David is the Founder of House Sold Easy, a full-time investor and Author of “The Ultimate Guide to Wholesale Real Estate”. He is a St. Louis Real Estate Investor with over 15 years of experience. He first started investing in Real Estate when he was in college, at the age of 20 while attending the University of Missouri-Columbia. David specializes in wholesaling real estate as well as teaching others how easy it is to learn how they too can wholesale real estate for profits.
David DodgeReal Estate Background:
Founder of House Sold Easy, full-time investor, & Author of “The Ultimate Guide to Wholesale Real Estate”
15 years of real estate experience
His team has wholesaled over 500 houses & he personally owns 60 rentals
Based in St. Louis, MO
Say hi to him on his podcast at Discount Property Investor
David grew up in a middle-class family with the mentality to go to school to get a degree and find a job to work for the rest of your life. He actually started out doing really well, having a corporate job, working remote, and making six figures but living paycheck to paycheck. He soon realized he was trapped in the rat race and wanted to get out. He shares how he went about escaping his 9-5 within 2 years and the process he followed.
David OunanianReal Estate Background:
Founder of Transform St. Louis, LLC
Full-time investor and agent
3 years of real estate experience; 7 years as an agent
Portfolio consists of 12 properties using the BRRRR method and flipping 3-4 properties a year
“If you’re not investing in real estate, then you’re probably not hanging around people who are investing in real estate.” – David Ounanian
Joe Fairless: Best Ever listeners, how are you doing? 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 where we only talk about the best advice ever; we don’t get into any of that fluffy stuff. With us today, David Ounanian. How are you doing David?
David Ounanian: What’s up, Joe? Thanks for having me. Long-time listener, first-time caller.
Joe Fairless: Well, awesome. Well, I’m looking forward to our conversation and you know the drill then, you know how we approach these conversations.
David Ounanian: Yeah, yeah. I’m excited to dive into it.
Joe Fairless: A little bit about David – he’s the founder of Transform St. Louis LLC, he’s a full-time investor and agent, he’s got three years of real estate investing experience and seven years as an agent. His portfolio consists of 12 properties using the BRRRR method, and flipping three to four properties a year. Based in St. Louis. So with that being said, David, do you want to give the Best Ever listeners a little bit more about your background and your current focus?
David Ounanian: Sure, Joe. So like so many of us, I was raised in a middle-class family and told that I needed to go to college and get a job working for somebody else. So that’s what I did. I got my degree in Computer Science and became a software engineer at a big corporate company, started climbing the corporate ladder there, spent about ten years before I realized I was miserable, and the scariest part of that was I didn’t know why. I had a great job, where I could work from home and I was making six figures a year, beautiful family, new vehicles, new house, lake house, boat, everything you could ever imagine, but I wasn’t happy, and I had to do some soul searching to find out that I was actually caught up in the rat race and I didn’t even know it. So I had financed everything. So every time I got a raise, we went out and bought something nicer for our family… And before you knew it, at the end of my career there. The paycheck would come in on one day and the very next day, all of the direct deposit that I got from my corporate job was gone to pay all these bills, and it was absolutely a miserable feeling that I was going to have to stay in my job for the next 30 years before I could retire and do something that I wanted to enjoy doing.
Joe Fairless: What was the epiphany that took place?
David Ounanian: So I had got my real estate license on the side back in 2013 because I had a miserable experience with buying my first home to live in. I had to learn how to become the agent myself; my realtor was so bad. So then when I started hearing about family and friends buying and selling their houses, I was like, “Well, I might as well get my license to help them on the side.” So that was part of it, but I had my real estate license or four years before I decided to become an investor… And most of that time, I didn’t know I had all these false beliefs about investing; it had never even crossed my mind of the possibility that I could invest in real estate, especially now that I was licensed and now in the industry. The one thing that came to mind was — one of my good friends from college approached me and he wanted to buy his first investment property, and it was this little $35,000 single-family home near the airport here in St. Louis, and I told him he was out of his mind. I told him he was crazy. You’re going to lose money, you’re going to get called to fix the toilet in the middle of the night, and it’s going to be absolutely miserable. I don’t know what you’re doing. And here I am years later thinking, “I was worried about trying to figure out how to fix a toilet, but at my corporate job, I’m debugging thousands of lines of computer code and fixing all these problems.” It’s like that problem seems a lot easier to solve, but I wasn’t in the right frame years and years ago. But I saw him execute this deal. He did the BRRRR method to a T. He put about $5,000 to $7,000 into this property, it appraised for $75,000.
Joe Fairless: $75,000?
David Ounanian: Yeah, this was a grand slam in the terms of a BRRRR deal, and he pulled out a 75% loan to value refinance, so he got all of his money back plus some, and then he had this thing rented. It was a three-bedroom house, he had three girls going to the University here in [unintelligible [00:06:26].24] move into the property, and they wanted to pay the rent six months in advance. So he hears from them twice a year, he gets $1,000 a month, and I think his mortgage payment on that $50,000 loan is something like $250 or $300 a month. I saw that happen, I was like, “Holy cow. I got to get out and do this myself, because this is the way out.”
Joe Fairless: Wow. That is a textbook case study of the BRRRR method. So you had your full-time job as a software engineer and you kept getting the raises, but then the income kept going out the door because of the direct deposits. What was the conversation like with your family members whenever you’re like, “Okay, now I want to pursue real estate”? Was there pushback, and if so, how do you navigate that?
David Ounanian: Oh my gosh, yes. So you’ve got to understand that if you’re not investing in real estate, you’re probably not hanging around anyone that invest in real estate either. So that was a completely foreign topic.
Joe Fairless: That’s an interesting observation. Yeah, yeah it’s true.
David Ounanian: So it’s a completely foreign topic to anybody in my family. None of my friends except for the one friend that I told you about. So everybody that I tell about all these– it took me about, I want to say, eight or nine months before that epiphany happened, and then I bought my first deal. And during this time, I’m telling everybody about my plan. “Oh, I’m gonna start investing in real estate,” and not one person was saying that’s a good idea. They said, “You’re crazy,” just like I told my friend when he bought his first deal.
Joe Fairless: You were just repeating the party line that you’ve been told many times.
David Ounanian: Yep.
Joe Fairless: Okay. Were you married at the time?
David Ounanian: Yeah.
Joe Fairless: Okay, so how did you have that conversation with your significant other?
David Ounanian: That was just by repetition. So during these eight or nine months where I’m gearing up to buy my first investment deal, I am just going crazy with listening to podcasts, I mean, hundreds and hundreds of podcasts were listened to; your show, Bigger Pockets, any other show you could possibly think of. I’m reading all these books because I heard on all the podcasts the investors are saying that Rich Dad Poor Dad was the inspiration; literally, 99% of everybody said that book, and I wasn’t even a reader at the time. I hadn’t read a book since I had been required to in college, and I was like, “Well, I better get this book because everybody said they read it.” And I read that book and then what that did for me was just got me addicted to reading, and so I started reading books and consuming audible books about this and just trying to learn investing, learn personal growth, all that stuff over these eight or nine months… And what happened was every night, I would come home from work and I would spill all this new stuff that I learned about to my significant other, and of course, eight or nine months of this goes by and she’s like, “Will you just go ahead and buy your first investment deal?”
Joe Fairless: You just bored her down. [laughter]
David Ounanian: That’s how it happened.
Joe Fairless: When you look at the deals that you’ve done, your portfolio consists of 12 properties within a three-year span. How do you do 12 properties using the BRRRR method within three years?
David Ounanian: Really, this was done very easily. So I had a full-time job that was at least 40 hours a week. I’ve got young children at home, so there’s not a whole lot of extra time. What was beneficial to me is that I had the ability to work from home, so I could swivel the chair from one laptop to another to do something on the real estate side… And usually when you’re acquiring a rental property, the stuff that you have to do is 5-minute tasks. Unless you’re the one over there rehabbing it and stuff like that, you can outsource pretty much everything and just be the manager of the investment. So it really wasn’t that large of a time commitment to acquire that many units in the time that I did.
Joe Fairless: So let’s talk specifics for some deals. What was your first one?
David Ounanian: First one was the only one I lost money on; it was an absolute nightmare. So you listen to all the podcasts, you read all the books and you know enough to be dangerous. Let’s say that. So I went into this deal. It was a property that I found on Craigslist from a wholesaler. It’s a single-family home here in St. Louis, and the wholesaler was telling me that it was a $20,000 rehab to make it rent-ready. So this was going to be my first deal. I was going to do the BRRRR method. All the numbers checked out. I went to the house. Never had estimated a rehab before, but I read some books, I looked up some stuff online. I thought I knew enough. So I went in and I said, “You know what, I think that’s a little low. I think I’m gonna go with $25,000.”
Joe Fairless: Okay. Yeah, you want to cushion it. You want to be super conservative.
David Ounanian: Yeah. So over the next six months, this deal became an absolute nightmare. I ended up putting close to $50,000 into the property. I made the mistake of using all of my own cash to finance this deal. My spouse and I had a savings account with ten years worth of savings in it, and literally, every dollar was into this property, and I remember at the end of this time that we held the property it was like, if anything else goes wrong, I don’t know how we’re going to pay for it; it was getting really scary. Luckily, we were able to get it sold, take a small loss on it and get most of our capital back, but it was one of those things where you, in the moment, you’re like, “What the heck is going on? Why did I do this? How did this happen?” But then looking back on it, I got my Ph.D. in rehabbing a property, because I learned every single thing that could possibly go wrong on this property. So it was well worth the education, I guess.
Joe Fairless: And it’s certainly well worth you sharing that story, because anyone listening doesn’t have to go over their budget, $25,000 or so because you’re telling the story. So I appreciate that. What specifically in the budget was not accurate that you initially projected?
David Ounanian: So one of the big problems with this house was all the utilities were off and it was vacant, and it had been vacant for years; I want to say at least two or three years. So I had the property inspected by a home inspector, and I’ve used this particular home inspector dozens and dozens of times as an agent. He’s awesome, he usually covers everything, but one thing that I didn’t put together was because the utilities were off, there was no water, electric… He really couldn’t test a whole lot of stuff. So when we got all the utilities turned on after closing on this property, all of the plumbing was shot. Every single pipe had to be replaced. Even the sewer lateral underneath the foundation of the house, we had to go end to end, dig up the entire foundation, replace the sewer lateral; that’s an $8,000, $9,000, $10,000 job there. The bathrooms weren’t to code, so that added more expense. None of the outlets were to code, the wiring was off. We needed new electric panels, raised a service wire. He got on the roof… Luckily, we were able to save the roof, but then when somebody was purchasing it, they had an inspection and their inspector said that the roof needed all these repairs, so we ended up putting a couple of thousand dollars into the roof as well.
One of the other big ones was the foundation. So they had a finished basement with paneling in the basement. Little did I know that the foundation behind it was crashing into the house. So that was a big surprise, and I remember the day I was at the property when we figured this out, because my contractor was down there. I think there’s some pipe behind the paneling that they had to get to. So I wouldn’t have never known about this unless they had to get to this particular pipe. So we took down the paneling, and the whole wall was just leaning in and had all these cracks in it… And I decided to call a foundation contractor out to estimate it, and the first guy that got there said it was going to cost $15,000 to fix, and I literally broke down and cried when he left. It was the low point of this rehab, and I’m sitting there in my house and I call my one buddy that bought that first property, and I’m telling him what happened, and he’s like, “Just get two more bids, Dave, get two more bids” and I was like, “Okay.” So I get the next bid, and the next bid is $10,000 to fix the wall.
