Lex Levinrad joins the FlipNerd Expert Show today to share his wealth of knowledge on the fundamentals of real estate: wholesaling, rehabbing and rentals. He shares his knowledge of how to either grow or get started, and some common mistakes that investors make. In the Taking Action segment of the show..Lex shares some incredible knowledge on how to find deals, the importance of taking action, and much more. Don’t miss this show!
Mike: Hey, everyone. It’s Mike Hambright at FlipNerd.com. Welcome back for this episode of the FlipNerd.com Expert Interview Show, where I meet with experts from across the real estate investing industry and you get a chance to be a fly on the wall and listen to what we’re talking about here.
Today is going to be a great show. It’s episode number 302, and my guest is Lex Levinrad. Lex has been on the show before. It was actually almost 200 episodes ago. Hard to believe. But Lex is a successful Florida investor, a mentor, and a coach. He’s the founder and CEO of the Distressed Real Estate Institute, where he trains other investors, and today that’s what he’s going to largely do. He’s going to train you, if you’re listening in.
I’ve always had a lot of respect for Florida real estate investors that not only survived but thrived after the crash. It really says a lot about what you’re capable of, and there really are a lot of ups and downs in real estate investing. Your success as an investor is determined by your ability to kind of anticipate changing markets and to perform well in both up and down markets.
When you hear new people talking about, “Well, I’m going to get in after the market goes down,” or “I want to wait until the market comes back up.” That’s not really looking at it with a business mindset. It’s very close-minded. There are ways to make money in both markets. So, the only thing that’s certain in this industry is change, and Lex is going to talk about it with us today.
For those of you that have been listening to our show for a while, you know we’ve now broken the show up into two parts. We’re going to jump into the kind of fundamentals of what Lex does and some of the fundamentals of real estate investing with wholesaling and rehabbing and talk some about that. In part two of our show – the taking action segment – Lex is going to share some practical advice and some real great tips on how to achieve the success you’re looking for.
Lex, welcome to the show, my friend.
Lex: Thank you. Thank you for having me, Mike.
Mike: Great to have you.
Lex: Likewise. Great to be here.
Mike: Yeah, yeah. So, for those that don’t know you, you know, it’s funny. We actually have two shows. I don’t really talk a whole lot about it. We have this Expert Interview Show, and then we have the REI Classroom, which we publish seven shows a week, one every day, and I know you contribute some content over there. So, for anybody who is listening to this and they’re not watching the REI Classroom, check that out.
But we appreciate you sharing your knowledge with us. If somebody hasn’t heard you on one of our shows before and isn’t aware of you, why don’t you take a couple of minutes to tell us about you and who you are and what you do?
Lex: Okay. Well, as you mentioned, I’m the founder of the Distressed Real Estate Institute, and I teach investors from all over the country – in fact, quite a few from outside of the U.S. – how to flip houses, how to wholesale, fix and flip properties, fix and rent properties. And that’s what we do. We’ve been doing this right here in Florida since 2003. We’ve got students all over the country now. Just last week we had a student from Biloxi, Mississippi and Grand Rapids, Michigan flipping houses, teaching people how to make money wholesaling and flipping.
Mike: Yeah, yeah. And I bet that guy from Michigan was not nearly as tan as you, my friend. I know you do a lot of boating and stuff, so yeah.
Lex: Yes, I do.
Mike: That’s great. Really, it’s interesting to talk to people in other geographies about what’s going on in their market, but I’ve always thought that maybe 75% of real estate investing is kind of universal, right? Just the fundamentals of how to do certain things, how you talk with sellers, how you generate leads, how you raise money. There’s a lot of things that are really kind of that geography doesn’t matter, right?
Lex: Right. Well, I think a lot of people come to me and they say, “Well, Lex, you know, the market’s great right now, but if the market gets too hot, then how do you wholesale?” I say, “Well, listen, if a house is a deal, if a house is worth $100,000 and you can buy it for $60,000, it’s a deal. If the same house goes up to $500,000 and you can buy it for $300,000, it’s still a deal.”
Lex: Wholesaling is just about finding deals and flipping them and buying below market.
Mike: Right, right.
Lex: It changes with the market going up and the market going down, but the concepts are the same. There might be geographic differences like basements in one area and not having it in another or construction types or heating elements and things of that nature, but real estate is real estate, a deal is a deal.
Mike: Yeah, yeah. Talk a little bit maybe in terms of finding deals and how that differs by geography, because like in Florida, obviously, there was a much bigger downturn than in some other parts of the country and there was a lot of REO activity, a lot of short-sale activity. In other parts there weren’t.
But aside from those kind of market conditions, there’s always kind of situational issues that never leave – death, divorce, inheritance, lots of sellers that have situational issues that those things are never going to change, regardless of the market.
