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Joshua Dorkin: This is the BiggerPockets Podcast, Show 33.
You're listening to BiggerPockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing without all the hype, you're in the right place.
Stay tuned and be sure to join the millions of others who have benefited from BiggerPockets.com, your home for real estate investing online.
Josh: What's going on everybody? This is Josh Dorkin, host of the BiggerPockets podcast. Here with Brandon Turner, our most excellent, excellent co-host. Hey Brandon.
Brandon Turner: Hey Josh. What's going on?
Josh: Eh, you know. I'm alright. Summer's over. Kids are going to school. Life is moving on.
Brandon: Nice. You know what I did this week?
Josh: I have no idea.
Brandon: My first eviction is over.
Josh: Oh. Congratulations.
Josh: Feels good, doesn't it?
Brandon: Yeah, sheriff came yesterday and took the lady away.
Brandon: Yeah, all her stuff is sitting out the curb. Anybody wants it there's a whole pile of free stuff.
Josh: Oh geez. Nice, nice. Well, you know that's part of the life of being a landlord, I think.
Brandon: It is, but honestly it was not that bad. My attorney handled it. He knew what he was doing. He was competent, took care of the whole thing. Not a big deal. It's going to cost me a little bit of money. I don't know how much yet but yeah. It wasn't too bad.
Josh: Do you have any feedback on that? Any tips you want to give to folks listening who have never evicted and may be facing one? Or just to kind of prep them for an impending eviction other than have a good lawyer?
Brandon: Yeah, that is the biggest thing is have a lawyer that does it from the start. I should learn how to do it. It'll probably do a lot of move in my career but I kind of learned while he was doing it. He kind of walked me through what he was doing. Yeah, have a good attorney and don't break any laws.
Josh: There you go. That's a very good tip because those self-help evictions are a fast way to get yourself on the front page any and every paper.
Brandon: Yeah. I heard this story one time about a couple who wanted their tenant out and they didn't like him at all. So they went underneath into the basement. It was like a multi-family and they took a chainsaw and they cut all the joist on the floor so that when they weren't there the floor would collapse and the people would suddenly be no longer there.
Josh: That's the dumbest thing I've ever heard.
Brandon: Yeah, they're in jail right now.
Josh: Yeah they are.
Brandon: Yeah true story. Yeah.
Josh: Wow. I've heard some bad ones. That's probably at or near the top. Wow. Wow. Wow. Wow. Alright, man. Let's move on to the show. We've got a really cool show ahead. Before we get into it, I'm just going to run on into our...
Both: Quick Tip.
Josh: Alright. Today's Quick Tip. If you guys have ever wondered how different people have company logos in their BiggerPockets forum signatures, all you have to do is create a business profile on BiggerPockets, which is totally free. However, in order for your logo to actually appear, you would need to upgrade to a Pro account. Not a Pro Basic, but a Pro account where you can set up this advanced, enhanced signature which will show up below all your posts on the forums.
So think about what that could do for your networking and for your branding. Members and non-members could see that, could see your brand when they read your post. It's a great way to build up your name and your company's name. So in order to do that just upgrade to BiggerPockets Pro at BiggerPockets.com/pro and we'll put the link there in the show notes at BiggerPockets.com/show33. That's right. Show 33.
Yeah listen, so today we've got an interesting, interesting story. We've got a guy who I think is fascinating. This is one of those investors who said, "One day I'm going to be a real estate investor." He didn't just start haphazardly, buying property or anything. He set out to create a plan and he figured out how he was going to do everything and plotted it and it's been working wonders. So let's talk about it. Sam. Sam Craven.
He's from the Houston area and works a full-time job, but he's actually been building a really active investment company doing both flipping and wholesaling during the nights and evenings over the past year plus. This guy's done a ton of deals. It's actually going to blow your mind, so stay tuned and listen up because the actual number of deals he has done since getting started is crazy. It's crazy. He's in a place that a lot of you guys who might be listening are in currently. Which is why we wanted to talk to Sam today.
So last thing before we go into the interview, please remember guys to jump on to our show notes at BiggerPockets.com/show33 and leave them there. Again, questions, comments, thoughts, feedback, anything like that. Definitely be sure to get back to him. Alright, let's get this going. Sam, welcome aboard, man. Nice to have you.
Sam: I appreciate guys. Really glad that you're able to have me.
Brandon: Yeah, we're glad to have you. So let me steal Josh's line here. Let's jump right into it.
Josh: That's funny.
Brandon: Yeah. You know I'm a funny guy. What kind of investment do you do? What's your thing?
Sam: Well, my father and I, we built the business here in Houston. Service in Houston Metropolitan Area and we buy houses to wholesale, to flip, to do kind of what we call whole tailing. We're also expanding into multi-family.
Josh: Nice, and how did you end up getting interest in this whole thing? Was it your dad's idea or was it your plan?
Sam: Well, I guess I should start from the beginning. About two years ago, I bought my first house where my wife and I live in. We were one year out of college. We bought a foreclosure in The Woodlands, which is a suburb of Houston. It was essentially a crack house. It had been vacant for a few years. People were squatting in there.
Josh: You bought a crack house for your wife to live in?
Josh: That's awesome. How did she feel about that?
Sam: She was not happy about it.
Josh: Okay, just checking.
Sam: She was not happy about it at all. She likes it now, but yeah starting off she wasn't that terribly excited.
Josh: Gotcha, gotcha.
Sam: Once she saw what we could turn the house into, she was absolutely on-board because it was way more house than we could afford otherwise.
