Show Summary

Your ability to generate leads and acquire properties is critical to your success. Leads and Buys are the lifeblood of every business. That said, as markets adjust and cycle, how you generate your buys and leads will change…so it’s critical that you’re prepared to change with it! Roger Faulkner joins us for this episode of the FlipNerd.com Expert Tip show to tell us more. Don’t miss it!

Highlights of this show

  • Meet Roger Faulkner, co-Founder of RBD Ventures.
  • Join the conversation about the importance of leads and acquisitions, and the importance of a relentless focus on generating leads and buys in your real estate investing business.
  • Learn how Roger’s team is structured to divide and conquer, and how they embrace the importance of focus on property acquisitions.

Resources and Links from this show:

Listen to the Audio Version of this Episode

FlipNerd Show Transcript:

Mike: Hey it’s Mike Hambright of FlipNerd.com. Welcome back for another exciting expert interview, where I interview successful real estate investing experts and entrepreneurs in our industry. If you haven’t checked out the new Flipnerd.com yet, please go check it out. Flipnerd.com. We have a great platform that I know you’re going to love.

Today for the show I’m joined by Roger Faulkner. He’s the founder and CEO of RBD Ventures, a real estate investor and redevelopment company based out of San Diego. And after he left the Navy and a few other entrepreneurial ventures, he dove into real estate investing with no prior experience, just like a lot of folks I’ve had on the show. And since 2009 in Southern California, has done over 200 deals, which is a lot for Southern California when you consider the size of the deals relative to markets like Texas or the Midwest.

The key to success in any real estate investing business is the leads and property acquisition and that is Roger’s specialty. So today he’s going to discuss with us the importance of acquisitions in your business, how to identify or disqualify deals and how to adjust with your lead sources as the market changes. Before we get started with Roger, let’s take a moment to recognize our featured sponsors.

RealtyMogul.com is an online marketplace for real estate investing, connecting borrowers and capital from accredited and institutional investors. Get a rehab loan fast and close in as little as 10 days. Rates start as little as 9%.

We’d also like to thank National Real Estate Insurance Group, the nation’s leading provider of insurance to the residential real estate investor market. From individual properties to large-scale investors, National Real Estate Insurance Group is ready to serve you.

Please note, the views and opinions expressed by the individuals in this program do not necessarily reflect those of Flipnerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.

Hey Roger, welcome to the show.

Roger: Hey Mike, thanks for having me.

Mike: Yeah, yeah. Glad you’re here. It’s always interesting when I talk to California investors because California is just a whole different world. Everybody thinks their market is unique, but California is very unique from that standpoint.

Roger: We’re a different breed out here, is that what you’re saying?

Mike: Prettier people, those types of things. No, but real estate is just bigger numbers, you might do less deals but they’re bigger deals and you guys obviously have done a ton of deals. But the market’s just so cyclical out there relative to other places and it’s just different, right?

Roger: Yeah, I guess it’s a roller coaster. I mean, compared to some investors like you just said, I dove into it in 2009. I haven’t seen several market cycles turn over yet, but I think in the five to six years I’ve been doing this I’ve seen like three different cycles compressed in that time. There’s been a few waves and ripples to the market since I’ve been doing it.

Mike: Absolutely, absolutely. So I’m excited to kind of learn more about we talk about it once in a while, but a lot of folks that are newer or looking to get started, there’s really never a whole lot of conversation about finding deals. I mean that’s obviously the lifeblood of every business. It’s very obvious to you as I say that to you, I’m sure. But most of the kind of gurus of the training out there would lead you to believe that the biggest challenge is you just deciding that you want to be a real estate investor and then you just go find deals and sell them to other people and the rest is all easy.

Roger: There’s just deals everywhere.

Mike: Yeah, of course there is. Yeah, yeah. But you and I know it’s not like that.

