Best Real Estate Investing Advice Ever Show Podcast

JF1173: Scaling Property Management To Over $3 Billion In Residential Assets Managed with Kevin Ortner

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If you’re wanting to learn how to scale your business, this episode is for you. We’ll hear a lot about property management, but we’ll also hear key principles and values that have helped Kevin grow Renters Warehouse to what it is today. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Kevin Ortner Background:

  • President and CEO of Renters Warehouse, the nation’s largest and fastest-growing residential property management company
  • Author of Rent Estate Revolution
  • Increased the company’s managed assets to more than $3 billion in residential real estate
  • Company services over 13,000+ investors and close to 20,000 properties under management in 42 markets and in 25 states
  • A former corporate pilot flying high as an entrepreneur
  • Based in Minneapolis, Minnesota
  • Say hi to him at http://renterswarehouse.com/
  • Best Ever Book: The Compound Effect

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TRANSCRIPTION

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 of that fluffy stuff. With us today, Kevin Ortner. How are you doing, Kevin?

Kevin Ortner: I’m doing good, Joe. Thanks for having me.

Joe Fairless: My pleasure, nice to have you on the show. A little bit about Kevin – he is the president and CEO of Renters Warehouse, and holy cow, his company services over 13,000 investor and close to 20,000 properties under management in 42 markets in 25 states across the U.S. Headquartered in Minneapolis, Minnesota. We’ve gotta dig into this… So Kevin, how about you tell us a little bit more about your background and your current focus?

Kevin Ortner: Certainly. I’ve been investing in real estate since I was a freshman in college. I bought a duplex to live in, and I thought “If I buy a duplex and I rent out one side and live in the other, I can probably live rent-free”, which sounded like a fantastic idea. It turns out I ended up cash-flowing on that property a couple hundred bucks a month, so it was even a better idea, and I got the hook; I’ve been investing in real estate ever since.

Actually, in a previous life, since I graduated out of college, was a corporate pilot and flew corporate jets around, but at the same time I continue to build my real estate portfolio through rentals, and ultimately ended up getting into the property management business with Renters Warehouse, which is what I do full-time here today. I joined the company just after it started, about 10 years ago. We were a local small residential property management company focusing on single-family homes.

Fast-forward ten years, we’re now in, as you mentioned, 42 markets across 20+ states, servicing almost 20,000 single-family homes and small multi-family buildings across the country… So it’s been quite the ride.

Joe Fairless: Just from a structure standpoint for how you manage in 42+ different markets in the U.S., do you all have partnership property management companies locally, where you do some sort of partnership with them, or do you have just district and regional managers that you oversee?

Kevin Ortner: We don’t outsource anything to other companies, so we do it all internally, all ourselves. We’ve built the infrastructure semi-nationally at this point, where we’re managing properties in those markets ourselves.

Some of it is through a franchise network; early on in the business we expanded nationally through a franchise model, a nice way for a couple of [unintelligible [00:03:32].00] to grab some market share and expand through a franchise model. Two years ago we sold the majority stake of our business to a private equity firm out of Minneapolis as well, and we were able to get the growth capital that we needed to turn the business into more of a corporate expansion model and open corporate locations across the country.

With that said, every market we’re in, every office we’re in is Renters Warehouse employees on the ground, doing the property management work, or Renters Warehouse leasing agents or realtors that work exclusively for us in all those markets as well. We control every aspect of it under our name and with our people.

Joe Fairless: I wanna make sure I’m getting this right, because this is an important aspect of your growth – originally it was a franchise model, and then you sold to a private equity firm a couple weeks ago, and then it went to a corporate model?

Kevin Ortner: That’s correct. We have between 2011 and the end of 2015 sold 28 franchises across the country. Beginning in 2016 we started to roll some of those franchises back into our business and also expand corporately, opening corporate locations across the country. So at the beginning of 2016 we had one corporate location here in Minneapolis, Minnesota where I’m from, and that was our only corporate location; everything else was a franchise.

Fast-forward to today, we have 25 corporate locations throughout the country, and 17 franchises left of those 28. So we rolled some into our corporate expansion, and we still have some fantastic franchise partners out there that are doing a great job growing the Renters Warehouse name in their cities, and we continue to open new markets under our corporate umbrella at the same time.

Joe Fairless: And from a business standpoint, you’re the president and CEO, so this is right in your wheelhouse – why start with franchising and then move away from it and have the corporate model?

Kevin Ortner: Franchising early on was a very capital-efficient way to expand the business and grow the business. Myself and the founder of the business were a couple broke entrepreneurs when we started the business, and being able to leverage other great talented people across the country and their capital to expand our brand was a good idea.

I really wanted to move from that franchise model to a corporate model really for a couple of reasons, the first being really being able to control the service quality and consistency of what we were doing across the country, but even more importantly than that was we could really make this business very efficient, and from a business owners’ perspective increase our margins through centralizing a lot of our backend services.

So as we grow across the country into new markets – as I mentioned, we went from one [unintelligible [00:06:15].09] to 25 in just under two years… We’re centralizing a lot of what we’re able to back into two of our hubs, which is Minneapolis and Phoenix. So by that I mean things like all the accounting for all the owners of our properties, rent collection, maintenance coordination… Any of those [unintelligible [00:06:31].29] activities – we will do a lot of that work back here in Minneapolis. It allows us to hire and train very easily, instead of having to find someone new and have a great training program and then send people in different markets for them to figure out how to do this business at a high level. We’re able to put people into a great group of people we have here in Minneapolis, Phoenix and just engulf them in this business so they get up to speed faster.

The service quality and consistency remains very high that way, and we’re also able to manage more properties per individual that way as well. So from a business growth perspective, we wanna be able to centralize that for efficiencies in our business, and it also allows us to do something really unique from a corporate perspective, which is we can service larger investors that have properties in multiple cities in a whole new way.

We have an investor client of ours that owns about 1,700 homes across three different markets – St. Louis, Kansas City and Cincinnati, and prior to Renters Warehouse he had seven different property managers. He had a couple in St. Louis, a couple in Kansas City and a couple in Cincinnati, because they were using some local smaller amount property managers, which did a fine job, but they were smaller themselves, so they couldn’t take on 1,000 doors in the city. They didn’t have the resources of the capital to be able to do that. So he had to split it up, and he spent a lot of time managing his property managers, because the processes were different, the accounting reports were different, the collections procedures were different… All these things were a little different and he spent a lot of time just managing those people, whereas he moved his business over to Renters Warehouse – even though he’s in several different states, he has the same process, the same accounting reports, procedures, institutional level reporting and accounting, and one point of contact. So even though we’re operating in multiple cities, he’s able to call in to one portfolio manager and discuss his entire portfolio, versus just one segment that a property manager had before.

So that was the big strategic reason why we moved to a corporate model – we could really service investors across the country in a very different way than available in the past. And frankly, as of today, we’re one of the only ones that can do that across the country at scale, whether you have properties in Florida, or Seattle, Washington, you’re able to call one property manager and have us manage those for you.

So that’s really what we’re trying to build and that was the big strategy behind the change in the business model.

Joe Fairless: Your ideal client is someone who has a lot of properties in a couple different markets and is looking to consolidate, point people and efficiencies, right?

Kevin Ortner: Yeah, I think that’s one of our ideal clients, but we are still really focused on what we call our retail clients, or someone who’s just getting into real estate investing… And frankly, they own a lot of market share, depending on what number you look at, what units you include… If you’re looking at kind of the one to four-unit buildings, 18,5 million of those units are owned by 18,5 million people. So that person who owns one unit is a bit part of this market segment for us. We wanna focus on them, we wanna be able to have them go from owning one property to two, or from two to three.

