BiggerPockets Podcast 001 with Marty Boardman Transcript
Link to show: BP Podcast 001: Building a Successful House Flipping Business and Losing Millions with Marty Boardman
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Josh: Hey everyone. Thanks for joining us on our first ever BiggerPockets radio podcast. My name is Josh Dorkin. I’m the founder and CEO of BiggerPockets.com. With me today is my co-host, Brandon Turner, a real estate investor. He’s the head of our community and he is a fantastic co-host, of course, this being our first show—you’re about to find out. So what’s up, Brandon? Nice to have you here.
Brandon: Hey, thanks, Josh. I am real excited for this podcast.
Josh: This is going to be great, man. This is going to be great. Well, listen—before we get started, let’s talk a little bit about the podcast itself. I want to share it with everybody—for those of you guys who are actually unfamiliar with BiggerPockets, BiggerPockets is essentially the premiere community for real estate investors online. Essentially, BiggerPockets is this incredibly amazing social network that’s been designed to make you a better real estate investor. We’ve got over 100,000 members, a vibrant forum community—we’ve got hundreds of conversations happening every day. There’s over 10,000 articles in real estate and investing and we’ve got weekly contributions from dozens of leaders in the industry. Because all that is known as the credible destination and the niche of real estate investing.
With that said, let’s get to the show itself. On today’s show, we’re excited to talk with Marty Boardman. Marty’s an Arizona real estate agent, a house flipper, and he’s doing some pretty incredible stuff in real estate. Marty is also a regular weekly contributor to the BiggerPockets blog, which is BiggerPockets.com/RENewsBlog and Marty actually put on a two and a half hour flipping boot camp for us at the 2012 BiggerPockets real estate investing summit, which we put on last March.
Marty, last week, wrote a post which we will be linking to in the show notes at BiggerPockets.com/Show1. This post—he talked about losing $8 million dollars. Let me repeat that. $8 million dollars—millions of dollars—during—there’s no other way to say it. That’s crazy. He lost $8 million bucks during the real estate crash and we’re going to be talking to him about that amongst other things on the show.
So without further ado, why don’t we get this thing going? Marty, welcome to the show.
Marty: Thank you, Josh. Thank you, Brandon.
Brandon: Yeah, no problem. It’s good to have you, man. We’re very excited to kick off the podcast with you and hopefully we could learn a thing or two about flipping. We can learn how not to lose $8 million dollars. That was legit, wasn’t it?
Marty: Well, yeah. It was. The music stopped and I didn’t have a chair in 2007. I’m sure that we probably have some listeners and some followers of BiggerPockets who can relate to that. But I mean, I was sitting on about 65 properties in 2007 and the market here in Phoenix dropped in value by almost 60% and I was anticipating some correction—I knew the market was hot. I knew that the pace we were going, the regular increases in value of 6-10% a month weren’t sustainable. So I thought I was being conservative, buying around 70 cents on the dollar but the market corrected itself by 60% and the music stopped and I didn’t have a chair.
Josh: Wow, unbelievable. So, greed is good except when you get over leveraged.
Marty: Exactly. And it’s really hard, I think—well, it was at the time to know how much was over leveraged. And it’s funny, I tell people all the time I’m actually grateful for the global economic collapse and the real estate market going into the tank because it actually saved my marriage. I’ve been married 14 years and thankfully, the whole rest of the world, the rest of the country fell apart as far as real estate is concerned as well.
Eventually, my wife went from believing that I was just a complete moron to understanding that there was more to do with it than me not understanding what was going on and it was funny—every time a Layman brother would go bankrupt or Bear Sterns would go out of business or our countrywide would get absorbed by Bank of America, I would put the paper down on the kitchen table in the morning and go, “See, honey? I wasn’t the only one who didn’t see this coming”.
Josh: Nice. Well, let’s come back to the story because it’s really fascinating and I think in the article, you talked about the lessons learned and things to avoid. But before we get there, why don’t we talk about your background? How did you get started as a real estate investor? What’s your background?
Marty: I got into real estate investing full-time in 2002. Prior to that, I was a TV news cameraman. I was the guy that you could see schlepping around the camera gear—100 pounds of camera gear and here in Phoenix, in the summertime, we would be covering brush fires and we’d be chasing bad guys. I’d like to say we were chasing ambulances and raindrops. Whenever it rained here, it was a huge breaking news story and of course, chasing fire trucks and ambulances. I just got to a point where I decided that I wanted to have more financial freedom. I wanted something a little more stable. I wanted to do something that didn’t require working nights and weekends and holidays. So here I go choosing real estate, right? But you have to do that. At least I was doing it on my own terms.
