Direct mail is a critical component in lead generation for real estate investors, but most are thinking about it all wrong (and doing it all wrong). Chris Richter is a data geek that has discovered what matters most with direct mail…and joins us on the FlipNerd Expert Interview show to teach us a few things about response rate, direct mail frequency, letters vs. postcards, and a bunch more. Check it out!
Mike: Hey everyone, it’s Mike Hambright at FlipNerd.com. Welcome back for another exciting Expert Interview show where I interview awesome guests from across the real estate investing industry to help you learn and grow and to inspire you. And today we’re going to do just that.
I’m joined by my friend Chris Richter who’s a real estate investor and a true data nerd. He’s really a data scientist, especially in the real estate investing space as it pertains to direct mail, which is really his area of expertise and what he focuses on.
And he’s here today to get really detailed about what matters most in direct mail. And we’re going to discuss things like your return investment versus response rate and other key metrics that are important, and some that you think are important that maybe aren’t, to help you more effectively use direct mail in your business. He’s probably going to teach you some things today that you didn’t know that you didn’t know or you didn’t know that you needed to know. And so it’s going to be a really interesting show.
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Hey, Chris. Welcome to the show.
Chris: Hi, Mike. How’s it going?
Mike: Good, good. I’m glad to have you here.
So it’s interesting that you’ve really carved out a niche here in an area where people just blindly spend tons of money just buying a list of absentee owners or really high level metrics. You’re really getting down into the weeds. And ultimately really helping people save a lot of money by not mailing to people that have very little chance of buying. So it’s going to be exciting to talk about that today.
Chris: Yeah. I don’t know if I carved out a niche or I was, like, forced into one because it was tight, so.
Mike: The interesting thing is that in terms of the big data, I would say generally speaking a lot of real estate investors aren’t that sophisticated in terms of advertising and things that they do. And I think that a lot of that’s been changing over the past couple years because it’s becoming a little more institutionalized and more professional, less of a mom and pop type business.
Although, there’s still plenty of mom and pop’s but, what I think it’s hard. It’s hard to spend time really understanding what you’re doing relative to just, I’m just going to write a check and I’m going to get a return on that investment. So I’m okay accepting some stuff falling through the cracks.
Chris: Yeah, It’s changed a lot. I think that in some of the markets, and things are so competitive, and partially it is because of the availability of data and tools, the industry has changed. And we were talking about this, but when I look at it markets always change, markets go up and down.
But, the industry itself is changing and it’s changing toward something where you have the larger more sophisticated people that are jumping ahead leaps and bounds, because they have more information and they know how to direct their operations a little bit better so that they can focus a little bit tighter on the operation’s lower margins. Kind of like Walmart. It’s just like Walmart or Amazon or anybody. I mean, the world’s changing in that way, and real estate is no different.
Mike: Yep. Well, hey, before you get too deep into this stuff, tell us about you. Let’s hear about your background and how you got to where you are.
Chris: Sure. My background, I guess, is I graduated from high school. I didn’t do particularly well because I was having a good time. But, I did get accepted to college. I went to school for physics, for astrophysics, and math. I graduated well. I got honors and I became an engineer.
I was hired before I graduated as an engineer. I did optical engineering for about five years and got to do some really cool stuff, worked with some really cool people, and got some patents. It was rad, but I was really poor. And I did that thing where you’re sleeping at work and keeping it hard core.
I kept it super real and some friends of mine were in real estate investing and they were keeping it way less real and they had way more money. They dropped out of school and they were driving brand new cars and living in nice houses with a bunch of rentals and they were just making way more money than I was. It looked pretty shiny from where I was sitting.
Mike: They were doing all the things that they told you to do though.
Chris: Yeah, I did everything I was supposed to do. I was told go to school, get good grades, study hard, you know? So I had to get out of that, started a real estate company. I bought a whole bunch of . . . I didn’t know what to do so I spent all the money I had on television ads, I bought radio ads, I bought a lot of internet traffic, and it all worked. 2007 and 2008 were not cool, but outside of that I did all off market deals for about 10 years and it was really cool.
Mike: And how did you get into the side . . . like the engineering part of you was taking over and saying, “Hey there’s got to be a better way.” Right?
Chris: Yeah. That started when the market crashed. Things got really not cool. Things completely turned around. I had a lot more money going out than I had coming in. So I think that happened to a lot of people. But, I needed a way to find deals, I needed a way to make money. I didn’t want to go get a job. It can be really hard after you’ve been out of work for a while.
