JF1510: Fastest Way To Scale A Wholesale Or Wholetail Business #SkillSetSunday with Michael Quarles
Michael is a well known name in the real estate world. A huge part of what Michael does, and why it can be so attractive to investors, he never sees any of the houses he buys. Every house he buys is done virtually with help of others, in different states. Learn how he has scaled to the point of never seeing the properties he buys. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Michael Quarles Real Estate Background:
- Has been investing in real estate since he was a teenager
- Expert with creating systems and processes to scale his investing businesses as well as helping others do the same
- Host of the Michael Quarles Real Estate Show
- Listen to his previous episodes:
- Based in Bakersfield, CA
- Say hi to him at http://michaelquarles.com/
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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.
First off, I hope you’re having a best ever weekend. Because today is Sunday, we’ve got a special segment for you called Skillset Sunday, where we’re gonna talk about a specific skill that can help you with your real estate endeavors. That specific skill is how to scale your company, and in particular, if you are a wholesaler or a wholetailer – especially a wholetailer – then this will be relevant to you, because we’ve got Michael Quarles on the show today, and he’s gonna talk to us about how he has done that. How are you doing, Michael?
Michael Quarles: I’m doing good, thanks for having me back.
Joe Fairless: Well, my pleasure. Nice to have you back. You recognize Michael’s name because you’re a loyal Best Ever listener and you heard episode number 72. Wow, that’s like 1,500 or so days ago. I don’t know what episode this is airing, but about 1,500 days ago I interviewed Michael. The episode is titled “Why wholesalers wholesale houses is beyond me.” Then I interviewed Michael on episode 564; the title for this one is a little provocative – “How a murder house turned into a deal.” I’m not sure if that’s politically correct or not, but that’s what the title is.
We’re gonna talk today about how you have turned your virtual wholetailing business into a system and how you got a complementary company. Do you wanna catch us up to speed first with your background just a little bit, so we have some context as a refresher, and then we’ll get into it?
Michael Quarles: Sure. I fell in love with dirt as an adult teenager. Gosh, I’m 56, and that was when I was 19, so you do the math – a long time ago… And it’s been fun. I’m a general building contractor in California, a real estate broker in California, and I buy a bucketload of houses… And the cool part about my houses that I buy is I never see them. I never knock on the front door, I never grasp the hand of the seller, I don’t say hello to the closing company or the escrow company… All I do is look at the check that goes into the bank account. And that’s the cool part about real estate investing to me.
Joe Fairless: How do you buy houses without any of that stuff?
Michael Quarles: It all starts with marketing, one form or another. I’m a big fan of direct mail, and a big fan of pay-per-click. Not so much a big fan of the other digital marketing out there, but those two drive someone to call me, and then we have an “Alex and Ryan and Angel” system. Alexes answer the phone. Alexes are typically female, although they could be a male, because Alex is a dual name… And they ask a series of questions. These gals are in their 20’s, they’ve never bought a house, never wanted to buy a house, never imagined buying a house or being an investor… We have just trained them to follow a script, they ask a certain amount of questions a certain way, the response then takes it to either a follow-up cycle, or a Ryan, which starts the negotiation cycle.
The Ryans negotiate for cash or moderate terms. If we find that moderate terms won’t work for us or the seller, we may get some advanced terms and those go to the angels. Again, all of these people are young adults, who have never bought a house for themselves, never intended to buy a house; however, through systematization, we can put someone in a chair and in four hours they can make appointments for someone to buy a house.
We buy one pretty much every day. Now, that doesn’t mean we close on one every day. That means we put one under contract, based upon the assumptions that we have with the seller and their answers to our questions. Then once we have an agreement to purchase, we then go out and hire a realtor, we get a broker’s price opinion for $150… It’s kind of cool, because that person will go out to our house no matter where it’s at in the country, take pictures of the inside and the outside, do a market analysis, tell us what it will sell for today [unintelligible [00:06:56].12] what it’ll sell for in the market conditions in 30 days, and what the possible repairs will be to take it to an ARV model.
We never consider ARV, however, we’re wanting that BPO. From there, we get a home inspection, that home inspector is gonna tell us what’s wrong with the property, and that just justifies what the seller has told us or – or does it? One or the other… And then from there we’re gonna get a full-fledged appraisal form an appraiser in the marketplace, and then ultimately we’re gonna get a preliminary title report that shows us who the seller is, and making sure that the person that signed our contract can actually sell us the property.