The problem was, being a cameraman, most corporations, I was trying to find a job in—most corporation, companies look at my experience and they didn’t see that I had any marketable skills in other industries, so I really didn’t have many options. It was either real estate or I don’t know—there really wasn’t much else for me to do. Right around this time, I read Robert Kiyosaki’s book, Rich Dad, Poor Dad and I was like, okay, real estate is the way for me to go.
Brandon: I started the same way—I read the Rich Dad, Poor Dad book and I remember thinking at the time that it put into words kind of what had been filling up my head for quite some time. That was kind of the tipping point for me, was reading that. And then finding BiggerPockets and moving forward from there. So that’s cool that we had that same background.
Josh: I actually think Kiyosaki is somewhat required reading for new real estate investors in the past, probably, decade or so.
Marty: Yeah, I agree. And it’s probably been more than ten years since I read Rich Dad, Poor Dad, but I still had that cash flow quadrant burned into my head, right? The E, S, B, and I—employees, self-employed, business owner, and investor. I teach class for realtors on how to work with investors and I also teach a class on fixing and flipping homes and I usually start the class out by writing that plus sign—that quadrant up on the board and writing an E at the top, an S at the bottom left, a B at the top right, and an I at the bottom right, and saying, “Hey, this is how I got out”. This was crystal clear in my mind when I read the book 12 years ago and I think about it almost every day.
Josh: That’s great. So you decided to take the leap. You’re going to become this real estate investor and change your life and find financial freedom and what was the next step? Obviously, you had to do some learning, some research. You didn’t just jump in and start flipping houses, did you?
Marty: No, I do it all newbie, or a lot of newbie real estate investors do—I spent a lot of money. I flew far away. I had to take a boot camp on how to buy foreclosures and do lease options. It’s actually right there in your backyard, Josh. It was in Denver. It was a Colorado Association Realtors, or rather, a Colorado Real Estate Investment Club, and it was a weekend deal where they brought all these different gurus and at the time, they were selling cassettes. They didn’t even doing CDs back then.
Brandon: What are those?
Josh: Yeah, Brandon’s like 12 years old so we don’t really—we’ll have to school him a little bit.
Marty: That’s on lease options and foreclosures. I got back here to Phoenix—this was 2001—came back to Phoenix and I actually convinced my wife that after listening to these cassettes, that I knew enough to quit my job and go into real estate full-time. Luckily for me, she had a good job and was able to support me for a while and I guess you could say she was my sugar mama.
When people say, hey, I want to get into real estate investing and I want to quit my job, I’m like, do you have a sugar mama? You’re going to need one of those to get started because you need some source of income while you’re figuring this thing out.
But I was fortunate in that way. Things didn’t really work out. After about a year, I wasn’t making any money. I think I made about 10-12 grand my first year and my wife started using this really bad word—job? She started saying you need to go and get a job again because this real estate thing doesn’t seem to be working out.
So I did what all newbie real estate investors do next—I spent more money and I flew further away. I spent $2700. I flew to Atlanta and I did a four-day workshop called, How to Get Lenders Fighting to Give You Money. And it was pretty ridiculous, what the advice they gave us—it was basically, walk into a community bank and ask for a line of credit to do real estate deals because you need the money to build an inventory of homes. So, that was a waste.
Right around the same time, 2002 or so, going into 2003 after I got back from that boot camp, I called a local real estate attorney here in town who had written an article I read and I asked him—I told him the story about I had been to Denver and Atlanta, and he said, “You know, Marty, it’s really the best piece of real estate investment advice to this day I’ve ever gotten. He said, Marty, quit wasting your time and your money flying all over the country paying these gurus to teach you how to invest in real estate.
Find somebody here in Phoenix who is investing and find a way to serve them. Find a way to make it worth their while to teach you the business. Bring them deals. Mop their floors. Bring them coffee. Whatever you’ve got to do. And so that’s what I did. I actually ended up going to just a local class on foreclosures. It was actually a class for realtors. I met a guy in the class who was working with a local investor who was buying homes at the courthouse steps, and those guys kind of took me under their wing and showed me the way. I worked for them for about a year and a half. It was like an apprenticeship. It was a real estate investment apprenticeship.
After about a year and a half, I made about 20-25 deals with those guys and we split the profit three ways. I was basically their birddog and then from there, I had enough of a track record that I could start raising some of my own capital. It started out with family members, friends and then grew and the next thing I know, I had $2.5 million in investment capital and 65 houses.
Brandon: And then it went bye-bye.
Marty: Yeah. In 2007, from a net worth of $8 million to a negative $2 million. So, you know, I never really through the process lost hope. I always felt like, you know what, if I was able to build a business like that in three years, I can rebuild it. So we had some pretty frustrating times. At one point towards the end of 2008 going into 2009, we were burning furniture to stay warm. I mean, I would sell stuff on Craigslist. I had a Rolex watch I hocked at a jewelry store. I sold my Mercedes, started driving a ’94 Honda Accord. It was a humbling experience.
