Show Summary

In today’s interview with Tucker Merrihew, we discuss how his model has evolved from rehabbing to flat out scraping lots and building new. In areas where your sales price is far above your build price, and areas where old, established neighborhoods are HOT, this may be a great strategy for you. Tucker shares the nitty gritty on this strategy, as well as how he got started in real estate investing in today’s show. It’s a good one…don’t miss it!

Highlights of this show

  • Meet Tucker Merrihew, Portland real estate investor, and the man behind The Real Dealz podcast.
  • Learn how Tucker’s model has evolved from major remodels to scraping lots and building new.
  • Learn about the importance of not only being flexible, but planning for your business model to change over time as markets shift.

Resources and Links from this show:

Listen to the Audio Version of this Episode

FlipNerd Show Transcript:

Mike: Welcome to the podcast. This is your host Mike Hambright. On the show, I introduce you to expert real estate investors, awesome entrepreneurs, and super cool vendors that serve our industry. We publish new shows each week and have hundreds of previous shows and tip videos available to you. All of which you can access by visiting us at or visiting us in the iTunes store.
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If you’re not already a member, please visit us at today where you can set up a free account in about 30 seconds. Everybody’s doing it. The cool kids and even the nerdy ones. Get on over to Now, let’s get started with today’s show.

Hi, it’s Mike Hambright with, welcome back for another exciting VIP interview where I interview the most successful real estate investing experts and entrepreneurs in our industry to help you learn and grow.

Today I’m joined by my new friend Tucker Merrihew. He’s a Portland based real estate investor and entrepreneur. He’s a fellow podcaster. He has an awesome podcast. If you’re listening to this there’s a good chance you’ve seen his too. If not, you should check it out. He’s the host of the Real Dealz Podcast where he discusses strategies. A little different focus than I have, a lot of how-to stuff. Projects he’s working on in real time, which is great information.

Tucker’s business has changed over time to where he’s doing a lot more new build construction projects. Today, we’re going to share just that. How to shift for rehabs to new builds. How to take it up to the next level where it makes sense. Of course we’re going to learn a lot more about Tucker and all the stuff he does. Before we get started though, let’s take a moment to recognize our featured sponsors.

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We’d also like to thank National Real Estate Insurance Group, the nation’s leading provider of insurance to the residential real estate investor market. From individual properties to large scale investors, National Real Estate Insurance Group is ready to serve you.

Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of 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.

Now let’s start today’s show.
Hey Tucker, welcome to the show.

Tucker: Hey, thanks for having me.

Mike: Yeah, glad you’re here man. Have you interviewed with other podcasters on your show?

Tucker: Yeah. I’ve talked to them. I’ve only done a couple interviews on my show. We all have probably talked to each other at some point. It’s a small community.

Mike: It’s a small world. No doubt about it. I think we saved the best for last. I think you’re the last guy that has an active podcast right now that I haven’t talked to.

Tucker: I guess we’re part of that small circle of extremely active podcasters.

Mike: Awesome man. Before we get started talking about the topic of the day, why don’t you tell us about your background and how you got into real estate investing. You’re one of the fortunate few that figured it out right out of college and didn’t have to go work for the man for 10 years to learn how much you really want to work for yourself. Tell us a little bit about your background.

Tucker: Sure. At the time, I don’t know that I felt it was fortunate because it was kind of a tough road to hoe. I graduated college from the University of Colorado. I went there and played lacrosse at least for a little bit of my tenure there between partying and going to class. I came back to Portland here. Originally I was going to work for a big financial institution in Denver. They had offered me a job, then I went through a multiple interview process. On the second interview, which was a phone interview they told me they decided I didn’t have the personality that they were looking for. Whatever that means, I don’t know. It turned out to be a good thing.

Mike: It had nothing to do with looks, though.

Tucker: No, of course not.

Mike: Who can’t love a face like that?

