This is episode #322, and my guest today is Mitch Stephen. Mitch is probably the leading expert in America on Owner Financing homes, which he’s done more than 1500 times…but to achieve that level of volume, he’s had to learn how to delegate tasks to others. In today’s show, we talk all about delegation. From utilizing virtual assistants, to outsourcing your bookkeeping, to outsourcing your marketing and acquisitions.
Mitch shares his list of easy, medium and hard things to delegate, and the roadmap to help you free up your time to scale your business. Whether you’re just getting started and don’t have enough hours in a day to do it all, or whether you’re “successful” financially, but broke physically or emotionally from working 18 hour days…you’ve got something to learn in this episode.
Mike: This is the flipnerd.com Expert Real Estate Investing show, the show for real estate investors whether you’re a veteran or brand new. I’m your host Mike Hambright and each week I bring you a new expert guest that will share their knowledge and lessons with you. If you’re excited about real estate investing, believe in personal responsibility, and taking control of your life and financial destiny, you’re in the right place.
This is episode number 322. My guest today is Mitch Stephen. Now, Mitch is probably the leading expert in America for owner financing homes which he has done more than 1500 times. He’s actually an author that’s written a number of books about his story and how to get started in owner financing. But really to achieve his level of volume and success he’s had to learn how to delegate tasks to others. You simply can’t do everything yourself. So on today’s show we talked all about delegation from utilizing virtual assistance to outsourcing your bookkeeping, to outsourcing your marketing and even your acquisitions.
Mitch shares his list of easy, medium and hard things to delegate. We kind of talk about if you had to delegate the first thing where do you start and then what are the hardest things to do. And he really shares kind of a roadmap to help you free up time to scale your business.
Whether you’re just getting started and don’t have enough hours in a day to do it all or you become a slave to employment for yourself or whether you’re a successful, financially successful real estate investor but you’re broke physically or emotionally because you’re working 18 hours a day doing it all. Whether either of those things sounds like you at all, you’ve got something to learn from this episode. Mitch has a ton of experience. He’s a humble guy and he shares it all with us today. So let’s get started, please help me welcome Mitch Stephen to the show.
Mitch, welcome to the show my friend.
Mitch: How are you doing Mike?
Mike: Good, good. We were just talking, for those of you that are listening in Mitch is, I’d like to think that we’re good friends Mitch although it’s been a while since I’ve talk to you, so.
Mitch: Yeah. But I’ve thought about you a lot.
Mike: Yeah, yeah. We won’t go there but it is funny I just told you like sometimes I, for those of you that we’re going to get into some of these, we’re really going to talk about delegation today but Mitch really is probably the top expert on seller financing deals in America. So I have rental portfolio and every once in a while something happens and I’d say to my wife I’m going to call Mitch and I’m just seller finance all these things. So I talk about you and you come up more often than we actually talk to each other lately.
Mitch: Sooner or later I’m going to get you. You’re just going to get tired of those tenants. Sooner or later I’m going to get you.
Mike: Yeah, yeah. It’s never a question of being tired of tenants it’s more of just like the execution of going to pull that off.
Mitch: You just haven’t had enough yet, Mike. When you’ve had enough meters pegged like over here, you’ll call me.
Mike: Yeah. It depends on the day or the month for sure, so. Well, Mitch welcome to the show, glad to have you here. So you were on the show once before but it’s been a long time, I told you. This is episode number 322, I don’t have the old number but we actually did a two-part series probably a year and a half or two years ago about seller financing.
Mitch: Yeah. We got started and we couldn’t stop, right? So you had to break it in half.
Mike: Your are the only person that I’ve ever done a two-part episode because we were talking and I knew kind of the flow we were talking about, it was really a good conversation and I had to, for those of you listening, I literally just stopped Mitch. I said, “Mitch, hold on for a second. I’m going to break this into two parts, are you okay with that? Do you have time?” And we just kept talking and we turned it into part one and part two.
Mitch: It’s a big interesting subject, you know?
Mike: Yeah. No doubt about it. No doubt about it.
Mitch: Not a lot of people are talking about it, but on my students that are doing owner financing it’s more than just owner financing because on the way to trying to find owner financing deals you’ll find all kinds of deals. You find apartment deals, you find stuff in the neighborhood you don’t want, so you got to really kind of know a little bit about everything if you want to maximize every lead that you get. It doesn’t mean that you have to go on the apartment business but you need to know who to flip the apartment lead to so you get paid.
Mike: Yeah, that’s a great comment because that’s true. I say to people all the time about real estate investing. That’s how all real estate investing is, right? Most of us real estate happens to be the widget that we’re buying and selling, but we’re really in the opportunity business, right? You are out trying to make stuff happen and in that process you find stuff that is maybe not what you normally do but it doesn’t mean there’s not a way to monetize it, as long as it doesn’t get you totally sidetracked.
Mitch: Well, I mean I was in a . . . I’m in the house business. I walk in to buy a house for the barn in the back and in the back is a ’63 Corvette. I was in the Corvette business for about 30 minutes. I needed to find out how much that Corvette was worth because she said I got the whole place, Corvette and everything, she said everything. I didn’t bring up the Corvette I just said “Everything?” She said everything. I said okay. So I was in the Corvette business for about 30 minutes.
Mike: Yeah. There you go.
Mitch: I made as much on the Corvette as I did on the house.
Mike: Wow, awesome. Well, hey, Mitch, before we kind of jump in to talking about delegation, this is a great topic because that’s something I talk about a lot to people when I coach and mentor people and I know you do too on how do you scale your business. You can’t do it with yourself. But before we kind of go there for those that don’t know you, take a minute or two and tell us who this crazy guy Mitch Stephen is.
Mitch: My name is Mitch Stephen. I’m from San Antonio, Texas. I’m a high school graduate, probably about just a simple guy as you can get. I’m not the smartest guy in any room but I have a ton of common sense. I started out my real estate career about 20 years ago, made a ton of mistakes. My book, My Life and 1000 Houses: Failing Forward to Financial Freedom is about falling down and getting back up more times than I could count.