Lex: Exactly. There’s also situations that occur where you’re not expecting them. For example, I got into real estate in 2003. I had just moved from Los Angeles. I’d been in Los Angeles 12 years. I came to Florida. I didn’t really know anything about Florida, the geography or anything.
Then the following year of 2004, we got hit with hurricane Francis, and then we got hit again with a hurricane in ’05 and again with another hurricane in ’06.
Lex: And I thought, you know, every year there’s a hurricane. And people said, “No, we haven’t one for 15 years.” So that created a real opportunity, because all these people up in Saint Lucie County, every single house had a damaged roof with a blue tarp on it, and FEMA had declared a state of emergency. There was FEMA trailers.
Mike: Right, right.
Lex: So it was a fantastic opportunity to go and say, “Hey, your house is worth $100,000. It probably needs about $40,000 in work and you owe $60,000 to the bank, so how about you just sell me the house, and I’ll just take over your mortgage?” And that’s how we got started.
So, yeah, there’s situational opportunities. My student in Biloxi, Mississippi tapped in big time on that when it was pretty hard to move a property in Biloxi and Gulfport and areas like that, and he made an absolute killing. In two and a half years he bought 44 properties and has increased his net worth by like $1.7 million just by tapping into a situation where people were running away and you could really pick up bargains super, super cheap.
Mike: Yeah. There’s really two ways to look at that. Some people are like . . . you hear this as an investor. People are like, “Oh, you are taking advantage of people.” It’s like, well, look, somebody has to pick up those pieces. We would never advocate – and I know you wouldn’t – taking advantage of anyone. You’re taking advantage of the situation from a business standpoint, no different than Home Depot is going to have more sales of lumber to rebuild those areas and things like that.
Mike: A lot of times people just want to walk away, right? It may cost you $40,000 to rehab that house, but it might cost them $60,000 or $80,000, and they’re like, “Look, I’ll just take the insurance money or take nothing or whatever and walk away. I’m just going to start over because it makes my life a lot easier than having to deal with this.” Right?
Lex: Exactly. Yeah. Well, when I started in the business the guy that trained me, I worked under him for two years, him and his partner. My very first deal that I got was a lady who was on dialysis. I said to him, “Look, I can’t buy this house. I feel terrible taking advantage.”
About a month later the house went into foreclosure and was sold at the courthouse. He called me and said, “Listen, do you recognize this address?” and I said, “Yes.” He said, “Okay. So, look at the guy who bought it and what he paid for it.” They lost the house either way.
Lex: So, in other words, they were already in foreclosure. They’re going to lose the house. Someone is going to buy it. It may as well be you.
Lex: But, yeah, there’s a lot of opportunities in damaged properties and foreclosures, and they do ebb and flow. But real estate is real estate.
Mike: Sure, sure. Well, let’s kind of dive into talking about some of the fundamentals of real estate and some of the things that you teach. I know you teach people how to wholesale and rehabbing, and those are obviously the two main exit strategies, right?
Do you want to kind of maybe talk a little bit more about why investors would choose . . . you know, a lot of new investors – and we have a lot of veteran folks who listen to the show too, so I don’t want to focus just on new – but a lot of people have the mindset of, “I’m going to start with wholesaling.” But I think you would probably agree that not every deal can be wholesaled. Sometimes you can’t get it deep enough but you can still make plenty of money if you rehab it.
There are some great reasons why you need to have multiple exit strategies kind of in your toolbox, right?
Lex: Absolutely, 100%. Also we do a lot of rentals in addition to rehabs and wholesaling. When we started out we were purely just buying, fixing, and renting. Then we went from there to fixing and flipping, and then from there we went into wholesaling primarily because we got sick and tired of paying the premiums to get properties from the wholesalers.
But the thing is is that I think wholesaling is a great entry point for new investors for a number of reasons. First of all, because in order to get into a fix and flip or a rental, you have to have some kind of cash or you have to borrow money, even if it’s a hard money load.
Mike: Right, right.
Lex: And I don’t like new investors when they’re not really sure what they’re doing to start signing contracts with big zeros on them if they’re not really 100% sure what they’re doing.
So what’s great about wholesaling is that if you think you’ve got a great deal and then you try to sell it to someone like me or you and the investor who’s a big buyer, who buys 10, 20 houses a month, says, “No, I’m not interested in that house,” that’s a great way for a new investor to learn and say, “How come he doesn’t want that house?” Maybe they missed something. Maybe they thought the house was worth more than it is or maybe the house needed more work than they initially expected.
So, if a person learning how to wholesale can learn how to find a deal, that’s really the key. That’s the hardest part, because once you’ve found a deal, hey, you can fix and flip the house. You can wholesale the house. You can keep it as a rental. You can sell it with a lease option. You can do whatever you want, but it’s all predicated on finding a deal to begin with.