Tucker: I was like, “What do I do now?” I moved back to Portland, to get my bearings. I saw an ad in the newspaper for a mortgage broker that was going to hire and train you as a loan officer. It sounds great, no experience necessary. It was like Boiler Room the movie. That scene where Ben Affleck walks in and throws the keys on the counter and talks about how cool he is. How much money he makes. Similar to that, then they trained us four a couple of weeks and they turned us loose in the wild. That was a hell of an experience working there. My officer manager, Chris, he actually started there with me as well. Someday we said maybe we would write an HBO series on it, because it couldn’t be on normal TV, that’s for sure.
I started there and I learned the financing end of the business, which I think is really important now factoring into today. After about three years as a loan officer, I started my own mortgage company. That was rock and rolling for a while, then we had a day in 2007, it was August 17 or something, I don’t remember which day exactly. We literally got a call at the office from every bank that we were hooked up with. They said, “Hey, we’re freezing our pipelines, everything that you’ve got approved or set for funding, no go.” As you know, that was pretty much doomsday in the real estate industry. Everybody that was driving BMWs and Mercedes started driving KIAs and Hyundais. There was a lot of people that fell off.

Between that day and August and the end of the year, I tried to figure out what am I going to do now? During that period of time I’ve been a loan officer, I flipped probably a house at a time. I bought a house, moved all my buddies in, renovated it, sold it at the peak of the market. It made a good chunk of change. I’ve gotten lucky along the way and I thought I knew what I was doing, but really didn’t at that point. Long story short, I ended up deciding to close up the mortgage company and point the ship in a new direction and open up my development company, which is called TTM Development Company.

We started buying REOs in 2008. Some short sales, some auction stuff. By the end of 2009 to the beginning of 2010 we wanted to get ahead of the curve as far as requiring inventory. I really put my head down and tried to learn the direct mail game and really learn how to source properties directly from homeowners as opposed to having to go through the easier channel which is the RMLS realtors auctions, things like that. I really didn’t want my business to be controlled by outside parties or outside inventory providers. That’s what basically what happened to loan business. The outside world affected my business and all of a sudden I didn’t have a business anymore.

Mike: You know that’s not going to last forever. Tell me about this. When you were in the mortgage industry, a lot of people got hit in the mortgage industry. They were so turned off by real estate that they went in a totally different industry. How did you know?

Tucker: I stayed in it because I always want to be full time flipping houses, I guess. I was making such good money as a loan officer that I needed that kick in the you-know-what to say, “Okay, it’s time to go full time into this side of the business.” It’s hard for me to abandon the loans fully because I was making such good money that it was like why would I leave this? It’s paying so well, all of a sudden the carpet got pulled out from underneath me. Okay, now is the time to go full time into the house flipping side of the business.

Mike: From that point forward, I guess you’ve seen a lot of different changes. Here we sit at the beginning of 2015, does it feel like, from the mortgage industry, from the sales side, does it feel like 2006 or so to you right now? It feels like we’re getting back to some sloppy stuff.

Tucker: A little bit. I’ve talked about this a lot on my podcast. We have a segment where I basically have a market recap segment where I go over. I watch the market extremely closely because I’ve been through the ups and downs before. I don’t want to be in the same position I was last time when the market deflated a little bit. I really try and keep my finger on the pulse of that.
I think that the biggest driver to what happened in 2007 was the stated income loans were available essentially for everybody. You could fog a mirror and get a loan to some extent. That’s not the case today. I do think stated loan should be available, but for a certain person. A truly self employed person and maybe only a 75% loan to value. That way they have enough skin in the game.

The chances of them ever just saying, “Screw it, give me my property back,” very little if they were going to have that much invested. That also helps support the market. What people pay for property is the function of how well and easy it is to finance. The easier it is to finance and the cheaper it is to finance for anybody to get into the game, it drives prices up. I guess the point is that right now, it is a little looser than it’s been to get loans, but it’s not anywhere close to what was. I think the market’s hot, but I think it’s by virtue of the fact that there’s very little inventory. It’s an inventory driver right now, and it’s not a financing driver.

Mike: This isn’t the purpose of the show today, but there have been a lot more international buyers that are buying rentals and stuff like that. It’s a lot more institutional now than it was in the past too.