Roger: But I think a lot of the gurus, when you look at their courses, they’re all talking about the latest gimmick, or latest software. I think it’s just recently where I’ve seen guys promote “Here’s how you find deals” maybe because REOs have went away or short sales have went away, maybe they are starting to tackle that. But it’s usually “Where do you get money” or “Where do you get this.” But I’ve always said and I found out really quick, if you can find deals, you’ll find the money. You might have to beat some bushes, but you’ll find that money if you got a deal.

Mike: Yeah, that is the linchpin of any successful real estate investing business, is finding the deals.

Roger: Yep.

Mike: And before we get started talking about acquisitions and stuff, why don’t you tell us your background? Because I know you’ve done some interesting things and I was telling you beforehand, it’s funny that very few people that I’ve had on the show that have found great levels of success actually started in real estate investing. They usually came out of the military like you or they were in a job they hated or something There was something that happened that got them into it. But generally people didn’t start there. So tell us more about you.

Roger: I kind of did all those things you said. I was in the military and I had a job afterwards that I hated. So I’ve done it all. Like we were talking before the show, I came out to California, in San Diego, in the Navy. And during my time in the Navy I was able to see both coasts and had traveled across country a couple times and decided I was going to set roots in San Diego afterwards. And this is when I got out of the Navy in 1992, so for about… nine months hiatus, where I did some fishing in Alaska the whole time. So it’s just a beautiful place and this is the place I wanted to be, set up shop. And it’s not easy, you know. There’s the sunshine tax to live out here.

So setting up roots, I spent about six months half living in my car before I found a job and was able to set some roots up here. So you have to be dedicated. And I’ve seen over the years many people come out and think that they’re just going to set up and it’s tough. The price of real estate is one of the biggest factors. Your rent isn’t cheap and the cost of living is more expensive. But I was determined, so I stayed out here.

I kind of fell back into the restaurant business after the Navy, basically it was just because I was sitting at a counter reading a book every day. The manager finally said “You’re going to start working tomorrow.” He knew my story that I got out of the Navy and I was looking to set up roots. So he was a really nice guy. He put me to work and I started doing that and eventually I started managing restaurants. But I was just working 50-60 hours a week for another person and punching their time clock.

And when you’re a manager you get to count all the money so you’re making somebody else a lot of money. And so eventually I said, “I’ve got to figure out some entrepreneur stuff.” So I tried two or three different little internet businesses, nothing really caught on. I really caught the waves incorrectly. I’d catch them on the downslide of like when the internet business was crashing and stuff.

It wasn’t until 2009, that real estate was at the bottom and I felt this was going to be a good place to ride that wave back up. I dove in with both feet and I just learned everything I could and just got started. I got a couple of partners, we started a company and we started wholesaling at first. Then we started flipping and the rest is pretty much what you covered there.

Mike: You didn’t have any prior real estate experience, investing experience prior to that, is that right?

Roger: That is correct. The very first house I bought was the wholesale deal. I walked into escrow with the paperwork and said, “What do I do?” A really nice escrow officer that is still my escrow officer to this day that walked me through the whole process. And I found her through doing some homework. She was the only person out here I could find in San Diego at the time that would do a double escrow for wholesale deals because most escrow officers by this time were scared to death of them. She’s like, “Well, as long as you’ve got the money. One escrow’s outside, one escrow’s inside. I’ll do it all day long.” And so she was around since REO days in the ’90s. She was very familiar, she said, “Every time there was a lot of REOs, there’s double escrows going on.” But that was my very first house.

Mike: That’s awesome. Did you have partners in the beginning?

Roger: When I started my education, no. But it was through networking, over the course of that first year that I picked up the partners.

Mike: Okay. And talk about why that made sense. Was it that you had complementary skill sets, or was it just the comfort of doing it with somebody else? Or kind of talk about how that happened.

Roger: A little bit of both. I think maybe the first partner was [inaudible 00:08:00] the three founding partners. And so he was doing ads on Craigslist just like I was for wholesaling, looking to build his buyers list and do deals and stuff. So I just reached out to him, because I hadn’t talked to anybody at that point that was actively doing anything.

