JF994: Investing with Your Mastermind Network, Leveraging REALTORS, and a Road Trip with Contractors
Those mastermind events are extremely valuable, so you better start attending! Our guest was able to find investors for his projects through masterminding! Hear about how he leverages realtors and other real estate professionals, and yes, he took his contractors on a road trip.
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Kevin Carroll Real Estate Background:
– Kevin and his team have sold 1000 units, and flipped almost 100 homes
– Specializes in REO and investment properties with nine years of real estate business experience
– Recently released his new book “A Journey To Financial Independence”
– Based in Boise, Idaho
– Say hi to him at http://idahoriverrealty.com
– Best Ever Book: Rich Dad, Poor Dad
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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 fluff.
With us today, Kevin Carroll. How are you doing, Kevin?
Kevin Carroll: I’m doing outstanding.
Joe Fairless: Nice to have you on the show, and looking forward to diving in. Kevin specializes in REO and investment properties, with nine years of real estate business experience. He recently released his new book, “A Journey To Financial Independence”, and he and his team have sold 1,000 units and almost flipped 100 homes. Based in Boise, Idaho… With that being said, Kevin, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Kevin Carroll: We started out nine years ago selling bank-owned properties, and two years ago we realized that those banks have taught us how to flip houses… So I raised a bunch of cash and reached out to my friends across the country that I knew, and started looking at deals. If anyone wants a copy of my free flip sheet, they can go to AJourneyToFinancialIndependence.com and get my free flip sheet. It’s something I use every day to analyze these flip properties.
So I just kind of started looking around and trying to make a little bit better money, or doing things myself and controlling more of the process. We learned a lot along the way. You can’t do that many properties without having a few fumbles. So we’re learning as we go, and we’re definitely looking for more deals, but we’re being a little more specific. I know what I’m good at, so I’m trying to focus on that, as well.
Joe Fairless: Alright, well you’ve given me a lot to work with. I’ll approach it from a more chronological standpoint, because there are a lot of directions we can take this. You started working with banks, and you said they taught you the flipping process. Can you elaborate?
Kevin Carroll: When a bank gives you a property to list, it usually comes in an e-mail and they say “Here’s an address, go tell us what we have.” So we go to the property. If it’s occupied, we have to find out if it’s a tenant or it’s an owner occupant that got foreclosed on, and ask him to leave, and give him cash for keys sometimes. That means we give him a check for whatever the bank agrees upon, and then they leave the house in broom-clean condition. So they either do or they don’t, and then we get the house and get bids to clean it up and fix it up to a standard that we want, and to say like “If we do these things, we can get this kind of offer, and this is the price we think we should list it for, and this is the route we think we should go” and then we’ll give them repair bids to that effect.
Then the asset manager that works at the bank takes that and creates a marketing strategy based on our advice, and then also they may get a second opinion of value. So then they’re gonna make a marketing plan, and then they want us to implement that plan for them. “Okay, do these repairs, list it at this price, and present the offers back to us.” We’ve done that almost 1,000 times, and when you do it that many times, you have really good subs and contractors. I know exactly how much it costs to fix anything. Then we were able to take that knowledge and say, “Okay, well what if we do it for ourselves, what does that look like?” So that’s what we started to do.
Joe Fairless: Let’s talk about how much it cost to fix anything… What is something that surprisingly is inexpensive, and what’s something that’s surprisingly expensive?
Kevin Carroll: I can answer that a couple different ways. Our typical remodel is about $40,000. In that is kitchens and bathrooms, maybe a roof, maybe an HVAC system, something that makes a huge difference. Some of the banks have a lot of handcuffs where their investors say they can only do a certain amount of things or they can’t spend more than $500 [unintelligible [00:05:52].06] I don’t have any of those handcuffs, so it makes sense to me I’m gonna do it, and I’m able to execute it a lot quicker, because I don’t need to get three bids; I want you to pick your best contractor and use them and get it done fast. So I’ve kind of taken the best parts of what I learned, and then taken out some of the inefficiencies.
Some things that make a huge difference are curb appeal. It might not cost much to paint the front door and put a new lock set on, but it makes a big difference. And some of the more expensive things, we’ve had some water mitigation issues where there was water in the [unintelligible [00:06:24].16] or something like that. That’s kind of a huge unknown. So we’ve had some things like that where I thought it’d be easy to fix, and it would cost $20,000.