I’m grateful for it because during the process. I read a lot of books, books about Abraham Lincoln and Thomas Edison and Walt Disney and every one of them has had a monumental failure in their life and it’s kind of helped them regroup and I guess it’s just a rite of passage for any entrepreneur to fail miserably at least once or twice in their life. I’m fine.
Josh: Look, you lost $2 million. Donald Trump lost how many billions? So you’re not a big shot yet, man.
Brandon: I’d like to go back to something you said earlier, Marty. You mentioned the best piece of advice you ever got from that friend of yours who said, find an investor that you get close with that will teach you, and what you said was, find a way to add value to them. I think a lot of people come to the BiggerPockets forum and they talk about, I need a mentor—I need somebody to teach me the ropes. And I think that a lot of people miss that—is what kind of value can you bring to the mentor? What can you do to make it worthwhile? This isn’t a charity case that somebody just wants to pick somebody up. I think that’s huge and something that newbies definitely need to keep in mind.
Marty: You know what? I tell people, Brandon, when I’m teaching classes—I have a class today for realtors and I teach one about fixing and flipping. And I’ll work with anyone but they’ve got to do one of two things for me. They’ve got to bring me money or they’ve got to bring me deals. That’s how they add value to my business. And most people have one of two things. They either have time or they have money. Those who have time, you know what? Bring me deals. If you’ve got money, well then, we’ll go find deals and work together.
But I’m happy to sit down with anyone here in my market and show them exactly how they can bring me deals. I’ll explain it to them. I’ll give them six steps which includes, go get your real estate license because I believe in this market here in Phoenix, you’ve got to have a real estate license to do deals because you need access to the multiple listing service to find that short sale, to find those REO properties, to comp properties, to get access to those properties. So that’s part of the process. But I’ll tell you, most people are completely unwilling. They’re too lazy. They’re just not motivated enough to do exactly what I tell them to do and it never works out. It rarely ever works out. I think they’d rather pay somebody $5,000, a guru, to tell them how to do it.
So I decided, and this is just something that kind of came to me in the last few days. It’s something I’ve been doing that I didn’t know I was doing the last three years, and writing on my own blog on FlippingPhoenixHouses.com or for BiggerPockets. I just wrote a book—I’m sure we can talk about that in a minute—about flipping houses. I’m really on a mission. I’ve decided to show people and to tell people as loudly as I possibly can how hard it is to do this business. How hard it is to flip real estate. How hard it is to buy and hold real estate. How hard it is to invest in real estate. It is hard work. It’s rewarding—I’d much rather do this than dig ditches or schlep camera gear. But it’s not easy.
And I just get so frustrated, just here in the last week—I’ve attended a real estate club in Milwaukee because a partner and I, Jay Scott, who is a member of BiggerPockets, him and I have some joint venture on some flipped deals in the Milwaukee area. I went to a workshop, or rather, a local real estate investment meeting there last week and they brought in a guru who talked about how easy it is to raise private money.
I watched a video today online of a guru saying how easy the system is to master and how quickly motivated sales will be calling you once you use his system. And it just makes me sick because it’s not easy. I wish these guys would stop saying that but the truth is if they didn’t, nobody would buy their programs.
Josh: Pretty much. So, first of all, good plug. Flipping Phoenix Houses—that would be your website. And we would love to talk about the book, Fixing and Flipping Real Estate, that came out this year. I really quick want to touch upon what you talked about, the difficulty in becoming a successful real estate investor. As you said, the gurus do make it sound really easy and I think frankly, people want things handed to them. And I think that’s why you have found that so many people have just not come through for you, because they think it’s going to be easy.
They think whether they’re hoping to believe what these guys are saying or they’re just not realistic about the approach to getting started as a real estate business person, because I truly do believe—and I think we all do, the three of us—that you need to run your real estate life as a business. But these guys have these false hopes and I’m glad to hear that you’re taking this mission to make people understand how tough it is with BiggerPockets.
We really try hard to make sure people are realistic about getting started and being successful. It’s just for everybody listening, I just want to really emphasize how important it is to understand that real estate is not a joke. You don’t just go and say, hey, I’m going to buy houses. You need to plan. You need to map out your path and you need to be detail-oriented in your approach to moving forward. And I’m assuming I’d like to actually talk about that a little bit with you a little more, and then I actually also want to get into Four Flipping Boxes, which is something that you taught over at the BiggerPockets Summit.
So why don’t we talk a little bit about the business approach to real estate planning, plotting. Do you have any insight on that?
Marty: Yeah, I think what I advise anyone who approaches me and says, hey, I want to get into real estate investing—what I do is I instruct them or advise them to think about what their financial goals are three years, five years—one, three and five years down the road. So I always say, you want to work backwards to figure out what it is you want to do. I consider fixing and flipping—this is my day job—this is my business. I fix and flip homes to generate enough revenue to buy income cash flow producing real estate. That’s why I fix and flip.