Joe Fairless: Get five more bids [unintelligible [00:15:18].05].
David Ounanian: Yeah, keep getting them.
Joe Fairless: Eventually, they’ll pay you.
David Ounanian: Yeah. So long story short, the third bid came back at $6,000 and we signed off and gave a warranty to the buyer, and so it was perfect. So I was able to stomach that number a little bit better.
Joe Fairless: Oh, man. Some of the things you mentioned, I totally get. It was vacant, so utilities were off. So when you turn them on, all hell broke loose, and some of the stuff. I’m wondering from your initial inspection– and I get it, this is your first deal, so there’s a Ph.D. as you mentioned, but as far as wiring and it not being to code – and this is where I need to be educated – were you not able to tell, or not you, but your inspector, not able to tell that it wasn’t to code without having the utilities on?
David Ounanian: I think one of the things he was able to tell us was the service wire was too low. So that was one, but what we didn’t know is when we turned on the panel, all of the outlets were not grounded properly. So now we had to pull electrical permits to swap out all the outlets, and I think we put two-prong outlets on there to make sure– so that we didn’t have to run the ground wires to them.
Joe Fairless: Okay, got it. So that was your first deal; the only deal you lost money on. Did I hear that correctly?
David Ounanian: Yes.
Joe Fairless: How much did you lose?
David Ounanian: It was $5,000 or $6,000.
Joe Fairless: $5,000 or $6,000, but yet you did it again.
David Ounanian: Yeah.
Joe Fairless: Or you did another deal, I should say.
David Ounanian: Right, yeah.
Joe Fairless: What was the conversation like with people who are closest to you, after you told them – if you did tell them – that you lost money on this first one but, “You know what? I’m doing it again.”
David Ounanian: You know what? It’s interesting, because before we were actually done with this first deal, we went under contract with the next property, and that one was a home run. Much like–
Joe Fairless: Thank goodness.
David Ounanian: –the example that I gave you from my friend of mine… I really wasn’t public about this back then, because almost–
Joe Fairless: What about your wife, when you talked to her, and you’re like, “Yeah, we just lost money, but you know what? I’m gonna go and put this other property in the contract because I want to double down on this strategy”?
David Ounanian: Yeah. Now, it was a different animal because I really give credit to listening to shows like yours because you hear time after time, investors say that you’ve got to be persistent and you’ve got to learn from failure and fail forward. So even going into this first deal, I had that mindset, and there was a bigger why that was powering us, that one deal, no matter how much I lost on it, was not going to stop me from being successful at this and getting out of my corporate job… Because that was the ultimate goal for this.
Joe Fairless: Okay. So the second deal, quickly, what are the numbers on it? You said it was a home run.
David Ounanian: Yeah. So this was a $60,000 property that we put about $5,000 in to make rent ready; it appraised for $99,000, and then rented for $1,050 a month.
Joe Fairless: Wow. Yeah, and you still have that property?
David Ounanian: Yes.
Joe Fairless: I know when I introduced you, I said – because it was in your bio that you flipped three or four properties a year, so how do you determine which ones you’re going to flip and which ones you’re going to hold?
David Ounanian: Sure, sure. So real quick, what’s nice is when you learn how to rehab a property once, it’s fairly easy to do it over and over again. So after learning on that first deal that was a complete nightmare, now at least we knew how to rehab a property successfully, what could go wrong and what’s going to go into it. But to get to your question here, when you’re looking for these rental deals, a lot of times, the property is too expensive to cash-flow as a rental. So if you’re talking like a nicer area like an A or B neighborhood, sometimes it’s not going to cashflow very well as a rental property, just because the property values are too high. But as you come across these, if you know how to rehab houses, now they can be fix and flips for you, and so that’s where we don’t let anything fall through the cracks just because we can’t add it as a rental; let’s see if we can make this work as a flip.
Joe Fairless: Besides the first deal, what’s been the most challenging property?
David Ounanian: The most challenging property. Man, besides the first one, I guess it was another property that I bought that was sight unseen. I bought this one off the MLS. It was listed for $37,000, it was a Section 8 tenant paying $708 a month, I believe, and it was under lease for a year. I think it was a new one-year lease at the time that I bought it. So picked it up and it was like “Easily, I think this property could appraise for higher.” We got it appraised at the six-month mark, because that’s when you can finance using a conventional loan that isn’t going to go off a new appraisal. So I do the new appraisal… I did nothing to this house, but maybe a little bit of landscaping and paint on the outside, some curb appeal, and it appraised for, I think, $59,000. And so instantly I had some equity in it.
The problem that became is when that lease came up– so the lease came up, the tenant decided to vacate the property at that time, and now I’m into the property… And I had been in there once or twice after going under contract, but I knew it was in a little rougher shape, but it wasn’t to the point where I was going to back out and lose my rapport with this agent that I was working with… And we got into the property after she got out, and it was another foundation problem downstairs. It had — the foundation walls were returning to dirt. They were deteriorating, and so we had to do some pretty extensive foundation work on that property. But that all said, the deal still cash-flowed. So it’s still a win and we still have equity in it.
Joe Fairless: How much was the foundation work?
David Ounanian: That was $10,000.
Joe Fairless: Why did you buy it sight unseen?
David Ounanian: I thought the numbers looked good. So $37,000 property in probably a B-, C+ area that’s running at $708. I always look at the 1% rule. So if I can buy it for $37,000, can it rent for more than 1% of that a month, which this is almost double that, so it’s almost at that 2% rule. So that’s what I was looking at.
Joe Fairless: Taking a step back, what’s your best real estate investing advice ever?
David Ounanian: My best real estate investing advice ever is to not forget the mindset component of this. Before I got started in investing, if somebody were to ask me how much mindset had to do with being a successful investor, I would’ve said maybe 5% of the equation; and today after doing dozens of deals and helping other people as their agent get started in investing, I can say with 100% confidence that 80% of the success is attributed to mindset and the 20% is really the mechanics or the blueprint for how to do the deal.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever lightning round?
David Ounanian: Yeah, let’s do it.
Break[00:22:30]:04] to [00:23:40]:07]
Joe Fairless: Best ever book you’ve recently read.
David Ounanian: Best ever book I recently read… I’m gonna have to take this back to the Bible, Joe, because I’ve been consuming so many books, and when you look at the messages and all these different business books and all these different life works, it’s so easy to take that message and say you can find that in the Holy Bible. And so now I really like to– I’ve got an app on my phone where I can search for answers on there, and so that’s something that I’ve gotten into heavily recently.
Joe Fairless: What’s the best ever deal you’ve done that we haven’t talked about already?
David Ounanian: I’d say it’s a four-family that we acquired off market. So this is a property that, on paper, cash-flows about $200 a door, but we were able to take heavy depreciation on it to make all that income essentially tax free. So we did something called a cost segregation study on it, and last year, that alone was responsible for a $33,000 write off on a property that gets $9,000 or $10,000 a month in cash flow. So now that that’s all tax-free cash flow, or deferred cash flow, which long-term the plan is to just 1031 the property into something larger and keep trading up. So ultimately, that’s probably the best ever.
Joe Fairless: What’s the best ever you’d like to give back to the community?
David Ounanian: Through Big Brothers Big Sisters. I’m a big brother myself, and I’m super, super passionate. I believe everyone is one mentor away from greatness, and there’s so many kids out there that don’t have it as good as we do who are on here listening to this podcast or talking on this podcast. There’s all these kids on these waiting lists that Big Brothers Big Sisters that have called out for help, and in many communities like my own they’re just waiting because there’s not enough people to step up to be a mentor for them.
Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?
David Ounanian: Yeah, you can get a hold of me at agentdavido.com or follow me on social media at @agentdavido.
Joe Fairless: David, thanks for talking about the BRRRR method that you did on specific properties, how you got into it or why you got into it, how you thought about it, so the mindset, and then deal-specific stuff and some things to look out for for us when we enter into deals like this. So thanks for being on the show. Hope you have a best ever day. Talk to you again soon.
David Ounanian: Thanks, Joe. It’s been great. Appreciate it.
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Jason has been investing in real estate for years, his specialty is finding off market deals. He built and sold REI Blackbook, now he helps individuals find off market deals by building them a specialized blueprint and giving them a leg up on the competition. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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“You’ll go from 3000 homes in Cleveland down to 30 in a matter of minutes” – Jason Palliser
Jason Palliser Real Estate Background:
Off market lead generation specialist
Has closed over 3,000 investment transactions
Built and sold a RE automation company & actively invests
If you’re a passive investor wanting to learn more about questions to ask sponsors in order to qualify the opportunities, sponsors, and the markets opportunities are in, visit BestEverPassiveInvestor.com.
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Jason Palliser. How are you doing, Jason?
Jason Palliser: I’m doing well, how are you?
Joe Fairless: I am doing well, and looking forward to our conversation. A little bit about Jason – he is an off-market lead generation specialist. He’s closed 3,200 investment transactions and he has built and sold a real estate automation company, and actively invests. Based in St. Louis, Missouri. With that being said, Jason, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Jason Palliser: Sure. Hello, everyone. I’ve been investing for 20 years, I’ve been doing private funding, hard money and investment specialty [unintelligible [00:01:41].20] for 24. I build two-day investment blueprints. I basically in a matter of 48 hours build out 28-30 off-market lead generation funnels. Most people only know a few… And we take over marketplaces. I do it for hedge funds as well. So if there are any listeners who don’t understand the hedge fund side – it’s really simple. Hedge funds decide to invest money and diversify. They might buy 200 million in copper, 100 million in overseas technologies, and they’ll also invest in real estate.
So they’ll hire somebody in a city (called a city operator) and say “Hey, we want 1,000 homes in Houston, and we need to do it in 40 months.” It’s a good gig to get for the city operator person, but if you can imagine the stress of having to average 50, 60, 70 homes a month off-market… Then someone will hire me to come in and do it, and I will just build their off-market funnels, their systems, all the way down to doing direct mail for free, if you do it the way that we want you to. But that’s pretty much in a nutshell what we do. I sold an automation software company, for those who might be familiar, called REI Black Book – I sold that company, and I just started doing individual blueprints for individual investors, again, and not just do it for the hedge funds. That’s kind of who I am, what we do.
When we lay a blueprint over a marketplace, it’s just simply not fair. I’m from St. Louis, and just moved down here to St. Pete Beach, so I’m happy to report to everybody that the weather is much nicer down here by the beach.
Joe Fairless: [laughs] Talk to us about your process. You’ve just mentioned when you put a blueprint over a market place, you’ve got that competitive advantage. So when you put together a blueprint, what’s your process you go through to do so?
Jason Palliser: What we do is we’ll do several things. When we get our hands on an investor, they’ll have told us ahead of time what marketplace they’re looking to attack – or marketplaces, if it’s more than one… And the first thing we’ll do is we’ll break down data in their city, because data doesn’t lie, it tells the truth. So we’ll take the median sales price; what’s the average square footage for 2-3 areas that you’re looking to attack; what bedroom count sells the fastest… Nine real estate data points, and then we’ll start paring that down.
