This is the BiggerPockets Podcast show 299.
Man I don’t think you can stay relevant in this business if you don’t watch the signs and what’s happening around you and learn to adapt your business.
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Brandon: What’s going on everyone? This is Brandon Turner, host of the BiggerPockets podcast, here with my assistant to the regional manager, Mr. David Greene.
David: Oh, I love when you call me that.
Brandon: That was your joke. Coz I took it, and now it’s my joke.
David: Yeah you took it and used it against it.
Brandon: For those who don’t know, you got to watch the Office.
David: We’re gonna change my name to Dwight Schrute instead of David Greene.
Brandon: That’s actually, you know, pretty close. You guys are like brothers. Anyway, what’s up David Greene? How you doing?
David: I’m good man. I just got back from hanging with you in Hawaii for the last 12 days.
Brandon: You did? I didn’t even notice.
David: I know. It seems like forever ago because you missed me when I’m gone but I got a nice little tan going on, I’m refreshed, I get to jump back into the grind of selling real estate, and it’s not so bad when you’ve got Hawaii on the mind.
Brandon: Tan? Are you sure that’s not the burn that’s on your chest? Are you sure?
David: Oooh, from your insult that you just delivered?
Brandon: No, from the fact that you wouldn’t put sunscreen on but I told you to.
David: Oh yeah, that’s a problem man. Like 30 seconds in Hawaiian sun and I’m crispy.
Brandon: Yeah, there you go. Well, anyway, I had a good time with you, it was a lot of fun, and we have an amazing show today with a guy that I’ve looked up to for a long long long time and been wanting to get on the show now for like 299 episodes, Mr Ken Corsini, who is the star of HGTV Flip or Flop Atlanta, and he’s also an avid BiggerPockets member, had been involved for many many years. He and his wife are just rockstar house-flippers, new construction, they own some rentals. We talk about all that stuff today here on the show.
You guys are really gonna love this, I mean just like his idea of like adaptability and how that matters so much. His idea of price creep. And then make sure you listen to his deep dive, the deal of deep dive, we do towards the end of the show. He talks about making like, I mean this deal is just fantastic, and how he worked with a new investor to make it happen, really is inspiring for people who are brand new because of what this investor that brought him the deal got out of it. Anyway, super cool, but before we get to that, let’s get today’s quick tip.
On today’s show with Ken, we talk a little bit about estimating rehab costs, a little bit about the construction process, and so I wanted to actually mention here in case you were not aware. You know, a lot of people know that we’ve got a rental property calculator and a flipping calculator and BRRRR calculator and wholesaling calculator on BP, and they’re used a lot, but what a lot of people don’t know, cause honestly we haven’t done a great job of talking about it, is that we built we rehab estimation calculator, and just this morning I’m sitting on this couch with a buddy of mine who is visiting named Jeremy, and Jeremy is a new investor. He is actually on our show a few years back on one of the newbie episodes.
But he was hanging out with me and I’m showing him this tool, because he is talking about estimating rehab costs, kind of how he struggles with that, and I’m walking him through this thing and I was like, this is really, really good, like this is really cool. We don’t talk about this enough. So I just wanted to throw out there in a not so quick quick tip. Go check out if you haven’t seen it yet. Biggerpockets.com/calc. That’s kind of the short code to get you to that page, and check out the rehab estimation tool. It is really, really cool. So that’s your quick tip today.
Now before we get any further, let’s hear from today’s show sponsor.
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Brandon: Alright, big thanks to our sponsor as usual. So, David, anything else you want to cover before we get into the show?
David: You guys need to be prepared for an awesome show. I mean, Ken is an experienced investor who is very successful. He is on TV, he is flipping houses, he is owning rentals, he is building new stuff. I mean, you’re gonna learn a lot in this episode no matter where you are in your own experience. So, this is probably one you want to listen to twice and I’m excited to get you guys into it.
Brandon: There you go. Alright, and last thing before we’re gonna do it. Ken’s new episode of his show Flip or Flop Atlanta airs on October 11, and I think it’s Thursday nights after that. So make sure you guys watch it, support Ken, support a BiggerPockets member who is making waves in the world of television. And we do talk about the TV show later in the show. We talk about, is it real? Find out what he says about that later. So with that, let’s get to the interview.
Alright Ken, welcome to the BiggerPockets podcast. Good to have you here.
Ken: Good to be here. Thanks guys.
Brandon: Yeah. So, besides being an international heartthrob and movie star, you know television star, you are also a real estate investor, and you’ve been doing it for a long time. In fact, you are on BiggerPockets I’m sure before I was ever on BiggerPockets, and I remember years and years and years ago watching a video that you did an interview with Josh. It was like the pre-BiggerPockets podcast world, like back when Josh did it by himself just Youtube-wise. So you’ve been around for a long long time which is cool. So we kind of hear the whole story today.
Ken: Been around, that’s why I got the gray beard to show for it too.
Brandon: There you go. So let’s go to the very beginning of your journey. I mean, what did you do before real estate and how did you get into this?
Ken: So I graduated from the University of Georgia. I had a business degree in risk management. So I came out of school and went right into working for an insurance brokerage, and it was specifically on their software, the software side. It was risk management information systems. And I did that for five years, and it was an awesome career start for me. But like any entrepreneur, anybody that’s got the itch, it wasn’t fulfilling. I had to get into something that was my own. And so I was exploring different business opportunities. I actually almost opened a chick fillet at one point in time, do that whole process. And then ultimately I decided, you know what, I just like real estate so much, and I was listening to Carleton Sheets, you guys remember the original Carleton Sheets No Money Down CD course. I had bought that at a garage sale for 10 bucks. And I was just wearing those CDs out. Driving back and forth to this corporate job, listening to Carleton Sheets everyday, and just fell in love with the idea of real estate. And so I had to find a way to exit the corporate role and get into real estate.
I was actually researching different franchises and I actually found a quasi franchise out of Seattle. They sort of did training, used of sort of bought a territory, they were a little bit shady, I’m not gonna lie. Some of them may or may not be in jail right now. I’m not sure. But it was actually really good. So first two years essentially what I did is I wholesaled lease auctions, which is a real sort of specific niche. It was a cold business model where we would partner investors with potential lease purchase tenants, and then we would sort of broker that deal and carve out an assignment in the middle.
So this was in 2005. So 2005 as you remember is a fantastic market. I mean, everything was clipping along. Everybody was getting alone. Then two years later, 2007, then the world started crumbling around me, and they actually went out of business, this quasi franchise, and I was sort of struggling what am I gonna do next, you know this business model doesn’t really work. It was sort of predicated on appreciation, which you never just assume, hey houses will appreciate forever. And that went away. And so in 2007-2008, I remember just thinking to myself “What am I gonna do next? The market is crumbling around me.”
And that’s when I changed my business model to the turnkey model. And so I did the turnkey model for a number of years and actually it was the downturn that grew our business more than anything because there was just a plethora of REOs and HUDs, and especially here in Atlanta, they were just so ridiculously cheap. And finding houses, it was like shooting fish in the barrel, it was amazing.
Brandon: Can you explain what turnkey is for those who haven’t heard that term? People ask me whenever I do like a webinar, people always ask me, “Well what do you think a turnkey is?” So I’m curious also, what is turnkey and then what do you think of it today? What’s the pros and cons?
Ken: Yes, so turnkey is essentially you’re creating a product turnkey that you sell to an investor. So that’s us taking a distressed house to like an REO or foreclosure, fixing it, and putting a tenant in place. So you’ve created this cash-flowing asset. And then we would sell that asset to investors. And typically we were selling to out of state investors. So I did a lot of traveling and speaking back and forth in California, a lot of those REOs out there, a lot of those clubs, and just sold a boatload of turnkeys in Atlanta. And of course I’m kicking myself now that I didn’t keep more of that now. They were just such sweetheart deals now in hindsight.
I mean, I sold hundreds and hundreds of houses for 70,000 and 80,000 dollars that today are worth 150,000 bucks, and they are spitting off great cash flow.
Brandon: Good deal for your investors.
Ken: I know, yeah, good for them. Win-win right?