It costs me about $1,000, and I can get that done in a week. So within a week of contract, I can now determine if in fact I wanna move forward and buy the house. The moment I buy the house, then I’m gonna start marketing the house… It’s a good plan, and I like it, because let’s face it, I’m buying a house at 65 cents on the dollar. A realtor in each of these markets, they’re working for 6%. So I’m gonna let them work for 6% and let me work for 35%, and I know 35% is better than 6%, and they’re gonna be my boot on the ground; I rely upon them greatly. I don’t get emotionally involved in determining value, because we’re all systemized. And it’s kind of a cool approach.
Now, with that – I keep saying systemized. That’s the big part of it. I’m a big fan that if you have a good system, the system should be better than the person utilizing the system. So we’re not looking for superstar folks, we’re looking for superstar systems, and it just works for us.
Joe Fairless: You said 65% loan-to-value, right?
Michael Quarles: I’m sorry, 65% of as is value.
Joe Fairless: Of as is value… So you’re really working for 29%, not 35%, right?
Michael Quarles: Right, because I’m gonna subtract 8,25%, because that’s what my costs are from the realtor fees and the double-close fees, so I’m gonna have two title policies, two escrow or closing fees, two transfer taxes, typically… Those kinds of things. And that’s 8,25% of the 35%, so now–
Joe Fairless: 26,5%.
Michael Quarles: And I don’t mind that. If anybody wants to argue that point, I can argue it, but it’s a great number to me.
Joe Fairless: A couple follow-up questions… You said Alex answers the phone and asks questions, and then they either follow-up or they pass them along to Ryan, who negotiates for cash or moderate terms. If you need to do advanced terms, then they go to an angel… What are moderate terms versus advanced terms?
Michael Quarles: As an example, moderate terms might be a Subject to. Let’s assume for a second I’m buying $100,000 value piece of property for $65,000. I have a $50,000 underlying mortgage that I’ll take Sub to, and I’ll give the seller $15,000.
An advanced terms would be mixing seller financing, Sub to financing… Maybe instead of a seller carryback we’ll do a wrap, and that’s a little bit advanced for a Ryan. Not advanced for us, but it’s an advanced for a Ryan, so the Angel gets involved.
As an example, to kind of put this in physical terms, the script for the Alex is 16 pages long, because every time the Alex asks a question, depending upon the answer, they have to now go with that answer, so they have a series of questions based upon that answer.
The Ryan script is 23 pages long. The Angle’s script is a book; it’s many, many pages, because every possibility has another possibility. If I’m gathering seller financing on [unintelligible [00:10:27].23] on a 15-year note, a Ryan is not going to do that. When you look at substitution of collateral, when you’re looking at first right to purchase the loan if they indeed sell the loan to an underlying market – when you look at some of those terms, the angels are gonna get involved in those terms.
Really, we’d never wanna do a subordinated deed unless you’re going to fix and flip it or you see something that they have to rectify prior to sell. But in our model, we rarely, if ever, do anything to the property. The most we’ll do is trash out; most of the time we’re not doing that. So we’re buying it as is and selling it as is.
Joe Fairless: With the Angel team members, my initial thought is having a whole book as your go-to reference guide is going to, obviously, educate them and give them some competitive advantages if they were to go and do this theirself… So my question is do you have a higher degree of turnover with the Angels compared to the Alexes and the Ryans?
Michael Quarles: No, because the Alexes start from a temp serv.
Joe Fairless: What’s tip serve?
Michael Quarles: Temp serv, like a temporary —
Joe Fairless: Oh, temp serv. I thought you said tip. Temp service. Got it.
Michael Quarles: So they’re gonna work for us for 767 hours (I think) as an employee of somebody else, and when they’re done with that, we’ll graduate them onto our payroll. Our Ryans are born out of our Alexes, and our Angels are born out of our Ryans. However, to answer your question, keep in mind, these are young adults who never wanted to be a real estate investor. They’re not entrepreneurial-minded. They’re your average individual out there who wants to put widgets in order, or stock shelves, or whatever the mundane thing in life that some people enjoy doing, that’s their mindset. So they’re very happy at what they’re doing; they don’t wanna go out there and be an investor.
I invite every one of my co-workers to be an investor in my marketplace. Some of them take me up on it, some of them choose no, they don’t wanna do that. I’m fine either way. I believe in an abundance and prosperity mindset, so I can’t lose what I don’t have, and all I can do is help someone gain what they don’t have.
