Before talking to Chris all I knew was that he just closed on a 70 unit multi-family property. I had no idea where this interview was going to go and was so pleased when it led to Chris explaining in detail how to get started when you don’t have enough money to start buying houses.
Turns out Chris got started four years ago by doing wholesale deals because he had no money to invest in real estate. When he realized how great the wholesale deals were he decided to keep the best and turn the rest. He now owns 12 single family properties, a 4 plex, a 6 plex, and of course the 70 unit multi-family.
Chris explains how to start and run your own wholesale business and turn that into investing you can retire on. Chris is only 30 years old and accomplished all this in only four years.
Transcription by SpeechPad
Damon: I really appreciate you taking the time to do this today, to do this interview and hopefully it’s not too inconvenient for you.
Chris: Absolutely. I appreciate the opportunity.
Damon: Good. So I don’t know really a whole lot about your background, and that’s really what I’m interested in finding out. How did you get started in real estate investing? Why and what you’ve been able to do. Maybe we could start with where you’re at today, and then we can kind of work backwards and learn how you got to this point. Does that sound all right?
Chris: Yeah, that sounds fine.
Damon: Okay. So you’ve got a whole bunch of properties right now and you pretty much that’s all you do. You live off of those. You don’t have another job or anything like that, do you?
Chris: Well, that’s right. I quit my job about four years ago to do this full time. You can probably hear the hammers in the background right now. I’m actually at the 70-unit property, and they’re putting in the drop box for the rent. I did this on purpose. Real estate was something that I wanted to pursue because I just kind of wasn’t sure before what I wanted to do. It was kind of like do I want to do one thing and then switch to something else and switch to something else?
But in real estate it was like you never have to find another profession. You can that from one rent house to a large office building. If you master it, then boom, you’re set. You can grow and be as big as you want.
Right now, I’ve got the 70-unit property, which is 70 individual homes, and they’re all on one HCAD account, so it’s kind of like an apartment complex. They’re all on master metered for water. So we’re running it like an apartment complex.
Damon: So it’s actually individual units, like individual little houses? Or are they in the same buildings?
Chris: Yeah, they’re all individual houses, kind of like row houses, but they’re way better construction. They’re all brick and they’re all on slab and they were built in the 60s, but they kind of look, when you drive up you think they were maybe built in the late ’70s or early ’80s just because of the quality of construction. So we were real happy with the purchase.
In addition to these, I’ve also got 22 other rental units, which is basically a fourplex, a sixplex, and 12 single family homes. That started about two years ago, where I was kind of wholesaling a lot of deals and my dad said, “Look, I’ve got the credit to go ahead and close on these. Why don’t we keep a few? You’ve got some really sweet ones in there.”
So that started and progressed. Joining Lifestyles was not the first thing I did, but listening to their radio show was and that kind of opened my eyes to don’t give away all these deals. So pretty rapidly we bought all those 20 units. I think all that happened within about 18 months.
Damon: Was that when you were wholesale . . . so you were wholesaling first. Then you heard Lifestyles Unlimited on the radio, and then you started thinking about keeping some of the properties?
Chris: Yeah, exactly. To kind of digress and go back to the beginning, it was starting out just wanting to get into business. I didn’t know how. I didn’t know what I could do, but wholesaling was obviously like, hey, no money, no credit, that’s me. I joined the RICH Club and I joined Lifestyles, or started listening and kind of getting to know people, heard them on the radio. The big picture was kind of starting to form in my mind, but I wasn’t really interested in rentals. I wanted money. I needed a loan. I needed a job.
Damon: You needed income.
Chris: Long-term wealth was kind of like, you know, I don’t care about that right now. So anyway, after getting to be pretty good at wholesaling, I realized some of these really could be sweet if I could hold onto them. And the amazing thing that happened with my dad was he had a relationship with a bank because he’s an appraiser. He’s been doing appraisals for this bank for about 20 years. He said naturally, “Why don’t we just take it over here and see if they’ll finance us?” And they did, with pretty good terms.
The next thing I did was ask them if it would be okay for me to take an assignment fee and basically take my deals that I was finding, have my dad pay me basically out of the loan proceeds. Just raise the loan and over-finance an extra $5,000, and then that would be my incentive for finding the deal and that would kind of keep my wheels turning. It would keep my marketing budget afloat, and then I would still be able to kind of have the best of both worlds, because at that point, me and my dad would do the property and we’d be 50/50 partners. However, I was still making a wholesale fee.
Damon: So when you say that you were able to get your wholesale fee out of the loan, what would be a simple example of that so people that don’t understand what that is can kind of visualize it?
Chris: Okay. Good example would be if we’re going in to buy a house that’s worth $100,000 and I’ve got them under contract for $30,000, all I would do is send in a new contract for $35,000, with a little wholesale addendum that would show, hey, I’ve raised the price from $30,000 to $35,000 and I’m going to go ahead and take the difference as a payment for finding the deal. So basically, you’re just artificially . . . go ahead.
