How to Fail 90% of the Time and Still Be a Wildly Successful Real Estate Investor

How to Fail 90% of the Time and Still Be a Wildly Successful Real Estate Investor

8 min read
Chris Clothier

Chris Clothier began building his rental portfolio in 2003 as a successful entrepreneur looking to diversify his investments. He quickly gravitated toward passive investing, establishing a portfolio of over 50 single family homes in Memphis, Tenn. As an original client of his family’s firm Memphis Invest (now REI Nation), Chris experienced firsthand what a passive investor endures when purchasing out of state. In 2007, Chris moved his company and family back to Tennessee, wound down his brokering company, and joined REI Nation as a partner and director of sales and marketing.

Experience
Since joining REI Nation, the business has grown into the premier turnkey investment company in the country and a standard bearer for best practices in the industry, managing over 6,000 investment properties for 2,000 passive clients. In addition to managing the development and implementation of sales and marketing processes, Chris serves as an ambassador for the company, working with the team to help potential investors define their purpose for investing in real estate and educating peer companies on best practices.

REI Nation clients’ portfolios hold a value of close to $800 million in single family assets in seven cities. The company has been featured as a six-straight year honoree in Inc. magazine’s list of the 500/5,000 “Fastest Growing Companies in America.”

In 2019, Chris’ team assisted 600 investors with purchasing just under 1,000 fully-renovated and occupied turnkey homes. Chris led the re-brand of his family’s company on January 1, 2020, from Memphis Invest to REI Nation.

Chris is also an experienced real estate speaker and addresses small and large audiences of real estate investors and business professionals nationwide several times each year, including IMN single family conferences, the PM Grow property management conference, and the Ignite conference in Las Vegas each December.

Chris continues to hold a sizable single-family rental portfolio in both Tennessee and Texas. Along with his family, he owns several commercial buildings in the greater Memphis area.

When not working with the team at REI Nation, Chris is busy raising five kids, operating a racing company in Memphis, and serving as CEO for The Cancer Kickers Soccer Club, a Memphis-based 501c3 providing comfort and care for kids battling childhood cancers.

Founded in 2017 by Chris and Michelle Clothier, the non-profit organization focuses on providing a team environment for kids to find encouragement and strength in their battle. The company worked with over 500 children from six countries in 2019.

Press
Chris has been featured in stories published in Money Magazine, The New York Times, The Wall Street Journal, and DN News, as well as the Memphis Business Journal. In 2018, McGraw-Hill Publishing purchased Chris’ manuscript, The Turnkey Revolution, and worked with Chris to publish his first book in May 2018.

Chris also publishes two weekly blogs at ChrisClothier.com and REINation.com. Chris has also published articles on the BiggerPockets Blog since 2009.

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I think the prevailing question I received last week in response to advice in another one of my articles was, “How in the heck do I make 100 real estate offers a week?” and there were many off-shoot questions from there. I am going to try and write this so that it progresses from what you do as a beginner to what you do as an experienced investor.

Understand right off the bat that as a beginner, you are looking for one property. That is what you need to find in order to get started. Stop dreaming about 10 properties and 20 properties. Heck, stop thinking about two. Just remember that you need ONE property to get started. In order to find that one property, you have to make offers.

Track Every Piece of Data

We started making offers on the MLS from day one, and we tracked everything. A simple spreadsheet was how we operated for years. We kept a record of every offer we made. We tracked the address, zip code, date of the offer, square footage, offer price, and offer price per square foot. The price per square foot is a common denominator that you can track for any property in any location and any given time period. It will be a constant that you can compare on many different levels.

When we would purchase one of those properties, we would create a second spreadsheet where we kept that data. We added the actual contract price, closing date, renovation cost, and renovation cost per square foot. We also started in very narrow areas. When you hear the terminology “farm area,” it is referring to the very specific and usually narrow area of town that you want to learn like the back of your hand. So our initial farm area was fairly small, and the data we were keeping was very helpful.

In a relatively small time period, we had dozens and then hundreds of offers to be able to look back on and track what price per square foot we were offering in an area. Then we could see what price pre square foot we were actually paying when we won a contract. In turn, we could see what price per square foot were we paying for renovations. The next progression was to add rental rates for each property since we were tracking management from early on.

You should be able to tell fairly quickly why this is important and how powerful a tool like this can be. We knew what price to pay for properties in those areas based on what the data told us. We had offers on properties that were rejected or sold to someone else. We could easily pull the wining price from public data and calculate what price per square foot a property eventually sold for. More importantly, we knew what prices per square foot we were paying on properties that we were getting. Then we knew what price we were paying per square foot on renovations and eventually even what price per square foot properties were renting for.

It did not matter then and it does not matter today if an investor is brand new or has years of experience. Simply tracking important data for your business is step #1 to really ramping up your business and growing into a well-oiled machine.

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Increasing the Number of Offers You Make

There are a lot of ways you can increase the number of leads you make, especially on MLS properties. We do two things to accomplish this. First, we develop relationships with the big listing agents or brokers. When I say “relationship,” do not read anything more into that. It means that they have to know who you are and that you are serious about buying property. Introduce yourself and ask how they routinely operate. Many will publish a list of all of their listings on a weekly, if not more regular, schedule. So they will publish every property they have and send them out by email to a list of potential buyers. You want to be on that list.

