To be successful as a real estate investor over the long haul, it’s critical to realize that you are a business owner, and it’s not a hobby. The only way to treat your business as a business is through automation and systematization. In this episode of the FlipNerd.com Flip Show, Zack Childress, automation expert, shares not only his story of implementing automation into his real estate investing business…but tips on how others (YOU!) can do the same! We can’t talk about the separation of “business” vs. “hobby” enough…so don’t miss this show!
Mike: Welcome to the FlipNerd.com Podcast. This is your host Mike Hambright. And on this show I will introduce you to VIP’s in the real estate investing industry. As well as other interesting entrepreneurs who’s stories and experiences can help you take your business to the next level. We have three new shows each week which are available in the iTunes store or by visiting FlipNerd.com. So without further adieu let’s get 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 our industry to help you learn and grow. Today I am joined by Zack Childress. He’s a real estate entrepreneur, author, speaker, mentor and much more. Zack wears a lot of hats just like a lot of the rest of us. And he’s a systems and automation’s expert that teaches others what he uses in his very own business. So today we’re going to talk about analyzing where you are in the life cycle of your business and only from that point to start looking at ways that you can automate and maybe start to remove yourself from some aspects of your business. None of us got into real estate investing to be a slave to our own business or job and automation is important for you to be able to take it to the next level. Before we get started with Zack though let’s take moment to recognized our featured sponsors.
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Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions as real estate investing can be risky.
Hey Zack, welcome to the show.
Zack: Hey, thanks for having me.
Mike: Yeah, yeah. So glad you’re here. You know I talk a lot about, I mentor a large group of people, and we talk all the time about how to treat your business like a business and not a job because most of us left the job for a reason. And so automation is really important and I know you’re the master at that. You’ve got a lot of things to share with us today. Before we get started though why don’t you tell us about yourself and kind of at what point you started to realize or understand how important it was to kind of automate your business?
Zack: Well that is the day, as I say, the awakening happens. But I started like most everybody. I’ve gotten a couple of courses off the TV. That never really inspired me into do anything. But I had moved to California. A guy from Alabama moved to California. I didn’t know what I was doing. I ended up at a seminar. That’s how it happened. And they started talking about all the different ways to invest without money and without credit. And I thought, “Lord this is it for me.” And it was. It was. Twelve years ago, that’s how it started and I jumped in. I mean I jumped in face first into this thing because I realized that for me to make this work this had to be it for me. Like there couldn’t be a plan B. I had to make this plan A and the only plan. And I jumped in full force. Now this is in the Bay Area of California where I started all this. Vallejo, Sassoon, Fairfield, Vacaville, Walnut Creek, Concord, Brentwood. That whole area there.
Mike: Where all the cheap real estates at.
Zack: Yeah, right. Yeah the only cheap real estate I got into was when I went to Sacramento and started doing it. And then cheap there was like a quarter of a million dollars. But it’s where it happened for me. My first year out was really a big moment for me in my life because within six months of doing this business I literally was able to walk away from my job. I was like, “You know what? I don’t want to do this anymore. You guys can have this. I’m going to go build my own business.” Now I’ll tell everybody the same thing. It was the scariest, but also the most exhilarating moment of my life. It really was because here I had left the comfort, as they so-call call it of Corporate America, which is the shackles of you get benefits. And I was taking that journey to doing it on my own. And I look back 12 years from now and I think to myself, “Wow what a great decision I made in my life.” Because even though we sometimes see things so fearful and we see things as so cloudy cause we just don’t know everything yet. For most people in life they never push forward. Because they don’t see the clear picture.
Well, I realized a long time ago the reason you can’t see that clear picture is because you haven’t started that journey yet. You haven’t figured it out. And as long as you stay back and you never move forward it’s always going to be cloudy because we have to fight through the clouds. And that’s what I did. I faced it head on. Now here’s the beauty of the whole thing. I jumped into this thing like I’ve been investing for 20 years. I didn’t know how to do anything small. I figured if I’m going to do it, let’s do it big. And I remember I went out and I started recruiting people from my local REAs. And I would tell them, “Hey look, if you’ll come work with me I’ll give you half of every deal I do.” And I thought, “Well that’s the way to go.”