Brandon: So what do you think of those today? I mean like a lot of people want to know should I just go buy turnkey today? Do you think that’s still a model for investors to do?
Ken: Yeah, in the right market it is. You know, it’s tough in Atlanta. I mean Atlanta is a hot market. I mean, we’re at the top of the market I’d say right now. So finding the houses where those deals make sense are hard. Which is why don’t really even do turnkey anymore. Now we’re really just a fix and flip operation.
But there are other, especially midwest I think markets, where turnkeys still make sense. It was smaller markets, maybe mid-markets, the Kansas cities and the Indianapolises and Memphis, you know where you can still buy at a reasonable price and get showing cash flow. I think it’s a great viable model for any investor that’s getting into the space. Absolutely.
Brandon: Yeah I would say that you know, turnkey can be great, just like any real estate can be great if the numbers work out right? The problem I’ve usually had with turnkey is that sometimes the numbers aren’t up to par, and that’s like some companies are much better than other companies that I’ve seen, but you know, some of them are like, yeah you don’t need to worry about repairs, we already fixed the house, you don’t need to worry about vacancy, it will never be empty. And I’m like well, it will be eventually. Like you should probably calculate something for that right?
Brandon: Yeah, don’t let anybody else do your homework. If you do your math homework, then who cares if the deal is being sold by a bank, being sold by a turnkey company, being sold by you know some little lady, a deal is a deal if it’s a deal.
Ken: That’s right. And to your point, it is all about the operator. Who is selling you the house, are they reputable? Have they been around? And then the other component is property management. Because the they could sell you the house and then they’re gone, who’s managing that property for the next five years for you? That’s critical component.
Brandon: And there are a lot of bad property managers out there.
Ken: So many bad property managers.
Brandon: Alright, so what came next? So you got into flipping houses, I mean, face and flip, that was your focus for a number of years right?
Ken: Yes, so 2008-ish is when we carved out this turnkey model. And what’s funny it wasn’t even called turnkey at the time. I mean, I think maybe I thought I invented turnkey because I felt like maybe I was operating in a little bit of a vacuum here and I didn’t know anybody else was doing the exact same thing I was doing. And we lived on that man through 2013 and 14 maybe is when our business really started to shift, and it got more challenging, it got more challenging because the funds sort of descended on Atlanta, the high hedge funds, then all of a sudden they’re gobbling up all the inventory, and the prices are starting to shoot through the roof, and that’s again where we had to adapt and say “Alright, the market’s changing right underneath our feet. How do we sustain a viable business?”
And that’s when the market was strong enough that we just started flipping houses. Maybe half of them were turnkey, half were flips, and then gradually they all became flips and almost no turnkey.
Brandon: Interesting, yeah, so you moved away from that into regular flipping. So that you’re buying distressed houses still, fixing them up and sell them to just now the retail buyers.
Ken: That’s right. Yup.
Brandon: So like why did you not do a retail just from the beginning? Like what turnkey over retail? Why would you sell to investors and not just to the higher price point buyers?
Ken: Well, partly because they just weren’t around. There was just so little demand for inventory. I mean, even think about 2011, 2012, I mean at least here in Atlanta, there had not been any recovery yet, and the market was still just stagnant. So the prospect of fixing up a house, putting a lot of money into it, and it’s just sitting on the market for months on end was still very real prospect.
And for us, if you had a good sales pipeline, man I’d much rather sell a turnkey house and know that I can make a quick 10 or 15 grand, than try to make 30 grand and it sits in the market for six months. If you have a good pipeline of investors… that was just, the model for us was volume. And so, you know, turnkey you could do volume. Retail, you just, I mean I don’t think the inventory existed then to do any sort of volume with just straight flipping.
Brandon: Yeah, that makes sense. So there’s like this theme I see throughout your career, and I know like now you’ve gotten into new construction I hear as well right?
Ken: Right, yeah.
Brandon: So there’s this like theme of you adapt or you’re changing strategies quite often. Now a lot of newbies, we talk to brand new investors and say you know, focus on something. Yet your career shows that you’ve shifted from different things. Why is that?
Ken: Man, I don’t think you can stay relevant in this business if you don’t watch the signs and what’s happening around you and learn to adapt your business. And that’s really been the story of our lives for the last 13 years that I’ve been in this. I mean, I was in it for two years and then the crash. And then I did turnkey for six, seven years. And then when the market changed and the hedge funds came, I had to adapt again and start doing just the straight flips.
And now, it’s interesting, even the area that I concentrate in around Atlanta has changed. Where I used to really work in the suburbs, well now the opportunity in Atlanta is in town, it’s a lot of those urban neighborhoods where you’re sitting the transitions and people want to be back closer to town, they’re tired of their commutes and some of those blighted neighborhoods and turning around.
And so zip codes that I swore off that I would never do deals, most of my deals are in those zip codes now.
Brandon: That’s funny.
Ken: And again that’s just because you have to adapt. Where’s the opportunity? What’s the market giving you? And then you have to be able to shift your business in that direction.
Brandon: Yeah that’s cool.
David: So you know, Brandon and I talked about what you’re referring to a lot about the need to be adaptable, and Brandon has this really good analogy –
Brandon: I do?
David: Well, you had one.
Brandon: I had one analogy. Great. Alright, let’s hear it.
David: I’ve rubbed off on you and improved your game. He talks about how like the more you know about real estate investing, the more tools you have in your tool belt, and you can fix more problems when you have more abilities, more different like solutions of things. So if all you have is a hammer, everything is a nail. You can’t handle screws, you can’t saw anything. You can’t fix as much stuff.
And the real estate market is cyclical by nature, and that’s a good thing because it allows smart people to make money. If it wasn’t, if it was just this like steady linear progress, you’d have to wait forever before you can make any cash, you probably wouldn’t even cash flow when you first bought the house. So you should embrace it as cyclical, but knowing that, you have to be able to be adaptable because what worked in 2005 would not work now, and what works now isn’t going to work around the next time we have a 2005 right?
So I love what you’re saying Ken that you’re like, it almost sounds like you believe that your strength is that you can adapt to the market. You talked about Atlanta was your home market and hedge funds like landed it, and that’s exactly what we see. We had the crash and they started buying in California, and then those hedge funds moved into like Phoenix and Las Vegas, and they just hammered that, and then they went to Atlanta, and from there they moved into like North Florida, and now there’s a lot like in Huntsville Alabama, you see a lot of that stuff. Memphis was another big one. So you have to be able to adapt your strategy because the big boys are gonna come in after they see a good thing and they’re just gonna wipe you out.
Can you give us a little bit of advice for like how you got to this point that you recognize that adaptibility was one of the best traits you could have and became the business person that you did?
Ken: Yeah I don’t know if five years ago I would’ve even connected the dots that that’s why we’re still in business. I think maybe 13 years under my belt and realizing that, I felt like it’s almost every year. It’s like okay, what’s gonna work this year for us to stay relevant? It’s really dynamic. I mean, this industry, it changes so fast. Strategies that we were employing to acquire property last year, it’s like everybody catches on. Like so the hedge funds catches on, but so does everybody else. Everybody else in your market is like “Hey man, robodialing works. We should all robodial.” And then that doesn’t work. “These post cards man, these are fantastic.” Well, a year later that doesn’t work because everybody is doing it.
So it’s just, now I’m realizing how important it is to adapt. I used to send an email to my general manager just about the end of the year, here are bulletpoints of what we need to tackle between now and the end of the year, because I’m already seeing shifts in our market just in the last couple of months. And so you have to constantly be front of mind that “Hey, I gotta be watching for the signs that I can be nimble.”
And really, that’s the thing about hedge funds. They’re not super nimble. But once they gain momentum and steam, then they’re a juggernaut that will just blow over you. But we’re small enough that we can kind of shift and adapt more quickly than they do.
Brandon: I love that. I think that’s like super important to realize. A lot of people think like oh the hedge funds are these big investors that are buying dozens of houses, how am I going to compete with them? Well when you’re small, like you’re much nimble, and you can do things that they can’t do. You can test more easily.
So on that note, a lot of people gets a shift often times, like especially when you’re in marketing, you want to be at the top of your game. How do you discover, like how do you personally discover the next big thing? How are you learning new tactics? Like a robocall or the post card. And I’m not talking just marketing but just in general your business. How do you stay in top?