I think what’s unique about that is today a lot of people can only buy — not “can only buy”, but often times they do only buy in their backyard, because it’s what they’re familiar with, they live there, they know their realtor contacts there, they have a property manager there, or they do it themselves, and with a national platform like this, we’re really making it possible for people to invest across state lines, or in entirely different parts of the country.

We have a lot of people that come to us out of places like California and New York, where it just doesn’t make sense to necessarily buy a single-family home or a condo to rent. The yields aren’t there, the returns aren’t there… But it makes a ton of sense to go into the [unintelligible [00:10:10].17] places like St. Louis, Kansas City, or down into Texas or Alabama, where you [unintelligible [00:10:15].29] and the rents are great, and you get a high yield and high cash-on-cash returns. But in the past, it’s been like okay, I can find them, and with today’s technology evolving and companies out there like Roofstock you can certainly find the asset, but how do you operate them?
We’re really trying to solve that operations problem where you don’t have to go in and interview a local property manager or fly in to check on your property very often. You can use a well-known national company that’s maybe even in your backyard and go and speak with us there, but allow you to diversify where you can [unintelligible [00:10:48].22]

So not only is it the large investor that owns properties in multiple markets or multiple regions, but I think just the smaller investor who wants to continue to expand his or her portfolio and have the opportunity to buy in maybe a different state or outside just their backyard – we’re providing a whole new solution to them as well.

Joe Fairless: What’s one thing that you all have improved upon? I’m sure it’s all aspects, but just one thing in particular that you all had to improve upon from when you started to today, in terms of management? I’m asking this for the Best Ever listeners who self-manage now and can pick up a tip or two from you, since you’re overseeing a large operation.

Kevin Ortner: I think for us, we always say it comes down to the leasing and the tenants we’re placing in the property. Everything else kind of starts to fall in line with that. So that’s tip number one, and I’ll expand on that, because I have two I’d like to share with the Best Ever listeners.

The first is that it all starts with that tenant. Don’t be in a hurry to place the first person that’s coming in to apply for your property. Be confident that you’re gonna have more leads coming in, and really maintain the standards you wanna have for your particular property in that particular area. Because placing the right tenant makes maintenance fall into line. Generally fewer maintenance requests, obviously rent collection is easier with the right people – that kind of stuff. As we’ve evolved our business, we continue to make sure we do a great job placing tenants, and we do that by really trying not to have to limit the people we’re looking at. So we spend a lot of time and effort on how we market our properties, where we market them… We’ve got proprietary listing syndication tools that allow us to generate tens and tens of thousands of tenant leads a month on our thousand or so listings we have every month across the country.

We’re able to, as we process background checks and applications, we do a very thorough background check, we share that with our property owners and our investors, and they can maybe turn one down that’s borderline for them, knowing that hopefully later this week we’ve gonna have another one pop up. So we’re renting homes in less than two weeks on average across the country, and with that we’re able to (we think) place very high-quality tenants in the homes, and that’s the start of a great property management relationship with the tenant in your home.

So that’s number one – take your time on that; vet the tenants as thoroughly as possible, and don’t settle. Make sure you get what you think is gonna be a great tenant for your home.
Number two is really you’ve gotta treat this like a business. I run into a lot of people who manage homes themselves, and they ask me the same thing – what’s that number one tip that can help me make my property more profitable, or things less stressful for me? And it’s very much “Treat it like a business… Not just a hobby, not just that rental property you have down the street.”

What I mean by that is ensure that you’re consistent with your tenants on how you’re collecting rents or how you’re going after it if they are late. Make sure you are taking care of your preventative maintenance, or taking care of maintenance requests quickly when do come in, to save yourself a bigger expense or legal problems down the road with the leases.

I think the advantage of sometimes outsourcing for people who don’t have the time to dedicate that they really need to do a great job, or to some people who don’t have that right personality to be very consistent or methodical in the rent collection process. And obviously, being this is our business, that’s one of the things I think we do best, is make sure that we’re setting the right expectations with our tenants, that “Here is the contract and here’s how we’re gonna follow the contract and follow up with you on things like rent collection, making sure you’re paying your rent on time”, and things like that.

So put the right tenant in place, that’s the best way to start, and then number two is make sure you treat it like a business and stay consistent with how you’re following up.

Joe Fairless: What would be an aspect that you all typically are head and shoulders better than the mom-and-pop owner in terms of management? So when you take a property over, you know that you’re nine times out of ten gonna do much better in this area.

Kevin Ortner: I think it comes down to 1) leasing – we’re great at leasing; we’ve just talked a little bit about that. But the other one really comes down to expense management, maintenance coordination. Because we are a larger national company, we’ve got a lot of buying power. We’re getting fantastic maintenance rates. We don’t have any of that happening in-house; we outsource all of our maintenance on our homes to third-party vendors. But with that being said, we bring on only license bonded and insured vendors, people with good reputations, and we’re able to approach them essentially as a  buying club and say “If you’re gonna work with us, we need you to extend the discount to our clients”, and leverage our buying power in that way.

So not only are we getting maintenance that’s coming in maybe cheaper than the retail prices or what a smaller business can buy for, but we also have great, highly-trained professionals in our office or in our call centers where maintenance requests are coming in where we’re trying to do call avoidance. We’re talking tenants through how to check and understand if a circuit breaker has been tripped and that’s why their power is not working, versus having to send an electrician out to find that out; we’ll walk them through how to do that.

Maybe the garbage disposal is not working, and we discuss different things you can check there… Or whatever it might be; a lot of different examples. So that call avoidance and really trying to shoulder some of that internally and work with tenants through maintenance requests. But if we do have to send someone, having that buying power and that leverage with our vendors and keeping those costs down is an area where we can really shine.

Joe Fairless: Now let’s pretend that you don’t work at Renters Warehouse anymore… You have created your own property management company, and you have a portfolio of, say, 50 properties that you oversee the management of, and you’re looking to grow, but only in Minneapolis. What would be a talking point to a prospective landlord who’s looking to decide between you and Renters Warehouse, where you in this new company would have a competitive advantage?

Kevin Ortner: Wow, that’s a good question, and not one that’s ever been posed to me before. Wanting to grow only in Minneapolis as a new company, I think the competitive advantage for a small property management company over Renters Warehouse in a local market might come down to — if you’re gonna talk to someone who manages very few properties or a smaller portfolio, you’re gonna be working directly with me as the owner of that new company, and probably have a lot of time with me, a lot of strategy conversations with me, and maybe a little bit more one-on-one.

If you’re working with Renters Warehouse, while you have access to a whole team of professionals that are helping you through the process, you are talking to multiple people often…

Sometimes we hear that from our clients – “Hey, I’m talking to a couple different folks, and I wanna just talk with one.” We don’t manage properties that way, we don’t necessarily have portfolio managers. We have specialists in different departments that really understand how to handle that accounting or that rent collection or the maintenance coordination on your home. And that’s not for everybody – some folks really wanna have a more intimate relationship with that portfolio manager, and I would say that’s probably where our competitors, or me in this scenario, if I’m growing a new business, I’d say that’s how we’re a little different… And maybe, if you’re gonna make me say it, maybe how that could be better for some people.

Joe Fairless: I love looking at both sides of the coin. I’m sure it’s a good exercise for you too, and I do the same thing for my business, just to make sure we have all bases covered.

Okay, so what is your best real estate investing advice ever for landlords?