Next thing you know I had a house. I had a four bedroom house. Three of the rooms I had cleaned out, put lawn chair furniture in there and had the old tomato vine voice over IP system back then. And I had them all in these rooms. Just calling. Calling. Calling. And I had 12 people working out of my house at that point, all being paid commission, solely on deals that got closed. And that was how I went from working a job making $40,000 a year to making almost $900,000 my first year out.
Mike: Wow. Wow. That’s awesome.
Zack: Because of leveraging. That was when I realized systems.
Mike: Yeah. So before you left your job what did you do?
Zack: I was what they refer to as a business developer. Really what I did was I sold lumber to contractors. So I drove around The Bay in a little yellow truck and met with contractors and sold them doors, windows, moldings, faucets, hangers, lumber, beams, whatever they needed to build a house. I had no clue that that was going to have such an influence on the direction I was going. Right? Because the company I worked for sent me to estimating school. And blueprint reading school. I just thought, “Okay it’s going to make me better at what I do.” I didn’t realize, fast forward, now I can look at a blue print to build a house and say, “Okay, here’s all the materials I need.” So it benefited me.
Mike: What do you think influenced you to kind of go big out of the gate? To like just have that vision? A lot of people obviously start on their own and their doing everything. So you kind of had the opposite. What influenced that?
Zack: You know I’ve been like that my whole life. Even when I got in, when I moved to California, I got into that company. It was called Meeks Lumber. They gave me a territory that was doing really small numbers and they said, “Go out and sell lumber.” Well I remember I went home that night and what they told me to do was call all the contractors. Well I had a different approach. I said, “Well if I call all these contractors I’m going to be nickle and dimeing myself slowly up.” So I went down to the building departments and I pulled a list of all the building permits that were pulled for like 5 million, 10 million, 3 million $2 million. And I went straight to the biggest builders there were. And those were the guys that I went and built relationships with. And so in one year I took a half a million dollar a year territory to $3 million and then it went to $7 million. So I’ve done it my whole life.
Mike: Yeah. Yeah. That’s awesome.
Zack: So I’m just, I’m wired that way. It’s like okay I can either do this slow or I can go right to the top. Here’s what I know when you go right to the top. If you succeed, you succeed big. If you fail, you fall hard.
Mike: But fast. I mean who in real estate, there’s so many people that fail and usually failure more often than not means that you never got started, for a lot of people.
Zack: That’s true.
Mike: So it’s like well if you’re going to fail why not fail fast? Not necessarily fail big. Like you get wiped out and decimated financially.
Zack: No, no. Not at all.
Mike: But if you’re going to fail who wouldn’t want to just fail fast and get it over with?
Zack: Mike, I say this and this is important. Through my journey and I’ve had the beauty like yourself to talk and hang out with highly successful people. And what I’ve learned is this, is they do one thing different from the average person and what that is is the speed in which they implement what they learn. It’s a very small little gap but that speed of implementation is done for a reason. And it’s because they know not everything they try will work. So they would rather get it started now to know if it’s going to succeed or fail so that they can either move it out of their life and start something else or put everything they’ve got into it because it will succeed.
And I was taught that years ago from my Godfather on the golf course. He used to have me drive him around while he drank and hit golf balls. And he used to share that with me. And maybe that had a big influence on the way that I am with business today. You know I want to go all for it. If it works, great. If it doesn’t, I’ll try something else.
Mike: Yeah. That’s great. So talk a little bit about, I mean it’s really that kind of same attitude that started to feed into the automation side. Like in order to go big, in order to think big, you’ve got to think beyond your own capabilities and capacity, right?
Zack: Well, and that’s a good point. And that’s where like years ago I came up with the PSA formula. P plus S equals A. And that what actually kind of unfolded in my own journey because as I was growing massively and growing big and got into an office and had all these people, I thought, oh look at me. I’m a big business owner. I’ve got staff. I’ve got things going on. We’re doing sometimes 10, 12 deals a month. Sometimes we were doing 14, 15 deals a month. I was like, “This is amazing. Look at all of this.” Well then I woke up one day and I realized I didn’t have a business. The business had me. Right? It controlled me. Because if I didn’t go in I couldn’t do anything. And this was along my journey.
