Andy Heller has been investing in real estate since the 1990s. His career started when he attended a seminar on how to purchase properties from a foreclosure list. However, that strategy was very taxing emotionally. So Andy and his partner modified their initial plan, opting to work with banks once the property has been foreclosed. And if they couldn’t find a buyer quickly enough, they offered a lease option. This strategy was much easier to execute. Moreover, it was scalable. Listen to the episode to learn how Andy Heller makes money flipping real estate in detail.
Andy Heller Real Estate Background:
- Owner of Regular Riches
- 30+ years of real estate experience
- Bought hundreds of properties
- Based in San Francisco, CA
- Say hi to him at: www.regularriches.com
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“You can’t always assume you’re going to buy a property and flip it because a buyer may not walk in the door. You’ve got to have a backup” – Andy Heller.
Theo Hicks: Hello, Best Ever listeners, and welcome to the Best Real Estate Investing Advice Ever Show. I am Theo Hicks and today’s guest is Andy Heller. Andy, how are you doing today?
Andy Heller: I’m great. Thank you, Theo.
Theo Hicks: Thanks for joining us, looking forward to speaking with you today. So Andy is the owner of Regular Riches and he has over 30 years of real estate investing experience; he has bought hundreds of properties. He invests in Atlanta, lives in San Francisco and his website is http://regularriches.com/.
So Andy, can you tell us some more about your background, and then what you’re focused on today?
Andy Heller: Sure, I’ll give a high-level overview, Theo, so hopefully we can go from there. So about 31 years ago, we attended a seminar about buying pre-foreclosures; it sounded really good, so we subscribed to a list of properties going through the foreclosure process. I found that it was very difficult to buy from individuals before the foreclosure sale, Theo, because everybody’s lives were in a downward spiral, their lives were falling apart, and it was a really emotionally taxing way to invest. But in doing so, because we subscribed to these lists of properties, the lists were a wealth of information; they provided the data of the foreclosure, they provided the bank foreclosing, they provided the amount of the loan, the property address, everything. So it was pretty easy to figure out which properties were going through the foreclosure process, that were going back to some smaller banks.
And just out of curiosity, we were following one property, and I spoke to the homeowner before the foreclosure; I didn’t want to go see the property because to be honest with you, it didn’t sound like there’s a whole lot of equity in it and I didn’t think there was time to get a deal done in the two weeks before the foreclosure sale.
So a few days after we called the bank – it was a small lender in greater Atlanta – and they gave us the key to get in, seven days later, Theo, we had a contract to buy our first property. I called my real estate partner, Scott, and said, “This was a piece of cake.” There was no emotion involved, no human beings; it was a simple business transaction. And then we couldn’t sell the property quickly, and we took a lease-purchase format, we modified it, put it on the market for sale or lease purchase. Within three weeks we had somebody in there, on a lease-purchase, paying us a premium rent. I said to my real estate partner, “This is not what we set out to do, but this is so much easier than what we set out to do. Let’s just keep doing it.” He said, “That makes sense to me.”
So we began to use these pre-foreclosure lists, Theo, and approached smaller lenders, if it was not a government-insured loan, and buy the property right after the sale, before they began their marketing process. And we also, for larger lenders, we’ve figured out that the larger lenders like, Wells Fargo, Bank of America, there’s no ability to approach these banks directly… But all these banks nominate, in every community around the country, two or three real estate agents, we call them REO agents (for real estate owned property). And these real estate agents are in charge of marketing the Wells Fargo and the Deutsche Bank and the Bank Of America, the larger lender properties.
So we figured out, in short, there’s a window in time in most communities, anywhere from 2-4 months after the foreclosure sale, and before a property pops up on MLS, and we’ve learned how that window works, and how to approach these banks, what to say to the banks, how to approach the REO agents, what to say to them so you get on their radar…
And the great part about buying this way is that there’s not a lot of competition, it’s a business transaction that eliminates human emotion, and in short, it’s the only way to buy property below market that we have discovered, where once you have a source, you’re not limited to buying one property, but you can buy from the same source over and over and over again.
I’ll give you a quick story that illustrate how easy this is. One of these REO agents that represented a handful of banks – we bought our first property from him. And he liked the way we do business, he liked the fact that we close, we were very reasonable… So my real estate partner and I, we became his investor source for all properties he took back in the northern part of Atlanta.
So in other words, he would get a property back, like, “Oh, this is the type of property Andy and Scott bought three months ago. I don’t want to spend any time getting it fixed up or listed, I’m just going to call them.” He would call us, and within seven days we’d have a contract. It’s a win-win-win; it was a win for us, it was a win for him, and the banks were happy; they got rid of the property in days instead of months. And this became the way we bought most of our properties.