Damon: Well, so you’re saying you would go find a deal at $30,000. This is a wholesale deal, so it’s not on the MLS or anything. You actually find whoever owns the house wants to sell it for whatever reason. They’re willing to sell it for $30,000, but then you’re going to mark it up to $35,000 and sell it to somebody else, which in this case happened to be the company you and your father put together. Am I understanding this right?
Chris: Mm-hmm. Yeah, that’s exactly what happened. Mm-hmm.
Damon: Okay. And then so that extra $5,000 was your fee, kind of your wholesale fee for finding the deal and finding a buyer for it.
Chris: Yeah, exactly.
Damon: Okay. That makes sense.
Chris: Because I was finding these deals so far below market value. I would look at sometimes 20, 30, 40 houses and I would sometimes negotiate deals. I always had like 4 or 5 or 6 or 10 in the pipe, and sometimes these negotiations would last a couple weeks. I’ve had some that lasted a year before they finally said, “You know what? You’re the best offer I’ve gotten. Let’s do it.” So I was earning money, and I was delivering better deals than my dad was able to find looking on his own.
Damon: Was it hard work to find these deals, to do these wholesale deals?
Chris: Yeah. I would say the first one was difficult. It took a lot of my time and it didn’t pay very well, but a lot of that was my fault. Well, not necessarily my fault. It was just the first deal. But they got easier. The first one, I just didn’t know. I didn’t have a system really. But the second and the third one, suddenly it clicked and I was like, whoa, I don’t need to do this. I don’t need to do that, I don’t need to do a whole lot of this other stuff that I was thinking that I needed to do.
People just wanted cash. They just wanted quick closings, and that’s really all that mattered. They wanted someone who they could trust to sell their home to and they wanted someone who understood their problems and then they wanted quick cash in their pocket. They didn’t want this whole song and dance.
And suddenly I realized that the title company could even do some of the work for me. They could arrange the closing. They could arrange the clear title. They could do certain things.
So, about probably the fourth or fifth deal, I kind of had it down pat and it got a whole lot easier. If I made $1,500 on my first one and had 25 hours in it, I think my sixth or seventh deal, I had about 5 hours in it and I made a $25,000 wholesale fee.
Damon: Wow. So it took less time and had more profit in it.
Chris: Yeah, exactly. It was way more profitable. So at that point, I said, “I don’t need to have a job. One of these deals is my yearly salary.”
I told my boss when I started – I was a contractor at that time, I was a supervisor for him – I said, “I want to learn the construction part of this business and I’m willing to work hard for you for 12 months, but after that I’m going to want to sever ties. I’m going to want to go do real estate.” And he said, “That’s fair. You’re a young kid. I’m sure you’ll work hard for me.”
That’s what I did. I worked my butt off for him, and then in the evenings, I would return phone calls and look for deals and do my advertising campaigns, send out the little yellow letters, “We buy houses,” things like that. But it didn’t take me long to pick up the construction part of it and then to pick up the wholesaling end of it. And then when my dad came in and said, “I can finance these properties,” it was like boom. It made the perfect triangle because we had everything we needed.
Damon: So you could find the houses, you could buy them, and then you were able, through your dad’s financing, to hold on to them and rent them out.
Chris: Right. Exactly. And then I kind of had to break away from this old school landlord mentality that I kind of picked up from maybe partially some of my dad, maybe some of the friends that he has that own real estate, this whole “don’t put any money into them” idea. Because that was the first one I did was kind of a slumlord deal and it was tough. The tenants were rough, the houses were rough, and collecting money was tough. It was hard to cash flow because a lot of times I had these major repairs that I’d have to go over in the middle of the night and you’d be meeting plumbers out there.
Very quickly I realized, okay, if I can apply a new business model to this, this business could be just as profitable as all the others and potentially a whole lot more profitable. So I kind of did the same thing with the landlording and holding rentals. I just kind of refined it and got to the point where I realized, okay, I can do this better, faster, more efficiently and deliver a better product to my customers, my tenants. It’s like the more I followed that model of $80,000 to $120,000 brick house, three bedroom, two bath, the easier they got, and it got to the point where I almost didn’t have to spend any time on the rentals.
Over time, I developed a partnership with my father and I developed a partnership, or really a business relationship, with a friend of his who’s owner financed property for the better part of his lifetime. He’s in his 70s now. He became kind of a private money lender to me as well as my dad was kind of a partner and private money lender. And then he would buy deals from me as well. So we kind of established a working relationship, and then if he had some houses that he needed rented out or he needed some help getting them sold, I’d always step in and help him with that.
So over the years, they kind of were like, “Well, Chris knows his stuff. Chris can do real estate. He’s pretty good. He collects all of his rent. We like him. He’s making profits.”
Damon: You built credibility with them, right.