We’ll take half of the median sales price and we’ll start setting triggers. So one of the 30 ways is that we start to automate the online world. We start with their marketplace, we teach them that data doesn’t lie, so that they have that skillset, so we could drop them off in any city when we’re done with that section, and — maybe they’re not from Cleveland, but we’ll just drop them off there and they’ll talk to a realtor, ask for those 9 data points, in 60 seconds they can give it to them, and then they don’t need them anymore.
We’ll show them 16 real estate online websites to attack, and we’ll drill down to the good stuff. We’ll go from 3,000 homes in Cleveland, down to 30 in a matter of 2-3 minutes. With certainty, they would look me straight in the eye and say “I want these appointments”, and they’ve been in Cleveland for 10 minutes.
So we’ll start there, on “Data doesn’t lie”, so that you can get to the good stuff without sifting through all the stuff that doesn’t make sense, and then that’s where we start to apply everything. We’ll walk you through a mind map that’s taken 15 years to cultivate, blueprints for the hedge funds that are responsible for 34,000 homes acquired… So we’re gonna walk you through what we know wins. We’ll start going through each different lead sandbox, and whether it’s pre-foreclosures, vacants, water disconnects, tax delinquents (tax delinquents is my favorite of all time) and we’ll show you what actually wins. We’ve had approaching 60 million in marketing budgets at this point, so I always joke and tell people I don’t have the luxury of not knowing how this is done.
So we’ll start walking through each lead piece, but then the most important thing is this – everybody says “Hey, I wanna get some good, motivated leads”, but within an hour of us getting our hands on a client, they usually tell us “Wow, I’m never gonna have a lead problem ever again”, because the first set of leads that we unlock for a person could be 1,500 off-market vacant leads, or 1,500 water disconnects. So there’s not a lead problem… And Joe, I’m sure you’re aware of this, it’s more of a “What do I do with these leads to get them to respond to me” problem. So we’ll start walking them through a critical tab called “The systematic approach”, where as soon as the leads come in we walk them deliberately through what we do and in what order, and if you do it the way we want, then you’ll have smoked that good lead four times for less than a dollar.
The first level of attack costs one tenth of one cent. The second level of attack costs 18-20 cents, the third is six cents, and the fourth level of attack is 55 cents. So for less than a dollar you’re blanketing those good leads in the marketplace, and then when we lay on top of that how we do free direct mail, if you do it the right way, then you can take over a market and quite frankly no one can stop you.
Joe Fairless: What are the four things that you do for less than a dollar?
Jason Palliser: The first level of attack is we put systems in place to have the doors tagged. So as soon as you get those, we have 200 variations that we’ve tested on different door tags that we do. You could do regular door tags; we suggest you don’t do that. Your first thing that you do, which will be a to-do item for you, is that you or somebody in your team gets a post-it notes stamp made; a stamp the size of a post-it note, and we’ll use 2 or 3 different variations of wording on that to get them to contact you.
The second level of attack, which we have it down to as little as 10 cents, but 18 to 20 cents is fair – a skip-trace. We’ll throw them straight into your systems that we build out.
The third level of attack – we’ll attack them and surround that person socially with cookie-free IP targeting. Hopefully that doesn’t lose people on this particular episode, but cookie-free IP targeting means this – everybody knows if you search online for shoes, that all of a sudden on almost you go to shoes keep popping up. Well, you willfully did a search, you had to perform an action, and then it cookied you and followed you around.
So imagine a world where these good leads come in, and for as little as 2 to 6 cents you can socially surround them with your ad, your brand on any website they go to. That’s the third way that they do it – they start to know you and contact you… Because almost any website that they go to, there’s your ad – “Hey, I’m interested in your property. I’m interested in your property. I’m interested in your property.”
And then the fourth level – we drop a direct mail bomb on them. 60 million in marketing budgets – we have a marketing piece that gets a very nasty open rate, and since we started doing this for individuals (again) and not just for the big companies, hundreds in a row now, I’m like “Would you open this?” and they just simply go “Yes, I would open it.” I go “Isn’t that what you wanted?” and they’re like “Yes.” So we’ll hit them four times…
Joe Fairless: What about it makes them wanna open it?
Jason Palliser: What about it makes them wanna open it? I hope people have their fingers ready to type, or pens in their hand… We’re gonna do a colored envelope. That colored envelope is going to be handwritten in crayon. And then we have what looks like a handwritten letter on the inside, and we’ve tested somewhere in the ballpark of 700 different letters over 122 marketplaces, and your first level of attack when you get to that step – it has a letter that invokes a response from them better than any other letter we’ve ever sent.
So when you get a colored envelope in the mail, and it’s written in crayon…
Joe Fairless: Yeah, I’d open it.
Jason Palliser: You don’t think it’s from somebody to talk to you about your house; you think “Oh gosh, I’d better open this up. I wonder what kid’s birthday party invitation is being sent to me.” So that’s what we do to get a nasty response rate.
Joe Fairless: And the difference in what they expect, handwritten in crayon on the front, versus you’ve got handwritten inside, but it’s not from a kid that you know, it’s from a company – how do you bridge that gap, so it doesn’t upset them, and so that you drive action for what you want?
Jason Palliser: Well, on the inside, like I said, it looks handwritten. So one – they opened it, so you’re winning the game. Two, the handwritten letter is so polite that any level of, like you said, “How do you bridge the gap?” or flip the script on them, so any level of animosity, whether it’s 0.1% or 10%, they’re like “Hey, this isn’t from a kid!”, the letter softly solves that. But then we get a lot of phone calls that go like this… They’ll call us, obviously they’re like “Hello, I’m calling you, I’m at the 123 Candy Lane”, and then they’ll start the conversation with “That was good.”
Joe Fairless: [laughs]
Jason Palliser: They’ll start the conversation, Joe, with “Hey, I just wanna let you guys know, that’s good. Look, I get a lot of letters, this and that… You got me.” They’ll say “That was good” and “You got me.” Which is exactly what you want. You want them on the phone with you. Same thing when the leads come in and we get their information, or when we automate the online world, when a good lead pops up in the online real estate universe – we have 2,000 variations of e-mails that we’ve tested, over 4,2 million e-mails in 14 years, and when we build out the system for 2-day blueprint clients, one of their to-do items is to text-message themselves the exact e-mail that we use, that gets the appointment faster than any other e-mail that we’ve ever sent. Because we dont’ want them to think, we want the machine to run.
When your phone lights up like a Christmas tree, because we can automate Craigslist, Zillow and a few other websites, for perfect deals in your area. When it goes off and it’s a perfect deal, you don’t need to look at pictures. Pictures don’t set appointments or cash checks. You need the appointment faster than any other human, so… Imagine a world where your phone lights up and you just move your thumb one-eighth of one inch over, copy straight from your text message the exact e-mail to get the appointment, and then go right back to ordering dinner.
Joe Fairless: What’s been the most challenging client or project that you’ve chosen to undertake? Just tell us a story about how you approached it.
Jason Palliser: I’ll say with a client… We built out a two-day blueprint for an investment client in the Atlanta area. We get all the time “Oh, my market’s saturated.” It’s my favorite question. And I always tell them the same thing… Before we even got the ball rolling, he was already trying to work against himself. And I’m like “Hey, data doesn’t lie. If you do this, follow it to a T, you’re gonna succeed.” But he got into his own head, so the challenge was this – we built everything; when we’re done, there’s no ramp-up time. This isn’t baby stuff, this isn’t guru stuff. I speak for tons of TV shows as their back-end expert for real estate, so this isn’t the guru-level stuff, it’s the back-end experts building your stuff out… So the biggest challenge was he simply wasn’t executing; through conversations found out that we told him the exact order to do things in to get the appointment faster than anybody else, yet he strayed away from the deliberate, on-purpose process.
One example is he gets a good lead that comes in, so the blueprint/the machine is doing its job, and he’s running comps. Well, I teach everybody, the moment you get a good lead in the door, you’re only going goal online is to get the appointment faster than anybody else. If you’re running comps, I always tell people, if you catch yourself looking at pictures or running comps, I’m already at the house. Try again. Nobody’s mad at you, try again tomorrow. They are still spinning just fine. Try again tomorrow, you’re not doing it right.
So the challenge was that he kept over-thinking. Running comps – of course you’re gonna run comps, after you get the appointment, but if it’s a hot lead, as you know, Joe, you need to get the appointment faster than anybody else on Earth, because there’s other investors who want that same asset. So that, and basically not following the order that we want them to do stuff then.
I always tell everybody this – I’m no smarter than anybody else… I saw the value in getting good at stuff post-college, so I paid to get better at stuff; process, online marketing, offline marketing, copywriting, all that good stuff. Just like you fine-tune your skills. But when you have big marketing budgets, and you get paid to test everything under the sun, just pardon my French, stupid things that you would think don’t work, and then they do, then you refine those, at some point when you’re millions in in the marketing budget department, you kind of know what wins and you kind of settle in on that better process.
Everything’s trial and error until you start hitting your numbers, and then when you’re hitting your numbers, you start fine-tuning. It’s compartmentalizing things. So the challenging client – he kept over-analyzing because he was scared of making mistakes, so he just kept getting ready to press go, instead of just pressing go, if that makes sense.
Joe Fairless: And then what’s the response to someone saying “Okay, I hear you. When I get a good lead, the only goal is to get the appointment as fast as possible, *but*… What if it’s a terrible deal and now I’ve wasted the time that I’ve spent during that conversation?”
Jason Palliser: I love that.
Joe Fairless: You’ve clearly heard that question before, right?
Jason Palliser: Oh my gosh, if everybody could see me, they’d see how big I’m smiling. “Hey, but Jason, if I get a lead, I don’t wanna make a mistake, but what if it’s just not a good deal?” And I always frame it for everybody like this… 1) I understand what you’re saying. I’m hearing you, so at least know that you’ve been heard. 2) I’m pretty sure that we’re on the same page as far as you do not know what you’re gonna get when you walk in that door. You want the appointment faster than anything else, because here’s why – you’re willing on anything that could remotely be a deal, the new you is willing to run a machine that gets to everything first, and you’re willing to get to every one of those that could remotely be a deal first, no matter what, because that’s what you are focused on, for this reason: you don’t know what you are gonna get when you walk in the door, neither do I.
I’m simply willing to get there first every time, to find out. Here’s why. You could run numbers on a deal and be like “Meh… That’s not a deal. It doesn’t look like a deal.” The phrase “look like”, “it doesn’t look like a deal”, “Well, at those numbers it’s not a deal.” When you do that to yourself, here’s what you’re saying to me: “Hey, Jason, I’m so unbelievably good that I looked at this and I’ve waved my magical hand over it and it could never be a deal.”
Now, I think everybody listening knows that that’s simply not true, and it’s presumptuous. What you’re also telling me in the moment is this – that no one has taught you a seller waltz, to turn that no into a yes, nine different ways. You just need to have that skill, because you’re telling me that it can’t be a deal at that number, so you’re saying that in the history of all mankind people go on appointments and whatever number they see on paper, however that lead came in, that it can’t be turned into a deal? I just simply know that not to be true.
