Many savvy investors have multiple streams of leads from various sources. Bidding for and buying HUD homes may be a great addition to whatever else you’re focused on, and in this FlipNerd.com VIP Flip Show, Larry Goings shares his knowledge about HUD homes. Larry is a wealth of knowledge…so don’t miss this show!
Mike Hambright: Welcome to the FlipNerd.com podcast. This is your host, Mike Hambright and on this show I will introduce you to V.I.P.’s 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 available each week which are available in the iTunes store or by visiting FlipNerd.com. So without further ado, let’s get started.
Hey, it’s Mike Hambright with FlipNerd.com. Welcome back for another exciting Flip Nerd V.I.P Flip show. Today, I have with me, the one and only Larry Goins who is an investor, coach and author. He’s a national speaker with 20 plus years of experience. He has a lot of great knowledge on real estate investing, but today we’re specifically going to talk about buying HUD homes as a real estate investor. Before we get started with Larry, let’s take a moment to recognize our featured sponsors.
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Hey, Larry. Welcome to the show.
Larry Goins: What’s going on, buddy? How have you been?
Mike Hambright: Good, good. How are you?
Larry Goins: I am doing awesome.
Mike Hambright: Awesome, awesome. So, for those that don’t know you… I know you get around a lot and you’ve met a lot of people across the country, but for those that maybe don’t know you or don’t know you as much as they will after this interview, why don’t you introduce yourself and tell us a little bit about you.
Larry Goins: Sure. My name is Larry Goins and I’m from Lake Wiley, South Carolina. It’s a little town right outside of Charlotte, North Carolina. We buy and sell about ten to twenty houses a month. We wholesale most of them. We fix and flip a few. We sell or finance some. We also keep a few as rentals. We’ve done all different kinds of investing, but wholesaling is what we specialize in and what we do. We have done deals in eleven different states and I’ve written several books. My first book is called, Getting Started in Real Estate Day Trading. It’s in book stores everywhere. It’s how to buy and sell houses the same day using the internet. My latest book is called, HUD Homes Half Off: How to Buy a House at 50, 40 even 30 percent of list price. We do buy a lot of HUD houses. We do those all over the country as well.
Mike Hambright: Great, great. So talk a little bit about…. For folks that don’t even know what a HUD house is, why don’t you tell us a little bit about what that is?
Larry Goins: That’s really good because a lot of people really don’t know, how does a house become a HUD house?
Mike Hambright: Right.
Larry Goins: When somebody goes to get a FHA loan, they get that loan through a bank like Bank of America or Wells Fargo, and it’s an FHA loan. It’s actually a bank loan, but FHA insures the loan. In other words, a little portion of your payment goes to what’s called Mortgage Insurance to cover insurance in case the borrower defaults, then the bank can go back to FHA and say, “Hey. This borrower defaulted. We have insurance on this loan to pay us off. So you pay us off. You take over the loan and you foreclose and deal with it.” That’s how an FHA foreclosure becomes a HUD house.
Mike Hambright: OK. Said in another way, are all… Basically when you go to county auctions, some of those are FHA loans as well, but they’re not sold through HUD. How does it differentiate whether a house would ultimately go to a county auction or be sold through HUD home store or a traditional HUD Home?
Larry Goins: Every foreclosure goes through the same process in your state, whether you live in a [inaudible 4:32] trust state or a mortgage trust state; so if you go to the courthouse steps and it could be the bank, it could be HUD, it could be whoever, but that goes through the same process. If it is a FHA loan and it goes through that process, it will end up being owned by HUD and it will be listed through a realtor, but put on HUDhomestore.com.
Mike Hambright: OK. That’s interesting. A question just popped up, because I know that with FHA loans, there hasn’t been a lot of conversation about this, but it’s happened where basically the amount that you pay in mortgage insurance, the insurance part has gone up pretty substantially for borrowers. Is that right?
Larry Goins: Well, I think it has and that’s because the markets have changed, the economy has changed, and quite frankly, I don’t think they want to get a whole lot of houses back anymore. They want to make sure that that person can pay a higher premium and quite frankly, they’re going to make them pay a higher premium so chances are they will not get it back. If they do, at least they’ve had some compensation for taking the risk of making that loan in the first place.
Mike Hambright: That was my first thought was if they have essentially a bigger insurance premium, then they may be more likely to sell them quicker or at lower prices to investors because they were made whole from the insurance. I guess we won’t know how that plays out for many years, but that should be interesting.