It’s kind of what happens after the “Get-Rich” guru seminar, and I wasn’t smart enough to get a mentor. I did all of it by getting my nose bloodied. I should have done it different and looking back, it’s real easy to say what I should have done but I couldn’t see it back then.
The internet wasn’t what it was back then. What it is now, it wasn’t quite that what it is now by a long shot. I bought over 1500 houses in my career all in the effort to owner finance them. I didn’t owner finance all of them. Like I said along the way to finding owner finance houses I find a lot of other stuff. I just became professional at finding great deals and finding private money because the key, the difference between making a good living and being a multi, multi, multi, multimillionaire is private money because there’s not anything I can’t buy.
If I see it and it’s a deal, I pick up the phone I have the money within, sometimes minutes, put to my account or sent to the title company or whatever. I don’t suggest anyone wire anybody money to someone’s account but after you’ve been in business with someone for 20 years it’s a different story, and I’ve been in business with some of these people now for going over 20 years.
So my main model is buy it with OPM, other people’s money, owner finance it for double and plus the down payment. So I get paid the down payments in a couple of other ways and I get paid to create a positive cash flow where I am not a landlord and I do not have all those liabilities that Mike Hambright has with the air conditioner and the roof and the hot water heater and the glass and the garage door and the garage door opener and the sprinkler system and it just goes on and on and on. If it breaks you’re going to have to fix it, right, Mike. You get to fix it.
Mike: Yeah. I mean, and of course, I have a property manager company for that, but there’s no doubt about it, we get eaten up with vacancy and turnover, no doubt about that.
Mitch: My basic theory is that the rental, the buy and hold rental theory is that bottom line is basically a myth because they’re not giving enough weight to the liabilities that you have. I just present a different case. I’m not saying that rentals can’t . . . that there’s not millionaires made in the rental business. Of course, there is. But I’m just saying there’s another choice if you’re not really enthusiastic about being a landlord. That’s my story and I’m sticking to it.
Mike: Yeah, awesome Mitch. Well, so today we’re going to talk about delegation though. Actually, I’ll try to add the old show numbers here from the last time Mitch which I just talked about solo financing in detail. So we’ll add the links if you want to learn more about the last time we talked which again is two episodes, part one and part two.
But today we’re going to talk about delegation and I know, obviously, you are a seller finance guy, so I know you’re going to hear a few things in there today but just generally for real estate investors. I think a lot of people start off scrappy and trying to be efficient and be a one man band, but the truth is for most of you, if you left Corporate America or you left some job you ultimately just created another job for yourself and you always limited by your own time and your own capacity.
Mitch: Yeah. Well, this is the one thing that we all have in common. We all have just 24 hours a day. So the people they get smartest about using that 24 hours, win.
Mike: Yeah, that’s right. That’s right.
Mitch: And they also have a better quality of life because I was winning really big in the financial department in the beginning. It’s huge, but I was working 18 hours a day.
Mitch: So what is the point of being really successful financially if emotionally and physically and your home life is in shambles, what’s the point. What’s the point?
Mike: Yeah. Yeah, and the funny thing is, I’m excited to talk about this because I know, we talk a lot about real estate investing and I’ve talked about it for years in the context of freedom. It can give you freedom. It can give you things that you couldn’t have gotten probably by working for somebody else ultimately. But I think a lot of people, certainly a lot of people end up failing which is unfortunate but just the reality I guess.
Now, in some instances those people could have done better had they not tried to do everything themselves, even things that they weren’t good at. Then in some instances the people that are successful, I’m kind of using air quotes for you that are just listening here, successful, are from a business standpoint they’re successful but like you said kind of emotionally and physically they’re broke, right?
Mike: That’s not good.
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Well, like you said kind of emotionally and physically they’re broke, right?
Mitch: Yes, yes.
Mike: That’s not good.
Mitch: Well, okay, so Kiyosaki said we want a business that we work on not work in. I say, I want to build a boat that I can ride in not row in. I don’t want to row my boat. I want to ride in it. It’s a vessel that I’m supposed to get me from point A to point B but I don’t want to row to get there because that takes all the fun out of the boat ride. Do you know what I mean?
Mitch: So I started sitting down to try to think, I almost quit the business because I was doing so much, I was doing so much, and I didn’t call it quitting and now I’m doing air quotes, I didn’t call it quitting. I called it retiring. I was going to retire. But basically I was tired of running myself ragged and people would ask me “What are you doing, what are you doing?” I just say, I’m slowing down. I’m going to probably just ride it out from here.
One guy sat me down and said, “Why are you doing that? You’re too good at this. Why are you stopping the machine?” I was real frank with him, I said, “It’s killing me, man. It seems like every time I turn around I am constantly just picking up the phone and putting out the next fire. I can’t even plan my day because the minute the phone rings I can’t do what I wanted to do. There’s another fire I got to go piss on.”
Mitch: So he says, “Well, why don’t you let me . . .” we start talking about these different systems you can do and free yourself up. You won’t make as much money for a year but the money you make will just be deposited in your account like you won’t . . . it will run in the background.
Mitch: I said, “I’ve been trying . . .” I just told him frankly, “I’ve been trying to do that for 15 years and apparently I’m not any good at it.” But through a different mindset he changed my mind, he slowed me down and he got me, since I wasn’t doing everything else, I could concentrate on the systems. Because I was going to set the business aside. I say quit, I had 250 houses paying me payments. I had 1100 storage doors, I could quit any day I wanted to. That was not an issue.
It was not an issue. But there’s, how do you say this politically correct . . . a man with a lot of money and nothing to do can get in a lot of trouble. So I figured I better figure out, I better stay involved with something that’s down the right track. You know what I mean?
Mike: Yeah, yeah. I will tell you that those things are important. I mean, I know that’s not necessarily the topic of today, but I’ve had a conversation with my wife before. There are different levels of financially free but for many years now I haven’t had to work nearly as hard as I have. We’ve truthfully invested a ton of resources at FlipNerd to try to get that off the ground and wasted a lot of money with expensive mistakes or whatever.