I call it the four tiers of investing because I started as a tier one investor, which was wholesaling. Going out contracting properties, selling that contract for an assignment fee. And then I moved into a tier two which was the lease options. You’re only controlling properties for cash flow without ever buying the property. And then moved into tier three which was fix and flip. So I had all three of these going on at one time. Tier one, two, and three because ultimately I wanted to be a tier four, which was passive investing. But I just wasn’t there yet my first year out. But when I was running all three of these different tiers you know, one side of you is excited because you finally left your job. You’re independent. You’re making money. But then one day you’re having this aha moment. For me it was two and a half years into it. Two and a half years into this thing I wanted to go on a 30 day vacation and I couldn’t because here I built this business. We’re doing millions of dollars a year. But if I leave there’s no one here to manage, run the business.
Mike: It all stops, yeah.
Zack: It all stops. And that was a gut blow for me. It actually it really pissed me off to be honest with you, because I had this awakening moment in my life that this whole concept of owning a business was not what I had. And that was when I sat back and I started realizing, “Well why are franchises so successful?” Like what you’re talking about. And what makes them highly efficient? And that was when I realized that everybody in my office they were all coming to me for answers. How do I do this? How do I do this? What do I do here, Zack? How is this? How is this?
Even though it made my ego feel good it did nothing for my lifestyle. Right? You know my ego was running the business when I should of let go of that ego a long time ago and just focused on the lifestyle that I wanted. Which meant letting control go. Putting processes in place which is the P for the PSA formula. The process. Looking at every single component of my business and defining what is the process that makes that process work. What is the A to Z step to that? Not the A to Z to the whole business which is what I was looking at because that was what was in my head. It wasn’t what was in their heads. But what was each component? Like, how did we do direct mail for out of state owners? What was that process? How did we do direct mail for instate landlords? What was that process? I’m talking 186 processes is what I came up with.
Zack: Yeah. So that was where I said, “Okay now I have an SOP. Standard Operating Procedure to my business. At that point was when I realized that I was moving forward with a business plan, was at that point. But that would of never of happened if I wouldn’t of wanted to go on that vacation and realized I couldn’t because it made me reestablish my business. Then what I realized is just because I have the process doesn’t mean that I’m out of the whole equation.
And that’s where I realized that every process has to be systemized because one person could take the process and deliver it one way, where another person could take it and deliver it a whole other way. And if it wasn’t systemized. And here’s how I define this and one of my mentors said this to me. He said, “Zack, you know that your business processes are systemized when you can walk in and fire everybody that day and hire a whole new group of people tomorrow. And they can step in and run the business.” And I thought, “That’s a great point.”
Zack: Right. I need those types of systems in place that literally checks and balances. When somebody does something it’s logged. So if they don’t come in the next day another person can step in and follow the system and just keep running everything organically in an essence. And so I did. That was what I focused on. Process. Systemize. Process. Systemize. Process. Systemize. And then that’s when automation stepped in. That’s the A to the formula.
And this was right about the time I bought a software company out in the Bay Area of California. And one of the guys that I got with the company was an analyst as they call them. But really what he did was he went in and looked at companies and he said, “Okay you can get rid of these 20 people and build this software.” Well I inherited him with the company. And so I had him come up to Vallejo, which is where my first office was, and had him look at what we were doing. And that’s when he started laying down automation. And let me say this, if it wasn’t for the automation, there’s no way I would of gone from where I was to where I am today as fast as I did. Without a shadow of a doubt. It wouldn’t of never happened.
Zack: Like for instance, I had two girls in my office. I paid them $35,000 a year. Two girls, 70 grand a year I paid these two girls to literally come into my office every single day, stand in front of a fax machine and send offers all day long. Monday through Friday. That was their job. That’s what I paid them to do. Well obviously he came in and he was like, “Whoa. Whoa. We can build software to do this.”
