To be successful in real estate investing over the long haul, it’s critical that you are always peeking around the corner, and have a nimble business model. In this FlipNerd.com Flip Show episode, Chris McLaughlin of SmartRealEstateInvesting.com tells us why it’s critical to do a number of things to help your business stand the test of time. Find multiple channels for property acquisition. Build partnerships and relationships. Build your company and personal brand. Find multiple sources of capital. Build up multiple streams of revenue. Great advice and great lessons in this episode….don’t miss it!
Mike: Welcome to the FlipNerd.com podcast. This is your host Mike Hambright, and on this show I will introduce you to VIPs in the real estate investing industry, as well as other interesting entrepreneurs whose 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 FliNerd.com. So without further ado, 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’m joined by Chris McLaughlin. He’s an expert real estate investor out of Florida. He also owns several different Keller Williams offices with about 600 agents under him. And Chris has had to change his investing model several times over the years. Today we’re going to discuss how critical it is to change your business model as markets change. And there are few places where that’s been more important than in Florida. So there are some great lessons in today’s show.
But before we started with Chris though, let’s take a moment to recognize 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, Chris, welcome to the show.
Chris: Great to be here; thanks for having me.
Mike: Yeah, so this is a great subject today we’re going to talk about for a lot of real estate investors, myself included. I didn’t really start investing until about six years ago, and we haven’t really hit a so-called good market from a retail perspective until the past year or so, it’s gotten tougher. I would love to have a bad market back, you know.
Chris: But right now in Tampa we’re looking at roughly four and a half to five months’ worth of inventory, which means that if everything that was on the email list sold and we didn’t have any new listings, it would just take four or five months for the entire inventory to be gone. So we’re a very limited inventory, which is not necessarily a good thing for investors. That means that there’s a ton of competition, and things are a lot harder than they were back in the glory days of 2008. That was at the time of a meltdown, but if you were like me, I was buying with a vengeance.
Mike: Yeah, there were a lot of opportunities out there.
Chris: Yeah, lots of opportunities. Now it’s a little tougher, but for those who get up every day and work at it, there is plenty of opportunity out there.
Mike: Yeah, and that’s the critical thing we’ll talk about today; just how to always look around the corner and maybe have multiple exit strategies, multiple sources of capital, everything you need to make sure you can transcend changes.
And before we get started, Chris, why don’t you tell us about your background. You have a lot of experiences that for those who don’t know you I think would be interested to hear more.
Chris: Sure. Well I was one of those kids that you read about that started an Internet company while I was in school. I was finishing up a law degree and an MBA at Georgetown, and at that time while I was there I started a company called SmartPortfolio.com, which was an online newsletter company. Two years later in December of 2000 we sold that company to The Street.com, so if you’re familiar with Jim Kramer and Mad Money on CNBC, his company, The Street.com, acquired my company.
So I had a fair amount of capital at that time, and I’d been playing the stock market for a while, and I decided I’d get into real estate. I started buying up a lot of real estate, gobbled up about 100 units at the time. And then one of my buildings ended up going dark on me; all the tenants left. And I was kind of scratching my head, and thought, you know, I’ve got to create a use for this. And so low and behold I actually started from scratch a Keller Williams franchise in Lakeland, Florida. And this is before Keller Williams really took off around the nation. This was 11 years ago.
I started it from scratch, and then from there I kind of gobbled up some another Keller Williams office in New Tampa, and then started one in Tampa Central, which is the channel side district of Tampa. And then I started another one in Winter Haven, so right now we have four offices, with a little under 600 agents.
Chris: Last year we did about $800 million in sales, and we’re closing in on that billion dollar sales mark.
Mike: That’s awesome.
Chris: So we’re really active and it’s been a lot of fun. But by owning the Keller Williams offices it’s really helped me in my real estate investing to kind of forecast what’s coming, because we see it on the residential side, on the resale side, sometimes even quicker than you see it in the wholesale side. It’s been a nice adventure for me.
Mike: Sure. Hey, one thing I wanted to mention here that just came to mind, which I’ve realized. In this market as I said, things have been tougher. It’s a different market than it was a few years ago as we just talked about.
One of the things that has really been a big ah-ha for me, and probably for you, too, and I’d like to hear your thoughts on it. It’s the fact that you have multiple streams of income. You have your brokerages, and you have your investing business, and probably some other things. But I didn’t have that four years ago, so thank God it was great market over the past five years, because I was a one-legged stool, which turned out to be great. But when a market changes it’s nice to have multiple irons in the fire, if you will.