But all the time I, several times where I’m like why are we doing this? Why are we doing this? The truth is the goal isn’t to, I guess everybody has to figure out their own goal. The goal for most people isn’t to sit in a lazy boy recliner and watch soap operas all day long or even to sit on the beach all day long, right? I love to go to the beach but I’m going to be itching for something to do after a week.
Mitch: Yeah, I can take about seven days off a beach but when it’s time to go . . .
Mike: A week, a week, yeah, right. So it’s to find what you enjoy and try to get rid of some of the stuff that you don’t enjoy doing that make what you do maybe not fun.
Mitch: Well, and I don’t take a lot of students across country, I only take a handful of selected students. I’m not a millhouse. But what happens to all of them they’re not newbies but they’re not independent yet. Some of them still have their jobs, most of them still have their jobs. But they’re trying to replace their job and get financially free to the point where they can start thinking about the possibility of becoming wealthy. I mean the first step is to become financially free because once you become financially free you don’t have to have a job, you’re not giving up 2600 hours a year to some company. This is a huge piece of life and that’s where you’re going to figure out how to get rich, right?
But they all get stuck at the same place. They see the strategic angle but when you start to chase the strategic angle you get bogged down and wearing all the hats. For example if you are in the house flipping business or the creative real estate business where you’re doing quick turns or rehabs or any number of the strategies, I mean you’re the HR person, you’re the advertising person, you’re the bookkeeper, you’re the sign maker, you’re the sign poster, you’re the seller, you’re the buyer, you’re the contract, you’re the closer, you’re everything, and you can’t be any good at any of them where there’s many hats that you have to wear. Oh, and you’re also the private money raiser or the guy that has to go find the funds which is a full time job by itself practically.
So they start to get overwhelmed and even when you’re talking to them on the group coaching or on the one-on-one coaching, you’re saying what you need to do is go check out live com and start doing this mass texting thing or whatever, whatever thing you bring them and you can just see it on their face. You can hear it over the phone, it’s like I don’t have time to do the next thing I was supposed to. When am I going to find time to research this?
I can just hear the tension over the phone and I say, “Let’s just slow down a minute. Let’s just take one thing and get it off your plate and let’s don’t focus on anything else, but we’ll get that off your plate. Then when we get that off your plate we’ll go to the next piece and we’ll get that off your plate.” So I have a list of things that you could get off your plate really easy, you want to hear them?
Mike: Yeah, what’s the first thing that people should consider delegating?
Mitch: Okay, well, there’s the first thing I think they should delegate is to get a VA, because the thing about a VA can make you more money than they cost you and they can make you a lot more money than they cost you, which kind of freeze you up and give you the nerve to take out to delegate some other things that cost you.
Mike: Right, right.
Mitch: They’re not going to make you any money per se. Like bookkeeping. Bookkeepers are rarely making any money. However, they can make you a lot of money if you’re in such financial order that you can take your private lenders who are loaning you money at 10% to buy your houses. You’re in such financial order that you can walk your paperwork down to the bank and you can get a 4 and a half percent loan on a million dollars and cash out a million dollars. Now, the bookkeeper is making you money.
Mitch: But it’s not as obvious as the VA because the VA, let me tell you what, I have my VA do.
Mike: Yeah, that’s what I was going to ask because as you know I have a bunch of VAs too and I think I generally have them do a lot of administrative tasks. It might be different for everybody but there are some real obvious ones that can just free up a lot of your time, right?
Mitch: At first I was seriously on a fence or not sure if I should get a VA because the VAs that I used are trained in my business and I’m paying about 10 bucks an hour, a little less than 10 bucks an hour for these VAs overseas, but they’re trained. I don’t have to train them. But the question is still, what am I going to have them do? So the big problem is not just the decision to get the VA but what am I going to have them do that’s most likely to produce a profit for me.
So you’re able to hire like my VA cost me, at first I just bid off a little bit, four hours a day, five days a week. It was $800 a month, I mean $800 a week. So that’s roughly $10,000 a year. So if someone is going to work for me four hours a day, five days a week for the whole year and it’s going to cost me 10 grand, what task can I give her that without a doubt she’s going to make more than 10 grand in a year for me.
So I thought well, I have to get the most viable leads to do my mailings to. The most viable leads, not just everyone in zip code 78207. That’s not very targeting. So how can I make the target as deep and as drastic as possible and as focused as possible so that when she’s out there finding them I got a good chance of buying these houses.
So on Mondays she finds out everybody who is new on the tax delinquent list the last seven days. On Tuesday she finds out who filed for divorce, new, in the last seven days. On Wednesday she finds out who’s had code violations in residential neighborhoods for the last seven days. When I figured this all out, so it goes all through the week, right? If she has a different task to do every week about that and she takes those tasks and she sends them off to my mailing house and I get a copy and those new leads are now in the cue to be sent to mailing.
So the problem with the business is consistency, it’s consistency is the problem, and so if you say Mike Hambright, “Oh, I can do that. I’ll do that.” Well, how long are you going to do this every week, Monday, Tuesday . . . ?
Mitch: You’re not.
Mitch: We’re ADD entrepreneurs on to the next thing. We’re not going to stay with the task for 12 days much less 12 months.
Mike: Absolutely, yeah.
Mitch: We’re handicapped in this department, we’re completely ADD, we hate routine, we’re not going to do it.
Mitch: But these people do it every day four hours a day without fail and it’s their job, and by the way the pay scale is different. The dollar that we see over here is like $5 over there, so I mean, they were equivalent of making $60,000, $70,000, $80,000, $90,000, a $100,000 depending on exactly what you’re paying them. Those people are transient and they’re not taking this job like . . . don’t think as like a $10 employee over here because for $10 over here you don’t get much, you certainly don’t get loyalty.
Mike: This is going to sound bad. This is, I don’t know . . .
Mitch: Just throw it out there. We’ll clean it up later.
