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Curtis Warden: Don’t Let Any Obstacle Stop You

Four years ago Curtis was so broke he couldn’t pay a $500 membership fee to join a mentoring group to help him invest in real estate.

Did that stop him? No. He went out and started talking to people about his dream of being a successful real estate investor.

Building those relationships led to partnerships where Curtis learned and made some money then leveraged that knowledge and money into more. He now has 67 properties.

In this interview you’ll learn how to overcome obstacles, how to get started from nothing, and how to form and manage small partnerships.

Share a comment and let us know what you think of the interview.

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Damon: Curtis, it’s really good to have you on Eyes On Investors today, and welcome to this interview, everybody. I’ve got a great guest. I think you’re really going to be interested to learn what Curtis has to say and his experience with real estate investing. He’s got a very inspiring story that we’re going to talk about, and he’s done a really cool thing lately that we’ll save to later in the interview as kind of a teaser, and we’ll get to that. Curtis, welcome.

Curtis: Thanks, Damon. Thanks for having me.

Damon: My pleasure. What I would like to start off talking about is your experience with real estate investing. Well, actually before we do that, just to let people understand how much experience you have, let’s talk about how many properties you’ve invested in and where you’re at now. Then, we’ll go back and start at the beginning and talk about your story so they have a context for that.

Curtis: Okay. I have 67 properties that are in a form of either owner financed where I own the notes or partners on the notes. Then, we have a huge rental portfolio with the majority of it being in Missouri City. We’re 50-50 between Missouri City and Cypress. And then, I have like sporadic . . . I’ve got one in Alief, and then I have two or three in the Spring area. But if you drew a line, it’s probably like a big rectangle going from Missouri City on down through 290 over to 45.

Damon: So you’ve kept your properties really in fairly close proximity to each other.

Curtis: If you think that 45 minutes from my house to Missouri City is close, then yes.

Damon: Because you don’t live in Missouri City?

Curtis: No. I live at 290 and Fry Road in the Cypress area. That’s where I grew up my whole life. I graduated from Cypress.

Damon: Gotcha.

Curtis: In terms of the overall experience or helping people buy property, I’ve helped in the process of acquiring or flipping property around 400 properties.

Damon: So 400 properties. How long have you been doing this?

Curtis: This will be my fourth year being in real estate investing or in being a realtor.

Damon: So fourth year being a realtor, and four years ago, up to that point, you had never purchased a house before, like an investment property?

Curtis: No. I had never purchased a house before. I was actually doing hospice educating for the Texas Medical Center because both of my parents had passed away before I’d even graduated high school. My dad died from cancer, and I think the way you give back in life or the way you heal in life is by just getting back and getting involved. Somebody heard me talk at church, and they thought that my story sounded like it would be something that people going through that situation would really identify with. So they had me do that.

But the problem with hospice is that you take it home with you, or at least I do. You can’t just separate the person from the problem, and it really just ate me up plus there’s not a whole lot of money in what I was doing. To have the lifestyle I was looking for and to get out of the financial turmoil I was in, real estate became something I was watching during the winter. It was raining outside, and my wife and I were watching a marathon of “Flip This House.” I was watching that guy from San Antonio. I’m not even going to name his name, but I was watching the guy from San Antonio. I’m not even going to name his name. But I was watching him completely demoralize the people who he was working with. I just thought two things, one, I can do that, and I can treat people better.

Damon: When you say I can do that, you mean I can flip the houses but not demoralize the people I’m working with. Is that what you’re saying?

Curtis: Yes. I thought that’s something I could do. I could see myself buying a piece of property and completely coming in and tearing it apart and putting it back together, and then doing it in a way that it becomes a win-win. The people working on it love it, and then the people moving into it would love it. But I was really big. After listening to the radio show for like six months to a year, you know, you listen all the time.

I had downloaded the investor tool kit from Lifestyles. I had actually gone to a meeting where I was really kind of put in my place. Not out loud, but when I was there and I was talking with Steve . . . Steve was actually the person that came and met with my wife and I. We didn’t even have the $500 to invest just to get the mentoring experience.

Damon: I’m sorry. Just for people that are not familiar with the people you’re talking about, you’re referring to Lifestyles Unlimited and Steve Davis, who is one of the mentors over there is who you were talking to. And this was about four years ago, right?

Curtis: He was the main radio host at that time.

Damon: Okay. So you were listening to his radio shows. You were watching “Flip This House,” and you were thinking maybe real estate is something that I should do.

Curtis: And I was reading the books, too. I was doing all of the education that they talk about, you know, get started, get your education. And when you get shot down, you either do one of two things. Either you say, “This isn’t for me. It’s not in the cards because the sun, the moon, and the stars are not lining up perfectly.” Or you just have to creatively solve your problem.

At church, I just started talking with people and sharing with them my interest in real estate. The guy that owned a pizza shop, literally 300 yards away from my house, was Robert Hammond. So he and I began talking. It’s the ABCs, right? Always be closing and always be selling. Wherever you’re at, you’re never going to get what you want in this world unless you tell people what you need. And so, I was just talking about my desire, and Robert had just flipped a house and was looking to buy more property. I had just gotten my real estate license. So Robert said if you could start . . . Robert Hammond is a partner of mine on 33 properties.

Damon: I want to talk about that in a little bit of detail, because when you first started this thing you didn’t have any money, right?

