I need to go find five cash buyers. I’m five relationships away from making a hundred grand. In order to deal with cash buyers, I have to market directly to them. I have to engage them, and then I just have to kind of back into what they want. But that makes it infinitely easier to go find property when I just know what somebody will pay for it versus the other side which most people are taught, go get it under contract, hope that you got the right price in the right area, and go try to sell it.

And I can tell you from a lot of experience hope is not a strategy baby. That does not work. So I would tell anybody, you start with cash buyers that’s where probably 80 percent of our efforts are spent is in developing cash buyer relationships. And then we just turn around and use the other 20 percent of our efforts in just motivating the market or marketing directly for sellers or properties, MLS, realtors, whatever, to create the opportunities to just fill their orders constantly thus working backwards always.

Mike Hambright: And what do you do when you find more cash buyers than leads. Even if you’re starting with an end in mind, leads are a critical part of the business, finding deals. How do you typically advise people on filling those orders, or if they can fill them all, how to you sustain those relationships?

Kent Clothier: Well, I can tell you what we’ve found, and this isn’t a hard fast rule. Every market changes a little bit in ebbs and flows. But the hedge funds over the years have proven to be very, very effective. What I tell my students and clients all over the country is act like the hedge funds, and here is what I mean. The hedge funds don’t know anything about real estate. They are certainly learning over the last couple of years, but when they came into this market, they knew nothing. All they knew was there was an opportunity. The one thing the hedge funds absolutely know how to do is how to sell money.

So take any hedge fund, they all do the same thing. They’re coming into Dallas, or Memphis, or San Diego, they all do the same thing. They issue a press release. They get on the news. They get in the papers. And they say, Black Rock to invest $50 Million in single family homes in the next five years in the San Diego County. For more information, contact [email protected]. So immediately, their phones are ring off the hook with everybody and their brother calling them trying to figure out what they want to buy. So we have found the exact same mentality can work for us.

When we have an overwhelming demand from our cash buyers, and our average cash buyer probably has $500,000 to a $Million to spend. Well, if you’ve got ten of those guys, you’ve got anywhere from $5 to $10 Million. And so now you go call a few realtors, you go call a few wholesalers, you go contact a few people and say listen, I’ve got $5 to $10 Million burning a hole in my pocket that I’ve got to spend in the next 7 days, you’ll get some attention. And I’m certainly over simplifying it, but for the sake of time, that’s the concept is that money talks. Money can absolutely motivate a market.

And a lot of people are very fearful, because they’re like man, I don’t have the money. Well, it’s not about having it. Technically, the hedge funds are selling somebody else’s money as well. And what we’re doing is the same thing, right down the path.

Mike Hambright: What are your thoughts on folks that have basically started and they just can’t get that traction? I mean one of the things about real estate investors is typically they’re independent. They tend not to communicate a lot. For newer folks, what kind of advice do you give them to kind of build community in their market and start kind of embracing into the local real estate investor community?

Kent Clothier: Well, I would tell you that have you ever read the book, ‘Think and Grow Rich’? And I know that a lot of people claim that they have read it, but…

Mike Hambright: They own it.

Kent Clothier: Right. They own it. It’s on a shelf, but I mean actually read it. One of the most powerful concepts Napoleon Hill talks about in that book, the most powerful concepts of the wealthy quite frankly is the power of masterminding. You are a product of the people you surround yourself with. That is a vital component of being a successful entrepreneur is taking that very, very seriously. This is not a solo sport, not at all. You’ve got to take very seriously the people you surround yourself with and the information that you’re feeding yourself, because you are a product of what you believe.

So if you believe that there’s no deals out there, if you believe there’s no cash buyers, well, you’re going to make that real, or you can sit there and surround yourself with people that are playing at the level that you’re playing at or much higher, and follow their lead, and do what they do. I can tell you that on your local market, there are certainly, they don’t even have to be involved in real estate. There are entrepreneurs, there are people that are playing at a very, very high level, and what I have found is that we love talking about ourselves.

As an entrepreneur, I can tell you I get so much joy out of reaching down and helping somebody get to the next level, kind of sharing with them what was shared with me. I have yet to hear of anybody getting there by themselves.