Josh: Gotcha, gotcha.
Sam: Anyhow, we purchased the house. Kind of realized that, "Hey, we just signed on the dotted line." Came into quite a bit of equity because of it. It was kind of like an a-ha moment for me where it's like, "Well, what if I did this a couple more times?" From there, I was kind of going through some career changes and just studied. Studied for about a year. And in that same time, my dad, who's now my business partner, was in the process of attempting to purchase a local business. It just fell through. It just wasn't working. Right about the time that I was ready to start pulling the trigger and start doing some marketing for some wholesaling, I was talking a little bit with my dad and we decided to go on business together. That was July of last year.
Josh: Okay, so July of 2012.
Josh: You decided to get into the real estate game.
Sam: Yep, it's go time.
Josh: Okay, we're going to come back to that. It's now August 2013.
Josh: How much real estate have you guys done?
Sam: We purchased $2.4 million of real estate and we've sold $1.5 million.
Brandon: How many deals does that work out to?
Sam: 27 deals.
Josh: So you have done 27 deals in a little over a year, correct?
Brandon: That's awesome.
Josh: Wow, wow, wow.
Sam: The reality is, is our first six months we did three deals. The rest of the deals have been since January.
Josh: So you're the exception to the get rich quick rule.
Sam: It's a lot of work.
Josh: I'm sure it is. Yep, yep. That's what I knew you would say. This is not a, "Hey, set it and forget it," as they say. You got to bust your chops to make this happen.
Sam: Definitely and so having a business partner, especially someone like my father, has helped us immensely. He has a lot of experience on building companies and turning around companies. It's been great.
Brandon: How's that been for you, working with family? I know some people say it's terrible, don't do it, some are okay with it. What are your thoughts?
Sam: Starting off was rough. My father and I, we always had a good relationship, but you know. Living with your father and knowing your father and working with your father are two different things. It was definitely a learning curve in the beginning, just you know, as with any other partnership. But at the end of the day, I know there's no one else out there that has our best interest at heart like family.
Josh: Is there anything that people, whoever's listening, can do to make sure that the working relationship with, say they decide to work with family. Do you have any tips of how to do that without killing each other and destroying your entire family cohesion?
Sam: Remove emotion. This is the best thing I could say. My dad's got a really good business head on his shoulders and it just gets complicated if things get emotional. You guys have your family, there's history there and that's not always the case when you're just bringing a business partner. If you guys can be honest with yourselves and remove emotion from discussions, I would say that just gets you through 99% of it. But it's been an incredibly rewarding experience doing this with my father.
Josh: That's great.
Brandon: I agree. Definitely easier said than done but wise.
Josh: Yep, yep. Alright so how did you guys actually get going? What was the first deal and why did you decide to do that? Outside of the crack house, of course
Sam: Well yeah. Actually I still live that crack house.
Josh: Oh is that the crack house we see behind you with the nice ceiling fan? I don't see any pipes on the counter.
Sam: Nope. No needles, no pipes. We're cleaned up now and actually I'm moving out here in a couple weeks. We just bought another house 11:10 So this is going to be a show house now.
Sam: But what was your question?
Josh: What was the first deal after that? How'd you really start to ramp things up?
Sam: Okay, well so when we decided we wanted to do it, we set a marketing budget. We set some short-term goals for ourselves. That was how many houses we wanted to buy a month. What we're willing to spend starting off and kind of choosing the marketing avenues that we wanted to go down. The first one that we chose was direct mail. The first goal that we set was we wanted to buy one house a month and spend a thousand dollars a month on direct mail.
We started direct mail first month and nothing was really happening. Second month, nothing was really happening. Toward the end of the second month, we got our first real promising call and it was a call that I have not heard since. It was one of those ones where someone left a message and they said, "I'm a motivated seller. I want to sell fast. Let's get this thing done. I'm willing to take bottom dollar for it."
Sam: That's never happened again and probably never will happen again. But this particular deal, it was kind of outside of Houston. A little outside of what we know. It was a house, pier and beam house. Got some pretty bad foundation issues and it was on six acres. We weren't exactly sure what to do but we knew we were getting it for a good price. What we wound up doing was contacting some local investors in town, see if they'd be willing to work with us on this one and see if we can learn from them.
So we brought in a local investor. They went out at the house with house and looked at it and met with the people and basically they put it under contract and agreed to pay us $2500 finder's fee. Not a home run. We learned a whole heck of a lot, especially for that being our first deal, but if that deal would have come to us three months later, we could have turned that into a $20,000 wholesale deal easy. But definitely don't regret it. Still have a great relationship with the investor that helped us. Still lean on every now and then, so it was definitely positive.
Josh: Okay, let me ask you about that because I think a lot of people come out at a gate and they're like, "Alright, well I get the concepts. I'm ready to go. Let's start putting some money down on marketing. I'll drop a thousand this month, a thousand next month," and all of a sudden somebody calls me and then they are scared to death. Holy cow. What do I do? You know, this guy actually wants to sell the property. I don't have contracts. I don't have paperwork. I don't know where to go. I don't know what do. What kind of advice would you give to them? Clearly you met up and partnered up with somebody who can help you through that process, right? Would you say that was the best move you could have made possibly?
Sam: At that time, absolutely. We made the best move we could with everything that we knew at the time. We didn't know a lot then. So really that's where networking comes in. Going out there and meeting people and picking their brain. That got us that deal otherwise we wouldn't have had the confidence to go forth with that deal and make any money on it.
Josh: Okay, okay.
