BiggerPockets Success Story: Two Deals, Three Months, $50k in profits
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I recently heard about yet another successful real estate business relationship established because of BiggerPockets, and thought I’d interview the two gentlemen, Nick Johnson and Justin Schnettler, to find out more about it.
Nick has been involved with Real Estate Investing for more than 3 years, focusing on Short Sales and Subject To transactions. Justin has been a part time real estate investor for the past 8 months, focusing on short sales in the Arizona market, through his company Wheelhouse Properties.
Interview: A Real Estate Investing, Mentoring Success Story
Josh: Justin, You mentioned on the BiggerPockets forums that you were relatively new at real estate before coming to the site. How much knowledge/experience did you have?
Justin: I bought my first investment property in 2005 during the Arizona boom market, pretty much on a whim. I currently live in that house, and rent out my other house (it was my primary and in a much better location). It was a terrible decision, as I knew pretty much nothing and got all my information from the news. The house is currently upside-down by A LOT but I’m still making payments on it. Over the next fews years, I read some books on flips, rehabs, lease-options, etc but was mostly unfocused.
I got the real estate bug again in 2008 and started reading a lot books, attended a seminar on Lease-options, and bought my second investment property in May 2008 with two partners. It is a buy and hold, so no profits have been realized yet.
Since then I’ve gone solo on my investment career. Trying to run a business with two other partners is tough.
I read a lot books on short sales/creative techniques in summer of 2008 and started direct mailing to homeowners in October of 2008. Back then, I was unfocused and just wanting to do a deal no matter what the deal was, I’ve learned to focus now and build a business around a specific strategy. I joined BP in Feb 2009 without having made a real profit or completed a successful deal. I think I had a good base from reading books, but did not have any “street smarts” on investing.
Josh: Sounds like the story I hear from lots of investors. When you signed up for BiggerPockets in February, what did you expect? Why did you join up?
Justin: I joined BP because I was looking for Hard Money. I actually knew nothing about the site. I had raised about $50K in capital and needed someone to loan me the rest. I did not have a deal lined up, but was just looking for a lender in case I found a deal; everyone local that I talked to wanted an experienced investor. After posting my forum post, Nick was the first to reply â not to loan me money, but to welcome me to the site. That's how we met and why I'm still an active member. The BP community is awesome, and I was drawn in by the helpful members. Funny how things work out.
Josh: So you connected with Nick because he welcomed you when you introduced yourself to the community in our New Member Introductions forum. That’s great!
How did you guys first start chatting it up? Who approached who, and how did it happen? The reason I ask is that many people just stop there; they don’t realize that social networking requires engaging others and actually being social. So . . .
Justin: We actually started chatting it up because of the Cardinals losing the Superbowl – since we both live in Arizona. After that, I had read Nick’s profile and in his profile he said he mentored people. Since I had not done a deal, I PM’d him about it. It took about a week for us to finally talk on the phone. Our arrangement was very informal: it was simply, lets work the first two deals together and split the profits. After that, we emailed everyday, and talked on the phone probably 2-10 times a week. Some calls where long, others were just simple questions. He’d let me listen in on calls he was making, and he’d listen in on some I was making, and coach me afterward.
Josh: That’s great! So Nick agreed to mentor you for free, and in exchange he’d get a cut of the first two deals. How did they go? Tell us about these deals.
Justin: After our initial talk, Nick set me straight on a few things I was doing wrong â most importantly, not meeting the BPO agent at the house. I was already direct marketing, so we stuck with that plan to find the leads. Nick gave me the contracts he was using (much better than mine).
Both deals were short sale flips.
The first deal was a property in Chandler, AZ. The homeowner had been working with "Short Sale Expert" who charged them $1000 upfront to put the hardship package together. They had tried for months to sell the property. When the notice of trustee's sale was filed, I mailed the homeowner and letter and within a few days I had the place under contract. We "fired" the original short sale negotiator and I took over the deal. The property was in good condition; just need some minor fix-ups and paint. Both Nick and thought this deal was dead because the BPO agent threw me a curve ball and said she needed to see the property immediately, but I was on my way to the airport for a weekend trip.
Everyone who does short sales know the importance of meeting the BPO agent, but instead I had to just talk with her on the phone. So, the BPO came in higher than we wanted, but luckily the bank accepted the counter offer. The house had two mortgages, but with the same bank. The bank actually had the same negotiator for both loans which was awesome. We ended with a $35K profit. The end buyer was a conventional buyer.
The second deal was much simpler. It was a Mesa, AZ property that really needed some fix-ups: bad roof, broken AC, water damage in the bathroom, carpet, paint. etc. I put in a low-ball offer to the bank. Again, the appraiser threw me for a curve and did the appraisal without me present. Again, we both thought it was a loser. But, the appraisal came in way lower than I thought I would. I flipped it to a rehab investor for $15K profit. The end buyer was a cash buyer. I had a higher offer but was contingent on financing. I was glad I went with the cash buyer because the bank only gave me 2 weeks to close.