So, I believe that that’s where every investor should start, just looking for deals.
Mike: I agree.
Lex: I was working with these two guys that trained me. I was essentially their birddog, and they paid me a $5,000 finder’s fee on any property that I brought to them that they ended up buying. So it’s a great way for you to learn different areas, price points, and what we call a deal from a dud, basically.
Mike: Right, right. I think you would agree with me on this too. Even if you’re not a rehabber, even if you’re primarily just wholesaling, you need to know how to evaluate a property like a rehabber, because that’s who you’re selling it to, right?
So we’ve all seen the guy that’s – it could be a woman but usually it’s a guy – that’s wholesaling a property and they’re like, “Oh, it’s a rehab. Six dollars a square foot.” They just make up some number, and you’re like, “No, you haven’t even looked at this house. You don’t really understand how to evaluate it,” because they don’t rehab.
But I think it’s really important that they think like a rehabber because that’s who they’re going to be selling to most likely, right?
Lex: Right. That’s very important.
Lex: I mean, that’s really key because our buyers are primarily either people that are buying to fix or flip and many times they’re selling to first-time homebuyers, or they’re buying to fix and rent, which means usually they’re looking for some cash flow.
So, on the landlords, they’re looking for cash flow. They want to buy a house for a cheap price that’s got the highest return. So, often you’re looking at like lower-income kind of neighborhoods, cheaper priced housing.
For those that want to fix and flip, their strategy is to get exit out of that property as quick as possible. They want to sell to their first-time homebuyer with an FHA loan. So, FHA loan limits is also, once again, lower priced housing.
So the vast majority of what we sell is either rehabbers or landlords, and they’re both looking for lower priced inventory. So, a lot of beginners make a mistake of not understanding that concept. When you’re talking to the rehabber on the phone who buys five houses a month, he says, “How much in repairs?” You can’t say, “Well, I don’t know.” You’ve got to [inaudible 00:11:34] a number.
Mike: Right, right.
Lex: So you have to have an understanding of what it would cost to fix up a house – labor, material, etc. That’s very, very key.
Mike: Yeah, I know. I could give personally some experience. Early on, if I bought a house really well and I’m like, wow, I’m really happy that I’m going to make this amount of money. If I can sell it for that, I’m going to do well, without thinking of . . . just being green, not having enough experience. My first two houses I bought, one I wholesaled and one I rehabbed.
But the first one, literally, I remember somebody telling me on a couple of my first wholesale deals that . . . because I’ve always bought very conservatively, which is good and bad. But it’s good because you stay safe. But what I saw happen a couple of times is people said, “Yeah, you gave me an estimate on the repairs and, man, I got it done for like $8,000 cheaper than that.” I was like, oh, okay. Well, I left some money on the table.
So, you have to think like your end buyer or, rather, your end user. If it’s a rental property, one of the things that’s changed that’s been interesting over the past couple of years that I’ve seen and where I operate and a lot of the people that I work with, where they operate, is a lot of rental owners used to think more like rehabbers, like I want to be able to buy it at a certain percentage of the after-repaired value.
But there’s this whole new crop now that doesn’t care about after-repaired value or anything. They just care about kind of a cash-on-cash return or some multiple of rent or something else. If you don’t know how they’re evaluating a property, then you’re either asking too much or leaving money on the table, right?
Lex: Yeah. And that’s a big problem too, because if you don’t understand gross rental yields or how that landlord is thinking, sometimes you’ll sell stuff too cheaply. I see this a lot of times with short sales, where you go back and forth and something happens or there’s liens or whatever, and the closing gets delayed by six months. In that six-month period, prices have gone up a lot and maybe you bought a house for $100,000 thinking you could sell it for $110,000. But now you look at pricing and maybe you could get $130,000 for it, so you’ve got to be aware of the pricing in the market and what the buyers are paying.
Also, each person has their own unique situation. Some people have a full-time job. They’ve got great credit, and they’ve got a great W-2 and they’re really easy to qualify. So for those guys, if they buy just a little cheap and they fix up the house and then they refinance and pull their cash out, they can just do it again and again and again until they get to 10 houses, which is what I did when I started out.
For them, like the guy that trained me said, “Hey, if it’s a deal at $37,000, it’s a deal at $40,000.” In other words, if the market’s going up and the house is worth $60,000 or $70,000 fixed up, don’t argue over that extra 3,000.”
But for the rehabber who’s actually going to come in and fix and flip that property, let’s say, with a hard money loan, well, now his numbers really need to line up because if he’s not careful and his repairs go a little higher than anticipated and the property sits on the market a little too long and maybe sells for a little less than he thought, he can very quickly go from a profit to a loss.