Larry Goins: Exactly.
Mike Hambright: I know and I teach and a lot of the other folks I know teach real estate investing never rely on just one source of leads. I know you don’t either. HUD homes is just one iron in your fire. Talk a little bit about, not necessarily your business, but maybe some of the things you teach in terms of having multiple strategies and maybe how HUD homes plays into that.
Larry Goins: There’s a lot of different things you can do. Now, HUD house is a listed house with a realtor, but all of your offers go through HUDhomestore.com and they are placed by an agent that has an NAID number. We also buy a lot of REO’s, bank properties, just listed properties. We do direct mail as well, in fact, I’m still very active in the business. Just before we got on here, I probably made ten or fifteen phone calls and talked to about five or six different sellers everywhere from in the Carolinas to New York around and asking them about their property and making offers on properties myself; even though I have a team, I’m very active in it as well.
Mike Hambright: Would you say in terms of different strategies, different lead generation tools you have, how does HUD homes come into the mix in terms of margins? For example, I personally buy a lot of houses direct from sellers. We do a lot of advertising to generate those leads. I don’t really buy a lot from other investors or almost nothing off of the MLS. My reason is because the margins are just too thin. So talk a little bit about, specifically with HUD homes, especially if you’re wholesaling them, maybe how the margins compare to self- generated leads or direct mail and other things you might do.
Larry Goins: I think the margins really depend on a couple of things. It depends on, number one, what market you’re in. It’s a lot more difficult to buy a house at a deep discount in San Diego or L.A. or San Francisco or New York City or parts of Florida than it is in the Carolinas or Kansas or Tennessee. Something like that; that depends on that as well. That also depends on your negotiating skills. How good of a negotiator are you? One of the big things that we get when we’re talking with sellers is they’ve been price-conditioned to think, “Well, tax value is X. So I ought to be able to get X.” One of the things that I do is I say, “I would love to give you that, but unfortunately you’re paying taxes based on that.” They want to get as much tax as they can from each property. If you really want to talk value, let’s just go to realtor.com or zillow.com.
Let’s say I’m talking to somebody that has a two bedroom, one bathroom house with 1,000 square feet. You get a lot of that in direct mail. People inherited an old house or something or it’s a rental house or something. I say, “OK. In your city, two bedroom houses are starting at $4 thousand and go up to around $15 thousand, but you’re asking for $30 thousand. Unfortunately, as somebody in business to make a profit, now never make an excuse for making a profit, but I want to create a win/win situation. It’s very difficult for me to pay $30 thousand for your house when I see some over here listed for five, ten, fifteen thousand dollars. Tell me what reason I should have to purchase your house for $30 thousand? What’s different about your house? Help me out.” They can’t say, “It was my mom’s house. I grew up there.” That’s all well and good, but that doesn’t mean anything.
Mike Hambright: Right, right. Yes. Now talk a little bit about the general opportunity for investors to buy HUD homes. For example, I know, I think, this could be a misconception, but generally speaking HUD wants to sell those to owner/occupants. Obviously there are some houses that are in more disrepair than what an owner/occupant is willing to pay for it or what their financing will allow. So talk about that area, that subset of HUD houses that ultimately comes into play for investors instead of owner/occupants.
Larry Goins: I think it’s important and I’m glad you really started there because as we go through the flow of a HUD house, all the HUD houses are listed at HUDhomestore.com. Every day you can pull up a list. The auctions end every day at midnight. Every day you can bid on the same house. Every day and resubmit your offer. That’s what we do. We make an offer on every HUD house in North and South Carolina every day, but for the first 15-30 days, depending on the area you’re in… I’ve been in different areas and some people say 15 days and some people say 30 days. It’s only open to owner/occupants because HUD wants to promote homeownership. It’s only open to owner/occupants. Don’t even search for properties that are only open to owner/occupants. You’re just going to get yourself worked up about trying to get a property that you can’t have. Who knows? It may be gone those 15 or 30 days are up anyway.