Brandon: I think it's important that you had the deal. People are going to say if you have the deal, the money or the figuring out what to do with it is the easy part. So once you get the deal, I think people are struggling getting going. They probably just don't have the deal yet.
Josh: Yeah. Let me really quickly jump back on that one again. So a thousand a month on direct mail. What was the strategy? How'd you market? Was it yellow letters? And who'd you market to specifically?
Sam: It was yellow letters and we marketed to absentee and high-equity owners. I believe we picked five or six zip codes within Houston to market to.
Josh: Got it. I got, got it. Nice. Okay. Alright, so you get this first deal, you wholesale it, you find the guy, he helps you out. That's awesome. Now what?
Sam: On the next one...
Josh: So continue marketing, continue direct mailing.
Sam: Yeah, absolutely. One thing that we learned, a hard lesson early on, is that for those first three months, we got two deals. We got another deal the following month and then we changed our marketing. We chose different zip codes. We chose postcards. We changed our marketing. We changed too much. We changed it too soon and the phones stopped ringing. We were running around pulling our hair out wondering what the heck was going on. But after we changed it, we did the same thing we did before. We leaned on to people that we knew that were experts in direct mail. Actually, someone who we met through BiggerPockets.
Sam: Got us on the phone. Talked us through a couple of deals. Talked us through how to get our marketing back on track and in November we purchased we purchased our very first whole flip property off our direct mail. Sold that one early January. Didn't make a killing on it. I think we only made $24,000 on it.
Josh: You said whole flip.
Sam: That was a flip.
Josh: Oh it was a flip.
Sam: That was when we actually went in and did the renovation.
Josh: Oh okay.
Brandon: Like a whole, entire flip.
Josh: Yeah, yeah. I thought you just invested a whole new concept.
Brandon: The whole flip.
Josh: "I've got a course for $997 on a whole flippin. Just call me at joshswholeflip.com and I'll teach everything you need to know." Okay.
Brandon: I'm going to go register that domain now.
Brandon: No, but actually can you tell us about the flip? What was the house like? What did you do and what'd you learn in that flip?
Sam: The house was awarded to a gentleman in a divorce and took us a long time to negotiate the purchase price on that one. It was actually pretty interesting because he wound up being our first private lender. We were about $5000 apart on price. It was pretty thin deal as it was. We really kind of just wanted to get it just to do it and learn, but my dad wound up negotiating with him. He owner-financed the house back to us so all we had to come up with then was the renovations. We got our first private lender on our first flip with our very first kind of all-in-one swipe. Worked out pretty well.
Brandon: That's cool. Did he own that free and clear? Did you do like a subject to?
Sam: He owned it free and clear.
Josh: Cool, cool. Alright, so why did you decide to suddenly start flipping houses. You've been wholesaling, less work. You don't have to worry about contractors and all the headaches that come with doing that. What was the motivation at that point?
Sam: Well, that was all part of the business plan, quite frankly, was to put together the marketing strategy to bring us leads and from those leads, turn that into money somehow. Whether that was wholesaling, whether that was flipping, it didn't matter to us. We knew we could put the processes in place and manage the flips. Just needed to learn a little bit more about the industry, managing contractors, those kind of things. So when this property came along where the numbers looked good for a flip, we jumped on it. It was right and ready to go.
Josh: Got it.
Brandon: So you said earlier you got three projects done in the first six months and then the rest of them have been since then. So I'm wondering, you know a lot of the people we've had on the show, Sharon Bornholdt or Jerry Puckett have talked about, that most of the deals come from later direct mailings. After they get three, four, five, six mailings. Have you found that to be true as well in your case? Is that why it took so long?
Sam: Absolutely. Absolutely. The reason it took so long was two things: we got impatient and didn't let the direct mail work and changed things. And then so once we finally changed things three months in, you know it took three months before we really started getting any good leads off that direct mail. Yeah.
Josh: So let's talk about the process a little bit and I know we've covered this in previous shows, but I'm just interested. You send out your direct mail. You got these post cards. You find somebody to help you make them. You send them out and you put a phone number on there or you link to a website. Did you do both? Do you always go to send them to the phone? If you do send them to the phone, are you answering the phone calls? Do you pay a company to actually screen it and have an answering service? Or do you just send it to a voicemail like a Google Voice?
Sam: Once we realized what our mistake was, kind of fourth quarter last year, we really ramped up our marketing to the point where late last year, we were spending about $4000 a month on direct mail because we wanted to be fully invested. We wanted to start 2013 off right. When we were doing that, we were doing it with yellow letters. And we were getting about 400 to 450 calls a month. And they were going to voicemail. Half of them went to leave a message and them half of the people that left a message, if not less, were just not worth calling back.
It was getting overwhelming with my dad being the one answering the calls. He hardly had time to do anything else. So we made the decision in February to switch to post cards. It allowed us to lower our costs. We actually brought postcard fulfillment in-house. So we lowered our cost quite a bit. We could check send more post cards per dollar and also our response rate dropped from post cards, which sounds like a negative, but when you realize that we went from 20% of the calls being worth even looking into, to 90% of the calls being worth going out to look at the house, it really cut down the time taking to deal with all these incoming phone calls. So our productivity went up. That's been our experience with it.
Brandon: That's really interesting. How do you know who to call back? What was the indicator in those phone calls of the bad calls?
Sam: Well, we'd call them all back and so it was really time-consuming. We wouldn't know until we talked to them. Now that our response rate is so much lower with these postcards but the people tend to be much more motivated, it's going direct to my dad's cellphone. Robert picks up the phone and talks to every single person who calls. They get a live person right then and there.