So stop over-analyzing it. Don’t operate that way. You should get to everything first… And here’s why – if they’re unreasonable with you when you walk in the door, so what? We’ll teach you when we teach the seller waltz that should be expected… Because if they’re unreasonable with you, Joe, they’re gonna be unreasonable with me. They’re gonna be unreasonable with 15 other people. But if you do your job and seller-waltz them right, you can offer them multiple ways to strike a deal that they’ll never hear from anybody else, and then the next layer on top of that is that you’ll also offer to help them out for free, and use techniques like “Hey, our organization – we don’t buy every house, but I appreciate the fact you’re saving money without using a realtor. If we don’t come to an agreement, I hope you market your home for free, to 30 or 40 different real estate websites. All I ask in return is that if anybody ever needs help, send them my way.” And here’s why you do that…
I wanna get there first to create a relationship with them, because that’s what really closes deals. I don’t care if at a glance it looks mediocre. I wanna get there first and create the relationship, so that when they decide to come down on price, and I didn’t beat them up, offered more ways to strike a deal with them, and offered to market their home for free and a few other different techniques of doing free things for them, and they soften up on price, Joe, you and I both know who they’re gonna sell to.
Joe Fairless: Yup. You.
Jason Palliser: So when somebody says “But Jason, I’ve got a lead in, but I’m running the numbers…”, you don’t know what you’re gonna get. They might have it out there — and I always tell everybody this, “Set a crappy appointment if you need to.” Hey, if your week’s not going the way you want, just go online, in a zip code that you like, and look at something that looks mediocre, barely could be a deal, and set a crappy appointment. Here’s why. If everybody else just like you looks at that potential lead and goes “Meh…” They make that little noise, “Meh…” – all those noises, because it doesn’t look like a deal… Well, what if everybody did that? So what if you’re the only one that sets the appointment? And what if when you walked in the door, they’re like “Hey, look, I just threw it out there, the number. I know this house needs some work. Somebody just needs to make me an offer”, everyone that listens to this would be like “Man, that’d be a dream come true.”
That’s a dream come true appointment. Well, you won’t know, because you’re so good that you look at the numbers and say “Meh. Not a deal.” I’m willing to get there first every time, and I will waltz them… And I already know that people aren’t reasonable on price, just like you do, Joe. That’s why you pass up on deal, and so do I. But I wanna have the conversation first before I pass up on it. Does that make sense?
Joe Fairless: Yeah, it’s really interesting. Thank you for sharing that perspective. It’s not contrarian, but it’s very focused, and perhaps it will shake and rattle some investors who get focused on a lot of this stuff, whereas you are literally focused on a step-by-step process.
What’s one other thing that real estate investors based on your experience do, that it could be optimized to get better results?
Jason Palliser: Refine their process. When I have people come in for a two-day blueprint, I have people that are brand new, I have clients that I’ve taken from 40 closings a year to 200… I’ve just had some — back in December they came in for a second time, because we’ve been doing it long enough to where people are cycling back through, since we’re doing it for individuals again… And if you can imagine – and anybody who’s listening to this – if you wanna get to 10 closings a month, or 20, or you’re saying “Jason, shoot, I’d love to just get two or three a month”, refine your process and make your process better.
When these bigger companies come in – and I know you know this, Joe – and sit down and say “Hey…”, just like the gentleman that came in that I took him from 40 to 150 to 200 houses… They came in and sat down and said “Okay, now we wanna go to 300 or 400.” So focus on refining the process. When they come in the door, if they’re doing 200 deals a year, a lot of times when people sit down with us, once they contract with us, they sit in the room and you can get the feeling of “We’re already doing 200 deals a year. What are you gonna show us?” And I love those conversations, because we’ll teach them “Hey, look, whatever you have in place, obviously it’s working. We’re here to super-size it. We’re here to enhance it.” So what I would tell everybody on here is make your process better, pay attention to what you do, and in what order.
One example that we just talked about, Joe – when a hot lead comes in, if it can remotely be a deal, we get the appointment faster than anybody else in the cities that we’re attacking, because it could be a deal at some point, and we’re gonna do our job on the appointment to do that. So don’t run comps first. You can do that after you get the appointment. Because if you wait, somebody might already be at the house, making the offer.
So these big companies that come in, I tell them all the same thing – we’re going to tweak some of the things you do, and maybe add some efficiencies to your process. And here’s one more example, Joe, that I think would help everybody out… Add this wrinkle to your process – you get leads in the door, you contact them or they contacted you, you set the appointment, you go on the appointment, you’re more than likely gonna disagree on price to start out with. Do your job, waltz them well, and then you’re gonna throw them in follow-up; everybody knows that, but here’s one extra wrinkle – every time you get in the car, just because they wanted 200k for the house, and let’s say you were at 190k, and let’s say you and I, Joe, even looked at the numbers with anyone of the investors listening, and we agreed “Hey, for what you wanna do, yeah, 190k is probably the number. Not 200k.” But I always tell everybody this – is someone gonna do the deal at 200k? What do you think, Joe?
Joe Fairless: I don’t know.
Jason Palliser: More than likely, someone will do it. There’s always somebody willing to pay more. So if that’s the case, and your machine gets you there first, here’s the wrinkle to add – every time you get an appointment and you’ve got there first yet again, because when we built the 30 different ways to get there, you’re getting the things first… So we teach everyone we get our hands on, you or the person on your team that’s on the acquisitions side, if you ever start your car, blast it out in your meetup groups and Facebook groups, because somebody’s always gonna do the deal.
I don’t know why somebody’s willing to pay 200k. It may be because they have a 1031 exchange and they want a house in that area, and they’ve got three weeks left to find one… So they’ll overpay. So throw it out there. If they want 200k, throw it out in all your groups and say “Hey, I’ve got an opportunity in this area. If you want more info, let me know. For 210k.” If no one responds, no one knows if 100 people responded to you or zero. But someone’s gonna do the deal, so if you’re getting there first, of course you’re gonna follow up with them. But what if somebody else [unintelligible [00:22:08].15] You wanna have your machine maximize your opportunity. Now you’re making money on houses you didn’t even have under contract.
Joe Fairless: Great stuff. Real quick, what’s your best real estate investing advice ever?
Jason Palliser: My best advice ever is to wake up and follow the system to a T. And I always tell everybody this – always look to master the process; don’t worry about outcomes. If you get so unbelievably good at your process, closings happen. The moment you start to worry about “Man, I don’t have enough closings. I’ve been doing this for this long, I’ve been doing that, I’ve been reading all these articles and watching YouTube videos and blah-blah-blah”, then you’re not focusing on the right things in your business. So seek to master the process, don’t worry about outcomes.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Jason Palliser: Sure, go for it.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Break:[00:23:04].13] to [00:23:48].18]
Joe Fairless: Okay, real quick, best ever book you’ve recently read?
Jason Palliser: The book I’m reading right now that I really like is Never Split the Difference.
Joe Fairless: Chris Voss.
Jason Palliser: It’s about negotiating. Yeah, Chris Voss. I love that.
Joe Fairless: Best ever deal you’ve done?
Jason Palliser: Best ever deal I’ve done – I wholesaled a property, made 175k.
Joe Fairless: A mistake you’ve made on a transaction?
Jason Palliser: Not vetting my contractor good enough.
Joe Fairless: Best ever way you like to give back?
Jason Palliser: Two Christmases ago my team and I donated a car to a guy that I’d never met before, but I taught my team to always provide value. She gave the guy a lift in the rain, and it turned out that he walks to and from Target and Steak ‘n Shake, and he was saving money, and he goes “Hopefully a year from now I can buy a car…” So we started a GoFundMe, and I said whatever people put in, I’ll match half. We told Target, we showed up at work, and when he was getting off work he had no clue it was coming – we handed them the keys to the car.
Joe Fairless: Best ever way the Best Ever listeners can get in touch with you and learn more about what you’ve got going on.
Jason Palliser: If you wanna hit us up, we can help you take over your market. Just go to 2dayblueprint.com. It’s got good info there, and you can schedule a call directly on my calendar. Or you can simply e-mail me, email@example.com.
Joe Fairless: Jason, thanks so much for being on the show, talking about the process. I love your best ever advice, “Master the process, don’t worry about the outcomes”, because as long as we’re doing the right things, in the right order, at the right time, and doing it very consistently, then we’re gonna get the outcomes that we want.
Jason Palliser: And you’re gonna win.
Joe Fairless: Yeah, you’re gonna win. Thanks so much for being on the show, as well as obviously the very practical advice, that can help influence a best ever listener as they’re getting leads or attracting leads. I hope you have a best ever day, and we’ll talk to you again soon.
Divyesh and his partners were tired of spending so much time scheduling and showing rentals to potential tenants. If you’re in the same position, you should definitely tune in to hear his story. His product can help EVERY landlord create more time. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Divyesh Panchal Real Estate Background:
-Co-Founder & CEO at Key Please-,real estate investor for 10 years
-KEY BOT is a smart lock installed by landlords to automate marketing, showing and leasing rental properties
-Renters can self-qualify, tour on-demand & negotiate a lease from a smartphone
-Based in Saint Louis, Missouri
-Say hi to him at www.KeyPls.com
-Best Ever Book: What Got You Here Won’t Get You There
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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 of that fluff. With us today we’ve got the founders from Key Please, one of them – Divyesh Panchal. How are you doing, my friend?
Divyesh Panchal: I’m doing great, Joe. How are you?
Joe Fairless: I’m doing really well. Who are the co-founders that you have with you?
Divyesh Panchal: Yeah, I have Adam Lorentzen, who is our chief product officer, and Daniel Dawson, who is our chief operating officer.
Joe Fairless: Sweet. Well, nice to have the whole crew here. Just for sanity’s sake, since we can’t see you all, we’ll let Divyesh – you take the lead on this, and then for anyone else who wants to chime in on certain responses, feel free to do so.
A little bit about Divyesh – he is the co-founder and CEO at Key Please. He’s also been a real estate investor for 10 years. Their product is called Key Bot, which is a smart lock installed by landlords to automate marketing and showings and leasing of rental properties. They’re based in St. Louis, Missouri. With that being said, Divyesh, do you wanna give the Best Ever listeners a little bit more about your background and perhaps your team’s background and your current focus?
Divyesh Panchal: Absolutely. I’ve been a real estate investor ten years and I have invested from single family to multifamily, and I own hundreds of rentals in the St. Louis area. I ran into this idea just randomly – my wife had to leave country for a couple of weeks to see her family back home, and now I changed my role from investor to actually operator; that was really a nightmare, as you already know how hard leasing is.
Then I ran across the little problems of leasing, and the endless texting and scheduling… I invited Adam to help me out. Him and I had worked together in the past, and we both saw that this is a huge problem not just for me, but the fellow landlords like me all over the U.S. So we talked to Daniel as well, who’d been running a full suite tenant placement company, and I used to be his customer, actually.
We asked Daniel, “Daniel, this leasing is killing me” and he’s like “Tell me about it, man. I see this every day. So many hours spent on just scheduling; half of the scheduled showings don’t show up…” So we got together and we said “You know what, how do we solve this problem?” That’s how Key Please was born, and one thing lead to the next and here we have a fully functional and ready to go product.