Tucker: I think the industry as a whole has grown up a lot in the last seven, eight years. More people, more institutional money is recognizing single-family homes as a legitimate investment, an asset that they securitize their money with. I think a lot of it has to do with the fact that the outside world sees single family home investing as a legitimate investment now.

Mike: Absolutely. Tell me about this. I know you moved in to a lot more new builds and found ways to basically just kind of scrape lots, maybe houses you would have tried to rehab in the past and started from scratch. Is that where you started at? Have you done much wholesaling historically?

Tucker: Yeah, originally when I first really started doing just house flipping, I tried to wholesale at first, but it was 2008. There was hardly anybody that actually wanted to buy. I remember the first real smoking deal I got under contract I thought I could wholesale it for a good check. I couldn’t find anybody to buy. At that point I didn’t know as many people as I know now, but there was also very few people actively flipping houses then either. I was forced to rehab. It was a real simple rehab and we made a lot of money. At that point I said, “Well, I have to almost convince people to buy these great deals. I might as well keep on rehabbing them.”
What we did is we just went after the same product over and over and over again which are the simple three bedroom one bath, three bedroom two bath ranch style homes that are 1,000 to 1,200 square feet. Because they’re so simple, there’s only so much that can be wrong with them. Even if you don’t know anything about rehab costs, you can only screw up your budget so much. They’re just so simple. We did tons and tons of those types of houses, eventually we decided to swim up-market a little bit and tackle the mid range. Once we got into there, we started doing some add on type remodels. In that mid range, there’s a lot of older houses in Portland that have funky floor plans.

We decided to basically gut them, reconfigure the floor plans, dormer where we needed to, add on at times. We did a lot of that. That was really management intensive. There’s a lot of people that listen to my podcasts and are part of our deal finder’s academy that that’s what they’re doing now. I’m helping them through that. As I found, it’s very management intensive to do complete rebuilds or add on remodels. It’s tough. It’s not an easy way. You can make a great living and make great profits, but it’s tough.

Mike: You’re doing it the hard way, yeah. My experience is similar. I’m in Dallas, so we don’t have a lot of really old properties here like you do there. But no doubt there was a time when I didn’t want to go above first time homebuyer price point too far. I didn’t want to deal with burnouts because it was just too much work. I would say at this point, we just got a house under contract. It’s about a half million-dollar house. The medium price point in my market is $140,000. Well above that.
I love burnouts. It’s definitely a lot more work and a lot more risk actually. I think it’s typical of somebody to come in and you get comfortable with it, and then you’re willing to take on more what I call risk. For guys like you and me, after you’ve been doing it for a while, it’s not as risky as what most people would think. You’ve calculated risk, right?

Tucker: Not at all. Probably if I just try to lead up to what we’re doing now. We just took a snap shot of what we’re doing now you would probably think I was certifiably crazy. It’s not what you do. It’s really not. I don’t invest in the stock market. All the money I make I put back in the business and properties, because that’s what I know. That’s what I’m comfortable with. I look at it, and I say, “It’s a no brainer.” Outside person looks at it, and they say, “You’re crazy, it’s full of risk.” It depends on the eye of the beholder, right?
Now we started doing a lot of those add on remodels. We bought a house, and this was the jump off point where the foundation had settled on both sides of the house. The house almost looked like a rainbow. It was messed up. We thought we would be able to do some foundation repair and jack it up and fix the house.
We’ve done a lot of stuff like that. But it turns out the house had what they called blue clay in Portland underneath it. The only way to fix it is you’ve got to excavate out all that blue clay. It basically won’t compact. You don’t have a solid surface to pour your foundation off of. Which is why the house had started to sag on both sides. The only way to fix that is the excavate all that out and bring in new fill, compact it, and go from there. You can’t do that with a house sitting on it.

We basically were forced into scraping the house in order to remove all that blue clay. After we did that, we started building new. We did our first one there and it was a very stressful time, I guess. But I’m glad we had that jump off point because that opened my eyes to how much easier new construction can be than doing those large rebuilds and add on remodels. Now we’re almost exclusively new construction.

