JF1322: How To Build A Fix & Flip Business vs. A Fix & Flip Hobby with Marty Boardman
Marty has been investing in real estate since 2002, mostly fixing and flipping. His company used to have other focuses, but with experience they found that if they focused on flipping, they could make more money. Hear why it’s beneficial to narrow down your strategy and focus and make that business ultra-efficient. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Marty Boardman Real Estate Background:
– Real estate investor and instructor since 2002
– He fixes and flips houses in Arizona and Wisconsin with his business partner, Manny Romero
– Published author and past contributor to BiggerPockets.com
– Based in Gilbert, Arizona
– Say hi to him at www.fixandfliphub.com
– Best Ever Book: Rich Dad, Poor Dad
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Marty Boardman. How are you doing, Marty?
Marty Boardman: Doing great. How about you today?
Joe Fairless: I’m doing great, and nice to have you on the show. A little bit about Marty – he is a real estate investor and he has been one since 2002. He fixes and flips homes in Arizona and Wisconsin with his business partner, and he is a published author and contributor to Bigger Pockets. He is based in Gilbert, Arizona. With that being said, Marty, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Marty Boardman: Sure, yeah. Before I got into real estate investing I was a TV news cameraman, and I could barely screw in a light bulb, which — I actually can still barely screw in a light bulb. I don’t do any work at our fix and flip projects, I never have… But I quit my job in TV news as a cameraman back in 2002. I guess I always like to tell people that, because I think a lot of people believe because you see the house flipping reality shows, and you see the stars of the show doing all the work. They’re busting out the sledgehammers and doing [unintelligible [00:02:04].12] they’re laying tile, they’re rolling paint… Honestly, I think that’s the wrong way to run a fix and flip business; you shouldn’t be working in your business, you should be working on it.
My business partner (Manny Romero) and I – we don’t do any of the work at our fix and flips here in Arizona or in Wisconsin. We don’t know how. You just need to know how to do it and who to call to get to do it, and how much it really should cost and how long it should take, that’s it.
Anyway, I got into real estate full-time in 2002, left my job as a TV news cameraman, and I’ve done wholesaling, I’ve done lease options, I’ve done buy and holds, fix and flips… I own a number of rental properties with my business partner in Wisconsin, but we’ve done just about every exit strategy there is. We rode the housing market wave in Phoenix in 2008, then we lost our ass…ets. We got wiped out when the market crashed here in 2008, both of us. We weren’t partners then; we started working together after the real estate market started to come back a little bit here in Phoenix in 2009, and since that time we’ve fix and flipped about 150, 160 houses… Like I said, between here and Phoenix, Greater Phoenix market, and Milwaukee.
Joe Fairless: What is the difference in your approach prior to 2008 crash and now?
Marty Boardman: I’ll be honest, I don’t really have that much different approach than I did back then. We were buying houses — I always felt like we were very responsible the way we were buying real estate in 2004-2007. We were looking for steep discounts; usually on a distressed property you could typically get it for 60, 70 cents on the dollar here in Phoenix. We were buying pre-foreclosures, we were doing a lot of that type of thing back then… So we were getting great deals, even though the market here was red hot. But when the market corrects itself by as much as 55%-60%, or it goes backwards, a house that was worth 250k at the peak only becomes worth 110k-120k. There’s very little you can do to insulate yourself from that type of collapse. I think looking back on it now, one of the biggest mistakes I made — and it’s hard; you wanna use leverage in real estate, whether you’re fixing and flipping or buying rentals. I think the biggest mistake we made was probably being a little over-leveraged.
Of course, we were doing a lot of subject to deals, with our pre-foreclosures, and a lot of these mortgages – what people were getting were adjustable rate mortgages, so of course when interest rates started to go up and the banks started calling these notes, those rates got out of control and it just became very difficult to maintain. And of course, when the values of the properties drop in half in less than a year and you’re fixing and flipping, it’s tough to get out from under that wave… It’ll crush you. So I would say that was an anomaly.