Mike: Yeah.

Roger: I went to the investment club, but I was scared to death to talk to anybody until I actually did a deal. And so I reached out to him. We met for coffee, we started talking about it. He was just getting going like I was and he hadn’t done his first deal yet either. But he had tools I didn’t have. He had MLS access. And he still had a 9 to 5 job. So it made sense that we were going to partner up on some deals. I was running out in the day time, I had free days.

I found a deal because of his MLS access, then we would split the wholesale fee. Before we did the first deal, by networking, we ran into the third partner at the time, Dustin. He was a contractor. So he had the skillset that neither one of us had at that point too. So once we started getting together, we did the first wholesale deal, it was just obvious that we’re going to be rehabbers. We wanted to flip houses. So having a contractor on the team just made a lot of sense at the time.

Mike: Sure, sure.

Roger: So it was a little of both, having a partner to do it with and share the responsibilities and people with other skill sets.

Mike: Yeah maybe while we’re kind of talking about this before we get started, to talk about acquisitions and leads and stuff like that, could you just take a minute and talk about, for folks that are out there, especially newer folks, I think that there’s always this, you’re on the fence like, “Well, if I bring in a partner, I have to split the deals” versus, they can complement things. Just maybe give a minute of advice and tips on how to find why partners make sense because you’ve been doing it for long enough now to where it’s clearly working. I’m sure you’ve had some ups and downs.

Roger: Sure.

Mike: But just maybe talk about why it makes sense and kind of what people should look for in terms of a partner.

Roger: Sure. I’m probably an expert on partnerships at this point because I’ve done everything right and everything wrong in partnerships. It’s the power of, I forget what the rule is. One and one doesn’t equal two, it equals three, right? So you start pairing up with other people, and then you can really get a lot more done faster. I mean there was no way that we would have got off and running within three years doing 50 deals a year on the third year, without our partnership in place.

I couldn’t have learned as much about contracting, or what’s behind walls if I didn’t have a contractor on my team. It accelerated my growth. I had no experience whatsoever in flipping houses and it accelerated my growth. Now 200 deals later, I could pretty much walk houses by myself, unless it’s really something serious. I know exactly what’s going in that house. But there’s no way I could’ve accomplished as much as I did and as fast as I did without doing a partnership.

Mike: Sure, sure.

Roger: But on the flip side of that, when you say about splitting funds and money, you should be doing more than triple what you could do by yourself. If you get two partners or three partners, you should be able to do more than double. So that’s why splitting it makes sense. And vice versa, partnership is what I call a mini-marriage. You’ve got to kind of date your partners and figure out if they’ve got the same goals and visions. We actually did lose a partner last year because he decided that the direction the company was going wasn’t his direction. So he decided to branch off on his own and it’s understandable. I guess it’s like any relationship, you know?

Mike: Yep.

Roger: But the biggest thing, if you were looking for tips for partnership, is just when you sit down, make sure you’ve got the same goals. If you’ve got the same goals and you’re willing to share the workload, partnerships will work out really well. You’ll get a lot accomplished.

Mike: That’s great. So on to acquisitions and the importance of finding leads and generating leads, I think when you’re an actual real estate investor and you’ve been in this for a while, you understand the importance of that role in your business because you don’t have a business without it. And I think there’s also some people that they got that, but if they were focused really heavily on one lead source like REOs or short sales or something like that, they eventually found out that they needed to have more than one lead source because those sources dry up over time. But tell us in terms of how you guys look at the acquisitions role in your company and really just how critical a part that is to any real estate investors’ business.

Roger: Sure. Obviously I’m very biased about it because when we first started the business and we divvied up the workload, acquisitions was my main job for the company, bring the deals in. And being able to analyze them really quick, and spent multiple offers and all of that was my forte in the business. And something that I really grasped it really quick and I really enjoyed it.