Chris: Well truth be told, when 2008 happened I had one company, which was called Smart Properties, which was my investing company. That company had its greatest opportunity ever, and I gobbled up about 80 houses that I still own that I bought for just pennies on the dollar. I was buying houses all day long for $30,000, $35,000, $40,000 and turning around and renting them right back out. So these are buy and holds.
Chris: But at the same time my Keller Williams offices were hemorrhaging, you know. Realtors were getting out of business; the resale side was really tough.
Chris: But I was making more money than ever because I also had developed this product called Short Sale Riches, and then we did some other products called Fix Flip Funding with a partner, Nathan Jurewicz. And so we were just absolutely crushing it, teaching people how to make essentially lemonade out of lemons, and take a really bad market and see the opportunities in it.
So while I had the Keller Williams offices just getting by, because a lot of the realtors were leaving the business, and the resale was not there; we were making a whole bunch of money on the info marketing side, teaching people how to make the opportunity what it was.
So it has always tended to work out, and now days the info side isn’t as strong, but the Keller Williams offices are just absolutely booming.
Mike: Yeah, and I think you’d probably agree, wow, what a great thing that you have a bunch of rentals now.
Chris: Oh yeah. I’ll tell you what, I can’t buy them anymore.
Chris: At the end of the day, rentals that make a lot of sense, the numbers don’t work anymore. So what I’m doing right now is about every month I buy about six or seven houses, but they are too expensive to be rentals in terms of the debt service on them. So instead I’m just fixing them up and flipping them.
Mike: Right. Well it’s interesting because there are probably some of the things that you’ve done over the past few years in terms of starting new businesses or different focuses; some of it that was by design, and some of it was probably just you got lucky in terms of how things happen.
But one of the things about real estate investing that I’ve seen over the years, and from all of the people that I know, is it’s very unique when somebody finds a way to be successful in different markets. And I wouldn’t say there’s one thing or common trait that everybody has, other than the ability to know that markets are going to change.
And so I was hoping you could share some advice on that today. What advice would you give people today, in late 2014, when the market seems hot and everybody and their brother’s an investor again. And the market is going to change. I don’t know if it’s going to be a year from now, or three years from now, but it’s going to change.
Chris: What we found is you have to go where the deals are, number one. So believe it or not though I’m a successful owner of real estate offices with 600 plus realtors, what I’ve found is that I have to have multiple channels working for me for my real estate business.
Chris: So my primary channel, believe it or not, is not the MLS, even though I do have realtors that are constantly making offers for me for short sales and for REO properties. My real source is the actual courthouse auctions. And in Florida it’s now done online, and I have a person that bids every single day for me, and he also represents big funds as well.
But what’s happened in Florida for instance is we have these big funds that have come in and they’ve kind of squeezed the middle guy out. But just because they are out there buying, what’s happened is we have fewer people now bidding at the courthouse auction. And you say, why is that? Well, because the big guys are showing up.
So what you have to do is say okay, well how can I play a part in that? So if you’re not going to actually buy what they’re buying, because they’re bidding things up too high, figure out what they don’t qualify for. So you have to look at the properties that they aren’t buying.
Now what I’m looking for, I’m able to focus very quickly on the properties that aren’t congruent with what they’re search criteria is. So they want something that’s 2000 and newer, then I’m looking at all the properties that were built in the 1990s, the 1980s. They want to have garages, and I’m looking at things with carports. They want to have a three bedroom, with two baths, so I’m looking at three bedrooms, one and a half baths.
Chris: So it’s actually been kind of a blessing in the sense that I’m able to focus very quickly on the properties, because one of the things when it comes to buying in a foreclosure auction is you have a ton of properties and you don’t have the time to preview them all. Now I actually can preview the properties I want to bid on as opposed to, and I just know that the big guys are going to end up getting the nicer properties. But that’s okay; I’ll take some scraps and do pretty well as well.
Mike: Did you just see what they’re bidding on, or did you get some insight as to what they’re looking at? I want people to know that hedge funds are typically looking for newer properties that are less likely to have problems.
Chris: Yeah, basically having been in the business I called the guys that were bidding on their behalf and just said, you know, what are they looking for? And so you can pretty quickly figure out what it is that they’re bidding for, and then you say, okay, now I know what I can get without having to compete against the big guys.
Chris: That’s just one example. The other example I’d say is you need to have multiple streams because not everyone is going to be working at a particular given time. It used to be the REO properties; that’s real estate owned. That’s when you actually buy it directly from the bank and the bank is listing it typically with a real estate company. That’s when you have the make sure that that REO agent knows that you’re a player, and you don’t want to be too greedy. So in that case you’re going to give that REO agent two sides of the commission. You’re going to give him the buy side, and the sell side, and they’re going to think of you when they have a property that’s coming up.
