Smart Exit Strategies in a Down Market

[00:00:00] Mike: [00:00:00] Hey everybody. Welcome back to the show today. I have my buddy Forrest McGee here. He’s out of Richmond, Virginia real estate investor. They’re a member of our investor fuel mastermind, and uh, force is really big on the construction side, owned a construction company, really, um, really buttoned up with rehabbing.

And, but now he’s kind of pulling back a little bit. We’re going to talk today kind of about a smarter exit strategies and kind of how to keep your finger on the pulse of what’s going on and make sure you don’t over rehab in this market.

Professional real estate investors know that it’s not really about the real estate. That real estate is just a vehicle of freedom. A group of over a hundred of a nation’s leading real estate investors from across the country meet several times a year at the investor fuel real estate mastermind. To share ideas on how to strengthen each other’s businesses, but also to come together as friends and build more fulfilling lives or all of [00:01:00] those around us.

On today’s show, we’re going to continue our conversation of fueling our businesses and our lives. I’m glad you’re here.

Hey, Forrest, welcome to the show.

Forrest: [00:01:17] Hey, how you doing?

Mike: [00:01:18] Good. Good to see you again.

Forrest: [00:01:20] Thank you. Yes.

Mike: [00:01:23] For those of you that don’t, uh, probably none of you would know this. We actually had a little trip for our best and fuel mastermind. We went out to, uh, Yellowstone here right before all the Corona virus stuff. Hit and went snowmobiling and dog sledding out there, and Forrest and his wife were in that group, so we had a good time out there.

Forrest: [00:01:40] Yeah. Yeah,

Mike: [00:01:41] yeah, yeah. We learned a few things. We won’t get into many details, but Forrest is a grill master. So if you know forest and you didn’t know that, uh, he’s a grill master. You should talk to him about that.

Forrest: [00:01:52] Come by. Um,

Mike: [00:01:55] so for us, you, you’ve, you’ve, uh, you’ve owned a construction company in the past.

Actually, we want you to just go ahead and introduce [00:02:00] yourself and tell us a little about your background, how you got into real estate investing.

Forrest: [00:02:03] Yeah, thanks. So my name is Forrest and I got into real estate investing because I thought it was easy. And as you said, I’m from Richmond, Virginia, and I’ve been a contractor for about 14 years.

And so active general contractor, an electrical contractor, and uh,

I got. To where I wanted to be, my own boss. And so I said, well, what better than to flip real estate? So a win and try that a couple times with a couple of people and figure it out that I’m much better doing it by myself. And so I did that on my own and got pretty good at it.

And everything I do on flips, you know, uh, I do pretty good with, uh, I don’t, I haven’t. You know, had a bad flip yet it has some go over budget. Actually, probably all of them go over budget, but you know, this is the way it works, right. You know, you kind of have to plan on that, and as long as you buy your houses [00:03:00] right, you’ll end up.

Getting out of it safely. Yeah. You can live to do it another day. Yeah. I’ve known

Mike: [00:03:07] a bunch of contractors over the years and some guys that do like luxury homes and I just finally had to tell them like, look, you guys should not rehab anything cause they don’t know how to not over rehab it. You know?

They’re like, they’re going into $150,000 house and putting like million dollar. Home like elements in there and nobody expects that, but they’re there. The bar’s really high for those guys. So I think for all contractors, you have to be careful cause you, you know, you sometimes, uh, it’s not that everybody wants to be proud of their project, but you have to be proud of it and stay inside of the, kind of the buy box of what somebody expects at that price point.

Right.

Forrest: [00:03:44] Exactly. So I think that, you know, our job is to create in a safe, a clean, affordable house for people that they can kind of turn into their own eventually. So, you know, we were heavy [00:04:00] on making sure that the kitchens and the bathrooms are done very well. Uh, no matter what the price point is, you never doing nice granite or doing nice cabinets.

Uh, but if you go on to like, you know, if you go shopping, you know, thrift, if you go to thrift shopping on Amazon, right? You know, some people are buying in a six, $7 door knobs, right? My door knobs are 90 cents a piece. And so, you know, I just don’t spend money where it’s not necessarily because somebody is going to yank that.