So how much money do I need to generate from my fix and flip business to cover my nut, right? Just to pay the bills, pay my house payment, and put groceries on the table and keep the lights turned on. And then how much above and beyond that do I need to earn to put my investment properties? So what I encourage people to do when they’re starting out is to say, okay, how much money do I need to make? And let’s just say it’s $10,000 a month—that’s your goal. Well, if you can net $10,000 on one flip property, it sounds like to me you need to flip 12 houses in the next 12 months. How much money is that? How much money do you need to buy and sell and rehab 12 homes?
I don’t know. I don’t know what your market’s like. I don’t know what your niche is going to be, what type of home you want to buy, a price point, how much it’s going to cost you to rehab it. But you need to sit down and figure that out. Figure out how much it’s going to take to buy these and rehab them and how much is it going to take to hold onto them and how long is it going to take them to sell? So you just work backwards from there. So then you really—your goal kind of shifts from flipping enough homes to earn $10,000 a month to how do I raise the money that I need, if you don’t already have the money, to flip 12 homes a year, one a month?
So you really kind of have a couple of different goals working together there. That’s what my business partner, Manny, and I did when we first started out. We sat down and we decided how much money we wanted to earn, how much we wanted to use and put towards our revenue-raising properties and then we just said, okay, here’s our goal.
So our goal became to raise $2 million bucks. If we had $2 million dollars in investment capital, then we can fix and flip five to eight homes a month and at the end of five years, that would allow us to not only pay our bills but buy between 18-20 properties that would cash flow between $17,000-$22,000 a month. So I just tell people to sit down and figure out how much you need and work backwards from there.
Josh: That’s great. I think, Brandon, you and I have talked a bit about that and I believe that’s the approach you tend to take as well, is the work backwards approach, yeah?
Brandon: It is, definitely. I look at cash flow like that. I say, how much money do you want to eventually have in passive income? If you want to earn $5,000 a month, well, how many houses does that take? If it’s $100 per unit, that’s 50 houses or 50 units, so that could be a $150 a unit apartment complex or 50 single-family homes. I look at it as the exact same way going backwards.
One thing, Marty, you said earlier that I thought was just really, really good—you talked about how you don’t have to—I guess flipping houses is not a investment as much as it is a day job for you. You said that’s how you pay your bills. And that’s one thing I always tell, I guess, new real estate investors. They say, how can I get involved in real estate investing? And I always tell them, find a job that you love, like flipping is the one that gets all the show on TV and all the popularity.
Flipping is the popular, cool thing to do. And it’s a lot of fun. I’ve done a lot of flipping, too. But flipping’s not for everyone. So I think that’s what I tell everyone, is find a job that you absolutely love and you get excited to do when you wake up in the morning. And if that’s flipping or that’s wholesaling, then great. Jump in with both feet.
But if that’s working at McDonald’s or being a math teacher, then go work at McDonald’s and be a math teacher but invest on the side. That’s one thing that I found, that people don’t have to necessarily flip houses or be a wholesaler to be involved in real estate.
Marty: No, you don’t, Brandon. I mean, I fix and flip homes just because I like fixing and flipping houses. It’s my job and I love it and I couldn’t imagine doing anything else. But it generates enough revenue to pay the bills and again, I enjoy doing it. I have a brother-in-law and he lives in Austin, Texas. He buys a couple of investment properties every year but he has a wonderful job at IBM as a civil engineer and he likes that, so he uses the income that his job generates to buy investment properties. I use the income that my fix and flip business.
It’s interesting, there’s been some debate on BiggerPockets in some of the forums about whether or not fixing and flipping is actually investing or not. I don’t get involved in all of that. It’s all semantics. I think Webster’s definition of investing is investing a principle amount of money and getting a certain rate of return and expectation back. So I guess technically it is, but if you stop fixing and flipping homes, or if I stop tomorrow, the income stops coming in. At least with investment properties, whether you work or not, you get that mailbox money every month.
So yeah, it’s definitely not for everyone and I encourage people who are going to fix and flip for a business, they need to systematize. It’s just like I read in the book The E-Myth, and it just talks about franchising and putting as many systems in place as possible so you can control costs and create a brand for yourself and a product that people can expect, or other realtors who you are looking to show flipped properties, every time they look the same and they smell the same and they feel the same. Creating that brand, that’s really important as a fix and flip investor.
Josh: Well, that’s great information. So let’s talk a little bit more about partners. I know that you went at it alone for a while and then you brought on Manny, your partner, who’s a great guy. And of course, the Milwaukee flip with Jay. Can you talk about just getting into these partnerships, why you decided to partner with these guys? Is there something that they’re bringing to the picture that you couldn’t do on your own? And let’s kind of go that way.