Kevin Ortner: I think it is looking at the long haul, looking at a long-term perspective. I like to say this is a get rich slow scheme, not a get rich quick one. The business I’m in, with investing in rentals and investing in real estate – it’s not as sexy as some of the rehabbing or with flipping, where people are walking away with huge paychecks in a short amount of time, but I think it can be more stable, it can be less risky, and it can really set people up for retirement security, financial freedom, a secure future for the long haul.

So I encourage people to look at it from a long-term perspective, make sure you’re putting the right mortgages and loans on your property, and understand how some of the small decisions you make today, to maybe buy and hold more property, versus buy and rehab and flip more property can really be a game-changer for you in 10, 15 or 20 years.

That would be my biggest investing advice for the Best Ever listeners – be patient; sometimes the rewards aren’t necessarily immediate, but the long-term, and constantly look at how you’re gonna build your portfolio over the long haul to be a big game-changer for you when you need that financial freedom and security come retirement.

Joe Fairless: What’s your number one focus right now, as the president of the company?

Kevin Ortner: The number one focus for us is actually to address some of what we’ve just talked about, with the competitive advantages of a smaller person than the challenges of growing a big, national business… It’s to continue to increase our level of client services for our clients, to increase how we interact with our clients and also how we can give them frankly the best advice ever, whether they’re managing a portfolio of one or a portfolio of 1,000.

We really wanna take an institutional level approach that we work with with our large investors, and be able to boil that down to someone who owns one home, and look at how that asset is performing for them, instead of just on a monthly cashflow basis or understanding if it’s gonna be there for the long haul with them, but maybe that’s not the perfect home and we could sell that and buy something new.

So we wanna take an institutional level approach, bring it down to the person who owns one home or two homes, and allow them to have a lot more options and a lot more data around their home to make great decisions, and also then how we’re delivering that to them, and continually training and evolving our team to be better and better at delivering this service to our clients.

Joe Fairless: If I have one house and I move it over to you all, what are the fees involved on that management?

Kevin Ortner: We’re a flat fee management company, so we don’t do percentage-based, or anything like that. We have two main fees – the leasing fee, or what we call our tenant placement fee, and that’s equal to one month’s rent, and then during the management program, depending on the market where we are across the country, the fee is either $89/month flat fee, or $99/month flat fee. Those are the two fees you’re gonna see.

What we did when we’ve been building this business and growing is we tried to really flip it on its head and say let’s go away from the percentage-based, or the (shall we call it) nickel and dime approach to fees in this industry, standardize it, make it simple and easy to understand… And those are the two main fees we have across the business.

Joe Fairless: Since it’s a flat fee, the flipside is you’re not incentivized to maximize the rent. What are your thoughts on that?

Kevin Ortner: I think we absolutely are, for a couple of reasons. One, our leasing agents are paid on a rent basis, so they’re gonna try to maximize it when we bring in a new tenant. But two, we’re always very concerned about ensuring that our investors stay with us for the long haul. That monthly management, having a large client base over the long term is important; the only way that’s really gonna happen is if people are getting good returns and are continually having a good investment. So addressing and ensuring people stay with us and have a good experience and are seeing that their assets are performing is important as well.

[unintelligible [00:22:09].16] being directly tied to that rent price for our agents, and also our commissions we’re earning on leasing is big, and when it comes time for renewals and all that kind of stuff, being sure that we’re getting market rents or being able to increase them, because that’s what’s gonna make our clients actually stay around with us.

Joe Fairless: What is the resident renewal fee, if any at all?

Kevin Ortner: For the residents in some markets we charge a $100 fee to residents as we go through the renewal process, and [unintelligible [00:22:38].10] additional background screening and inspections we’re doing on the property at renewal time. And for a property owner there’s a renewal fee. It varies a bit by market depending on where we’re at, but it’s there between $299 and $350 come lease renewal time.

Joe Fairless: Then how are maintenance fees handled?

Kevin Ortner: The answer is a direct pass-through. We don’t actually have a markup on any maintenance, so you’ll see the original invoice that comes through from our maintenance vendors on your property. Again, our goal is to have any maintenance that’s done on your home, for any of our investors, be below retail price if you were just to call up a plumber out of a phonebook. When you use our network, you’re gonna see that that came through as a lower cost to you than you would have gotten on your own.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Kevin Ortner: I’m ready.

Joe Fairless: Alright, well then let’s do it. First, a quick word from our Best Ever partners.

Break: [[00:23:26].24] to [[00:24:30].03]

Joe Fairless: Best ever book you’ve read?

Kevin Ortner: The Compound Effect, by Darren Hardy.

Joe Fairless: Best ever deal you’ve done?

Kevin Ortner: I bought a duplex in Rochester, Minnesota. It was a rehab to rental; I bought the property with a hard money loan from a hard money lender that I work with here in Minneapolis. I rehabbed the property, I was able to increase the value enough where my conventional take-out financing covered 100% of the money I had in the property, so I’m in for essentially $0 out of my pocket, and the property cash-flows $350/month, so just a fantastic deal.

Joe Fairless: What’s a mistake you’ve made on a transaction that you haven’t talked about?

Kevin Ortner: The biggest mistake would be I invested in a rehab or a flip deal I was doing in an unknown area. It was in Minneapolis, but it wasn’t a neighborhood I’d done a lot of research on or have ever invested in before, and I didn’t do enough homework. I didn’t ask the right questions, so I bought the wrong kind of home, did the wrong things to it, and it ended up taking a long time to sell it, and I took a loss on that one.

Joe Fairless: Best ever way you like to give back?

Kevin Ortner: I like to give back locally. It’s important for me that a lot of the organizations or causes I support are local, they’re affecting my community in which I live… So I do that by partnering with local organizations at Renters Warehouse. We’ll do that locally in Minneapolis, but also our offices around the country – our folks in those offices will pick local organizations to partner with. But as far as where I give back, I do a lot of youth mentoring; we give back as a company to veterans organizations or other homeless organizations, and we also volunteer time there, hopefully giving encouragement to people who are down on their luck that we do care and that there’s better days ahead.

Joe Fairless: Best ever way the Best Ever listeners can get in touch with you or learn more about your company?

Kevin Ortner: RentersWarehouse.com is the company website. All the information that the Best Ever listeners need to find out about us is there, and the best way to reach me or learn more about me is LinkedIn – just search Kevin Ortner on LinkedIn and you’re gonna find all the information there.

Joe Fairless: Kevin, thank you for being on the show. I enjoyed our conversation, I enjoyed learning about your company. You’re an overnight success… In 10 years. It’s great to see it, it’s great to hear your progress, and holy cow, what a staple of properties that you all have in your management portfolio… Your approach, and your advice for the landlords, the Best Ever listeners who are landlords and currently managing their own properties – one, don’t be in a hurry, so that you’re confident you’re finding the right resident to put in there, and two, treat it like a business. For example, what you all have a focus on is the maintenance coordination so you can avoid the maintenance call – the plumber, the electrician etc. coming out there to fix things and trying to work with the resident proactively on that, or at least trying to be a stop gap so that you don’t have that maintenance call.

Thanks for being on the show. I really enjoyed learning about the evolution of your company. I hope you have a best ever day, and we’ll talk to you soon.

Kevin Ortner: Thanks for having me, Joe.