Chris: And then the same thing with short sales. If you have agents that are out there with short sales that might fall apart, you want to be the go-to investor; so in that case make sure that you’re going to incentivize them as well. I’ve got multiple channels essentially coming in which allows me to consistently buy six to seven properties a month; whereas other investors that I know are now down to maybe one a month, two a month that they are able to get.
Chris: So hopefully we can continue to focus like we’re focusing and just do what we’re doing.
Mike: It’s not a mistake, I guess, to hear how you’re going after properties; to hear they’re all through agents and more of a traditional path, because you own so many offices. I mean, of course, there are a lot of other investors that are going direct to seller; direct mail, Internet marketing, and other things like that. Are you doing those things as well, or are you trying to stick closer…
Chris: I’ve got a good friend of mine here in town that does do that, a guy named Franklin Kruze [SP] in Lakeland. He does a lot of direct mail, so he’s kind of my competitor in that arena.
But I have not done it myself mainly because I’ve got the benefit of knowing a lot of realtors that just bring me a lot of deals.
Chris: And I don’t want to necessarily start stepping on their toes. It would be a little uncomfortable for me as the brokerage.
Mike: Sure, I see.
Chris: But it’s certainly works and direct mail in a lot of the marketing campaigns that you see. There was a little bit of controversy; a friend of mine, Kenny Rushing [SP] had his entire Humvee wrapped, and it said, “We buy crack houses.”
Chris: I’ve seen some ugly houses, but we buy crack houses. So one of the city commissioners in our town posted his photo and said, “Isn’t this awful that they’re saying this?” And I said, “Hey, it’s marketing and it works.” And it certainly works for him.
Chris: So I think the direct marketing is still something that you don’t want to underestimate; it’s important. Getting directly to the consumer, and then of course wholesaling it very quickly to an end buyer. It can work well for you.
Mike: Yeah. I know you understand the value of brands, whether it’s your company’s brand. Obviously you believe a lot in the Keller Williams brand, and the Keller Williams people that I know love Keller Williams.
Mike: So you value that brand, and I think there’s also a personal brand. Who are you as a person when you find other people who want to work with you? You have people bringing you deals because they know you can deliver on what you say.
Mike: I know brands are important, especially as we talk about the ability to transcend different markets and ebb and flow as markets change. Talk a little bit about the importance, or your thoughts on the importance of a brand and then maybe kind of how you build that brand and become a thought leader.
Chris: You know, I think it’s really important; if you’re going to be in the real estate investing game for the long haul, which I certainly am, you’ve got to understand that you want to be the person that comes first to mind when someone has a good deal. And so what I do is I’ve actually become essentially a thought leader in real estate, and so every single day I pay a guy to scour all of the Internet articles on real estate related news. And I actually email out to 95,000 people every day a digest of real estate news.
The same thing I send out to my agents as well, so 600 agents get essentially a digest of real estate news every single day from me. And the reason is that I want to be the first person that comes to mind when they think real estate. So if they want a good deal they call Chris McLaughlin. I’ve got a property company called Smart Properties and that’s where a lot of my rentals are housed. That’s a brand; that’s something that a lot of people are familiar with Smart Properties. They know that that’s what Chris owns and if you want a quick cash buyer, call Chris.
Chris: And you want the phone to ring and you want to be recognized as the go-to person that can make quick decisions and get into the property extremely quickly and not have a lot of complications.
Mike: Yeah, I think a lot of people don’t really understand what we’re talking about here, because there are lot of people, whether it’s bandit signs, where people kind of want to be anonymous so they don’t get in trouble because bandit signs are typically illegal.
Mike: But you have yellow letters, and there are a bunch of direct mail stuff that people do, and I get them all the time, because I have rental properties, so we get them. And there’s no branding on there.
Mike: The reality is that most people who may have a deal to sell probably don’t have one to sell right now. If you’ve built your brand up over time, three months from now and especially in the agent space, people want to know that you are in business and that you still operate and who you are because when they come across the deal then they think of you.
Mike: And if they don’t know who you are, because of the branding, they’re never going to find out obviously.
Chris: Right, it’s important. It’s top of mind awareness, and at the end of the day you want to be the person that they think of when they think of real estate investing or when they think of selling their property, or if they hear of somebody that’s in distress. I think I was so well known as the short sale guru that that really helped a ton of home owners and we were getting calls from all over the place saying I need Chris McLaughlin to help me with a short sale. And then I had this arsenal of agents that I trained to go out and help all these people with short sales. And so it actually helped my real estate business as well.