Mike: You’ve got a clean slate. With that specific house, you probably bought it not anticipating to scrape it and probably thought you would salvage some of what’s there obviously. Did you make out all right on that one or was that an expensive lesson for you?

Tucker: We didn’t make as much as we wanted to.

Mike: You didn’t lose money, that’s a good sign.

Tucker: No, we made more money than we would have had we just renovated the home. Obviously, it was on the knuckle of the market getting better too. We were the first builder to build new construction in that pocket. We pretty much set the new high water mark. That’s a dicey spot to be in. You don’t want to be that builder that’s the guy that’s putting his you-know-what on the line and trying to set that new high water mark. Fortunately the market coincided with us getting that built, and it carried us through and we got a buyer.
Now builders can’t get enough inventory in that area. We were the first ones. And that was $589,000 I think, was our price that we ended up selling that for. We just kept going up market. We tried to find areas that we could build the least amount of homes and sell it for the most money. The least amount of square footage.
Part of what we do is in an area of Oswego, just south or Portland. It’s probably the nicest part of the Portland metro area. We’re able to build 2,900 square foot homes and sell them for a million bucks or more. No basements. It’s pretty conveyor belt style now. Obviously we put a lot of work in designing our homes and making them high end and really amazing.

We built a great brand for high-end buyers. That’s what we focus on. We focus on high-end new construction. We have sold our last six houses this year again to cash buyers. We haven’t even had to put them on the market. If you look at it from that perspective, very little risk. If you’re not comfortable with the numbers or if you’re not comfortable with the process, you don’t have the experience to get into it, there’s a lot of risk it looks like.

Mike: Talk about what most would perceive a risk of the mortgage side of it. It sounds like you’re probably building homes that are little bit larger than typical for the area. Probably selling them at a premium to most of what’s selling in the area because it’s old stuff that’s not updated and smaller. How do you navigate those waters of the issue of it needing to appraise for the value when effectively there’s probably not as many comps of quality properties in the area and things like that.

Tucker: That was more challenging a few years ago. Now we mainly focus on an area called Lake Oswego. There are a lot of high-end houses throughout there. I just had my own home appraised, and it’s new construction as well that I built myself. They have gotten pretty good at making sure that they are comparing it to other new construction as opposed to some slightly ratty house down the street that may be smaller, that was built in 1945, as compared to this. We haven’t run into many appraisal issues these days. We had in the past. These days there’s really a lot. Every builder in town is trying to get inventory in the areas that we built in. There are other comps to use.

Mike: These are probably not many FHA loans either.

Tucker: No, we just sold a house yesterday for a million fifty. Obviously, that’s not an FHA buyer. That would have to be a cash buyer. The area we focus on too, it’s an A-plus area, so we try and provide an A-plus product in an A-plus area. No matter what’s going on in the market, the people that buy in the A-plus area when they want an A-plus product, they buy what they want. Free market aside, if you provide that product, they will buy it no matter what is going on.

Mike: A lot of people want to live in a hot area but they don’t’ necessarily want an old house. There’s some great awesome neighborhoods in the Dallas area where I live, but I really have no interest in ever living in a 80 to 100-year-old house. That’s part of why you’re doing this. The appeal of something that’s new in an old or well established area. You can maybe add some square footage and make money there. Talk a little bit about how much easier it is to navigate, typically issues like permit issues and a lot of things that you’re up against when you’re trying to rehab an old house.

Tucker: There’s just a lot of retrofitting that has to go on when you’re doing large renovations on older homes. Generally the first thing you have to do at least in Portland, and all over the country really, those older homes have smaller rooms, they’ve got lathe and plaster. They’ve got knob and tube wiring. They’ve got old galvanized plumbing. You go in and the first thing you have to do is rip out all the lathe and plaster, which is a huge mess. It’s a huge pain in the butt. The demo itself is an enormous pain in the you-know-what. They you have to figure out okay, how can I make this floor plan more livable for today’s standards? Usually those older homes only had one bath, maybe one and a half baths. Now people want master suites, right?
They’re going to pay in higher dollars for their house. They’re just as a lot of retrofitting that goes on and then you have to reconfigure a floor plan within an old footprint. Or you need to add on foundation in order to change the footprint, but at that point it’s easier just to scrape it. You just build new because then you’re not retrofitting anything. You’re starting with a footprint that makes sense for the plan that you have. One thing that we do is we really spend a lot of time designing our homes. My wife actually works for me as well. She used to work for another builder in town. She managed all of their design process and their custom home division. Now she works for me, which helps a lot in making sure our homes are really top-notch.