Zack: I was like, “Really?” And that’s how the PSA formula came to be. And that’s when we started automating all these systems. We started automating processes. Now let’s be clear. Automation is thrown around very loosely in our industry. You can have an automated lifestyle but there has to be some physical components that handle the communication back and forth. But let me say this, there is a ton that we can automate. But there still has to be checks and balances from human nature to make sure that those processes are being taking cared of.
Mike: Absolutely. Yeah. Yeah. So talk a little bit about I guess one question that a lot of people have is, well let’s kind of go through. We said we’re going to talk about where you are in your life cycle, your kind of business life cycle. So talk about, give some examples that people, based on where they’re at, some of the things they might consider trying to automate or systemize.
Zack: Great point because you know most people they start off in real estate with one or two ideas in their mind. The first idea is I just want to make money now. Right? Like I got to pay my mortgage. I got car payments coming up. The kids got to go to school. I need money now. The second one is the person who steps in and says, “You know what? I’m ready for retirement. I need to start building some long term wealth now.” That’s really what we run into the majority of the time, is those two types of people. And the heavy end is the person who needs money now. That’s typically about 80% of who we see in the market place. For that person, when they’re getting started out, we always say, “Your life cycle is at tier one investor.” That is your life cycle starting off. But it’s very important that you understand that as a tier one investor in that life cycle to get to a tier four investor you can’t get stuck in tier one, which is what I did for two and a half years.
The next thing you know you’re in it. You’re doing it and you get stuck there. So you have to be able to remove yourself very efficiently by automating as many components as you can, which is the day to day monotony. The task management. Using virtual assistants. That’s an outsource process that we do classify as automation because you’re not doing the work. There are other things that we can automate, especially as a wholesaler, like task of deliverables. There’s a great software out there. It’s free. You can put it on your computer and it’s called, TimeDoctor.com And Time Doctor will allow people to start to manage their task job efficiently without thinking about it constantly. So it just keeps them on track of what’s going on.
You know some other things is like technology and I know there’s all types of technology out there. But when we’re automating for a wholesaler, it’s lead generation. We have to automate lead generation through landing pages and lead services online so that they’re not spending, because if we wanted to sit here and talk about every way to find a lead we could probably, between me and you Mike, we could probably come up with 75 to 100 different ways to find leads. And we don’t need all of them to find one lead a month.
But the point is a lot of those requires manual labor. A lot of those require manual labor to go out source leads. Now if they’re going to do direct mail that’s fine. But what happens when the direct mail starts coming back in? They need to start automating some of the monotony. Like the in-bound calls. Like a call center in place with a script, pre-established for them. So that they’re only dealing with the most highly motivated people. Another thing that we like to automate is our offering process. One of the biggest things we do is automate our offering process. So we built software that will literally send out 7,000 offers in 2 minutes and 58 seconds.
Mike: Wow and is that particularly for MLS type deals?
Zack: It’s anything. It’s anything. Anything we can load into it. We can establish an offer process with built in follow up sequences and cover letters and all types of stuff. And the reason that we do that is because there’s two fold when it come lead gen, right? You have private leads and you have public leads. Private leads are the leads we have to go out there and get. Public leads are the leads that are on MLS. We can export all those out and make offers to them. But here’s the equation. There’s two ways to target these lead gens right? There’s the old traditional way which says, “I’m going to look at a lead. I’m going to drive my car over to the house. I’m going to go look at the house. I’m going to come back. I’m going to research that whole thing. And then I’m going to make an offer.” Nothing wrong with that.
But when we introduce automation it’s the speed of implementation in which we can yank the low lying fruit out of the market the fastest. So where that persons focusing on that one deal I’ve already made 3,000 offers. And so what that means is am I get 3,000 accepted? No. I’m not. I mean they’re too low. You know what I mean? I’m only pulling the low lying fruit out of the market which then let’s say I can make 30, $40,000 off of that low lying fruit. Well now I just created my marketing budget to go into that market and explode my marketing campaign now to then pull in the traditional leads, the ones I have to spend time researching.