What we do is search for investment property. We sort them prices low to high and we run our numbers. We just have a formula that we shotgun it out. I will tell you this. When you submit your offer at HUDhomestore.com or your realtor does, one of three things is going to happen. Either nothing happens. Your offer simply expires. You don’t hear from them or your realtor doesn’t. Or, the second thing that could happen is your realtor gets a counteroffer. HUD sends an e-mail that says, “We will not take your offer, but we will take X.” Then you can either counter back, you can accept their counter, or do nothing. Or you can submit a new offer. The third thing that could happen is that they accept your offer. Usually about three o’clock, the next day, you’re going to get an e-mail, or your realtor is, that says we’ve accepted your offer. Then you have two business days, 48 hours, to get all the paperwork in, including your deposit. They’re very strict about things that need to be done such as having it signed in blue ink. Any contract purchase amount for $50 thousand or less requires a $500 deposit. If it’s over $50 thousand it’s a thousand dollar deposit. That’s all across the country. It has to be official funds, certified funds and it has to be the asset manager within two business days.
Mike Hambright: OK. So the game, really, is to try to get them to accept your offer and in order to make a lot of offers, you’re not looking at these houses before you make offers, at least physically. So you’re making offers, you’re making some assumptions about the repairs that are probably needed based on square footage or age of the home, maybe. Then you’re making essentially blind offers. If they get accepted you have a two business day period to get out there and say our assumptions were accurate or not and we’ll do the deal or we won’t, right?
Larry Goins: Right. I’m glad you brought that up. At HUDhomestore.com on every page for a property there is a PCR. Property Condition Report; you can pull that and they’ve had an inspector go out and do an overview and the plumbing worked, the electrical worked or didn’t work, the HVAC worked. It’s not going to be in detail with things like paint, carpet, trim, landscaping. It’s not going to be that. It’s big items. Also, there’s been an appraisal, but it’s an as is appraisal. It doesn’t really mean a whole lot to us as an investor. You do have that plus online now there’s usually a lot of pictures. You can get an idea by zooming in on a picture. Does that floor look level? Is there a hole in the wall there? What’s that hanging down from the ceiling? Does the roof leak? You can kind of get an idea.
Mike Hambright: It’s a body hanging from the rafters.
Larry Goins: Exactly. We do a couple of things. If you’re really concerned about those two days, because HUD does not allow you to have any contingencies; you can’t say, “Subject to an inspection, subject to an appraisal. Subject to buyer’s financing.” If you send in your money as an investor, not an owner/occupant, but as an investor, if you don’t close on that deal for any reason, you will never see your money again. The only time you would ever get your deposit back is if for some reason HUD was unable to close. We’ve had that happen a couple of times. Some title issues came up. They didn’t do their foreclosure correctly. We’ve had those come up, but it still takes months to get your deposit back. What we do is, if you’re concerned about those two business days, just submit your offers on Thursday; that way when you get an acceptance its’ on Friday. Now you have Saturday, Sunday, Monday and Tuesday to get all of your paperwork in. It gives you some extra time.
Mike Hambright: I know this is going to probably differ dramatically depending on market, but any kind of rules of thumb if we put offers on this many houses, we convert about this many to being accepted, then we ultimately buy about this many. Do you have an idea of the general conversion rates?
Larry Goins: It’s very difficult to give you conversion rates because it depends on several things. It depends on the market. Where the property is, it also depends on the month and the quarter and where we are in the year. Is it near the end of the year? Is it near the end of a quarter? Do they need to turn more properties? It also depends on how much you offer. If you offer 100% of list price, you’re going to get a lot more offers than offering 30% of list price.
Mike Hambright: Sure.
Larry Goins: So it depends on a lot of things, but we do have… We make offers two different ways. We have a shotgun approach that we use where we just blast off offers to every HUD house in the Carolinas every day. Then once we get a counter we start narrowing it down and pulling comps and riding the street on the internet. Looking at rent clumps, checking out the property in more detail to figure out what is our highest and best.
Mike Hambright: OK. I understand there are some changes going on at HUD and I know that they change periodically with asset managers and things like that. Do you have any insight as to the changes that are going on or that upcoming and how that might impact the opportunity for real estate investors?
Larry Goins: Actually, I do; every so many years. Like every seven to ten years, HUD will put out to bid contracts for asset managers to be their exclusive asset manager in specific areas. Now is the time. So HUD has but out to bid for asset managers to bid on how much they’re going to charge to work with HUD and what they will do it for. They’re supposed to make an announcement as to who’s going to be the new asset managers somewhere around the end of July I heard. We work a lot with the asset managers so we… I wouldn’t say we have an inside, but I would say that we know a lot about it because we have had the North Carolina HUD attorney tell us that we buy more HUD houses in North Carolina than anyone else. South Carolina told me that they do more closings for us than anybody else so I would assume the same there.