Mike Hambright: No doubt about it.

Kent Clothier: I’ve always heard of people, somebody showed me the way and pulled me up, and showed me how to do it. And so I think that most people just need to realize that those mentors exist. They want to do that, but you have to be willing to go and seek them out. If you don’t have a group like that, well, you need to put the group together. You need to go set up and meet up, and you need to go invite the people. Here is a good rule of thumb, if you’re the smartest person in the room; you’re in the wrong room. It’s that simple.

You’ve got to be the person that’s getting pulled up when you’re brand new, and shown the ropes, and taking the actions, and doing the things that it takes. Like I said, that’s scary a little bit. It’s uncomfortable to go and ask somebody for help. That’s one of the actions that I was talking about that people don’t want to do, but I tell you that if you do it, and you take it very seriously, then you’ll get there much quicker. I mean that’s part of franchising, that’s part of mentoring, that’s part of coaching, that’s part of masterminding. That whole concept of there are people to help you is really, really powerful.

It’s very rare that somebody gets there sitting around at their kitchen table all by themselves and trying to figure it out.

Mike Hambright: You know what’s funny is, in my experience, a lot of people that you aspire to be like a lot of times, they’re very open to sharing their information, and most times, and the fact is most people are afraid to ask them. So when you go ask somebody, if you’re that one guy that ends up asking them, they’re happy to help. And they’re kind of thinking I can’t believe more people don’t ask me for advice on this, or help to get started, or whatever it is.

Kent Clothier: It’s unbelievable. I’ve been very fortunate. It’s kind of ironic that a lot of the “gurus” out there are actually students of mine where I kind of mentored these guys because I’ve had my fair share of success in this industry and have certainly made enough mistakes that I feel like I could help. But to your point, even at that level, guys are like, oh, wow, I didn’t realize that you would help me. I was like, I’ll gladly help you. It’s just part of when you get to a certain level, at least in my experience, you just realize, man, it’s pretty cool to kind of pull back the curtains and say this is a lot more simplistic than you think it is.

And you know what, that’s a really good point. Let me just say that one of the things that I often share with people is that this busy is very, very simple. It’s not easy, and I don’t want to imply that there is not a lot of hard work, but I will tell you that it is extremely straightforward. Between myself and hundreds of others and yourself as well, it’s broken down into very specific actions that you just continue to over and over in a repeated fashion, and you’ll start to see success. This is not rocket science, not even close.

Mike Hambright: It’s funny, because with your wholesale background, I came from a retail background. I was involved with a lot of merchants for like large retail companies. But we were just sourcing product as cheap as we could possibly get it, quality aside, and then selling it onto somebody else, so you’re just making a market. It’s funny that I came into this business, and I know you did, too, with no experience, but you can use those fundamentals to take from other businesses or other industries. And it’s pretty simple. There are really just four or five main things. You need to have money. You need to have buyers, you need to have sellers, and you need to work hard.

Kent Clothier: That’s it seriously, and especially as brand new investors, I don’t think this is unique to the real estate industry, but I think new entrepreneurs in general, they believe that this must be harder than it really is, right? There is some comfort in telling themselves that success is really, really hard and difficult, and they find a lot of comfort in the fact that there’s this huge mountain. And the reality of it is it’s not that hard. It’s very straightforward. And the beauty of our industry is that it’s extremely profitable if you would just get involved and start taking actions every day.

Mike Hambright: That’s the key is, like you said, when we kind of started off by, taking it from a hobby to a business is that sometimes the best and it’s the worst thing that can happen to a new real estate investor is that they get a big juicy deal right out of the gate, and they think, wow, this is easy. And then they think it’s going to happen again tomorrow without putting in place a structure in place to make it happen again.

Kent Clothier: Totally, I can tell you that a key component that I found over the years that really kept me into a position where I was building a business was it became a game where I was like, I want to fire myself as often as I can. What am I doing today that I don’t want to do that has to be done that I can put somebody else in place. Fire myself as often as I can, and that rule of thumb has treated me and my family very, very well. And that would be the same that I would tell anybody. Ya’ll are great. You just did a big deal, wonderful. Now how can you do the same deal with even less involvement on your part?