One of the things I look for now in both Phoenix and Milwaukee is just being wary of another correction like that, although I think the Feds have put in some legislation in place and I think lenders are more cautious now, so… There’s no more liar loans. And if you really wanna get a sense for what happened in 2006 and 2007, you can watch The Big Short, either on Netflix, or read the book, or you can watch Inside Job, which was narrated by Matt Damon… It’ll give you some great insight.
But when you have all that corruption and all the fraud going on, boy, it’s tough to know when you’re not on the inside what’s really happening. So I’d just say the best thing to do is just to buy right. If you buy right and you get in and out quick, you’re gonna insulate yourself from a lot of damage… Something like a correction could cause you.
Joe Fairless: Yeah. You said you’re buying similarly now compared to before, but it sounds like there is a leverage piece that is more conservative, or is it about the same type of leverage that you did prior to 2008?
Marty Boardman: Well, back in 2007-2008, like I said, we were doing a lot of subject to deals. So we’d get the seller of the property – because they were in foreclosure, typically (it was a pre-foreclosure) – we’d get the deed to the property, and just bring their loan current. But those interest rates varied, they were all over the place. You know all the adjustable-rate (ARMs) and all that stuff really kind of made it difficult to forecast.
Now we’re just using straight up private money to fund our deals, with private money lenders. Obviously, those types of lenders are more savvy to what’s going on in the real estate market. Their rates may be higher, but of course, if something like a major market correction was gonna happen, we could typically work with them, because they’re private lenders.
The other thing is we’re not leveraging as much of the purchase. You remember back in 2006-2008 some of these lenders would let these borrowers leverage 100%, 105% of the purchase price to the house… And the other big thing is we’re getting in and out of these a lot quicker.
I don’t know that there are too many people who made money after the real estate market crashed, besides the short sellers on Wall Street. Anybody in real estate would have got wiped out, even if you were buying at 30 cents on the dollar… You’d have barely gotten out breaking even.
Joe Fairless: Yeah. On fix and flipping for sure… In 2008 if someone was doing buy and holds and they were cash-flowing on a property, and they had adequate reserves and they had a loan that didn’t become due, then if they bought in 2006 and they would sell in 2008, they’d still have the property and then they could exit. But on the fix and flip, that’s where it gets really tough, because the name of the game is turning properties over, and when you try and turn a property over during a bad time, that’s where it gets dicey, right?
Marty Boardman: Yeah, and to compound that, Joe, it was so difficult to get new financing, right? After the mortgage market collapsed, to get a conventional home loan, even if you had sterling credit and a great job and cash reserves, it was really difficult to get a conventional loan because a lot of lenders were just afraid to lend on properties that they felt like were going down in value. It’s the saying “Beware of catching the falling knife”, right?
Just a personal example – the house I live in now we bought in 2010, so we were about a year and a half removed from the crash, and we bought it as a short sale for $299,000. The homeowner we bought it from (it was a short sale) they owned $459,000. Today this house that I’m living in now is barely worth $450,000. So we’re ten years removed from that cash and we’re just now getting back to where values were at the peak in 2008… So yeah.
Joe Fairless: From a leverage standpoint, what percent do you leverage now? You said “Before people were” — you didn’t say you, but you said “People were getting 105% leverage.” What were you getting leverage at and what are you getting it now at?
Marty Boardman: Even back then we weren’t really borrowing. Like I said, we were doing a lot of subject to deals. But we would look at the after repair value and usually we’d never pay more than 70% of that. And I hate to use that 70% rule, because I’ve bought properties for 33 cents on the dollar. I bought a house at 33% of its after repair value and lost money, because the house needed major repairs. I didn’t know that until I bought it. And I bought houses for 86% of after repair value and made money.
So you hear this 70% rule out here… Well, how much should you borrow against? How much should you pay for a house based on repairs? To me it’s all about the margins. If you know a house can sell for $300,000 and if you can buy it for 250k and it only costs you 5k to rehab it, you can walk away making 20k-25k and do the deal, and who cares what the percentage spread is? But on a general basis, typically, most private money lenders aren’t gonna lend you more than 70% of after repair value. Maybe 75%.