Josh: Got it. Got it. But previous to that, you were not answering the calls? You were...
Sam: No. It was going to voicemail and what we would do is we had an account set-up with a voice over IP company. Then each type of direct mail would have its own phone number so we could track how's absentee doing, how's high-equity doing, how's probate doing. We could capture those metrics and see how many deals we're getting off each one.
Josh: Got it, got it.
Brandon: That's cool.
Josh: When you switched, you're still marketing to all those different types of properties but you're just taking those calls and figuring it out as you go along.
Sam: That's correct.
Sam: Still marketing to all that and we were also doing internet marketing. SEO and Google AdWords and we're about to stop doing our newspaper advertising. It's just quit working for us.
Brandon: Let's talk about real quick about the Google AdWords. That's something that interests me a lot. How is that working for you? You getting a good return?
Sam: Absolutely. Absolutely, yeah. You know when we have a website and when I paid the gentleman the bill that he did some basic SEO, but it's not great. It's like 50% there. If you search for any of the keywords that I've paid to show up for Google AdWords, our website doesn't show up. As far as when I started experimenting with AdWords, we were immediately showing up on Google, which is just worth it. We were getting good leads. A couple of our big flips have come from AdWords. Recently, we're going to continue spending about $1000 a month on Google AdWords but we're also going to be spending money on SEO. The website's in the process in being re-done currently and the SEO is going to go full bore here probably by the end of this month.
Josh: Do you have any tips on the AdWords stuff? I'm sure you don't want to give away all your secrets in terms of what exactly you're putting on there but would you be willing to share some of it all?
Sam: I can share that it's an incredibly frustrating experience if you're not familiar with Google AdWords because the first month we did it, I'm $1,500 and we got almost no leads but we were getting 10,000 clicks. The best advice I can give since I'm not very good at it is to hire a professional.
Brandon: Well, in Google AdWords it's really easy to suddenly lose, like you said, $1,500.
Sam: Yes, it is.
Brandon: I had a campaign when years ago, for some, I don’t know what I was doing. I was trying to advertise for some house I was selling or something. Anyway I forgot to set like a daily limit or something like that and I spent $300 overnight on something. It might have been Facebook advertising, I don't know. Anyway, I spent like $300 overnight for nothing. I got no leads out of it.
Sam: I can definitely sympathize with that. We blew a lot of money the first couple of months and as I learned a little bit, it got better and better and we're doing pretty good now. We're buying one house every two months off of Google AdWords and every house that get off AdWords pays for itself 10, 20 times over or so.
Brandon: That's cool.
Josh: There you go.
Sam: Definitely worth it.
Brandon: Do you happen to know off the top of your head what your cost per click is? How much are you paying Google for each of those clicks?
Sam: Right now, about $9 to 10.
Josh: $9 to $10 per click?
Sam: Per click.
Brandon: So it can show up as much as it wants to. It can show a million times but if somebody doesn't click it, you don't pay.
Sam: Exactly and I've set daily limit like you said. I learned that lesson the hard way and yeah, yeah.
Josh: Cool, ha-ha. Got it. Got it. It sounds like you're targeting some pretty long tail stuff, you know, really, very, very specific.
Sam: We got much more specific with is because in the beginning it was just real broad and we're getting a bunch of clicks and we're paying a bunch of money and the leads weren't any good. So I found that I can bid higher for clicks and get better leads.
Josh: Yeah, that's great. That's great. All right, I just want to kind of work really quickly through - we talked about that first flip - now, 27 deals. My goodness, that's a considerable amount of deals to do, so obviously you guys systematized and built up; and you said from the beginning, "I'm going to spend an X amount of dollars, that's going to start to amount to X amount of leads"; and started to turn it into a formula for yourselves. But how do you do 27 deals in a year as somebody who probably doesn't have the systems yet? How did you start to ramp that up?
Sam: We did a lot of stuff ahead of time. We had the systems in place. I was building a buyers list from day one. We were meeting with contractors from day 1. We were planning ahead. We got together. We set our goals and so we knew what to plan for. So even though we weren't there yet, and even though we were getting frustrated with the things that were coming in right this second, we knew we were going to be at a different place as we grew month to month. So we set everything up ahead of time, so that when we got to that point, when we finally got that wholesale property - that we were ready to send out to our buyer's list - we had a buyers list. We had the email campaign set up. We had the marketing set up. We had everything we needed to put in that email to sell that property. So when the deals started coming, it was ready to go.
Josh: So what does that mean? Actually I've got two questions. One is, what does it mean to setup? What do you really need to do A, and B, I know we like to rank on the gurus here and aren't super fond of them in many ways, but these guys are saying you can be a real estate investor and do it without having any cash. "You don't need any money to be an investor. You can just jump in and start doing it." So do you believe in that? I guess those are two totally different questions, so hit one and then hit the other.
Sam: Which one do you want me to hit first?
Brandon: Oh man, start with the money and then we'll go to the plan.
Sam: Okay. As far as wholesaling without any money, if you find a property on the MLS, you can wholesale and take very little money out of your own pocket. You can find your buyers on Craigslist, which is free. You can find your sellers on the MLS, which is usually free to get on in certain areas. But the reality is, you're not going to find great properties on the MLS. You're going to have to spend some money to do some marketing. We've secured properties for as little as $10 in the contract but we've probably spent - if you look at it over the course of a few months, we've probably spent $500 or $1000 to get that house. So while it's much easier to wholesale with the much smaller budget, it definitely requires some money and some proper planning to do it.