We closed both deals in June. The homeowners were very excited to have the house headache gone.
I did nothing to the properties, just negotiated the short sales.
Josh: Not bad for your first two deals. How long did these deals take from start to finish?
Justin: For the Mesa deal, I signed the purchase contract on 3/18, I received the approval letter on 6/10, and closed on 6/22.
For the Chandler deal, I signed the purchase contract on 3/6, I received the approval letter on 5/19, and closed on 6/19.
About 3 months for each deal.
Josh: Nick, can you tell us about your experience on these deals. What was it that inspired you to start working with Justin?
Nick: My experience on these particular deals were very hands off. Justin did a great job with handling everything as he was instructed. As he mentioned we were thrown a few curve balls but that is to be expected as you do these type of deals.
What convinced me to work with Justin was that he was on the right track, he just needed some guidance. When we were first speaking, I asked him what he was doing so I can gauge his experience level as well as his commitment and his abilities. From the conversations, I could tell he had an idea of the concepts but wasn’t executing them correctly.
Most new investors also have the impression that they are going to get rich quick, with no more effort than it takes to sit on the couch and watch the infomercials. Justin proved his financial ability to at the very least market for leads. That is and was the biggest difference between him and most others that have come to me seeking help.
Josh: Are you guys planning on doing any more deals together, not as mentor/mentee, but as partners?
Justin: I’ll let Nick elaborate on this, but since my two deals closed, Nick has been giving me his short sales to manage/negotiate and we have a few other ventures in the works. So yes, our business relationship has not ended and will continue to grow in the future.
Nick: I’ll elaborate a little on that.
If you spend the time, you’ll notice that a few months ago I made it known that I was looking to get out of doing short sales to free up some more of my time. I’ve spent hours a day with banks, going back and forth, sending endless emails etc…
I even made an attempt to find a reasonable but better than competent negotiator or processor for the short sales. I met a few decent people but none that I felt could, or would, do as good of a job as I feel I could or would. When I started working with Justin, I could see that he would do as he was instructed. There were times where he questioned what he was being asked/told to do but he did it anyways, and then when it was successful you could tell that he got what I meant initially.
I’m not sure Justin was aware of this, but I was also training him, not only how to do short sales effectively, but also how to do them my way so that I can have him do all my future short sales for me. This way, I can pretty much excuse myself from the time consuming efforts of the processing, while at the same time knowing that my short sales are being processed not just correctly, but effectively. Justin and I have agreed to split all future deals 50/50 that I bring for him to process/negotiate for me. Some may say that is a hefty price to pay to have someone process/negotiate the deal, especially when there are so many others that will do it for a small fee, but for me it’s the comfort of knowing that they are going to be done right the first time. He’s may have only closed 2 deals as of today, but he’s got the brains to continue to succeed.
Outsourcing the time consuming activities to Justin will allow me to focus more of my time on my new ventures and projects, more specifically increasing my Sub2 deals. I have a sincere belief that Sub2’s will be increasing in popularity due to the current lower interest rates. I will continue to employ Justin to process/negotiate the 2nd position liens on all my future Sub2 deals for a nominal fee.
What I’ve got in the works right now is something I truly believe will not only seriously increase the amount of deals that we but also give Justin the ability to financial independence. Obviously I don’t want to go into details about that here and now, and I certainly don’t want to count my eggs before they hatch but I’m confident in Justin’s ability to perform and his ability to adapt and expand to a growing business, that he will soon be experiencing.
What’s funny to me is Justin has only met me one time, and that one time was last Friday July 10th, 2009, weeks after he deposited money into his bank account. During our progression he has only spoken to me over the phone or emailed me, but hey, at least he can say he’s met the guy who helped him make a small fortune in a small amount of time.
Summary – Keep an eye for Justin! He’s destined for bigger and better things. These 2 deals were only the cherry pops — it’s all up hill from here for him. It’s not often you find or meet someone with the natural ability to do what he was able to do, and I’m sure it won’t be long before he has students giving him heartfelt and sincere appreciation emails, just as Justin has sent me. Those are the real paydays — when you know you’ve changed a life for the better and when you’ve redirected the course of someone’s life positively. I hope that not only in five years, will Justin be able to look back and thank me for what I’ve helped him achieve, but that someone else thanks him for helping them achieve what they have as well.
Justin: Thanks Nick, that means a lot. As you can see Josh, we have some future plans!
Josh: Do you guys have any more thoughts to add regarding BiggerPockets?
Nick: Since joining BiggerPockets.com only a few months ago I’ve been able to network with some of the greatest minds that are currently investing in Real Estate. I can say that my business has actually made $25,000 dollars so far, since I’ve joined BiggerPockets, thanks to the networking opportunities that are available here.
Justin: Before joining BP I struggled for months to complete my first real estate (deals). I thought I did not have what it takes to be successful in this business. By joining BP I found a true real estate mentor who helped me close two deals in 3 months and profit $25,000. I am your proven success story that this site can jump start your real estate career.