And instead of trying to flip the properties and lowering our asking price if a buyer did not immediately come in the door, all of our properties were marketed for sale or lease option. So we did flip a lot of our properties, but when we could not find a quick buyer, we did not have to discount our profit margins; we just rolled a property into a lease option. And those were great, because a lot of the properties would sell to the optionee within the first three years. And if it didn’t, we put the property into an extension period and most of those properties would sell a handful of years down the road.
So it’s also a great way to invest, Theo, because when you’re investing, you never know the outcome. And you can’t always assume you’re going to buy a property and flip it, because a buyer may not walk in the door; you’ve got to have a backup.
So the great way about the way we marketed these REOs is that we really didn’t care what happened. We always made money, but we’re not limited to one path. Sometimes we flipped the properties, sometimes the original lease purchaser bought the property, typically, in the third year… Sometimes they didn’t buy, we just found a different family and remarket the property. And sometimes, at the end of the original three years we would give them, the family would say, “Hey, look, we’re paying our rent, we love the property, but we’re not ready to buy. Will you give us more time?” And then we rolled the original agreement into a series of automatic one-year renewals. We’ve got some families in our properties 20 plus years, and I’m not exaggerating. That’s 17 years of renewal from the original agreement.
So one of the keys to our success is that the way we market our REOs – we’re not limited to one or two outcomes for us to make money. We make money when we flip, we make money when we don’t flip, we roll into a lease option. So that is the global overview of our secret sauce.
We’re very, very boring, in that 90% of our transactions in real estate over 30 years have been exactly as I described in the last five minutes. And one of the keys to our success is we just keep repeating this formula over and over and over and over again. We don’t have to reinvent the wheel each time… And it’s easy. It’s the easiest way I’ve found to invest. And I’ve tried other models, and they all take too much time, they’re not as lucrative as our model… So we call our strategy Buy Low, Rent Smart, Sell High. We buy bank-owned properties, typically before they’re marketed and listed on the MLS, and we put them on the market for sale or lease option. Some of them we flip, and that creates quick and immediate cash we can use to buy more properties. And when we can’t flip them, we roll them into lease options. That’s our secret sauce, Theo.
Break: [00:08:32] to [00:10:33]
Theo Hicks: I want to dive in a little bit more into one thing you mentioned, which was what I’m sure is maybe the most important for people who are wanting to implement this; maybe for you right now it’s not that big of a deal, because you’ve already built the relationships with the banks and REO agents. But let’s say I’m listening to this right now and I want to follow this strategy. First, would you recommend that I focus on the small banks, or the REO agents, or both?
Andy Heller: That’s an easy one, Theo. Both. As you go to invest and you focus on bank-owned properties, you’re not going to be certain if in your community it’s going to be easier for you to locate a few smaller banks or one or two REO agents. The process of reaching out — one of the things we have in our kit, we have the scripts of what you say when you call the banks and you call the REO agents. So we arm our students with how to reach out to them and furthermore, what to say when you reach them.
So one of our students in Minneapolis may find one REO agent, and from that one contact, they buy 10 or 15 properties a year. Another student in Phoenix, Arizona may find he’s able to connect with a couple smaller banks, and between those two contacts, they’re good for seven or eight properties a year, and that’s all that investor can handle.
So the process of reaching out is the same. What you say to a bank versus an REO agent is a little bit different. That’s why we kind of script it out. And I’d like to say that your question was great; it’s like asking me, what do you like better, Andy, steak or sushi? I like them both. So I would not focus on one or the other, because the process is fairly similar. And in different communities you may find it easier to reach out to REO agents, in other communities you may find it easier to reach out to banks.
Then the other question is, some of the smaller banks are only going to have one or two REOs a year, some of them will have 10 or 20, that fit what you’re trying to buy. So you don’t really know until you make the reach outs and attempts to foster the relationships, but the answer is you should try to do both.
Theo Hicks: How do I find these banks, and how do I find the REO agents in my market? Let’s say I’m going after Andy’s territory in Atlanta… Or anywhere; I’m just kind of joking about that. But these REO agents, how do we find them?
Andy Heller: Well, let’s talk about your joke for a second, because there’s actually some seriousness to it. Where we are right now – we’ve been doing this for 30 years – we’ve already got our property sources, our relationships are stable. They know us. Frankly, we’re in a position where we can buy as many properties as we want every year, because we have really strong relationships with our handful of banks and REO agents. So I’m not concerned about competition. And that’s the beauty about this model, is once you’ve established yourself with a property source and they find that you’re able to transact, your relationship is going to be solid. In answering that, I forgot the first part of your question, Theo. So that’s me being in my 50s, I need to ask you to repeat it.