Joe Fairless: Ouch!
Kevin Carroll: Things like that, that you didn’t account for along the way.
Joe Fairless: On the water mitigation front, anything that you look for now with homes that would be a red flag?
Kevin Carroll: Yeah, a wet crawl space. [laughter]
Joe Fairless: A bunch of standing water in [unintelligible [00:06:52].17]
Kevin Carroll: Yeah, I mean it was pretty obvious, but it was like “Oh, that’s gonna be easy” and it wasn’t. Sometimes it is, sometimes it isn’t, but stuff like that. Or we had one we had to cancel; it had a cracked foundation and it just wasn’t fixable. So there’s certain areas of the country that are more prone to… Like, Florida has sync holes. I live in Idaho, I’ve never even heard of a sync hole until I started buying houses there, where the house literally caves in upon itself, because there’s a hole in the ground, and like termites and things. So different areas of the country have different challenges, but a house is a house, and they’re all kind of built the same way.
Joe Fairless: Let’s talk about how you have evolved your business. You were initially taking properties that the bank had and listing them, right?
Kevin Carroll: Yeah, and I still do that quite a bit.
Joe Fairless: You still do that, okay. But then you said you were doing that for a while, you learned the process, and then you went out and raised a bunch of cash and started looking for your own deals. How much cash did you raise?
Kevin Carroll: 2.5 million dollars.
Joe Fairless: Okay, you raised 2.5 million… How many people put in the money to make up the 2.5?
Kevin Carroll: Not very many, just a couple of close friends.
Joe Fairless: About how many? Two? Five? Three?
Kevin Carroll: Three.
Joe Fairless: Okay. I guess when I said “About how many?” I meant exactly how many… [laughter] “About how many? Give me a specific number.”
Kevin Carroll: Yeah, and I’ve been doing business with these people for a long time too and they trust me. So that’s half the battle, but then it’s proven you can do it, and then working on becoming more efficient and getting better. And when you start buying stuff for cross-state lines, you have to register your business in these states… It got really complicated really fast. I’m buying properties in eight different states, and there’s accounting stuff, and attorney stuff, and different things that I didn’t even know we had to do until we started to do it… [unintelligible [00:08:43].01] where is this document?”
We’re learning as we go, but when you start doing it at a little bit higher level, you get introduced to new friends and new opportunities, and I’m not afraid now to look at properties. Now I’m looking at a piece of dirt with a couple duplexes that we could put 11 more in Indianapolis right now. I would have never even thought I could do that before, and now I’m just starting to analyze that. So I’m able to look at opportunities in other places and it opened my eyes up to a lot more opportunity.
Joe Fairless: The 2.5 million from three people – on average that’s $833,000 a person that they’re putting in. Not looking for names, obviously, but I am curious – I know the Best Ever listeners are curious, or I think some of them are – how you met these three people? You said you’ve been doing business with them for a long time, but tracing back exactly where you met them – where did you meet each of these three people?
Kevin Carroll: Well, one is my mother and one is my brother, so I’ve known them for a while… [laughter] And then the third lady I’ve known for about seven years. I’m in a networking group with her and she’s seen me grow as a person and she knows my experience, and it’s not a lot of money to her, so it was more of a test, really.
Joe Fairless: What networking group are you in?
Kevin Carroll: I’m in a couple different ones. GoBundance – have you heard of that?
Joe Fairless: I have, yeah. That’s with Pat…
Kevin Carroll: Pat Hiban, yeah.
Joe Fairless: Hiban, thank you.
Kevin Carroll: Yeah, he’s one of the founders of that. Super outstanding group. And then the real estate group is called ERN – Elite Real Estate Network. It’s a pretty tight-knit group of real estate agents that are in non-competing markets that we travel and network together and help each other get business… So it’s a pretty small group of close friends I’ve known for a long time.
Joe Fairless: Which of those groups did this investor who you’ve known for seven years come from?
Kevin Carroll: The Elite Real Estate Network. The GoBundance is an all-guys group.
Joe Fairless: Oh, that’s right, yeah. Dude fest. I remember now. Okay. So you raised the money… How did you structure it? Did you create a fund?