Ken: That’s a great question. You know, honestly so I’ve been in a mastermind for a couple of years, real estate mastermind, and I would say for any real estate investor, don’t have to be a mastermind, but should be a group. Whether it’s a RIA or a small group inside of a RIA or it’s just other people that’s are in the industry so you can bounce ideas and share ideas off of each other. Being in a mastermind has been huge for me. Especially guys in other markets, or maybe their market is seeing something we haven’t seen yet but it’s sort of indicating hey this is coming. Like a lot of times Phoenix sort of foreshadows what’s gonna happen in Atlanta. So knowing people in those markets has been real helpful.
And other guys are experimenting. So you know, some guy may have experimented with this and it worked, and everybody is like “Wow, okay I’m gonna try that in my market and see if that works.” So I don’t want to take too much credit. Usually I’m just stealing other people’s really good ideas.
Brandon: Well that’s exactly what I was hoping you would say because I’m like, just hanging around with other real estate investors, especially in other markets, like you learn what worked for them, and you’re not competing with them because you’re in a totally different market. So like they’re usually not that shy to share what they’re doing. So I don’t think we’ve ever talked about this on the show at all yet but we’re coming out with a journal in like a few months here, at the end of the year, for real estate investors, and as part of that, one of the things we’re building right now on the site is kind of a form your own, and I don’t want to say too much because we’re still in the process of development, but like a form your own mastermind group of kind of thing where you can jump into the site with other BiggerPockets members and form your own little group, and those be included as part of like getting this journal which I think is kind of cool. But I’m just teasing that right now so you all know that’s kind of coming.
Ken: That’s very cool. That’s a great idea.
Brandon: Thanks. I think it’s pretty cool. People like, when you surround yourself with like-minded people and learn what they’re doing in their markets. So anyway that’s coming soon so everyone stay tune for that at the end of the year.
Alright, so that’s cool. So the last question on this front and then I’ll stop hugging the mic from David. How does somebody know like what strategy works in a giving market? If adaptability is key which I totally agree, and you know, turnkey worked for a while, the lease option worked for a while, flipping worked for a while, now a new construction is working really for you right now it sounds like and we’ll talk about that in a minute. How do you know what works in today’s market?
Ken: I guess, if you’re a newbie, you probably… just going to a RIA and meeting other investors and seeing what they’re doing, probably what’s popular. I mean, if you’ve been around for a little bit, it’s usually pretty obvious. I mean if you’re in a market where the rents just makes a lot sense based on how much you can buy a house for, then it’s probably a good turnkey market. Or even a buy and hold market if that’s what you’re looking for. If you’re in a really hot market you know where low days on market, houses are turning quickly, that’s probably a strong flipping market potentially.
I think it’s probably more obvious than most people think. I mean if you’re in the market, you see what’s going on.
Brandon: Yeah. If somebody else is successful at it, you probably will be too. I mean, you could be too.
David: Well, I always try to let my frustrations guide my decisions, and it’s a weird thing to say, I probably articulated that weird, but when you catch yourself saying man, I can’t find any rentals, these houses are just selling so fast and they’re selling for so much, and people are overpaying, don’t just sit there and keep banging your head against the wall saying I need to find, buy and hold, start flipping houses in that market because that’s obviously what the market is telling you that you should do and find a different market to do your buy and hold right? Or if you’re house flipped here and you’re like man, my inventory is just sitting on the market forever and I can’t move it and even when I fix it up, nobody is really paying that much for it. Well that’s an easy market to start buying rentals in because there’s less competition and the house is sitting on the market a lot longer you know. If you have that ability to have a screwdriver and a hammer, you can use the one that works the best for the situation that you’re in.
I think what stops a lot of people from moving forward is they’re comfortable with like knowing how to run numbers on a spreadsheet but then actually doing the work that goes into managing a rehab or flipping a house or understanding like design ideas is a little more tricky to them. So Ken, can you share a little bit about some of the skills you developed regarding estimating rehab costs, renting construction crews, like what newbies are gonna struggle with and what they should be prepared to encounter when they start?
Ken: Sure. So that’s been a big evolution in our business as well. I mean, for a long time it was turnkey and turnkey rehabs may be 15-20,000 all rehab, and we had a lot of just, you know, local small GC-type guys. We could turn the whole project over to them and then come back in a month and it was ready to go, it was lipstick, and you could put a tenant in place. Where as our business evolved, so did our construction department to where now we have a full blown construction department. I mean with construction manager, multiple project managers, multiple handy men on payroll, now it’s a behemoth unfortunately. It’s a lot to manage.
But it’s a function of the business we’re doing now. Literally our average rehab right now is 90,000 dollars right now. These are big stinking projects. And really it doesn’t make a lot of sense for us to just go out there and hire GCs because they’ve got an average of 30% market in that. That’s my stinking margin. I need that. So we’ve had to basically build our own teams to run and build these projects. So not only we’re just an investment business, but now we’re a full blown construction business. And to do that, we’ve had to develop systems and budgets and estimants, and accountability and all that, and there’s been some growing pains for sure over the last couple of years, but I feel like every year we’ve improved and improved and improved to where we sort of have it down to a science with all those right tools in place to manage the construction business.
Brandon: Yeah that’s fascinating to me that you saw, hey the general constructors, they’re taking my profit, so I want to maximize my profit. I’m gonna bring it in house. Now do you have all of your constructors generally in house, just specialties out, or they’re just your top level and then you hire grunts from other places? How does that work in the construction part?
Ken: It’s a mixed bag. It’s a little bit of everything. And we still have some smaller GC crews that you know maybe we’ll turn over a smaller project and say “Hey, you do this part, but we’re gonna handle this, this and this.” To some of us, especially the larger ones, we just do better if we manage it in house with our own guys. What we have, handful of selves that we’ll contract ourselves, and we actually have a lot of guys that we call daily guys that are just from unskilled to highly skilled, just daily guys that we can move from project to project and we just have control over that which we need.
David: It’s another testament to your flexibility. I keep seeing this theme coming up. You’re like “Well, we have all these projects going on. I need a guy that I can pull out from here and plug in to there,” and he can kind of do both jobs and it just seems like your business is growing so fast because you’re so flexible. You know, Bruce Lee had a quote that you should be like water, because water takes on the form of whatever you pour it into. If you pour in into a glass, it takes on the form of a glass. If you pour it to a teacup, it takes on the form of a teacup. And I really think that’s a skill that people need to understand, is like power is in flexibility and your ability to adapt.
Brandon: Alright, so on the construction team. I want to got a little bit more on this. Do you think, like at what level would you I guess advice somebody they should consider bringing their construction in house? Or do you just kind of feel it when you’re there?
Ken: Yeah, I mean I think you probably feel it when you’re there. Obviously most people are going to start by just finding a good GC that they know and like and trust, and maybe you got a couple under your belt, the pricing is good, you’re still making money with them. And honestly as long as you’re making money and you’ve got a solid GC that you’re working with, then maybe you never need to change that. Maybe that’s fantastic.
But as you grow and you see… here’s what happens. A lot of these GCs, you start seeing price creep. You used them and you they realize they’re not making enough. And this next project came in 5000 times higher than last one, and this one’s 10,000 higher than last, all of a sudden you start to feel that squeeze a little bit. And at that point, then maybe you bring on, I think for us the first person was just like a project manager who just oversaw the GCs and held them accountable, and it went to the projects, and just kind of oversaw that, and eventually that project managers became, he developed our business more into where he became the construction manager and hire project managers underneath him and brought in subs and brought in daily guys.
But that first hire for us was just him just being a project manager. Just overseeing the other GCs, and it just evolves from there.
David: That’s exactly what I find happening in my business as I moved from being a police officer into a real estate agent, you have this vision for how you want to grow, and then I find that like it never goes away I thought it would really. It goes in the direction of the people that find. Like I get a talented person who can really help me in this area, and I’m just like “Okay, divert resources in that direction because we have a good operator that can help there right?”