So these are just some automated processes. Like we’re a big believer in automating the REO leads because I can’t stand getting on the phone with agents half the time. So I’d rather just click some buttons and pull REO leads right from the Banks vault, with buyers and lead generation and direct mail management. All of these types of technology and management with lead pages and auto responders. You start pushing all that together. You start to create more of a systemized automative process that allows that tier one wholesaler to then manage his business. Not be consumed by it but to manage it from a distance. And say, “Okay. This looks like a deal. That looks like a deal.” And just deal with the flow process.
Zack: And that’s what we’re ultimately trying to get all of our students to do.
Mike: Yeah. Yeah. So talk a little bit about how people go from new or doing low volume to being able to implement some of the things you’re talking about here, because as I know and you know it takes a long time to learn those things and get them in place for the average person. And so how do they start to move in that direction? What are the kind of the baby steps they need to take?
Zack: Good question, because baby steps for me is when we look at the, there’s three forms of income all businesses have to have. And this is where I try to help everybody understand. Form one is what we refer to as A Capital. A Capital is start up capital. Every business needs start up capital. Even new investors, because why? Because what you just said. It takes time and efficiency to build all these tools and systems in place. So you’ve got to have start up capital. That capital is either to invest in yourself, your business, your education, or whatever to get you off the ground.
But then they’ve got to have a second form of capital which gives them the ability to do what I just said. And that’s called stabilizing capital. And that is consistent income coming in every single month whether they do a wholesale deal or not. Now that income is typically thought of as passive investing. Tier four investing. Buy a rental, have cash flow. But the new person starting out doesn’t have the ability to go buy rentals. So we classify that from tier two. Where start up capital comes from tier one. Stabilizing capital comes from tier two which is lease sandwich lease options. Wrap mortgages. Subject two’s. Contract for deeds. Contract for land. Being in Texas, you guys have to deal with subject two’s over there because you can’t do lease options. But all over the other rest of the country we can do sandwich lease options. This allows us to control property without ever buying it, to sustain the cash flow off of it. So if I can build 10 of these and let’s say I’m making $300 off of each one.
Now I’ve got $3,000 a month coming into my business consistently, every single month that I can now spend in a budget for systems, tools, platforms, things like that. So as a new investor they’ve got to move from tier one to tier two as fast as possible. And how do they do that? Marketing. Marketing. They got to do one deal. Do another deal and keep marketing. And the best advice that I can tell the new person is this, is that when they get a lead that is 95% leverage, meaning it’s worth 100 and it’s 95. Don’t throw it in the trash can. That is your tier two lead. That is how you build the cash flow. You can sandwich that deal because no one else wants it. And you can abstain the cash flow.
That’s exactly how I built my business. I went from wholesaling to tier two, to where I built up almost $20,000 a month in cash flow for houses I never bought. And that $20,000 a month is what I exploded into my business for hiring people, moving into an office space, buying systems and tools and processes, and so forth. But it’s taking the new investor from doing one or two wholesale deals to then moving their knowledge base into how to control properties to create cash flow.
Mike: Okay. Awesome. Awesome. Can you talk a little bit about in terms of where to automate around what people like or don’t like in terms of the components of their job? Their business. Their business. Not their job. Their business.
Zack: That’s right. I was going to say, “Well it’s not a job.” It’s an adventure if anything. We said this earlier, it’s a great opportunity. You know that’s a great question because I don’t, and I don’t want to sound like an attorney here. But I don’t know if there’s actually one answer that would answer that for everyone because we have to look at it from a SWOTT point of view, right? Strengths, weaknesses, opportunities, threats, and trends.
And one of the biggest things I always tell people is to find your weaknesses. What is it your weak at and can you partner with someone? Or is there a system or tool that will overcome that weakness? Now I will tell you this from all the students I’ve worked with over the years and it’s been a lot. One of the things that always frustrates me the most is the student that wants to do this business so bad that they’re afraid to pick this thing up right here and call people.
Zack: They’re terrified of this. And for instance I’ve got a student in Texas. It’s in Killeen, Texas. Do you know where Killeen is?