Mike: Yeah. So I’ve always had a hard time finding administrative people in my team that makes sense for the long term. So last week, actually, just last week I hired a temp to help out with some stuff and it wasn’t cheap because I went through a temp service, they marked everything up 50% because they’ve got a markup. That’s fine, it is what it is but I knew that it gave me the flexibility to say, I’m going to know a lot more about this person in a week or two than I do on this phone interview.
So I’ve got some flexibility. It might be temporary. I told them it might last three to six weeks, I don’t know. Well, it lasted four days. Truthfully the first day the woman was like, “Well, this chair is really hurting my back.” I kind of look around in the office thinking maybe we have another chair. Well, every desk has the same chair. Those are the chairs that everybody in the whole office has. We’ve been here for years and years and years, nobody else has ever complained about them before.
The next day, it was like, “Well, can I get a wireless mouse instead of this?” I literally just, because I have several VAs, I was like, okay, I’m going to try to just do the stuff I was having her do, spend the time to figure out how to outsource that virtually because my VAs don’t complain. They get it done and they don’t complain, and so.
Mitch: Like I asked my VA overseas, I said, “Well, there’s quite a time difference, you know when it’s 12:00 noon here it’s 12:00 midnight there.” They said, “Yes.” “And so how are we going to work this out? What hour should we be working?” My VA said without hesitation, “You tell me when you want to work that’s when I’ll work.”
Mike: Yeah, exactly.
Mitch: I said, and it was yes sir, no sir, and yes ma’am, and no ma’am and very gracious, humble, and hardworking folks.
Mike: Yeah, absolutely, absolutely.
Mitch: I’ve had mine now for two years. So here’s the thing, you get the VA because the VA, let’s face it, in the house business we make our money when we find the houses, when we contract the deals, right? So that’s where the money’s at. Everything starts at a deal, everything starts with a deal. So I thought if you’re going to spend any money and get something going, get the consistency of your deal flow coming in at least the leads to mind for you deals. Make that consistent. Make sure it happens every day, five days a week and without fail.
Now, there’s easier things to delegate. But this is the most important because it can make you more money. This is how I decided to hire my VA for $10,000 for the year, was I looked at all the things I thought I would have her do and said, “What’s the chances that she’s not going to find one house in a year if she does this for me?” It was zero. It was a zero chance that this was not going to result in one house, and one house would certainly mitigate if not pay for in full if not paid double but what she cost me.
Mitch: In fact that it would only be one house in a year was ridiculous too. It should be at least ten or one a month, you know what I mean?
Mitch: So that’s how I made that decision. That was really easy to do. It wasn’t quite as easy to figure out what they were going to do but people like you and me can help people with that now. So they don’t have to invent this and sit in a room in the dark by themselves and try to figure it out. We can help them.
Mike: I know you’ve got some tasks there. Let’s just, something practical for folks that are listening to say, “Well, where would I start at.” I know you kind of mentioned this before we got on the call that you just tell people like well, every hour just for a couple of days, just every hour just take two minutes and say what did I do over the last hour.
Start to . . . because sometimes you’re so busy, you’re running around, you’re in the weeds in this business especially when you’re first starting off, you’re all over the place, right? What is the chance to kind of inventory, what it is that you did, and said, why am I doing that. I don’t need to do that. Like what are the things that you hate doing and what are the things that are effectively important but below your pay grade so called.
Mitch: Yeah, below your pay grade, it’s exactly what it is. First of all, try to figure out what you’re worth an hour as the owner of your business. I mean even if it’s as low as $30 an hour when you start out, just pick a number. Then if anything is under . . . you can pay someone for less than that then they’re below your pay grade.
So what I’ve done, I did this just to see what I was going to fill my VAs time up with. But it ended up being a good lesson for my students in just their life, their whole business, which was they had an alarm clock or their phone and they set it to ring every hour on the hour and they just ask what am I doing in the last 60 minutes. If what you’re doing in the last 60 minutes can be done by someone else, then guess what, you need to figure out how to get that done by someone else because if you’re not signing a contract to buy or to sell, this is not where the money is made.
So a lot of times there were easier things to delegate. I mean bookkeeping, if you start your business you should start with a bookkeeper from the very beginning because it would be so much easier. It won’t be that much money but still when people start out in the beginning they’re afraid and they’re broke, right, Mike?
Mitch: So this is why this is a hard mental decision. But someone should be able to keep your books for 50 bucks a month if you’re not doing but one or two deals . . .
Mike: If you new it shouldn’t be much, yeah.
Mitch: Yeah, right. But the point is to get setup and start to have that system that you know that when you start doing 10 houses a month it’s just going to fit right into the system and it’s not going to change. It’s going to chug along and you’re going to get a P&L every month and a balance sheet and your taxes will be as easy as, well, turn in the 12 months reports and figure the taxes. It will be done.
But where you’ll make your money with the bookkeeping is, is when you’re in order and you start making a $100,000, $150,000, $200,000 a year you can now go to a bank and get some really cheap money. But we all know when you go to a bank they want every piece of paper in your life and it better be filed and registered and taxes paid and all that.
Mike: Yeah. So Mitch I got to point out something here. You just said your tax would be a lot easier if you have a good bookkeeper. You sound like a man that doesn’t own any rental properties.
Mitch: I do.
Mike: I know.
Mitch: I have 1100 storage doors but they’re not . . .
Mike: Our rentals are the most allocated part because we have all these depreciation schedules and all this other crap.
Mitch: I know. But you don’t do that.
Mike: I know.
Mitch: Or do you, do you do if yourself?
Mike: We have people that do it but it’s still . . . it has to be done. Like you don’t have to do that when you seller finance, right?
Mitch: No, I don’t have that . . . well, that’s the only two things you lose in seller finances, depreciation and appreciation.
Mike: Right, right.
Mitch: But I just take all the time that I spent managing those properties, I just go buy another owner financed house and just substitute . . . I just substitute, I property manage it or buy another house.
Mitch: And so the other thing that’s easy to delegate while we’re on the subject of rentals and collections is no collections or collections. There’s collection companies that will do it all for you. If you’re in the owner financed business where you’re selling houses and collecting payments, not collecting rents, you cannot only collect the traditional principal interest, taxes and insurance, but you can also collect a fifth thing.