And it’s like that for everything. From what market I’m gonna invest in to what strategy I’m gonna take, to where I’m gonna put my time. Finding good people is so important. And when you find them, that becomes a platform you can build on and maybe you’re building doesn’t take the direction you thought it would take, but it’s like so good and then when you find the next piece like it’s now gonna move that direction. And I love that you’re saying that, like maybe you don’t need to start a construction company. If you have an awesome GC and she is content with making a certain amount of money and they do right by you and they just want to put their kids to college, and they’re not greedy. Like you don’t ever have to worry about that. You move in a different direction for your growth.
But if your frustration is man, this price creep, I like that term, it just keeps coming up. I keep cutting it down and it keeps coming back up again. Maybe you need to look in a different alternative and grow in that direction.
Ken: Yeah and I like what you said too about sometimes you don’t plan for it but you hire talent, and then that talent sort of steers you in a certain direction. That happened with us too. I mean, our first project manager, he was sort of unproven, and we put him on that role, and we put him in that role, and it was really he was the driving force behind “Hey Ken, I can get this for cheaper. Let me do this.” And he’s the one that ended up building out our construction department for us.
Brandon: How do you find talent? Like in your business. How do you find and recognize talent?
Ken: That’s the million dollar question right? I mean, I wish I could say that we were so meticulous when we hired people and we did all these personality testing, but we just don’t. We should. I’ve got friends that do and have more of a science behind it. I mean, for us, obviously I always ask for referrals first. If there is a position. And in fact, speaking of which, my construction manager has been with me four years, he’s actually on the show with me as he’s leaving to take another position actually in the ministry, so I can’t blame him for that. But now we have to go find somebody to fill some really big shoes. And so the first place that I go is referrals.
So every agent I know, every person I know, you know the role that we need to fill. And we got so many good leads just from that. I’d much rather hire somebody that somebody else knows that’s referred to me. But we’ll go indeed and put a job description out there and look through a tons of resumes and interview 20 people, bring 5 people back for second inteviews, and figure out who the best guy is and just cross your fingers that you got the right one.
David: What are you looking for? What stands out to where you’re like “Oh, that’s talent right there. I should dig deeper.”
Ken: Honestly resumes… it’s really sort of a gut feeling. It depends on the position. I mean sometimes you just take on a chance on somebody and sometimes like a position like this like a construction manager. I need to see a lot of experience. I need somebody that’s been in this for a long time. And luckily we got a lot really good resumes with people that really know the industry.
But sometimes, you know for example, so I’ve got an acquisition specialist on my team right now. He started off as a door knocker for us, just in neighborhoods, knocking on doors. And he wanted a chance. I was like, we’ll see. We brought him in, and the dude is crushing it for us right now. And it’s just sometimes it’s the intangible, he’s just driven. Just somebody that’s got that motivation, that fire under their gut, to be good at something, and I don’t know, sometimes it’s just instinct to pick up on that in somebody.
David: Well I think a person like that that has such a drive is going to be like a sponge and pick up everything that you’re doing, right? Like he’s probably learned things being around you that he never would have learned on his own. Where there’s another person that could be around you just as often and it just bounces off of them, like everything you’re doing, it doesn’t really absorb because they don’t want it that bad. And that’s where, like that guy’s attitude is exactly what made him successful. He’s like “I don’t care. I go knock on doors. Whatever it takes. I just want to be good at this.” And then he gets to train at like another feat of a Jedi and becomes a Jedi himself, and now like he’s crushing it for us and that’s where opportunity comes from.
Every listener who’s hearing this, like you got to understand, if you’re not getting the results you want it like or the opportunity that you’re looking for, people can sense that you don’t have a great attitude. Like if you’re a talent and you’re coming with a talented perspective, they’re gonna want you around. They’re gonna be like “Hey, do you want to come hang out with me and see this thing I’m doing?” When your mentality is like “Gimme, gimme, gimme, what’s in it for me” or “I don’t want to do that” or “How do I get successful without having to be adaptable or flexible or change anything?” It just turns people off and they’re just not gonna be very drawn to you. And you get the right attitude, you get around a rock star and you’re gonna explode.
Ken: Yeah, and I say the other quality too is just initiative. When you hire somebody and you see that they have initiative, to a business owner, there’s nothing else like it. Because that’s what you want to see. Somebody out there that’s driving your business in new directions and somebody that wants to take on more responsibility. To me that’s a phenomenal quality in somebody.
Brandon: I agree. Hey Ken, do you do rentals as well now or are you strictly flipping?
Ken: No, we have rentals. I don’t have some massive portfolio of rentals like you do Brandon, but I do have a handful of rentals. I couldn’t even tell you how many I’ve got, like 10 or 15. Some in different markets, and right now interestingly we’re picking Airbnb’s right now over just straight rentals. And we’ve got a handful of those and I got three or four more in the works right now, and that’s kind of a cool niche that we’ve carved out and had some success.
And that goes back to having that backup strategy. The only reason we got into Airbnbs is because I got stuck with a house that wouldn’t sell, and it was a high end house that was bleeding money on this thing. I was like we got to stop the bleeding folks. I said let’s try Airbnb. It’s already staged, there’s already furniture in there, and next thing you know, this thing is renting like crazy, and it was covering itself, and I was like “Holy cow, this works!”
And once we figured that out we started doing it a couple more times, a couple more times. Next thing you know we got a little Airbnb business going, and the rents have been stronger than just on a normal 12-month lease.
Brandon: Yeah that’s neat. So, the exit strategy thing is important right? Like in any deal. So when you go into something, like how much do you think about that like what’s my backup if this doesn’t work out? Did you always have that or did you just kind of stumble into it?
Ken: I don’t think I always had it. Luckily, the turnkey business early on was such a good way to cut my teeth in this business, because when a house didn’t sell, it almost didn’t matter because it was rented, and it would cover itself. And I could always keep it if I needed to. There was always a buyer if it was rented eventually. And so I think having that as a foundation for me, I always fall back on, alright this house doesn’t sell. I’m renting it and selling it to an investor, or now Airbnb is a great backup, or I did a lot of lease purchases early on, that’s another great backup strategy.
So it goes back David to your analogy of the toolbox. I think we’ve just been able to develop a lot of cool tools that over time, if something’s not working, there’s always something to fall back on for us,
David: Yeah, the Airbnb strategy is a perfect example of that. Because right now that is a hot way to get really good returns. It’s working super good. But you see like a lot of cities are unhappy about that, and there’s a lot of political pressure against the Airbnb model. And if you go all in and say “That’s what I’m gonna do, I’m gonna learn Airbnb, and it’s all that I’m gonna do.” You might find yourself 18 months from now, having Airbnb illegal where you live, and now you’re screwed because you thought your rents will be 3000 and your grant drops down to 1700 a month or something you’re not making your nut. You have to be adaptable. You have to know, well if I buy this house and I do this, is there enough equity in it that I could then sell it and make a profit that way too 17, 18 months from now, whatever the case is.
I believe, would you say Ken that like your main business right now is flipping houses, is that kind of your bread and butter?
Ken: It is. It’s our bread and butter. I guess I’ll quickly digress. So we’ve got three main businesses. And we’ve got three local offices. One is the flipping business, one is the new construction business, and then one is just a retail brokerage. And so all of three of those sort for exist in separate locations with separate people that are sort of at the helm, but they all sort of work together too, they all sort of feed each other which is nice, sort of a big happy family. But honestly our retail brokerage is growing faster than any other arm in our business right now. And I’m sure the shell was fueling that, but also just a pretty cool model that we’ve put together, and we brought on literally a hundred agents in the last year. Our growth trajectory is pretty fun on that.
Brandon: That’s cool. So the agency thing is something that David here has gotten into and I have not. Do you recommend investors get their license? Should they have that when they get into real estate or is it just, I guess, a distraction?
Ken: You know, that’s a great question. It’s funny. That’s an age-old I feel like debate. It depends on the person. If you have any inclination to do any sort of traditional agency, you know, represent friends, or occasionally get a listing here or there which is decent income an on the side, then I don’t there’s anything wrong with it. I think the only tricky thing is then you’re falling into RESPA. So as an investor, there are some things you can and can’t do when you’re an agent, and you have to disclose that you’re an agent to everybody you talk to. So if you really just want to be an investor, you have no interest in being in a traditional brokerage, then I don’t think you need to.