Marty: Sure. Yeah, going into business with somebody, partnering with someone—it’s a lot like a marriage. Ideally, you find a partner who’s got strengths that you don’t have and ideally, you have strengths they don’t and they complement each other. When I started working with Manny, it was really out of necessity. I had the technical ability to operate the business and find the properties and get them fixed up.
But I didn’t have the working capital and Manny had those connections. So it was a really good partnership because he was able to find and meet new investors and help us raise capitals to fix and flip houses and I could focus on the technical side, which is just acquiring the properties and making sure they got fixed up properly and got sold.
And likewise, with Jay, we met at the BiggerPockets Summit last March and decided to start doing some flips in the Milwaukee area. The reason why we did that was there was just a nice discrepancy or difference between what retail homes are selling for and what distress properties are selling for. We actually had Steve Cook who is a contributor at BiggerPockets look that up for us and he found there was about a 51% difference between distress properties in the Milwaukee area and regular sales—homes that aren’t in foreclosure.
And it was a really good fit with Jay. He’s very detail-oriented. He gets into the technical side of flipping homes. He really understands the mechanics of it. Frankly, I’m not really into that. I’m more into the art of the deal and putting the deal together and I’m more into analyzing the numbers in the market. So again, it was a really good fit. So we worked really well together. It’s interesting, Manny and I and Jay are all the same age. We’re all 40 years old and we all have young kids. We’re all in similar stages in life so it makes a lot of sense.
But I think for people out there who are thinking about bringing on partners or partnering up, you really have to think it through and make sure that you have the same temperament, the expectations are laid out before you get started on your first project, and I would say take it slow. Just like when you’re dating. You don’t meet somebody new and then move in with them a week later. You take it slow. And I think that’s what you need to do with partners. Just do one deal and then do another and just get to know each other. And you don’t have to do a formal LLC operating agreement. Maybe just do a joint venture to see how it goes.
Josh: Well, good advice. Let’s talk about this Four Flipping Boxes. I mentioned it to Brandon and he was unfamiliar with it and I think it’s going to be somewhat difficult to translate over the airwaves without pictures but hopefully you can do a little bit of justice and maybe fill us in on what is flipping four boxes and just to everybody listening—for Flipping Four Boxes is a class that Marty taught over the summit and he also, I believe, teaches it locally, so fill us in a little bit.
Marty: Sure. I mentioned when the market went in the tank, we were really struggling, my wife and I. I was fortunate enough—I was introduced to a real estate investor here in Phoenix. Actually, he was introduced to me by my church pastor, and this guy is a very successful real estate investor here in Phoenix, flips a lot of homes and he introduced me to him. This was when I was struggling, trying to stay afloat back in the spring of 2009.
And I actually went into work with this guy. It’s kind of like a project manager, overseeing some of his flipped deals. I was doing everything for him. I was hanging ceiling fans, I was hanging blinds. I was installing hardware. I was cleaning toilets. These are all flipped properties that he bought and I was helping him out and you know, when I first met him, he sat down with me and he said, this is how our business works. And he got out a piece of note paper, if you can just visualize a page of lined notepaper.
He drew four boxes on the piece of paper and he wrote in each box. In the first box, he wrote acquisition, in the second box, he wrote rehab, in the third box, he wrote sales, and in the fourth box, he wrote raising capital. And he said a fix and flip business consists of these four boxes: acquisitions, rehab, sales, and raising capital. He said, you’ve got to have somebody in each one of these four boxes to keep things running at all times, and he’s like, my focus is a raising capital box and I raise capital.
He says my partner—he focuses on acquisitions. He makes sure we’ve got deals in the pipeline. We’ve always got a new deal coming and he’s like, I need to hire two people and he hired someone to handle sales and he hired somebody else to handle the rehab and overseeing the rehabs.
He just called it his “four boxes” concept, but I’m the one who added “flipping” to it. I thought, wow, I’ve never really thought about a house-flipping business like this. And it just really cleared things up for me. It helped me think about every phase of our business. And it is a business. Fixing and flipping homes is a business. It just really helped me to focus on each aspect of the business as we required properties and rehabbed them and the importance of keeping that cycle or that pipeline full and keeping things going.
And so when I teach people and I teach the class, it’s really simple. As a matter of fact, on my blog, I have four categories: acquisition, rehab, sales, and raising capital. It’s one of those four subjects that I’m going to be talking about all the time and it’s easy to kind of break down the business that way when you think of it like that.
Josh: I’d actually love to know more about the raising capital part. Out of those four boxes, I feel like in my flipping, I’ve been all right in the three, but it’s the raising capital that I seemed to struggle with. Like, what are your thoughts and suggestions on that, Marty?