If you have a good relationship with them, then who knows – they may lend you all the money you need for the rehab, and maybe you put in the money for the repairs… It really just depends on the relationship you have with the private money lender or the hard money lender. But I can tell you this – as we’re talking here today, there’s never been more cash out there in the world to invest in real estate investment projects, whether they be fix and flips, buy and holds… Cash has not been a problem for us. There’s no shortage of capital out there, or equity partners or investors. People are dying to get into real estate investment deals. The hard part right now in the market we’re in in Phoenix and in Milwaukee is finding good deals, that have enough margin. That’s the real challenge right now.
We’re seeing that in our own business, and we also have a coaching program, and most of the students in our program are all having that same challenge – finding good, profitable deals with solid margins.
Joe Fairless: Let’s take a step back and let’s talk about your company. You mentioned earlier that you don’t swing the hammer at the projects, and neither does your business partner; you work on the business, not in the business… So what roles are there in a fix and flip company, and then how do you divide and conquer with your business partner, meaning who’s responsible for what?
Marty Boardman: Gotcha, it’s a great question. So any fix and flip business, whether you are going to fix and flip one house in a year, or 100 houses, or 1,000 in a year, every fix and flip business has four divisions, and Manny and I call them our four boxes. You’ve got your first box, which is your acquisition box. You have to have somebody in your company – you or somebody else – that’s responsible for finding the deal. That could be through your own guerilla marketing campaigns like direct mail and bandit signs and Facebook advertising, SEO, or just finding deals on the MLS, through local wholesalers, whatever it is. Somebody has to find the deal for you to fix and flip, so that’s your acquisition box (box one).
Box two is your rehab box. Once you have acquired the property and you own it, you or your partner or somebody has to be responsible for the rehab. So that’s your rehab box.
Box three is your sales box, and that’s the division of the company that gets the house sold, gets it listed on the market, gets photos taken, gets it marketed and sold. So you’ve gotta have somebody in your company to run that sales division.
Then you’ve gotta have capital at all times, working capital. We call that our Raising Capital box. Somebody has to be in charge of the money – finding money to do deals, making sure that the people who have lent you money or gave you money are getting their questions answered and they’re getting paid on time.
Those are your four boxes, and Manny and I kind of split those four boxes up equally. I work primarily in the acquisition box, finding the deals here in Phoenix and in Milwaukee, and then negotiating the purchase of those properties. Then Manny takes the baton for me and he runs the whole rehab division of our company. Then he kind of hands it back to me when they’re ready to list, and I work with our team or realtors, either here in Phoenix or in Milwaukee, to get those houses on the market and get them sold. Then we kind of tag team the capital box, just depending upon his contacts or mine – we raise capital that way, and it’s mostly, like I said, through private money lenders. So if you’re working all by yourself and you’re doing one fix and flip – guess what? You’re gonna be working in all four boxes simultaneously.
As you grow, and if you scale your business up like we have – I work on the acquisitions, but we have a full-time project manager that works in the rehab box for us in Milwaukee… Because we live in Arizona and it would be impossible to manage. We have I think six or seven rehabs going on in Milwaukee right now as we speak, so our project manager runs those projects and Manny keeps tabs on him remotely from here in Arizona.
Then of course we have, like you said, realtors on our team that we use and hire to work on the sales of our properties in Phoenix and Wisconsin.
Joe Fairless: How do you look at it, since you’re a part of the acquisitions and you tag-team the capital raising – how do you look at it from a deal flow standpoint? Is it number of deals, or is it just high-end deals and fewer of them? How do you think about it?
Marty Boardman: We like to build systems whenever possible, to be as efficient as possible. So we really have a specific type of property that we’re looking for here in Phoenix and in Milwaukee, that we know that our team of contractors, our project manager, our realtors are all familiar with. We systematize everything. If you walk into one of our houses, you know it’s one of ours. They all kind of look and feel the same.
We’re not reality TV stars, we’re not trying to create unique little touches in each one of our properties. Manny and I aren’t running down at the cabinet factory, custom-ordering cabinets or [unintelligible [00:14:21].29] in little nooks of the house. We standardize almost everything that we do, so we have a specific type of property and area of each market that we like to buy in, so we can systematize as much as possible.