Kevin Carroll: No, it’s just an LLC that I don’t own, but I’m a member. So I’m a 0% owner/member. I have signing rights on those corporations and I have access to bank accounts and stuff like that. So I can encumber and sell properties in those corporations, so I became an authorized agent and a member of them, so I’m able to do that. I had a couple of documents I had to get notarized.
Joe Fairless: If you’re a 0% ownership member, then how do you make money on this?
Kevin Carroll: The way we structure it is say you’re a realtor in Chicago and I do business with you… I look at all my real estate agents as partners, so I don’t think of you as a real estate agent, I think of you as a partner. So we find a deal, we analyze it, we say “Yeah, it’s gonna make money”, so the real estate agent takes the property, and just like I do for banks, they do the same thing for me. They analyze it, coordinate the repairs… So I buy the house in that LLC, and then they coordinate the repairs, finish those, list the house and sell it for free, and then they get 40% of the profit of the deal, I keep 25% and the investor gets 35% for their time.
It enabled me to scale, because I don’t have to make all the small decisions; they do, because they make a large portion of the profit. So I’m not picking out paint colors and making all these little decisions, but when we list it, they say “This is the plan, this is what we execute” and we just move forward. If something needs to be fixed, they fix it; they don’t have to ask me for any small details, because they’ve now become more of a partner in my eyes than just an agent where they’re asking permission for things. It’s more of like, “Hey, what’s gonna make the most sense? Let’s do that.”
Joe Fairless: That’s an interesting structure, thanks for sharing this. How did you come up with that idea?
Kevin Carroll: I just thought of it, I don’t know. I just made it up. Real estate agents that are really good ones don’t get paid enough, in my mind… Especially for doing that much work. So I wanted to make a model that compensated them significantly, so that they start wanting to do more of this. Because a lot of people, if you just make a 3% commission and you have to manage all that work, and the contractors and all that stuff… Just selling a house is fine at 3%, but if you’re managing the renovations and stuff, you should be paid more. That’s what I believe.
Joe Fairless: What’s the last deal that you did?
Kevin Carroll: I’m in a couple right now that are kind of interesting. I bought a non-performing note up in Spokane Valley, Washington from a junk note dealer, and had to foreclose on it… I’ve never done that before. So I became the bank. And then I foreclosed on it, I set the foreclosure price at the auction, nobody bought it, so then I listed it in the MLS – and it’s in a kind of messed up state – for a month and no one bought it, so then I hired a contractor to fix it. He started working on it, and he worked on it for about two months and then stopped. Dude did nothing for two months. [laughter]
So I paid him about $7,000. Too much… But he was working. I gave him money, he did the roof; I gave him money, he did the siding; I gave him money, he fixed the inside. I gave him more money to order the cabinets, and then he just vanished. So I took my crew from here in Boise and we drove up there, we spent seven days there and we fixed the house.
I put it on the market on Friday, got four offers within a day and a half, and now it’s pending. So as I go and I learn, I’m able to kind of adjust, and I’ve got such great contractors here that I’m just so lucky to have them… And I think they feel the same way about me, so I try to keep them as busy as I can and make them as much money as I can. So that one we kind of repaired and fixed, and I’ve had another one like that one with the water damage in Seattle. It had the same problems, and I had to take my guys and we had to go there and fix it.
Joe Fairless: The non-performing note – what city is that in?
Kevin Carroll: Spokane Valley, in Washington. It’s right on the Idaho border.
Joe Fairless: How far away is that from Boise?
Kevin Carroll: It’s a seven-hour drive.
Joe Fairless: How many contractors drove from Boise to Spokane and did this…?
Kevin Carroll: Me and three guys.
Joe Fairless: What were your all-in costs? And when I say that, I mean what did you buy the non-performing note for…?
Kevin Carroll: I bought it for $6,000 and then I got a hard money loan on it… It was supposed to go a lot quicker. A lot of it went sideways, but I had a contractor bid for $40,000 to fix the house, and I think he may have underbid it and that’s why he stopped… But I paid him 16k, and then I spent another 30k fixing it, or something like that…
Joe Fairless: Okay, so all-in a little under 100k?
Kevin Carroll: Yeah, but then there’s some hard money costs and loan fees… These are the ones you learn on, right? It wasn’t connected to the city sewer, and it was supposed to be, so I had to pay a $5,000 fine because it had three years of back-due sewer bills that weren’t paid because it wasn’t connected, so I had to pay someone to connect it to the sewer, and then to pay the $5,000 back-due penalties, and a couple years of back taxes… Some of those things I knew about, and some of those things I didn’t.
