JF945: How to Make Real Estate Your Business Instead of a Hobby
Turn it up a notch! OK we’re not cooking anything in the kitchen, but we are about to cook up some recipes for success in real estate. From flipping, to meet up, to networking, it’s all necessary to be well-rounded and self-reliant. Hear what our two guests have to say about getting started in taking the business to another level.
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Bill Bronchick & Bobby Dahlstrom Real Estate Background:
– Co-founder of the Colorado Association of Real Estate Investors
– Nationally known attorney, author and public speaker
– Say hi at email@example.com
– Founding board member of the Colorado Association of Real Estate Investors, leader of Northwest group
– Well-known investor, entrepreneur and real estate broker
– Based in Denver, Colorado
– Say hi to them at www.legalwiz.com and www.alpenlux.com
– Best Ever Book: Think and Grow Rich
Click here for a summary of Bill and Bobby’s Best Ever advice: http://bit.ly/2oK1srY
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Joe Fairless: Best Ever listeners, 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 fluffy stuff.
With us today, Bill Bronchick and Bobby Dahlstrom. How are you two doing?
Bobby Dahlstrom: Great, thank you.
Bill Bronchick: Doing great, thank you.
Joe Fairless: You’re welcome, both of you, and nice to have you both on this show. I’m really looking forward to digging in. They are based in Denver, Colorado. They are co-business partners in real estate deals, they co-authored a book called “The Business of Flipping Flips” – did I write that down correctly?
Bobby Dahlstrom: The Business of Flipping Homes, Joe.
Joe Fairless: [laughs] I don’t know how I wrote that… You know, I do like “The Business of Flipping Flips”, though… That’s pretty catchy. “The Business of Flipping Homes” – they co-authored that book. With that being said, do you two wanna give the Best Ever listeners a little bit more about your background and what you’re focused on?
Bobby Dahlstrom: Wow, that’s a long silence. I hope we didn’t lose Bill. I will start in… This is Bobby, and I started investing full-time — I’d been a marketing consultant and started investing in real estate full-time back in the mid-nineties. Bill and I met each other and did several projects together, and were involved with the group that he founded, called The Colorado Association Of Real Estate Investors.
Over the years I’ve done hundreds of flips and had many joint ventures with Bill, and we also wrote another book around 2001 that was a best-seller, called Flipping Properties.
Bill Bronchick: Great. This is Bill Bronchick. I’ve been investing since 1992, I’ve been practicing law as a real estate attorney since 1990. I quickly figure out after about two years of practicing law that it doesn’t matter how much you make an hour, it’s how much you make an hour when you’re not working, so I got quickly into real estate and my client’s deals, and I soon discovered that the law of practice pays the bills, but you get rich in real estate.
I did a lot of deals pretty much full-time since 1992, weaving in and out of my law practice and the association in Colorado. I’ve done just about every type of deal you can imagine – residential, commercial, flips, wholesales, lease options… Just about every type of deal, but Bobby and I fell into a nice little niche together flipping homes, and we wrote the best-seller in 2001 called Flipping Homes. Our brand new book is “The Business of Flipping Homes”, which is a business approach to the real estate strategies.
Joe Fairless: Well, let’s talk about a business approach to the real estate strategies of flipping homes. Walk us through the premise of the book.
Bill Bronchick: The premise of the book basically is using certain real estate techniques to run a business. A lot of people do it as a hobby or a part-time thing, or really haphazardly… Real estate investing, in my mind, is not like stock market investing – you don’t throw money at it and wait for something to happen; you have to be active as a participant. And it’s like any small business, you have to worry about things like cash flow, marketing, keeping your books and records, and so forth. So what we do is we give a blueprint on how to run your investing like a business.
Joe Fairless: Let’s talk about that. What are some ways to run your real estate business like an actual business, and not a hobby?
Bobby Dahlstrom: One of the first things that people need to do is realize it’s gonna be a time commitment. There’s a lot to learn, and you need to surround yourself with other successful people and build a team that you trust, that you can work with on a repeat basis. That’s kind of the basic place to start. Then you have to go out and start looking for your first deal.
Many people get lost in trying to find the perfect deal, which probably doesn’t exist. You need to find one that makes sense, go with that, learn from your mistakes, which hopefully we will help you to avoid, and then move on to the next one, as you grow.
Bill Bronchick: Also, one of the most important things in a business I mentioned earlier is cash flow. You have to make sure that you have enough money to not only run your business on a daily basis, but to fund the deals you’re working on and don’t get all your money tied up to the point where everything is hanging on a couple of deals, and if they don’t go through you’re broke. It’s like any business, you have to anticipate your expenses and your cash flow needs.
Joe Fairless: And with flipping, how do you look at cash flow?