Curtis: No, none.

Damon: And so, you’re thinking I want to get into real estate investing, and you mentioned that you went to Lifestyles Unlimited. You talked to Steve Davis, and I think you said you were devastated by the conversation, or something was said there that happened and I didn’t catch what that was. I’m curious.

Curtis: I was demoralized when he said . . . I said, “What does it take to join this, to get into the two day seminar?” He said, “Oh, it’s just $500.” I thought to myself, well, one because on the radio show it says leave your checkbook behind. I was like we didn’t bring the checkbook, but it really didn’t matter because there was no money in the checkbook to pay for the meeting. So I talked with him, and he was looking at me.

Steve talks about on the radio, you can have all of the symbols of success but no success. Here it was. I had a Polo shirt on. My wife was dressed very nicely, and we did not have two nickels to rub together. You leave there, and my wife was like, wow. There were people that were there that were so excited. The people after the meeting that we were talking with, they were like, “Oh, we’re signing up.” They asked us are we going to sign up. We were like, Yeah, we want to sign up,” and I couldn’t sign up. I didn’t have the money.
Damon: You didn’t even have $500 that you could pay. That’s how broke you were is what you’re saying.

Curtis: I was three months behind on my mortgage and was going through the forbearance process and getting my note restructured.

Damon: I see.

Curtis: That’s how bad it was.

Damon: Wow. I know so many investors are people that would like to invest in real estate that are in that position, where they don’t have money right now. And they’re like, “I just don’t believe I can do this. I think it’s too challenging. It’s too big of a hurdle to overcome.” But here you are four years later having done a lot of deals, been very successful at it, and yet you started from nothing. So help me understand. How did you go from I can’t even pay $500 to get people to help me to actually getting on the path to where you’ve actually ended up now?

Curtis: Well, one, I didn’t tell anyone that I didn’t have $500, because when you go to church and you live life, you want to live with this persona that everything’s perfect because I’ve got on my outfit that looks like I’m invincible. I don’t need anybody.

After reading some of these books and just saying to myself, “Do I want to achieve my dream, or would I rather just have everybody have the impression that everything was together?” And so, I weighed those two things, and I came out with the . . . it’d be better if I told somebody what I wanted and what I needed in order to achieve the dream, which was money from a partner. And I could leverage my time, my wants for experience, but I could leverage somebody else’s experience and give them a piece of the pie.

So that’s where I went to Robert Hammond, and then I could take a smaller piece of the pie or the experience piece and the time piece and be managing, basically, brokering between Robert and the investor who had money, that I had a personal relationship with at my church.

Damon: Okay.

Curtis: That’s where I went was to my church to find people that would invest with me.

Damon: Okay. You mentioned earlier that because you were in this mindset of this is my dream now, this is what I want to accomplish, you started talking to people about it, and as you talked to people about it, then these opportunities came your way. And you were able to not only recognize the opportunity but take hold of the opportunity and do something with it.

Curtis: Absolutely. My biggest problem in life is that when I get excited about something I talk. If you become friends with me on Facebook, you’ll see that what comes into my mind usually goes out through either my text messaging or for Facebook or it just comes out in conversation.

I think that’s the reason why people felt comfortable investing with me is that I do not hold back. Whatever is happening happens right here. I wear it on my sleeves. I think you really have to be a transparent and a trusting person in order to be partnerable with.

Damon: Right. That makes sense. You mentioned that you had time. You didn’t have money and you did not have experience. What I find interesting is that you found somebody who had experience, which I think was Robert Hammond you mentioned, and then you found somebody that had money. You built credibility. You had enough credibility with them that they were willing to partner with you. So the strength you had you brought to the table, which was time. The strength that your partners had they brought to the table, and then everything was whole and complete. It sounds like that was probably the key to you being able to get started. Is that correct?

Curtis: There’s one other thing. I had the time, yes, but also the relationships. I had a relationship between Robert and between the investor that had the money and credit.

Damon: Okay.

Curtis: Those two people did not know each other, but I knew both of them.

Damon: I see.

Curtis: To be able to leverage my time and willingness in bringing the relationships together, I found a seat at the table.

Damon: Okay. That makes sense. Then, you were able to move forward. If you don’t mind me asking, what ownership did you have? How did you structure that deal so that you would be able to benefit from it and your partners would benefit from it?

Curtis: My father-in-law told this to my wife. He said, “If Curtis gets nothing out of this but just the experience, it’s far worth more than if he were a 50-50 partner on three or four deals.”

Damon: Interesting.

Curtis: He said, “The experience that he’ll have if he’s able to bundle this and do multiple properties would be explosive.” I was sitting right there as he was talking to my wife, and my wife was very skeptical of it. She was like, “We’re only getting a ten percent share.” And Robert, who did all the work, all the managing of the property, the rehab, the property management, he got 40 percent, and then the investor that brought the money got 50 percent. So it was a 50-40-10 split.

Then Robert came to me at the end of 33 properties, and Robert was picking up more investors. He said, “Hey look, I really think it’s time that you go and pick up your own investors and get your 50 percent. You can keep leveraging me, but I’m doing you a disservice. You need to go and round out your skills as an investor by managing your own rehabs and doing your own property management.”