Best Real Estate Investing Advice Ever Show Podcast

JF1058: Creative Financing 101: Unconventional Ways to Acquire Property With Jesse Mills

Listen to the Episode Below (24:56)
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When a property doesn’t seem like a deal, maybe it’s time to get creative! Not only can you help yourself and your business, it helps sellers get rid of their houses that no one else will buy, and it helps end buyers get in a place they can’t get a mortgage for right now. Jesse is here today to help us learn the ins and outs of lease options and land contracts. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Jesse Mills Real Estate Background:
-Senior Mortgage Advisor, Real Estate Investor, & Consultant at American Mortgage & Equity Consultants, Inc
-From the age of 14 he was out knocking on hundreds of doors starting his first business “Mills Lawn Care”
-During college, he co-founded a small sunglass kiosk business within shopping malls in MN and WI.
-Based in Minneapolis, Minnesota
-Best Ever Book: Cash Flow Quadrant

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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. We’ve spoken to Barbara Corcoran from Shark Tank, Robert Kiyosaki (Rich Dad, Poor Dad) and a whole bunch of others. With us today, Jesse Mills. How are you doing, my friend?

Jesse Mills: I’m doing great, man. How are you doing?

Joe Fairless: I’m doing great as well, nice to have you. A little bit about Jesse – he is a senior mortgage advisor, he’s a real estate advisor and he’s a consultant at American Mortgage and Equity Consultants. From the age of 14 he was knocking on hundreds of doors, starting his first business, which was Mills Lawn Care, and he is based in Minneapolis, Minnesota. With that being said, Jesse, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Jesse Mills: Absolutely. For probably the last 14-15 years I’ve been in the residential mortgage business in finance, and got into real estate investing about six years ago. It’s been a pretty cool journey to be on both sides of it; you find a lot of people that are doing loans and mortgages and financing, and they don’t really do much on the actual real estate side; they just help people get financing.

Then others are on the real estate side, but really don’t know any of the rules on the mortgage side, so I kind of got into some different niches with it where I’m able to take both sides of the businesses and the knowledge and kind of start creating my own passive income, and then helping others do the same.

Joe Fairless: Combining those two niches, what are some competitive advantages that you have based on your areas of expertise?

Jesse Mills: My first kind of foray — I got into real estate investing almost a little backwards form what some people do. A lot of people take the old school approach and say “No money, no credit – hey, that’s me!” and that kind of gets them into the game. I was already doing loans, I knew how the rules worked, and for some reason I missed the boat; maybe it was a good, right? A lot of my friends and colleagues and partners just jumped all over it pre-crisis and got a ton of places and they lost them all, because everybody was doing it kind of the wrong way, all banking 100% on appreciation, not on cash-flow, and lost it.

Well, I started kind of scooping up places after everything had died down, and it got a lot tighter to get properties. But the first few deals I did were multifamily properties that I purchased, and then started kind of hearing about lease options, or rent-to-own. I followed people like Wendy Patton, Joe McCall, and I said “Wow, this is pretty cool. I didn’t realize that you could make money doing this”, and I was running into those people – people who can’t get financing, can’t get a loan, but really wanted a home.

So I just kind of really dipped my toes in the water the first couple of years, and said “Hey, I’m running across these people once in a while that I have to shoot down, when everyone else said they would go see who was in my position as a loan officer is shooting them down and saying “Sorry, come back and see me in a couple of years.” Then I had kind of had this new arrow in the quiver. I’m like, “Hey, I can still help you get a house, I just can’t get you a loan today.” That really kind of got me into the lease option world and that’s been kind of my niche for the last 5-6 years now.

Joe Fairless: Okay. I wanna spend the majority of time talking about those lease options, since that’s what you’re focused on and have been for the last six years, but I do wanna ask about your multifamily deals – you said that your first couple were multifamily deals… Will you elaborate?

Jesse Mills: One of the first places that I got was a fourplex with FHA financing. I lived there for probably a year, a year and a half or so. And honestly, anyone who’s looking to get into investing, buy and hold and have their own place, I’ll tell you number one – do it while you’re young and probably not married, you know… Maybe three kids, if you can… Not a lot of wives are out there saying, “God, I would love to have three neighbors above us and below us, and share the yard with everybody…” It isn’t that sexy. At least my wife wants our own yard and all that good stuff, but that’s one of the smartest moves that you can make, and from a financial side you can buy a fourplex with 3.5% down if you’re gonna live there, and help qualify basically the rental income of [unintelligible [00:06:29].06]

That’s what I did, and we acquired a town home. We did kind of the normal financing really for the first few deals, until I discovered lease options, rent-to-own. Since then, a bulk of my lease option deals have been wholesaling lease options and flipping them for a quick profit, and then a few I’ve retained and done sandwich deals on; a couple I’m in the middle on right now. From a financer perspective too we could talk about this, which is kind of cool, but I even like to purchase on a CD or a contract for deed, and then resell on a lease option and there’s some good benefits that way, but not everybody does it that way.

Joe Fairless: Let’s talk about that, because I think I just got confused, and perhaps some other Best Ever listeners did as well, as far as purchasing on a contract for deed and reselling on a lease option. Will you just slowly walk through a specific example?

Jesse Mills: Absolutely. One deal – it’s a great kind of statement deal, because the lead source was not where you would guess… I got it from an attorney. Everyone else is out there digging in the same holes and fishing in the same ponds – Craigslist, Zillow, online and bandit signs… I find, especially to a lot of the coaching that I do now and working with a lot of investors around the country, not a lot of people are using their own network, and I advise everybody, get your own attorney, get a local attorney, even if you’re buying boilerplate contracts in some place, and of course, have it checked out.

So I developed a good relationship with my real estate attorney, and he said “Hey, Jesse, I’ve got a deal for you. It’s a client and she’s looking to unload her place. She’s on the West Coast and doesn’t want her place there anymore.” It was free and clear, which was even better, so I negotiated with her to buy it on a contract for deed, and I knew based on the area of town that this was in – it’s in probably one of the top three areas of our market; great schools, great neighborhoods, and you can sell it really quick. So I purchased it on a CD, 10k down…

Joe Fairless: What does buying it on a contract for deed mean?

Jesse Mills: Contracts for deed are (in other parts of the country a “land contract”) – you have a contract for the deed. So essentially, it’s seller financing. It’s another way of saying seller financing.

Joe Fairless: Okay.

Jesse Mills: So I pay the owner every month; she was the bank to me. And the beautiful thing with seller financing is, you know, it’s whatever the heck you want it to be. People say “Well, what’s the going rate on this?” It’s whatever the heck you want it to be! It’s whatever’s a win/win situation for all parties involved. But from the finance side – and this is kind of where my expertise really helps out, is there’s reasons to buy something on a contract for deed, and there’s reasons to buy something on a lease with an option of purchase. There’s reasons to be a tenant, there’s reasons to be the owner on a CD.

So on a contract for deed or land contract, you have equitable title. You’re on the tax records. You’re fully responsible for everything, but you’re also able to then sell it, lease it, get financing on it to do whatever, and after 12 months of being on title – at least these are the current rules; things are always changing, as you know, in the mortgage world… But once you’re on title for 12 months, then if you wanna go buy it, it’s actually a refinance.

Let me give you this example. I bought it from this woman for $260,000. I knew at the time it was around probably 290k-300k. If I purchased it from her on a lease option or a rent-to-own, even if it was worth 300k and I went to go get financing out and put it in my name and get a mortgage, then when I go to buy it, I still needed to come up with that minimum down payment based on what I was buying it for, which would have been the 260k minus the 10k I put down.

But because I bought on a contract for deed, 12 months and one day I could now say “Hey, I wanna refinance this”, and then they would go in and appraise it and say “Hey, that’s worth 390k” or “It’s worth 300k”, and they’ll say “But you’re only buying it for 260k and you already put 10k down, so you only owe 250k, and it’s worth 300k or 290k.” So I would already have equity in the ball game.