Theo Hicks: I was just asking you — it’d be great to go to this in a lot more detail; I’m kind of trying to skip around to what I think is the most important. So let’s say I picked my market already, I’m in Atlanta or I’m in wherever, and I want to start doing this strategy. What’s the first step I need to do to find the banks and to find the REO agents?
Andy Heller: Okay.
Theo Hicks: And maybe talk about what to actually say to them.
Andy Heller: Sure. So our students in our kit, they get a list of — I think it’s a couple 1000 REO agents and banks around the country. So for any of you, probably has given you anywhere from 15 to 20 sources in your community already. That’s a supplement to the list. Remember I said earlier, Theo, that we subscribed, and our students will need to subscribe to a pre-foreclosure list. So let’s say if a family is about to be foreclosed on; the pending foreclosure is required to be published, as a matter of public record, within 30 days of the foreclosure.
So let’s say in Fulton County, Georgia, there’s a county newspaper; they have to publish all of the pending foreclosures within 30 days. And then the information is available, that information is free, that information does not cost anything. So students can access this information for free.
That being said, there are companies that take these different counties in each state and provide this information in a nice, organized list for investors who are looking to buy properties in pre-foreclosure. Most of these lists cost between five and 20 bucks a month; very, very cheap. Some national resources also, like https://www.foreclosure.com/ and https://www.auction.com/. We prefer the local list.
In these lists, in the county newspapers, is also listed the lender’s name. So let’s say, I’m looking in Fulton County, and there’s a property that’s being foreclosed on by Mr. and Mrs. Jones, is the name of the homeowner. The bank is ABC Bank in Georgia. It’s a small bank. Okay. So now I have the bank name, I have the property address, I have the type of loan, I have the loan amount. And I’ve decided that this is the property that I want. So now I see the bank name, then I’ve got the script, I wait a few days after the foreclosure, and I call the bank. It’s not more complicated than that.
So to answer your question, the bank name is a matter of public record, and it’s on the lists that are provided to investors. You subscribe to that list. The only difference is that we’re not trying to buy the property in pre-foreclosure, we’re trying to simply get a head start and buy the property in post-foreclosure, right after the sale.
Theo Hicks: Got it.
Andy Heller: So we use the resources made available for investors who are trying to buy before the foreclosure sale, to buy a bank-owned property right after the sale. That’s it. It’s kind of simple.
Theo Hicks: Sure. So what happens if I have a look at the list and it says Wells Fargo on it? Because you mentioned that you don’t want to reach out to the big banks. And so how do I find the REO agent that’s responsible for that foreclosure?
Andy Heller: That’s a great question. So banks are arguably the most structured type of business in the United States, maybe in the world. In banks they have structures, they have the processes and they do the same thing all the time. So Wells Fargo, let’s say, they get a foreclosure in Denver, Colorado; they’re not going to open up the phonebook or go online and call 50 real estate agents, interview them and select one for that property. It doesn’t work that way. Wells Fargo already has two or three agents in every community, including Denver, that automatically get their foreclosures. So we give the students the roadmap for how to find these agents, how to introduce yourself to them, and how to get on their radar. You follow that roadmap, you follow the scripts that we give you, and you make the phone calls.
The process of identifying which agents receive the foreclosures for the larger banks is really simple. And once you have that information, it’s not going to change. And the other thing about this which is great is all these are REO agents, they all know one another in every community.
A great story I can give you of just how easy this is… In Atlanta years ago, we met an REO agent. It was really the first one that we established a strong relationship with. We took her out to lunch, and during lunch, she gives us the names of about a dozen more REO agents in Atlanta. So we were young, we were in our early 30s at this point, and so she leaves lunch and my real estate partner, Scott, leaves lunch. I call him in the office. I said, “Scott, did what I think just happened over lunch actually happen?” And Scott’s a lot smarter than me, and he says to me, “Andy, absolutely. She just basically open the chest. She gave us the treasure map. Now we just need to follow it.”
So here in one lunch, Theo, this one REO agent, she gave us the names of a whole bunch of others. And then we just got on the phone, we said, “Hey, we just had lunch with so and so; she gave us your name and said that you handle a lot of REOs in Atlanta for different banks than she handles. This is what we do. This is how we do it. Can we meet for lunch?” They will all say yes. And then boom – from that one lunch, we generated about a half dozen other contacts that led to, I can’t even count how many other purchases over the next decade. It’s not more complicated than that.