Even to this day, if a deal comes across my desk I have no problem jumping on the MLS and analyze it really quick because to me it’s always like that fun of chasing the next deal to see if you’ve got one or not. And really it’s almost kind of a let-down every time you don’t have a deal, like, “Aw, man, I wanted it to be a deal,” but okay you move on. But I never get bored with that because it’s a been a fun thing to chase. The chase of finding one and then getting it locked down. The lock down is always exciting, “Oh, I got another one under contract.”

So I’m very biased on that side. But I’ve always said even though I’m biased, we don’t have a business unless you have acquisitions. You can’t do good rehabbers or you can’t mess up a rehab or you can’t worry about selling too quick or too slow if you don’t have a deal. It all starts with that deal. To be able to spot what deals are, how to get the deals under contract makes the whole business flow. That, I think, is the critical element of your business.

And the thing is, like I said earlier, if you find a deal, you’re going to find money to flip it. And if you don’t find money to flip it you’re going to be able to wholesale it. One guy that does the low-end and another guy does the high-end and you wholesale all day long, you need a buyer’s list of 100 people. That was one of the misconceptions when I started. All the gurus said, “Get a buyer’s list of 100 people. You shoot it out to the list.” And I’m like, “You need probably three or four guys.” If you find the right three or four guys in your market, you can wholesale all day long. So that being said, if you have a deal there’s always something to do with it, there’s money to be made. If you can’t find the deals, then you’re stuck.

Mike: Yeah and in kind of inherent in sight of the word “deal” is a good deal, like it’s something that you can sell to somebody else, it’s something that you can make money on. Talk a little bit about how you… I’m sure that early on you were either ultra-conservative in terms of what it would cost to rehab a house. Kind of identify what a deal was or you were sloppy, I’m guessing. People either kind of go to one end or the other. They don’t know what they don’t know. They kind of under-value the repairs or they’re ultra-conservative and it ends up being a lot less to repair than what they thought, just the conservative nature took over. But kind of talk about how you started and how you guys evolved.

Roger: Sure and I probably flip-flopped back and forth from one extreme to the other at any given time to be too conservative to too aggressive. The biggest thing with our business is we started out, we were a nobody in real estate, before we did our first deal, at the investors clubs I have to tell everybody, I’ve already wholesaled deals. So I knew right away intuitively that a track record was something we had to establish. So I was pretty aggressive early on. It even made my partners quite nervous, some of the deals I would buy. They really didn’t put any veto power in place to stop me.

So I was given a free hand to buy whatever I thought could make money on. There were just some deals that we did, and I just knew, we’re not going to lose money. we might be kind of risking how much money we’re going to make, we might do a lot of work and we walked away with a lot of escrows, with like $4000 or $5000 checks because we were hyper aggressive and we’d find extra repairs that needed to be done.

Luckily in 2010 when we really started flipping, repairs were cheaper then. In the last five years, I’m sure you’ve noticed in your business, the cost of the materials and the cost of labor has dramatically increased, I would say at least 25% if not more.

Mike: Yeah. But there’s no inflation they tell us.

Roger: Yeah, there’s no inflation. it’s just the devaluing dollar, but no inflation. A lot of it I attribute to gas prices when they were just screaming up. Once gas prices come down, the material prices will come back down and they’re just raking in those profits.

And so yeah, the have materials have increased. Labor, now with new buildings going on, your labor pool’s getting pulled by the new builders too, so they’re not going to do it as cheap as they used to do. So back then it was good timing. The MLS deals [inaudible 00:16:45] profit, they were less than they were from the guys who started in 2002, 2008, 2009. But there was still money there. Material and labor wasn’t so bad, there was plenty of labor, plenty of cheap labor around. I was able to get away with being aggressive on repairs, making mistakes on that side. And I did have a contractor on my team that kept me from making really big mistakes. So that was kind of my safety guard there.

Mike: That’s good, yeah.

