Chris Seder operates a real estate investing company in Billings, Montana…population of around 160,000. While many investors avoid small markets because of lack of perceived opportunity, there’s plenty of opportunity if you play your cards right. Even if you operate in a larger market, there are a ton of lessons in this episode about how to apply ‘small town values’ to your business regardless of size. Check out this FlipNerd.com Flip Show to learn more!
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Hey, it’s Mike Hambright with FlipNerd.com. Welcome back for another exciting VIP interview where I interview successful real estate investing experts and entrepreneurs in our industry to help you learn and grow.
Today I’m joined by Chris Seder, a Billings, Montana real estate investor that helps operate his family’s business. They do a lot of traditional extra strategies, such as rehabbing, wholesaling, and keeping rental properties. I’ll let Chris talk some more about that, obviously, but they operate in a small market of around 150,000 people. There a lot of myths out there that it’s hard to be successful in smaller markets.
Today Chris is going to share with us how they’ve done it and we are going to learn some more about Chris and his family’s business as well. Before we get started though, let’s take a moment to recognize our featured sponsors.
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Now let’s start today’s show.
Mike: Hey, Chris. Welcome to the show.
Chris: Glad to be here. Thanks for having me.
Mike: Yeah. This is kind of an interesting topic because I operate in a market of 7 million population and on one hand, as we talked about a little bit beforehand, it maybe brings more opportunity but it obviously brings a lot more competition as well, because I know in the market where I’m at everybody and their brother is a real estate investor, very literally
In a smaller market you’ve got things that are important, too. Basically your brand is more important than ever because you can’t get lost in the mix and everybody knows who you are. Those things are really critical. It’s going to be great to hear some of your thoughts because I know we have a lot of listeners that operate in smaller markets. We haven’t really talked about that before so there will be some good lessons learned today.
So before we get started, Chris, why don’t you kind of tell us your background? I know that your dad has been in the business for a long time, but kind of talk about your kind family’s history in the business and how you came into the mix.
Chris: Yeah, absolutely. I guess to start, my father has been a real estate broker and real estate investor and landlord since the early 1980s, so I’ve kind of grown up around the business my entire life. Growing up I had no idea what real estate investing was, I just knew my dad owned most of the small town that we lived in. All I knew is that if I’d go paint a house or mow some lawns, he’d pay me for that. That’s really all I knew up until . . . in 2004 I moved from our very small town – we lived in a town of 3,600 people – I moved to the big city, Billings, Montana of 160,000 or whatever it is to go to college.
I went to Montana State University Billings, got a business management degree, played a couple years of golf at the college, had a lot of fun. Then after college, I really didn’t know what direction I wanted to go into. Looking at the job market most of the starting salaries $28,000, $30,000 is what I was going to get. From there I had a good conversation with my father who said, “Hey, you know, I’m doing . . .” at the time I think he was doing two to four rehab projects a year plus buying a couple of rentals each year, and his average profit spread was right around $30,000 on a rehab.
So he said, “Hey, you know, you do two rehab deals in one year, you’re going to make twice as much as you would at a regular job,” so that’s what kind of piqued my interest into going into real estate investing. From there I just went on a journey for several months of learning everything that I could. I actually went to work for my father, property management and helping with his rehab projects that he had going on. I went to work with him really learning the business from the ground up.
From there after a few months, with his help we started our own, or I guess my own real estate investing company, Big Sky Property Solutions, and then we just kind of started . . . I would say I started very slowly and we bought, the first full year we did one rehab project. I think we made right around $32,000, bought one rental property that was kind of a duplex thing that right after we bought it, put a little bit of work into it and it was nice cash flowing asset and did one nice, I think $13,000 profit wholesale deal.
So that was kind of my first year. One of the challenges with, I guess, that real first year and over the next couple of years was learning how to find deals. Because my father grew up in a small town, most of his deals were in a very small town. He never did any marketing. It was all word of mouth. If somebody had fixer-upper they wanted to sell, they just brought it to him and he’d say, “Yeah, I’ll buy it. Here’s what I can pay.” So it was kind of he really didn’t have to do any work so I really had to learn as much as I could about marketing and then bringing that to the bigger city.
From there we just slowly, I would say, built it up. We started doing direct mail campaigns, started making as many offers as we possibly could on MLS property, and I would say the rest is history. For a while, even before we started doing a lot marketing, I would say the MLS was our number one source in our area just because that’s all we knew. We would just, every day I’d be on the MLS looking for potential deals to make offers on. And then once that kind of even our markets started to dry up a little bit, I learned everything I possibly could about direct mail, postcard mailings.