That’s one thing a lot of people don’t pay attention to when they’re looking at a lease option, rent-to-own – sure, it gets you in the door with little to no money down, but you still have to come up with money at some point prior to your lease expiring and your option ending to get financing. And if you’re not gonna live there, it’s gonna be an investor loan, so you’re gonna have to have 20% down… I mean, between 15% and 25%, depending on how many units it is.

So in this scenario, I can put it in my name and I negotiate a second three-year or four-year contract for deed on it, but I’ve already got equity in it as we speak now, which is great. So within about 3-4 weeks I got a new tenant-buyer in there, who gave me 10k down. Now I’m back to zero, and my payment is about $1,100/month to the seller, and I collect about $1,800/month from the tenant buyer.

Joe Fairless: So you’re making a spread on a monthly basis as well.

Jesse Mills: Exactly. So it’s a great sandwich deal… And again, I could have bought it on a rent-to-own and then flipped it and did a sandwich — I should say “flip it”, but it’d be a sandwich, right? But I wanted it on a contract for deed, so that way I could come in and refinance it, put it in my name and already have some equity when I want.

Plus, for the seller, she was more inclined to do the deal on a contract for deed, because in her mind it felt like it was really more sold, whereas on a lease option she’s still the landlord. That’s the cool thing – when you start to really understand the difference with the contract for deed/land contract and a lease option, you can really tailor your presentation however you need to. I’ve had people say “No, no, no, I’m not gonna do that, but I’ll do a rent to own.” Okay, fine. “No, no, no, I’m not gonna do that, but I’ll do a contract for deed… But only that!” Okay, fine. You can call it what you like, but it’s almost the same thing; there’s definitely some differences with the contracts and with taxes and insurance and tax deductions, but from a 30,000 foot view it’s very similar.

Joe Fairless: What are the risks involved for you on that type of structure?

Jesse Mills: Again, on a sandwich deal – and sandwich deals are awesome when you come across some. More often than not, we’ve found people who just don’t have as much equity, so we’ve done more of a lease options split, or an assignment. But on a sandwich deal like that, not matter what, whether the property is vacant or not, whether it’s damaged or destroyed, I’ve gotta keep paying her.

If I go let’s say two years and I’m paying the true owner, who’s on the other side of the country, and all of a sudden I have an empty house and I go “Oh, I can’t pay you anymore” and I just up and leave or stop paying her, she can cancel the contract. It’s similar to a foreclosure, but it’s actually technically called a cancellation of contract. Then I would have 60 days to get that back to being current and pay again, or I’m done, and I would lose every dollar of equity that I had.

So again, it’s like getting foreclosed on on a normal property, but I bought it knowing there was equity, I bought it knowing there was cash flow and there’s a spread, and even if these tenant buyers didn’t’ work out – and I’ve developed a pretty cool system for screening tenant buyers… Our efforts’ success rates for our team of folks buying is close to 70%-75%, and I know the industry average — I don’t know, there’s numbers all over the place, but it’s 40%-50%; that’s what a lot of folks say. And I know what that is, because most people don’t know what the hell they’re doing when it comes to credit, or why somebody can’t buy and the reasoning behind it. So that’s why we’ve now kind of put together some pretty cool screening systems that I use, and I do some pre-pre-approval consulting for other lease option investors around the country, to really help them say “Hey, is this a good tenant buyer? How are they actually gonna be able to get a mortgage? When will they be able to get a mortgage?” and make sure they do the paperwork right, so when that gets to an underwriter, it should actually get approved.

Joe Fairless: What type of paperwork is involved there?

Jesse Mills: When you’re purchasing on a lease option, or when you do the contract for deed?

Joe Fairless: When you’re purchasing on a lease option.

Jesse Mills: So when you’re purchasing on a lease option the two biggest things that I see other investors do that can trip you off is not using an escrow service or an escrow company, or even a title company or an attorney. They just have a tenant buyer write a check out to them; now, this is on a deal if you’re assigning it, which a lot of folks are doing and a lot of people are teaching that. So if I say I’m gonna buy your property [unintelligible [00:15:10].03] to purchase your property and then turn around and assign it to a tenant buyer… If that tenant buyer comes in and cuts me the check instead of you, or the escrow company or the title company or the attorney, right now everybody is fine and everything looks like it’s going great, and it’s going to be a big explosion here in like two years or three years, because the underwriter for the mortgage company is gonna say “Who the heck is this chesty guy in the middle? I thought it was Joe buying D’s house with this chesty guy who’s his company.” So it’s gonna be done right, so you wanna make sure that the tenant buyer is cutting a check to — again, I’ve used the local attorney, which is awesome, because they’ve done my contracts, so that they know exactly what they’re in for, what they’re signing; I use their escrow account, I’ve used local title companies, and all these international escrow services, too. That’s probably one of the biggest things.

I like to keep the lease and the options to purchase separate as well, and there’s a few different reasons for that. Number one is if you need to go to court — now, again, this doesn’t always work out this way, of course, and I’m not trying to give any legal advice, but it’s often easier just to say “Hey, here’s a lease.” If you’re late on the lease, you’re violating a lease agreement. It has nothing to do with the option of purchase. Can it be construed as an equitable mortgage? It certainly can sometimes, even if you do them separately. But if you combine them, it’s a lot more likely to be misconstrued as you’re doing an equitable, and then you get into those different types of rules, and whether you get the down payments, or really it’s the option deposits – if you get that back or not.

The big things I say are keep the two separate, and then use a title company or an attorney or an escrow service for the transfer of funds in the option deposit.

Joe Fairless: In addition to what you’ve mentioned, what’s one more maybe common mistake that you see investors make when they’re putting together a transaction like that?

Jesse Mills: They don’t know why the tenant buyer can’t get a mortgage or what the reasoning is, and that’s really one of the biggest things. These days with the way mortgage financing is, almost anybody can get a loan in three years. Even if you just went through a foreclosure a few months ago, I can get you an FHA loan here in three years from that date, so a lot of the times it’s just a kind of a black hole timeframe that people are stuck in. If you had a bankruptcy, it’s gonna be X amount of years; if you had a short sale or a foreclosure, it’ll be X amount of years. If you’re new at your job it’s gonna be X amount of years.

The worst thing is if you have someone who’s making $40,000 a year and trying to buy a $400,000 house – that’s just not gonna happen. This is simple math – if you can’t afford, then what’s gonna change to allow you to afford it? But the big thing is why, why, WHY? So I’ve developed a 33-point checklist that I used with all of my tenant buyers and then with my clients and their tenant buyers to really get to the heart of what happens.

When people say “We went through medical issues”, is that [unintelligible [00:18:09].11] Unless it’s still ongoing and you weren’t working two weeks ago because you’re going through something horrible, if this was a year or two or three years ago and then all domino is hit, there’s not much more you need to tell. That’s a great story — I mean, it’s a horrible story, but it’s a great story as far as why you have maybe poor credit and you can’t get a mortgage. Divorce. Divorce screws everybody. Pun intended. Divorce is bad.

Job loss. How long ago was the job? “Well, I was out of the job for six months, but that was two and a half years ago, and then the *beep* hit the fan.” Okay, these are all great reasons.

Someone that I’m working with right now, literally I was going through her credit with her a week ago, and I said “Okay, so tell me what happened”, and she said “Oh yeah, my husband got laid off a while, he got really sick, and some other things happened…” I’m like “I’m so sorry to hear that… Tell me a little bit more about it – when was this?” “Oh, this was in 2006”, [laughter] and I’m trying not to laugh. “Okay, so in 2006… Why didn’t you pay your truck payment in November, because I’m seeing 90 days past due on the credit report? If you’re still hurtin’ from then, we’ve got some issues.”