Roger: But as far as ARVs and pushing how much money we were going to make, I did it quite a bit because of the track record. After we started getting comfortable with our track record and established a name, I probably eased off. One year, 2013 when the market was creaming up, I just refused to go into the market hype. It hurt me in the first part of the year because I didn’t do deals, as many as the other people did. But a lot of people got wiped out at the end of the year when the market flattened out and actually came down some.

Mike: Yeah.

Roger: So it’s a give and take. By that time I started getting a little more conservative on the deals I did.

Mike: Yeah it’s tough. Every investor faces this period where you feel like, well, if you start to convince yourself “I have to pay more to keep up” then you almost certainly won’t hit home runs anymore. It’s just the psychology of, if you convince yourself that that’s what you have to do, then you’re going to do, by definition, you’re going to do thinner deals. And if you convince yourself “I have to stick to my fundamentals and buy deep” then you probably will miss out on some deals. Of course when you get them, they’re a lot more profitable. There’s a balance there somewhere.

Roger: Exactly. Finding that balance, I think I’m still, after five or six years, I’m still struggling with finding that balance.

Mike: It’s a moving target.

Roger: It’s a moving target. I mean, right now the inventory is low again in my local market as far as MLS deals and so it’s the selling season, so everybody’s out there buying right now.

I’m sure there’s investors over-paying, that’s why I’m doing less deals the last couple months than I did November-December, I killed it. I bought a lot of property because the market’s slow and nobody wanted to buy it. But its perfect timing for me because I’m selling all those deals now. But again, if I’m not buying even when it’s tight right now, I’m going to feel that pinch again a couple months down the road, right? So what do you do?

Mike: Yeah, it’s a curse. I know that it’s hard to buy rental properties in California, make cash flow and have it make sense. I think a lot of real estate investors that have built up rental portfolios and things over time they realize that they have at least another source of revenue. If you’re a wholesaler or a rehabber, you’ve always got to keep the machine going, otherwise you can’t eat tomorrow.

Roger: Right.

Mike: It causes challenges, for sure.

Roger: Yeah, you’re only as good as your last deal when you’re doing just flipping, right?

Mike: That’s right, that’s right. So talk a bit about how to identify deals and some mistakes you made early on or some things you learned over time and some things to look out for as well.

Roger: The biggest thing obviously is being able to evaluate a property and really nail that ARV. Whether it’s wholesalers or acquisition guys I’ve hired, they’ll come in and say “Hey, Roger, this one, the ARV is 300 to 325, or 400 to 425.” I say, “Which is it? Is it 400 or 425?” I don’t allow any range. It’s got to be a number. I don’t care, if you’ve got to go with the 400 number, go with it. But If it’s 415, tell me it’s 415. Don’t allow yourself ambiguity there. Just what is that number, what’s that number? Make sure it’s solid.

Mike: Right.

Roger: The best way to do that is to get apples to apples comparisons. You’ve got to find renovated properties and it’s got to be in your proximity and it’s got to be very similar square footage. That’s your comps. you need two or three of those, really, to feel good. I always look at it from an appraiser standpoint. When we first started the business I met every appraiser at a property when we sold them and really quizzed them in what they were looking for, what they’re giving us value for.

And so now, when I’m signing off on a property, or even looking at it myself, I’m always thinking, “Okay, is he going to give us credit for this or is he going to ding us for that?” I try to think like an appraiser because most of the time you’re stuck with that appraisal. You might get somebody who has some extra cash and will bridge the gap from the appraisal to the price that they would’ve offered on. But most of the time you get stuck and we got hit two weeks ago, $30,000 less on an appraisal from what somebody was willing to pay. We got them to bridge half of it luckily, so we didn’t lose the $30,000. We lost 15 possible profit, you had to move on.

Mike: If it’s FHA, you’re stuck with it.

Roger: Yeah.