Mike: Does your wife mind you saying that she works for you? Because mine says that I work for her.

Tucker: That’s why she works for me. That would be the way to describe it. She’s responsible for the looks of our homes and the reason why they are so in demand with the buyer. I run the business, she creates the finished product.

Mike: That’s great.

Tucker: That’s the way we have it set up. We put a lot of more effort into the architecture of these new homes too. One of the big rubs right now is infill development has a lot of negative feelings towards it by a lot of people. Whether it’s the fact that they don’t like to see you making money or whether they just want to hate capitalism or whether they just don’t want to see any construction in their neighborhood. They like it the way it was. There are all these different forms of crazy out there.

Mike: I understand. Especially in some of the historical type areas where people want that charm to live on forever.

Tucker: We’ve done rehabs in historic areas and we won’t touch them with a 10-foot pole anymore. You want to put a gun in your mouth most days. We won’t even touch those, but we really do try and make a major effort to make the architecture of our new construction fit in with the older homes of Portland.
Just a quick example, Chris, who’s my office manager and our listing agent, we did a home in northeast Portland. We actually knocked it down, built new and he listed it as new construction in the RMLS. One of the realtors that showed it actually called up RMLS and complained about us that we had listed it as new construction when we should have listed it as a rehab. It was new construction. The point is, is that we made new construction look so good, so almost classic old Portland that he thought there was no way that was a new building. It had to be a renovation. That helps create the nostalgia of old, but the functionality of new.

Mike: That’s awesome. Talk a little bit about getting these leads. Not so much the leads, but how you can justify paying for a house that you are going to knock down. Probably most people that you’re buying from, especially if you’re buying direct, there are a lot of people in my experience of buying houses that call and say, “I have a house to sell but it’s only worth a lot value.” They all think they’re sitting on a pot of gold and it’s worth more. How do you justify paying for a house that you’re going to make go away in a few days?

Tucker: It used to be a lot harder to break that to them. “You know what? This thing is a shack. It needs to go.” But nowadays with as much infill redevelopment that’s going on people make up their mind about that before they call us. Especially in the area that we’re working in now, most people recognize highest and best use might be just the dirt. We really don’t have to fight that battle all that much.
We fought that battle more in dealing with people that maybe had homes that didn’t need to be scraped, but really had to have add on remodels done. If you start talking about blowing this wall out here and moving this there, all of a sudden they think you’re growing horns and you’re the devil. We faced that a lot more with people that had homes that didn’t need to be scraped as opposed to those that do.

We also target people. We are very, very targeted in our direct marketing to the smaller two bedroom, one bath homes or one bedroom, one bath homes that are in those higher dollar areas. At that point, it’s pretty case closed as far as the fact that the dirt is worth more than the house. We don’t really butt up against much of that.

Mike: Give some advice to people that are out there that are rehabbers and have done quite a few rehabs. I think part of what this largely depends on whether this makes sense is what’s the going rate for a dollar per square foot is. Of course you have to be well above the build price in your market. In Dallas for example, you may know more about what the build price is in your market. What is it typically? You’re probably somewhere in the 90 to 100, 110 range?

Tucker: It’s for about 120 square feet. That’s our high end stuff. I hate saying that because it really depends. There’s so much pre work that goes into a new build. We’re talking flat lot, no major geotech issues, no huge foundations. No major excavation that’s got to happen. Just talking simple, flat, 5,000 square foot infill lot.

Mike: Some markets, like where I’m at in Dallas, there’s houses all over the board in terms of dollar per square foot. There are a lot of older towns that you’re buying houses for below build price. Which means you could never build there. It just wouldn’t make sense. If you’re in a market where you can arbitrage build price versus the typical sales price per square foot. If you’re in one of those markets and you have that opportunity, what kind of advice can you give to people on how they should consider adding on versus just a new build?