Lex: So, the personal situation of the individual is key as well. I always say to people, “Hey, if you don’t have a lot of time and you’ve got great credit and you’ve got a job and good income, your best strategy is just find properties to fix, rent, and refinance. But if you’ve got tons of time on your hands, you’re unemployed, you’re not making any money, and you’re looking for a new career path, then wholesaling might be good for you because you can go out there and find properties for rehabbers and landlords.”
Some people take to wholesaling. They enjoy it. They like it, and they learn how to wholesale 10, 15, 20 properties a month. You can make a very good living doing that too.
Mike: Yeah. I know you teach a lot of people. I want to talk about a situation. You just kind of alluded to it. I think of like I call it the real estate investing supply chain. So you think of, hey, the guy at the bottom, just like somebody that’s making shoes for Nike, they’re kind of buying raw materials. They’re doing the extra work to kind of bring it to a retailer, right? They kind of get it all ready, and then they sell them to Athlete’s Foot or something like that, where they’re going to sell them on.
I think a lot of people that want to get into real estate investing, they think they need to go all the way to the bottom and be a wholesaler, and I agree with you, for sure, that you need to understand that, and that’s the basis of real estate investing. But sometimes they don’t realize, well, hey, that’s the hardest part of the business, I think, is finding the deals, right? You’ve got to advertise. You’ve got to grind out a whole bunch of offers and maybe sit down on couches with dozens of people to get one deal. And there’s value in that.
So there’s always the people that are just like, “I don’t want to deal with any of that. I just want to buy from wholesalers, and I’ll pay their markup,” different than the Athlete’s Foot is willing to pay a markup to Nike and a distributor and a whole bunch of other people that are kind of downstream from that.
Mike: But what kind of advice would you give to people that don’t have that time? They don’t want to spend money on advertising. They don’t want to have to talk to a million people to get one deal. They want to just kind of go straight there, just to kind of psychologically tell them that you should be willing to pay a little bit more for a house because they added value for you.
Lex: Right. Well, I would say, obviously first all, the market ebbs and flows, so depending on where you’re at, inventory 2009 and ’10 is not the same, let’s say, as inventory today. But what I would say is this, is that everyone’s chasing the same product. Everybody wants a house that they can buy at 65 cents on the dollar that’s in move-in condition, needs no work, and is a great neighborhood. While that’s great if you can find it, the reality is that it’s almost impossible to find.
Lex: Now, at the same time, you’ve got perfectly good rental properties in lower income neighborhoods that are very difficult to sell for owners because this is not the kind of property a first-time homebuyer is going to buy because in those neighborhoods no one can qualify for a loan. The only one they can sell to is an investor, and another investor who, sadly, is going to want a deal. So they’re kind of hard to get out of, and a lot of times they’re priced relative to their rental. The yield is quite amazing.
Lex: RealtyTrac did a report earlier this year. There’s some cities that have 25% gross rental yields, 20%, 18%. So you can do real well.
Up in a town called Fort Pierce, we routinely buy houses for $35,000, $40,000 that rent for $900 a month, and I just cannot understand why more people wouldn’t just want to do that – just buy a house like that for $40,000, put a tenant in there, go to the bank, get it appraised at $60,000, $70,000, refinance, then pay off the loan. You’ve got a house with no money down, and move on.
So you don’t have to necessarily be the guy out there making offers all day, looking for the deals because a lot of the people that are busy – the doctors and dentists of the world – they have jobs. They’ve got to go to work every day. They don’t have time to spend all day sitting on a computer, bidding on properties, or calling listing agents to try to get an REO or short sale.
Lex: That’s why wholesalers actually fill a need, because those cash investors actually need somebody to go out there and find those deals for them. The trick, of course, is everyone’s trying to get into wholesaling, but a lot of the beginners, while they might go and read a book or a course or attend a seminar, they won’t really take the time to understand the values in a specific neighborhood, what’s a good deal versus a bad deal, and how much would it cost to fix up that property.
It’s really not rocket science. It’s actually quite basic compared to . . . I used to be in stocks before I got into real estate. Now, that is rocket science. It’s much more complicated. But this is real easy. I mean, you can go to Home Depot. You can walk aisle by aisle. You can say, “That tile is 69 cents a square foot and I’ve got a thousand square foot house. That’s $690, and I can pay a guy $1.25 a foot to lay tile and, boom, that’s $2,000 to put tile in this house.”
Lex: So you can really calculate quite easily what tile and drywall and kitchen and painting. So you can really come up pretty easily with a good idea of your affairs. If you’ve got good comparable sales, you know what the house is worth fixed up, and you just run your numbers, and there needs to be enough of a spread there for you to make a profit. If your numbers are right, there’s no reason a rehab or a landlord will not buy their property from you.
Mike: Right, right. Awesome.
Hey, Lex, let’s jump into the taking action segment of the show here.