I actually purposely never became licensed when I get into that business because of that. I actually made my wife get licensed. I’m not gonna be licensed but you’re gonna be licensed. I don’t think there’s a right or wrong answer to that though.
Brandon: Yeah, I agree.
David: So RESPA, you’re referring to the Real Estate Sediment Procedures Act which was like a bill that was passed to outline what agents can and can’t do, and like what the ethics will be that govern them. And you can get into some hot water because if you’re trying to buy a house from someone, and you’re a real estate agent, and they’re listening to you and taking your advices if you’re a licensed agent, and you say, I’ll buy it for 200,000, and they go “Oh, I guess it’s only worth 200,000.” If you don’t tell them, you might be able to sell this for 300,000. Maybe it’s an older person and their kids can come back and sue you and say “You ripped off my mom or dad or whatever buying this house.”
And so if you’re not looking to actually learn how to be a real estate agent and do it as a job. In most cases it probably hurts you, you know. And because when you’re buying properties, you’re not paying your agent anyways which is really where you’re gonna make the most money. But I would love to talk to you more about how you’re growing it so fast and how that’s going, because you’ve got this really good synergy between the different businesses that you’re opening, and Brandon and I, we’re just hanging out in Hawaii for like 12 days and we talk a lot about how the best business to open is when it will be benefited by a business you already own. And then you build that one up and then you look for well, how are these two gonna interact and kind of help each other.
But on that note, I know you’re in new construction which is something so many people have taken on and failed. It’s like this Bermuda triangle of all these pilots that I want to fly and then you never see them again. You hear these horror stories of it. Tell us how that’s been going and like what you found is working for you and why you think you’ve been successful when so many others are not.
Ken: So in 2007 when everything was crashing around, I decided you know what, this is a great time to go back and get some education. And so I went to and enrolled in a master’s program at Georgia Tech. And in 2009 and I came out with a degree in building construction, and was able to go get licensed. And I only did it really for the education and for the licensing. And so that I know at some point when the market came back, that all these other builders who have just been demolished, and when it came back there was gonna be an opportunity for new construction. And it was really just sort of planning ahead that at some point I’m gonna get into this and sure enough, the market of course and its cycle came back, and there were so few small builders in Georgia because they had been wiped out. And it was really just your big production guys that were left. And so there was a real opportunity for us to carve out a niche here in Atlanta.
And really, our small Atlanta, our little suburb of Woodstock Georgia which is north of town, that’s really where we do the majority of our new construction. And it’s really where we’ve built our brand. So our new construction brand is Redbarn Construction. Our agency is Redbarn Real Estate. And so we’ve built a nice little brand in this small community that people recognize us now, and then I hired a really good GC. Somebody that had worked for one of the nationals, a buddy of mine from church that I knew, just a real solid guy, and brought him in, and like I said, the reason we’ve had success is because we’ve carved out a niche. I’m never gonna compete with the big nationals, with the big regional players who can build just stupid cost per square foot. But I could build something that they’re not building.
And so for us, that was large lots. Most big builders, they want a small lot as possible and squeeze as many houses in there that they can. So for us, let’s carve out some big one-acre lots, and then let’s build in a style that nobody else is really building and for us that was farm-house style which is real popular right now and that’s sort of the rage. With really nice custom finishes that you’re not gonna see in a production-built house.
And there’s a market for that. I mean, we don’t have to do a ton of houses. I think we’ll do maybe 20 this year. But there are 600,000-dollar houses, and there’s 20 people that will pay 600,000 dollars for one of these houses this year, and it’s a good little boutique new construction business.
Brandon: Can you walk us through the numbers of a new construction deal? Like typically what do you kind of pay for a lot, what does it typically cost to build, what do you typically sell it for, and so what’s your profit kind of look like.
Ken: Well, we’ve got a major development going on right now of 20 homes, and so the lot cost in that’s a lot higher because you’ve got storm water and pavement and all that stuff. But honestly our bread and butter has been taking little 5 and 10-acre tracts and doing what’s called a minor subdivision where literally it’s just a gravel road. And I don’t have to spend all the money on infrastructure as long as it’s five lots or less, and that really has been our sweet spot of these little minor subdivisions. And so in our area I can buy an acre for about 50,000 an acre, and then if I do a minor subdivision, it’s maybe another 25,000 in development costs on that. So I can be in a one-acre lot, nice, like in a good part of town for 75,000 bucks, and then I can sell that for 5 to 600,000 and probably make about 75,000. Maybe to even 100,000.
Which is good. Like you don’t have to do a whole lot of those. Those are probably good margins. And like I said, I have no aspirations of really growing any bigger than this. I like being boutique, kind of small. I don’t want to be the guy in two years that gets stuck with a neighborhood because the market turned on us.
Brandon: That’s exactly what I’m always afraid of if I do constructions, like if I own 10 of them or 20 of them in one little subdivision, and then the market tanks, I got 20 houses. That’s a scary proposition to be I.
Ken: Well we don’t do a ton of specs either. I mean, most of the time we’re doing customs for people. We have our houses, or presales I should say. We call them presales.
Brandon: Okay. So you basically like, the idea is you buy the lot, you subdivide it, now you put up a big sign saying “for sale, will build to suit” or whatever. That’s awesome. That’s cool. That’s a good way to reduce some of the risks.
David: On the last episode Brandon I’ve recorded we were talking to a multifamily investor and we were, talking about how buying single family homes, there’s more flexibility. You can’t really scale as much, but you can adapt much quicker. It’s like riding a jetski and if you see a wave coming, you can zip off to the side. Whereas when you’re in this big multifamily space, it can take two years before you build any money and it’s like to control an aircraft carrier, it takes forever to get that thing to turn around. It’s powerful but you’re exposed when the market shifts, like “Oh, there’s a storm coming, how do we turn out of the way?” It’s very difficult.
And I love the contrast we’re getting from your method which is like I don’t want to be bigger because if I’m bigger I’m exposed. I can’t move when I see something coming down the pipe that is harmful or it’s gonna change. I like to be small. I get in there, I make the money when I can, I see it’s bad I get out and I zip back into a different area.
And I can see like with an attitude like that, you’re just gonna learn so much about so many different things and you’ll be able to do this forever. You know, 80 or 90 years old and you’ll be able to invest in real estates still regardless of what the market is like or how real estate works at that time.
Ken: That’s the goal. It’s when you watch, and you learn. I think maybe all of us were fortunate to see what happened in 2008 and see how many people just lost their shirts. And I was fortunate that I wasn’t one of them. But now that’s still a lesson learned for all of us, is I don’t I saw what happened to those folks and I don’t want to be that guy. I want to be prepared when the market does turn.
Brandon: Yeah, that’s really good.
David: Much better mentality than I’m just not gonna invest in real estate, right? I’m just gonna use it as an excuse to not get started. Well people lost money at one point so I’m not going to do it.
Brandon: That’s true. We have people make that excuse all the time. So Ken tell us about the TV show a little bit. Like how did that come up. How did Flip or Flop Atlanta like become a thing?
Ken: Well they were looking for the most handsome man in Georgia. It was 2015 and I just got a random call from a casting director. I think she works for a production company, and so she was probably googling different websites for investors and happened to find our website, called me up out of the blue, and asked if I wanted to do just a Skype call with them.
It’s funny, it wasn’t the first time I had ever been asked to have that conversation with the production company, but for whatever reason the timing was right. It’s like “you know what, why not? Let’s just see what happens.”
And so Anita and I together jumped on a conference call with this casting director, did a Skype, and neither of us took it seriously. So like Anita had literally just come home from the gym, was all sweaty, she’s drinking her tea, just answering their questions, and I think they liked that authenticity that we just didn’t care that much and that our future didn’t hinge on whether or not we got a reality show.
And so that turned into, it got greenlighted for a sizzle reel. You’re familiar with a sizzle reel? You’ve filmed a sizzle reel so you know what that is. Where basically they come out and film for a couple of days, and they turn it into like a four-minute video that just sort of highlights who you are and what your business is. And so then that sizzle reel got highlighted and greenlighted at HGTV for a pilot. And so they came back out and we shot a pilot over the course of a couple months which was just one house all the way through the process. And then that pilot aired I want to say in the summer of ’16, and I guess we got enough of the right ratings that they greenlit the series and they ended up folding us in, or early on we were called “Flipping the South.”