Bill Bronchick: We talk about two types of flipping in the book – wholesaling and retailing, retailing being the traditional stuff you see on TV, buy, fix and flip… Wholesaling being more of a short-term deal and selling it to another investor as is.
Wholesaling will bring you short-term income, and the fix and flipping will be every three or four months, but you have to be able to anticipate your projects. For example, if you’re in the middle of two fix and flips and they went over budget and you’re feeding it and feeding it, and all of a sudden you have to pay other expenses of your business, like your phone in your office and all the things like that, you have to make sure that you have enough cash on hand so you don’t run out of cash for your deals.
Joe Fairless: Earlier I heard that you want to avoid the mistakes… What mistakes have you two come across, either personally or through the investors you know that you wanna share, so that the Best Ever listeners listening can avoid those mistakes?
Bobby Dahlstrom: To continue on our train of thought sort of along the lines of cash flow, let’s talk about cash flow mistakes. There’s various ways to control a property and then purchase a property. If you’re going out and getting a new loan for it and it’s gonna be a flip, most likely what you’re doing is because flipping’s become so popular, [unintelligible [00:07:38].23] money that would be considered hard money loans. And those can make sense, you can get in and out quickly. But a lot of times these hard money loans have a little upfront cost, as you’d expect; they also have, however, a high interest rate, and usually a balloon payment in six months or so. So you wanna be realistic… Most flips that we do, we get it from purchase to ready to sell in, say, three to six weeks, so even with the hard money loan, that would work out.
If for some reason you’re planning to do an addition, or something, or you don’t have a crew and a seasoned, experienced contractor that can get the work done quickly, and you think it possibly might take longer than that – and it’s really not just when you finish, but when you get is sold – then especially be careful, be aware that that balloon payment is coming, and the carrying cost is much higher than what you might expect for just your traditional home payment.
Now, ideally, you’d be able to fund the deal with your own either savings, or you might have some money tied up in a retirement account to utilize – which is a whole different strategy; that’s a little more advanced – but also just your own lines of credit. Even though they have less upfront expense, they are probably gonna make sense… It just depends on your state of mind, if you’re comfortable using your own credit line in this business.
I think sometimes people don’t realize how long it’s gonna take and they get their money tied up… And like Bill mentioned, if you’re trying to juggle more than one deal, it gets complicated because you’re having to get your resources, including yourself, to two different places. It’s usually better, like in most things, to start slowly, one deal at a time.
Bill Bronchick: Right. And just to add to that, a lot of people do get hard money loans for their fix and flips, and they don’t realize that, let’s say they have a six months loan – after six months, the interest rate goes into default, which means it might step from 12% to 20%. Then all of a sudden it’s racking up at 20% while you’re trying to get your closing done on the backend, and all of a sudden your profit is eaten up to be nothing or even negative.
But even though it only takes a couple of months to get a rehab done and ready for resale, you could have delays, you could have contractor problems, you could have weather, you could have more often than not a buyer that says, “Yeah, I’ll buy” and then a month-and-a-half later, right before closing, they can’t buy, so then you have to put it up and get another buyer.
The six months may seem like a long time, but what I recommend people do is make sure if you’re got a loan that’s due in six months, you have the right to buy an extra two or three months, otherwise you’re either getting hit at the default rate of interest, or potentially foreclosure by the lender and you’re gonna lose the house.
Joe Fairless: Earlier you’d mentioned building a team you trust… What team members need to be on this team for fix and flippers?
Bill Bronchick: Us two. [laughter] An attorney, a contractor, a real estate broker, a title or Escrow company rep, a good insurance person, an accountant, an inspector… Just all the players — and it’s not like you have to have every one of them lined up before you make your first offer, but that’s one of the things you wanna do right up front, start getting your things lined up so that you don’t end up having some bad experience because you’re just rushing to get something done with someone.
Joe Fairless: What are the best ways to meet the attorney, the contractor, the real estate broker, the title company person, the insurance person, the accountant and the inspector?
Bill Bronchick: Local real estate investment groups is one good way, ask for referrals.
Bobby Dahlstrom: That’s where I was gonna start, too. Almost every city has some type of a real estate organization that’s sort of a creative thinking, like-minded people type get-together scenario, they’ll meet monthly. You can find those online, and sometimes going to some of the seminars, whether they’re free seminars or a paid weekend event like I believe we have coming up – those kinds of things are a great place to meet other people and just get a sense of what this flipping is all about. Then also, as you read and learn more about the different people that you’re gonna need in your group, when you speak to, say, a real estate broker – and I’m a broker, I’m also a contractor…We don’t all think alike and we don’t all have the same experience. It’s not that difficult to become a real estate agent. So you wanna start looking for the ones that have worked with investors and ideally own investment properties themselves, so they understand what you’re trying to accomplish.
Bill Bronchick: Meetups are also a good place to find groups. If you go to meetup.com, there’s dozens in your town.