So, I want to continue this. Maybe you could share some advice real fast. We were kind of talking a few minutes ago about how wholesalers need to understand how to evaluate a rehab. What kind of advice can you give on how they can . . . if you’re brand new, okay? If you’re a veteran, just bear with us for a second because this is going to be remedial for you. But to learn how to evaluate a rehab if they’re not rehabbing.
You could maybe meet with a contractor. Of course, if you have a mentor or something like that, you probably have somebody that’s helping you through that. But outside of that, can you kind of give some advice on how to really learn what it costs to rehab a house if you’re not planning to do that and if you haven’t done it before?
Lex: Well, the best way to do it would be to partner up with somebody, even if you had to give 50% of the deal up. To partner with someone who is a more sophisticated investor would be worthwhile for you because, as an example, we have all the time in our coaching program people who come to us and want to do a fix and flip. They us a decent, large amount of money to learn how to do their first fix and flip, but they get access to learning how to do it. They get access to the crew, the contractors, everyone who does the job.
Once they’re done their first one, on their second house it’s more like, “Hey, Lex, can you just take a peek at this and make sure it’s a good deal,” and then they’re doing the second rehab almost completely by themselves. By the time they get to deal three or four, they don’t even need me to help then anymore.
So, I think it really is key. When I think back to my first rehab, I worked with these guys for two years as a birddog finding deals for them, and after two years I said, “Hey, I want to really just own a rental property like you guys have all these rentals all over town.” They said, “Why don’t you buy this house?” which was a house [inaudible 00:21:24] a wholesaler, which was falling apart.
They actually helped me with a loan. They got me a hard money load, a private loan, to buy the property. I borrowed money to fix it up, but it was nice to go to the property and know that their crew was there. They were giving me estimates. They weren’t ripping me off. I was getting good pricing.
Pricing is a real key thing because you can’t just open up the Yellow Pages – or Yellow Pages don’t exist – but go on Google and find the first general contractor and say, “Hey, can you give me an estimate?” because they’re going to typically charge you about three times of what the real cost on that job is. So if it costs them $15,000, they’ll quote you $40,000. That difference could be your spread of profit. So if you can find somebody who will do that same job for $25,000, then you’re able to keep that extra $15,000. So, that’s key if you’re going to rehab.
Lex: Eventually if you build it up, you find a steady slew of people, you get a good electrician, a good plumber, a good drywall guy, and you learn how to bring your costs down, bring your expenses down so that you can make a decent profit on the deal.
Mike: Yeah, yeah. One of the things I’ve done because I love to rehab, we’re primarily a rehabber or retail guy, and we sell wholesale. I mean, I wholesaled a house last week. But I prefer to rehab if I can. I’ve tended to make more money doing that. I enjoy the transformation. I may be a glutton for punishment because it’s clearly the hardest part of real estate investing, other than maybe landlording.
But one of the things that I’ve done is as a rehabber, when I’ve bought deals from other investors, sometimes I’ve said . . . I knew they didn’t have experience kind of rehabbing or seen it, and there’s still a fair bit of wholesalers that they want to make their way there. Like, they want to rehab after they do a certain number of deals and they start to save up some money or get some credibility or whatever it is, and I’ve just said, “Hey, look. If you sell it to me, come over here. You can talk to my contractors. Just swing by here once a week. We can kind of walk through what we’re doing and transform it into an educational process as well.”
I kind of did that to say, “If you sell it to me at this price,” hopefully, a little bit less than they were asking, which it’s harder to do that today because there’s so much competition for deals, but that’s one thing I think, if you’re a rehabber out there, it might be a way you can get more deals closed is to say, “Why don’t you sell it to me, but I’ll turn this whole project into a learning experience for you as well.”
Lex: Right. Well, I think that for a lot of people who want to get into rehabbing, I think the key is just take a yellow pad and go to a Home Depot or Lowe’s near you and plan on spending around two hours just going up and down the aisles, and familiarize yourself with the pricing of the materials and the components that go into rehab jobs. So, learn what tile costs. Learn how much a five gallon of paint costs. Learn how much an 8×4 piece of drywall costs. And write all these things down.
You can also search on their website. You can sit at home, and you can go on Home Depot’s website and you can search for a shower door or whatever it is. Once you learn all the costs of the components, then when you’re going and you’re looking at a house and you say, “Okay, well, I’m going re-glaze this tub. I’m going to put a shower door. I going to put a new vanity. I’m going to put a new toilet. I’m going to retile this floor. I’m going to retile around the enclosure,” you now have a pretty good idea of what those materials cost you.
So, now the only thing that’s left up for discussion is, well, what would it cost for somebody to install them? Now, some people do it themselves, which I don’t recommend because it’s not a good use of your time.