Brandon: I remember that. I watched the pilot when it was Flipping the South. Cause it was put on Facebook and I was like “God, I got to check that out. Ken’s on TV.”
Ken: That’s awesome. Yeah, and then they folded us into the Flip or Flop franchise which was obviously fantastic for us because there was obviously name recognition there. And it still wasn’t until 2017 that the season aired. It was from March of 2015 from first contact until the season aired which was almost two and half years later. And the season did well enough that we got renewed for a season two, so we filmed that last year, and so the season two is about to premier October 11.
Brandon: That’s awesome. So here’s a question everyone always asks about TV right? Is it real? Like are you just making everything up or how does that work?
Ken: That’s a good question. It is funny how many people just assume that it’s just all fantasy, it’s not real, and I mean, because I’m here to state it, it’s real. I mean, these are our houses that we would’ve done whether or not the show was here. They’re the renovations we would’ve done, they’re the problems we run into. And it really is just docu style. I mean the guy show up with the cameras, and if there’s mold in the basement, there’s mold in the basement. You know, if we need to replace the roof, we need to replace the roof. And so, at least our show, I feel it’s very genuine, very authentic to our real business.
Brandon: That’s cool. Yeah, I mean like that’s one thing I find about flipping houses is that like the drama is real. There’s been so many times where my wife and I are having a conversation, we’re like, this is totally like what you see in on TV. Like it’s not always exactly like that and like I find my own life a little more boring because it’s not on 30 minutes versus 3 months to flip a house. But the drama, like the arguments that my wife and I will have, like the little debates in the middle of a project are just like you’d see on TV. It’s realistic I think from what I’ve seen, just shrunk down into a very condensed 30-minute, hour-long.
Ken: Yeah. My producer is actually good. A lot of times he already know that there’s an issue in the house, and won’t tell us, and he’ll be like “Don’t walk in the house. Just wait. Don’t walk it.” Because he wants to capture our real reactions. And we like it. I mean I think I’d much rather not have to fake it. I’m not a good actor. I would be incredibly robotic…
David: What do I do with my hands? I don’t know.
Ken: That would be a very bad show if I had to act.
Brandon: Well I’ve heard, do you remember the Chronicles of Narnia: The Lion, Witch and the Wardrobe movie that came out like I don’t know 10 years ago whatever, the scene where like Lucy walked through the wardrobe and into like the winter wonderland. Like I heard that they filmed that whole thing with her not showing her at the time and they actually had her pop out of a box whatever, and so her reaction was the actual reaction of like “I’m in a winter like magic wonderland thing.”
Ken: That’s smart. Because how many little kids can act that well. That makes sense.
Brandon: Super cool. So the new season premieres on October 11. So set your DVRs or make sure you watch it. That’s super cool.
Ken: Thursday nights at 9.
Brandon: Thursday nights at 9. Alright, very very cool. So alright, we want to get moving on to the next segment of the show which we call our Deal Deep Dive.
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Brandon: This is the part of the show where we dive deep into like one specific deal that you’ve done. And so we ask our guest to come up with a deal and we’re just gonna ask a bunch of pointed questions about it. So first question, they’re very specific and you can go as deeper or shallow as you want to go on this. What is the deal you want to talk about first of all?
Ken: I chose a deal that we are still kind of in process in. I mean, half of the deal is done, half of it is not, and it’s one that’s kind of close to our house, on the north side of town. But there are certain cool aspects to it that I think are worth discussing.
Brandon: Okay, and it’s a house flip I’m assuming?
Ken: It’s a house flip and a new construction deal together. I don’t know how much you want me to go into detail right now.
Brandon: Sure, yeah go ahead. We’ll ask about finding it, funding it and negotiating it in a minute, but you can explain the deal a little bit.
Ken: So this particular deal is that it was an old house built in 1980 on 2.6 acres which is what really attracted me to it. It was in a really good part of town. It’s sort of like an equestrian area, so people like the Anchorage, and the house was really bad, had zero character whatsoever. That the fact that was on 2.6 acres is really what attracted me to it.
Brandon: Okay, cool. Next one. So how did you find the deal with that? MLS or something more fancy?
Ken: I wish it was MLS. Man, I wish we could find deals on the MLS, that would be fantastic. It would make life easy wouldn’t it?
So this one came from, I guess you can call him a wholesaler. It was actually a buddy of mine. Actually it was somebody who had bought one of our new construction houses a couple of years ago. We’ve stayed in contact. He had gotten into real estate a little bit, he had a full time job, he’s listening to BiggerPockets every day. He would listen to the podcast, he’s very involved. And he found a deal through his postcard campaign. And it was one of those things… the lesson here is it was a postcard he had sent out a year ago. It sat on this guy’s counter for a year, he was finally ready to sell, I think somebody maybe has passed away.
He got a phone call, and he’s working a full time job, didn’t really have the capacity the flip it and just said “Hey Ken. I got this deal. Can I wholesale it to you. What should I do? And took a look at it and I love the deal.” I’m like this deal is awesome. How about, you just give me your deal and I will catch you in on the back-end. I’ll give you a percentage of my profit. And for him, not necessary having the resources to fund it, it took some level of expertise. For him it’s like that’s fantastic. And it was 15% of our profit of whatever we truly made on the deal. Just for basically signing the deal over to me.
And so we ended up buying this deal for 200,000 bucks which in this part of town, the land is almost literally worth 200,000 bucks. So we knew it was a good deal. And so that’s basically how I got us through.
Brandon: That’s awesome. Can I ask you before you jump on to the rest of this deal. How are finding deals today mostly? Is it mostly wholesalers or…
Ken: We do have a pretty good size acquisition department. Acquisition manager, two acquisition specialists. We send out a ton of post cards, send out a bunch of mail. We do direct dialing. We still do a little bit of doorknocking, and we do whole sales. One of my guys is only assigned every wholesaler in town, so we’ve got all the wholesale deals to decide which ones are worth picking up.
And occasionally we get lucky and get MLS still here and there, but probably like everybody else it’s a shotgun approach, just throw it up there and hope something sticks.
David: So with this deal in particular, once you’ve found it and you knew it was good, how did you negotiate the price of 200,000 dollars?
Ken: He already had it locked up for 200,000. So he went in there, and like I said I think somebody passed away so I think there was a sense of urgency to get the house sold. So he got it at a good price, he brought it to me, I didn’t really have to negotiate. The only negotiating I did really with him was don’t wholesale it to me, just give it to me, and then let’s split the back-end profits together which…
David: Which is great especially because he may have asked for more money up front than you might have to give right? And if you do a really good job with it, he realizes “I made more with 15% of like Ken did than I would’ve made with 100% of what I would’ve done. I’m giving Ken all my deals right?” You didn’t just get a deal, you just got a deal source from that point forward. That’s what I love, is if you’re better and more efficient at doing this, it’s better for him to be giving stuff to you, and you have the vision to see that so I love that.
Brandon: And I bet you he’ll probably follow along more closely with the deal as well to see what you’re doing, how you’re doing and probably learn a ton from this process.
Ken: Yes, absolutely. He was involved which is great because he is learning. And so we flipped it last year, maybe sold it the beginning of this year, the house we ended up fixing and selling it. He was involved in the process, and I will say since that time, he has quit his job and he is a full time investor now, and he himself is crushing it. I mean, I love to see somebody quit their job, get into business, and his deal flow is fantastic. And I think this was a big part of that.
David: Very cool. Alright, how did you fund it, the original purchase of this deal?
Ken: Yup. So we fund most of our deals just to private lenders. We have a pretty good stable of private lenders that we’ve developed over the years, and our model is super simple. It’s just 12%, interest only, no points, balloon nope. You get pain when we get paid. And we went to one of our private lenders.
Brandon: That’s awesome. Very simple. So basically what you’re saying there is like they lend you the money, and let’s say you have the loan for exactly 12 months, then they would make 12% interest on that and they get paid all of it at the end so you’re not making monthly payments to them.