Joe Fairless: What’s the compensation range for each of those three positions?
Michael Quarles: None of them are working over $16/hour. However, on each transaction, they get a different split of the transaction. Where an Alex may get $50 for a closing on a set appointment, an Angel might get $1,000 on that closing of that contract, if that makes any sense. And then the Ryan is in the middle of that.
But then I also share with my transaction coordinators and my lead negotiators that are helping with this workflow. In fact, my share is less than 50%, so I share the majority of the deal with my co-workers, because I believe in that, and I believe if you pay your folks well, they’ll stay, and then if you pay them well enough, then they can buy a house, and they can really enjoy the benefit of being in the real estate business, which, like I said, some of them take me up on it.
Joe Fairless: Are they remote employees?
Michael Quarles: No, they’re all here. So I get to say hello… I bought 26 McDonald’s sandwiches for breakfast this morning, and I gave each one of them one. I like it, I shake their hand, I ask them how they’re doing… We have an environment here at my office. We have about 7,000 square feet… We’re just a big family. There’s a room that has a TV, a room that has a pool table in it, a room where they can play Atari, they have a full kitchen…
Joe Fairless: You’ve got Atari?
Michael Quarles: I guess. I don’t do it.
Joe Fairless: It might not be Atari. Maybe it’s a Playstation. [laughs]
Michael Quarles: They go in there and they sit there and they play these guitars, and it shows on the widescreen… I have no clue what they’re doing.
Joe Fairless: Okay. [laughs]
Michael Quarles: I think that you have to appreciate folks that you work with. I never like being considered the boss. I hate that word; to me it’s a slave term. I never want anybody to believe that they’re that. So we just get along, we have fun.
Is it for everybody? No. We find that an Alex — as soon as an Alex starts trying to figure a better way to do it, they’re no longer an Alex. They can’t be an Alex anymore. Because we’re not looking to change something that’s working really great.
Now, with all that said, again, it’s system-driven. As an example, when my phone rings, for an Alex, it knows who’s calling them… Our phones are built into our CRM, so our CRM pops up as soon as that phone rings; they can hit the correct for that they need to start filling out based upon the type of call that’s coming in, and it’s seamless. All of the communication, be it telephone, e-mail, texting, web forms – any of the communication we have with our prospect is seamless inside of our CRM, so we never lose data… And then it’s all campaign-driven. As an example, when an Alex answers the phone and they go to the Alex script, and they don’t make an appointment for the Ryan, as they close out of that call, it will initiate a series of campaign items. One will be an e-mail back to that seller, one will be a text, and one will be a call follow-up. We send 29 e-mails, we sent five texts, and we called them on 3,5, 7, 10, 15, 30, 60 and 90 as follow-ups, and our system drives all of that stuff.
It’s all calendar-based, so if a call doesn’t come in, they have a call to make out… Because we know that we make seven calls for every inbound phone call on average. The system works great.
One of the things I like about it, and it took us quite a few years to put it together, is I can take someone that doesn’t know anything about answering a real estate phone, and in four hours train them to follow a script. So if my workload gets heavy, I just call my temp serv, and tomorrow I’ll have a person that sits in that chair, and I like that. Then if I go to a new market, I can turn that marketing on, so I can turn my direct mail on. If I go to Florida, I can turn pay-per-click on; I’m in California, so I can market all over the United States and have a pretty good water faucet business.
Joe Fairless: How do you do that four-hour training to get them up and running that quickly.
Michael Quarles: They mirror — so they sit in a chair with a trainer, and they’re both on the phone. The trainer starts the first hour, shows them a system, but then they start listening to the trainer answer the Alex calls… And slowly that trainer starts letting them take the call, and now the trainer is listening to the calls that are coming in. Basically, we have two operators on the same call. The prospect doesn’t know there’s two operators on the same call, but that’s our learning curve where we can talk to the ear of a new Alex without the seller hearing that communication going on… So if an Alex asks the question the wrong way, the trainer can say “This is how you ask that question next time” kind of thing.
Then everything is recorded, and I’m a big believer in our business model today where consumers are okay with being recorded. We play “This call is being recorded” on outbound and inbound calls; everything’s recorded, we use that for training purposes and for reward purposes. As many times as we have to use them for training, we can use them for a reward, because they did a great job.
Joe Fairless: With the comment you made about “if Alex is looking for a better way to do things, they’re not an Alex” – does that mean that they’re now a Ryan, or does that mean they’re out the door, not getting any McDonald’s sandwiches in the morning?