Chris: Yeah, and they could trust that when the bill was due, I was going to pay it, that I had a plan in place that I could get things done and I could meet my obligations. So eventually, I started thinking bigger and I started seeing what some of the leads had done at Lifestyles, and that was the next frontier.
That was why I chose real estate, because I knew that I could just keep making these steps because there’s so many different things in real estate investing. There’s so many different types of property. There’s so many different ways you could finance deals, buy deals, put them together, partner with people. When I started seeing the leads doing $2 million deals, $8 million deals, it was like that passion inside me, that aggression to go out and produce, it kicked off and I went into overdrive and said, “Okay, now that’s what I want to do.”
But I still was making . . . I was still self-employed. I still didn’t have a huge amount of savings, and so I kind of ran into that wall again. That’s when I joined Lifestyles, became a PIG Member, started going on every road trip I could. I joined the Houston Apartment Association. I got my Certified Apartment Manager designation from HAA. I did everything that I could to prepare myself to be a lead investor, to be a partner in a big deal. I just didn’t know how the money was going to happen. I didn’t know how the deal was going to come to me.
It’s just different. you know the little sign that’s on the side of the freeway, “We Buy Apartments,” just doesn’t really . . .
Damon: You’re not going to have apartment owners calling you up based on that.
Chris: No, they don’t call little signs like that. They don’t generally answer the yellow letter campaign as well as people that have a junky house. But I knew it was what I wanted to do, and really it was the old classic definition of luck, being in the right place at the right time and being prepared to take action.
This 70-unit came through. That friend of my dad’s who had been a good business partner for so many years, he said, “Look, I know a guy, he’s owner-financed these properties to an investor and he’s taken them back a few times and they’re kind of roughed up. You want to go look at them? He might make us a deal.” And I said, “Oh, sure. Let’s go see.”
That was kind of the beginning of it. That was about 18 months ago. We went and looked. Originally, the price was about double what we paid for it, so it took walking away from it about three times before we were actually able to make a deal with the guy. It was kind of a daunting task. It was kind of a scary property. Supposedly there’d been drug activity. Some of the houses were pretty run down. Most of them were in good shape, but there was a lot of trash on the property, fallen trees. It was just kind of a mess.
What this guy had done is he had sold them or he had been a private lender at one point and lent money to somebody, way too much. The guy went into foreclosure, and now he’s stuck with this property and he wants to be made whole. He doesn’t want to have to sell them at a loss. And so the idea came, “I’ll just owner finance them again, and I can get my own price if I decide to set the terms.”
So that’s where this whole idea of high price came into play with the property, and my thing was, we can do that, but then the down payment has to be nothing because I don’t want to get into something where I can’t make any money and I’m on the hook. So with my construction background, with buying the properties in the rough parts of town when I first got started, collecting rent late at night and stuff, I wasn’t afraid of the deal. I just wanted the numbers to work.
So we kind of played it both ways, and we sat down and kind of fell back on my CAM certification and looked at all the stuff I had learned there and I said, “Let’s do this right. Let’s put together a pro forma, let’s put together a rent survey, and let’s really do a big due diligence on this property and see what we can do with it. And then we’ll come to him with a cash price and then let’s come to him with a price on terms.” And he basically just flat out rejected and kind of made fun of us when we did the cash offer.
Damon: Because it was so low?
Chris: It was so low. Because he had sold this property for $3.6 million at the top of the market. I’m sorry, he lent $3.6 million on this property at the top of the market, and now he owns it for $3.6 million. I think we were offering him like $700,000 at the time.
Damon: I see. So it was way below where he wanted to be, to be made whole.
Chris: So the first guy who bought this property, he owner financed it. I think this guy actually owns a bank or a couple of banks, and so he’s well connected. He turns on one of his rich friends to it. The guy buys the deal and three months later, he just gives it back. He turned in the keys and said, “Man, I don’t see how I can make debt service on this thing because you’ve got the price so high.”
Damon: Did he buy it for about $3.6 million? Do you know?
Chris: He bought it for exactly $3.6 million.
Damon: I see. And then he realized after he owned it that he paid too much and he wasn’t going to be able to do anything with it.
Chris: Yeah. He said, “This is nothing like my law practice. Golly, I thought this was going to be easy.”
So that didn’t last long. It ended up going into negotiations with another guy. This guy did have some real estate experience, but at the last minute, he pulled out and said, “I don’t want to close.” That was probably November of 2010, which is only a couple months ago. We got a call and this guy says, “Look, I’m ready to do it. I want to do it before the end of the year. I want this thing off my books really, really bad because the occupancy is falling.”
Damon: Right. So he wanted to get rid of it by the end of December so they were off the 2010 books?
Chris: Which ended up not happening. Well, you know why, how real estate deals are always two weeks late on the closing. I don’t know why, but they are. That was his goal. That was his motivation. And so we came back and we started looking again and we just said, “Hey, let’s cut to the chase. What was the last deal you’re working? Where are we at now? We’re at $700,000 and you’re at $3.6 million. What’s the real scoop here?”