You can collect the servicing fee, the note servicing fees, instead of PITI it’s PITIS, principal, interest, taxes, insurance, and servicing fee, so you can effectively get your payer to pay the fee for the collection company, so that’s a no brainer. You can get that off your plate right now. So if you’re collecting payments right now, stop it, quit it.
Mike: I know you have a servicing company that you use. We’ll add a link. What’s it’s called Moat Note Servicing?
Mike: Yeah, people ask me all the time, they want to do seller financing stuff, who do I use for servicing and I’m like I’ve recommended a couple of people in the past that I didn’t have any experience with but I know you have experience. This is coming from one of the top seller finance guys around, so yeah.
Mitch: Yeah, collected tens of thousands of payments, I mean . . .
Mike: We’ll add a link down below for that.. Well, what are some of the things that are . . . before we kind of move into some of the things that are harder to delegate, and then I wanted to ask you too about . . . so, well, something I see a lot of real estate investors get into, we’ll come back to this in a second, is they think, well, VAs are cheap so this means we’ll get a whole bunch of them. Then you can’t keep them busy or, then the burden is then you have to manage them unless you figure out some kind of management level. So I want to come back to that in a second.
But what I want to ask you, right now I have a question from Facebook that comes from Sean. His question is, this is a little bit off topic but I know we talked about this or you talked about it several times here. You kind of mentioned it. He says, “My biggest struggle is finding favorable funding sources that allow me to build my rental portfolio.” So I know your answer is going to be finding private money, but maybe just talk to us for a couple of minutes to talk to Sean here about how he can get started with finding private money.
Mitch: You can use your VA, that’s one of the tasks they can do. Every morning for the first hour, I mean who is funding all these deals in the county that you live in. They can go through the Courthouse Records and start looking at records to see who the lender is that’s not an institution, it’s not Wells Fargo, it’s not Chase, this guy’s name is Mr. Johnson. Well, Mr. Johnson didn’t sound like a big company, maybe he funds deals, and we’re going to put him on our list for mailings for that. But here’s a really great one I thought of yesterday, you want to know why you need a mentor? This is why you need a mentor because this is going to work.
Just go down to the foreclosures and find the private people that are having to foreclose on investors like you and me and go knock on their door and say, “Hey, would you like to get involved with an investor where that’s not going to happen anymore?”
How about one with a 20-year record that has never missed a payment ever. Do you want to loan some money to a guy like that or do you want to keep messing with these yahoos that don’t know what they’re doing because I noticed you’re down to courthouse foreclosing on this guy on four houses. You obviously want to loan your money but the problem is you’re not getting paid. Why don’t you talk to me? I’ll pay you.
Mike: Yeah. There you go.
Mitch: Well, that’s a great lead source, right?
Mike: Yeah, absolutely.
Mitch: It’s a private money. So and there’s more, there’s a lot more lead sources. But the point is the VAs can help you start sending out and getting lead source for funds as well as to help you find deals that kind of go hand and hand. It’s the same courthouse kind of search thing. That’s what they’re . . . mine are trained for 45 days, to know how to get and keep county courthouse records, to know what probate is, to know what nuisance abatement means, to know what foreclosure means, to know what owner finance means, to know what a mortgage is. They’re trained for 45 days because they don’t come from this culture, so they have to learn this language. I don’t want to teach it to him.
Mike: One more question to kind of extend this a little bit on raising private money. Aside from sources can you maybe give some thoughts on kind of keeping it simple because I have a tendency to believe that most people are going to say, “Well, let me find out what that person wants and kind of create some program for them.” The next person wants it a little bit different and the next person wants it a little bit different. I know you’re going to err on the side of simplicity here so just maybe share some thoughts on how to keep that simple.
Mitch: First of all, as the private person offering to pay a higher than normal rate, you get to dictate the terms more often than not. Every now and then someone else will want to dictate the terms or have some special need, then you can decide if you want to deal with it or not. But on 8% interest only five years non-recourse, or collateral only loan which means you either get or you get, you either get paid or you get my house. Either way you won’t be broke. If everyone in Bernie Madoff’s pyramid scheme would have had a first lien on a piece of property, none of them would be broke.
Mitch: None of them. So it’s person, one loan on one house, they either get paid or they get that house. It’s simple and I’m averaging 52% LTV. So this is exactly what I’m explaining to my private lenders when they want to know what’s your plan. I say, “Well, my core belief of my business is that a person paying a $1000 rent would rather pay a $1000 to own. Do you believe that?” They say yes. I say okay. Then I establish an owner-financed value and then I show them how I use the rents to back into so that when they’re buying my house their payments within 50 bucks of what they’re paying for rent. This only works in a certain price range of houses like 250,000 or less
Then I say, do you understand how you arrive at my owner financed value because I’m going to be talking to you about the owner-financed value. Not the value because that could be confused with MIA appraiser or broker’s professional payment.
Mitch: All those people could go get a new loan. I’m not dealing with those people. I’m dealing with people who would value the house a certain way if they could get the house because they don’t have a good credit. So then once they agree with that then I just say okay. So here’s what happens, I buy this house for 50,000, I borrowed 52,000 from you, my payments, 350 and I’m going to sell it, owner finance it for a 110,000 because the rents say that I can.
The rents say that I can. There’s people out there paying that much per month for a rental so they’re obviously going to pay that much to own, at least 85% of them wish they could have. Do you understand that? They go yes. I said, “So here’s the bottom-line, it’s 8% interest only payable monthly, so you’ll know within 30 days if there’s a problem because your payment won’t come which by the way, has never happened and then at the end of five years you get all your principal back and you either get paid or you get a house.”
I already proved the house is worth a 100 grand and you’re loaning 52,000. By the way, one of the common questions is, so you can buy the house for 50,000 but I’m loaning you 52,000. Why do you get the extra 2000? And the answer is really simple, because finding houses isn’t free.
Mike: Right, absolutely.
Mitch: It’s not free.
Mitch: There’s a cost to it and I don’t exactly how much it cost . . .