Michael Quarles: Right, they’re out the door. One of the biggest issues that real estate investors have is they try to do it the way they think it should be done. Here’s the analogy – you have a Formula 1 race car; you take the right front tire off of that and you put it on a stock car. Then you have a big truck – you know one of those big trucks that smash stuff at the [unintelligible [00:18:21].02] you take the left front tire and you put it on that race car. Then you take a motocross tire and you put it on one of the back-tires.
Joe Fairless: [laughs]
Michael Quarles: That car is not gonna go down the road, right?
Joe Fairless: Right.
Michael Quarles: Well, when someone starts trying to manipulate the systems, we know that their mind, as good as it is – they might make a great entrepreneur, but we’re not looking for great entrepreneurs in the Alex role. We’re looking for a person that enjoys putting the widgets in a row, whatever it is the task that they have to do… Whatever it is, that they enjoy that. We need those people.
Joe Fairless: With your company, I believe you have a complementary company that ties into this. Is that correct?
Michael Quarles: Yeah. For the longest time we used to use a texting service for all of our texts. One of our marketing media’s types is shortcode, so we used a texting company. We use e-mails, and we use a phone, naturally. We use a CRM… And those were all separate types. So we had to parse all the data together, or use other programs to put it together, and sometimes just manually put it together.
Well, we created Call Text, and with Call Text it is a CRM that inside of that CRM has a phone service, a texting platform, an e-mail platform, all of the web forms, all of the scheduling forms… Anything you need to do to manage a business, it’s all-inclusive, so now when we look at a history with a prospect, we don’t lose data; we know exactly how long it takes from the time a seller calls, to the time on average we’ll get a contract, or how many communication pieces we’ll have to have with that person… Where in the old days we were fighting technology.
We spent about three years solving for it, and people can utilize Call Text, it’s out there; it’s $19/month. For us, it works great, because again, it manages the transaction. When the Alex hits the form when a call comes in, to ask and answer all those questions, it just pops up. We don’t have to do anything, it’s all inside, embedded in the system, and we can buy a lot of houses this way.
The worse thing that we can do is real estate investors or any business owner type out there is write something down and not remember where we wrote it. We’ll write something down and forget about it; we’ll write something down and not remember why we wrote it down… Because the cost of having that phone ring in the first place — everybody should know the cost to that phone ringing, and everybody should know the value of that phone ringing. So there’s a cost and a benefit.
So if it costs $200 to get the phone to ring, but you make $4,000, you would wanna spend $200 as many times as you can. When you spent it, you’d wanna make sure that you captured it correctly, and you did something with those leads that is appropriate, so we developed Call Text.
Joe Fairless: What’s the challenge that you’ve come across with developing a company like Call Text?
Michael Quarles: The hardest part, because it wasn’t out in the world — there were CRMs and there were telephone companies and there were e-mail companies and texting companies, but no one had put it all together… So the biggest challenge was to figure out how you could put it all together. Because a phone works differently than an e-mail, and a text platform works differently than a phone company, even though they’re similar. And of course, then CRMs, and then inside of your CRM, what do you need your CRM to do?
As an example, I use my Call Text to schedule appointments that people wanna talk to me, they can go and use my exterior to schedule a time to say “Hello, Mike.” I use it for all the web forms, so if you go to the website and you wanna sell your house, you can fill out a form. If you go to the website and you don’t wanna fill out a form, you don’t wanna pick up your telephone and call us, you can go and do website chat; we all now chat nowadays, where you wanna know more information about the product you’re looking at, you can just hit the button that says Help, and now talk to someone live.
I’ve bought two houses this year because of chat. I would never think that chat would buy a house, but we have to have the communication style the prospect is wanting to use. That’s our job.
As an example, our shortcode is 818181, so if you text “house” to 818181, you’ll instantly get back a thank-you text on your cell phone. I have now captured your information, because you opted in. You’re gonna get another text that sends you to a web form, you’re gonna fill it out and say “This is the address and this is my contact information.” Once you do that, now you’re in the series of touching you back with e-mails and texts and phone calls… And I have yet to touch you as a human being during that process. Well, we just have to utilize those things because we know that if you go anywhere, most people are using their phone to text, they’re not using their phone for phone. We have to have that ability as well, so we just built it all in.
Joe Fairless: Anything else as it relates to creating a company and creating systems that we haven’t discussed that you think we should, in the last couple of minutes?