Mike: Yeah, for at least six months. And so just being able to identify that, that number is key. Everything else flows from that. You can go figure out repairs and you might miss it by five grand or you might find something behind a wall. But if you nail that ARV and you’re pretty good on your repair budget, you’re going to make some money. If you get hit with some extra repairs, your less profit. As long as it’s nothing critical like you found a foundation issue or mold or something to really kill the deal. But most of the time [inaudible 00:21:47] we’re doing out, there’s nothing that’s going to kill your profit, it’s not going to make you lose money on the rehab. [inaudible 00:21:53] really, like I said, just didn’t even do a walk through and figure out a budget.

Mike: Sure. And in terms of things that you kind of learned over the years, what are some things that are rookie mistakes or mistakes that people, discounted from being as big of an issue as it might be?

Roger: Gosh, you know, how much time do we have for this interview?

Mike: We can stay here all week.

Roger: Not being a realtor and not having a background in real estate, I’ve had several. I’ve done everything from, you’re buying something with the wrong square footage, the tax. Here’s the biggest one in California, I don’t know how it is in your market, but realtors always say, “The tax records say 1700 square feet.” Well, they added 300 square feet. The tax collectors were more than happy to tax it. But they didn’t get it permitted.

So you’re buying unpermitted square footage. So if you’re not careful, you’re getting that. And you’ll get an overzealous appraiser sometimes. Or even an underwriter when you’re selling a property that will spot some variation between what’s the house size and what’s permitted. And so it’s happened to us, we’ve been caught that way, buying unpermitted square footage.

I bought really big loud dogs next door that scared all the families that had kids, so nobody would do it. I bought the first-time buyer market, I bought the house with the huge deck that was 20 feet above the ground that nobody would buy it because they were afraid their kids were going to fall off the deck. I’ve bought the house with the junkyard next door. It looked like Sanford & Sons. You look over the fence and they’re like, “Oh man.” Eye sore.

These are all things that you need to… obviously if you’re a beginner, you need to write down and be very aware of. Notice the prices of those houses too, I’d say there’s always a buyer for every house, but you’re starting to limit your buyer pool as you run into this issues.

Mike: That brings the price down, yeah. I’ve had some issues, I’ll tell you a couple issues I had early on. We had a house where the nice little lady we bought the house from, went during the day time, no issues, everything was fine. After we bought the house, we came back and the neighbor had I think three Rottweilers and kept two of them chained up in the front yard which weren’t there when we bought the house. They kept them there all the time. So when we went to sell the house we’re dealing with that and the people were parked in the driveway, they lived in their car basically.

Eventually we realized that they were drug dealers, you know. In the front all the time, cars would pull up, they’d come out and exchange something. Well, that’s what we thought. Months went by and it scared people away. They would come look at a house, there’s people hanging out there, looking at them funny. Oh by the way it’s a shared driveway. So the 1.5 driveways. So we were sharing it with them. Not good. It turned out that they were bookies, not drug dealers. I don’t think they were drug dealers, they were bookies. But still. Stuff like that, sometimes you don’t know it’s there and you go back and you find out it is.

Roger: That’s a really good point, is visiting different hours because yeah I’ve done the same thing. We bought the house and then after dark, all the cars come through it’s like, “Are they dealing drugs? What are they doing?” We had one, what they feel or see, all the local kids would hang out and I don’t know if they were gangbangers or not. But there would be just like a bunch of teenagers, and they looked kind of rough and so every night when people would come look at the house, right across the street, there was like 15 guys just hanging out. Are they up to no good?

We even tried to go there and say “Hey, could you just not hang out here for a couple of weeks until we get this thing sold?” And finally somebody bought the house who didn’t really care. He was like, “Hey, I’ve got a gun and nobody’s going to mess with me.” He was a veteran. Again, finding the right buyer for that house, it just took extra time. Again, we’ve made those mistakes too. We used to have one contractor that worked for us quite a bit and he was an ex-gang member. So if he saw any activity in the neighborhood he would go over there and say “Hey, tell them that Kiki said stay away.”

Mike: Flashed some sort of sign that scared everybody away.

Roger: Street cred, he had some street cred.

Mike: Roger, you’re saying you don’t have street cred, my friend?