Mike: Mine is 2000, my cost is way above that but, anyway.
Mitch: Sometimes it depends on the margins. Sometimes I’ll borrow a little bit more but I never borrow less than 2000.
Mitch: When the recession hit in 2008 I bought a house a day. I bought 28 houses in February of 2008, no, 2009 because I borrowed 2000 extra a house I had $56,000 in an account for my advertising budget.
Mike: Yeah, yeah. Well, so let’s jump back to talking about delegation. So what are some of the . . . the next question I have is, sometimes people, and truthfully I’m dealing with this right now. I have a bunch of virtual people but right now this is actually what I had hired this temp for last week was to be kind of in the middle, help manage some of the things they were doing so they don’t have to come to me each time they need something. It was kind of like a middle manager if you will.
But with folks to start to add a couple of different VAs, how do they get themselves out of that business of having to kind of manage every little task that comes around or every little question that comes around from your kind of virtual staff.
Mitch: I don’t know if this is what we’re going with the conversation but it’s the truth so I’m just going to go there. The people that I use, I have middle management. They manage them for me if I have a problem or I don’t think there’s something going on or if I want them to like, I wanted one to like do a screen recording of everything they do every day to depict a certain task for Tuesdays. Then do it again on exactly what you do on Wednesdays and then exactly, so that if they’re ever gone and I have to get someone else, there’s a video exactly, screen movements and audio which she didn’t know how to do the screen capture.
She says, “What software do you use?” I said, “Well, I don’t know.” So I got my middle management person and I said, “This is what I want her to do, I want her to record the screens and talk to me about what she’s doing so someone else could do it if she’s wasn’t there.” She goes, “Okay, we’ve got this. I know how to do this. I’ll teach her how to do it.” Then I left.
Mike: Boom, you’re done, yeah.
Mitch: I mean he came back the next week, it was like, “Okay, here’s Mondays, is this what you wanted? And this is Tuesdays, is this what you wanted?” “Yeah.” They taught her how to do it.
Mike: Yeah. Okay, okay, that’s great. So what are some of the hardest things to delegate? Some people want to delegate themselves completely out of the picture which might be possible. I think you probably come a long way there. But what are some of the harder things to delegate that we just kind of tell people up front like “Hey, save this for last if you can do it at all or you’re never going to be able to do this,” for example.
Mitch: Yeah, I get you. Let’s go through we have so far in the easy things then I’ll get to the difficult things.
Mike: Okay, okay.
Mitch: So the first thing you should do is the VA, but the easiest things are bookkeeping, note collections, and mass mailings or doing letters or postcards. Don’t lick stamps and write envelopes and do all that. Don’t try to get your kids to do it. We need consistency, it needs to get done like everyday no matter what, do you know what I mean?
Mitch: So I need a professional company that does this, okay? So the next hardest thing is sales but it’s still pretty doable.
Mitch: A person who sell your houses that understands your product but here’s what I want to tell you. Don’t hire . . . don’t go to the real estate club and find people that want to help you because they all want to do what you want to do it ultimately, and they’re not going to be there. I want to add for a salesperson who’s the best . . . who broke the records and who were [inaudible 00:37:29] I want to talk to you. Get over here.
I don’t want them to know about real estate. I want to train them just enough about selling my houses, that’s all I want them to know because I don’t want them in my business, I don’t want them asking about my business, I don’t want them figuring out what my bottom-line is. I just want you to answer this call, go over here, and if you get this contract signed, I’m going to pay you 20% of the down payment, that’s what I pay.
That’s all. When you’re done go out and show another house to another person. The minute they say to me, “Hey, I think I’m going to go out and try and see if I can find you some houses.” I say, “Stop right there. The minute you bring me a house is the day you don’t have a job here anymore because I hired you to do a sales job.” Do you understand?
Mike: Right. Yeah.
Mitch: I need a salesman. I don’t need a house finder.
Mike: Even with that you can have VAs help you find those people, right?
Mitch: Yes, yes.
Mike: Respond to ads in Craig’s list or Indie or Monster, wherever you’re posting on that.
Mitch: Yeah. The other things I can do that’s low level stuff but important is postings. But one of the hardest things is to find the salesperson, but the very hardest person to find is an acquisition agent. Again, you don’t want them to be involved in real estate. You want them to have been like a really good car salesman or a really good tractor salesman. But you don’t want him to have been in real estate and really have some wants and needs of being a real estate investor.
You just want a guy who wants a job who’s a good salesman. I pay my salesmen because I can arrive at my strike price mathematically from the rents, the rents minus the taxes minus the insurance, times a hundred, equals how much they can finance, plus 12% equals the owner-financed price.
I would like to be in for 50% of whatever my note is going to be. So if the guy is going to owe me $80,000 at the end of the sale probably we never know how much we’re going to put down but probably, they put 10% down, that would be around $80,000 in this example. Then I’d like to be all-in for around 40,000, 41,000, 42,000. That’s a homerun, okay? Grand slam. I mean it’s a homerun. If you get it for less than that it’s a grand slam. You could still pay more than 42,000, 43,000, you could pay 46,000, 47,000, 48,000, 49,000, it’s still a decent deal, you know what I mean?
Mitch: But I can divide it by two really easy Mike so I think that is the [inaudible 00:39:47].
Mike: You don’t even need a virtual assistant to help you with that. You do that in your head.
Mitch: I’ve never used the financial calculator. I always use one of those $2 calculators that you hold up to the sun for a few minutes before you do the thing. Okay, so this is the deal, if you can get my house under contract for my strike price of $40,000 and I pay you 500 bucks. If I pay a little more than $40,000 or $45,000 or $46,000 I’m still going to pay you 500 bucks, you found the deal. But for every dollar you get it under $40,000 I split with you 50-50. So if you get the $40,000 house under contract for $30,000, you get a choice. You can pick $500 or you can pick $5000 because half of 10,000 is 5000, so you pick one or the other. I’ll pay you $500 for signing a contract or half of what you saved me.