So I started mining the county for data, and liberating data from all the counties just to see what I could find. And I hired this Moldavian developer who was a really good dev to help me do that. And pretty soon I was stripping the county of all the [inaudible 00:07:29] liens, and powers of attorney, and vacancies, and all the superior court records.
So we’d pluck the evictions, we’d pluck the divorces, all those. And then we’d cross them back through against all the parcels, and the deed histories, and the chains of title, and the code files. And we’d put them all together. I was using Saleforce at the time.
So I’d put them all together in there and then we’d grab images from Google. So I’d come in and I’d have this photo gallery that I could scroll through and it would show a picture of the house and then below it would say, code vio [inaudible 00:08:07], and I could rank them by how many of these factors they had.
Mike: Oh, wow. And that was just in your market, right?
Chris: Yeah, it was just in the tri-county here. I am in Seattle. And so it was rad. It was really cool, it was fun. And from that I was able to gather up some sales guys, because I was giving them good leads to go door knock. We did a lot of mail, we did a lot of door knocking. We did more door knocking than anything else. And just doctor stalker, we’d go find people, and get them to sell us their property.
Mike: Yeah and so over time people saw what you were doing and said, “How do I get some of that?” So you’ve basically become a provider now to some pretty high caliber investors that want what you got.
Chris: Yeah, I did that and that turned into Find Motivated Sellers which I built with Kent Clothier, and he turned it into a national product and made it nice. But what I had was super custom. And I joined a group, Mastermind, same one that you’re in.
I did show some people what I was doing and I had some friends in Colorado that I liked and trusted and I kind of showed them what I was doing. And they offered to pay me for it and that evolved into a statistical consulting company. So now we spend half a million dollars on data and I get to play with that all day.
Mike: Yeah, that’s awesome. How hard is it to scale? We’re going to get into some more practical uses for people that are listening to this that aren’t quite a mad scientist like you. But, how hard it is to scale when you go into new markets? Because from my experience all the counties are different, where they store their records is different, they have different systems, most of them are way outdated and stuff like that. How hard is it to go into new markets, and replicate what you’ve done in other markets?
Chris: At this point it’s extremely straight forward. There are only a few places where there’s an exception to that. But, we have a national data set. So we spent a lot to have that, to have it all configured right, to have it in the cloud, and all kinds of pipelines built out. So our devs are top notch.
You mentioned that I’m a data scientist. I’m actually not a data scientist. That’s a real thing. It’s funny because people do throw that around online a lot. But my partner has an advanced degree in mathematics. He spent 10 years or 12 years or something in computer science and so I can communicate with him because of my background, but he’s a lot better at what he does. I go in and it’s like “Oh, yeah.”
Mike: So lets talk about some of the things . . . I guess we could talk about what key metrics are for direct mail. And specifically talk about what you see other people doing that it’s like everybody cares about this but that doesn’t even really matter ultimately or there’s some kind of metrics out there that people throw around that don’t really matter ultimately.
Chris: Yeah. Some of this is just because there’s more information available these days, I mean a lot of . . . I think that some people think its the HPPO, highest paid persons opinion, and there’s people that, especially if they’ve been having success for a lot of times, they believe that what they’re doing is making it successful. But, if you’re a hammer everything looks like a nail.
One thing that always comes up and I have this conversation a lot, is that people talk about response rate and when I talk to people on the phone, people always ask what type of response rate can they expect. The answer is I don’t know. I can tell you we’re in 115 counties and they’re all different as far as response rate.
When you scale, when you look at volume like most of these guys, I don’t really have any base too unless the 20,000 mailings a month, new clients, and that goes up to well over 200. And as you scale that, that volume falls off, it’s not something that’s linear. Your cost per deal goes up as you continue to scale your volume. And it’s just a question of how many deals do you want to do? At what point do you seek diminishing returns?
As an example, I had somebody write me the other day, and said, “What’s so special about what you’re doing?” And I didn’t even know this guy. I said, “Well, nothing. I don’t know, we’re just doing math.” And he said, “Well, can you get me the same response rate that I can get going down and mailing vacancy, divorce, and probate?” And I said, “No. Definitely not. That’s a good list. I can’t beat that list. But, you can’t scale that list.”