Tucker: One thing I would look at is what your building permit fees are. In Portland for example, the reason why most of our redevelopment is occurring in at least midlevel price point is because a new lot that didn’t have a house on it before if somebody just partitioned off part of their lot they’re going to build. It costs you $44,000 dollars for a building permit.
You can see how that’s counterintuitive to provide affordable housing in the newer housing in those lower price points. You just can’t make it work, paying more for the permits than you are for the dirt. That’s why builders are mainly focusing on the midlevel to higher end range redevelopment when it comes to construction. We target homes that are preexisting to knock them down, because if you knock down a preexisting home to build new, your permit costs are seven to eight grand as opposed to $44,000. Of course you have your tear down and your removal costs, but it’s minimal in comparison to that difference.

We focus on finding those homes that are tear down and then we focus on those areas where we’re selling for somewhere between 325 and 375 a square foot. Probably is what the retail sales price is in the areas that we’ve focused on. Then we’re building for about 120 of square foot. You could see how we build in our market.

Mike: Absolutely. You can justify paying for a house that you’re just going to knock down and rebuild on.

Tucker: Exactly. A lot of the lots that we paid for, it sounds crazy I’m sure to some people. But we pay 3, 4, 5, 600,000 for a lot. It sounds crazy, right? But it’s just math. You look at the numbers and you make sure that high-end market has a steady stream of demand. For example, we paid just under 500 grand for a lot that we’re doing some geotech work on. It had an existing house on it. We’re scraping the house off, but it literally is almost an acre and it’s virtually a flat lot. It has a panoramic view of Lake Oswego, which is a huge lake in that city south of Portland. You can’t find a lot like that. You’ve got this panoramic view of the lake, and it’s set up above it. It’s crazy. When we’re done with it, it will probably be worth 1.8 to 2.2.

Mike: Wow, that’s awesome.

Tucker: Depending on how it turns out. You just have to do the math and make sure that if you are going higher end with that product that you’re going to put out to market is something that is like a unicorn. It doesn’t really exist but I want it.

Mike: Tell us a little bit about your podcast.

Tucker: I started it, we’re almost in the same class of people starting podcasts a year ago or so. We just had our one-year anniversary episode a couple weeks ago. We just put out episode 50. You’ve surpassed us immensely by a number of episodes. We try and put out an episode a week and you can find it at at Dealz with a “Z”. Or you can find us on iTunes, Stitcher, at all the normal places. If you go to our website we’ve got all the past episodes. You can learn a little bit more about me and find out all the other contact info.

Mike: It’s a great show and I recommend people check it out. We’ll add links for everything down below here. We got just about a minute or so left. Any kind of words of wisdom you want to share with us about the importance of being willing and able to evolve in your businesses as you have? The importance of that?

Tucker: I think that you should always be looking to evolve. A lot of people push that you should start wholesaling. I agree. I think that it gets you in front of a lot of houses. You learn the market, you learn the players. You really start to get some experience. But you should always be looking to evolve your real estate business and grow it. You start with wholesaling, then you start with light rehabs. You get into bigger rehabs, maybe some add on rehabs. You can evolve to new construction.

Mike: I’m sure you probably agree, but most people that I’ve had on the show, a lot of veteran real estate investors, people that have been around for a long time, at the end of the day I think most people would agree with this comment. “We’re in the opportunity business ultimately. Real estate is the vehicle we’ve chosen. But it’s got to change over time and you have to keep your ear to the ground of what opportunities you’re presenting with at that moment.”

Tucker: Exactly. You’re always evolving, as you evolve, things that might not have appeared as an opportunity a couple years ago now look like a great one. It just depends on your vantage point and where you are in the business. You should always be looking to evolve and continue to grow.

Mike: Hey Tucker, thanks so much for joining us today. I appreciate your time.

Tucker: Thanks for having me, my pleasure.

Mike: All right. See you soon.
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