I would say at the time, maybe it was around 2010, 2011, we were probably the only people in our area marketing for off-market properties. We’d send out 500, 1000 postcards and our letters, whatever we were sending out at the time and our response was just crazy back then. That really allowed us to . . . I would say everybody in our market started to figure out who we were and also at the same time we were just finding more deals than we thought possible back then.
Mike: It’s interesting for when new real estate investors start, even when I started, people in my family or friends, they kind of . . . and we were maybe a little naive, too. I’m sure we were, that people don’t believe or know that this kind of underground off the MLS market exists, but it’s very real. There are just a lot of people that just don’t want to sell their house that way for one reason or another, or they want to move faster than the what the traditional route allows.
That’s always interesting. As a new real estate investor, it’s always interesting to me. It was interesting to me and it’s always interesting for me to talk to people about it. When they kind of see that work, like I generated a lead that wasn’t on the market, I bought it well below market price, and I solved somebody’s problem and I’m able to monetize this. That’s one of the most exciting things about this business is that you can kind of create that cycle of opportunity.
Chris: Yeah, absolutely. I remember even talking to some big name realtors back then and we were wholesaling a couple of houses here and there, keeping a few as rentals, rehabbing some, and even these realtors said, “No, you . . .” They would come maybe speak at a REI or whatnot, “No, you can’t find properties that way. It just doesn’t happen.” They didn’t have the mindset that it was possible. I was there, “Hey, I just did three deals over the past month or so that were all off-market properties. It’s totally possible.” And it’s just funny, the mindset.
Mike: That’s not the mindset of a typical realtor. They’re just not taught that way. You’re a fairly young guy so is it safe to say that you’ve never had a quote, we’ll use air quotes here, a real job? I mean, let’s say kind of post college. Is that true?
Chris: Yeah, it’s definitely true. Real estate has kind of been, that first year that I dove into real estate investing, I did end up getting a side job, you could say. I was doing property inspections for . . . who was it . . . US Bank and a couple of those in their pre-foreclosure division. It wasn’t like an actual job, it was more of an independent contractor thing where I’d drive around, see if the house is vacant, if it’s occupied deliver them a notice on their door. That was a great little job, especially for me just getting started, make a couple of grand extra a month. I really didn’t have any expenses at that time except for rent and those things. It was perfect. I was out always looking for vacant houses, finding deals and getting paid to do that.
Mike: Chris, you may not have quite the perspective since you’ve primarily been in this small market the whole time, but I know from a larger markets like where I’m in, literally it’s just ultra competitive with investors or wannabe investors or people that have money that are willing to hire people to go source leads for them. So it turns into just this huge competitive set to where if we send direct mail and it would go to a lead, they may have 10 or 15 letters from other investors and they called us all to come out and look at it. I know you don’t have quite that phenomenon there, but can you share some perspective on the kind of competitive set in a market like yours?
Chris: Yeah. I’d still say it’s not competitive like your market per se, but there is a core group of probably five or six real estate investors that will pretty much buy anything. So anytime something does get listed on the MLS, there is always going to be that. I guess anything that’s listed that looks like a potential deal, there is going to be multiple offers. So I would say that’s where it is completive, and our market right now has, for listed property, virtually no inventory. Even off-market properties have been getting a little harder and harder, but not to say that we can’t find deals. You just kind of dig them out more. But yeah, it’s still not overly competitive, I would say.
We really do work with those big time real estate investors, too. I’ve partnered on some deals with them or I put the property under contract, we rehabbed it together. I’ve also done wholesale. I think I have buyer that I’ve wholesaled probably 90% of the houses that I’ve wholesaled in our market to. That good friend of mine just will buy everything that a good deal so that’s where it’s, there is competition but we definitely work together in a lot of aspects, which is nice.
Mike: I grew up in a town that is was probably at least double or triple the size of where you’re at, but still nowhere compared to where I live now, it’s not quite like everybody knows everybody but there’s usually . . . you could probably explain Billings. There’s one or two main thoroughfares through town. Everybody knows everybody, it’s easier to kind of share your brand, and people are going to learn who you are, and then probably harder than in a big market to protect it because there is nowhere to hide.