In fact, the HUD attorney for South Carolina, he uses our office every Thursday to come up here because we’re in the upstate of South Carolina and he has a lot of closings. He said, “I’m usually up here anyway. Can I use your office for other closings that I have?” Which was pretty cool, it works out good. Yes. They are getting ready to put that up for bid or have and they are supposed to announce that around the end of July. Then I’m guessing around the end of July or August, you’re going to see a lot more HUD houses come to the market, which is probably going to help us get better prices.
Mike Hambright: That’s great. I know that I want to ask you some other general questions about real estate investing and your structure and how you streamline your team and things like that, but before we get off the HUD topic here, you were gracious enough to give the folks that are listening to FlipNerd your new HUD book for free. They can download it. I think the link is LarryGoins.com/Flipnerd. Is that right?
Larry Goins: Exactly right. LarryGoins.com/flipnerd; we’ve created a special page just for your listeners.
Mike Hambright: Awesome.
Larry Goins: They can buy it in the bookstore or on Amazon if they want to, but if they would like a free copy of it, just go to that webpage we prepared at LarryGoins.com/FlipNerd and get a free copy of it.
Mike Hambright: We’ll put a link down below the video here, but it is Larry G-O-I-N-S dot com slash flipnerd. Awesome. Well, Larry, talk a little bit about your team. I know one of the things that I spend a lot of time doing is trying to build processes and automation. I try to teach a lot of the folks that I mentor those things because if you don’t, you’ve effectively created a job for yourself instead of a business. I know you really focus a lot on automation and processes and being able to utilize a team to help a lot of your day to day activities. Talk a little bit about how you teach folks, or maybe some of the things that you use to go from a new independent single investor up to truly building a business that can operate with more than just you.
Larry Goins: I do have a lot of systems, processes and procedures in place. We have SOP’s. Quite frankly, we run our business based on a book called The Rockefeller Habits. I don’t know if you’ve ever read that before. It’s a really good book. It’s about how Rockefeller ran his business. We have daily huddles and we have weekly meetings. In the daily huddle, it may only be five minutes, but it’s like, “OK. How many offers did you make yesterday? Which ones? What properties were they on? Tell us about it? Do you have pictures? Do we need to look at this? What properties do we have under contract? Do we need to look at the pictures? Let’s drive the street. Do we need to back out of this one? Do we need to renegotiate it?” All of that stuff. What do we have coming up closing? Ok, we have one closing on Tuesday, we have one Wednesday and we have one Friday. Tell us about that. Do we have that sold? Yes? How much are we making on it, all that good stuff. What are we doing with marketing? How many postcards did you mail out this week? How many REA groups because we can get all of the REA groups in the Carolinas, the Real Estate Association as a vendor every month. We have different people to go to the different events.
We can hand out CD’s, we can hand out flyers about our properties. We’re building our buyer’s list. That’s some of the things we do right there, but I start it myself. I would do it all. I would find the deal. Negotiate the deal. Get it under contract. Do the due diligence. Sell it and close it. Then, I hired somebody… I ran an ad on Craigslist that said, “Learn to flip houses using my money.” I would bring them in and shadow me. Just work with me. After a couple of days they would get on the phone and they would be making offers on properties. I would work with them and help them get up and running. They would do it all. Then I thought, “I could do more deals if I separate it out.” Then I had the acquisitions doing acquisitions and due diligence and then I hired sales people to do sales and closings. So I separated that out. After a while we had somebody come in to do due diligence. That way acquisitions didn’t have to do that, then we had somebody come in to do all the closings so that sales didn’t have to do that. Now we have acquisitions, due diligence, sales and closings. We have one person doing due diligence, one person doing closings and we have a couple of people doing sales and a couple of people doing acquisitions.
Mike Hambright: OK. Do you cross train those folks, Larry? One of the challenges I always face as a small business owner is you can never really afford to have redundancy. You probably tend to have a person who is an expert in one area and in the event that somebody is out sick or gets hit by a bus or something like that, somebody has to fill that role and it either has to be you to step in because you know how to do it or quickly find somebody else. How do you overcome that as a small business?
Larry Goins: Our acquisitions guys know how to do due diligence. Our sales guys know how to do closings. Also, we hired a new closing person so now our existing closing person, she’s moving more into an operations, so she’s handling the direct mail. Getting all of the direct mail out. Taking all the calls. We did a thousand mailers last week, just a thousand, that was it, in one county and we’ve already gotten 60 calls off of that.