Michael Quarles: Yeah, the biggest part of systems is to realize every system creates another need, for another system. All system-oriented businesses have to have someone in systems, because it’s the hardest part about a business, is knowing what an employee should be doing when this or that happens. As you start building your systems, you start someplace and then you back up because you realize “Well, there needed to be a system before I started this system”, and there’s going to be a system after it… So it’s all system-oriented.
Read the book The E Myth. It’s a great book to get you started on the mind frame of systemization. They have some E Myth masteries, and those kinds of things; there’s some programs that you can go through to learn systemization.
The reality is a system is a check and a balance, and you have to write a system in a way that anybody you wanted to that sit in a desk could follow it without knowing where they’re going to. That’s the system. If it takes a personal intuitiveness to know what they’re doing, that’s the wrong system. The system has to answer all of the questions for the person, and once you have that system in place, then your business can multiply, it can have exponential growth. The truest type of passive income is exponential growth, and although I’m not a passive income earner, I have passive earning businesses because I’m a massive earner, and I can predict my result through the systemization. Without Call Text I couldn’t have done it.
Joe Fairless: You decide to walk away from your business as soon as our interview is over, and you never step foot back in the door of your company – how long does your company run without you?
Michael Quarles: Well, it’s always the ego involved in that question? My ego is gonna say “Tomorrow I’ll have to come back.” The reality is if I stop the ego issue, it should run as it should run, meaning as long as there’s a person managing the system, it’s gonna run forever. It’s the truest type of business, and I haven’t talked to a seller in years. I get reports – I think there’s 12 questions you should get a day, kind of thing – about what we did today, but I’m not involved in doing it today. My goal in my life today is to help the person that I haven’t yet met. That’s what I get excited about, and knowing that I have people that are following procedures allowed me to do that. It’s a great thing.
Joe Fairless: How can the Best Ever listeners learn more about what you’ve got going on?
Michael Quarles: MichaelQuarles.com kind of tells my story, and then it shows all the companies that we have. I’m pretty open. If anybody has a question, they can always reach out. We had a short period of time to talk about 35 years or so of — so there’s a lot to it, that I would hope that everybody wants to push themselves to doing things on purpose. Last thing if I could before we ran out of time…
Joe Fairless: Please.
Michael Quarles: There was a change that happened this last year, and I always try to share this change in life. This last year I’ve decided to stop using four words: want, hope, need, wish… And replace them with the word “require”, because I think a lot of people that wanna become successful get rid of the J.O.B. – they hope they can, they wish they could, they want to, they need to, but they don’t necessarily require it. And when we start requiring action, then success happens. So if people could change their mind frame and just say “I’m gonna get out of the bed today and I’m not gonna HOPE I got to the gym, I’m not gonna HOPE I cold-call for two hours, I’m not gonna WISH I could go out there and meet 20 people that I don’t know, I’m gonna REQUIRE that I do these things”, and success will come a lot faster.
Joe Fairless: Yes, I’ve heard it phrased similarly, where if we hope for something, just thinking about and feel the feelings that we feel when we hope for something, versus when we expect something to happen. It’s just a different feeling, a different mindset, and…
Michael Quarles: There’s a lot of fear when you hope something will happen.
Joe Fairless: Yeah, little butterflies in your stomach, that sort of thing. But when you expect it, it’s like “Alright, let’s make this happen. I will make this happen.” It reminds me of shoulds versus musts. Tony Robbins talks about that – what are you shoulds? Is it a should or is it a must?
Michael Quarles: Yeah, it’s a different mind frame. People wouldn’t be listening to you if they didn’t wanna become super-successful and [unintelligible [00:27:31].17] They just wouldn’t spend the time trying to change their mind frame. It’s a little exercise that’s easy to change… Although, as Tony Robbins said, until the pain of changing is exceeded by the pain of not changing, one won’t change.
Joe Fairless: Right.
Michael Quarles: So it has to hurt, but it has to hurt more if we don’t.
Joe Fairless: Yup, absolutely. Well, thank you so much for being on the show. Very practical advice, as well as you went conceptual, too — which is practical, but it’s also good to work on our mindset… But from a nuts and bolts standpoint, I love the details that you got into, with the Alex, the Ryans and the Angels on your team, how you structure the training for them, how you compensate them, how you structure your company and how it flows from one to another, and then the way you have a complementary business too that you launched because you saw a need.
Thanks for being on the show. I hope you have a Best Ever day, and we’ll talk to you soon.
Michael Quarles: Thank you so much.