And he says, “Well what I’m willing to do is, I’ll go $1.7 and I’ll even furnish some of the money for you guys to fix it up. That’s not really an issue. I just don’t want to look like I lost money on a deal.” And so we said, “Okay. Can we have the interest rate we’ve been asking for, which is like 3%?” And he finally agreed to 3.25%.
Damon: I see. Wow. And in today’s markets, there’s low interest rates, but not that low.
Chris: Exactly. And when me and my dad partner up on deals and use his bank, I think we’re paying 7.25%, 8% sometimes because these are like commercial investor loans, almost like a line of credit to buy houses with. So I was excited about the numbers.
I started looking at what if we paid $700,000 and then we dumped in a bunch of rehab money and we paid closing costs and we paid appraisals and inspections and all this kind of stuff, and then six months later we had to do the whole thing over again and refinance into another loan and pay those costs again. Then we’re going to amortize this whole thing at 7.25%, chances are, and then we’re going to have a five year balloon. What would that payment be, and how much would we have sunk in the deal? How much risk would we have, and what would the cash flow be?
I started looking at it, and I was like we’re going to end up with a bunch of money in this deal, a payment of around $12,000 a month, and we’re going to have to dump this thing or get rid of it and refi in 60 months. The clock is ticking. This guy is basically saying we don’t need to put anything down. We’ll have the same payment. The payment we ended up with was like $11,200, I want to say. So it was less than what I thought it would be had we paid cash, got our price and gone through all that.
Damon: How long was the loan that he was willing to give to you? The $1.7 million.
Chris: That was the sweetest part of the deal. He was willing to do it for 25 years, no balloon.
Damon: Oh wow. So you had terms whereby you’d be able to hold on to the property for a long time, the costs would have been about the same as if you’d gone with the different type of lending deal, and so there was no pressure to get out of the deal like if you had a balloon loan where you’d have to get out of it in five years.
Chris: Exactly. So when I started to weigh the pros and cons, suddenly giving up the equity was well worth the benefits that we were going to have in terms of being able to save our cash to put into the next deal. And so it just started to make a lot of sense. We ran the numbers, and I said, “I can do this.”
We’ve got 70 units. Most of the ones that are occupied are at $650. If we just go low on our numbers and just be real conservative, what could we make? And then we pulled it up and it was like, whoa, we ought to be able to make $9,000 a month.
Damon: That’s $9,000 profit, right?
Chris;: $9,000 profit.
Damon: Yeah, because you’ve got your loan payment you said is around $11,000 something. There’s going to be insurance and some other costs involved. But once you collect all the rents, pay off all that stuff, you’ve got $9,000 left?
Chris: Exactly. Our gross potential rent, if we were 95% occupied, would be about $42,000, and that’s if we were lowering the rent to get full. And then our net operating income would be a little over $20,000, so you’ve got about, conservatively, $10,000, potentially more than that. So at that point I said, “When do we sign the contract?”
Damon: Wow. That’s great. And when was that? Was that in January, this month?
Chris: Yeah. That was four days before my birthday on January 14th. So I turned 30 right after I closed the deal.
Damon: Wow. That’s cool. Happy birthday, right?
Chris: Yeah. Thank you. It sure was. It was pretty exciting. I really didn’t do much for my birthday this year, because as soon as we closed, it was like running a three ring circus over here.
Damon: How much rehab costs are you . . . I mean how much is it costing to fix these things up so you can get them rented?
Chris: We have a rehab budget of $500,000. I’m sorry, we have a draw that we can take up to $500,000, and my rehab budget right now is $400,000. So the idea is we want to put as much of that money into the property as possible, but we don’t want to run out and have to put our own cash into the deal. So we set a small budget.
Working as a contractor, I just brought my crews over. I had everybody lined up. A lot of my guys work for $10 an hour and they can do plumbing and HVAC. I looked at what the last guy had put down, and he had over $1 million in rehab. I looked at him like, “You can’t be serious. There’s just not that work to be done.” And so we put that budget together.
Here’s the kicker on the deal that I didn’t even mention. I told the guy, “Look, if we’re getting in for no money, it’s truly got to be no money. We can’t pay you any interest payments or principal payments for at least a year.” And what he ended up doing is saying, “Look, if that’s what you want, then I’m going to increase your rehab budget to cover the interest for the first year.” So I wanted a purchase price of $1.7 million. He said I’ll give it to you for $1.8 million, no interest, no payments for a year.
Damon: Wow. That’s pretty sweet. That’s worth a lot.
Chris: Yeah. That was our safety net to get up and going, because we were at about 20% occupancy when we took over the property. I knew that it was going to be a tough start. I knew that there was going to be kind of the white knight takeover. We were going to have to come in and probably just start cleaning up before we even introduced ourselves to anybody, because I wanted to build credibility with the residents that were here, the good ones that we wanted to keep, and I knew that the past couple managers basically showed up and on the first day they started putting notes on doors and saying get out of here, pay us money. My approach was let’s come in a little softer than that and let’s build a little good feeling here. Before we start asking for anything, let’s kind of show that we’re here for the property, we’re here to help you guys.