So if the strike price is not objective, which is one thing cool about my formula is it’s not objective. You find what the rents are, give or take $10 a month, and you figure out what the strike price is. My guys can figure out the strike price on their own. Then they either get the contract signed for the strike price or a little higher and make 500 bucks, I know I wrote a check the other day for 15,000 bucks to a guy. I said 50 was the strike price, he bought it for 20. He saved me $30,000. I would’ve been happy to get the house at $50,000. The guy negotiated $30,000 savings. Hey, every now and then we get lucky.
Mitch: He got lucky.
Mitch: He said he thought that I wasn’t going to write the check. He said, “I know you’re not going to write this check to me.” I said, “Why?” He says, “I just got this house 30,0000 under the strike price. I said, “But why didn’t you think I’m going to write the check to you?” He says, “Because it’s a lot of money.” I said, “You saved me a lot of money. You earned it. You earned it.” I wrote him a check for 15,000 bucks at closing when I bought it. Instead of borrowing 20,000, I borrowed 35,000 from my private lender, and I paid him. Actually, I borrowed $37,000, the extra $2000.
Mitch: So the hardest thing is that. But what you want to do when you delegate those is you probably want to give them a personality test because who you’re looking for in both the salesperson and the acquisition person, is you’re looking for a self-starter. You’re looking for a money-motivated person who can’t manage his money. You’re looking for a person who cannot manage their money. So that they can’t quit their job or they can’t go out on their own because they never have the money to go out on their own because they don’t know how to manage their money.
Mike: Sometimes truthfully, and I will say my top acquisitions person has been with me for like seven years. He’s bought a couple hundred houses for me, great guy, kind of a member of the family now. The truth is we’ve talked about this before, do you want to help us open up a new market, do you want to do something else? He doesn’t want to do the business side of it. He wants to go talk to people, he wants to get deals, he wants to do all that but he doesn’t want to be a business owner because he’s seen some of the grief that we have to do.
Mitch: So that would be the other thing. I was looking for the word, someone who’s not an entrepreneur, not an entrepreneur, not a good money manager, very responsible, very motivated, to get a nice pay check, very motivated. Very motivated. And you keep them completely separate. I don’t want my sales person looking for houses. I don’t want my house acquisition guy trying to sell my houses. If they happen to have a lead on either one, they need to exchange them.
Mike: Right. So what are some of the things that, anything else on your medium list before we get to the hard list?
Mitch: Well, we hit the hard list. The hard list is the acquisitions. If you had to go easy, it’s bookkeeping, note collections, mailings, and postings, or entering things into your house selling website or whatever, data entry. The medium thing is the VA and the salesperson. VA and salesperson are the medium problems. The hardest guy to find is the acquisitions guy, and this is most important too because usually we’re the ones doing the acquisitions if we don’t trust anybody else with that level of responsibility because they make a mistake, you could lose $20,000, $30,000 in profit on a house if not $50,000. Do you know what I mean? Or a $100,000.
But there comes a point where you don’t want to do this as much or any anymore. After 20 years I’ve had enough signing contracts and I was willing to take a few losses, I mean lose a few deals if I could train someone to get me most of the deals in the name of freedom.
Mike: Yeah. So Mitch, let’s take it from the top here just real quick, just for a minute or two, the people that are listening to this that they kind of get it and they understand, I think a lot of real estate investors have been taught to be . . . they know they’ve got to be scrappy. They may not have a lot of money to even advertise let alone which is critical, obviously you’ve got to have money to generate leads.
A virtual assistance sounds inexpensive and stuff like that but to get somebody that doesn’t have a lot of money to start thinking about investing in the business which it’s easy for us now to see that after we’ve been doing this for a long time, bought hundreds or thousands of houses, but for that new person that has a hard time coming up with that investment, if you will, because they’re still trying to make it work themselves, talk to them right now. How do you kind of bridge that gap?
Mitch: When we started out in the business to buy houses myself included, we’re generally always broke, hopefully you’re broke because if you’re loaded or someone gave you an inheritance and you go out in the business you’re going to lose it because you don’t know what it takes. If you have a lot of money or you get an inheritance and you think you want to go on the house business this is my suggestion, go put it in the . . . excuse me.
Mike: We don’t say the show is a rated R but we don’t say its rated G either. Mature audience. This is a mature audience.
Mitch: Go put it in a two-year CD where you can’t take it out and go learn how to do the business with no money because that’s how you learn how to mess with the art. When you can make deals with no money and proliferate with no money out of your pocket or very little money out of your pocket now you’re starting to learn the art of the deal. Because in the beginning we are just, when we’re broke, we’re just professional deal writers. If we write good enough deals then the partners and the money that we borrow will come to the deal.
So learn how to write contracts and then always in the beginning you flip a couple of contracts or you wholesale a couple of houses right away to get $10,000 or $15,000 or $20,000 or $30,000 in the bank to get the gun away from your head, to get some confidence, to get your wife to be quiet and quit telling you to go get a job.
Mike: Or your husband.
Mitch: Or your husband, I’m sorry, your spouse because there’s a lot of naysayers spouse out there I see when people come into the business.
Mike: Yeah, family members, everybody thought I was crazy when I said I’m leaving my . . . it wasn’t cushy but I was doing well.
Mitch: Right. So the first thing is go get some confidence by putting some money in the bank. Just give away deals for $5000 or $10,000 to put in the bank until you get like $20,000, $30,000, $40,000 in the bank. Now you could say it’s time to get the VA, I’m going to take $10,000 of that $30,000, I’m going to set it over here so I don’t have to worry about making the VAs payments for 12 months. I’m going to monitor what this VA does and if she doesn’t pay for herself in 12 months then I’m just going to go out and shoot myself. Because there’s no way that she shouldn’t pay for herself if you got her doing the right tasks.
Mitch: So when you’re new, you’re a professional deal writer and you should just be wholesaling deals to put some money in the bank, and we’ll talk about owner financing deals and cash flowing deals and holding on to stuff with a little success down the road, four or five deals down the road then we’ll start moving into these next levels, getting a bookkeeper, getting whatever.