Lex: You’re way better off spending your time finding deals. But it’s not that hard if you start going to local real estate investment club meetings, you network with people, you start asking other rehabbers, “Do you have somebody to recommend? I need some drywall done. I need this done or the kitchen remodeled.”
A lot of rehabbing is trial and error. One of my first rehabs, a guy bought $10,000 worth of material to put in the house, and the house got broken into and all the material got taken out.
Lex: So, things like that can sometimes happen, so put less of a deposit up. They’re going to try to ask you for half of the money upfront. Offer them 20% of the money and then another 20% a week or two later and so forth so you’re giving it in stages. That’s where really coming off of a personal referral is so key because 90% of rehabbing is not getting ripped off. At least if you’re referred by somebody else who rehabs houses, then you know that the person’s probably going do a good level of work at reasonable prices, and they’re not going to run off with your money.
That’s really, really important in rehabbing because I’ve seen so many times how that trips up new investors. They get a hard money loan and then three months later they’re coming back to me and I’ve got to take the property back because they got their materials stolen or they underestimated or somebody charged them too much.
Lex: So, if you can learn the price of the materials, then the only other component is to learn the price of labor. If you start going around on job sites, you’ll see contractors have subcontractors, and these subcontractors oftentimes are working for pretty low amounts of money. So, network. Find a general contractor that you can pull permits, that can make a job legal, that can supervise, but figure out how to get to those subs so that you can cut out a layer of those expenses.
Mike: Yeah. Yeah, I say that same thing to everybody that I know. You only want to work with contractors that come referred by somebody else. In fact, that’s part of the reason why we created the vendor platform on FlipNerd was other investors in your market can rate and review them. It carries so much weight because you’re right. I will say that I definitely have been the guinea pig before, but you don’t want to be the guinea pig with a brand new contractor that nobody knows of with your own wallet. What you love to hear is somebody say, “Don’t ever work with that guy,” or, “I would recommend that person all day long.” You definitely want to use that guy.
Mike: And so having rehabbed hundreds of houses, I have people like that, that we just chat via a couple of texts. They give me a price. I know it’s going to get done. And there’s just this honesty and this trust that’s there. But initially you’ve got to find those people through other people. Otherwise, finding people on Craigslist and stuff like that, while I’ve done it and there are certain trades that I’ve never had, I just never have found a good roofer, to be honest with you. Stuff like that.
Mike: Because some people are flighty. But once you find the right people, your life gets a lot easier and you can trust and you can buy with confidence and not worried about being taken advantage of or something like that, for sure.
Lex: Right. Also it’s a time factor, because if you can go . . . and I buy houses without looking at them. I send a crew over to the house to put lockboxes and change the keys. I send another crew over to the house to repair the house. Then I send another crew over to take photos, and then I list the house, and I still haven’t been inside the house. The time factor of that alone, maybe they charge a little bit more here or there. If you do it enough you learn the games, like they’ll go and they’ll buy three buckets of paint and they’ll return one and they’ll keep store credit and then they’ll go and buy the stuff. They do little things like that, but in the grand scheme of things, if you’re making $30,000, $40,000 on a flip, I’m not going to get worried about my contractor buying an extra pack of rags for his paint jobs or whatever, you know?
Lex: But rehabbing’s not really the greatest place for a new investor to jump in unless they’ve got somebody that’s helping them and doing it with them because there’s so much to know in rehabbing between dealing with the contractors, understanding the price points.
Landlording is easier to get in because it’s easier to get a deal. But the problem with that is that for a lot of people they don’t really understand how much of a business landlording can be and how much of a headache it can be.
Lex: I mean, 99% of my headaches come from landlording.
Lex: So, wholesaling has a certain appeal, especially for beginners because they don’t have to put up any money. They just find a deal, they flip it with some guy like Lex, and I make five, ten grand, and they’re off to the races. If you can figure out how to do that once or twice a week, you’re in business. You figure out how to do that four or five times a week and you’re quitting your job.
Mike: Yeah, yeah.
Lex: So, quite a few of our students have done just that, and that’s what makes wholesaling so appealing.
Mike: Yeah. From a wholesaling perspective, you want to kind of talk about some action steps that people can take to kind of get started there? If we’re talking to some of the newer folks here, what they can do to . . . you know, one of the challenges that I think . . . you know, there’s a lot of people that say they want to do this, and they fail because they never get out of the gate, right? Life gets in the way.
I’m sure we know a lot of the same people. Some of the more successful people that I know in this industry, they hit bottom or they got backed into a corner or something happened where failure was not an option and then they succeeded. There’s a lot of people that are trying to do this in addition to a job. They say they’re trying to do it. What they’re really doing is just consuming tons of education and knowledge with no real plan for action, which you know is critical.
But let’s talk to that person for a second and just say, look, in order to get out of your comfort zone, even though you’re getting a cushy paycheck every week or every other week or whatever, this is what you’re going to have to do. What advice do you give those folks?