So we started out, we rehabbed ten houses and we put roofs on them. Then, by that time, everybody knew who we were. They’d come by and talked to us. And then I put the notes out and I said, “Look, we’re willing to work with you. We’re willing to do payment plans. We’d love to have you stay. We’ve got big things in store for you.” And it was so well received, we collected like $2,000 within a matter of hours just in back payments and stuff.
Damon: Because they saw that you were serious about making . . . to them, this is their home, this is the environment they live in, and you’re showing, look, we’re willing and we’re going to make this a nice place. We’re going to improve it, make it good. You want to live here, you want to be here. And we respect you, we’re going to work with you and try to make this work out. So the good tenants, the ones that you really want to keep are the ones that I would imagine responded very positively to that.
Chris: They really did. And I tell you, it kind of was sad to see the condition that some of the people were living in and how long they had lived here. I’ve got two people that have been here over 10 years. One of them has been here 11 years. Another one has been here 13. One of them actually boarded up her house because she didn’t feel safe. She’s elderly. She had her son come over and help her. She said, “I can’t afford to move. I can’t move. This is all I have, but I don’t feel safe here.”
So she’s living in a house with no windows. When I saw that and I talked to her, I said, “That’s going to be a thing of the past. I want you to be able to have your windows open every day and be able to look outside and see how nice the property is and not have to worry about your safety.”
So I just think people can see the difference, that we weren’t just here to start hitting them up for money. We were here to change things on a grand scale. The other thing about this neighborhood is, we’re off of Cross Timbers and 45, which it’s not the best part of Houston, but it’s far from the worst part. If you drive down our street, we’re the sore spot. We’re the bad people. If we can get cleaned up, the whole rest of the neighborhood will be okay.
Damon: Yeah, will improve.
Chris: Yeah. So the opportunity to make a change . . . it may be small to someone else, but to me the opportunity to turn around potentially a whole area, the whole neighborhood was like, wow, that’s a change in the community. That would really feel good. And so that just kind of fueled me to go on further and work even harder.
Damon: Wow. What a great story, Chris. Thank you for sharing that. An awesome deal and it preserved your cash, so I imagine when the next type of multi-family property comes across that looks good, you’ll be able to get into it because you didn’t have to put any cash into this one.
Chris: Yeah, absolutely.
Damon: That’s great. I want to talk more about your wholesaling, because I know some of the people that listen to our conversation are in a position where they don’t have enough money to get started in real estate investing. I’ve been coming to a realization recently that . . . in fact, I was in San Antonio a couple days ago, talking to some people out there who are doing wholesaling. It’s just kind of coming together in my mind that this provides an opportunity for people who don’t have enough money to actually start buying houses. At least if they’re willing to go out and find wholesale deals and turn them over, they can get money from doing that as a fee. They can collect a fee for that, and that could provide a base for them to be able to get started in real estate.
So where you kind of took that path, I think for similar reasons, maybe if you don’t mind, kind of explain how can somebody who’s in that kind of position follow what you did and be successful at it. What do they need to know? What should they be doing?
Chris: Well, that’s a good question. To me, it was just so simple. Once I saw the big picture, it was the next logical step because I didn’t have the money to buy an apartment and I didn’t have the credit to do deals. Like you were saying, people can just start doing this right now.
I guess kind of the way it works, the big picture of wholesaling I think for people is you’re going to be the first one on the scene. You’re going to be the first one to the market. You’re going to get the deal before anyone else sees it. You’re going to have first pick. That’s how you make your living. You make your living by finding the deals. But on the side, the more important part of it is that if you find 20 deals in the course of 12 months, you want to take about 3 or 4 of those, the very best ones you can . . .
Damon: And keep them for yourself?
Chris: Yeah. Big equity or the ones where you can take over a mortgage, assume a mortgage or do an owner finance with very little down. You’ve got to take those deals. You can’t wholesale those out, because that’s your 401(k), that’s your Social Security. If you’re not doing that, you’re missing the picture. So obviously, when I first started, I didn’t do any of that. I just wholesaled. It as all about the money. But it kind of can be the best of both worlds, and then it leads to everything else that somebody wants to do and one thing will kind of line up after the next.
As far as people that want to get started in wholesaling, something that’s very important, I think, for any wholesaler is the ability to sell. They’ve got to be able to overcome objections and, most importantly, they’ve just got to be consistent. I was not . . . I’m a Type A personality. I want everything now. I don’t want to have to wait for the future. And I kind of had to break that mentality because it’s a business. It’s a hardcore sales business.