Break: [00[19:35] to [00:20:15]
Theo Hicks: Okay, Andy, what is your best real estate investing advice ever?
Andy Heller: Okay, that’s a great question. And I can spend an hour answering that. But because we only have a short window here, Theo, I’m going to kind of condense this. Scott and I have bought properties probably using eight, nine or ten different methods of sourcing properties. However, 90%, of what we’ve done, bank owned properties, and 100% of them have been put on the market for sale or lease option. We’re really boring.
And one of the reasons why we’ve been so successful, Theo, is a) we’ve got a very simple and lucrative model. It’s time tested, it’s done the same thing for 30 years, and there are times when it’s easier to buy REOs, when there’s bigger discounts, when there’s more properties available and we’re heading towards that right now… But there’s always REOs available and it’s a very easy way to buy. I don’t know why anybody would rent property. Lease options are so much more lucrative, they’re so much easier. And once you find a family, they landlording element – they take care of the properties way better than if you’re renting.
So the answer to your question is, my advice to all of you is—now, look, I’m a little bit biased; I think the Regular Riches model is the most lucrative model for an investor who’s interested in single-family homes, bar none. That being said, my advice to all of you is this – find a model that makes sense for you. What I mean is it make sense for how much time you have available; some models take a lot more time, some models require a lot more cash than ours. Some models are a better fit for personality. What I mean by that is — in the early part of the interview I said we tried to buy properties in pre-foreclosure, but the emotional component was too difficult. You’re meeting with families in a downward spiral, their lives are falling apart. I couldn’t handle that. I couldn’t deal with these families whose lives were crumbling. Some people can, I couldn’t. So you’ve got to select a model that’s a good fit for your personality, for your available time, for how much risk you’re willing to take, and find a model that’s a good fit; learn it, perfect it and make that yours.
In other words, guys, don’t become a jack-of-all-trades, become the master of one or two strategies. That’s been a key element of our success. So we’re not reinventing the wheel every time, Theo. We’re just doing the same thing over and over and over and over again. And when you’re repeating a formula, you’re less likely to make mistakes, and you’re more likely to make a lot more money. And that’s been really our secret sauce.
So clearly I’m biased. I think you should focus on our model, particularly the trajectory of where the real estate market is going right now; there’s going to be a massive increase in REOs. And I can give you the why to that after I’m done. And particularly if we’re in challenging economic times, lease options become more lucrative and even easier because the pool of candidates grows.
So my advice, to answer your question, is you pick a model, learn it, perfect it, and just focus on that model over and over again, and you’re likely to make a lot more money, because you’re going to reduce the likelihood of making first-time mistakes. That’s my advice.
And if I could speak to the “why is this a great time for our model?” If you go back to the last opportunity to buy properties at ridiculous discounts, which was between 2010 and 2013 – because it followed the real estate bubble burst in 2008; the market hit bottom around 2010, and for about three years, you had a window where you can buy REOs in some communities, discounts between 20% and 50%. That’s nuts. That didn’t just happen, Theo. Before that bubble burst, the rate of 90 plus day delinquencies and mortgages rose dramatically. In other words, statistically, people began to get behind in their mortgages and most of those people lost their homes. And then between 2013 and 2020, the 90-day delinquency rate was flat and it was very low.
I did a real estate seminar actually just last night, and I showed them a graph that showed the last six months the rate of 90 plus day delinquencies has increased 400% from May of 2020. And that completely compares to what was happening between 2007-2009, and that was the precursor to a real estate sale that we had not seen for 20 years, between 2010 and 2013. The same thing is happening now.
So, if you are student of history, if you look at opportunities to buy real estate below market, they were all preceded by dramatic rises in 90 plus day delinquencies. And we are seeing that right now. So what that means is, it’s likely that sometime next year, we will see a correction as these people lose their homes and that will become for real estate investors, an opportunity to buy property below market.
Unfortunately, in real estate, great opportunities to buy typically follow periods when we see economic distress and many people arrive at very, very challenging times and they can’t keep their homes. So what is very sad for our country, unfortunately, it is a leading indicator to an opportunity for real estate investors. And the trend that we’re seeing today mirrors what we saw between 2007 and 2009. So what I said last night in the real estate seminar is, “Guys, this is a great time as an investor to get ready to find that model that you want to implement, because you’re likely to see massive increases in distressed property. You’ll start to see this sometime this year or sometime next year. So you want to be ready.”
Theo Hicks: Perfect, Andy, thank you so much for joining us today, providing us with your best ever advice, providing us with your secret sauce. To learn more about Andy’s company, make sure you check out http://regularriches.com/.
Best Ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.
Andy Heller: Thank you, Theo.
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