Crap out and they’re going to put some there. Right. And so, you know, it’s just, I look at it like how much of my money do I want to give the buyer? And you know, that’s really how I look at, you know, how,

Mike: [00:04:43] yup. Yeah. And I think that differs in different markets too. Like expectations are different. Like when you’re in a seller’s market, like what we’re coming out of here, and it depends on the neighborhood too, right?

If you’re in a, if, if you’re in a market where. The sellers are used to earning sweat equity, and they’re okay doing some of the work [00:05:00] themselves. Like you have to kind of look at the competition and see what else is out there. But I think the market we’re entering maybe is more of a more of a buyer’s market than a seller’s market.

And so you don’t, you know, you would tend to not want to over rehab and, uh, in a potential downmarket because people’s expectations changed kind of what you said. They want more safe and clean more so than all the bells and whistles. Right. Yeah. So everybody likes to brag,

Forrest: [00:05:26] right? And so when, when you’re buying a new house or you’re buying a new car, you know you’re going to go and you’re going to show off all these little features, right?

You know, if it’s a car, you can show off the GPS or you’re gonna, you know, flash the led high high beams or something like that, right? And then the house, you know, you’re going to go straight to the kitchen and you’re going to look at this fancy little thing, or you know, that nice faucet or whatever. So you definitely want to give people some impact, some bragging rights, but.

You know, you go to home Depot, you buy a $200 faucet, it’s the same faucet as the Amazon $70 one, right? [00:06:00] It doesn’t matter. And so, you know, no one where to stop and know where to spend your money. You know, it just, it just makes sense at this time. Right? You don’t need the $200 ceiling fans, you know, they don’t shake just like the $70 ceiling.

Fans don’t shake. And so we’ve just gotten very good at. Putting our money in the right places, and most of the time that’s trying to keep it in our pocket.

Mike: [00:06:22] Yeah, and that’s even more important in a, in a potential down-market because you just can’t afford to. Over rehab, right? People are not necessarily, you’re not going to get as high of an ROI on that investment as you might in an up market, right?

So

Forrest: [00:06:35] you’re only going to sell the house for what the house is worth in this base office square footage. Right? And so you can, you can overspend all you want, but at the end of the day, your sales price is going to be your sales price. Whether that crafts played in gold or whether it was played in Chinese brushed nickel.

Mike: [00:06:51] Yeah. You know what? It was an eye opening. Your eye opener for me. This is. Back around the time that I started started 2008, this was probably like a [00:07:00] 2009 house. One of our, you know, uh, early on in my investing career, we, I kind of set these parameters just based off of some mentors I had or people that I kind of followed around me is like, Hey, I’m not going to rehab anything.

Under a hundred thousand dollar market value, because I’ll probably over rehab it. Then there was an exception. So I’m like, okay. I bought a house for, I don’t know what we bought it for. I think we ended up selling it for like 89 nine. It was, you know, but we bought it for obviously way less than that. Um, and, uh, I decided to rehab it.

This house has a whole, uh, other set of stories around it with, uh,

Forrest: [00:07:37] like. Uh,

Mike: [00:07:39] the cops drug dealing, uh, what does it call a sports, uh, uh, gay, like gambling ring? Like all kinds. I wouldn’t even get into it, but, uh, it’s got, actually, this house has a whole bunch of stories, uh, associated with it. But, um, when we were in, at that time, we were selling houses by owner, which is like.

Terrible. [00:08:00] Like they just basically was a horrible use of our time, but it was like an early lesson to like, okay, now that actually was the straw that broke the camel’s back. I’m never going to sell the house by owner again cause I don’t want to have to keep going to show the house to people that don’t even show up half the time and what, anyway, that’s not the story.

The story here is we, we over rehabbed it a little bit. Like I didn’t think that we did, but there were people that would come to look at the house and again, I was like going down to show it. And they thought you would’ve thought they walked into like the Taj Mahal and they’re like, Oh my God, this is so nice.

And in my mind I was like, well, we just put laminate in. We didn’t put granted in back then. This was like, Oh nine we painted the countertops with like an epoxy paint. It looked good, but in my mind I was like, I wasn’t real happy with it as a, I wasn’t proud of it from the work standpoint, but the perception of what the person expected for a $90,000 house was very different.