You’re out there trying to find deals. You’re competing with other wholesalers, and very quickly you’ll realize how many there are in Houston. They’re everywhere. You’ll go out to a property and you’re about to walk in front door and some other guy’s walking out the front door with a t-shirt on that says, “We Buy Houses.” It’s a lot more competitive than it used to be,. However, there’s a lot more deals out there now than there used to be. There’s a lot more ways to buy them, and there’s a whole ton of people that are looking to buy.
Damon: So there’s just a lot of people who are willing to sell their properties, and there’s a lot of buyers that are looking at buying them. So even though it’s more competitive, it’s still doable, is what you’re saying.
Chris: Yeah, and I’ll tell you something that I’ve noticed and I think a lot of other wholesalers would agree with me. The trend that I’m seeing in the buyers is really pretty good for our business, because we’re moving away from the kind of seminar guys who don’t really understand yet and they want to buy from you. Those guys, they’re good. I help them as much as I can, and I’ve sold many deals to first time buyers. But the trend that I’m seeing now is the buyers who are picking these deals up are pros.
Damon: They know what they’re doing.
Chris: Yeah. The ones that are knocking on the door now, they’ve got cash. When they send over an offer, they usually attach their proof of funds, and I’m seeing guys with hundreds and hundreds of thousands of dollars in a checking account and they’re closing these deals in four days, and that’s not the way it used to be.
In the heyday, people were wholesaling, but you had to march to this song and dance of the lender because we had all these hard money lenders. I don’t think I’ve closed a deal with a hard money lender in over a year, maybe longer than that. So the trend I’m seeing is that the buyers are of much better quality now. So if you do get a deal and you are trying to market it, you’re going to close that deal. It’s not going to be where you sign up five houses and only one closes. Now if you sign up five good deals, you’re getting five paychecks.
So that’s one of the big benefits that I see for anyone that wants to start today is there’s some serious sharks out in the water and they’re hungry. They want deals. They’re looking for property. So anyone that’s got a sales background, I think is just going to have the upper hand if they come in and start wholesaling. Anyone with a business background is going to have a head start. But I didn’t have either, so I kind of just had to learn. I had to read books and I had to go out and practice. That’s probably as important as marketing. I don’t know what’s more important, being a good salesman or a good marketer, but it’s kind of hand in hand.
Damon: It seems like it goes together because you have to do some marketing to get the eyes of people who may be in a position where they want to sell their property, and then you need to follow up. Once you get in contact with them, you need to actually sell them on the idea of why they should sell the property to you. And then on the other side, when you’re trying to get the buyer, you’ve got to market to those people, get them and then broker the deal. I think understand what you’re saying where you need to have both the marketing and the sales ability in order to bring both the seller and the buyer together.
Chris: That’s absolutely right. There’s been a couple of my friends that have wanted to get into real estate and I’ve sat down and kind of coached them through what to do to get started and really what I say is this. Here’s the quick start program. Get yourself a marketing plan. Set something up that looks professional and get yourself a consistent monthly marketing plan. Figure out what your monthly income is. If you’re making $5,000 a month at your job, you need to chunk out about $1,000 a month or whatever, 20% of your income. Figure out how to cut that out of your spending and you need to dedicate that toward your business, towards starting your new business. Because if you want to just do a little marketing and think that you’re going to . . . you got to do it every month is sort of the thing to do. So set aside a little bit of money every month. If it’s 20% of your income . . . if you make less, it’s less. You start with less, but you need to have a consistent marketing plan in place and then you need to focus on selling.
I just tell people don’t worry about anything else. The rest of it will be so easy that you could call me in the evening and I could just walk you right through it. If you go get a contract signed, get your marketing out there, you look at some houses, you get a great deal signed up, the rest of it I could walk you through in 30 minutes on the phone. It just kind of falls into place. You open title, it checks out, you take it to your buyers, they like it, and then you’re going to the closing. There’s just not much else to do.
Damon: So it’s kind of mechanical once you get that contract in hand. The hard part, the work where you’ve got to be consistent is on your marketing and your sales and just keep at it, keep at it and then it’ll fall into place is what you’re saying.
Chris: Yeah. That’s exactly right. You have to focus on the marketing. That’s number one. The phone has to ring. Once your phone’s ringing, you’ve got to be able to capture the leads in real time if possible and you’ve got to be able to close. You’ve got to follow up with people. But that’s 95% of it. It really is. I could probably sell you a deal right now if I had a house for 30 cents on the dollar. People just snatch it up.
Damon: Well, I have cash in the bank. If you came to me with a really good deal like that, I probably would buy it right this second.
Chris: Yeah. People will just stand up and say, “I’ll take it.” The neat part about is . . . because you’re going to do the first, probably five deals, maybe three to five deals, you’re going to be timid, you’re going to be shy, you’re just going to want make whatever, you get a few thousand bucks.