Joe Fairless: Looking at your website, Key Bot is basically a lock that your potential residents can gain access to the property, who are pre-approved or screened. So you know who’s gonna be at the property… I imagine the code will likely be unique to that person, and then it expires after a certain point in time. It allows you to be remote, while still showing the property to people who have been approved through some sort of filter. Is that about it?
Divyesh Panchal: That’s exactly what it is. When Adam got on board, one of the first things we started focusing on was “What can we do to off-load work from property owners?” Because most of the property owners like myself has a full-time job, they have a life to live, and the next thing you know is they are running around and chasing around all these prospective renters. So we came up with this idea about putting a lock and let the lock and they key do most of the hard work. Let the ventures come in, self-qualify them – they can upload their ID, they can upload the picture of their ID and a selfie. Our algorithms can make sure they’re a real human, not a fake person, and they can take a tour of their own.
We’ve found this was a huge deal for people who have a job and they have a life to live as well. We have had tours happen all the way from six in the morning on the New Year’s Eve and on Thanksgiving days, and we were like “Wow, people are really doing this!” and that’s when we actually decided to put the full product together.
Joe Fairless: That makes sense. So when did you all launch it?
Divyesh Panchal: Our product was launched in November 2016. That was version one, and we are launching a new version with our proprietary lock, which will have a unique code for each renter.
Joe Fairless: Cool, congratulations on that. How much business do you have and where is it concentrated?
Divyesh Panchal: It’s been really interesting, because we started off — we weren’t sure how well will it reside with people… We started from St. Louis and we’ve had several customers all over the U.S., East Coast as well as West Coast. We are already at 10+ customers, and we’ve just signed a couple of [unintelligible [00:06:32].13] property firms with 1,000+ doors, so we are really excited about it.
Joe Fairless: Yeah, that’s the holy grail for you all, the property management companies – working with them, going straight to the large distributions channels. As an entrepreneurial team, you’ve got three people. What’s been the biggest challenge from an organizational standpoint?
Divyesh Panchal: I would say the biggest challenge was “How can we be more efficient?”, because we bootstrapped this whole thing ourselves, so we wanted to make sure whatever work we do really provides some value. Many times we are putting things together and waiting for people to go try it out. That sometimes takes a little longer than you anticipate. I think that anticipation was the hardest part for our team. But I would say — each member on our team has been an entrepreneur, they had built a product, built companies before, so it wasn’t something that they are doing this for the first time. But every time you start a new venture, there’s always that anticipation and anxiety. That has been an interesting part on our side.
Joe Fairless: Yeah, I have a lot of respect for people who start something from scratch based on a need and hustle and launch the thing… You said you bootstrapped the whole thing yourselves – how much did it cost?
Divyesh Panchal: Oh man, we originally put in about $25,000 into the venture, but honestly, we found innovating ways to solve the problem, rather than putting money at it. That’s one thing about entrepreneurship that I have a lot of respect for my team on that.
For example, the way we tested our hardware prototype – we did not go out and build the hardware first. As a matter of fact, our first prototype took me 45 minutes to build in that form, and Adam said “What if people can just walk in the door without having to talk to anybody? Let’s not have anybody reach out to them? Let’s just let them walk in and see what happens.”
So our first prototype was just a web form. People put their information, and when they wanted to take a tour, instead of putting an expensive lock over there, I just let my maintenance guys know saying “Hey, somebody’s coming. Just unlock the door” and we pretended everything was automated. You should have seen the expression on their face. They were like “What?! This is so cool. This is super clean.” We were like, “That’s great! Do you see value in it?” and people were like “Yeah, totally. I do see value.”
We did hundreds of tours like this. [unintelligible [00:08:46].19] and I was like “If I cannot use it in my own property, how can I go out and sell this to other people?” So we started from doing things that were very, very inexpensive. Then we got to a point where we had serious investors that were interested. The first guy who wrote a check to us on this venture was real estate flipper who flips hundreds of properties in the St. Louis area. We had investors outside of St. Louis, like Memphis and Dallas, who were also putting money in our venture. So we bootstrapped initially, but we got a lot of good interest from investors.
Joe Fairless: How did you value your company with that first investor?
Divyesh Panchal: That’s a tricky question. We had a little bit of luxury on that piece, because what happened was we had one offer from an accelerator for us to participate in the acceleration program. They had already put a valuation at that point, so that was simple – we just took that, because it was an external validation, an external valuation put together on our company. But we also had some [unintelligible [00:09:48].08] we had the hardware, we had things… So it came together with a valuation that both we, as well as investors, were comfortable with.
Joe Fairless: For someone who is doing a startup and has a similar approach – not the same product, but just coming up with maybe a product that is a sister product or something similar to a venture that you all are doing, how would you recommend they quantify their intellectual property and what they have in order to come up with a valuation if they wanna bring in an outside investor?
Divyesh Panchal: I would say don’t put a lot of effort and energy on getting the valuation right, rather focus on the value you’re bringing to the table. I think many times entrepreneurs get fascinated with “Hey, my company is valued at one million dollars and I’m only gonna give you 10%.” I think entrepreneurs should be more focused on what value are they bringing and how big of [unintelligible [00:10:47].06] they are gonna make. So if we are at 5 customers, how can we go to 500 customers or 5,000 customers and continue to make those customers happy… Rather than get hung up on “My company is valued at… And that’s how much I’m willing to offer.”
Joe Fairless: What’s been the biggest challenge of getting Key Bot in more doors in markets across the US?
Divyesh Panchal: Our previous version that we used was using a [unintelligible [00:11:14].26] and that was relatively straightforward, but now that we are launching on our bigger scale, I think that is something that we need to look forward to, and we will find how to [unintelligible [00:11:25].22] because we have done zero marketing as of now. Actually, we’ve only spent three or four dollars on Facebook just to get initial orders.
So far, because some of the early orders that we had to fulfill — those were local, there was not a big challenge… But in the next round, the one we are launching with the proprietary lock, that’s the one we think the scalability would come into real test for us.
Joe Fairless: Segueing into investing now specifically – are you still buying properties?
Divyesh Panchal: Not actively, because my full-time focus is this, but my wife is… She’s still expanding her business, because I have transitioned full-time into building this [unintelligible [00:12:06].20] But the multifamily market is hot as you already know. I think right now the market — I would like to call it the top, especially multifamily investing… So at this point I would rather stay away than put any more money into multifamily.
Joe Fairless: But you and your wife – assuming you are a team – are buying more properties right now… So how do you reconcile the statement you just made…? Because you said you’d perhaps don’t buy, you’d rather hold, but then you are buying…
Divyesh Panchal: The reason we are buying now is because we have a 1031 exchange.
Joe Fairless: Okay.
Divyesh Panchal: That is why we ended up buying. We are buying 80 units now right here in St. Louis, and the reason we have to buy it is because we sold one property and we don’t wanna write a big check to uncle Sam, and I’m sure a lot of investors who are listening will appreciate that… So that’s the reason we are buying. But after that we are not actively looking for anything in multifamily.
Joe Fairless: Got it. And are the majority of your properties in St. Louis?
Divyesh Panchal: All of my properties are in St. Louis.
Joe Fairless: All of your properties are in St. Louis. And you have hundreds of them… What percentage of hundreds are single-families versus the multifamilies?
Divyesh Panchal: We have only very few that are single-family. Pretty much most of all of our properties are in multifamily, and that’s one of the reasons why our team created Key Bot… Because if you look into single-family to 2-4 unit market, that market is extremely scattered. And what happens is people start investing into two units and they’re trying to go to four units and eight units, and we’re going from that point to where we now have a more concentrated portfolio of 30 units plus. But what we saw is most of the people who are investing are investing into single-family or two-unit or four-unit complexes – how can we help them, how can we make their life easier and let them do a little bit of less work while they get more return on investment.
Joe Fairless: So staying with your real estate investing just for a little bit – what was your first property that you bought and what year was that?
Divyesh Panchal: Yeah, great question. My first property was 2007. I bought a single-family in North St. Louis. For people who are not familiar with the St. Louis market, that’s actually a little rough area, but I learned a lot… I bought it with cash, it was $11,000; I was like “You couldn’t even do the bathroom in that price.” So one thing lead to another, and from there we invested in 2-4 units, and from there we got to 16 and more. But each step of the way I feel that you learn something that helps you to get better at your next investment.
Joe Fairless: What are some specific things that you’ve learned from going either at the first property or from 2-4, to 16 units etc?
Divyesh Panchal: The first few properties – I spent a lot more time in rehabbing and just making the quality of the rehab better; I didn’t spend a lot of time finding the best deal in the banks, creating relationships with banks, creating my network with realtors and other investors… But as I went away from those single-families to two-units, four-units and eight-units, I learned that there’s a lot more money to be made if you can find better deals with the banks, or if you can restructure the deal, if you can change your financing a little differently.
Those are the things that I learned that I wish I had learned sooner than that, but every step of the way it helps me get better every day.
Joe Fairless: I heard the last part that you said, where you said there’s more money to be made if you change the financing a little bit… What did you say right before that? I was taking notes… As far as if you tweak something, then you can make more money. What are those other things?
Divyesh Panchal: For example, let’s say you are buying a 16-unit building; your typical financing will be five-year balloon at 20-year amortization. Well, if you can find a bank or if you can work with a bank to get you to 25-year amortization, your cash flow is gonna look a lot better… So things like that, especially if you’re not planning to keep that building really long-term. If you’re planning to keep it for 5 years or 10 years. So things like that. There are very specific things you can do.
Another thing in that same regard is make sure you have a really good team of handymen, of people who can get things done for you, because the more you grow, you have to be able to delegate and outsource a lot of tasks, and that’s something I found that has been extremely useful, because when we were rehabbing two units, four units, I was just getting some one-off handymen. But once I got to 30 units, where we were rehabbing the whole building, I had to get a lot bigger contractors involved. Those relationships I built over the course of years became really useful when we got into bigger deals.
Joe Fairless: Given you and your team’s background with Key Please and your product Key Bot, clearly your focus is trying to maximize the amount of time that you have to do your own stuff, not necessarily being focused on certain tasks that you don’t need to be focused on… So I imagine in your real estate investing you have software or certain efficiencies that you’ve used or that you currently use – what are some of those things, either software programs or certain ways that you use to help automate the process?
Divyesh Panchal: That is actually the specific reason why we came up with Key Bot… Because honestly the only software we use is a spreadsheet. [unintelligible [00:17:25].03]
Joe Fairless: To manage your portfolio of a hundred or so units you only use a spreadsheet?
Divyesh Panchal: We just use a spreadsheet. Trust me, I’ve spent 15 years as a tech executive in a tech company; most recently I was director of IT strategy and information… And you have to ask yourself the question – what value do you get out of the software that I’m using? And I’m not saying that the softwares are bad; there is a lot of value. But if you look at it the way we put together Key Please and Key Bot, there’s a lot of manual work that goes into it when I have to market my property.