Josh: Okay and so you did talk about planning. How does one do that? How do I say, "Hey, I want to ramp up this business. I want 30 deals in the next year and a half and I'm willing to put the money down to do it. I'm going to spend the money in the marketing and the infrastructure." How do you plan for that? What did that plan look like to you?
Sam: I think the most important thing you're setting goals. We have five-year goals. We have three-year goals. We have one-year goals. We have six-month goals and we have next week goals. Your five-year goal is going to dictate - when you back it all out - what your one-week goal is going to be. You keep the end in mind. Our goal has been to build a single-family, flipping business that buys us 10 houses a month. That's what we want to do.
We also want to have a business that buys distressed apartments and multi-family. We start with the end in mind. We know, "Okay, so if we want to buying 10 houses a month, how much do we need to spend on marketing?" "Well, okay, so we don't have that much marketing right now. So how much can we spend on marketing right now and how many deals will that get us?" So we put the systems in place where we can track all that stuff, see how we're doing, see what our return on investment is on our marketing and adjust because what our goal was in the beginning, it changes consistently. But as long as you have the reporting and the systems and the personnel in place to track that stuff, it becomes much easier to hit those goals and to grow at the rate that we want to grow.
Brandon: Yeah, I think that's awesome. I compare kind of to a plane, like when a plane takes off and let's say you're in New York to L.A., it doesn't always shoot straight. I think that actually Glenn Schworm said the exact same thing in a comment today on a blog post. He said when a plane takes off, it's constantly altering direction. The goal's kind of the same, but it's constantly changing a little bit just to match with whatever the world's doing or whatever things are doing. So yeah, I think that's awesome.
Another part of that I think is, everyone listening right now is doing exactly what I think people should do, is that's just getting involved in the conversations. Just by hearing us talk about what your plan is, that helps other people figure out what their plan should be. Especially if they want to get into wholesaling or flipping.
Sam: I did a lot of that starting off. Reading, listening to podcasts. I spent a lot of time on BiggerPockets...
Josh: That's a cool site. I like that place.
Sam: Yeah. Spent a lot of time on BiggerPockets. Learning, asking questions, being the newbie and it's just been an incredible resource. Just suck up as much information as you can so that when you're ready to pull the trigger and do something, you've got the confidence to do it.
Brandon: Yeah, that's awesome. Well cool, let's move on a little bit. I'm wondering what kind of properties you're looking for? Whether you're wholesaling or flipping, what are you looking for?
Sam: When it comes to wholesaling, our whole business model is kind of - I might offend some people when I say this but - in Houston, there are a lot of wholesalers that just aren't good at what they do. They pay too much for a property, then they try to take too much profit out of the property, then they try to sell the property. And they do that by not being honest about what the repairs are to get the house rent-ready or flip-ready, and not being honest about the ARV, knowing that some people don't have access to the MLS to pull proper coms.
Josh: ARV is?
Sam: After Repair Value, I'm sorry about that.
Josh: That's okay. This isn't a quiz. We're just helping those people who don't know.
Sam: Yeah, so what we did is we built our marketing model and our purchasing model around the fact that every property that we buy for wholesale is going to be accompanied by a line-by-line, general contractor quote that is absolutely executable by a real, general contractor and our ARVs are going to be conservative. Our after repair value's going to be conservative. Our rents are going to be conservative and be real. We make our money when we buy the house, not when we sell our house. And I think that's something a lot of wholesalers forget.
It goes the same for flipping. If you can't get the house for a good price, and you're going to try to pass it off as this great investment to a bunch of other people, you're going to piss off a lot of people in the process and you're going to lose customers. So we always sell our properties at a fair price with 100% visibility of everything the property needs. And because of that, because we do this diligently, we haven't held a single property for more than 48 hours when we got to wholesaling. I mean, they absolutely disappear. I'm going to jinx myself just because I said that but that's what we work towards. Maybe that means we are not taking quite as big of a margin as we could, but the reality is the smallest wholesale we've ever done is $8000.
Josh: Except for that first $2,500 one.
Sam: Yeah, except for little guy yeah. I can hardly count that. That was from my wholesale.
Josh: We're not going to forget about that.
Brandon: That was a finder's fee.
Sam: That was a finder's fee.
Josh: Okay, okay. Parse it a little bit, okay that's fine. Call it what you will.
Brandon: No, I think that advice is amazing. I wish every wholesaler in the world could just rewind that last five minutes and listen to it ten times because...
Josh: I wasn't listening. What did he say?
Brandon: To sum up, it means get a good deal. You have to get a deal. Stop chasing deals.
Sam: Don't be afraid to pass up a deal.
Brandon: I think they would just emotional and they get like, "Oh, somebody called me therefore it's a good deal."
Josh: Yep, yep. You know in our last podcast, show 32 with Will Bernard, we talked about that a little bit as well. You can't chase a deal. Southern California's crazy. It's hot. These properties are coming in the market and they're always being bit up. I think just so many new investors in particular find themselves chasing deals. Frankly, I think there's some sophisticated investors who are screwing with these guys too. I think there's a lot of people who are putting in offers just to watch people chase it up. I don't know, man.
You're seeing people buy these properties that they think they're going to flip and they're paying ridiculous amounts of money. There's not a chance in hell that they're going to make any money on it. It baffles me.