Joe Fairless: What are some lessons learned as far as creating a real estate group or meetup? Because Bill, I know you are the co-founder of The Colorado Association Of Real Estate Investors and you did that in the late ’90s, I think you said… Or early 2000s? Mid-nineties, and you’re still active. What are some tips that you have for someone who wants to do something like that?
Bill Bronchick: Well, you’ve got to be able to have an organized organization that’s gonna help… Maybe get some volunteers in the beginning, so you don’t have to spend money on employees. Some of these groups are run like a board, like government, and they have a board. Mine was run as a benevolent dictatorship, and therefore was much more efficient, just having one person or two people be the point people to run everything and make the decisions.
You’re gonna have to build an e-mail list, you’re gonna have to find some place that’s fairly reasonable, but reputable, to have your meetings, and most importantly, you just gotta make it interesting with the topics. A lot of these groups have speakers who come in and sell things – sell seminars, books and CDs… Which is okay, but if they have that every month, you’re not getting a lot of information.
Joe Fairless: One other follow-up question — I know I’m kind of going back in a kind of scattered approach, but I was taking notes as you two were talking, and I wanna make sure we address all these items. You mentioned earlier, Bobby, that there will be a time commitment; that’s the first thing that you said. For someone looking to get started and going full-time, what type of time commitment should they expect?
Bobby Dahlstrom: Well, I think as a minimum you’re probably looking around ten hours a week. In our previous book we spent more effort of gave more emphasis on the idea of wholesaling, which basically you don’t necessarily need any money to do. If you go out and identify a property that’s a good deal, then with a little effort you’re gonna find someone who will definitely take that off of your hands. So the idea as a wholesaler is you spend your time looking for bargains, and you’re probably not gonna find it by just having your real estate broker go out and look for you. That is one way to identify deals, but usually it’s really pounding the pavement and being creative… But it’s hard work, so that’s gonna take some time to go out and find that deal, and then you need to secure it.
If you’re starting kind of skipping that step and you’re willing to work with people that have already found wholesale deals, or with real estate brokers, or buy foreclosures at the trustee sales, those kinds of things, then in some ways it takes less time to find a deal, that’s true, but then you still have to manage the actual process of getting it from under contract to closed, to then fixing it up and then selling it.
To really be successful, you need to spend time on your education along the way, too. So again, even if you’re not wholesaling, and you just skip that step and you’ve got the money to do your own deals, it’s still gonna probably be, let’s say – and this isn’t a rule of thumb I’ve set in the past, but Bill, you can chime in – ten hours or so a week would be a good place to start. If you have more time… We see a lot of people get into flipping that have the money tied up in the stock market, and maybe they’re empty nesters… They still have another career – we don’t advise people to go and just leave their existing career, but maybe in addition to that, or if they’re sort of semi-retired, they can work their way into the investing at their own pace, if you will.
Bill Bronchick: Just to add to that, I would agree, ten hours a week is a good place to start. I think the approach that people need to have is that after they come home from five o’clock from their regular job, it’s time to go do the second job. Like I said, treat it like a business. You’re setting aside two or three hours a day, and that’s just your second job for a while, and you’re gonna have to get your family and friends to understand that and accept that. At some point, maybe when you get up to 15 or 20 hours a week, you’re gonna have to decide which job is more important. If you’re doing it right, the job that’s more important is gonna be the real estate, because it’s gonna make a lot more money.
Joe Fairless: Alright you two, what is your best real estate investing advice ever?
Bill Bronchick: My best real estate investing advice ever… My knee-jerk reaction would be “make a lot of offers.”
Joe Fairless: Why is that?
Bill Bronchick: Well, I think too many people dance around it, they look at it, they research it, and then they haven’t even made an offer yet. You can’t buy a property from a seller in a good deal until you find out what the seller’s problem is. You gotta sit down with them and get personal and get them to open up, and go “What’s the real reason you’re selling?” Not because you wanna sell the house, but there’s some problem attached to that that you need to find and get to the bottom of, and then solve that problem and buy the house; if you solve their problem, you make money.
It’s not always price they’re looking for. It might be speed – closing quickly, it might be closing later, it might be terms… You just don’t know. So make lots of offers, but don’t make an offer blind, without knowing what the seller’s needs are – their personal needs, not the property needs.
Joe Fairless: I love that.
Bobby Dahlstrom: Yeah, I agree. I would say — we’re not inventing this one, so I’m not gonna count this as my best advice, but what really does matter is you have to buy it right; you just can’t overpay for a property… So where my advice might come in from there is don’t take things personally. People get really attached to one potential deal, and they try and make it work; they go backwards and forwards and try and make it work, and get all these other people involved, when maybe it’s just not a deal. Or maybe it will be a deal in a year, so you can always leave a verbal offer with the potential seller in a respectful way, maybe they’ll come back to you. That comes back to really making more offers.