Damon: That’s interesting. It sounds like you made this big step forming the partnership, and you got started with a little bit of ownership, but you were gaining some experience. It sounds like you plateaued for a little while, and then at the point that Robert came and talked to you and said, you need to go manage your own properties and take a bigger percentage in those, etc., did that kind of leap you up into a new level of investing?

Curtis: Absolutely. I think you take advantage of people’s time, and I was taking advantage of Robert. I was cutting myself short only giving myself ten percent and letting him have . . . out of the relationships I was bringing, now I’ve been watching 30 properties, going through the rehab every day, putting those on MLS, getting those properties rented out. That has some experience behind it now. So then, taking that and actually doing it on my own where I did not have Robert to lean on, other than just, “Hey, I’m overcoming this. This is my challenge. Can you tell me what you would do to overcome that?”

We had a lot of those brainstorming sessions, but you really round out your total investor self when you have a great share and a great stake of your time and your talent and your efforts into the deal as well as your money. When you have your time sunk into a project, there are opportunity costs that come your way. You can’t do other deals. There are fewer people that you can partner with.

When I’m leveraging someone else’s time, I can go and get 10, 15 people at 10 percent. But when you’re managing someone’s money and you’re managing a portfolio, you have to be laser focused, and you cannot be the Walmart of real estate investing. You can’t be Burger King, all things to all people.

You can take a couple of people, and you need to be very focused and sharp on getting in and out of those properties very quickly, doing a solid rehab job, staying on budget and on time, and being very, very overly non-aggressive when you’re saying, this is what I expect the property to sell for and this is what I expect the cash flow to be. I would build in a buffer because it’s much better to over perform than to under perform.

Damon: That makes sense. In fact, it reminds me. I’ve done software development for years and years, for 25 years, and I always like to live by the under promise and over deliver mantra. If I understand what you’re saying, is when you’re working with partners in real estate, you want to set realistic expectations that you’re confident you’re going to be either able to beat . . . well, either able to match or beat.

Curtis: Right. Like your ARV, one of the challenges we had at the beginning with our first partner was the market was declining in 2008. So we’re out there suggesting that, hey, these prices are awesome. Here’s what it looks like. Well, once you buy the property and it takes you 30 days to close on it, and then it takes you 30 to 45 days to rehab, then it takes you another 30 to 45 day to refinance, you’ve lost three months worth of good solid comparables.

Now, you’re getting compared against the foreclosures. So our ARV numbers started coming back, and instead of having a $5,000 cash out refi, because at that time there were no season cash outs up to ten, we had an investor that was upset because total out of pocket was $2,500. And we were thinking, we just captured $30,000, and you’re mad about $2,500. He kept saying, “If you would have told me at the beginning I would have been out $5,000 and I was only out $2,500, I would think it was awesome.”

Damon: He would be happy. Exactly. Yeah, very good point.

Curtis: It was a huge learning experience.

Damon: I’m sorry. Repeat that.

Curtis: It was a huge learning experience.

Damon: Oh, a learning experience. That’s where you learn I’ve got to set realistic expectations, and then my partners will be happy.

Curtis: Well, the two parts to that. One, it was not about how much money they were going to get back in a cash out.

Damon: Good point.

Curtis: It was about setting the realistic expectation.

Damon: Right. Okay. That makes sense. I wanted to ask you, too, because the market was different three, four years ago, especially for flipping, at least in my experience. than it is, say, over the last year or two where there’s a lot of properties. It’s fairly easy to find properties now that will flip and are profitable. How did you do it three or four years ago given that the market conditions were different, the credit was different than it is now?

Curtis: I really cannot address from my personal portfolio what it was like to flip three years ago because we were just in a buy and hold mentality.

Damon: I see. You weren’t flipping three years ago. You were buying and holding.

Curtis: I had to start flipping over this last year and a half because we were running out of capital and running out of investment trade lines. I do investing a little bit differently. When a partner comes to me and they’ve got $150,000, we do what’s called pledging the assets. We take the $150,000. We leverage it to get a million dollar line of credit.

Damon: Okay.

Curtis: It’s called guidance line of credit. You can get these at any small little private bank. When you get a guidance line, it really is guidance. It’s 70 percent of the ARV or to 75 percent of the ARV, but the closing costs are dramatically different. You pay upfront. You pay probably a one percent origination fee for the line. So a million dollar line would cost us $10,000 upfront to get. You need to have great credit. You need to have great income. But you’re able to close on these properties just like you would have cash. There’s still a deed of trust that you’re going to get.

Damon: Right.

Curtis: They’ll still send docs to the title company, but all I have to do is take good photos of the property. Here’s the damage. Then I need to send them over a bid for repair list, just like I would with a hard money lender, and then they’ll lend to me on that property very quickly. And then, they hold back the rehab draw, just like they do in hard money until the repairs are complete.

Damon: I see.

Curtis: But it’s able to get me a three year to five year solution at seven percent interest.

Damon: Okay. I’m just taking some notes down here.

Curtis: Absolutely.

Damon: I’ve never heard of these guidance lines of credit before. So, who is it that’s on the line? Like, if you bring an investor in with $150,000, you’re going to pay the origination fee, get the line of credit. Is the investor for the $150,000, is that the person that’s on the line as you go and start using up that line of credit?

Curtis: Actually, they do not want individual people on the line. They would rather see you in a business.

Damon: In like a corporation? Interesting.

Curtis: So everyone attached to the LLC is on the line.

Damon: Okay.