Mike: Right, right. Yeah, you got to consider just like any business you’re going to start with your hotdog cart and you’re going to move it up into a 2000 square foot, I don’t know, I’m trying to make something up here.
Mitch: So you’re going to move from the hotdog cart to the food truck to the restaurant to the high rise needle in the middle of the town.
Mike: All right, I don’t know where I was going with that but, yeah, no doubt about it. You’ve got to reinvest to . . . hopefully that message was sent that you got to reinvest in more marketing which will help you get more leads and you’ve got to reinvest in kind of building your team because if you get more leads and you don’t have somebody to help you with those leads, then you’re right back to where you started of doing everything yourself.
Mitch: Yeah, that’s true. Sometimes I look at the success that my VAs have and then I wonder, are my acquisition guys are they really following up so every now and then I’ll jump in and call him or call the people, the lead, my guy gotten a hold of you yet? If they say no, then we have a come to Jesus meeting happening very soon because I’m not paying for these leads so they can fall down.
Mike: Yeah, absolutely.
Mitch: Oh, and that’s the other thing that I have my VA do. My VA follows up on the leads every week, to just ask what’s the status, have you gotten a hold of them, what’s their temperature, what’s the next move, on every lead that we have. Of course, I think she’s following up on the top 10% of the leads. The rest of them because there’s too many leads to follow-up on every single one, that we’re mailing.
But an important fact is that we do the mailings and what we’re looking . . . we do get sometimes people call us from the mailings, but not often. What we’re looking for is the return postcard, where the postcard had to come back because there was no one there to receive it. Now, we’re hot on the trail of our lead, that’s in the top 10%.
Mitch: Where is this guy, how do we find him, where are his kids, where did he live last, so we’re using this powerful skip trace software to locate people. If there’s a reason why I’m more successful than anybody else around in my town is because I don’t stop until I find them. If they’re alive I’m going to find them. If they’re not, I’m going to find their grave. I will go right to them whether they’re dead or alive, I’m going to stand right on top of them. Then if they’re dead, then we’re on to the heirs. We buy a lot of houses from heirs.
This separates the lazy people from the hardworking, intelligent, persistent, consistent people and that’s how you stay alive in this business, is consistency, I’m telling you. You have to pay people to be consistent, to be consistent in your mailings, to be consistent in the follow-up, to be consistent in the day-to-day task that have to be done because again, as entrepreneurs you, Mike and I, are not going to be consistent. We will say we’re going to and we won’t. We have to hire someone to do the job.
Mike: No doubt about it. No doubt about it, yeah. Awesome, Mitch. I’m going to add a link. We talked about a bunch of stuff here. I’m going to add some links for your books. So if you’re interested more in seller financing we’re going to add the show numbers from when Mitch was on before down below the show here. Then also some links to Mitch’s book and your last book. If you want to learn more about seller financing which I had already known because Mitch and I have been together in some Masterminds and talked before, he’d been on the show before, all those things.
But I remember this last summer I sent you a message. It was actually my birthday, in July, and your book had just come out like that week or something. I downloaded it and I was thinking I’ll get to it later. The next thing I know, I opened up and I sat in the chair and I read it until I was done which is a fast read. It’s a good book. So I sat there for a few hours at least.
Mitch: So you read My Life and 1000 Houses: The Art of Owner Financing, the last book that came out?
Mike: So I had a link for that. So it’s a great overview for sure if you’re trying to get started in this. I know Mitch has a couple of different training programs that we’ll add some links down below for that as well for anybody that’s interested. So anything else we’ve missed Mitch? There’s going to be more links on this show than there’s been on any in a while which is good.
Mitch: Just put a link for the free stuff. I have a ton of free stuff people can get. It’s 1000 houses, it’s 1000houses.com/menu. You can choose from all kinds of things. There are first 100 pages of my book to, I don’t know, people say I give away too much stuff. I say, you know, I’m going to give away a ton of stuff and then the people that think they need my help they’ll find me. I’m not going to talk anybody into anything or pressure anybody into it.
Mitch: That’s why I have such a great educational life with this people, is everyone is there, wants to be there, understands why they’re there, and they’re there in their own free will and no one is twisting their arm. But once they get in they might get pushed a little bit because I’m going to push them.
Mike: Yeah, awesome. We’ll add all these links below. Mitch thanks for joining us, really a great conversation.
Mitch: All right, Mike. I appreciate it as always. Let’s don’t wait like 3000 episodes before the next one.
Mitch: We have a lot we could talk about.
Mike: Yeah, absolutely. Well, everybody, thanks for joining us today, episode number 322. Again, we’ll put the links for Mitch’s other shows, but we’ve got 321 other episodes for you to go watch. We’ve got a lot of great content and then I don’t often plug this but we have a second podcast called REI Classroom where we have over 300 episodes. In fact we publish it seven days a week. I don’t if you even knew that we were doing that one, Mitch.
Mitch: REI Classroom?
Mike: REI Classroom, we do seven days a week. They’re like five-minute episodes. They’re mini lessons, I’ve never been in a single one literally. Hannah on my team here, records them and she records them. We have a lot of experts, people like you that join us and they just record like kind of four, five, six-minute like short, sweet, power lessons, and we publish one every day. We published, I don’t know where we’re at, over 300 episodes so far. So check that out too if you’re not listening into that one.
Mitch: Wow, what a great idea and you’ve never heard any of them.
Mike: What’s that?
Mitch: You’ve never heard any of them.
Mike: No, I’ve never been the guest so it’s the way that it’s . . . I don’t record it myself and so we have other distinguished guests that a lot of people that had been on this show before helped us out on that show and their contacts, about 60 different contributors over there. So a lot of great information. Anyway, everybody thanks for joining us today, glad you spent some time with us today and Mitch, thanks again.
Mitch: Hey, get here some delegation okay, get out there and delegate something.
Mike: Absolutely. Don’t row the boat, just ride in there, right?
Mitch: Yeah, just get a boat to ride in. You don’t want to row it.
Mike: Yeah, awesome. Everybody thanks for joining us. We’ll see you on another upcoming show. Have a great day.
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