Sam: Yeah, I see that a lot in the Houston market. There's people that are going in. They're buying properties to wholesale and their whole customer base are people that are new and don't know what they're doing. And when the market turns and things are a little bit different than they are now, they're going to be out of business.
Josh: And I think that's one of the things, those guys have zero credibility in my book. Frankly, I hope anyone who does that goes out of business because I think that's probably one of the scummiest things that you can do, is prey on newbies who don't know anything. Unsophisticated quote unquote investors. It's awful.
Brandon: All right, so you talked about not going after the unsophisticated buyer. How do you find the sophisticated ones? Like who are you selling all these deals so quickly to?
Sam: Because of relationships, honestly. We worked hard to build relationships with our buyers. We have a buyers list of 990 people, I think, at this point. But 90% of our properties are sold to the same five or six people and there are some that are in Houston. We've got some buyers that are out of the country. We've got some buyers that are on the far east and far west coast. So I think we find those buyers by marketing for those particular buyers.
By networking our local area, but also by providing a product that instills confidence so that if there's someone in Washington D.C. that wants to buy one of our properties, they know exactly what they're getting. They don't have to fly down here to see that property and they'll buy from us time and time again.
Josh: And I think that's something that a lot of people have repeated over and again on the show. Your 900-strong buyers list is really a 5-strong buyers list or 10-strong buyers list. The bulk of those people, maybe somebody will eventually buy who's on that list, but you're really going to be reselling to the same small group of people.
Sam: Absolutely, yeah. We've experienced the same thing.
Brandon: So you don't need to pay like a $997 a month plan to find the buyers list or anything?
Brandon: You said marketing for them and networking, obviously we understand there's good ways to do that. Are you doing anything, like direct mail for buyers? Did you do anything like that?
Sam: No. No, all of our buyers are coming to us through local networking events. We've been asked to speak at a couple RIAs here in town. That definitely brings in a lot of buyers, potential buyers. And then also Craigslist. I've got ten ads that I run on Craigslist and I update every Monday morning. That's usually good for adding about ten buyers a week.
Josh: Yeah, yeah, yeah. All right well so you're working, correct? You've got a job.
Sam: That's correct. I have a full-time.
Josh: And when you started it, you had a full-time job. Well, you had just transitioned I think you had said, right?
Sam: Yes. Yeah.
Josh: Yeah okay. That's pretty impressive. I think a lot of people think, "Hey, I can't do this while I work. I've got to focus on my job. How am I going to find the time?" Obviously, it's night and weekends, right? In your case, obviously, having a partner who's available potentially, frees up a lot of your, kind of during the day time, right?
Sam: Right. Having a partner is huge. He's in the business full-time, so if he needs to run out and manage a project, he's there. If he needs to go meet with the seller, he's there. I can answer the phone during the day and manage some of the back-office stuff but I take care of all of those things after five o'clock or on the weekends. It's been a long 13 months of lots of long hours and lots of work on weekends.
Josh: Do you have any tips for folks who are working a job on how to get started? Or was it pretty much everything we've covered already?
Sam: You guys have done a pretty good job in some of the previous podcasts. I would say that having a partner that you can trust is definitely spoiling, but also be willing to just work and work hard. You know, five o'clock, when you get home from your job, sit down and start cruising the MLS or start contacting marketing companies to start handling your direct mail. You got to put in the effort to do it. There's a lot of tools out there to make it to where you can take some of the burden off of you. Companies that will handle all of your fulfillment. Companies that will handle answering all the calls and just sending you the leads. So there's definitely a way to do it, all that stuff takes a little bit of extra cash, but it's definitely doable.
Brandon: Cool. Well, let's a little quick about financing your flips. How are you doing that?
Brandon: We have private lenders that we work with.
Brandon: Okay, and how'd you find these people?
Sam: Networking in town. the local RIA clubs
Josh: So you don't just put ads up and say, "Hey, I need a private lender."
Sam: No. I see people doing that and it's really, really scary. You're breaking all kinds of laws by saying, "We're looking for a private lender for this project and we'll pay 14%." You just can't do that. We believed from the very beginning that in order to raise the money for our project, we couldn't just find the project and then raise the money. We need to have those relationships in place. With all of our different private lenders, it's been a long-term relationship. It takes time to build up that trust for someone to hand over a quarter million dollars to you. We take that relationship very seriously. We protect our investors. We have all the systems in place to protect them. They understand every facet of our business and if they want to come on to our work sites, we let them on. If they want to understand our books, we show them our books.
Josh: Okay, so how do you hook the first one.
Brandon: It's kind of that chicken and the egg thing again. What comes first?
Josh: Yes, is it a deal? I mean, how did it work out?
Sam: I told you at first, lender was basically the homeowner on our first flip. With him, he just had to have confidence in us and our ability to do the job and when we finished that job he as upset because he knew the paychecks are going to stop coming. But landing the first one was a lot of conversations; I believe, conversations over three months in order to get the lender comfortable with who we are and then, of course us, comfortable with the lender and how they lend and what their terms are. It's a long process and understanding relationships and how to build relationships and how to keep your partners, because they are essentially partners in our business. Their success is dependent on our success and our success is dependent on their success.
Josh: Is there like a standard set of terms that you guys usually use or does that really vary between lenders?
Sam: It varies between lenders.
Josh: Okay, got it. Got it. Well, that's great. I think it's one of the challenges that most investors come to is, "Hey, I've got a couple wholesales or I used hard money. Now I'm ready to ramp up. I need private money. I don't want to pay the hard money rates. What do I do and how do I start doing it?" So good advice. Good advice. Okay so how do you adjust when things don't go according to plan? I'm sure your business over 27 deals hasn't been perfect. I'm sure things have gone wrong. What do you do? How do you get through it?