Curtis: It’s called a commercial real estate line because you’re buying more than one single family house that’s going to be attached to that line. So any bank that’s out there, any small private bank will be doing these. Wells Fargo does these, but they only give, maybe, 60 percent of the ARV versus 75 percent.

Damon: But a smaller bank may be a local Texas bank or something or a community bank. The terms will be better, and they’ll be able to work with you in a more personable way.

Curtis: Absolutely. You hit it. It’s terms and personable. It’s all about relationships with the small banks. So they want to see your personal financial statement. They want to see that there’s verifiable employment and verifiable assets, and they want to see who all the people are who are going to be attached to the LLC. They need to see all of their financials and their tax returns.

Damon: Okay.

Curtis: If you have someone who has money, what the bank told me was, when we first went to go get started with the first line of credit, my credit was just on the rebound. I was there selling against myself. I don’t have good credit. What I do have is some experience, and what they said was if person X came in with the same amount of money and the credentials that he already has. So, if my partner were to come in and say, hey, I would like a million dollar line of credit, they said they would only feel comfortable giving him $250,000, even though he had perfect credit because he had zero experience.

Damon: I see.

Curtis: They knew that experience was worth a whole lot more than the credit. But the credit, they have to have to meet their FDIC guidelines.

Damon: I see. That’s so interesting. That’s why it works so well. If you can get together with someone who has money if you don’t have money but you have experience, then together, between the experience and the money, you should be able to secure these lines of credit and then you can leverage the deals that you’re doing and the cash that you have.

Curtis: That’s absolutely correct. What they said was, “We need your partner to be doing what he’s doing every single day, which is earning a paycheck. And so, if he is leveraging his time out flipping a property and managing rehabs, then we know that he’s got two things that are intersecting. Those are not going to be symbiotic of each other.”

Damon: They want that person focusing on their source of income and not getting distracted from that.

Curtis: Absolutely.

Damon: Okay.

Curtis: Absolutely. They think it’s more professional for that person to do something, just like in business. If you’ve got a small little company and you are the CEO, the CFO, the chief marketing officer, the salesperson and the janitor, they know that you’re not running a profitable business.

Damon: Right.

Curtis: It may look like you have profit, but really when you dissect everything down, your profitability is low because the standard of living . . . at some point, working 14, 15 hours a day is going to bust. You can’t keep it up forever.

Damon: Right.

Curtis: So they need to see that there are layers of protection that there’s a business that’s being built. So having the experience is crucial.

Damon: That makes sense. Let’s talk about . . . we got into this area which has been really fascinating about the time you were saying, well, Robert came and talked to me and said, “You need to go out and do your own thing. You need to go get your own and take it to the next level of experience.”

What happened after that? What did you accomplish after that conversation with Robert? What did you do, and what were the results?

Curtis: Wow. Okay. You’re always selling.

Damon: Okay.

Curtis: I’m always going to different meetings, whether it be Lifestyles case studies or whether it be at the RICH Club. You’re always out there, and I was just out there saying, “Hey, look, if you would like some help acquiring properties, come see me. I’m a realtor. This is what I’ve been able to do so far. This is how many properties I have. So I know how to evaluate, and I know how to get deals under contract.”

I think that was really what was most marketable for me early on was I was going like, every offer I was presenting was getting accepted below the list price. So I was having a knack of just being like a little gnat on the wall to the other realtor that I was sending the offer to. They were like, “Look, I’m just going to get the bank to accept your offer so you quit calling me.”

You just start building a relationship with those other realtors, and you break through the barriers because they feel like, hey, this is a person we can trust, that when they do get a property under contract, they’re going to close. That spiraled down to . . . I was getting properties coming to me that were underneath the table. Like people were calling me up saying, “Hey, I’m getting ready to have a property bust out that is in an area that we know you like. Do you have another buyer for it?”

When you have a deal, the deal finds the money. So I would be out there marketing this deal, and he’s like, “Get me an offer in 24 hours, and you can have the property.” I would just be working my angle, which was working with investors and going out there and already had scoped out the property and having good qualified deals to bring to somebody.

I found another investor that way, and he worked at Pittsburgh Paint. In that partnership, we did not do it professionally. I did not get it lined up through articles of incorporation. We didn’t have anything more. It was like a kitchen table closing. We signed on a piece of paper. We wrote it down at Panera Bread that this was our agreement. Then we had me sign it, him sign it, and the waitress sign it.

Damon: As a witness?

Curtis: As a witness. Like, what’s she going to do? Like I could chase her down or something to get her to verify. But not doing it correctly, not setting it up professionally, that was a huge mistake, and I didn’t do another thing which I should always do, which is I didn’t listen to my wife who said, “You need to do it professionally.” I know this guy goes to church. I can trust him, and I could trust him. But setting up levels of expectation and having those written down in your articles of incorporation and into your management agreement, those things set you up for success, and not having that stuff done, like we had done in every other partnership, set us up for failure.

Damon: I see.

Curtis: When you get started and actually do the rehab and after you get it rented out, a natural tendency is to say, “Why am I paying somebody 50 percent for being a general contractor? I could just pay $5,000 more and have the general contracting done,” or whatever the number is.

Damon: Right.