So a lot of folks just don’t really peel back the onion, never get into it. Is it a good reason, is it a bad reason? Does it make sense, does it not make sense? I’ve turned people down, and trust me, it sucks… But if someone says “Yeah, I’ve got $10,000, I want this house” and I turn them down, that sucks! I could have used that, and I wanna help you, but you have literally no good excuse or reason to why you can’t pay your crap on time, and I know this is gonna flake out… And I’m willing to take more risk if it’s my own property and there’s some good [unintelligible [00:19:48].11] cash flow, but if I’m working with a seller who is also my client that I’ve got a lease arrangement with them that I can honor or assign, I’m not gonna put someone in their house that I know is not gonna make [unintelligible [00:20:00].22] I’m just not gonna do that.

That kind of goes back to treating this like a business; this is just a transaction. Do you want people to think of you 2, 3, 4, 5 years down the road, or are you just trying to do a bunch of deals right now and then get into a whole other line of work immorally?

Joe Fairless: Jesse, what is your best real estate investing advice ever?

Jesse Mills: Best real estate investing advice ever is you’ve gotta just get started. I talk to people every week, all the time, and they’re reading and they’re researching and listening and that’s great, but people put that up on a pedestal too much and they don’t get started, they don’t get going. You’ve just gotta start taking action.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Jesse Mills: Let’s do this.

Joe Fairless: Alright, let’s do this. First, a quick word from our Best Ever partners.

Break: [[00:20:48].15] to [[00:21:45].15]

Joe Fairless: Best ever book you’ve read?

Jesse Mills: I’ve gotta say Cashflow Quadrant. I love it.

Joe Fairless: That’s been appearing a lot recently from guests, Cashflow Quadrant.

Jesse Mills: It’s an oldie but a goodie. It always brings me back to the fact that look, sometimes people get caught up in the day-to-day work, but it’s all about passive income, it’s all about getting to that business owner quadrant, to that investor quadrant. Even if you’re self-employed, if you stop working, you’re not making money then. You’ve gotta think about that every day with everything you do.

Joe Fairless: Best ever deal you’ve done?

Jesse Mills: You know, it’s funny… The deal I was mentioning earlier actually is probably one of my best deals, because the first tenant buyer unfortunately did not buy; they chose to back out, so I made $10,000 on it. I’ve got another tenant buyer in there, I made another $10,000 on it, and with the market the way it is right now we’ll sell it for probably 60k-70k more than we bought it for, and I haven’t spent more than probably $500 to fix and repair it in two and a half years.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Jesse Mills: I did not check if payments were being made as frequently as I should, and we had a close that I could check at any time to see if it’s making payments; honestly, I just got side-tracked, I had too much going on for a few months, and he let that property go, so the deal ended up kind of going kaputt. Luckily, I only put down $3,000 to control a $150,000 fourplex, so… I didn’t lose anything, but I didn’t make anything either.

Joe Fairless: What’s the best ever way you like to give back?

Jesse Mills: I love to give back to new investors, new business owners who are struggling, who don’t know where to get started, don’t know the right steps to take to get going, because honestly, I think one of the best things you can do is to teach somebody how to better their own life and better their own position by giving them the skills and the resources to get started.

Joe Fairless: How can the Best Ever listeners get in touch with you?

Jesse Mills: The best way would probably be on Instagram  – ZJesseMills, or on Facebook, Jesse Mills.

Joe Fairless: Jesse, thank you for being on the show. Wow, this was a crash course on seller financing and how to structure the deals, how to do seller financing 2.0, so buying it on a contract for deed and being able to qualify — one of the things that you’re focused on is making sure that you pre-qualify the people prior, and you said you have that 33 point checklist. I love hearing about how you structure this, the intricacies of it, and the risks as well as the benefits associated to it.

Jesse, thanks for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Jesse Mills: Hey man, thanks so much for having me, I appreciate it; I look forward to talking again.

 

 

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JF953: How this Foreigner Made ZERO Excuses and Transformed His Life Through Real Estate

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He has done just about everything in residential real estate, and he did it as a foreigner. Hear how he thinks anybody can jump in the real estate game regardless of their background.

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Andrey Sokurec Real Estate Background:

– Founder of Midwest Real Estate Investment Association, as host of the TV Show “The Real Deal in Real Estate
– Co-founded Homestead Road to integrate the process of buying homes and “homesteading” families
– Purchased first investment property in 2005 and has completed over $40 million in real estate transactions since
– Native of Belarus, after coming to America worked as a manual laborer, and by night he read books on business success – Based in Minneapolis, Minnesota
– Say hi to him at www.homesteadroad.com
– Best Ever Book: Shoe Dog by Phil Knight

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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, 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, Andrey Sokurec. How are you doing, Andrey?

Andrey Sokurec: Joe, I’m doing fantastic. How are you?

Joe Fairless: I am doing fantastic, nice to have you on the show. A little bit about Andrey – he is the founder of Midwest Real Estate Investment Association, and is the host of the TV show The Real Deal  in real estate. He co-founded the Homestead Road to integrate the process of buying homes and homesteading families.

He purchased his first investment property in 2005 and has completed over 40 million dollars in real estate transactions since. Native of Belarus. After coming to America, worked as a manual laborer and by night read books on business success; based in Minneapolis, Minnesota. With that being said, Andrey, do you wanna give the Best Ever listeners a little bit more about your background and what you’re focused on?

Andrey Sokurec: First of all, thank you so much, Joe, for having me on the show. Everything that you said is true. My main business is Homestead Road, and we are dedicated to serve people better than anyone else. When people have a house to sell as is, I have a team of about 18 people who work for me.

I have rental properties, and my biggest belief is that anyone – it doesn’t matter how old you are, where you came from, whether you came from Africa, Russia, Australia, or you’re being born and raised in America, anybody can become financially successful through real estate investing. This is the easiest way to go, and you don’t need to spend hundreds of thousands of dollars of college education; you can start with wholesale, and build your rental portfolio and be happy and wealthy.’

Joe Fairless: I love talking to people who came from another country and have done incredibly well in the United States, because so often we get fixated on what we don’t have… And holy cow, people who aren’t even from this country and come and are able to be successful – they likely don’t have the same resources that the people who were born here have, but hearing someone who is successful without those resources, it’s an inspiration, and I’d love to learn a little bit more about your story.

I mentioned (because it’s in your bio) that you have a TV show. Is that on TV, or is that just an online show?

Andrey Sokurec: It’s actually on a local cable channel. I go to the studio and we record an actual TV show in the studio. It’s a little bit time-consuming, but I love doing that, because first of all I have access to a lot of high-profile people, and when I do a TV show I learn personally a lot from them.

Joe Fairless: Okay, that’s interesting. How long have you been doing the TV show?

Andrey Sokurec: Three years.

Joe Fairless: Three years… And how much do you pay for the news station to have the show?

Andrey Sokurec: I have a producer, so it costs about $500 to produce each show, and just the engineer and the producer to follow up with the guests. It’s a little bit expensive, so now I’m thinking to switch to have more guests and go to YouTube, because it’s cheaper and faster. Because if I wanna talk with someone, I can just reach out to them, my assistant can talk to them and I don’t need to go to the actual studio where you have to do make-up, and people get embarrassed when they see a lot of cameras…

Joe Fairless: What business results have you seen from doing the TV show for three years on your local cable channel?