And that’s what it comes down to because your first 2000 mailings you might get a 5% response rate, you might get a 10% response rate, but there’s no way you can get that many deals out of that because it’s a small list. I mean you might get a probate list that has 200 people a month and that is going to be however many investor and transactions out of that, maybe 15, maybe 10 that are real. And those are going to get spread out over the three biggest players in the market. Maybe one off. And so, if you want to scale you have to have information in order to do that and get that set up without seeing it fall off. That’s a totally long answer.
Mike: No. I think that some folks, if they get more money to mail, I mean there’s a balance between casting a wide net, if you will, and spending more money on the data, than you do on the mailings. And I guess some people might say, “I’d rather just cast a wider net.” But, there’s a balance there somewhere, right?
Chris: Yeah, there definitely is. That part is just pure algebra. If you’re doing volume, a postcard costs 34 cents, or 32, depends who you are, but, you’re going to spend XYZ on a postcard, and one guy that you know, he’s just very macho. He said, “I want to do 80,000 pieces a month.” And I just looked at it and I said you need to do 37. And we increased his call volume, we increased his number of deals. And ended up saving him 13 or 14 grand a month. And then he can reallocate that, he can spend it somewhere else.
The data’s expensive, I’m expensive. But, ultimately it’s a huge savings if you’re doing volume.
Mike: So what are some of the key . . . you talked about response rate, people seem to care about that, maybe talk about your thoughts on, because you’re really interested in the data behind who you’re mailing, but there’s also a lot to be said for the copy and the content and the stuff that’s on the mailing too.
Chris: I’ll rant about that man, if you want me to. I’ll rip the top off that one.
So copy, I had this conversation two days ago. I had this conversation five times this week. I don’t think much of copy. I think copy is a way for people to look for another magic bullet instead of focusing on their operations and building their business.
A friend of mine, that is again, somebody that you know, he articulated it so well the other day because I was ranting about it late in the afternoon. He said, “Here’s the thing, there’s nothing that I can write on a postcard that’s going to make you motivated. You’re either motivated or you’re not.” And I was like, “Thank you. I’m writing that down. I’m going to use that.”
And there’s the adage in direct response marketing that 60% of your success comes from your list, 30% comes from your offer, and 10% comes from your copy. Even the guys that are the kings of copy, because copy is cool. I’ve got a million books on copy. I like it, it’s interesting, it’s fascinating, it’s cool.
If you’re walking through a desert and I offer you a glass of water, you don’t care if it’s coming in Styrofoam, or crystal. You don’t care. You just want a glass of water. And so what we practice and the philosophy that we preach is that your goal should not be to have this great copy that is going to inspire some event, because you can’t do that.
What you need to do is find the right people and be present when that event happens. Because we can’t predict when mom’s going to go into a nursing home. We can’t predict when Elmer is going to die and Mary is going to inherit 10 rental properties that she doesn’t want to manage. We don’t know when that’s going to happen. But we can be present with those people when it does.
I use the analogy of probate all the time, that when some downtown lawyer’s mom dies, he doesn’t sell the house at discount most of the time. You could argue that you’re going to get the highest invest use out of it. Maybe you’re going to scrape it, whatever, but you’re not going to get the emotional discount that you would from the guy that buys a tall boy from 7-Eleven on his way home from work, two scratch tickets, and goes home, and falls asleep on the couch. It sounds callous.
Maybe I should reframe all that, but, at the end of the day I really believe we’re looking for a certain person, a certain seller, and a certain situation. We’re looking for that combination of situation and seller. We’re not looking to have a headline that’s going to inspire someone to sell at discount.
Mike: Right. So a big part of it is timing, just being there at the right time. So that kind of leads me to my next question, there’s always this discussion on what’s the right frequency to mail, how many times do you mail before you stop mailing, things like that. Can you share some thoughts on that?
Chris: Yeah, I can. I want to pretend to have a right answer to that. I will tell you that the people I see that are really successful do. They just hit the list that we produce over, and over, and over, and over, and over. And it’s because we believe if we’re looking at the whole universe, if we’re looking at every fish in the lake, the ones with the yellow stripe are a target. And then we only follow those ones with the yellow stripe around. And if we’re there when life happens, then we get the opportunity. And so monthly. Every single month.
Mike: Maybe you could talk about some things that are going on in the industry that are changing the game here. You’ve got people getting more sophisticated, you’ve got things that could happen, like the do not mail list and things like that. Just talk about some of the things that are going on that are impacting this for real estate investors. I guess, also, what you see impacting things over the next lets just say, year or two.