Forrest: [00:08:50] Yeah. So in my market, these people are walking in was, you know, basically no money down. Right. You know, we, we built our, we build our [00:09:00] price and our agents, cause I don’t ever sell the house by owner unless I’m wholesaling it. Uh, I use an agent for everything. Yeah. I mean, they’re totally worth

Mike: [00:09:11] it.

Forrest: [00:09:11] Totally worth the 3%.

Right. Because. A buyer is going to bring an agent, and you know, so you’re really, you’re talking about 3% of your price. It doesn’t make sense to do it on your own. Yeah. So, uh, you know.

These people that are getting in with no money down and they want the most bang for their book, but at the same time, you know, there’s, there’s different price points and, uh, you know, it’s just, it just makes sense to buy the dollar per square foot tile as opposed to the $5 per square foot tile right.

Now, save that for when it’s your house and you want to go blow your money on something. Right. But you know that their kids are going to, you know, damage it. You know where there’s $5 a foot tile or a dollar for a tile, the [00:10:00] kids are going to throw crap on it. They’re gonna spill things on it. They’re going to, they’re going to ruin it and you know, it is what it is.

So safe and clean, I’m fine. So

Mike: [00:10:09] the impact here of the downmarket, like what are you doing differently? So you, you, since you’ve been a contractor, you have a tendency to rehab more. You kind of prefer that. I know you’ve been doing a little more wholesaling or shifting that direction even though it’s not what you would prefer to do just because it just is the smart thing to do in this kind of uncertain market.

Right.

Forrest: [00:10:29] I definitely have a, I can fix that mentality with anything. I see a house and I can fix it. Right. And you know, I always have to like have the little angel on my shoulder to know you’re wholesaling this one, you know? So, uh. That’s what I’m doing more and more now, because I have to write it with this market.

One, we don’t, we don’t have a trend on where it’s going, whether it’s going back up or whether it’s going down. So the best thing to do is, you [00:11:00] know, get houses at a fair price and sell them to somebody at a wholesale or a wholesale level at a fair price. And, uh, you know, when you deal with first time home buyer markets and being neighborhood to see neighborhoods.

Uh, those, those, those trends don’t go up and down that much. They, they pretty much stay saying it’s a safe bet, especially for bond hold people, you know, that are, you know, repositioning their money or put an IRAs to work or what have you, which, you know, most of our lenders are doing IRA work and they just want to put their money somewhere and have a guaranteed or more or less a guaranteed return.

And not deal with the emotional, a roller coaster of the market. So, uh, you know, you know, people who are doing that, you know, they’re gonna, they’re gonna have some safety there. And so you just have to bring the product that the people want. And that product right now is, you know, fairly stable housing.

Yeah. [00:12:00] Yeah.

Mike: [00:12:00] And you shift ’em a little bit too. Uh, and you, you do some lease options there. Right. And so I think that market is still probably more stable than, cause people are, you know, they’re not necessarily buying the house. They’re buying the option to buy the house. Right. So they’re probably, they’re probably less worried about shifts in market value at the time they agree to an option.

Would you agree with that?

Forrest: [00:12:22] Yes. So, you know, at least option the whole, the whole lease option model works off of what can I rent it for? And so, you know, uh, as long as that model works and you know, I have, you know, a few hundred dollar threshold on what my cash flow is for my business management. And, you know, as long as that model works and it works, and then, you know, we just try to capture as much tamping as possible.

And, you know, the option payment is just that, right. It’s an option. That’s a. Maybe you do, maybe you don’t. And uh, one of my first mentor said there are homeowners and training. And so, you know, you kind of have to [00:13:00] train them up and you know, it’s success is built on, on you, right? You, it doesn’t stop. And Elise option, it becomes a relationship.

You have a relationship with the seller and you have a relationship with the buyer. And in me. Personally, I enjoy the relationship part of this business. You know, I’ve done virtual wholesale ended on virtual real estate, but I enjoy solving a genuine problem and giving a genuine opportunity to somebody that’s grateful.

Right? And last year we got some Christmas cards from some of our lease option tenants, and I was just like, that’s cool. Right? That makes me feel good. That makes me keep doing it. Yeah, well, yeah, but lease options are awesome because, and in a subject to use for that matter. But, uh, I’m focusing on lease options right now and seller carried financing because.