Luckily, when they have a surging market, some of those things are forgiven. But we’re gonna do okay… We’re not gonna hit a home run, but we’re gonna get our money back and lick our wounds and go again. You learn from these things, so…
Joe Fairless: What is it under contract for?
Kevin Carroll: We listed it at 130k and we got it a little higher than that, so… [unintelligible [00:16:07].17] That was probably close to our breakeven point when you think about all the numbers and everything like that… But luckily, I was able to save it, get our money back and make a little bit, and make our contractor some money and move on. But every time I learn a little bit, and a lot of it comes down to execution and speed and picking the right subs and contractors. For me now, any time I pay somebody anything, I have someone I know and trust verify they did the work [unintelligible [00:16:34].00] That’s my lesson – verify, then pay.
Joe Fairless: Yeah, that makes sense. What is your best real estate investing advice ever?
Kevin Carroll: I would say look into the real estate space and figure out what you like to do, and then find someone that’s doing it at a high level and study and shadow them and pay whatever cost to get around them and learn from them. That’s your fastest way to succeed, in my opinion. Get some new friends that are doing exactly what you wanna be doing, shadow them, do whatever it takes to get in front of them and learn from them.
Joe Fairless: And you are not just talking the talk, you’re walking the walk, because you’re a member of a couple masterminds, and one of them, The Elite Real Estate Network – one of your big time investors came from that network.
Kevin Carroll: Yeah. And the GoBundance groups, there’s tons of resources there. I’m building a 100-unit rental portfolio in Tampa, Florida right now with another GoBundance guy, so we’ve got lots of fun things happening in our world.
Joe Fairless: Are you ready for the Best Ever Lightning Round?
Kevin Carroll: Sure.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Joe Fairless: Best ever book you read?
Kevin Carroll: Best ever book I read? Rich Dad, Poor Dad.
Joe Fairless: Best ever deal you’ve done?
Kevin Carroll: Double landed a piece of land here in Idaho, made an $80,000 commission check. That was pretty nice.
Joe Fairless: What do you mean “double landed”?
Kevin Carroll: We represented the buyer and the seller.
Joe Fairless: Okay. Best ever way you like to give back?
Kevin Carroll: By writing the book and doing podcasts like this, I really hope to show people, your listeners and people out there that this is an amazing industry that we’re in, and I think that we all have a responsibility to figure out a way to become what I like to call a “one hundred percenter”, so have your passive investments – have them pay more to you every month than you need to live. I wanna teach people how to do that so that they don’t have to work anymore.
Joe Fairless: What’s a mistake that you’ve made, tactically speaking, on a deal that you haven’t mentioned already?
Kevin Carroll: Usually, when we make mistakes we overestimate what we can sell it for; we think we’ll sell it for 200k and it really sells for 180k. And we underestimate what the repairs are gonna be – that’s probably the easiest thing to get away from you. If you have a $30,000 budget and you spend 50k – that’s obviously a problem. But it’s very easy to do, so that’s probably the hardest thing, to stay in budget.
Joe Fairless: Where can the Best Ever listeners get in touch with you?
Kevin Carroll: Go to AJourneyToFinancialIndependence.com and you can contact me, e-mail me there, get my free flip sheet, all that fun stuff.
Joe Fairless: Excellent. Kevin, I enjoyed our conversation, learning about your business model with the LLC and how you work with other agents who oversee the projects and how you structure that with your investors, and how you met one of your big time investors through a networking group… And then the case study of buying the non-performing note. I’ve interviewed non-performing note investors and I haven’t heard as detailed of a case study as you just gave when it didn’t work out. Previous guests certainly told me about when it didn’t, but I haven’t heard of anyone taking contractors on a seven-hour road trip…
Kevin Carroll: We lived in the house…
Joe Fairless: Yeah, living in the house…
Kevin Carroll: Lived in there and fixed it. I really have good friends here. You can’t do that with a regular contractor.
Joe Fairless: Right, yeah. Well, that’s a testament to the relationships and playing the long game and treating people right. Thanks so much for being on the show. I hope you have a best ever day, Kevin, and we’ll talk to you soon.
Kevin Carroll: Awesome, thanks Joe!
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