Andrey Sokurec: Well, a lot of people who are successful at what they learn, they either have a radio show or a podcast or a TV show. With this TV show I build relationships with a lot of people… Harry McKay became my personal mentor; I had the chance to interview Michael Gerber, Kevin Harrington from shark tank, and a lot of local high-profile people who do business. That’s the way to actually get access to them, because you don’t see them often in the street, walking around and giving you their personal cell phone number.

You can get access to those people when you have a TV show or a radio show or a podcast. When you tell them “Hey, I have a TV show on a local channel. Would you be interested in my TV show?” and a lot of people are actually excited to be on the show, because they have never been on a TV show before.

Joe Fairless: This is beautiful, thank you for sharing that. You’ve been doing it for three years… Your business is Homestead Road, and it integrates the process of buying homes in “homesteading” families. Excuse my ignorance – what are homesteading families?

Andrey Sokurec: It’s a good question. We’re changing the market scene  a little bit, but when we started originally, we were thinking to buy houses and sell out of houses on the contract [unintelligible [00:07:25].13] and help people to become homeowners, so we sold quite a few homes on a contract [unintelligible [00:07:31].19]. Then with the new regulations (Dodd-Frank act) we stopped doing that, because now you cannot have balloon payments, and it’s become complicated.

So what we do is we build our own niche, we market to people who wanna have easy, stress-free sale; our average customer is 45+ years, who wanna sell their parents house and they don’t want realtors; they also want to have easy, stress-free out, they don’t wanna have strangers in the house. We built a really nice process to serve them better than anybody else.

I don’t believe that anyone in the country has the same process that we have and what we do for customers.

Joe Fairless: I’d love to learn more, because on the surface what you described, in my opinion, is you’re wholesaling the house, where the owner wants a stress-free sale, no realtors, not a lot of people coming. That sounds like it would be a wholesaler who is just tying it up and then finding a buyer with cash. Are you doing something different than that?

Andrey Sokurec: Yes, first of all we don’t do wholesale. What we do is we buy every house, and probably 70% of the homes we renovate ourselves, and 30% we sell to smaller investors. We decided to change the whole marketing message; we don’t use any “cash” words in our marketing, and we’ve built quite a unique process. For example, when somebody sells a house to us, after it’s done – and a lot of people have emotional connections – we do a final “say goodbye” tour, where they might tell the relatives and [unintelligible [00:09:21].26] actually painting the house, and we collect the best memories from the family and put it right below the painting.

It’s interesting, but let me pull out my Facebook page – when we give the plaque with the painting of the house people are actually crying, because it’s so emotional. Let me just recap  some memories that people put. This is the best memory – a house on 10325 Clinton Avenue; the basement door became the measurement board for the height and growth records of children, grandchildren and great-grandchildren. The second-best memory, Christmas Eve with children [unintelligible [00:10:10].03] pajamas for the long night of opening presents and songs around the piano.

So what my point is — because everybody can offer a better competitive price, and we offer a competitive price because we are efficient, but not a lot of people actually strive to serve people better than anybody else. When I got into this business, I saw a lot of ads like “We buy houses cash” and it sounded like a used car salesperson, and there is a negative connotation about what exactly it means; it’s like, “Hey, you flip houses?” and a lot of people are skeptical and then go negative.
We decided to change it to build a really nice process with people. I actually brought my entire team to a company called Zappos. Amazon bought them for 820 million dollars, but they have an office in Vegas, and they have a really nice course – it’s called Zappos Inside. It’s a three-day training, and they let any person come in and spend three days to learn how they hire people, how they fire people, to listen to their customer service… This company is considered one of the top 5 companies to work for.

So I brought my entire team there so they could learn and see what’s possible and why a lot of people become loyal to that brand. For example, let me ask you this – do you use Amazon?

Joe Fairless: I do.

Andrey Sokurec: Why do you use it?

Joe Fairless: Because it’s so easy to buy books.

Andrey Sokurec: Yeah, would you recommend Amazon to anyone?

Joe Fairless: Sure, absolutely.

Andrey Sokurec: So that’s what I wanted to change – we wanna provide so much value, so people can start recommending our company to someone else, because selling a house… It’s lots of life experience for people [unintelligible [00:12:11].15] but a lot of people didn’t pay attention to the fact that those people have the same friends, the same people who have the same income level, and they also wanna get out stress-free from their situation.

Joe Fairless: Thank you for sharing that. I want to make sure I’m understanding… I get the plaque that an artist paints that illustrates a story about the house, and you provide that to the seller, but just so I am understanding your business model real quick – you said you buy all the houses, and 70% you what, and 30% you what? I wanna make sure I have that in my notes.

Andrey Sokurec: You cannot do a lot of wholesale because the Department of Commerce actually regulates you and they want every purchaser actually to close on the house. So we close on every house; we use our own money, and we work with private money and bank money. 70% of the homes we renovate ourselves, and 30% we sell; we just clean them for rehab and sell to contractors, to smaller investors who have more time and lower overhead to fix them up.

Joe Fairless: Okay. And 70% that you renovate and keep – do you keep them long-term?

Andrey Sokurec: Most of them we sell, and for rental properties we have a completely different model. We’re buying lower-income homes, like section 8 type of homes who [unintelligible [00:13:44].11] back in 2008, and by now they increased in price by two-and-a-half times. So we have a different formula for how we calculate the offers for rentals. So rentals is a separate business from flipping houses.

Joe Fairless: Okay, got it. So you have a flipping business, and you have a buy and hold business. And now just coming full circle – when you say “homesteading families”, what does that term refer to?

Andrey Sokurec: We wanted to sell houses with [unintelligible [00:14:15].12] but basically the meaning of that term is when we buy a house, we fix it up and we provide the house for a new family — because a lot of people when they spend their entire life in a house (30-40 years) they really don’t want their house to be turned into a rental property. They want someone else, a nice family to occupy their house. So that’s the meaning for homesteading.

Joe Fairless: Okay. Now I’d love to talk a little bit about the plaque and the artist thing, because that’s unique and I’ve never come across that before. Have you taken a look at how many referrals you’ve gotten as a result of this tactic? I know I’m saying it in a very cold-blooded manner; I know it’s not necessarily about how much business you get from it, it’s about adding value, putting smiles on faces, putting good karma out in the world, but also I’m curious from a business standpoint (cause/effect) have you taken a look at that?

Andrey Sokurec: Yeah, absolutely. I don’t know exactly how many referrals we got from the plaque, but I know exactly how many referrals we get every week, because my [unintelligible [00:15:38].07] compiles the reports weekly. On a weekly basis we have about two or three referrals from people. That’s a really high number, because average lead costs us about from 100-300 bucks, and we can get two leads a week for free from people. Those people who have worked with us in the past who got recommended by their friends, most likely they’re going to do business with us.

So I tell people, when somebody calls in our office, you have to provide value for the people first, and then money will follow. That’s what I see a lot of new people struggle with – they hear about real estate investing, and they don’t do any marketing whatsoever; they try to make every person who calls them for advice, they try to convert them in a motivated seller and make them a cash offer. What I tell my people is “Give the best advice and see how you can serve the customer ever.”

If it’s an outright [unintelligible [00:16:48].18] let’s say for example somebody has a nice house, completely sellable, I tell people “Hey, just save your time and give your best advice.” “If I were you, Mr. Seller, I probably would hire a realtor and sell it on the open market.” Then if the person says “Yes, that’s what I’m going to do”, that’s great, but they will probably recommend you someone from their friends who is in a different position, and in this case you save your time, you save those people’s time. A lot of sellers just tell you, “Hey, I don’t wanna sell a house with a realtor; I don’t wanna have a lot of strangers in my house. I actually wanna have an easy, stress-free situation. I like your price point and I’m okay to take a little bit lower price for the convenience of having my own time for closing, and do it easy and stress-free.”