Let’s say you’re marketing on apartments.com, Zillow… You’re getting a lot of leads from those places. Well, what do you do with those leads? Every single lead you have to qualify, you have to talk to them, you have to say “What’s your background? When are you planning to move?” All those things take real human work. Next you have to go and show your property. You have to then negotiate the lease; you have to go get the lease signed, and even after that, the work keeps on going and going. So that’s exactly what we had in mind, saying “How can we offer all those pieces to a piece of hardware or a piece of software so that I (or people like me) can focus more on getting more and more deals?”
If you’re a real estate investor like me, your goal is to go from two units to four units, to 500 units, to whatever that goal is… And the whole purpose of having Key Please and Key Bot is to make you more efficient, offload your work to a piece of software and hardware so you can drive your business growth.
Joe Fairless: So you don’t use software to track your profit & loss statement? You just input that manually?
Divyesh Panchal: If you use Bank of America, they offer a free service that can even export it into a spreadsheet. Actually, it’s a lot more simple than you think. You really don’t need sophisticated software. I’ve used QuickBooks… I’ve even used some of those sophisticated software, and I spend more time setting those up than actually getting value out of it. It’s not that I don’t recommend it to anybody, but… I used to write software, I know that business really well… The problem is most of the software is built for a lot of big, gianormous tasks, and as a real estate investors, you are pretty much saying “Okay, well I need to market my property, I need to lease my property, I need to manage my property. What tools…?” Now, we do use — for example, we use tools like Zillow, apartments.com and all those things; for payments we use Cozy… Those are things that I think are very useful for small to medium-sized landlords.
Joe Fairless: Based on your experience as a real estate investor and entrepreneur, what is your best real estate investing advice ever?
Divyesh Panchal: I think the best real estate advice is every market is local; stay focused on your local market and know what your goals are, and execute on that.
Joe Fairless: For someone who is not familiar with St. Louis and wants to begin investing there, and perhaps they just moved to St. Louis… So they are local now, but they haven’t been – what are some things that you would tell them based on your experience with St. Louis?
Divyesh Panchal: You know, St. Louis is a great market in my opinion. Affordability is great, especially if you’re coming from the East Coast or West Coast. One, if you’re a real estate investor and you’re planning to invest, I think investing especially in St. Louis is a great market. Two, it’s also a growing area; there is a lot more movement happening here. Sometimes things like Ferguson or some bad press get in the way of what a great opportunity here is. If you are coming from either coast, I would recommend exploring this market and look at it as a potential investment.
I found some of the margins and some of the return on investment that I’ve seen in St. Louis is way better than what you can see on [unintelligible [00:21:05].14] market. That’s one of the reasons I stay focused in this market. But if you are coming, I would say look past beyond just headlines of Ferguson and things like that, and see what opportunity here is.
Joe Fairless: What is a submarket that is up and coming in St. Louis?
Divyesh Panchal: The Central Corridor has been pretty hard for a while… I would say Grove area is a really up and coming market; that’s a submarket here. There are also pockets within the city area within South St. Louis that are also up and coming. These are very specific markets within St. Louis and I would highly recommend people to look into those markets if you are looking to invest. Some of the mature markets are like West County and [unintelligible [00:21:44].20] I think we are kind of in a [unintelligible [00:21:46].23].
Joe Fairless: Are you ready for the Best Ever Lightning Round?
Divyesh Panchal: Alright, let’s go for it.
Joe Fairless: Alright, let’s go for it! First, a quick word from our Best Ever partners.
Break:[00:21:59].20] to [00:22:56].15]
Joe Fairless: Divyesh, what’s the best ever book?
Divyesh Panchal: What Got You Here Won’t Get You There.
Joe Fairless: Best ever deal you’ve done?
Divyesh Panchal: Flip the building in less than a year.
Joe Fairless: What were the numbers?
Divyesh Panchal: It was actually a 50-unit foreclosed subdivision. We bought it for 1.3, spent about half million on it and sold it for 2.4.
Joe Fairless: Excellent, nice work on that. What’s the key takeaway for that project in particular that you would attribute to getting that profit?
Divyesh Panchal: The key takeaway was you need to know what you’re getting yourself into. I knew it was a rehab work, I did not know what a stress it causes you.
Joe Fairless: Would you do it again if the opportunity was presented to you?
Divyesh Panchal: No, I would do it differently.
Joe Fairless: What would you do?
Divyesh Panchal: I would have built a better team. I would still take the project, but I would build a better team. I would have done a different financing deal… But that’s what I’m doing on my next project.
Joe Fairless: Best ever way you like to give back?
Divyesh Panchal: Well, through my own company… Actually, with Key Please we are partnering with Habitat For Humanity. To me, that’s a really neat way to give back to the community, especially when you’re in real estate. For those who don’t know, Habitat For Humanity – they build homes for people who cannot afford market price homes.
Joe Fairless: What’s a mistake you’ve made on a deal transaction?
Divyesh Panchal: Not doing the due diligence.
Joe Fairless: And where can the Best Ever listeners get in touch with you?
Divyesh Panchal: You can reach me at Divyesh@KeyPls.com. I’m also available on Twitter, @Divyesh_Panchal.
Joe Fairless: Well, Divyesh and team, thank you for being on the show and thanks for talking to us about your entrepreneurial venture Key Please and your product, Key Bot, what inspired it, how you all have bootstrapped this up until this point, then you’ve started bringing in investors… I love the innovative way of solving a problem in an inexpensive manner, for example the prototype that you all did; you just had a maintenance person go unlock the door once they booked it – I love that… Very resourceful.
Then also, Divyesh, you talked about your portfolio and how you choose to manage it, and the approach that you take and the lessons you’ve learned along the way as you’ve scaled up from the single-family for $11,000 to some of the deals that you’re doing now, like the 80-unit that you’re buying and the 50-unit that you referenced earlier… So thanks for being on the show. I hope you all have a best ever day, and we’ll talk to you soon.
Divyesh Panchal: Joe, thank you so much, it was a pleasure.
Portfolio loans from small banks found using Google! That’s right, he searched for small credit unions and banks in his local market and kept calling until somebody said yes. It wasn’t all Google, there was perspiration involved and that’s what it takes to become successful in real estate.
Best Ever Tweet:
David Zheng Real Estate Background:
– Analytics Consultant at Wells Fargo & Real estate investor
– Currently owns 10 properties and rent out 9, with having been investing since December 2015
– Goals are to reach close to 50k in passive income and own a management company
– Based in St. Louis, Missouri
– Say hi to him at djzheng6 AT gmail.com
– Best Ever Book: Redwall Book Series
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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 don’t get into any of the fluffy stuff, we only talk about the best advice that moves your business forward.
With us today, David Zheng. How are you doing, David?
David Zheng: Good, thank you.
Joe Fairless: Nice to have you on the show. A little bit about David – he is an analytics consultant with Wells Fargo and he’s also a real estate investor. He currently owns ten property and rents out nine of them, having been a real estate investor since December 2015 — wow, that was quick out of the gate! Based in St. Louis, Missouri, and his goals are to reach close to $50,000 in passive income and own a management company… Good luck to you on that one, my friend! I don’t want any part of that second goal.
With that being said, David, do you want to give the Best Ever listeners a little bit more about your background and your focus?
David Zheng: Sure. Funny you mentioned that, I’m actually closing tomorrow on another apartment building, so I’ll be up to 11 properties now. But yeah, a little bit about myself – I’m actually pretty (I guess) young at this. I’ve started investing in December 2015, that’s when I picked up my first condo actually. Funny enough, it was a pretty hard kind of a deal – it was an unwarranted condo and there was a whole bunch of lending loopholes I have to jump through to get that actually financed.
Essentially, I started December 2015 and since then I’ve picked up those ten properties as you’ve already mentioned. I started off with a condo, and the first four that I picked up were all condos, and I moved into single-families. I picked up three throughout the summer of 2016, and then after that I got into multifamilies, so that’s kind of where I am right now – self-managing all my properties by myself, all the rehab… I’m kind of being the GC for it as well, it’s a whole other experience I could go on and on with.
It’s been an exciting adventure, things have been moving really fast for me, so I could talk days about this, but I’ll get to the important points.
Joe Fairless: Well, I’m sure “adventure” is a great way to describe it if you’ve grown this quickly in this short amount of time that you’ve been investing. December 2015, so what is that – two and a half years or so? You started out with condos, you had four of those, three single-family homes… When you say apartments and multi-family, I wanna make sure I know what you’re talking about…
David Zheng: When I talk to my friends sometimes I say apartment buildings because it sounds better, but all the multifamilies that I currently have are 3-4 units, so they’re just kind of multifamilies more so than commercial great 5+ units. I will get there at some point.
Joe Fairless: Okay, so you’ve got four condos, three single-families, and then what do you have on the multifamily front?
David Zheng: So multifamily I have a three-unit – that will be a part of my story later for one of my biggest purchases. I’m closing tomorrow on a four-unit, and then in about a week and a half I’ll be closing on a duplex.
Joe Fairless: Wow, okay. We have to get to the bottom of how the heck are you able to close on all these properties in such a short amount of time – how are you financing them?
David Zheng: I’ve gone through a couple different ways… When I first started, I actually — because of the condo that I was in… The condo that I first bought was in a complex that essentially had like 80% rentals, so obviously lending on that, Freddie and Fannie didn’t like it, so I had to go through a portfolio loan on that one… That kind of already drove me into the deep end on the lending spectrum.
I have a whole bunch of portfolios – about 30% of them are portfolios, a couple just regular convenationals, throwing down 30%, and then the rest of them are all commercial loans, essentially.
Joe Fairless: Okay. When you say portfolios – will you elaborate?
David Zheng: Portfolio meaning I go through small local banks, and these are loans that the banks basically hold in their books, they don’t sell it on the secondary market or anything like that. It’s a little more lax in terms of what you need to qualify for them, and then the different kinds of properties — you have a broader range of properties that you’re allowed to buy. So again, usually those come with higher rates, balloon loans and higher down payments, but it gets the job done.
Joe Fairless: What portfolio lenders do you use?
David Zheng: One of them is actually the first community credit union; there’s another local bank here called the Central Bank of St. Louis. They’ve been really good to me, they’ve done three of my loans; all of them are the condos, so they’ve been good to me there. But yeah, most of them are just through local banks that I find googling it.
Joe Fairless: Wow. When you’re googling for the local banks, what are you searching for?
David Zheng: Google has been my best friend throughout this whole thing. I never grew up with a mentor or anything like that. Honestly, I googled “mortgage loan St. Louis” or “bank St. Louis.” I can’t really recall exactly what I put in, but you put in some very generic words and you just start searching. One of my biggest things that I did was sometimes on a deal I would have to call 30-40 people, even local banks outside of my area to lend on something. Again, it’s an umbrella search, and then after that I start digging down. Like I said, I just call a lot of people.
Joe Fairless: [laughter] I’m so glad that we have gotten to this part of the questioning in your story, because this is something that would likely get glossed over in the story, but it’s an important component, that you’re making 30-40 calls to lenders for one particular property. What were you seeking that you weren’t getting from the lenders?
David Zheng: Honestly, you can imagine the roadblocks I’m gonna hit, being a young guy who’s trying to invest in real estate.
Joe Fairless: How old are you?
David Zheng: I’m 26 right now.
Joe Fairless: Okay.