Lex: Well, you see, here’s the thing. It’s like I see all these people who come to my boot camps, our real estate club meetings, our seminars, workshops, and they’re like professional gatherers of information. They go to these trade expos, these real estate events. They buy this course. They buy that course. Maybe they read it. I’ve read studies that say that 85% of people don’t even read all of the material that’s contained in the course that they paid a decent amount of money to buy. So really they’re just kind of gathering information.
What separates them from the people who actually do something – and it’s a low number of people that actually do do something with the information – I think is just the ability to take action. You know, just like Tony Robbins says, he says, “Take massive determined action.”
So when you’re backed up against the wall, you don’t have a lot of options, like myself, I was a stockbroker, a money manager for 12 years, and then in 2000 when the NASDAQ imploded I lost everything. I lost all my money. I lost all my clients. I lost my business. I lost everything. Suddenly I’m 30-something years old and I don’t have any way of making a living. So, when I saw an infomercial on TV that said learn how to buy houses, I jumped on it. It said, “Come to boot camp.” I jumped on that too. I started reading and this and that, and what was lacking for me was just taking that step, taking that action step.
Lex: For me, I was lucky in that I met an individual who was actually doing it, and he took me under his wing and allowed me to work for him. So, hands down, I would recommend to anyone that’s out there that wants to get started, find somebody that could be somebody that would take you under their wing.
But as far as action steps specifically for now, for today, for somebody that wants to get started wholesaling, I would say probably the easiest way for you to find a property that you could flip to someone is via the online auction sites, and I’ll go ahead and mention a couple.
Lex: Now, a lot of people don’t realize how easy it is. But anyone can go to Hubzu.com as an example. That’s H-U-B-Z-U dot com. And that’s a company called Altisource. Altisource is basically a company that’s based out of India, believe it or not. Their call centers are in India. But they have REOs coming in from all these bank-owned properties, and they’re basically putting them on the market and listing them, and buyers can go and bid.
So, what’s great about that is it doesn’t cost any money to register, and you can go ahead and you can bid on a property. If you win the auction, that could be potentially something that you can wholesale.
Lex: The biggest problem for new investors is understanding the differences between all the different types of properties – the short sales and deed restrictions and Fannie Mae and Freddie Mac and HUD properties. That’s really where there’s a big difference for investors, and that takes some learning. That’s why we have a boot camp that we have twice a year. Students come in and we spend three full days basically going through the semantics of telling them which properties can be flipped, which properties can’t be flipped, how to find properties.
But it all boils down at the end of the day to understanding one market, because if you, Mike, regardless of what town or city you live in, if someone listening to this were to actually learn a specific a neighborhood, a subdivision of a certain area of a town well enough to know what cash buyers are paying for properties in that neighborhood, which means they’d have to have access to decent comparable sales comps. If they knew what it cost to fix up these houses and they knew what you could sell these houses for once they were fixed up, then if you drive around enough looking for deals or you can go even on sites like Realtor.com, which is just really an MLS aggregator . . .
In our trainings, the first time we sit down with a student, we take them to Realtor.com and we say, pick your city and state that’s within 50 miles of where you live where you’re going to look for properties because we don’t want people driving hours and hours to get to properties, and just simply go sort low to high and look at the first 15 listings that are coming up down that page, and pick up the phone and call the real estate agent. Therein lies the obstacles. “Well, what do I say to the real estate agent? What if it’s available? What forms do I use? How do I fill it out?” So, the devil really is in the details.
Lex: And you have to learn all of that stuff because if you want to make an offer to buy a house but you don’t know how to fill out the form, that’s a problem. If you don’t know how much to offer, that’s a problem too.
So, you’ve got to get into all of the specifics and the details, the proof of funds and everything else. That’s what trips up a lot of investors. They say, “Oh, well, this looks too difficult,” and then they move on.
Lex: But I like to use an analogy in my trainings. I say, “You know, if you’re walking along the street and suddenly you see on the pavement a stack of $30,000 wrapped up with a rubber band, do you bend down to pick it up or do you just keep walking? You bend down and you pick it up.” So my question is, well, what if it’s just a hundred-dollar bill? Do you bend down and pick it up or do you keep walking? Even a twenty-dollar bill, a five-dollar bill.
I show oftentimes in my speeches, I hold out a five-dollar bill and I say, “Who wants this?” People almost trample other people to death just to grab a five-dollar bill.
Mike: It’s because you’ve touched it. It’s because you’ve touched it, Lex.
Lex: So, I say to these investors, I say, “Hey, look how these people are reacting to grab a five-dollar bill. You’ve got houses that have $20,000, $30,000 in equity. Get aggressive. Go out there. Pick up the phone. Call the realtors. Call 10, 15, 20, 30. Maybe one of them will answer and say, ‘Oh, it’s funny you called because it just got cancelled yesterday and it’s available.'”