Curtis: So greed can kick in, and then humility is not my best gift. So then, I’m defensive and then the wheels start to unravel. From that point on, we had bought two properties together, and he ended up buying me out. I had very good, positive experience with both of those rehabs. While I was rehabbing, I had two other people from my church that came to me that said we would like to see what you’re doing, and we have an interest in getting started.

So I walked them through the rehabs, and they were very impressed and said we would like to get started because the stock market had completely tanked, and I think one guy had lost $250,000 overnight. Well, really it was probably a month, but in 30 days losing $250,000 . . .

Damon: It was like overnight? Yeah.

Curtis: It feels like it’s overnight, especially when it took you ten years just to get all the money.

Damon: Right.

Curtis: I started developing those new partnerships, and we moved slowly and methodically. There were set levels of expectation. We documented everything correctly. My partners, I had told them, because I’m a realtor and I get commission, I would like to say that if we did a 50-50, then I’m probably really looking more like I’m getting 60 percent after you include commissions. So we went to a 30-30 equity split and a 50-50 cash flow split.

Damon: Oh, I see.

Curtis: So my partner after we got through about ten properties, he said, “I really feel like this is inequitable because the money that you are making as a commission is really paying for the expenses of driving to and from the property, managing the rehab, which is something that the organization does not have to do. So I would like to just make you a 50-50 partner.” I didn’t ask for it, but what I realized is that you can catch a whole lot more people with a 30-70 split and a 50-50 cash flow split than you can at a 50-50 split upfront.

Damon: Yeah.

Curtis: If you make some expectations of, here at the beginning this is what I’m going to do, and then as we achieve these growth marks, there’s going to be more time that’s involved because I’m still handling all of these properties down the pipeline. And then, I’m handling all the new properties as we’re building a portfolio [inaudible 34:31]. So you set some great expectations for yourself and your partner. And this is something that we were going to go into more with an event [inaudible 34:46] and I are going to be doing on the 26th called Partnering for Properties. We’re actually going to go into more of this at a higher level of thinking.

It really is all about just setting those expectations upfront. If you come in with 50-50, there are people out there that will take it. But when you don’t have any experience or maybe have little experience and you just want to get started, don’t cut yourself short because you’re missing out on the 20 percent. Think about the opportunities that you’re going to gain because of the 30 percent.

Damon: Yeah. I really like what you’re saying, Curtis, because what you did by setting those expectations and doing the 30-70, it sounds like you really built a lot of credibility with your partner. When in their eyes things seem to be inequitable and actually inequitable against you, not against your partner, he was actually looking after your interest because I think he trusted you and knew that you were a reasonable person. You weren’t trying to hide anything. You weren’t trying to get something that you didn’t deserve. You wanted to let him know right upfront, I’m getting real estate commissions on this. Let’s work that into this and adjust it.

I think that’s a great story of how you should be a partner and be very upfront about everything.

Curtis: Right. And disclose everything. The other thing was he said, “If I had to worry about whether or not you were going to be telling me that the contractor was going to charge $15,000 and really he only charged $13,000 and then you were making $2,000, he was going to pay you underneath the table, then I wouldn’t be doing business with you period.”

Damon: Right.

Curtis: But because I know that I know what I don’t know, that’s what my partners always say. The best part about you is we know that you don’t mind not knowing what you don’t know. And a lot of people, what they don’t know is fear.

Damon: Yeah. It freaks them out.

Curtis: And fear can be whoa, I’m going to stop. For me, I’m just dumb enough to take what I don’t know and go, “I’ll figure that out.” Sometimes that’s the $5,000 learning mistake. But like Kawasaki says, if you’re not making mistakes, you’re not growing fast enough.

Damon: Right, right.

Curtis: I went to an Entrust meeting one time, and I think it’s Nathan with Entrust. He said, “I feel very leery about people who say I’ve never had a bad real estate deal because I don’t want the next deal being the first.” He would rather see that you have overcome a bad real estate transaction, and I think investors and partners want to know what did you do when the stakes were against you, and how did you bounce back from that? What are the systems and processes that were put into place to make sure that that mistake doesn’t happen again?

Damon: Right. From your experience where you mentioned a couple of the mistakes that you made, a mistake in the way you set up one of your partnerships, for example, you were able to learn quickly from those. Then everything you did after that was so much better and so much stronger. I think one of the nice things about real estate is it’s very forgiving.

You were able to do those things. It didn’t put you out of business. It didn’t cause the whole thing to stop. You were able to learn and move forward and improve from it. I think that’s something all of us can take to heart, especially those of you that are listening to this interview, is realize that you’re going to make mistakes. But just learn from them and move forward, it’s okay.

Curtis: On YouTube I did a video about how we flipped a subdivision. I don’t even think I told you about this one.

Damon: No, I don’t think you have.

Curtis: Royce Homes went into bankruptcy at the beginning of 2010 or the end of 2009, right as the real estate bubble had burst. Their position in a piece of real estate in Arizona really caused a lot of financial catastrophe even though there were a lot of great sales that had been going on in the Texas area. Some of the other real estate positions that you can have out there can sink you if you over pledge and over leverage.

Damon: I see.

Curtis: I went into a subdivision that I had bought one property, that it looked like the plumber had come in and cut through all of the PEX tubing which is the brand of plumbing codes that people were building with, and the whole house was just water damaged.

Damon: Oh wow.

Curtis: They caught it really quickly, but the price in the subdivision went from $119,000 to $60,000.

Damon: Wow.