David Zheng: So you can imagine, a guy comes in calling your office, saying “Hey, I found a property I wanna buy. I’ve only been doing this for two months and I’ve already bought three more. My DTI looks absolutely horrible on paper because all they see are all these mortgages, they don’t see the rental income, because I haven’t filed my taxes for them. So you’re gonna hit all these lenders who say “We can’t do it. Our underwriting is not gonna approve this. Your DTI is too high. You don’t have a track record.”
The only reason why I kept calling people was because I was getting so many no’s, and the one thing I hate the most is being told no to.” So I was always on this track of just “I need to get this funded somehow; I will get a yes.” Thankfully, to this day, any property that I have put a contract on, I have not lost.
Joe Fairless: So you were just looking for a yes, it wasn’t necessarily that you were looking for specific terms… You were just looking for a lender to do a loan on the property. What were the terms and who was the lender after the 30-40 calls that you ended up going with?
David Zheng: I’ll speak to one specific deal – this was the hardest one that I had to get. First the condos, the single-families – again, they were pretty generic, kind of just calling around for conventional portfolio loans. It was this multifamily, the three-bedroom that I was talking about, I actually offered on it September, closed in October. That one was really hard, because 1) it was the first property that I was trying to go through just the listing agent. I was representing myself basically as a buyer and that was difficult enough. It was also a rundown place, it needed a lot of work, so I had to find funding for that. Someone I had to find the lender who would actually just purchase the property itself, minus the rehab costs. That was pretty difficult.
I called the banks that I’ve worked with previously, they didn’t help me. I called my portfolio banks, they never helped me out. I remember I called a local bank in Kansas City and even New York; I was like, “Hey, I’m in desperate need of lending for this, because this is a killer project for me. Can you help me out?” and they all rejected me.
Joe Fairless: And what was the reason…? For all those reasons you stated earlier, debt-to-income, no track record, distressed property?
David Zheng: All that and more because, again, this property needed so much work before I could even rent it out, so it wasn’t just like a turnkey where I could just flip it and then rent it out. All the other properties I had, I rented them out within a week, which is great, but this one, I needed to do a lot of work and the banks were hesitant. It was my first multifamily purchase as well, so that was hard.
In the end, I just fell back on what everyone else does – I went to a hard money lender, and even then I had to go through like five or six of them before I found one that had decent terms for me.
Joe Fairless: Yes, and you probably used in quotation marks for decent terms. What were the terms?
David Zheng: The terms on that – it was a 12-month interest-only loan. They basically funded — I think it was 80% LTV for the purchase price, plus up to 100% of the rehab costs as long as it was 65% of the ARV. So I’ll just speak on the numbers… I got this building for 230k, and then I actually fell extremely short on my rehab. My budget was actually around 110k, but I had to somehow smoosh it down into $86,000, because that was about how much they would be able to lend to me. I said, “You know what? I’m gonna make this happen, I don’t care if I have to do everything that doesn’t need a license-bonded contractor, I will do it myself”, and I basically told them that. And in the end I did a lot of that.
But 12-month interest-only payments, 10.75% was the interest rate, so that came out to be around $2,250/month in just pure interest, and then of course the lump sum, the loan was due at the end of the 12 months. Of course, refinancing as quick as possible was important. My down payment was — I don’t remember the upfront points, but it ended up being around $80,000 to fund the whole thing, upfront.
Joe Fairless: So how has the project turned out?
David Zheng: It was great. I was really worried about this thing originally, and it turned out to be my biggest success story. Like I said, it was in for $230,000, and then I spent another $110,000 to rehab it. At that point I’m $330,000 of value into this property, where I’ve put down $80,000 cash. That was in October when I closed. I finished in January because I pushed my contractors really hard; I pushed myself really hard to finish this as quick as possible.
I rented it out in January… $8,100 for the whole building, so essentially $2,700/unit. After that, I went straight into my little calling phase again. I was calling commercial lenders all over the place, most of them local, and finally one of them said, “Hey, we’ll do a cash-out refi without the six-month seasoning for you. It seems like you did a really good job.” I gave them the leases, I showed proof of all the work I’ve done. They brought an appraiser out there, they came back and they said “This thing appraised for $680,000.”
Joe Fairless: Bravo!
David Zheng: I’m not gonna lie, I basically sat an hour, I just looked at the appraisal… [laughter] And just like, “No, no…” And of course, at that moment I was like, “What if I get 80% of that in the cash-out refi? I’d be pulling near $300,000 out.” Of course, not everything turns out as good as it is, but they ended up giving me a loan, 66% LTV, so I was still able to pull $200,000 out of it after I paid the $250,000 I already owed to the hard money lender.
With that $200,000 I ended up buying the four-family, the duplex, and I’m also — since I’ve rented out my current condo that I’m living in next June, I’m using part of that down payment for another single-family for my house, essentially. So this deal was definitely a killer. Not only did I get a crazy cash-out refi, I got all my cash back, I’m also renting it out for a great cashflow.
Joe Fairless: So that one deal helped you buy one other deal, right?
David Zheng: Two and a half other deals.
Joe Fairless: Two and a half other deals, because the money that you used from it allowed you to put in the down payment for two and a half other deals… That is three and a half deals, and you’ve done how many total deals?
David Zheng: I would have ten rentals at this point.
Joe Fairless: At this point, yeah. I know you’ve got some — you’re closing on a duplex a week from now, but let’s just do this point. So at this point that’s three and a half deals, and the money that you put into that deal originally came from working as an analytic consultant?
David Zheng: Yeah, so I was fortunate enough that when I was a kid — I’m not [unintelligible [00:14:11].16] I was kind of a loser… [laughs] I worked a lot, I was a busboy at a high-end restaurants. I worked 3-4 nights a week. I didn’t really do anything with my friends, because I was such a money hoarder, so I would just sock it away in a mutual fund since I was like 16 years old.
Then my parents had saved up a pretty hefty university fund for myself. I went and I did really well in school, I studied hard, I got a full ride to the university where I wanted to go, and essentially they said, “Well, you’re not using any of your money because you’ve got a full ride, so it’s yours.” Then I still didn’t do anything with it. I didn’t use it for vacations or anything, I just kept it in that account that they had set up for me.
Once I got into real estate investing I was like, “Huh…” You know, I started reading up on returns and things like that, on the stock market, in real estate, and I was like “I might as well give it a shot.”
So funding – a lot of it came from that university fund that I didn’t use because of that. A lot of it came from me saving up over years and years and years worth of internships or busboying or other side-jobs — which I also actually do have a nightlife company on the side as well that I own. I rent out a lot of audio and lighting production to local night clubs and venues and things like that. And then also, of course, analytics consultant… I don’t live too lavishly right now, so I socked away a lot of my earnings since I started working. My checking account – I just kind of left it there. Now I’m putting all of it to work, essentially.
Joe Fairless: Okay. So that was the money for that property. Then what about the other six and a half properties? Where did the money come from for those?
David Zheng: That was a combination…
Joe Fairless: …of everything you’ve just said?
David Zheng: I would say 80% of what I’ve invested was from myself, and then about 20% I’ve gained from friends and family. I’ll be honest – the way I did it, I kind of used their money to pay for my food, my personal living expenses, so I could sock my living expenses into the real estate. It’s kind of unconventional, but essentially in that regards… There’s a lot of lenders who are like “Well, you can’t use your family or friend’s money for it”, and I was like “Yeah, I get it.” So I was like “Well, in that case my parents could just help me pay my car insurance etc. out of their account”, and essentially all my earnings are still mine, so I’m free to use that.
I kind of played around with how I used my money, but like I said, 80% of it was my own that I’ve had forever, so I used it pretty heavily.
Joe Fairless: And you said as far as the financing goes – because that really is the key… Well, there’s a couple keys here, and I’ll summarize later, but the financing is a big part. Clearly, your fiscally-responsible approach is also a big part, and then finding these deals is another component to it. But the reason why I believe most people don’t go as quickly as you go is they don’t have the money or they haven’t exercised their resourcefulness to get the money. In your case it’s both – you were living fiscally responsible and also you were resourceful in a way that got more money to bring the deal.
What type of arrangement did you have with the 20% of the income that you did get from relatives? What arrangement did you have with them?
David Zheng: I actually used a rather unconventional method… It was relatives and friends. Believe it or not, it kind of stems from me being very outspoken about myself. I’m pretty active on social media, and when I do these deals I don’t post the exact everything, but I’ll say “Hey, I closed on another house and I’m getting great rents. I’m doing great, this is awesome, this is fun”, and I keep on doing this. Like I said, the first couple of deals all came from myself, my own money etc. Once I started posting success stories — I’m not like one of those gurus out there who are just like “Oh, you need to pay for my thing” or “You need to go to this free seminar”, I’m just posting my stories on Facebook as a status and I’m saying “Hey, I’m doing well.”
After my fourth and fifth deal one of my friends actually came and messaged me. He was like, “Hey, I was wondering if we could do a deal together, or something like that” and that’s when it hit me… I was like, “Wow, this is gaining attention.” I reached out to my family and friends who were interested, who constantly liked my posts, commented on it or said something or asked me questions. I’m like, “Hey, if you want to, you can be a loan shark with me for my deals.” Especially my parents, they trusted me; I told them all the numbers, so they know I’m doing well, but with my friends, especially when I was showing how well I was doing, they trusted me with their money and they said “Hey, let’s do it.”
So we worked out something like a hard money lender, essentially. It’d just be like “You loan me a certain amount, I’ll give you a percentage back. At the end of the 12 months or any time before that I will give you your lump sum back and you get to keep whatever interest you’ve accrued over these months. I’d actually just stick it to them at a 10%, because my rents generate a lot of cashflow. It’s not that I’m worried about not getting the money the later and returning, it’s like I just don’t have that money right then. I know that the rents are gonna come in, they’re gonna cover that interest and then I’ll be able to pay that lump sum within a couple months, so that was never a concern with me.
So these were the kinds of deals that I worked with, and the biggest thing is I tell them, “Hey, you know, your money is sitting in your checking account right now, or in a .01% or whatever it is in interest. You’re not doing anything. If you’re not gonna buy a house or a car or have a kid anytime soon, you might as well stick it with me and then get something back over the next couple months”, and 10% is still better than a lot of people are making in other investments.
Joe Fairless: Are you securing it with something?
David Zheng: A lot of it is trust. I’m not gonna lie, a lot of it is trust. Another thing is I tell my friends, I would rather work at some fast-food place 24/7 to pay you back than not pay you back. And lastly, of course, [unintelligible [00:19:59].23] I’m like “Well, if something ends up going wrong, I’ll sell one of my properties, grab the equity out of that or whatever I have down into it and I will pay you guys back. I will sell the properties that I first bought.” That already accrues into over $100,000 worth of equity, so… They felt very safe. Again, they very much trusted me and what I did. I had a couple things going for me to show that I was trustworthy, and I did write contracts with all of them that basically amortized the loan and showed them month-by-month what they would be getting. So I spelled it out pretty clearly to them.
Joe Fairless: How much across the board in rent is coming in?