Chris: So it’s kind of being that top of mind awareness, and branding is critical.
Mike: Yeah. Well what advice would you give to people that are hearing this and it resonates and they haven’t done it yet? You’ve obviously spent a lot of time building up a mailing list of 95,000 people that get a daily digest. But how do you kind of get started in that direction?
Chris: I think testimonials are important. I think if you could just start gathering up those deals that you have done and if you did help a distressed home owner get out from under a mortgage that was foreclosing on him, you could get those testimonials. And then over time when they start saying, well Chris saved me from foreclosure, or Chris bought this house really quickly and there weren’t any strings attached, and Chris gave me a fair price, and that kind of thing; start with those testimonials first. Then you can always start with a blog or a website. But really, right now, honestly in your own local community you’d be amazed at just the power of what Facebook can do.
Chris: So you want to be present on Facebook; let people know what you’re doing on Facebook, and just take a quick little flip cam or your iPhone and just videotape a testimonial and post it to Facebook. I think that can work wonders for top of mind awareness, and if you just consistently did that.
What I’ve been doing for myself is I’m doing all these renovation projects, right? So I’m doing about six to seven a month of buying, and what I’ll do is I have a name that price game right now. So the idea is I post on Facebook; here’s my renovation. Here’s what I think I’m going to be able to do. Here’s the profit I think I’m going to be able to make. Guess what it’s going to be, and then everyone is guessing.
And then when we actually do end up selling it, I show them the HUD and I show them, hey, you were right. I made $15,000 or I made $20,000 on the deal. And then it just kind of makes it fun for people, too.
Chris: And again, you just want to be top of mind awareness when you’re doing that.
Mike: Yeah, I think part of that becoming top of mind is consistency, too, right?
Mike: There’s a ton of people, a ton of real estate investors that come and go. They seem like they’re at least in the game for a short period and then they’re gone. But especially if you’re sharing things on social media and trying to build up a brand, even outside of social media, whatever you do I think it’s important to almost have a calendar of this is when I’m going to post stuff. This is the type of content I’m going to post, so that you don’t have to think about it every time you need to post something. You just have it kind of programmed.
Chris: Yeah, absolutely.
Mike: I know that you’re a bit of a social media junkie, too, like I am. Why don’t you share some tips for people on how you use social media for real estate investing?
Chris: Well, of course I think it’s important because you want to stay local, and the reality is that if you’re starting in real estate, I just have always had a preference for buying property that I can drive to within an hour. If I can’t get to it within an hour, that’s what I like to do. I don’t like to go and invest in different states. Some people do and it works for them, but it’s just not my cup of tea.
But certainly if you’re a new investor, I think you want to start just local and by starting local that’s going to be your Facebook; that’s going to be your Twitter. But you can also connect with people through LinkedIn, which is very powerful. So if you’re looking for financing you can certainly try to get some financing and connect with some local bankers.
A lot of people don’t realize that the lending industry is back now; they are making mortgages. And even if you don’t have perfect credit, if you have some cash, you can actually get some really good deal out there. So you need to line up your financing and you can do that a lot with LinkedIn.
And of course YouTube is pretty powerful for me, because I do a lot of the before and after photos, and it’s keeping people top of mind and so everything you do, you probably want to document if you can. Because then you can share on social media what you’re doing. So if you’re going to do a fix and flip; you go in and videotape it; and people love to look at just trashed-out houses. People just get a kick out of looking at them, “Oh, my God, people actually lived in this squalor?”
Chris: And they want to see what happened to this particular house. And then they’re amazed at how you can make it look so great. But what happens to a lot of people is that they get really scared because they walk into a house that’s really just been trashed and they get all freaked out that it’s going to cost them an arm and a leg. It just kind of paralyzes them. If they start watching some of these videos, they’ll see that it’s just par for the course, it is. And social media can be fun in that way, too.
Chris: So just use those multiple platforms, and depending on what you’re issue is if you need credit, if you need capital, LinkedIn might be the place to go to. And if you’re looking for cash buyers, certainly social media can help you with that. So it just kind of depends on what the goal is.
Mike: Yeah. You obviously may have an unfair advantage in a sense that you have so many agents that are working with you. And they are a leading indicator of what’s happening in the retail market. Do you think the supply chain of fixing and flipping houses for sure is, or the houses you’re buying today in two to four months are going to be on the market. And so it’s a great way to kind of have a crystal ball and see what’s happening.