Curtis: So I put in an offer of $62,500, got the property under contract, had gotten bids for, I think, $13,000 to $15,000 is what I estimated. I actually got the work done for $12,500 and still did the full draw, which covered the closing costs and the holding costs. So we got that drawn back, and we cash flow on that property $323 a month and it was brand, spanking new.

Damon: Wow.

Curtis: So we looked at that, and we found that there were another 20 properties that were in the shadow inventory. You can look up this place if you like, any of the people that are watching this. It’s a subdivision called Westwood Gardens. I love it because it was right on the Beltway, West Road and Gessner. So, it’s really close to 290, and it would be real easy to get to 249 and up to 45 to get to downtown.

The tax rate out there was 2.81 with only $180 of HOA dues. So you’re looking at a brand new subdivision with, going to be low maintenance costs and low overhead through taxes and HOA dues.

We went in and found five properties with First Bank, and First Bank was looking to get rid of those, so we heard. So we went and negotiated to buy another six properties off of MLS. These were in the shadow. You’ve got to call and be persistent and find the person. We found somebody, and we bought all five of those properties for $341,000. We ended up putting into those properties somewhere around, I would say, $20,000 per property.

Damon: Per property.

Curtis: Some were more, and there were two that were less. It ended up being a huge profitable experience. Red Door Funding, David Williams, he’s a vendor at Lifestyles, on the vendor list. David Williams was the one that came out. I say this, your hard money lender is a partner. No matter what you want to say about it, they’re like a silent partner, and I think Brant hit on, this was key. He said, “A hard money person is there to protect their interest, so they’re going to tell you if a deal is a bad deal or not.”

Damon: Yeah. Even though they’re looking after their own interest, they’re actually advocating for you because they’re not going to let you get into a bad deal is what he was saying.

Curtis: Right, right. They’re not going to let you get into a bad deal because that’s their money.

Damon: Right.

Curtis: And so, David, at first when he drove into the subdivision, the houses are like 30 percent built out. There are some boards up along every house. Every house we walked into had been completely vandalized. Instead of having David drive and follow me around, I told David let’s park here at the sales office, and we walked the subdivision.

Damon: Right.

Curtis: He said, “If you would have had me drive through the subdivision, I probably wouldn’t have done this deal.” But because we walked it and he got to see in more detail because it took us a lot longer. We walked the properties. We were in and out. You get to hear all the building that’s going on from the new builder that’s on site. He felt very comfortable doing the deal. He liked my passion about it. He liked the fact that we had already had one rental.

Another key to flipping property is this. You have to have, at least, two other avenues out of the property, either it be owner financed or renting the property. Don’t come in with one single strategy and that’s to flip, because when you can’t flip, you need to be able to make cash flow.

Damon: Right. So if you know that it will make cash flow and you do end up not being able to flip it, you hold onto it. It’s actually still a really good investment.

Curtis: That’s right. You always have to have a Plan B and a Plan C.

Damon: Right. This is an interesting story. I know you’ve got one more story, and I promised everybody at the beginning we were going to talk about it. And so, you mentioned this to me in an e-mail last week, which really perked my interested because I hadn’t heard of anything quite this dramatic. Tell us, share with us what your recent flip was that you did.

Curtis: Okay. Two Thursdays ago we just closed on a $980,000, 50 percent complete house in Sugar Land called 3999 Maranatha Drive. It’s on YouTube. I did four little episodes that I recorded. Many of you are going to get dizzy. Please do not shoot me. I’m sorry. I just tried to market the property a little bit differently. I was walking around with my video camera, so it’s really jumpy at times.

The episodes were called “My Million Dollar Flip.” And you can see where I started the property. It was complete, and where I completely demolished the property. It took a 5,200 square foot home and turned it into 7,700 square feet by building out a third story and taking the ugly out of the property. I wouldn’t say the ugly. I would say the standard builder grade, ten year old material that was there, brass fixtures. The floor plan was horrible for in and out flow. When you have a big property in a very exclusive community, there’s going to be a lot of entertaining. So you have to open the thing up.

Damon: Right.

Curtis: I was just listing the property, and I remember walking through the property the first time with the owner and he was interviewing me. He was like, “Why should I choose you? You’re this foreclosure buyer’s agent.” And I said, “Because I love your property, and this is what I would do to it And this is what I am going to tell the people I would do to the property if they go and buy it.” There hadn’t been any sales since 2009. So this was in the middle of 2010 I listed the property.

Damon: Okay.

Curtis: It had been listed on the market for [inaudible 47:15] prior to me getting the property through two different realtors. They had it listed at $1.295 million, and then I got him to agree to go to $1.2 million. And then every 30 days we reduced it $100,000 until we got to $999,900. He called me and said, “What do I have to do? I want to get rid of this property, and I want to get rid of it now.”

And I said, “Let’s list the property for $500,000.” And he flipped out. He was like, “What? $500,000, I owe more than that on the property.” And I said, “What it will do is it will show up on MLS as this humongous reduction, and people will just want to come out just to see it. I’m hoping at that point . . .”

Damon: It’ll get attention. It will draw attention to it.

Curtis: Right. “By just drawing attention, we’ll find a buyer.” At the end of the conversation, he said, “Okay, I’ll do it. I’ll let you drop it to $500,000.” And I said, “I’ll tell you what. I think it will be harder for me to go from $500,000 to a million which is what he wanted. So why don’t we reduce it down to $750,000?” He said, “Okay, that’s better. I think that we can get up from there.” Actually, he only wanted $850,000. He only wanted $850,000 before we did any of the rehab stuff.