Lex: And then do you know what to say next? Do you know how much to offer? So one thing leads on the other. So you do need some kind of training, some kind of guidance, some kind of education, and so I would definitely recommend to people who want to get started that they do invest in some kind of training and education.
Mike: Absolutely. I think that just taking action and starting to do some of those things, even if you do them wrong, even if you don’t have any plans to buy, if you just want to get experience, just calling agents, calling other wholesalers that are selling properties, just asking questions like you’re going to buy, talking to them, you’ll start to feel patterns. You start to get comfortable with it. It’s just the experience of just talking to people, because that experience gives you confidence and, as you know, once you’re in this business and you’ve done 5, 10, certainly 10 or 20 deals, confidence isn’t an issue anymore. You know what needs to get done, and then it’s just a matter of finding deals and raising enough money to do the type of volume you want and all those things.
Lex: Right. Also another thing I think for people that are starting out is getting your real estate license. Hey, you want to flip houses for living? You want to make an extra $5,000, $10,000, $15,000 a year, spend a couple hundred dollars, get a real estate license. You get access to the MLS. You can see lockbox codes. You’re legally allowed to be on the property because all these REOs have these big no-trespassing signs on them. Then, most importantly, you’re able to flip other deals for other people.
The minute you have a license, you can put a site together. You can post some wholesale deals from other wholesalers you can put on your site. You put a couple of ads on Craigslist, and somebody can call you and say, “I’m interested in that house,” and, boom, you’re making some money. Maybe it’s only $2,000 or $3,000, but you do that once or twice a week, it starts adding up.
Mike: Yeah, yeah. Absolutely. Well, Lex, any kind of final words that you want to give people that are listening to this in this kind of taking action segment? We’ve obviously kind of beat a dead horse here of just taking action and getting started but anything else you want to say to kind of wrap up what we’ve been talking about here?
Lex: I’ll give you a little bit of an analogy, okay? I was out at a real estate networking meeting years ago when I was out I California, and I met a gentleman. He was the founder and CEO of the Green Burrito, and he’d set it up. He’d franchised it and it became quite successful. I went up to him and I said, “I’ve got a question for you. How do you know when to get started? How do you know when you’re ready?”
You know what he said to me? He said, “You know when you’re standing by a swimming pool and the water looks like it’s pretty cold, and you put your toe in and it feels like it’s pretty cold and you’re thinking, wow, should I really do this? Should I jump in?” He said, “At a certain point in time, what do you do? You jump in, right?” He said, “So, it’s no different. You’ve got to go in. Make a mistake. Offer too much. Offer too little. Mess up in filling out the contract. But that’s how you learn.”
So, the key is just start. Start doing something. That I don’t think can be said enough because there are so many people who just process information they hear. They go on all these different webinars and stuff, but they don’t do anything with the information, which is quite sad. It’s not difficult per se, okay? Just like you used the analogy of the sneakers with Nike, there’s a guy buying a container of sneakers for $10 apiece from China, and then he’s selling it to a wholesaler at $30 apiece, and they’re selling it to Foot Locker, who is then selling it for $100.
Mike: Right, right.
Lex: So, wholesaling exists because we’re buying properties for cheap, and we’re buying them cheap because the homeowner’s in foreclosure or there’s some kind of damage to the property or there’s some kind of reason that they need to get out of their property real, real quick.
Lex: The only challenge for a new investor is how to find those properties. So, right now we’re very lucky that there are so many bank-owned properties and short sales that are on the MLS that makes it kind of easy. They’re on these auction sites like Auction.com and Hubzu.com, but certainly that’s not the only way. You can put bandit signs out. You can put classifieds out. I’ve got billboards over my target market on the main roads, radio ads, pay-per-click, Facebook advertising. There’s tons of ways to find somebody who wants to sell their house. Then the trick is just to be able to buy it for a cheap enough price where you can make a profit either wholesaling it or fixing and flipping it or renting it.
Mike: Right, right. Awesome.
Well, Lex, if folks want to get ahold of you, where do they go to learn more?
Lex: My website is www.lexlevinrad.com. I’ll spell that out. It’s L-E-X-L-E-V-I-N-R-A-D dot com.
Mike: Awesome. Well, we appreciate you being here with us today and sharing your knowledge and insights. Great to see you again, my friend.
Lex: Likewise. Good seeing you.
Mike: And we’ll add a link for your site down below. Anybody that wants to learn more about Lex and all the great things that he’s got going on, please check it out.
Lex, we’ll see you next time. And for our listeners, thanks for joining us for another show. We’ll see you again soon. Have a great day.
Lex: All right. Thank you.
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