There’s really no risk. Right? I mean there’s, I mean there’s reputation risk, but there’s really no risk. There’s no money out of pocket to get into the deal. [00:14:00] Maybe one or two mortgage payments, maybe paint a couple of rooms, put some appliances and get it, you know, appealable to somebody who wants to go in and finish it off.

Right. Wow. Yeah. So, you know, that’s something that a lot of people don’t want hit cause. As we’re pivoting, right? Everybody have a sub pivot right now, and as we’re pivoting, you know, wholesalers are saying no. If it doesn’t fit my inner model of 65 70% you know, I’m not going to return a phone call.

Whereas if I can make, you know, three to $5,000 a year return on just architecting a deal and becoming a middleman, why not? Wow.

Mike: [00:14:36] Yeah. Especially if you use it as a way to monetize the deals that you can’t make work any other way. Like if they don’t accept the cash offer, well, here’s a creative way we could do this.

I mean, you’re helping the seller solve the problem, which you know, you shouldn’t. We all want to help more sellers solve problems. You shouldn’t do it if it, if it costs you money. But if you have a way to make money doing it and help somebody in the process, even if it’s a lower margin than typical, like why not?

It helps offset your marketing [00:15:00] costs, if nothing else. And it helps that seller out of their situation.

Forrest: [00:15:02] Right. Absolutely. That’s the

Mike: [00:15:06] great thing about it is,

Forrest: [00:15:07] you know, these loose options that give me enough to do to keep me interested so I can like go in and play a little bit higher. A couple of contractors and you know, but I’m not rehabbing the entire house, so it gets back to our original point of, you know, not overdoing it right.

I just get a pedal a little bit, just enough to keep me interested, give me something to go do, and then turn it over to somebody else to finish it. Yeah.

Mike: [00:15:30] And I think when people get creative deal, when they buy in a creative deal, whether it’s a, uh, you owner finance them or, um, or it’s a, a lease option model or things like that, they kind of understand that there’s a little more sweat equity involved.

Like it’s not perfect. It’s not, you know, top of the line house. It needs some work, but that’s what you get in exchange for us, allowing you to have this flexibility. Right.

Forrest: [00:15:57] Absolutely. They, they’re trading, they’re [00:16:00] trading in a, uh, retail level house for an opportunity. Right. You know, that’s really the way that you try to frame it in a, so that they can look at it in that respect and you’re giving them, you’re giving them a chance where other people haven’t.

Right. Most people are grateful for it. And, you know, just one more thing. You know, we’re, we’re, we’re dealing with. These leads, right? They’re either hitting their peak or PPC, or they’re coming organically through SEO or some other paid marketing channel that they slipped in. So yeah, you gotta monetize that deal if there’s a way possible, and they’re not a real pain in the butt.

Yeah. Monetize the deal one way or another. Right? Yeah. Yeah.

Mike: [00:16:40] So of course. Any other, any other thoughts on how to, how folks should look at their rehabs? I mean, obviously we’re kind of talking to people. All the people that are investor fuel, people that are my coaching programs, people that we kind of advise are like, Hey, you should be doing stuff that’s has a faster cash cycle.

Right? Like, don’t take on huge rehabs that take, you know. Three, four or five months to rehab. [00:17:00] And especially if you’re in areas with thoughts of permitting, which all that stuffs, a lot of that stuff’s closed down right now. Like don’t take that risk, like find ways to do more whole tailing or wholesaling.

Um, any more thoughts on, on that or how to do like kind of simplify rehabs right now? People are still, let’s say for inventory, they already own that. They’re in the middle of a rehab. Like what are some things they can do to kind of simplify the model and hopefully get that turned into cash faster?

Forrest: [00:17:25] Yeah, it kind of depends, you know, how, how bad they got themselves into the rehab.

But, you know, some

Mike: [00:17:30] people, some people are great

Forrest: [00:17:32] at doing the gut jobs and some people have very inexpensive money. Uh, but you know, for people, you know, my mindset and you know. Of me wanting to be in and out of a deal fast and your tournament or as quick as possible in a less is more, right. You know, uh, you’re not living there.

And you know, as you, as you and I have seen, you know, as walking through as many houses as we’ve walked through, you know, everybody’s standard of living is different, right? So [00:18:00] what you think is ugly paint might, you know, not be ugly, and you know what you think as, you know, low quality lamb and a four, it might be.