Mike Hambright: Wow.
Larry Goins: Well, 59 to be exact. We got 59 as of yesterday and I’m sure she… I’m sure it’s more than that now because I saw her with the headphones on back there earlier taking calls and checking voicemail. We try to cross train people and I’m a firm believer in training and education. Look at my library. This is my education. I don’t have a college degree. I’m a firm believer in education. We do cross train people and every week I have a training. I usually have it at one o’clock on Wednesdays or Thursdays. It might be about sales, it might be about motivation, it might be about negotiating. It might be about setting goals. It might be about technology or some software we’re using, or whatever. Every week we do some kind of training and sometimes it’s even personal development. For example, not too long ago, every day at noon… Well not every day. I think it was every Tuesday at noon, we would pay the Day of Ramses videos in our big room that we have on the big screen TV and people would bring their lunch or run and grab lunch to come right back. They would sit and watch that about getting out of debt or setting up an emergency fund, becoming financially independent, paying off all your bills, all that good stuff. We just did it for our employees. They love that.
Mike Hambright: We’ve got a foot massage place near my office here. I’ve thought we should all go over there every once in a while. I don’t know if that falls into the category of personal development, but…
Larry Goins: We have a Massage Envy or something. We had them come to our office one day and they setup in the lobby and gave free massages for the next two hours. Everyone just took their turn.
Mike Hambright: That’s great. Great. I know you’ve got your ear to the ground in a lot of things that are associated with real estate. Where do you see things going over the next couple of years? I don’t know what to say besides it’s a very interesting time. There’s a lot of things that could happen with interest rates. The government will be at the point where they can never dig out of debt. It’s just a very interesting time. If there is any sort of sneeze anywhere it could really change the real estate market quite a bit. Where do you see things going over the next couple of years?
Larry Goins: Of course I don’t have a crystal ball. I am a firm believer in that everybody needs to take care of themselves. We are in very unique times. We’re in times where the government is in trillions of dollars of debt. They’re getting into our pocket for many different things whether it be healthcare or sell or financing with Dodd Frank. There’s talks about a worldwide currency. You hear things talking about gold and silver. There’s just so many things out there. I wish I had a crystal ball. I wish I knew what was going to happen, but I don’t. All I have to do is just maintain faith. We’re not in control. God is in control. All we can do is do the best we can, but I am a firm believer that you need to learn how to take care of yourself and be self-sufficient and put yourself in a situation where if everything did go the wrong way, if like you said there was a sneeze and the whole world catches the cold, then you have to be in a position to be able to take care of yourself and your family. Just do whatever you can. Get whatever education. Get whatever information you can, but by all means take action. Reading a book… Now this is a great book and you’re going to get it for free, but don’t treat it like it was free. Some people will not read free stuff. Oh it was free. You could go buy it if it will make you read it and here I am giving it to you today for free, but don’t just read it and say “Oh that was a nice book. I enjoyed that. Oh, this show is on. Big Bang Theory is on. The Bachelorette is on, let’s watch that.”
Mike Hambright: It’s interesting because I sometimes worry about what’s going to happen. There’s really not a lot that I can do about it obviously, but one of the great things about being a real estate investor, especially if you own rental properties and you focus on entry-level houses, it’s almost like no matter what happens, people need places to live. If you focus more on the entry-level first-time owner type houses, it just seems like there is always going to be opportunity there one way or another. Your proverbial cheese may move, but there will be some way to monetize those deals.
Larry Goins: That’s true. One thing I’ve found out that is the lower the price of the house, the more buyers there are available. It’s just a bigger pool of buyers.
Mike Hambright: Right, awesome, Larry. Thanks so much for your time today. Again, for those that want to get the HUD book that Larry had offered to give Flip Nerd listeners graciously for free, go to LarryGoins.com/FlipNerd. We’ll have a link down below the video for that. Larry, thanks again so much for your time. I really appreciate your insights and your information.
Larry Goins: Man, I appreciate it, any time.
Mike Hambright: Alright. Have a great day. We’ll talk to you soon.
Larry Goins: Bye.
Mike Hambright: Bye. Thanks for joining us on today’s FlipNerd.com podcast. To listen to more of our shows and hear from incredible guests, please access all of our podcasts in the iTunes store. You can also watch the video versions of our shows by visiting us at FlipNerd.com.