Joe, we used to just buy anything. If we felt like “Hey, there’s a good margin here”, we’d buy it and do it, and that’s just very inefficient. That’s more for the hobbyist fix and flip investor who’s just kind of looking for a fun project that they can take on, make a few extra bucks, and like I said, create all the unique touches and neat little things that you see on reality TV. That’s not what we do.
We’re looking for houses that we know we can quickly get in and out of. A lot of it has to do with the year the house was built, the neighborhood the house was in, and price point, location, that type of thing.
Joe Fairless: As far as finding those deals – you said that’s the biggest challenge that you have, and fortunately, we’re talking to the right guy, because that’s your area of focus within this business… How are you finding the deals?
Marty Boardman: We don’t do any guerilla marketing, Manny and I. We don’t do direct mail campaigns, we don’t door knock, we don’t call for sale by owner listings, we don’t do any of the things the gurus teach you how to do, kind of the deal finding 101 type of courses. I believe that in order to be a wholesaler or a bird dog, that requires a certain skill set that I just don’t have, and it requires me to do things I’m not good at and I’m not passionate about, which is being a good salesperson. You’ve gotta not be afraid of rejection, you’ve gotta be persistent, you’ve gotta be patient, you’ve gotta really do a lot of lead nurturing, and I’m not very good at that and neither is Manny (my business partner), so we’ve just decided quite a long time ago that we would rather just focus on fixing and flipping houses, and creating profit and efficiency on our fix and flip business, not try to be two things at once – try to be a wholesaler/bird dog/distressed property deal finder, and on top of that try to be a prolific fix and flip investor. It’s really hard to do both.
So what we did is we just decided we’re gonna build business relationships with wholesalers, bird dogs, realtors in each one of these markets that we’re working in, and it’s proven to be very effective.
You’d be surprised – we get a lot of off-market deals sent to us from realtors and from wholesalers who will hold these deals for us and not blast them out to their whole e-mail list, and work exclusively with us because we’re professionals.
Typically, when a property is presented to us, we look at it immediately, within 12 hours, and we usually tell them within that same timeframe that we’re gonna buy it, and we always close when we say we’re gonna buy it. We had a lot of wholesalers tell us “Hey listen, we love bringing our deals to you, because we know that when you say you’re gonna buy it, you buy it. You sign the contract and you show up at the closing table and we always get our money. And we know we may be able to sell it for a little bit more to somebody else, but there’s a chance they may flake out on us at the last minute and we can’t afford that. So at least we know with you guys you beat us up a little on price, but we know you guys are gonna get the deal done.” That’s kind of set us apart in Phoenix and in Milwaukee as well.
Joe Fairless: If you were to expand to another market, how would you go about building those business relationships with wholesalers, bird dogs and real estate agents?
Marty Boardman: It’s all about face to face meetings, in my opinion. So much of the world we live in is electronic; everybody wants to text and e-mail one another, and send out deals via e-mail blasts. I found that sitting down face to face with a realtor, with a wholesaler, with anybody who can bring you distressed property deals, is gonna go a long way.
And then for you to have a very clear idea of what you’re looking for as far as a property is concerned, and price point and location. It saves everyone a lot of time.
The wholesalers that we work with – and the realtors, I should say – in Phoenix and Milwaukee, they know exactly what we want, the type of property we’re looking for, the location, the conditions of the home… So it makes it very simple. They know when they send me a deal there’s a 99% chance I’m gonna be interested in it to begin with, and as long as I can make the numbers work, then they know I’m gonna buy it.
And the other thing too, Joe, is being very honest and up-front about what your needs are as far as a price point is concerned. I have conversations all the time with realtors and wholesalers and I say “Listen, you’re asking 250k for this property, and it’s worth 425k, but I’m gonna tell you right now, this house is a mess. Based on our numbers, it’s gonna cost 125k to rehab it, so the margins just aren’t there for us. We just can’t make any money.” If they were to lower the price — and you’re not gonna beat them up. I’m not beating them up.