Joe Fairless: How much does it cost to commission the artist to do that painting?

Andrey Sokurec: I think we pay him like $60 for painting, and the frame costs maybe $60. So it’s about $100/piece.

Joe Fairless: I know I’m being very cold-blooded about this, but I’m just trying to get the numbers – so basically the cost of the painting all-in is a $120 bucks and your average lead costs between $100 and $300; so if you get one lead as a result of giving them that painting, then it’s paid for itself.

Andrey Sokurec: Yes, but Joe, it’s not about the plaque itself, it’s about the process. For example, my lead manager, I tell her “Hey, when you answer the phone calls” – we have a lot of people who call and they’re going through a tough situation in their life; their parents died, or they’re going to die… So I say “Hey, feel free to spend the money – it’s your decision – even if we don’t buy a house, just to do something special for those people.”

So from the time people call my office… People who are listening, just feel free to give a call to Homestead Road (you can Google the phone number) talk to my lead manager and see what kind of experience you’re going to have talking to her.

The seller talks to the lead manager, sales manager; we have nice closing, after closing… It’s an entire process. I cannot say that only that plaque contributes to referrals, but the entire process is what’s important.

Joe Fairless: Yeah, it’s a microcosm of your larger operation.

Andrey Sokurec: Yeah, exactly.

Joe Fairless: What is your best real estate investing advice ever?

Andrey Sokurec: Take action. A lot of people want to be real estate investors. They think “Someday I’m going to be financially independent. Someday I’m going to buy my first house. Someday…” but I tell you what, there’s never a good time. Because it’s never a good time to have a kid, invest in your business, go to get education… But the best time is right now.

If you’re hearing this show and you’re brand new and you wanna change your life, right now is the best time.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Andrey Sokurec: Sure, yeah.

Joe Fairless: Okay, let’s do it. First, a quick word from our Best Ever partners.

Break: [[00:20:26].25] to [[00:21:08].22]

Joe Fairless: What’s the best ever book you’ve read?

Andrey Sokurec: It’s hard to say, because I’m addicted to reading different books. I consume them, like, probably a book/week. The most recent book that I read is by the founder of CEO of Nike – Phil Knight. I got really inspired by this book. He’s still around; I actually didn’t know the story of the company. He built this company from ground zero – didn’t have the money, he’s a self-made billionaire, and it was really impressive to read the book. Now I started buying Nike again.

Joe Fairless: [laughs] And that book is called Shoe Dog, by Phil Knight. What is the best ever deal you’ve done?

Andrey Sokurec: The best ever deal that I’ve done is one I’ve never actually done; I walked away from the deal. Because a lot of times, especially now, you have so many opportunities, and sometimes if you think that it smells bad, like you don’t have a good internal feeling, you probably should walk away from the deal.

A couple years ago we started buying so many houses… So we became lazy and we actually stopped inspecting the properties, and we’ve done a couple of deals where we did not inspect the property and we ended up losing money.

Joe Fairless: What is the best ever way you like to give back?

Andrey Sokurec: That’s a good question. We have a company and we do something every quarter; we’re building houses for Habitat For Humanity; this summer I took my daughter and we partnered up with other investors and raised money for the kids in Jamaica and went there to assemble the wheelchairs. That was a really eye-opening experience. But we do as a company something good every month [unintelligible [00:23:05].15] who actually started our own foundation, Homestead Growth Foundation, where we donate the money for the technical college, where kids can get scholarships.

Joe Fairless: And what would you say is the biggest mistake you’ve made on a deal?

Andrey Sokurec: There are so many mistakes that I’ve made… Biggest mistake would be probably not inspecting the property, that was the biggest mistake. Because I became over-confident, I would say, and I was thinking “Now I know everything.”

There was a small mistake that we just recently made – we bought a property, and it’s not in Minneapolis, it’s like 50-80 miles from Minneapolis; this property is a single-family home, but it’s zoned commercial. We didn’t even know about it, we didn’t do our due diligence and now we cannot sell the house because nobody can get financing for the house. It’s a normal, single-family home and it’s impossible to rezone it. It’s kind of seasoned on the books… So again, do your due diligence; don’t be overconfident, inspect every house. That’s my learning lesson.

Joe Fairless: With that particular deal… Usually that’s a good thing where you have a single-family house and it’s zoned commercial, because then you can get it rented for a higher premium than the single-family tenant would pay. Did you find that’s the case?

Andrey Sokurec: Yeah, that’s what I was thinking. Unfortunately, the town where the house is is too small; there’s maybe a couple thousand people living there, so there is enough commercial space. We had a buyer who wanted to get a Fannie Mae loan, and it fell through because it’s zoned commercial, and nobody wants it, basically. But I’m glad that it’s a cheap house, it’s like $50,000.

Joe Fairless: Where is the best place the Best Ever listeners can reach you?

Andrey Sokurec: If you’re listening to this show, you can connect with me by going on YouTube and type “The Real Deal real estate” and watch a couple shows and post your comments. That’s the way I communicate with the people, through YouTube. If you’re here in the Midwest area, we do monthly meetings at [unintelligible [00:25:34].23] and I do a couple events a year where we do three days training, where we take people on a bus tour, show them properties… It’s exciting how many younger people become real estate investors and start making money right out of college, and they become captains of their lives through real estate.

Joe Fairless: Well, I’m on your YouTube channel now. You’ve got a couple interviews that I personally am looking forward to watching and listening to. One of them is “How to succeed in real estate” with the original shark on Shark Tank (the Kevin Harrington interview). I’m gonna listen to that one and watch it.

Lots of great stuff, from having a local cable channel where you’re able to build relationships with high profile people and get in touch with them, increase your sphere of influence, to the giveback mentality first, add value first… You’ve got the unique idea with the painting that you give the sellers when they sell their home – just a phenomenal idea. I mentioned that it was worth from a dollars and cents standpoint, since your cost per lead is 100-300, that it’s basically paying for itself because it costs $120, but that’s not really an accurate statement, because I’m sure your lifetime value of a customer is much more than $120-$300; I’m sure you’re making much more than that.

What I should have said is that your $120 painting is about the same as the low end of a lead, and it continues to pay and pay and pay, because they’re gonna continue to tell that story. What a phenomenal tactic. I know I got caught up on that one tactic, but it’s illustrative of what you’re doing as an overall business plan.

Thanks so much for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Andrey Sokurec: Joe, thank you very much. I enjoyed being on the show. Thanks!

 

 

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Best Ever Show Real Estate Advice

JF290: How to Determine if a Property Is a Good Investment in FIVE Minutes

Today’s Best Ever actor turned real estate investor has used his experiences in life to have tremendous real estate success. Having bought thousands of multi-family units, he shares with us how to determine if a property is worth an investment in 5 minutes, and most importantly about his acting career!

Best Ever Tweet:

Sean Sweeney’s real estate background:

–          Real estate professional with over 11 years of experience in multifamily industry

–          Currently at Timberland Partners, where his two person acquisition team has successfully acquired over 4,000 multifamily units with a combined value over $250,000,000

–          Based in Minneapolis, Minnesota

–          Was in the movie ”What Women Want” with Mel Gibson and has had dinner with him

–          Here is the spreadsheet we discussed during the show: Analysis Spreadsheet

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