Ken: 100% correct.
Brandon: Perfect. I love that model. I don’t know why like when I got started with real estate, like I never even thought that was an option, you know, the balloon payment of the delayed like paying the money. So pretty much every flip I’ve ever done, I’ve just paid monthly interest until like two years ago when some lender was actually “I don’t want to deal with checks in the mail. Just send me all at the end.” And I was like “I can do that? Like what? That’s allowed? Like wow.” And it actually made sense. If you trust me enough with the money anyways, what does he care if he is getting a check in the mail every single month to have to go deposit it, or if he just gets it all at the end. I mean, he trust me regardless, and it made money way easier. Alright, next part of that.
David: What did you do with it?
Ken: So, what we did, we took this 1980-style house which honestly, it says 1980 in the tax record but it looked like 1960 on the inside. I’m not 100% sure it’s right. I mean, it was shag carpetting. You walk in and there’s just all these little compartments of rooms and kitchens that are all really small. So we went into this ranch-style house and just blew it open. I mean, just opened it wide open, there were no more dining room, kitchen. It was all one big space. We vaulted the ceiling to make it feel even bigger. There is a basement that we ended finishing out, getting all these extra square footage in the basement. Just had a real flat plain roofline. And so we made a nice big front porch with big cedar gable, crows feet, I mean just really added some curve appeal to it.
And we subdivided that house on to one acre, and left a lot for ourselves on 1.6 acres. And so ended up putting in I want to say about 125,000 into rehab. Big rehab on this house. I mean, before and afters were phenomenal on this thing. But we sold that house… so we ended up swelling just that house on one acre or 440,000 bucks which was a net of about 125,000. It’s 125,000 because on the 1.6 acres we left a cost basis on that of 50,000 if that makes sense. So when we bought the whole thing for 200,000, the cost basis on the house was 150, the cost basis on the lot was 50,000. That’s just sort in our minds, that’s how we segregated amount.
So on the flip, like I said we cleared about 125,000 on it, but now we’ve got this lot that’s 1.6 acres, and honestly in that area that lot is worth 150,000. So right out of the gates, we got a lot with this equity in it, so that’s the other half of this deal right now is that we’re in the process of building a farmhouse on this lot, and at the end of the day it will make probably 200,000 bucks just on the new construction.
And of course my buddy that brought me the deal, he’s gonna get paid on that as well. It will get another 30,000 check when we sell that.
Brandon: Yeah, I love that whole picture of what happen there with bringing the guy in. Do you have any advice for people, and I know this isn’t really a part of the deep dive, but like, who are in his shoes? You know, somebody who wants to get more involved with an experienced investor, maybe work like that, like just because he brought the deal to you, is that why you want to work with them. Is there something else that stood out and made you want to work with them on this?
Ken: Yeah, he was just hustlin’ man. I love a hustler that’s out there who’s knocking on doors and calling leads and sourcing deals and as you start to get a little bit of traction, if you’re networking, he was very good at networking, he networked with me, he really chased me down. And you see again, that drive, that initiative, and I see that fact he was chasing me down and he found this great deal, and I’d looked at a couple other deals that he had. He just stayed in front of me. He was just tenacious, and that’s such a good quality. Just get after it, and if there’s somebody you want to do business with, just stay in front of them, just be a little squeaky wheel until they look at your deals.
I mean if you’ve got a deal, I don’t care who they are, they’re gonna be interested in working with you. There’s money to be made.
David: Well that’s the key, is that you want to stay in front of them if you’re getting deals right? If you’re just annoying the crap out of them, that’s gonna make yourself blocked and lose any opportunity that you would’ve had. So on this one in particular, can you tell us about the lessons that you learned?
Ken: You know interestingly, we had set the ARV I think at like 350 on this thing, and the house, we put more into it than we planned which happens sometimes. You get into a rehab and you’re like you know what, we really got a German schmear this brick which we did around the foundation, or we really got to rebuild this deck. So we ended up probably, we probably overspent by 50,000 bucks on this house.
But at the end of the project, it was such a good house… you know, Anita and I, I remember clearly standing in the kitchen with her and looking at the comps and I was like “You know, we were gonna list this thing for 350” and we are sitting there staring at these comps and we’re like “You know what? Let’s just stinking go for it. Let’s just put it on the market at 440…” Because it was hard to comp because a lot of the houses around, they were bigger houses, bigger state lots selling for 7-800,000 bucks. So this was hard to comp. It was sort or below that market. So we didn’t what the market would bare, and sometimes when that’s the case you just freaking go for it.
And so we listed it at 440 just to see what would happen, and got offers immediately, and it was just one of those pleasant surprises that was the right opportunity to just kind of swing for the fences. I don’t advice always swinging for the fences but there are those opportunities. Just swing for the fences, what’s the worst that’s gonna happen? No activity, pull it off the market, wait a week to put it back on at a more realistic price.
David: So have a flexible attitude towards your price and you can be successful right? You can take that big swing and if you miss, you’re like okay, well now I got two strikes, I’m gonna choke up on the bat. I’m just gonna make sure I put the ball on play.
Ken: That’s exactly right. If you have that mentality. Because sometimes houses are hard to comp and people don’t realize that. If you’re talking about like tract homes in Las Vegas and they’re all the same thing, it’s very easy to know what it’s gonna sell for, but you’re talking about basically building an almost a house from the ground up on a lot that you had to buy independent of everything else and the comps were twice as much money. It’s very hard to know what buyers are gonna want to pay. So sometimes you had to just plan for the worst and hope for the best and saw something here that worked out.
David: I want to ask you. I know that you’ve mentioned a lot about all the different things you’re doing like the brick you’re gonna put in or what foundation or work you’re gonna do. How much do you think investors should learn about construction themselves and how much should they just be relying on the person who’s gonna be doing the construction and just getting the number for it?
Ken: That’s a great question. If you’re an investor that’s doing any amount of flips, you should absolutely have construction knowledge so you’re not getting taken taken to the cleaners. I think that starts with getting multiple bids on houses. I mean, obviously if you find a construction GC that you like, I mean there’s nothing wrong with sticking with them, but early on, you should absolutely be getting multiple bids for multiple GCs to see who’s in line and start to learn the pricing. The other thing is with any bid, you need to have so much detail on that bid. I want to see line item by line item, what I’m spending for each of this, and then compare those across multiple bids and start to learn what’s the market rate for each of these things that I’m paying for, to put tile in the bathroom or these appliances or this countertop or these cabinets. You need to know what the market rate is. If you’re doing this in any sort of volume, you have to be able to hold your GCs accountable to their appropriate pricing.
Brandon: Yeah. Really good. Really good. Alright, we got to shift out of this section and get into the next segment of this show which we lovingly call our Fire Round.
It’s time for the Fire Round.
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Brandon: Alright let’s get to the Fire Round. These are the questions that come direct out of the BiggerPockets forums that we’re gonna fire them at you Ken, are you ready for this? Can you handle it?
Ken: I’m ready. Maybe.
Brandon: Alright #1. I’m looking to get into multifamily but they’re hard to find in my area. So what do you think about building like a duplex or triplex? Is that something that could be profitable?
Ken: Actually it could be profitable. It depends on the market. I mean, are you in the market that bares that one of the rents in the area. I’m sure as heck would look for an existing duplex before I’d start building them but if you can find a builder that will build at the right price and the rents are strong, absolutely it could be a viable strategy.
David: Next question. We’re looking at developing a city block into several multifamily units which will be in line with the city code. We’re looking at a way to finance this project. What have you found is the best financing for new construction of investment properties?
Ken: So we do our new construction through a regional bank, so local and regional banks, absolutely develop a relationship, get yourself a local business banker, they are the ones that any sort of new construction whether it’s commercial or residential, to me that’s your best source. And then on the equity piece, a lot of times we’ll put together partners on the equity piece or even private lenders on the equity piece, because there’s gonna be some sort of downpayment component. So a combination of actual institutional lenders, local institutional lenders, and some private money to me is the winning ticket.
Brandon: Alright. Cool. Next one. I’m trying to figure out how to estimate what a new home is gonna be worth. The neighborhood I’m looking at is mostly older houses in the 70s. So the new house I want to build, I’m not sure how to estimate the value of that new construction. Any tips?