You know where somebody always wanted. So, you know, level one granted some, some people have never had granite in their life before. They don’t know what level one is. They just think it’s all like, you know, from heaven, right? It’s all granted, right? They don’t know. So, you know, don’t, don’t take your personal tastes into the, into the projects, just in a clean, safe, quick.

Get it over with and you know, sell it as fast as possible. Yeah,

Mike: [00:18:33] yeah, yeah. And you can kind of keep your pulse on that too, by looking at recent solds, recent pending activity. Like just see like what do they do, you know, and what price did they get relative to what I think I can do for mine. So I think sometimes if you see simplified rehab, especially when you’re in a little bit lower end market or part of town, if you can see the quality of the rehabs that made their house go.

faster than other houses that were overdone [00:19:00] and higher price, whatever you kind of get a feel for what’s the quality level and price point that that buyers in that neighborhood are looking for?

Forrest: [00:19:08] Yeah. I have a lot of fun in my business and one of the things that brings me humor and joy in this business is.

You know, my wife has a staging business, and so what I get to do is like sometimes we run around and we spend a lot of time together, a lot of times get it, and so and so. Sometimes she’ll get like a phone call and say, Hey, can you give me a price for this house? And we’re already out. And we go by and look at it.

And I’m like, yes. Right. I get to go look at somebody else’s rehab. And you know. And critique it, and, you know, see what they did well and see what they didn’t do well, and see what I would’ve done differently, et cetera, et cetera. So, yeah, definitely, you know, getting to see that and then see what actually sells quickly is, is an added benefit.

Uh, but yeah, we have our finger, we have our finger on the pulse of integral retail sales around here, for [00:20:00] sure. Yeah. Yeah.

Mike: [00:20:01] And even if your wife’s not a awesome stager, you, you can look and you just look at the MLS. Just see what’s moving, like what, what went well, what, what went active and as has just been sitting there for 30 days or more.

Forrest: [00:20:12] But what would active

Mike: [00:20:13] and went pending after day one? You know,

Forrest: [00:20:15] everybody talks badly about it, but you know, Zillow is my best friend. It really is. I mean, they have more information easily accessible than you can get on just about any other website unless you’re a real estate agent. Right? Or you have, you know, a real estate agents willing to do a lot of work for no money for you.

Um, you know, you, you can, you can just troll neighborhoods like that and it’s, it’s really a great resource. So I use it all the time. My wife uses it in her business, you know, our admin person’s always tracking the properties, you know, cause. And we always track all of her properties in there on when they’re going.

Stuff like

Mike: [00:20:50] that. Yeah. You can set up alerts and Zillow to to like see just changes that it’s, yeah,

Forrest: [00:20:54] it is, is a great resource. I don’t know why people talk so badly of it, but

[00:21:00] Mike: [00:20:59] mostly agents that feel like they’re going to lose something, but

Forrest: [00:21:03] Oh, they will. Usually they will. That the virtual real estate agents coming.

Mike: [00:21:09] Yup. Yup. Cool buddy. Well, Hey, uh, so you’ve been a member of investor fuel for, I don’t even know how long now, while I wasn’t, but about a year and a half.

Forrest: [00:21:17] Yeah. Or so.

Mike: [00:21:17] Yeah. And so, um, when you’ve been an investor for awhile, how has, would you mind giving a to just as testimonial, just kinda share how investor fuel has impacted your, your business in your life?

Yeah. So

Forrest: [00:21:29] I was doing under 10 deals a year when, uh, did an investor feel and I really had no direction or attraction, uh, found out about you guys through, I went to care camp. And I got a free pass and a free pass costs me a lot of money. But you know, it’s, you know, but it’s just been an invaluable resource, really.

My, my return on investment with  this group has been great. You know, have . Really, we have cell phone access to you and Stenson. We have access to everybody else in the group. Everybody’s giving caring. [00:22:00] I then on in a phone calls and zoom meetings with other investors in the group one-on-one, you know, that just give information.

Right, and it’s just a, it’s just an open source. Of people wanting to help people. Right? That’s really, I think, what investor fuel’s about. It’s just, you know, really wanting to elevate everybody. And there’s, you know, there’s some, there’s some well to do people in there, but there’s really no egos to speak of.