Roger: Actually, I get mistaken for a cop everywhere I go when I’m in the hood, people always call me officer. I walked out of 7-11, I was bringing a new acquisition guy one time, we walked out of 7-11, somebody goes “Hey officer, how are you doing?” I was dressed how I am right now. I just look like a cop to people in those areas.

Mike: That’s funny.

Roger: More than one time people have called me officer when I’ve been in the hood areas.

Mike: Any other things that people should look out for in terms of, things that can decrease value that maybe you didn’t kind of plan on.

Roger: There’s some stuff, the biggest mistake I’ve made in this business actually, and it stemmed from being low-inventory and really trying to make a deal, we talked about before we even started interviewing. Where you’re trying to fit those square pegs in a round holes, is buying too many of a new product in a new area that I’m not familiar with. We did that when we were buying up in Palm Desert area and it really kind of wasn’t my fault. But if I wouldn’t have made the mistake number one of buying too many, I wouldn’t have had mistake number two happen.

Mistake number one is buying several properties in one area. It was one golf course area. The comps were there and it looked like it was going to be a slam dunk and it had some inventory. We said, “All right, we’ll do more than one.” But then what happens is the HOA, they started changing the HOA rules and sales stopped overnight. We just got cremated by these four properties in one golf course. We ended up losing money on all four of them. We got rid of them finally after a year.

And there’s only a small market window up there. People buy in the wintertime up there. A new market and I bought too many properties in one area. So right now, I learned from it, so we just did a [inaudible 00:27:49] plus community here in San Diego and I had an opportunity to buy two like, relatively close in that same community. I only bought one. I thought, I’m going to test the market, make sure that I know what I’m doing and then we’ll buy more in that market.

That’s what we did, we flipped it and we made money and so now I know we can make money there. I was shy, I wasn’t going to buy two. I took a chance on one, but I wasn’t going to take a chance on two because of my experience. I think that’s the hugest, as far as losing money, lesson I learned is if you’re in a new area, you’re learning about that area, be a little cautious. Don’t be aggressive. Say, “I’m going to test this new market out. Once I learn the new ins and outs, I’ll be more aggressive with that market.”

Mike: Maybe you could share your experience with having been through… You’ve been in the business for a little while, from an acquisitions standpoint, the importance of where your leads come from and having kind of sources of where you buy your houses and some of the lessons you’ve learned there.

Roger: Sure. I’m sure you’re familiar with the book “Who Moved My Cheese?”

Mike: Oh yeah.

Roger: So that’s pretty much, that’s the story of acquisitions in real estate over the last six years. Its in the middle of changing for us right now in California. And as I told you earlier, I even changed my business, retooled my business a little bit to do that. But when we first started in 2009, especially 2010, when we really got going, it was just huge REOs, two-third of our deals were REOs at the time. You could just call one broker, he had multiple listings. You just go down the list and look at all these listings and go “Okay, what’s going on with this property.” It was kind of easy. That was the reason why, when we got up to doing 50 plus deals a year, I was still the only acquisition guy, because it was kind of simple that way. It was either calling an REO guy or some wholesalers calling me with a deal. So I’m just checking out.

But as [inaudible 00:29:44] short sales. They’re still a little bit congregated because some agents were really good at doing short sale listings, so they’d have a pretty good inventory. But as we’re moving into now, as you know, short sales and REOs are a thing of the past almost, so we’re getting into a normal market. It’s back to what the regular investors did before I started which was death, divorce, taxes. Those are the signs of motivation versus REOs and short sales.

And so those leads, you’ve got to do more digging, you’ve got to do more work for them, you’ve got to do more marketing for them. And so we’re in the middle of retooling our business, even to do more direct marketing at this point. Start sending out probate mailers and direct mailers to out of state owners. [inaudible 00:30:22]. So we’re in the middle of retooling ourselves.

Mike: Sure, sure. In that process do you wish you’d started that earlier? Do you kind of look back and say “We should have had more irons in the fire”? Or is it something that you just had to be prepared to change when people move your cheese?