Ken: That’s tricky. If we run into that, we do some in-fill new construction as well. So I always look at the… you want to at least see a renovated comp. Look at the best renovated comp in the area and try to get like a price per square foot and assume… I mean, I think that’s a conservative estimate, is if new construction you’ll sell at least at their cost per square foot for a really nice renovated comp, hopefully more.
David: That’s easy. I love that. Like pretty simple, looking for the first renovated comp because it’s gonna be as close to new home as you can get and adjust from there. Great advice. Okay, next question and this is something that comes up all the time. I’m very interested to hear how you answer it. I’m partnering with an experienced flipper in my area. I’m in real estate and we will be 50-50 partners. My question is what is the best way to legally structure to protect us both and also best structure tax-wise? We have our own LLCs but should we start a new LLC for this project?
Ken: I would. In my opinion, a good operating agreement should outline exactly who’s getting paid what, what the responsibilities. At the very least if you don’t go that far, have a really good memorandum of understanding that documents who’s doing what, who’s responsible for what, who’s putting what money in, and so that there’s no disagreement or misunderstanding afterwards. But if it was me, I would do an LLC even if it’s on a single project and just have a good attorney draft up a really solid operating agreement that outlines the terms.
Brandon: Alright, good deal. When you mentioned memorandum of understanding, I actually did one of those recently, but how would explain what that is?
Ken: Honestly, it’s not even necessarily an official document. It’s more of I’m putting paper how I perceive this deal, and you do the same, and then there’s always some back and forth. Okay I wasn’t thinking that. Okay well now I understand what you’re thinking. And then when you put your signature on the bottom of it, again to me it’s just formalizing what you’re agreeing with somebody else.
Brandon: Yeah. I love that. Because I’ve not heard of that before and then an attorney said a deal we were partnering with a buddy of mine and he decided that that that would be the best way to go. And basically it just puts everything we’ve been talking about in the world on a piece of paper that we can go refer back to later and be like, look this is what we agreed on. It’s not quite as fancy and legally as an operating agreement but it’s there. It does its purpose.
Ken: That’s right. Well everybody worries about the LLC question right? Like do I need an LLC or not? And they got stuck there. But really what’s gonna hurt you is the expectations that are missed between you and the other person and it’s what you don’t know that’s gonna be the problem where I assume that would obviously be you, and they’re looking at it like “Why would that be me, that should be you right?” And that’s what’s gonna hurt your relationship and what’s gonna cause problems in the deal and ultimately that’s what’s gonna lead to a lawsuit which is what we’re trying to avoid.
So yeah like the memorandum of understanding and operating agreement is in my opinion so much more important than the tax structure that you’re using for this thing. That’s really what you want to nail down and get right.
Brandon: Yup, there you go. Alrighty. Actually that’s the last question. So the next segment of our show, it’s The Famous Four.
Brandon: This is the Famous Four. The same four questions we ask every guest every week but before I ask them to you, let’s hear it from Mindy and what’s going on this week on the BiggerPockets Money podcast.
Mindy: Okay Brandon and David, are you sitting down? Good. Monday’s episode of the BiggerPockets Money podcast will blow you away. We spent almost two hours with certified financial planner Kyle Mast and discuss about a million things to make your money work harder for you. Kyle gave us so many ideas and things to consider when planning your money’s future. He shared information about what exactly is a CFP? How do they get paid and most importantly, how to properly bet a CFP so you’re working with someone who can best help you.
Now, I’d like to think I know a lot about money and managing it, but I learned about a thousand things from Kyle. This episode truly is for anyone who has money and wants to have more. Okay guys, thanks for letting me butt in. Now it’s time for the Famous Four.
Brandon: And with that, let’s get to the Famous Four. Number one, Ken, what is your favorite real estate-related book?
Ken: You know, I’m gonna go with the most influential in my life which was the Carlton Sheets’ No Money Down System. I mean, I guess it’s technically not a book but that’s what influenced me more than anything else. I’ll be honest, I don’t read a ton of real estate books. I guess, I just sort of educated myself in the process, probably dumb on my part. But at least what’s impacted me and influenced me the most would be that corny course I did 13 years ago.
David: That’s awesome. What is your favorite business book?
Ken: I have to think about this one for a second. I think again the one that’s probably still I go back to in my mind in terms of the principles more than any other book I’ve read is Good to Great by Jim Collins, and some of the principles that he extracted about leadership and about having the right people on the bus and the whole hedge hog concept. I feel like I go back to that in my mind a lot when making decisions.
David: How about some of your hobbies?
Ken: If you guys have kids you know that you have pre-kid hobbies and post-kid hobbies. So like pre-kid, I played guitar, I played sports, I was on football, fly football teams and softball teams and I feel like I don’t do any of that. Now I coach a lot of little league teams. I’ve coached a lot of soccer teams. In fact, I coached my son in his baseball. He’s 8 years old. And my little man, a little plug for him, he knocked a homer out in the outfield, and I might have been the proudest dad in the world.
I mean honestly, when you’re busy in your career and you got young ones, any of your spare time is with them. I mean, it is at least with me. We are four-wheeling, we’re camping, we’re swimming in the pool, we’re playing their sports. I feel like those are my hobbies now, at least at this stage of life.
Brandon: Yeah, that’s fantastic. Last question for me. What do you think sets apart successful real estate investors from those who give up, fail or never get started?
Ken: You know we’ve talked about that a little bit. I mean I think drive is one of them. Some people are just driven to grow and succeed. Some people are content, and there’s nothing wrong with that. I mean, it’s the people that are really driven. And then I think second to that would be the people that overcome their fears. There are a lot of folks that like the idea of being in real estate or flipping a house, and they just can’t get over that fear of what if I fail? The people that can get beyond that and push through that fear and learn from their mistakes, I think those are the ones that you see having success.
David: Great answer. Alright Ken, where can people find out more about you?
Ken: Just Google me. I’m everywhere guys. Just kidding. Redbarnhomes.com is sort of our home base and it’s a portal to some of our different brands and the different businesses that we do and there are some pretty pictures of Anita and me on there you can look at.
Brandon: Yeah. You’re also on the cover of Teen Beat magazine this month. Is that even a thing still? I don’t know.
Ken: Teens have no interest on a 42-year-old man probably.
Brandon: I’m gonna talk with the producers over at Teen Beat magazine. We’ll get you on the cover. We’ll work on that. Alright, well Ken this has been fantastic. Thank you so much for joining us today. I love this stuff. So good luck on season two of the show as well and keep it up on your real estate.
Ken: Thanks guys. I appreciate having me on.
Brandon: Alright thanks. Bye.
Alright that was our interview with Ken Corsini. Dude, he delivered just like I was hoping he would. I mean, again, I’ve always looked up to this guy for years, I’ve looked up to Ken. So now you all know why.
David: Yeah. Ken is a stud. And I think the coolest part is that he doesn’t have that I’m too cool for you because I’m on TV attitude. Very down to earth guy. Totally willing to share like his failures and what isn’t going good and you just can sit back down and have a beer with that guy just like everybody else.
Ken: Yeah, he really is. He’s super cool. And again, check out his show on October 11th if you’re watching this or listening to this show right now live. Well when the week it comes out. And if you’re watching the future, make sure you go and check it out and support Ken, Anita and the family and the show. And so with that, that’s all I got. I’m gonn head out of here and go talk real estate. I got my buddy Ryan Murdock here who we call the real estate mercenary and he’s hanging out helping me out get some stuff down at my house. We’ll be talking a lot about our mobile home park that we’re working on together, and I’m gonna go hang out with him for a while because he’s better looking than you. Alright David.
David: That’s debatable but I will allow it.
Brandon: Alright guys thank you so much for joining us today. If you enjoyed today’s show, please leave us a rating review in iTunes or Stitcher or SoundCloud or wherever you listen to this, and let people know that you like the show and maybe share with somebody on your Facebook show today and say “Hey, I think you’d like this show” and just go put in their wall. We’re BiggerPockets.com. This is Brandon and David assistant to the regional manager Greene, signing off. I stole it.
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