You know, I think everybody’s willing to, you know, have a conversation with him and matter who you are. Yeah, yeah, yeah. I really enjoy it. And so, you know, we’ve, we’ve tripled our yearly count just by being an investor fuel and, uh, you know, just by having a resource of they’re going there and getting to talk to people and get a little jealous and how great everybody else is doing and go home and try to figure it out and reverse engineer to work for you.

So, yeah, I love it. I’m really excited.

Mike: [00:22:56] Awesome. Awesome. Thanks for that. Yeah, it’s interesting because I think a lot of [00:23:00] people, it doesn’t take much in our business to really move the needle. Right? Some of it’s a little turning up the confidence a little bit by seeing like, Oh, I’ve been thinking about this for awhile.

It’s not as hard as I thought it was or, you know, and not to take anything away from any of our, our members, but sometimes when you see, you know, uh, not to say anything bad at all, but like, sometimes you’re like, Oh. If that guy figured it out, I can figure it out. Like, this isn’t, this isn’t, you know, not to say anything bad about them, but it’s just sometimes you realize.

That we make things harder than they really have to be. Right.

Forrest: [00:23:30] And

Mike: [00:23:30] getting around people that are open and willing to share. And I think, you know, that’s the culture that we have is that people often come, we hear this all the time, cause they have to, we have everybody, they have to give something to come.

When you come, you have to give. A share a resource and people are always really worried about giving back and then when they start to be a part of the culture, they’re like, they’re worried that they’re, that they’re not giving enough. Cause I’ve gotten so much and I think it just creates this kind of flywheel of, I feel like I owe more to people in the [00:24:00] group cause I’ve gotten so much out of it, which is a cool thing to have.

Forrest: [00:24:03] Yeah. My, my gift from my presentation. Always my most difficult part because it’s like, you know, you want to, you want to provide value, right. You know, you don’t want to talk about, you know, well, you know, I read this, I read it, I read this short story last week, or it really, you know, really helped me out.

Right. You really want to impact people when you go there. Yeah. Well, we’re glad.

Mike: [00:24:25] We’re glad you’re there. So, forest, um, if folks wanted to learn more about you, you’re investing in Richmond doing some deals there. Well learn more about what you’ve got going on. How can they connect with you?

Forrest: [00:24:35] Yeah, so my brand is forest buys, houses.com and I’m forced buys houses on Instagram and Facebook.

And, uh, you can, you know, reach out to me and we can talk. I mean. We have a, you know, there’s, there’s other people that an investor fuel that, you know, have some students and stuff like that. And, you know, they’ve bounced off of me before. You know, I’ve, I’ve looked at deals [00:25:00] for, you know, some of their students in our area and helped them analyze properties and stay out of bad situations and stuff like that.

So, um, well if you need, if you ever need to talk to me, you know. We’re, we’re all here together.

Mike: [00:25:16] Awesome. Awesome. I’ll, I’ll put those links down below in the show notes here for those that are here, that are watching right now. So, Hey, good to see you, my friend.

Forrest: [00:25:23] Good to see you.

Mike: [00:25:24] Thanks for joining us today.

Forrest: [00:25:25] Thank you

Mike: [00:25:26] everybody. That’s a watch right now. Thanks for joining. Hope you got some value here. Uh, if you haven’t yet, uh, by the way, our next investor fueled meeting’s coming up here and just a couple of weeks. So if you haven’t yet, you should go to  dot com and just schedule a call with us and just talk about.

What’s going on in your business. We tend to try to get to know people and see how we can help them first. And there’s no, there’s never a hard pressure sale or anything like that to join our group. We want to make sure you’re a fit and that we can help you. So, uh, but you can go to  dot com to learn more about that wherever you’re watching this right now or listening, whether it’s YouTube, um, uh, iTunes, Stitcher radio, Google play, anywhere like [00:26:00] that.

If you haven’t subscribed yet, we’d love it if you subscribe, follow along with us here. If you got some value, if you could leave a positive review. That’d be great. You can access all of our shows by visiting investor fuel.com as well. So until the next one, have a great week.

Are you an active real estate investor? If so, and you want to latch onto the power of surrounding yourself with over a hundred of the nation’s leading real estate investors. All committed to building stronger businesses and live richer, fuller lives. You should jump on a call with us to learn more about investor fuel.

Simply visit investor fuel.com and get started. .