And then you’re going to be kind of bumping along. You’ve got your lead system set up. You’re jamming the phones every day. And then something comes up and you just know almost when the guy picks up the phone, the first two minutes you’re like, “I think this is going to be a hot deal. This just sounds really good.” You look at the ZIP Code, the area, the asking pricing, and you’re like, “Well, if it’s not falling down, this is a slam dunk.”
And you go meet the guy and he’s like, “Look, here’s what I want. This is what I paid for it when I bought it back in ’83, and if I could just get this, I’m totally cool. I know it’s worth more, don’t really care. I’m moving to . . .”
Damon: Just want to get the cash and be done with it.
Chris: Yeah. I’ve had it happen time and time again. “You look like a nice young man. You could make a little money here.” And I’m like, “Well I’d be glad to.”
And those deals will just pop out of nowhere and then you kind of come back to the office with your contract and you go back to the computer and you’re like, “What would somebody pay for this? Good grief. I paid $30,000. I think I could sell this for $50,000.”
And so it’s like you kind of have a little confidence. It’s your fifth deal, seventh deal, and you’re like well here we go. You send it out to a couple people you know, and you’re like, “Look, man. This thing’s worth $110,000. I got it for $48,000.” People just jump on it, and you’re like, “Oh wow.”
So those kind of deals will come up, and then eventually you’ve got to kind of break away from wanting the cash and you got to like say, “Okay, I’m going to keep this one.” I’m not going to make the money today. I’m going to defer that for a later day. But that’s a magic feeling, when you just hit the home runs. That’s when you realize wow, this is a lot of fun.
Damon: It’s fun, yeah. I’m really jazzed about this because, as I said, I’m just getting into this whole idea of wholesaling and thinking how can we help people by teaching them this. So as you’ve been explaining how this works and how to approach it in a way that you’ll be successful, I’m sitting here thinking, “Well, maybe Lifestyles Unlimited could start teaching people how to do wholesaling.”
Obviously we currently teach people how to do real estate investing. But with the money, lending market is harder to get money right now and everything, I really see this as a way for people that want to pursue this, if they could learn how to do this wholesaling and help them get started. So I’m getting excited here listening to you, because this is something I think we could really teach to help people get started and start realizing their dreams and their goals.
Chris: Yeah. I think you can. I really do. I really think you can. If a person wants to learn and is willing to work, yeah. It’s A plus B. It really is. You’re absolutely right about the market changing. Half the guys who were maybe able to qualify for an investor loan last year, maybe some of them can’t this year. People are already starting to adapt and they’re starting to go to private money. They’re staring to go to partners. They’re staring to do wholesale. They’re starting to do rehab to generate cash. That’s kind of what I’ve done as the market has changed. I’ve just picked up different things.
I’m thinking about trying something soon where, and this kind of puts a fun twist on wholesaling. Let’s say you’re three years into the business of wholesaling, and you’ve got your marketing system set up to where it runs without you. Well now let’s say you want to go to Hawaii for three months and you don’t want to work or anything, but your marketing’s going, your leads are coming in. What do you do? Or in my case, you’ve got an apartment complex that you’re working on rehabbing.
You could be a passive wholesaler. You could take your lead and say, “Hey look guys, here’s what I’m going to do. I’m going to sell these leads for $X per lead. It cost me $20 to generate them. I’m going to sell them for $50 and you guys ought to be able to pull a deal every 10 or 12 leads.”
That’s worth it. That’s worth it for the new guy who’s getting started. It’s worth it to the investor because now you’re 100% passive, and then you could even set up part of the agreement where I get first pick of the deal and if I like it, then I can buy it from you for a standard fee and I get to do that once a year so that you kind of get some sweetener out of the deal.
So that’s something I’ve been kind of playing around with the idea of, because now my marketing system really is passive. I don’t have to do anything with marketing. I have people to help me with that. There’s just so many different things you could do, and it’s very teachable. You can really kind of boil the whole process down to just a few key steps.
Like a friend of mine, he called me. We went to college together and we had lunch and he’s in a sales position. He said, “You know, I’m not happy here. I’m doing well and making about $80,000 a year, but I just kind of think that it’s going to come to an end. It’s not as good as it was. What do you think about real estate? I kind of want to get in.” And I told him, “Man, it’s real simple. It’s marketing. It’s sales. And then you repeat marketing and sales over and over and over.”
Damon: Create a system to do it.
Chris: Yeah, yeah, exactly. So over the series of a couple of months, we started having lunch together and he would kind of pick my brain on it. And finally I said, “Look man, you just need to go do something. You hate your job. Get out of there. They’re going to let you go.” And one day that day came and he said, “Yeah man. I’m out of there. I told the boss it was over and I’m ready to do this full time.” And I said, “Well, it’s going to be tougher now because you don’t qualify for any loans, but here we go. Here’s what we’re going to do.”
And sure enough, I think he started out with the little signs, the “We Buy Houses.” I said, “I can’t condone this because you’re only allowed to put them on private property. You can’t put them out on the side of the road or anything. You’ve got to be creative. You’ve got to get owners’ permission, whoever owns the land. Here’s what you do.”