Maybe talk a little bit about the importance of a brand, and I’m sure relationships in general in Montana, my impression of when I go into areas like where you live is that things like your word is still your bond, people do things over a handshake and things are still, people are very loyal to each other or they risk souring their relationship forever, but maybe kind of talk about the importance of that in a market like yours.
Chris: Yeah, it’s definitely very important because in our market if . . . I guess you being a real estate investor if you do something that even offends somebody, if it rubs them the wrong way, it seems like everybody in that inner circle, whether it be realtors or whoever, they find out about it. You really have to treat people how you want to be treated, and anybody that I’ve known that’s kind of gone behind anybody else’s back almost gets shunned, gets pushed out of the club per se. It’s definitely very, very important.
Even with, I would say sellers it’s important, too. You always want to, especially in our market, treat everybody right. I’m going to say you’re always going to offend somebody no matter what you do. In our markets we’ve sent out thousands and thousands of letters, received so many angry calls, a lot more polite calls, but you’re always going to offend somebody. You can’t really stop that, but as long as we treat everybody fairly, explain our business, what we do, we haven’t really had any issues with it. But word definitely does travel fast. If there’s a house fire it’s on the news. If there’s anything it makes the news or the TV or something.
Mike: Would you say, in terms of sellers that you buy houses from, what is it . . . I’m trying to get some perspective on a market about the size of yours of getting referrals from other people down the line, maybe other family members or other people that they know when they have a good experience?
Chris: Yeah, I think that’s definitely one aspect. I know that we’ve, I would say whether it be the realtor side or the investor side, referrals in our market are probably the number one source for listing, the number one source for even going with a real estate investing company to buy your house because we see that people, especially in small towns, they want to do business with the small local company. They want to do business with a person they know, like and trust, a person that others have had good solid relationships with.
That has benefited us. The people that we help, those testimonials that we get from them, even some of the referrals are amazing. I just got a referral from a guy that we had, his sister passed away and we ended up buying her house. I actually bought it, I fixed it up, and now me and my wife live in it. He just called me last week saying, “Hey, my mother has passed away. I was wondering, you guys made the process so easy, I was wondering if you would want to take a look at my mother’s house and see what you can offer.” That is huge. People want to do business with trustworthy people, especially in a small market.
Mike: The funny thing is those things are equally as important in a large market, but I think a lot of investors just get so caught up in the transaction that they just move on to the next one and a lot of times forget about the importance of those relationships. We’ve had several people that we bought houses from that come back around a few years later when another family member dies or tells somebody at their church and then they call us. Those things of treating somebody right are, while a lot of small towns still have those values and virtues and the bigger towns have lost it, it’s a bit of a shame for any other real estate investors that are listening to this that are in bigger markets. You could improve your business by kind of applying some of those small town values back to your business for sure.
Chris: Yeah, definitely.
Mike: So talk a little bit about your business. I know you guys do some rehabbing, obviously some wholesaling, and then maybe after you’ll tell us a little about how your business is set up, then kind of share a little bit. I know that because of the size of your market you’ve decided to do kind of some virtual wholesaling where you actually generate leads and buy houses in other markets, even. So maybe kind of tell us about your [exit 00:20:21] strategies first, though.
Chris: Yeah, our main exit strategy in our own local market is rehabbing, I would say. Last year we had 15 houses and that was, I would say, probably the peak of what we can comfortably do without needing to really expand. What we do is we market to different areas in our town. There are not a whole lot of areas that we can market to, but we like to keep our rehabs in, I would say some of the more so middle income areas. Those are what we want to rehab. If we get leads in some of the lower income or rental income areas, those deals we just pretty much wholesale all of those off. We actually do in some of those areas also buy them for rentals and keep them for ourselves.
That’s kind of our main business here and kind of how we have it set up. Just because of the size of our market we have had to expand over the past, I would say, two years is kind of what we’ve done. We’ve really noticed, I would say, two years ago our market getting tighter, deals getting a little harder to find and then plus we had, completing all these rehab projects we had extra cash in the bank so we started, at first we kind of started looking, “Hey, do we want to buy some rentals in some of these other markets?”
We were looking at Memphis and some of those markets where you could pick up houses for $20,000, $30,000 that were rent-ready, and along that same time I stated learning about virtual wholesaling. I started going through a couple different courses. My first attempt at virtual wholesaling was in 2012. I tried to do with some HUD houses, not knowing what I was doing and ended up losing, I think, $2000 in earnest money deposits just because I went into a market I didn’t have a good solid boots on the ground, didn’t know enough about the market to really make it profitable, and lost some money.