People get really caught up also in the renovations, so they start doing things the way they would want to do it for their own house. If I happen to like light blue interiors for my house – which I don’t – that would be fine, but I don’t wanna use that in a flip. We wanna be a little creative, get most bang for the buck – that’s part of the fun of the business – but don’t try and project your personal case and your personal opinions too strongly into each deal.
Joe Fairless: I love that. Are you two ready for the Best Ever Lightning Round?
Bill Bronchick: Go for it!
Bobby Dahlstrom: Sure!
Joe Fairless: Alright, sounds good. First though, a quick word from our Best Ever partners.
Joe Fairless: Best ever book you’ve read?
Bill Bronchick: Think and Grow Rich.
Joe Fairless: Best Ever deal you’ve done?
Bill Bronchick: Oh, there’s so many…
Bobby Dahlstrom: Bill and I were partners on a duplex in Washington Park which went against the grain of some of our typical deals. It worked our really well, we bought half a duplex.
Joe Fairless: You bought half a duplex…
Bill Bronchick: Right, we bought half a duplex for a 100k, put 80k into it, sold it for 263k in eight days, cash.
Joe Fairless: How did you find the buyer?
Bill Bronchick: The buyer was easy, because it’s Washington Park, the most desirable neighborhood in Denver… So that wasn’t hard. We put it on the MLS and we had it sold in a minute.
We found the seller’s property was vacant for eight years, and it was a disaster. 1,200 square-foot, half a duplex, we put 80k in it – that’s a lot of work for a little half a duplex.
Bobby Dahlstrom: That’s right. We purchased it from another investor who… Really, they were new, and it would have been a little too much for them to take on. As I recall, Bill felt bad a little bit that we made so much and he paid for a vacation for her, in addition to the money we had already agreed upon for the purchase.
Joe Fairless: Nice.
Bill Bronchick: Yeah, that was good. And just one other thing I just wanted to mention with that deal… This deal in particular – it was a wholesale from another investor to us, and then we sold it retail, so it was kind of back-to-back. It was half a duplex, so there was another side to it, and the other side looked terrible… So we had to actually fix up both sides in front, so it matched, otherwise it would have looked like the monsters with [unintelligible [00:20:30].02], one half good and one half bad. [laughter]
Joe Fairless: And did you have to get their approval to do that? Because I imagine they didn’t pay for those renovations… You just paid for it to help your investment.
Bobby Dahlstrom: We’ve done that in the past, as well… We kind of encouraged the neighbor, with their houses dilapidated, and said “Look, we’ll do a little renovation while we’re here, just to help you out, too. It’s win/win.” An awkward conversation, and then after that, it usually goes just fine.
Joe Fairless: What is the biggest mistake you have made on a deal?
Bobby Dahlstrom: Well, if I stick with deals with Bill, it might be the time that he verbally told me we had one ready to go, and I got a crew in there over the weekend and then found out that we actually didn’t have the deal signed. We had already done all kinds of demolition and emptied the place out, took out some [unintelligible [00:21:19].16] walls, that kind of thing. But it worked out… We luckily didn’t lose anything too valuable of the owner’s, and we worked it out.
Bill Bronchick: If we’re talking about the one in Baker district, my biggest mistake was selling it to Bobby for a quick 10k cash, and then he fixed it up and made the lion’s share of profit. I was greedy. I was looking for a new car and he flashed cash in my face, so I sold it in two days after I had it, to Bob.
Bobby Dahlstrom: Oh, that’s right.
Joe Fairless: What is the best place the Best Ever listeners can get in touch with you two?
Bill Bronchick: The best way to get me is my website, legalwhiz.com. Bob…?
Bobby Dahlstrom: You can send me an e-mail, Bobby@alpenlux.com, or go to my website, alpenlux.com.
Joe Fairless: Alright, Bobby and Bill, this has been an educational conversation. Thank you for being on the show, thank you for talking about the best ever advice that you have, which is to make a lot of offers – don’t dance around the property, just make offers. I loved the “solve the problem” – I think that really resonates with me even more… Identify what the seller’s problem is and solve that problem, because we are dealing with people, we’re not dealing with properties. We’re in the people business.
And Bobby… I think I have your voices down, by the way, at this point, but correct me if I’m wrong – I believe you said, Bobby, “Don’t project our personal taste into the deal”. I love that. That is a mistake that I have heard a lot of beginning flippers make. Then lastly, when you two mentioned paying to renovate the outside of your neighbor’s property – in this case it was a duplex; in other cases it might be just your neighbor, if it looks really bad… It’s a win/win – that certainly is a win/win/win: you win, they win, and the neighbors all win. Everyone wins, all the way around. Really interesting stuff.
Thank you two for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Bill Bronchick: Great, thank you.
Bobby Dahlstrom: Alright Joe, you have a great day! Thanks.