Roger: Both. I mean, I don’t think you’d ever say “Okay, this is the day.” I know today is the day and “I’m going to start now” and so six months from now I’m not going to have the inventory I want to. You’d have to be a very smart guy to figure that out. And some people do, but the guys I know that have talked about trying to time the market, “When’s it going to be at the bottom, when’s it going to be at the top.” The smartest guys I’ve heard, say, “Listen, You never know what’s going to be at the bottom or the top.”

Mike: No way.

Roger: You just get started. You just get started, and you work through it as you go through it. So yeah, I wouldn’t have minded if I’d started six months ago, really digging into some more direct marketing. But we’re here now and we’ll set it up directly and as we move forward where the market goes… we’ve done the REO market, right? We’ve done the short sale market. Now we’re going to do the other. Unless there’s another market in my studies that I need to know about, I’ll be able to cover all these sources in the future.

Mike: Right. You’ll be better prepared next time around.

Roger: I tell people like, “If we have another crash, man, I’m really set up. I’m really going to make money next time.” Because I’ve been through this cycle. If we go through another big crash again, it’ll be painful during the crash, but when we come out of it I’ll be really well educated and ready to go.

Mike: Sure, sure. Well Roger, we’re about out of time. Maybe can you just take a minute and summarize your thoughts on maybe the importance of the acquisition and lead generation and being able to identify deals for people that are listening that might hear this and be able to benefit from it.

Roger: Sure. Again, to recap everything we talked about, to me acquisition is the lifeblood of your business. If you’re not buying property, you’re not going to be able to fix property, you’re not going to be able to sell it, you’re not going to be able to wholesale it. It all starts with buying it and being able to spot the deal. Find your number and stick with your numbers. I don’t know how many deals I walked away where they said, “Just come up with a thousand dollars more.” I said, “No, that’s the number. I can’t go any further.”

So, being able to walk away. I turn more deals down than I buy obviously. When I was really laser-focused, by myself on those REOs, every five deals I made an offer I would get one of them. That number now is probably 10-15 offers for every deal we get. That means there’s 14 deals I’m saying no to. I’ll aggravate the couple of acquisition guys that work for me when I’m shooting them down. But I’m shooting them down because I know there’s potential there for losing money.

Mike: Sure.

Roger: So sometimes I’ll do deals where I know that I’m not going to lose money. I don’t know how much I’m going to make, but I know I won’t lose it. That’s a solid deal as far as somebody’s going to buy that house. So I if could make $50,000, that’s great, but if we walk away with 20, I’m not going to cry. Just be willing to walk away from something.

Mike: That’s important. Because I think a lot of real estate investors tend to fall in love with deals, the idea of doing a deal and you start to convince yourself, “Well, maybe if I don’t do this and this happens and…” You can think yourself into a lot of trouble. Yeah, it kind of comes with it. When you’re in the opportunity business, it’s hard to not think that way.

Roger: Right. And even, we’ve had to back out of deals after we do our inspection stuff sometimes and it hurts and the agents get mad at me. It happens to every investor I know. They get mad at you and say “Oh yeah, you’re just trying to tie it up,” and I’m like, “I’m in the business of buying deals. I’m not in the business of tying stuff up and canceling.” And so it hurts, it almost hurts my feelings to have to let one go.

But it’s better that than losing money, trust me. After you’ve lost money, they say the poker players, I don’t know if you’re a poker player, they can always tell you about their bad beats, their hands when they lost money, but they have a hard time telling you about their big wins. Real estate’s like that too.

Mike: Absolutely.

Roger: I can tell you about my bad stories all day long. It’s hard to remember the ones that I made 100,000 on.

Mike: Awesome, Roger. Thanks for joining us today and thanks for sharing your insights and lessons and I think there’s some great tips in here for other people.

Roger: Thanks, Mike. Thanks for having me. It was a pleasure.

Mike: All right, my friend. Please stay in touch.

Roger: All right, will do.

Mike: All right.

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