And so he started putting out these little signs and going around and finding people who were willing to let him put a sign out on their property, and he did this for like a month and then he kind of came back with a few things. And I said, “Well, none of those are really going to work. They’re not quite cheap enough.” Then one day he calls me and he says, “Hey, I think I got something.” I said, “OK, what is it?” He said, “It’s a house in Pasadena. I think it’s worth about $100,000. The guy’s asking $40,000.” And I said, “Well, yeah. Pasadena’s probably one of the best areas to flip or invest. I love it. Let’s go see it.”
And he goes out there and this house is in pretty good condition. Here’s the weird part about it. There had been some squatters living in the house.
Damon: Oh, really?
Chris: Yeah. The owner’s son had been living there with his girlfriend, and then the son and the girlfriend got in a fight and the son moved out. So he’s long gone, and the girlfriend is still there and the father’s never even met the girlfriend, doesn’t know her name, doesn’t know who she is, and she’s living in this house. And there’s God knows what happening inside these walls. I don’t even know. He says I got to put bugs out of there and all kinds of stuff.
Anyway, the guy says, “Look, man. I came to Houston because I’m in . . .” I think he was in a bankruptcy. And he said, “I’m just basically coming here to sign these papers and get the house out of my name because I think I owe more taxes than it’s worth, so I don’t even really want anything out the house. But I saw your sign here by the bus stop and I figured I’d give you a call.”
Damon: So he’s looking to just, “Hey, if I can get some cash out of this thing and go on my merry way, have at it. Go for it.”
Chris: Yeah, exactly. So the guy said, “I think there’s $35,000 in back taxes. You can have it for that. I’m willing to take $35,000 instead of $40,000 and just get this thing off my books.” And he says, “Well, let’s go ahead and write up a deal here.”
Come to find out, the guy only owed, I want to say like $30,000 in back taxes. So my friend came back and says, “It looks like you’re going to get about $5,000 out of the deal,” and the guy was thrilled to pieces. He said, “You’re going to handle these squatters?” He said, “Yeah, I’ve got them taken care of.” And so he ended up buying that house for $35,000 and I encouraged him to wholesale it. I said, “Just make your money, man. Go do another one.”
Damon: Get the taste of how this works.
Chris: Yeah, exactly. But you know, he said, “No, I want to go full bore. I want to rehab this thing. I want to make some money on it.” So I turned him onto my team, my crew and said, “Well here’s the guys that’ll do it. They’ll turn this thing out in three weeks.”
So he put about $20,000 in it and then ended up selling it. He discounted it to move it quick, because he put it on the market two weeks before Christmas, which is just like the worst time ever. But hey, it was when the house was ready. Instead of asking $100,000, I think he put it on there for $90,000 and then he sold it for the full price in a week, five days.
Damon: Wow. So he came out really well on that one.
Chris: He made almost $25,000 or something after all net proceeds and everything were paid. $25,000 on his first deal, and he just kind of did what I said. I said, “Man, just keep doing your marketing and stay on these people. Their job is not to call you back. Your job is to call them back and be persistent.”
And he was. He was persistent. He set aside two hours a day to return phone calls, to follow up with people. He was just real good in the way that he handled himself. He was real ginger with the way that he spoke with sellers on the phone. He was very non-threatening, but persistent. And sure enough, the guy finally said, “Yeah, let’s do it” and he closed. So that’s how it can work.
Damon: So be persistent, keep at it, and then a deal like this will break through. Or maybe it doesn’t even have to be this good because you’ll get better with it as you go along. What great advice. This has been so fascinating, Chris. I had no idea where our conversation was going to go, and between you explaining how you got that 70-unit property that you’re working on right now and your wholesaling experience and how you got started, this is an awesome conversation. People are going to be very interested in this.
Chris: I hope they do. I hope they enjoy it. It’s been a fun ride for me. I compare it to looking for gold. If you’re out there every day with a system and you’re turning over rocks, you’re going to find it. It’s kind of just this process of learning to churn up these leads and go through and look for what people want, and then you’re charging a fee for your service. It’s really that simple.
Damon: Yeah. Absolutely. Well, thank you so much, Chris, for taking the time today to go through this. I appreciate it. I’ll let you know in a couple days. It takes a few days for the transcript to get done and all that kind of stuff. I’ll send you a link when it gets put up on the website so you’ll know about it.
Chris: Very good.
Damon: Great. Thanks again. It was great meeting you, and hopefully we’ll get to meet in person some day as well.
Chris: That sounds good. I’ll probably be tomorrow night at the State of the Union, so maybe I’ll see you there.
Damon: Yeah, I’ll probably be here too, so I’ll try to look for you.
Chris: Sounds good.
Damon: Excellent. Thanks. Take care, Chris.
Chris: Yeah, you too.
Damon: Thanks. Bye-bye.