Related: How to Overcome Your Fear of Making Low (But Fair) Offers to Sellers

When the lists are published, one of the things we learned to do early on was to take each list, mark through the price on the houses we wanted to buy, and write in the price we would be willing to pay. We would then fax/scan/email that list of properties and our offers back over. In a matter of minutes, we could calculate our offer price based on the square footage of the property and then send that back over to the listing agent. This has two big advantages. One, we are not wasting our time or their time by sending in an individual offer on every property. Two, they are able to tell us very quickly which pricing may work, and they will always say at that point to send it over in an offer format with earnest money.

If the agent is listing 100 properties and sends that list out, we may only be interested in 15 of them. Instead of preparing 15 offers, we only send back his list with the prices we would pay on those 15 — thus making 15 offers — and then we wait for the agent to tell us where we’re close. How do we start? We simply ask the local real estate agent group for a list of their top performing agents and then a list broken down by those that specialize in foreclosure sales. Then we contact those particular agents and begin to inquire how we could buy their properties. From there, the conversation grows, relationships are developed, and we begin to offer on dozens of properties each week.

The second thing we do is to find an agent that really, really wants or needs to get some business going. We essentially hire the agent to make all of our offers for us. For us at this point, we were already growing and our “farm area” had grown into several different areas of the city. So we essentially found someone who could legally make all of our offers for us and paid them to sit at a desk all day and prepare offers. They would also get a piece of any commissions earned. This was actually a very lucrative setup for them. At the same time, we were letting listing agents actually represent us on the contract.

Why was that important? They were earning the listing, and then they were earning the sales commission.

Do you think they were motivated to let us make offers, even low offers, on their properties? Of course they were, and they were appreciative of the up-front manner that we operated in.

We were interested in making their life easier, but also in making sure we did not overpay. So even if an agent thought the offers were too low, they were willing to look at them and submit them. Some were even surprised when the seller accepted the offer. Either way, we figured out how to get those offers entered and accepted.

One quick point to note: I am not a real estate agent. I do not have my license. We simply searched for the right setup and opportunity, which included adding an agent to our team who was hungry and willing to earn our business.

Making More Offers in Today’s Environment

You will never hear me say that we had this master plan and followed each step and that is how we reached where we are today. It took good decision making mixed in with some luck for us to have the success we have had. It also took the right environment, and we recognize that our market helped us develop. All of these things have combined to develop our systems and processes.

Our reputation has helped us increase our offers by enabling us to make offers directly over the phone in some instances. Today, we have our own realty company, and our broker is the one who makes all of our offers. He spends a lot of time on the phone, on the streets, and can often be found in the offices of listing agents. He is armed with our reporting of years and years of data. He knows month to month the exact pricing we are paying for properties on certain streets in certain zip codes and has been given the green light by us to offer on properties in those areas at those rates. So on any given day, he may make a dozen offers while standing in the offices of a local listing agent.

We also have members of our team who look at 8-12 houses a day. In those cases, they are looking at houses where the listing agent has asked us to remove any inspection contingencies from our contracts. They want us to look at properties before offering.  We can thank hedge funds and bulk buyers for that request, but we are OK with it. We look at properties first and then offer on them. It does not change our strategy; it just means that we had to create a position on our team where we have an experienced rehab foreman looking at properties before we make offers.

how-to-become-an-entrepreneur

Cash Reserves and Proof of Funds

There is no sugar coating these two points. If you do not have funds and you do not have a partnership set up with someone who has funds, you are going to have a hard time trying to set up a system to make a lot of offers. You cannot fake this point, and if you do not have the ability to make offers in person or by submitting pricing along the lines of what I described above, then you are going to have be very cautious about how you make your offers.

You cannot fake proof of funds. Do NOT try to do this. You cannot fake having the dollars available to close the properties you put under contract. From the day we started, we have had the funds to close a lot of properties even when a lot meant a handful a month. Today, we operate on millions of dollars, and those funds are always available and proof of funding is easy to do. We also earned that right with the listing agents by never backing out of deals. When you build that kind of reputation, you will find that listing agents will accept your offers without proof of funds as long as the owner of the property does not require it. You will have earned their respect and therefore the ability to put those offers in.

Related: 8 Tips to Put Your Real Estate Offer in the Best Light — And Get it Accepted

From Big Concerns to Big Dollars

The other big concern from investors revolves around using all of their funds up quickly and still holding a pile of contracts that they accepted. Welcome to a quality wholesaler‘s dream — a pile of accepted offers, well below listing price and at or below the cost per square foot that most investors are buying in the same area. If the deal is good enough, you can always find a buyer! You may not make a killing, or you may make a ton of money for relatively little work. I’m not promising you will do either. But if you’re willing to put in a little effort, you can turn a pile of accepted offers into a great business.

I had lunch with an investor yesterday who told me a story of a property that he paid less than $50k for after it was listed for $110k. He wholesaled the property quickly to another investor for an incredibly good profit. How did he get it for below half price? He simply made the offer. Over a matter of minutes in negotiations, he had a property that no one else was bidding on because they thought it was overpriced and they did not want to embarrass themselves or the owner. That is the reality in this business. Those willing to work for it and who keep a positive and almost naive frame of mind can accomplish anything they want! It is when we convince ourselves that we know the answers without asking the questions that we get into trouble.

This one was a relatively long article, and I am sure there will be questions in the comments. I’ll be glad to answer them all. I will simply remind you here that the simplest way to making a lot of offers with confidence is to track everything you do from day one. You can learn a lot about tendencies, trends, and formulaic buying patterns that will make your life easier. You will not need the details that make so many of us feel all warm and fuzzy. You will have the most important metrics at your fingertips, and then you can let the odds help you turn those metrics into dollars.

[Editor’s note: We are republishing this post in order to help those who have joined BiggerPockets more recently make more offers and land more deals!]

Any questions about this process?

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