Marty: When you’ve got guys like Bernie Madoff, Ryan, all these other scheisters out there ripping people off, it makes raising capital that much more difficult with all the news stories. I tell people all the time, you have to have a track record to raise capital. You can’t just wake up one day and decide you’re going to start flipping homes or buying a bunch of rentals. It doesn’t matter what type of business it is.
I’ve got a buddy of mine I just talked to today—he’s got a landscaping business he owns back in the Midwest and things are starting to go pretty well but he hasn’t been in business pretty long and he’s trying to raise money. And I told him, look, without a track record, it’s going to be tough. Brandon, I look at two experiences I had when I first got started in real estate investing. I was working for a guy and his partner who were buying homes down at the courthouse steps and they worked for those guys. I was basically a birddog for a year and a half.
This is what happened, Brandon—my friends, my family, my former co-workers who all thought I was crazy when I quit my job—after a year and a half, here I was. I was making money. Things were starting to happen for me. I was working with some investors. They saw that. They saw that I was doing deals and they wanted to be a part of it. They wanted to invest with me. We did promissory notes. They do deeds of trusts on properties. I’d secure them and give them a rate of return, 10-12%, but I had a track record. They saw that after a year went by, I quit my job and here I was doing real estate. They’re like, wow, he’s not living out of a cardboard box. He must be doing something right.
And then fast forward to Spring of 2009, this investor, Keith, I was telling you about that taught me the Four Flipping Boxes concept—I started working for him and helping him out with his jobs. I actually was a realtor so he actually started having me list some of his homes and right around that time, my business partner, Manny, called me up and he was out on the road doing another business and I told him, yeah man, I’m helping this guy that I met at my church and he’s an investor and I’m helping him out getting these things fixed up and I’m listing things for him.
And he said, why couldn’t you do that? And I said, well, I could if I had some money. And he’s like, well, I’ve got some investors who have got money and you’ve got the track record to fix these homes. You know what you’re doing. Let’s partner up. So that’s really the trick. I think people put the cart before the horse. You’ve got to establish the track record. How do you do that? You work with people who know what they’re doing and that’s really—I look at Warren Buffet. I read his book a few years ago. It’s called The Snowball: Warren Buffet and the Business of Life, and his story is fascinating. A lot of people think Warren Buffet just had this wisdom and this knowledge to invest in the stock market the day he was born.
He actually had a mentor—a guy by the name of Benjamin Graham. He wrote a book in 1949 called The Intelligent Investor. Warren Buffet was 20 years old when he read that book and he knew a little bit about investing in the stock market, but not a lot. He read this book—he actually went to New York City and enrolled at Columbia University and took Ben Graham’s classes and went to work for him, and if you buy the book, The Intelligent Investor now, Warren Buffet has written a foreword to it and he acknowledges that Ben Graham was his mentor, his coach, his friend. Even Warren Buffet didn’t roll out of bed and know about the stock market. You’ve got to have someone to show you the way and once you start to learn, people around you are going to take notice.
The other great way to raise capital is just to go find a good deal. You find a good deal, the money will come. There are other people that are going to want to work with you.
Brandon: No, it’s true. There was a house I found a year ago. The lady had listed—the day she listed it, she listed it at $30,000. I offered her $15,000 on the spot and she took it right then and there and immediately I had three people that wanted to buy it. So I ended up wholesaling it for about $8,000 and it was the best wholesale deal I had ever done. So it was a perfect example of that. I found the deal and the money just showed up. I didn’t even have to try for that one.
Marty: And that’s exactly what I was doing when I got started. I was wholesaling—I started out as a birddog. I would just assign the contract. I would write to the contractor, the home owner, and say my LLC is the buyer and then I have an and/or signee’s clause on the contract. Then I would assign it to this investor I was working for and he’d give me $3,000, $4,000, $5,000 bucks. And eventually when I had done enough of these, I had family and friends who would see my success I was having and they started investing the money with me. So I was able to do that and start taking these deals down on my own.
I remember, it’s funny, I read stuff all the time now on BiggerPockets and elsewhere on wholesaling. Everybody wants to wholesale and try to figure out the secret and the key to it. There’s really no secret to it. You don’t have to work very hard to get a buyers’ list together. All you need to do is find a good deal. I remember I had just gone out on my own. I had finally got some of my own capital together and I found a deal, it was in Mesa, about 20 minutes from where I live here in Gilbert. And I got the homeowner to agree to sell it to me for $85,000 and I knew it was worth between $140,000-$150,000 all day and you needed about $20,000 in rehab. So I bought it for $85,000 and I actually put an ad for it in the newspaper, The Arizona Republic—this is going back to 2008.
Brandon: A newspaper? What’s that?