I could say “If the price were this, I could probably do it, but I know that you probably have other buyers interested that you could get this asking price for, but unfortunately I can’t pay it.” And almost every single time that wholesaler or that realtor comes back to me and says “Okay, I see where you’re coming from here. I appreciate you letting me know I can’t sell it for that, but I’ll be sure to think of your the next time”, so it doesn’t feel like I’m just beating them up and being a jerk… And it gives them some insight into how much it really costs to fix it. So I’m educating them, and they’re helping me. But I always get a call the next time from them, and a lot of times they’ll say “You know what, I think I can do it for that. I can lower it. I can give you the house for 400k”, or whatever it is. So you can a lot of times make it work.
But so many people are afraid to do that with a wholesaler. First of all, they think wholesalers and realtors with distressed deals won’t negotiate price, and they always will – everything’s negotiable – especially if you frame the conversation the right way, and if you explain to them where you’re coming from and you’re just not a jerk about it, you’re gonna have a lot more deals fall into your lap.
Joe Fairless: The properties that you’ve purchased – you’ve built the relationships with wholesalers, bird dogs and real estate agents… What about after you meet them initially, how do you stay in touch with them? Because it’s one thing to “Okay, I’m gonna meet them. Alright, good, check the box.” But then they don’t have a deal or you’re not ready to buy it quite yet – maybe you’ve got other projects – but seven months from now you want them to still think of you, so how do you do that?
Marty Boardman: That’s a great question. I keep in touch with them. Our goal in 2018 is to fix and flip between 36 and 40 houses in Phoenix and Milwaukee. My job is to acquire these properties, that’s my job. If we don’t have houses in the pipeline to fix and flip, then my business partner Manny doesn’t have houses to rehab, our project manager doesn’t have houses to rehab, the realtors on our team don’t have houses to list and sell, our investors – we don’t have money from them, we’re not paying them their interest… So it all starts with me, the acquisition.
So I make it my full-time job to maintain that communication and those contacts. I reach out to them, I text them. I’ve got three wholesalers I work with in Milwaukee, I’ll text each one of them every other week and say “Hey, what’s going on? Just want to let you know were’ still here, we’re still interested if you’ve got anything that meets our criteria.” So I’m always kind of at the top of their mind and I check in with our realtors there, too.
As a matter of fact, we’ve got (I think) seven MLS deals we’re gonna go look at on Wednesday. I’m a licensed realtor in Wisconsin and in Arizona. Obviously, I can’t go out myself, looking at fix and flip deals in Milwaukee. I don’t live there, and I especially don’t like going there when it’s cold… So I’ve got a realtor on my team there and I just tell her, I’m like “Hey, you don’t even need to find them, I’ll find them. Then I’ll send you the addresses and you take my project manager around and go look at them. But I always tell her, I’m like “Hey, keep an eye out for deals.”
She brought us a deal just recently; it was another agent in her office. It was a duplex, and we love duplexes in the Milwaukee markets. She had an agent in her office who was just kind of venting to her, saying “Yeah, I’ve got this client, he’s really difficult. He doesn’t wanna list the house on the MLS. I really need to find a special kind of buyer that’s gonna be patient and isn’t gonna ask a lot of questions and it’s just gonna be really easy to work with.” She’s like, “Well, I’ve got a great buyer for you. We put the deal together. It was in a red hot part of Milwaukee, up and coming area of the city, just North of downtown, where stuff’s just flying off the MLS. I can’t find deals in this zip code at all, and she brought me this off-market MLS deal just because she knows I’m always there, and I’m always reaching out to her and trying to figure out “Hey, what have you got for me?” People respond to that.
Joe Fairless: What is your best real estate investing advice ever?
Marty Boardman: My best real estate investing advice ever. I would just say — I actually learned this a long time ago, and actually I’ve written a couple different blog posts about it. I actually called it “The Best Real Estate Investing Advice Ever.” I had a real estate attorney here in Phoenix – this was when I was first starting out – and he said… I was flying around all over the country, going to these seminars and these workshops on learning how to invest in real estate, and foreclosures and all this different stuff, and he just told me “You know, you need to stop wasting your time and money and flying all over the country, learning from these gurus. You need to find an actual real estate investor, somebody who’s actually in the business of fixing and flipping houses, who’s doing deals, and learn from them. Somebody who’s actually a practitioners.”