Sam: The best thing I could say is have good people around you. It's tough to have a plan in place for every little thing that'll go wrong, but just stay calm, focus on the end goal and have some good advisors. Have some good people around you. You can go and approach and say, "Hey. I'm in way over my head," or, "I made this mistake. What would you do?" When something goes wrong, we wind up calling quite a few people and getting advice. Usually the last people we call are the attorneys because they charge and that is what it is. There's a wealth of knowledge out there if you're able to go and network with some people.
Josh: And you can find answers on a place like, say BiggerPockets.com, for example.
Sam: Exactly. There's actually been quite a few times, when we were running into our issues with our marketing, they were three months in, I went to BiggerPockets, I started a thread. Someone on there, Michael Quarles actually reached out and he coached us through it and got us headed down the right road.
Josh: That's great. That's great. You know what I do to plan for things like that when things go wrong, I actually had these plexi-glass windows installed in my house so when I take my laptop and chuck it against the window, it doesn't go flying outside.
Sam: Well, what about the laptop?
Josh: Oh you know, just buy another one. It's good advice. Investing can be frustrating and clearly things aren't always going to go right.
Sam: No, definitely not. Definitely not. That's kind of what keeps things interesting actually. If everything went right all the time, it probably wouldn't be nearly as fun.
Josh: Yeah, right on. All right, before we start getting into our fire rounds and other fancy things, rumor has it that you are trying to pick up a fairly fancy property. You're trying to pick up, I think it's like a 7,642-unit property? Is that what it is?
Sam: Well I'm not sure fancy would be the word to use it. It's a 319-unit apartment complex that's come to us through relationships that we've started to build with brokers as we've pushed to build our multi-family business. This is a property that we've partnered with on someone locally who has about $8 million and I think it's like 452 doors or so, under management of apartments. This has been a property we've been negotiating on for the last 60 to 90 days. Just recently, earlier this week, got word that things are moving forward on it. This particular property though, like I said, it's not exactly fancy. It's 319 units, it's 20% occupied and all the buildings need roofs, 80% of the units need AC units. They all need quite a bit of work but there's a huge potential for upside.
Josh: Wow, wow. So finding a 20% occupied building has got to be a diamond in the rough. I'm sure your cost per door is pretty good. Well, at least, you haven’t closed, but will be pretty good when it's all said and done because it's going to require a lot of money to fix this place up.
Sam: Right so our acquisition cost per door is incredibly low. We feel we already have an estimate if we're getting all the renovations done inside and out. We feel pretty confident this is going to be a heck of a deal. We're in the process now of raising the $3 to $3.5 million that we're going to need to move forward on this and so we're pretty excited.
Josh: That's great. That's great. How did you transition? I know the answer: you had a plan. But what really made you go, "Hey, I'm flipping houses, all of a sudden I'm going to buy a 319-unit building to rehab." That's a big jump.
Sam: You said it yourself, it's all part of the plan, right. So we knew we wanted to do apartments. we've started doing direct mail for apartments in Harris County and we've started building the relationships to brokers. Because in this deal we've found a partner who has the experience with these type of experiences, it's just not that big of a jump. We have a mindset that this is a business. We've built this system. We're not just investors. This is a full-fledged business and so everything's been put in place so that if something like this came along, we're ready to handle it. We're ready to move forward and ready to do and hit the ground running.
While it seems like it's a big jump, really the only big jump is going to be raising the money. It's more money than we've ever had to raise before. But we've already put the processes in place to handle it.
Josh: And so this building was not on Loop Net, it wasn't on any of these listing sites? It was kind of, straight direct mail relationship opportunity?
Sam: Yes, this one actually didn't come from the direct mail. This one came from broker relationships.
Josh: Got it. Got it.
Brandon: That's my personal belief anyways, is that most apartment buildings - I mean, I could be wrong on this - but I think most apartment buildings are good deals that are found through relationships. With houses obviously, mostly they’re found on the MLS maybe, but it just feels like apartments are usually relationships.
Sam: Yeah and we've kind of noticed that because it seems like, like I said we've been doing direct mail, we've been sending 1,500 letters every two months to assets in Harris County and Houston, and the response rate hasn't been that good. We haven't a single deal from it yet, but consistently the best-looking deals are the ones that are coming from the relationships with the brokers.
Josh: Yeah, and really, really quickly, how does that work? Obviously, you've got a history. So do you just start calling commercial brokers and say, "Hey, here's who I am. Here's what I'm looking to do. Here's my plan and if you find any opportunities that are discounted or at certain cap rate, let me know?"
Sam: Sort of. If you call them and you say that, you might see deals for the next week or two. But the reality is, I believe in lunch, sit-down, have lunch with them, learn about them, learn about the types of properties that they get, see if you can help them in any way. You know maybe some properties come to us from our direct mail that's not good for us, but they have a customer for. Try to build a real relationship, not just spit out who you are and hope they call you in the next couple of months. Follow up with them. Continue to have lunches with them, get to know them, yeah.
Josh: That's great advice and I think that applies in all aspects of business, particularly in this business.
Sam: Yeah absolutely.
Josh: Brandon has people taken out for coffee all the time.
Brandon: Yes. Not all the time.
Josh: Apparently, it's like weekly. He gets free Starbucks coffee from people.
Brandon: No. It's like once a month.
Josh: Oh okay, okay.