From there it took me a little while longer to keep learning and educating until I built up a little more courage to decide to try the virtual wholesaling thing again. We ended up finding a couple more markets that we wanted to expand, or that I wanted to expand into, and I just went for it. I found a good solid boots on the ground in those markets. I did my market research correctly by finding the best areas in that town to market to where we were going to have the best success, areas with high cash sales and also wanted to [inaudible 00:23:13] in some inventory, and I just dove in and went forward.
I think the first campaign that we did, I sent out something like 1600 or 1700 postcards and we ended up getting two deals from that, where I think I made $3000 on one, something like $4000 on another one. So from there we just kind of decided, “Okay, if we want to do more deals consistently, we do have to be marketing to some of these different areas.” So that’s what we started doing.
Mike: And it just kind of supplements your business in your market.
Chris: Yeah, absolutely, because we tried to have rehab projects almost closing consistently every month, but some months a rehab project gets delayed, other times you’ll go two months without getting a nice big paycheck from a rehab project. So it is nice to have consistent, even just small wholesale deals coming in to supplement that.
Mike: Sure. I gather from talking to you here, one of the things that you guys have done or out of necessity have to do it is just kind of keep things lean, like you don’t have a lot of . . . I presume you don’t have a lot of overhead in your kind of team and things like that.
Chris: No, we don’t, and we don’t have any full-time employees. Last year I hired a full-time acquisitions manager. He’s on straight commission, though, per se, where his job is from our marketing campaigns, all of the leads coming into, we use PATLive, they all come into the call center and all those leads get forwarded over to him. He goes through them, calls back sellers, negotiates with them and does all of the leg work. That way I can focus on keeping the marketing going, making sure our rehabs are on track and all that fun stuff. We do the same thing in these different markets that we are doing here. Our wholesaler is kind of like our acquisitions manager, where the marketing leads go to him and then he sorts through them, finds the leads that are good, calls back everybody, negotiates, puts them under contract. And working with an experienced person, he usually has buyers already on his buyers’ list, people that he’s wholesaled to, so it really makes the process easy.
Mike: Good. Chris, we just got a couple of minutes left here. Can you share some thoughts for other people that might be listening that are in a small market or a smaller size market and maybe some of your lessons learned, really what it takes to run a successful business there?
Chris: Yeah, absolutely. I would say if you’re in a small market, the number one thing that you can do is just generate leads. I guess my favorite thing in our real estate market that’s consistently worked over the years is just finding vacant houses. That’s been probably our number one source where if I’m out and about, I drive around a couple different areas on my way to the grocery store or wherever, just few neighborhoods, write down couple of vacant houses here and there, and over the course of a week or so I usually compile a list of 50 to 100 vacant houses, and then we either just send them letters or what we’ve done with a lot of those, too, is just skip trace them, try to find their phone number, and that’s been one of the most consistent parts.
I would say also with a small town is find those top five or so big time real estate investors, maybe not big time, but the biggest real estate investors in the area that are consistently buying, and really network with them. Talk to them. Ask them what their . . . if you’re going to go the wholesaling route, ask them what they’re looking to buy, what areas they’re looking to buy in. Really get in good with them, take them to lunch, buy lunch for them, and pick their brain because they’re really going to give you the best knowledge about your real estate market.
A lot of those people, one thing to be cautious with is a lot of those people, even some of the people that we found, they only know one or two ways to actually find deals, MLS or they buy at the foreclosure auction. I know there’s probably three or so people that that’s the only way they buy. So if you can present yourself and say, “Hey, I’m going to be finding off-market properties. This is what I’m going to be doing,” they’re going to absolutely love you and definitely want to work with you.
Mike: Yeah, a lot of buyers don’t want to do that hard leg work. That’s the hardest part is generating leads and getting deals, right?
Chris: Yeah, absolutely. I’d say generating leads, negotiating, it’s probably the most time-consuming part of most real estate investors. That’s why I’ve kind of outsourced it to our acquisitions manager. But it’s also, if you are going for off-market properties, one of the most important parts of your business.
Mike: Yeah, absolutely. Awesome. Hey, Chris, thanks for spending time with us today and sharing your experiences. I appreciate it.
Chris: Yeah, absolutely. Thanks for having me. I had lot of fun on the call.
Mike: Awesome. Have a great day, my friend.
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