I attended a class a couple months later after this real estate attorney gave me this advice, and I met a guy here in Phoenix who was doing pre-foreclosures and he was buying houses at the auction, and he agreed to let me come on-board with him, and I learned everything there is to know about how to buy a house in foreclosure, how to buy them at auction… I learned the basic stuff – what a title company does, how to write a contract… All of those things he taught me first-hand, and it was the best education I ever got, and it was almost free.
So I would say if you wanna get into real estate investing, you wanna learn how to do it… The gurus – they all have things you can learn from them, that’s for sure; it may not be free, you may have to pay them something, but at least find somebody that’s actually doing it, and learn from them.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Marty Boardman: Let’s do it.
Joe Fairless: Alright. First, a quick word from our Best Ever partners.
Joe Fairless: Best ever book you’ve read?
Marty Boardman: Rich Dad, Poor Dad. It’s the book that got me into owning my own business and real estate investing.
Joe Fairless: Best ever deal you’ve done that we haven’t talked about?
Marty Boardman: This was pre-crash, but in 2004 I bought a house for $285,000 and I sold it for $550,000. I didn’t do a single thing to it. I think I made about a quarter of a million dollars.
Joe Fairless: Yowsers! How did you find that deal?
Marty Boardman: It was a pre-foreclosure. That was back when I was doing pre-foreclosures, and the guy was in foreclosure, he was desperate, he had to sell, and so I think it was a few hours before the auction, and I took the deal subject to, and I brought his loan current for about $25,000. He moved out, and I sold it about a month later for 550k. The guy that bought it from me did a major reno on it and he sold it for 800k, so he still did really, really well.
Joe Fairless: What’s a mistake you’ve made on a transaction?
Marty Boardman: The biggest mistake I’ve made – and unfortunately, I did this and it compounded itself, because I trusted one general contractor to do 4-5 houses for me at one time, after he’d already done about half a dozen. He got in over his head, and I gave him draws up-front… And of course, this was in Wisconsin, and I was living here, and I trusted him… And I got screwed. He ran off with about a quarter of a million bucks on about six different projects.
So I would say don’t trust anyone, and make sure when you hire somebody you’re giving them very small draws and you’re checking up on them constantly and make sure that the work is getting done.
Joe Fairless: Trust, but verify, right?
Marty Boardman: Yeah.
Joe Fairless: Best ever way you like to give back?
Marty Boardman: I am a photographer, and as I mentioned, I used to be a news cameraman… So I do a lot of video and photography, and I love volunteering my time to do that – shooting photos and professional quality video for schools and churches and that kind of thing.
Joe Fairless: How can the Best Ever listeners get in touch with you?
Marty Boardman: You can reach me at Marty@FixAndFlipHub.com, and our website FixAndFlipHub.com. We’ve got all kinds of goodies on there if you there. We have a free house flipping guide, and lots of blog posts and how-to videos, all kinds of great stuff.
Joe Fairless: Well, Marty, thank you so much for being on the show. You gave a lesson on how to prepare a fix and flip business for a recession, and three things that you’ve mentioned that you’re doing now, compared to before is you’re using private money lenders and investors; they’re gonna be more flexible, most likely, than a bank or some institution. Two is not leveraging as much as before, and specifics – the Best Ever listeners will have to go back and listen to that; I didn’t write that down. And then three – the speed; get in and out of properties as quick as possible.
Then from a finding deals standpoint, how you’re finding deals is building relationships with wholesalers, bird dogs and real estate agents, meeting them face to face, traveling there, having a conversation with them, and then staying in touch on an ongoing basis. When you have those conversations with them, knowing your buying parameters, knowing the price points, knowing the metrics, and talking through a very logical thought process for why you aren’t interested in deals if they present something to you. They’ll respect you for it, and they’ll learn more about what you’re looking for, and perhaps you might find that deal come back your way.
Thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.