Chris: Well, what I see is a transition toward larger shops and companies controlling more market share, and forcing out the smaller guys.
There’s a group here that I’ll just give as an example because I think they’re a great example in business of what happened at the auctions. Prior to 2005 I could go to the auction and buy a property. I could go and bid, and I’d have a reasonable chance of getting a property at auction. In 2005 a hard money group came in locally and started lending at the auction. There are a couple of young guys that had done well in software. They took that and came in and decided they were going to invest. And they started advertising for other people to come bid at auction. So there’s a question of, they come in, they set up shop, they always win.
I remember the last auction, it wasn’t the last auction I went to, but it was the last one I went to and bid, and expected to actually buy something. I was bidding on a house in Tacoma that was worth 227, that’s a real specific number, that’s the number I had on it.
Mike: Yeah, what were the three numbers after the comma? 227,000, or?
Chris: Yeah, It was worth like 227, and it got bid up to . . . first of all there were like 20-something people bidding on it. Because of a lot of those people didn’t have money to bid. There were 20-something people bidding and I stopped bidding at like 165, and they took it up to like 189. I remember just wanting to pull out a whiteboard and being like, “Hey, man. Let me show you something.”
But, what they’ve done is they don’t allow anybody to compete. Anybody that comes in, they always win, they ground them out until they go away. And they’ve been very successful with that for a long time. And I think that’s what’s gone on. But some of the guys that I see that are bigger players, a lot of these guys have expanded. I’ve been with guys as they’ve gone from 20,000 mailers to 200,000. What they’re doing is they just come in and take over. Just like Walmart did. They come in and they’re big and they put everyone else out of business, just through volume. And so it’s a war of attrition that they’re able to win.
Mike: And how about changes just in the direct mail space, in terms of access to data, which I guess some of these bigger companies have better access to potentially. And just industry changes, anything going on there that’s noteworthy?
Chris: Because of the people I work with I see people that are willing to invest a lot more in their lists and willing to invest a lot more direct mail. I mean, even in our group, three years ago there were only a couple people that were crying volume, and I thought they were crazy. And I’ve totally switched sides on that. But, I really did at the time. But, people nowadays, the volume has gone up so much that it’s insane.
Mike: Any words of wisdom to share for, let’s just say, some of the smaller folks out there that want to be more successful. Direct mail is something that they use or something that they need to use more. Any words of wisdom?
Chris: I think that if you want to get started and you want to get a foothold and you’re new and you don’t want to put out 20,000 mailings a month, if you choose the right targets, if you choose targets that has some kind of flag on them, the obvious stuff, the probates, the code vios., that kind of thing, if you choose them and then you just hunt them and you’re relentless, then that works. I think that the biggest mistake or the biggest missed opportunity that I see with new folks is that they send out 500 letters to an non-owner occupied list, and then they’re disappointed when they don’t get something.
Mike: They mail one time.
Chris: Yeah, mail one time, mail 500 people, and then it’s like, “I didn’t get a free car.” It’s like no. If you want it, go get it. Go knock on their door, go hunt them, crawl in their window, and find out where they live.
Mike: Yeah, well, Chris, if folks want to learn more about your mad laboratory, or about some of the stuff you’re doing that you’re working on, where should they go?
Chris: They can go to learnaboutdata.com and there’s a video series on there that’s just us explaining the basics about data and data science and how it works, and how they can do a little bit smarter mailing and maybe save a little money, and make a little more. learnaboutdata.com
Mike: Hey, while I’ve got you, one other question, and I know that you said you don’t think copy is hugely important, any thoughts, there’s also these long standing questions about postcards versus letters, any thoughts there?
Chris: Yeah, and this has been tested, I used to be really into letters, because letters always get a higher response rate, and so it becomes a response versus conversion thing. And my views on this have changed recently. I think that letters are better for getting a response and in a super competitive market where you walk in and they’ve got the full stack of postcards, I think that I see that letters sometimes work better too to get the conversion, it’s just harder to do in scale.
Mike: Awesome. Well, hey, thanks for being with us today. Thanks for sharing some of your insights and we’ll add a link to your site down below here for the folks that want to learn more about the cool things you’re doing. So thanks for being with us.
Chris: Well, thank you, Mike.
Mike: Good to see you. I’ll see you soon.
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