Mike: For other people that we’re talking about here to kind of transcend markets and be prepared as markets change, and maybe some of that is having multiple exit strategies, multiple for example there’s a ton of wholesalers that I know that thought is I don’t need money because I’m only wholesaling. Well by definition you’re missing out on opportunities that you can’t wholesale what would be a great retail deal.
Mike: And the same thing with retailers; I’m not worried about wholesaling or building relationships with wholesalers or other investors, because I’m just a retail guy. And there are definitely houses I’ve had where quite frankly I’m making more money out of my wholesaling than I would have if I rehab it, because as venture and rehabber I know what it’s going to cost me and it’s worse than what a lot of people think, or at least with my contractors.
Mike: But just share some thoughts on how people can think through those things and then plan to be able to change with the market.
Chris: Well, let’s just kind of go through the market. In 2008 and 2009 that was the time where capital was at its lowest low, right?
Chris: So of course what happened was the market created this tremendous opportunity for those who could really figure out how to get capital. And right now in 2014 capital is available, but people still have the mindset that it’s not there anymore.
Chris: So the reality is you kind of have to look at each individual market and say, okay, what are the fundamentals? What do I need? Well first of all you need capital. And number two, you need properties. You need to do something with the properties. Are you going to do a short sale? Are you going to do a flip? Are you going to buy and hold? Are you going to wholesale it? Are you going to be a realtor and make a commission and retail it? Are you going to do all kinds of other things, like do a wraparound deal and try to assume financing and things like that? So you just have to look at it and say, well, what is it that I need most, and then how do I get there? And you have to go after it.
So right now the fundamental reality is that in this market if you believe that you don’t have the capital, then you need to have partners. And so what I would be doing right now is trying to partner with people that have that access to the capital so that you can start to do many of these other types of exit strategies.
The reality is in Florida right now prices have gone up, and inventory very is limited. In the Tampa market right now we’re looking at about five months of inventory, four to five months. And so for me personally I’m actually finding that I can’t really add to my rental portfolio. I own right now about 120 rentals. I don’t want to really add to that, because I can’t find anything that’s that appealing, other than multifamily, which I’m kind of getting out of. I want to do single-family homes.
Chris: So I’m really not excited about that, so what I’m doing is I’m fixing up and flipping. Well if you would have told me in 2008 that I’d be flipping properties and actually having to renovate them, like in a real serious, meaningful way, I’d have told you, “Oh, no way; that’s just too much work.”
Chris: And it’s worked now. I’ve partnered with a guy named Mike Walker, who runs our construction crew. And he’s got a skill set that’s ten times better than mine, and it used to be that I only did deals myself. Now every deal I do Mike and I split 50/50 the profits. So I have a partner on all of these flip deals that I’m doing, who basically runs the renovation and helps me acquire it, so I bring the capital to him and we partner on the deals.
So I think one of the realities is that when you look at the market you have to say, what do I need? Do need capital? Do I need partners? What kind of skill set do I need for this particular market? And then you have to go and partner and get that skill set.
Chris: In 2008 and 2009, you needed someone who actually was relatively friendly with realtors because realtors were kind of at the front lines of a lot of the foreclosure and people were calling them saying, what’s this thing called a short sale.
Chris: So if you had realtors that you were working with, you could partner with them and everybody could win and get the deal done. Well, those days are kind of over. There is still a little bit here, but it’s just a different market, and I think you’ve got to look at it and say, what is it that’s really driving the market right now, and how can I play a role and be a part of it. And it could be that you’re going to have to part with some profit yourself in order to get into what you’re doing, because the reality is I’m not a contractor. But the market in Florida right now for me is certainly fixing and flipping and then reselling it.
Chris: And the reality is that the margins are tighter now. It used to be that I could consistently make $30,000 or $40,000 on a flip, but now I’m consistently making $15,000 on a flip. And so you have to do more deals to make the money.
Mike: Yeah. That’s awesome, Chris. Well thanks for your time today. For folks who want to learn more about what you have going on, you obviously have your newsletter. Where should they go?
Chris: Sure, just go to Smart Real Estate Investing.com, and then on the right-hand side you can enter your first name and your email address and you’ll be subscribed to the email digest that sends you a bunch of real estate news.
Mike: Awesome. That’s great, and we’ll add a link below the video here, too, for folks who didn’t get a chance to write that down. Well, Chris, thanks so much for sharing your insights and your information today. It was good to see you, and I appreciate your time.
Chris: Thanks for having me and it’s great to be with you.
Mike: All right, man, have a good week.
Chris: You, too.
Mike: Bye, bye.
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