David Zheng: A lot of my rentals are actually students. There’s high turnover, but it’s higher rents. Starting 1st August 2017, my maxed rents will be at $34,000/month. Right now I’m only hitting like $27,000, but of course, I still have three other properties I need to account for in terms of rents, and then another couple that I’m rehabbing to get higher ones. But yeah, $34,000 is what should be coming in 1st August. Those have the leases in, deposits and everything.
Joe Fairless: Do you still have some hard money loans out that you have to pay back?
David Zheng: I do not. The only hard money loan was the one I did back in October. The two multifamilies that I’m closing on tomorrow and then a couple weeks later it’s actually another local business bank; they’re doing commercial loans, only 20% down. It’s nice getting to a point where banks are like, “Hey, we trust you. You have a great track record… We’ll do 20% down. We won’t make you do 25% or 30%” and whatever. So it’s nice that lenders are willing to work with me now. But yeah, I have no other hard money loans outstanding right now.
Joe Fairless: What is your best real estate investing advice ever for someone who wants to replicate this model?
David Zheng: I would say “Sell, sell, sell.” What I mean by that is you need to be constantly on your game in terms of networking. For my example, I’m selling to tenants. The reason I can get higher-paying tenants is because I sell myself as a landlord. They love a young guy who’s flexible, who’s understanding, who can communicate at a second’s notice – which I do. It is tougher on me, but again, you’re there to serve your tenants, essentially.
So I’m selling myself to my tenants, I’m selling myself to the lenders… Like I said, I’m calling 40-50 people sometimes on a deal, saying “Hey, look at me. I might be young, I might be starting out, but I’m getting a track record, I’m doing well. Here are my leases, here are my expenses. Look at the spreadsheets I put together” and I’m throwing it at them and selling myself as a borrower, as someone who’s trustworthy. I’m selling myself to the agents. When I’m even offering on a property — there will be other investors who are in there who want a piece of that action, and I’m sitting there like “My offer may not be always the highest, but I can assure you I’m gonna close on it”, or “I can assure you I’m gonna take care of this place” to those who are more emotionally attached.” So I’m selling myself to them… To my investors as well – I’m selling myself as a person who’s gonna manage their money well and who’s gonna take care of it and give them the return that they deserve.
A lot of this is networking, a lot of this is talking. Some people say it’s having a silver tongue, essentially. So you’re always just trying to make people feel comfortable with you, make people trust you – which they should; I’m not saying I make them do it and screw them over, but you always want to bring up your own reputation and then sell yourself to whoever it is you’re talking to. In those regards, you’re going to get the best deals, the best tenants, the best investors.
So that’s a part of it, and then the other thing is don’t take no for an answer. You’re gonna get it, but you’re gonna find someone else who’s gonna say yes eventually. As long as you sell yourself, show that your reputation is good, show that you have a track record and you can do it. Of course, that comes with working hard all the time, especially doing the rehab project of the last building. I still have a full-time that I’m doing 40-45 hours a week on top of self-managing over 50 tenants and trying to do a rehab project while picking up other deals, and doing a nightlife business on the weekends at night.
Like I said, you’re doing 100-hour-weeks all the time, back to back to back. I don’t have a wife and kids, no pets or anything like that. You’re not gonna be seeing many vacation days… It’s funny, because for many months, actually, my vacation days were — because I would use my vacation hours to go to a closing, or because my contractor would be like “Something’s wrong” and I’d have to run over there.
I’m kind of going all over the place, speaking about all the kinds of things you should kind of take away from my experiences, but hard work is the generic answer. It really is that if you don’t put in the time and the work, you’re not gonna succeed in this business. Number two, you don’t give up. Perseverance is so important. Don’t take no for an answer and keep searching for that yes. Then finally, being able to sell yourself, know what you can do and what you can offer.
Joe Fairless: Are you ready for the Best Ever Lightning Round?
David Zheng: Yes, let’s go.
Joe Fairless: Let’s do it. First, a quick word from our Best Ever partners.
Break:[00:24:50].00] to [00:25:43].26]
Joe Fairless: Best ever book you’ve read?
David Zheng: Don’t laugh, Redwall series. I’m gonna give a little background. This is basically a children’s book; it’s not The 4-hour Workweek or Rich Dad, Poor Dad, it’s actually a children’s book. I grew up reading it. I love them so much because a lot of the characters inside, they persevere through a lot of hard times. They’re always striving for something and it inspired me. I took that all through my elementary, middle school, high school, college years, and I was like “If they can do it, I can do it.”
Joe Fairless: Best ever deal you’ve done?
David Zheng: It was that big cash-out refinance that we were talking about on that three-unit. Again, that thing really catapulted me into the multifamily business, so it was definitely the best deal.
Joe Fairless: Best ever way you like to give back.
David Zheng: Setting example. Like I said, I’m very active on social media and I like to post up inspirational things, whether it’s a deal I did or just a quote I found, or some kind of meme. And people come and ask me questions, or they come to me and say “Hey, you know what? That status just really picked me up one day.” I’m like, “I’m gonna keep doing it”, and hopefully I’ll inspire more people.
Joe Fairless: How about a mistake you’ve made on a particular deal that you can think of?
David Zheng: All roads lead back to that three-family, but essentially, with the rehab project, the most mistakes I’ve ever made was not looking up local laws, permits, occupancy, things like that. I almost got condemned on, I was almost sued… It was all over the place. I finally got it straightened up, but I had no idea about any of these things until push came to shove.
Joe Fairless: Who was gonna sue you?
David Zheng: The local government. They were saying I had tenants in there when they weren’t allowed in there, I had outstanding [unintelligible [00:27:16].25] my contractors were supposed to take care of, but they didn’t. Again, another story for another day, but the local government – they were trying to put all these things on me, essentially.
Joe Fairless: And how did you not get sued and navigate around it?
David Zheng: Basically saying, “Hey, I’m in the wrong, I’m sorry. I’m gonna pay a couple fees to you guys to get these things taken care of.” I called my contractors to clear it up… Essentially, anything that I could shove on to them because it was their fault, I did. Things that were my fault – again, I basically just ponied up, said “Hey, I’m sorry. I’ll pay the fees that I need to. I’m not gonna argue, and I’m gonna get these things taken care of right away.” Selling myself as a young real estate investor trying to make the area better – which I was, so they respected that. But it was still a lot of headache that I had to deal with, but we did get a result.
Joe Fairless: What’s the best place the Best Ever listeners can get in touch with you?
David Zheng: Most likely just e-mail. If you guys can end up finding me on Facebook, feel free to follow or add me as a friend. My e-mail is firstname.lastname@example.org. I’m very active, so I usually respond to the e-mails promptly.
Joe Fairless: And will you repeat that e-mail again?
David Zheng: Yeah, it’s email@example.com.
Joe Fairless: Alright, well this has been a power talk on how to scale quickly. Two and a half years, over ten properties, and you did a phenomenal job summarizing earlier… I’ll take a crack at it as well for your keys, and I’ve written down five of them that come to mind. One is your resourcefulness and persistence – you don’t take no and you find a way to get the job done. Two is being fiscally-responsible; you’re making money and you’re working hard at making the money and then you’re keeping the money, and then you’ve reinvested the money. Three is finding deals – we didn’t even touch on that, we didn’t have time, but you’ve been finding these deals that work. Four is you’re someone who people trust; that is something that might be talked about a lot – people do business with those who they know, like and trust, but it really isn’t something (I don’t think) that can be taught, it’s just something that if you’re either a good person with genuine interest to help others and grow your business or you’re not, and if you are a good person and you’re true to your word, then people trust you and they do more deals with you. And then five is what you mentioned – you said “Sell, sell, sell”, and I thought you were talking about selling properties, but then you didn’t talk about that at all, you talked about selling yourself. You’re always networking, you’re selling yourself, to the tenants, to the agents etc. Those are the five keys that I wrote down for your success, and thanks for going into the case study on how you got the loan, how you had to do 30-40 calls with lenders etc.
I hope you have a best ever day, David. This has been an inspirational conversation. We’ll talk to you soon.
David Zheng: I appreciate it, thank you for having me on.
He makes big cash yet doesn’t need to close on these properties… How is that possible? Wholesaling! He matches the buyer with the seller very well and does so with some partners who have been in the game for a while. Yes, he even closed a deal at $160,000 in four days… Very impressive! Hear how he did it!
– Owner at House Sold Easy Properties & Discount Property Investor
– Over 8 years of real estate expertise
– Works with investors looking for Flip, Rehab, Renovation, or Buy and hold Rental properties
– Based in St. Louis, Missouri
– Say hi to him at https://www.housesoldeasy.com
– Best Ever Book: Rich Dad, Poor Dad by Robert Kiyosaki
You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors. We make funding your projects easy so you can focus on what you do best…rehabilitating homes.
Can you real estate business, what is your reach? How are you producing content to grow a community of eventual customers, clients, and partners? Podcasts, YouTube, events, and other networking tools and content delivery methods will do just that!
Best Ever Tweet:
Other will want to learn more about you and your mission if you stay consistent.
Jimmy Vreeland & Bob Scott Real Estate Background:
– Principals at Joint Ops Properties LLC
– Currently has over 100 properties in portfolio under lease option
– Focuses on single-family homes and tenants seeking a lease to own option
– Graduates of United States Military Academy at West Point and Air Force Academy
– Based in St. Louis, Missouri
– Say hi to him at http://www.jointopsproperties.com/
– Visit their YouTube page to watch the videos we talked about: https://www.youtube.com/channel/UCJqt28JgVQmlhtlmMDQ93Ug
You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors. We make funding your projects easy so you can focus on what you do best…rehabilitating homes.
25 deals a month is not impossible, in fact our guest simply does one thing and does it very well. He create partnerships all over his market and strategically places himself in first position on each deal. Hear what he does to market for these leads and how he closes each transaction.
– CEO of Rematch, a real estate solutions company and has done over 500 transactions
– Specialize in helping Seniors who want a stress free sale of their home
– Marketing and acquisitions for serious real estate investors
– Based in St. Louis, Missouri
– Say hi to him at firstname.lastname@example.org
– Best Ever Book: The Big Rich by Bryan Burrough
They hustled in the last 12 months to acquire over 100 lease-option properties, and now they are reaping the benefits! With a crew of private money lenders, assistants, and team huddles these to manage over 100 lease-option properties creatively acquired through the lease-option strategy. Hear how they did it and what it really takes to get it done!
Ever thought about how you could reach more buyers? We know, you tried collecting every email address you found at meet ups and REI events, but you are behind the times! Our Best Ever guest is using all social media and real estate media platforms including other forms of marketing. He didn’t take “no” for an answer, even when his grocery store receipt marketing didn’t work…he continued. Hear his ups and downs and ups!
You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors. We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more athttp://www.fundthatflip.com/bestever.
Have you ever dreamt of being able to conduct your business from Sequoia National Park or the heart of Prague? Today’s Best Ever guest has been able to do that since applying the THREE most important keys to wholesaling. He shares with us what you need to know about lease-option wholesaling, building a business and how important that ugly direct mail postcard really is.
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Sponsored by Patch of Land – Could you do more deals if you had more money? Let the crowdfunding platform, Patch of Land, find investors for you and fund your next deal…and your next deal…and your next deal…and…well, just go find out more at http://www.PatchOfLand.com