Marty: I put in an ad and I put the cross streets of the house and the details and I must have gotten a dozen phone calls on the house. The first three or four phone calls, the guys said hey, this is a great deal. And I sold it to the first1 guy who called me—I wholesaled it for about $10,000 and he said, before you call anyone else, you call me. I’ll buy every one of these you’ve got. And there was about two or three other guys who called me on that house. And it was from one newspaper ad that cost me about $200 and those guys bought just about every home I bought over the next two to three years. There was no need to go out and put this buyers’ list together and do all this crazy stuff. It’s because I had deals. It was easy to find the money and it was easy to find the buyers. I tell people all the time, just find good deals and the money will find you.
Josh: That’s great advice. Great advice. Man, I can’t tell you—well, I can tell you because you know—we read this all day, the new wholesaler questions. The guru of the moment is telling them to get out there and build these buyers’ lists. Well, great, you’ve got a buyers’ list of what? For what? Find the deal. You find the deal and the buyers will come. You mentioned something else—you actually went and spent money.
You spent $200 on an advertisement. I think that alone puts you in the 20 of the 80/20 Rule when it comes to the folks who are learning, starting out in wholesaling. People think that wholesaling is free. Now, with the internet, it’s a little easier. But still. You were willing to pony up a couple of bucks to promote this thing. You need a little bit of money to do this business. You can’t just jump in and do nothing.
Marty: No, you’ve got to invest in yourself. I think it’s Steven Covey and his Seven Habits of Highly Effective People, he talks about sharpening the saw. This is a profession. This is a business. I take it very seriously. I believe that I have to invest in myself and in my education and I read books all the time about business, about entrepreneurship, self-improvement. You’ve got to invest in yourself and your business. Sometimes, it’s going to work and sometimes it isn’t.
I think I wrote a post for BiggerPockets a few months ago. I think I called it The Direct Mail Fail, and I did a bunch of direct mails, spent a bunch of money, and I didn’t get a single lead out of it. I got a lot of calls but none of them turned out to be anything. I got some great feedback and advice from some BiggerPockets readers who have had a lot of success from direct mail, but I came to the conclusion that it’s just not for me.
Frankly, I don’t like being on the phone for hours and hours talking to people who aren’t really motivated to sell me their home. To me, it’s like finding a needle in a haystack. It’s just not my thing. I’d rather scour the MLS. I’d rather buy at the courthouse. So this business is about finding a niche. There are a lot of ways of investing in real estate. There’s a lot of different ways to acquire real estate but you’ve got to be willing to spend some time and money kind of figuring out what that is and figuring out what works and what doesn’t.
It’s funny, Josh, you were talking about buyers’ lists and all the education out there on how to build a buyers’ list and they’re not really buyers’ lists, they’re suckers’ list because they’re not trying to find a legitimate buyer. They’re trying to find some sucker who is going to overpay you for a home that you’ve acquired that’s not really a deal.
Josh: For sure. Listen, we’re kind of running out a little bit. Don’t want to cut you off here too much, but we’ve got a couple of things that we’ve got to talk about, including your book. Tell me about the book. What got you writing this thing and give us a synopsis again. It’s called Fixing and Flipping Real Estate, and we’ll have links to that along with pretty much everything else we talked about on our show notes at BiggerPockets.com/Show1 . But let us know what’s going on with this book here, Marty.
Marty: So back in April of last year, 2012, not long after the BiggerPockets Summit, I had a book publisher send me an e-mail and approach me, and Josh you probably remember—you gave me a lot of advice on this and me negotiating the contract with the publisher. They approached me; they had been reading my blog, Flipping Phoenix Houses, and seen some of the posts on BiggerPockets and liked my style of writing and asked me if I had ever thought about publishing a book and I said sure.
And I actually wanted to call the book Four Flipping Boxes, but they decided that that wouldn’t really translate. That the readers would have a hard time figuring out what that meant, so they changed the title, so it’s really wordy--Fixing and Flipping Real Estate: Strategies for the Post-Booming. I’m really proud of the book because 1) it’s really my story from domination to crash to crisis to chaos to comeback. It’s my story, so I was able to weave this story over the last ten years into the book and a lot of the hard lessons I learned and mistakes and hopefully that the readers of this book can see and learn from.
But it is the Four Flipping Boxes concept and that’s how the book is kind of laid out, including the story of how I met Keith who taught me how to flip homes and the concept. But the book again, I think it’s a pretty easy read. It’s not an A to Z how to do this right. It’s more like a blueprint. Everyone’s different. Everyone has a different way of doing things but I think it lays out how to start a flipping business, whether you want to flip one home a year or 20 a month, it lays out how you would go about doing that and how you would set up a business.