Mike: Yep. Absolutely. Okay her name is Dee and I mean just the most wonderful lady you’ll ever meet. But she was so afraid to talk to people. She just didn’t want to do cold calling, right? And I said, “Well Dee, if you won’t call people then how are we going to get leads to you?” Unless we build a front end automated system. She said, “If they’ll call me I’m happy.” So literally we spent the week building a direct mail process, driving them into a landing page that took them to a call center, that the call center pre-screened them, and then put them on her expecting a call from her.
So now she didn’t feel like she was cold calling. We automated that process. The first week out she got a deal. It was a house worth about 40,000. She’s texting me. I’ll never forget this. I’m at a seminar and I’m teaching. And she’s texting me. She’s like, “Oh my gosh. It worked. What am I supposed to do?” So when that night came I said, “Well offer them $5,000.” Well she was like, “They’re never going to accept that.” I said, “Just offer it.” Five grand. They accepted it. And then now she’s in the groove. She’s now in to a four plex. Doing other deals. Because what it was it wasn’t that she was broken. Like you said we just had to figure out what she was weak at and build a process around that weakness to put her back in control.
Mike: Yeah. Yeah.
Zack: And that’s consulting is all that is. And you know as well as I do every person is different. Now the problems may be the same. The solutions may be the same but every individual sees their problem as a mountain. It’s the biggest mountain that they’ve incurred in their life.
Where to us it’s just a little stutter. Like no, no, no. That’s no problem. Let’s just do this, this, and this and we’ll get around it. But everybody is different and what I always say is this. Is what you think is a mountain is only a mountain because you haven’t gotten the education enough to understand how to get around it, over it, or through it. And that’s really ultimately coming from just being in this business, doing something everyday to keep this business running. Educating yourself. Read a book. Watch a video. Hang out with Flip Nerds. Learn something that’s going on here to keep your business moving forward.
Mike: Yeah and a lot of it is just the confidence of seeing it happen once. And then you’re like, “Oh that’s it? Okay. I don’t have to worry about that anymore.”
Zack: You know I’ll never forget my very first wholesale deal. Twelve years ago, maybe a little longer now, I made $2,500 on a wholesale deal that I did in Sacramento, California. And Mike, you would of thought I made a million dollars. I mean you would of. I remember driving home holding that check in my hand. It’s funny I got a check right here that I just did another wholesale deal. But I had that check in my hand and I was driving home and I’m thinking to myself, “It worked.” Like, “It worked. I can’t believe it worked.” And I think that’s what most people need to overcome. Is the fact that their struggling to make it work. When in reality it works already. It’s just some of the things they’re doing is wrong.
And I always say this too to new people. And Mike, you might connect with this as well, is this sooner they stop chasing the money and start chasing the business, it will come. It will come. It absolutely will come. And that was another advice from one of my mentors, many mentors I’ve had in my life, that said to me he said, “Zack, you’ve got to stop chasing the money, because here’s the thing. Every time you chase this dollar bill right here, and this dollar bill doesn’t work for you, you’ve got to start all over again. But when you build the business, you build the processes and the systems. These things come in every single month.”
Mike: Right. Right.
Zack: And he goes, “And the problem with that is most people want everything right now.” And when you’re building a business that’s not how it works.
Mike: That’s right. Well Zack, if folks want to learn more about the great stuff you’re doing I know you have a couple different content pieces out there, where should they go?
Zack: Absolutely. We have a site called REISuccessAcademy.com. And you can just do a forward slash free gift. That’s for you guys from the Flip Nerd family. That’s free gift. We’ve got a bunch of free stuff over there for you. So that’s REISuccessAcademy.com/freegift. And if you just want to see what I do every week with article writing and blog posts and what’s going on in the market instead of putting free gift in just do /blog. B-L-O-G. And you can see what we’re all about.
Mike: We’ll have those links down below the video here too, so. Well Zack, thanks for sharing your lessons. I think as you and I both know automation is key. Even as I sit here people can’t see my whole room but I’m in my office and I have a team of people that are right on the other side of this wall doing things that means that I don’t have to do them. So having a team is really critical. Unless you want to be enslaved in a job for the rest of your life.
Zack: That’s very true.
Mike: Well hey, thanks so much for joining today. And I appreciate your time my friend.
Zack: Sounds good man.
Mike: All right. I’ll talk to you soon.
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