So we had a buyer come in, and they looked at the property and they gave us an offer quickly of $650, 000 and then we negotiated. I said, “Really the seller would like to go up to $850,000.” “Well, why are you listing it at $750,000?” And then I told her the whole story, just like I’m telling you guys. Her buyer said, “You know, they don’t want to do it.” They end up coming back to us after we started doing the demolition.

Well, by that time, once they said no, it’s $750,000 or bust, the owner said, “You know what? Why should I let somebody else dump $200,000 into this property only to make a $300,000 or $400,000 profit? I’ll have you manage and oversee the rehab, and we’ll split the profits 50-50.”

So the guys that did my subdivision for me . . . out of those five properties, we had only had four items come back on the inspection report that had to be fixed out of flipping five properties. So I knew that these guys were good. They were all new home construction people, so we went out there. We executed a plan, which is not my forte, building a plan and details.

Damon: You’re the talker. You’re not the planner, right?

Curtis: Right. All right. I’m the guy that gets everybody fired up, not the guy that writes everything down. The guy that owns the property works at Chevron, and he’s an engineer and he’s very much a “this needs to be done and it needs to be done correctly.” And I want to have a two to three week in advance running track record.

So we set out to flip this property from start to finish. I had architectural drawings done. I had the design layout, what we were going to do, and we had expectations all over the house of each week what we needed to have accomplished. And so, the contractors would come in and check things off. Well, each week I would come in . . . well, I was there every day. So just to kick things around and just to keep things interesting and keep their interest being generated because while the exterior of the property was being painted, I wanted to generate some pre-listing buzz. I don’t know what I had an expectation for a 5,000 square foot house to be done in 60 days, but that was so aggressive and I didn’t come anywhere close to that. But that was what the engineer wanted. He wanted it done in 60 days.

Damon: So while they were working on this, you were still marketing the property.

Curtis: I was marketing it by doing these little video webisodes called “My Million Dollar Flip.”

Damon: Okay.

Curtis: The lady just so happened to type in . . . she was looking at another property that was for sale for $1.9 million, and she had actually had the property under contract. Then the guy that was selling the property received another offer that was higher, and so he had strung her along. So she said forget it. She said, “Get me another property in that subdivision.” The reason people like the subdivision, it’s only, I think, a 1.8 tax rate out there.

Damon: Wow.

Curtis: So it’s pretty low. It sits on a well, and it’s all unrestricted. You can build whatever you want.

Damon: Okay.

Curtis: You can have horses on there. Having almost three acres of land in Sugar Land with that big of a house and all of those great amenities that you would have with that amount of land, this lady said, “Find me something else” to her realtor. So she got frustrated because there was nothing else available. So she typed up the subdivision, which is called Maranatha Farms. She typed it up into Google and then saw my video.

Damon: Your video came up on a Google search, and she’s like, hey, I think I’ll click on that and take a look.

Curtis: So then she called her realtor and said, “Where is this property? I want to see this property.” So she actually pulled up the expired and terminated and got my contact information, called me up, and they came over to see the property. This was during the middle of Christmas, which is the time when you can never sell a property, right?

Damon: Nothing’s happening.

Curtis: Nothing’s happening out there. It’s Christmas. It’s the holiday season. Well, Christmas came late for me. It came in February because she ended up wanting to put an offer together. So I went out there. They wanted to present it to me in person, which was a wonderful $650,000 offer because it was listed for $750,000.

Damon: Right.

Curtis: People were going to start the game with me again. I said, look, I think the guy . . . if you can get me an offer around $920, 000, this is really where I think it will sell.

Damon: Right.

Curtis: And I set up a poor expectation because the owner was like, “No, I want it close to a million.” He said, “If you can get me at $975,000. then I’ll take it.” So I went and called her back and said, “If you’ll get me an offer of $980,000, I can make this work.” I felt like maybe $5,000 was enough wiggle room, and they accepted it.

Damon: Wow.

Curtis: I actually got the owner, who was my partner, $5,000 more than what he expected.

Damon: Great.

Curtis: They ended up asking us for all these lien waiver forms. And while they were walking it, they were doing the air conditioning. So they had sent over an offer saying stop all construction today.

Damon: The buyer wanted to finish everything herself.

Curtis: She wanted to finish everything. She goes and does this walk through and says, “Where is the air conditioning unit?” We were like, “All they got done was just running the ducts to the third floor.”

Damon: Right.

Curtis: And so, there was another AC unit that was supposed to go in. I told her, “You told us to stop, so we stopped.” She was like, “Well, tell the guy that I’ll pay for the remainder of the work that needs to be done.” And so, they actually partnered with us even further for the remainder of the work that was incomplete, that they wanted finished, which was around another $12,000 to $15,000. So, if you look at the whole thing, it really ended up being about a $995,000 project for her, plus we sold it 50 percent complete off of MLS.

Damon: Right.

Curtis: Now, my partner is taking that money and we’re doing another deal that we’re closing on next week, and he’s like, “Go get me three or four more properties so that we can take this money and keep doing this.”

Damon: Yeah.