Brandon, for you, it does include a lot about raising capital and finding money and building that track record and attracting investors into your business. A lot about acquisitions. Really, 2/3rd of the book, I talk about acquisition because you make your money when you buy, not when you sell. So the focus is on acquiring properties but what I think is really cool about it is the publisher had me do some research prior to writing it and as far as we could tell, there hasn’t been a single book written about fixing and flipping homes since the crash. I think a book written in 2007 on flipping on Barnes & Noble and Amazon-I’m not sure who the author is—but really, there’s been nothing written in the last four or five years about fixing and flipping homes, post-crash.
My hope is that people will see it on Amazon and Barnes & Noble or hopefully someday it might end up on the bookstore shelves there and say, hey wow, a book about flipping homes after the crash. I want to buy it. So I have a lot of tips and information and a lot of things that I share with the reader on how to navigate the market in the post-Boom era when we’re dealing with a lot of REOs and short sales and auction properties and dealing with homeowners who have little or no equity. So of everything I’ve written about in the book, that’s what I think the reader will find most valuable.
Josh: That’s great, man. Listen, again, we’ll make sure everybody has a link to the book via the show notes and you know, can certainly get out there and pick up a copy. I have not yet read the book but I’m anticipating doing so soon and will urge everybody to do so because Marty is the real deal and this book is certain to be great. Before we head out, we’ve got one last thing to do. We’re going to do a really quick speed round here, so I’m going to ask you a couple of quick questions and let’s hear what you’ve got to say.
First, should investors get a real estate license?
Marty: Absolutely. I believe investors should have a real estate license, mostly because you’ve got to have access to the multiple listing services. I mean, how are you going to count properties? How are you going to look for deals, short sales and REOs? How are you going to get access to them? It’s unrealistic to ask a real estate agent, especially a good one, to do all that stuff for you. They’ve got better things to do with their time than show you how to do that and meet with you.
So, do it even if you don’t plan on listing or writing offers. Do it. It’s worth it. And forget about what people tell you about fiduciary responsibility and disclosure. You know what—you run your business the way you’re supposed to and you won’t have anything to worry about there.
Josh: There you go. There you go. All right. Favorite real estate book other than your own?
Marty: Favorite real estate book other than my own. You know, Rich Dad, Poor Dad, is probably the closest thing to a real estate investment book that I’ve read. I’ll be honest with you, I mean, I see these real estate books on the shelves and I look through them and they turn me off a little bit. It’s just like, it’s hard for me to believe that the authors of some of these books are practicing what they preach or they are really at it. So I would say Rich Dad, Poor Dad is my favorite. I would say, more so on the personal development side. I think Think and Grow Rich by Napoleon Hill is a fantastic book. So those are actually just above me on my bookshelf here. I keep those out and I flip through them all the time.
Josh: Nice, nice. Favorite business book, non-real estate.
Marty: I would say The E-Myth is my favorite non-real estate related book because it talks a lot about McDonald’s, about franchising, about systematizing your business and I think any business owner can get something out of that book and find it valuable.
Josh: Fantastic. Fantastic. Best advice for a new real estate investor?
Marty: The best real estate advice that I talked about earlier that I ever got is stop wasting your time and money with these gurus and find a real estate investor in your own backyard and hook up with them—serve them somehow and create a win-win.
Josh: Great advice. And lastly, what is your favorite vacation location?
Marty: There is a spot, it’s about three and a half hours south of here. It’s called Rocky Point, Mexico. And I can get door-to-door down there in about three and a half hours. It’s right on the Gulf of California, the Sonoran Sea, they call it. And condos are really cheap to rent down there. To me, it’s like being in Hawaii. It’s just absolutely beautiful and I love the Mexican culture. Manny, my partner and I and our families, we go down there. We’ve vacationed down there quite a bit in the last couple of years and I just love it. It’s like paradise.
Josh: Fantastic. All right, guys. Well, listen. Marty, thank you so much. You can find Marty at FlippingPhoenixHomes.com or on the BiggerPockets Real Estate News Blog at BiggerPockets.com/RENewsBlog. Also everything, I like said, that we’ve discussed, we’ll have links to books and things like that and Marty’s site at our show notes at BiggerPockets.com/Show1. And thanks for being the first guest on this inaugural podcast from BiggerPockets.
Marty: Thank you. I’m honored.
Josh: Thanks, Brandon, for being a great co-host. I think this is going to be a great success and we’re looking forward to the next couple of episodes. So join us for Show #2, the next episode. Sounds like a Star Wards thing or something but—we’ll see you then.
Josh: Hey guys, that was our interview Phoenix fixer, Marty Boardman. Before we sign off, I’d love to get your help. Please, please head over to iTunes and leave us an honest review of this podcast. Remember, the more five-star ratings we receive, the better the chances others are going to find this podcast and learn how to become better real estate investors. So please help us out and leave a rating.
Also be sure to check out our show notes at BiggerPockets.com/Show1. This is Josh Dorkin signing off. Thanks again and we’ll talk to you next time.
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