What are the components that have to be done? What are the things that have to done that led to that deal? What did you do that you can measure, that you can improve upon, but how can you do it where you’re not involved? And that philosophy, that way of thinking as long as you’ve always got it in place, that’s how you’ll start to build a business.

Mike Hambright: Awesome. Well, Kent, any thoughts on kind of where the market is now? I know it’s different all across the country. A lot of us are kind of feeling the pinch of finding deals which is interesting in your model, you focus on finding buyers first, to the point to where I feel in my system, we’re classically trained to buy deep. And oftentimes, we’re wholesaling to some other local outfits that have always focused on what you’re doing in finding those sellers that are willing to pay a little bit more, maybe they have a different strategy exit in mind.

They don’t analyze a deal like we do. And so many times, we’re actually wholesaling on to another group that’s wholesaling them onto somebody else, and we’ve decided that we’re okay with that, because they’re able to get it done somehow, but shame on us for no figuring that out a long time ago. But I know that the market is changing in a lot of different directions throughout the country, but certainly it feels like it’s tightened up over the last year or so. Where do you think things are going?

Kent Clothier: I don’t think there is any doubt that it’s tightened up, but I definitely think that, and I’ve shared this with a lot of the people that come and people that you and I know inside of Mastermind or what have you. It’s always a product of what you believe the market is, period. So I can tell you that one of our systems that we use is our fine motivated seller system where it’s a vacant property database, high equity, and all of that kind of stuff. And in that database alone, we have 2.2 Million vacant properties every month across the country.

We have $29 Million properties that are owned free and clear. So when you look at it at that macro level and you look at it, and wow, this is 29 Million houses here, and I’m just trying to buy and sell a thousand. From that perspective, I can tell you, I don’t feel personally like it’s really tightened up too much for us. You may have to be willing to go a little bit further than you typically had to go. It’s not low-hanging fruit anymore. We actively market. We spend a lot of money to generate leads, and we invest a ton of money there, but at the end of the day, the opportunities are still there. It’s just that you have to work a little harder to get them, and there is a lot of them.

And there is still a lot of untapped potential. I can tell you that vacant property database for us for the last year was a game changer for us, because suddenly, we were able to get to properties that other people just didn’t realize. My perspective is a little bit different because of that. Prior to that, when we were duking it out with everybody in the market, and we were all competing for the same thing, yeah, I probably would have agreed with you. Now we just see it a little different.

Mike Hambright: Awesome. Well, Kent, any last minute thoughts on advice to people to kind of take action and get started?

Kent Clothier: Yeah. We have a saying in my company that the time is now. We’re extremely passionate about it. We live it. We breathe it every day, and I can that those are words to operate from every single day is that do not ever con yourself into believing that you’ll get to it next week, tomorrow, next month. Realize that there is a massive opportunity today. You’ve got a chance. In this industry, I love this industry, because of how much wealth can be accumulated so quickly. Anybody can do this, and the time is now to jump in and just get it done.

Stop messing around. Stop telling yourself you will eventually, or whatever the case may be. Just do something today and every day from this point forward that really scares you but leads you towards that goal. That would be my advice.

Mike Hambright: That’s great advice. It’s funny, some of the people I know, you probably hear the same thing, a few years ago, some people I know that wanted to get started, well, the market is too bad. I want to wait until it improves. Now the market is too good, and I’m hearing there is no inventory. It’s a mental thing. You just got to jump in.

Kent Clothier: You got to jump in. I mean there is never a perfect time, but there is always opportunity, especially in the game we’re in. We make money whether the market is at the top or at the bottom. We’re always making money, because we’re selling in a secondary market. What you hear on the news is irrelevant. It just doesn’t matter. We’re in a completely different ballgame.

Mike Hambright: Yep, absolutely. Hey, Kent, thanks for joining us today.

Kent Clothier: Hey, no problem. Glad to do it. Take care.

Mike Hambright: All right. Stay in touch.

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