Curtis: So now, I’ve taken a guy that’s an engineer, that wanted nothing more to do with real estate, and now he is totally 100 percent engaged in real estate and feels like he found a good team.

Damon: Right. And that leads me to what I wanted to point out. Really until discussion with you, what I’m seeing and what I hope our listeners are seeing is that when you look back four years ago, when you started with really just a dream, I want to do real estate and you had nothing at all. Here you are, four years later, doing a deal like the one you just explained, inspiring somebody who really didn’t have the belief either. Now, he believes and sees what can be done here.

I think that belief is so important that if you’re struggling and you’re not sure how to make it work, that if you go get help and get that belief, get with somebody who knows what they’re doing or has that experience so you can get that same belief, there’s really no limit to what you can do once you can overcome what’s in your head and you gain the experience. I see that that’s what’s happened with you. I think it’s just a wonderful story and very inspiring. It’s been very interesting.

Curtis: I appreciate it. I hope that people will see that I did not know what I was doing when I was flipping that big project. I knew how to demolish. I knew how to make sure that the guys were there every day and that they were doing what they were doing. But all I did was just tell the guy, “I am not an architect. I am virtually, maybe, a designer at best.”

I know just from my real estate standpoint that when you’re flipping property you need to have a theme. If you’re flipping French country, go all the way French country. Don’t go Mediterranean upfront and then trick them and go with, I don’t know, IKEA on the back side and a very European contemporary design. You need to stay true to the house. The house has a story that it wants to tell. I would rather isolate 50 percent of the buyers out there but have the 50 percent that like that style . . .

Damon: Really like it.

Curtis: Really like it and go, “This is exactly what I want.” When we flip rentals, we do it the same way because your rent properties, people need to know that in order to set new pricing trends, who wants to pay $1,000 a month for butcher block counter tops?

Damon: Right.

Curtis: I don’t. If I’m renting a property, I would want to rent from someone that has granite and stainless and wood floors. Why is that? Because they’re probably going to want to buy it when their credit situation changes.

Damon: Right.

Curtis: And I’m not competing against people. They see my product versus what else is available for rent, and they’ll go right down the street and come right to my house. That’s why we always have three to four lease applications, and we don’t have to get two to three months worth of deposits. Sometimes, we do. Mainly, you just want to have the pick of the litter, right? And that’s what you have to do, just tell people, be honest, and do things all the way.

Damon: Excellent advice, Curtis. And I noticed that you’re helping people understand how to do this stuff. You wrote a little e-Book. What’s the website where people can go to if they want to see what you’re doing and get some of the stuff out of your brain into their brain?

Curtis: I don’t know if you want to crawl into my brain.

Damon: At least, what you let come out.

Curtis: That’s right. I don’t even know how I even got finished writing the book, but I kept it really short and concise. It’s a very easy read. It’s 12 pages of information called “The Houston Cash Flow Code.” It’s just the seven myths. It’s unlocking those myths, the secrets of Houston real estate.

Damon: Okay.

Curtis: And what the top investors really don’t want you to know. So I wrote that from that perspective. If I was an investor and I had an unfair advantage, I wouldn’t want everybody else to know it. So let’s go and unlock the secret, unlock the code.

If you go to www.HoustonCashFlow.com, just enter in your e-mail address and then it will send you automatically a free link of the book. Then, if you want to learn even more than that, you can go to FlippingHoustonLive.com, and Brant and I are going to be co-hosting that event. We’re just teaching people how to use partnerships, private money and credit lines, bank lines, and showing you how to merge all those together and build good partnerships and build a team so that you can actually take the effort, the dream that you have and put it into implementation. Because you and I both know knowledge isn’t power. It’s the application of knowledge that is the power.

Damon: Exactly. Absolutely right. So I encourage people to go take a look at those websites. I’ve looked at both of them and found them very interesting. Is there any other advice you have for people that are listening here as your last words on this interview?

Curtis: Oh man. Do something. Don’t let fear be the factor for failure. As soon as you embrace failure and say, “Hey, I’m a failure and I’m going to give myself a chance to fail because that’s where success is found over and over and over.” How many times did Thomas Edison make a telephone that didn’t work before he found the telephone that did work?

Damon: Good point.

Curtis: Abraham Lincoln tried, what, 33 times to run for public office before he ran one time for the presidency and won.

Damon: Right.

Curtis: There are many different learning experiences that you’ll have. So you’re going to get a lot of no’s before you find a partner that says yes. But don’t let not having money or credit stand in the way of you achieving your dream.

Damon: Excellent. Very well said, Curtis. It’s been great talking to you, great meeting you. I hope that we get to spend some more time together another time as well. Thank you so very much. I appreciate it.

Curtis: And thank you for the time on the interview today.

Damon: You’re welcome. Take care.

Curtis: Thank you.

Damon: Bye-bye.

Curtis: Bye.

{ 4 comments… add one }
  • Mark Trantham July 4, 2011, 6:40 pm

    Damon, These interviews are great. I love the way you drill down into the details of the deals. And, I love hearing about the hurdles or obstacles that they encountered. It helps me realize that there are solutions to the roadblocks that we all encounter on our journey. And encourages me to keep pushing. Keep up the good work.

  • DeWayne April 8, 2011, 3:54 am

    I learned a lot of information with this interview.
    Thanks Damon for taking the time in making these interviews available.

  • Leebaron2 March 15, 2011, 8:09 am

    great interview

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