Brandon: It's good. It's the perks. It's the perks of being the host of the largest real estate investing podcast.
Josh: Well, there you go. There you go. Use it up, man. Because you're not going to be the co-host for long. Great stuff. Really, really good information. I think it's time to transition to our Fire Round.
Brandon: Fire Round.
Josh: That's awesome, Brandon. Thank you. Yeah so, fire round. Really quick questions. Try to make our answers quick and most of these questions do come directly from the BiggerPockets forums at BiggerPockets.com/forums. So first question, what should a recent high school grad do if they want to get into real estate investing?
Sam: First thing I would do is just read BiggerPockets. Read as many books as you can and start networking. Figure out what you want your direction to be. Do you want to wholesale? What types of properties do you want to wholesale? What types of properties will your market support for wholesale? And set a budget. Start knocking for some properties.
Brandon: Let's say you were not an investor yet and somebody will give you a hundred grand. What do you do with it? What's your first step with the hundred grand?
Sam: I don't know. Can I go to Monaco or is that...?
Josh: I like that plan too. "Bet it all on black."
Sam: Again, I would go back to goals. What are your goals? What do you want to do with that money? You could lend it as hard money. You could try to buy some single-family homes with it or you can take a good chunk of it and buy and renovate and do a flip? I think it's just going to depend on what the end-goal is.
Josh: Yeah, right on. Right on. So successful direct mails, all that testing to see what works. For someone with relatively small budget, how do you recommend they begin testing?
Sam: Yellow letters. Start testing with yellow letters. Do the research in your market. Figure out what your median home price is. Figure out what zip codes a lot of those houses are in and start targeting them. And measure how many people call. Measure how many deals you get. How many letters you send. If you send letters on Monday, what kind of response rate do you get? If you send letters on Friday, what kind of response rate do you get? That kind of stuff.
Josh: Right on.
Brandon: There's that famous quote I think it says like, "What matters gets measured," or something like that. It applies that. If something's important, like measure it then you can figure out and what doesn't. Cool, all right. Next one. Do you use any apps on your phone or like an iPad, anything for real estate investing? And if so, which?
Sam: Do I use any apps? Probably the calculator app a lot. Otherwise, not really honestly. Oh okay, well, the local MLS app is a great tool. Here, HAR. H-A-R. The application on my iPad is incredible. Because I can walk to a seller and the seller says, "My house is worth half a million dollars," and I can show them where their house is worth $80,000. It would be tough though. It's pretty tough to argue.
Josh: Yeah, I want to be in that conversation.
Sam: Yeah, well they're not fun to have. They're never happy that their house is low in value.
Josh: Yep. Yep, of course. All right, flipping multi-families. Have you done it? Or you haven't done it yet? Okay.
Sam: Not yet. I'll let you know in 18 months after we finish this big one.
Josh: Yeah baby. We're looking forward to hearing about this one, man. This is going to be a fun deal.
Josh: Okay so we talked about planning for things going wrong. What's the biggest mistake you've made in your investing so far?
Sam: Biggest mistake we've made. Probably trusting sellers. That's come back to burn us quite a few times.
Josh: Do you want to give an example?
Sam: Yeah like, "Oh, yeah. I went through probate," or, "Oh no. I don't owe anything on it," or, "Yeah I paid the whole thing off." Just real quick story. Had a wholesale into contract for $50,000. The house was worth $100,000. The guy said, "Oh yeah. It's all paid off. It's not a big deal." Reality was, he had a mortgage for $110,000 on the house that he thought the government had paid off for him.
Sam: Reality, the government was just trying to foreclose on him. Trusting sellers is a big one.
Josh: Okay so instead of trust and verify, just freaking verify.
Sam: Verify. Verify. Verify. Verify.
Brandon: Nice. Okay last question to the fire round. Real estate agent license. Should you be licensed?
Sam: My father and I, we are not licensed. My mother has a license actually and so we can operate on the MLS. We flat-fee list all of our stuff to her, but that's easy to find elsewhere.
Josh: I'm going to extend the fire round, actually we're going to move out of the fire round and I'm going to ask a question about that because that's an interesting thing. Flat-fee MLS. I know I was an agent back in SoCal and that was long time ago. Flat-fee MLS guys just got no respect. The traditional agents wouldn't show the listings. It was persona non grata type of stuff. How does that work for you guys?
Sam: Fantastic. Absolutely great. Our last flip, also two flips ago, had an ARV of $259,000. We sold it probably it's about 3% to 4% above market and we sold it in eight hours. A flip we sold earlier this week, again we were about 4% or 5% above market, sold it in 20 hours. So here, where the market is so incredibly quick and the buyer's agent is going to make their 3% commission no matter what, they don't care. We do our flips in such a way where we have the best-looking house in the area for an incredibly good price. That's why they sell as quickly as they do. We really haven't run into that issue at all. Now if the market changes, we may. And we're more than happy to pay it, but right now it's just not necessary.
Josh: Gotcha, gotcha. Cool. All right. Let's move on to our Famous, Famous--
Josh: Really? Am I doing this show with a little girl or Sasquatch? Come on, Sasquatch. Let's do it.
Brandon: Famous Four.
Josh: How do I take him seriously?
Brandon: You don't.
Josh: No, not at all. All right. Famous four. Do you have any favorite real estate investing books?
Sam: Gary Keller's book: Millionaire Real Estate Investor is really good. I enjoyed that one.
Josh: Yep. Okay. Right on. How about business books?
Sam: The E-Myth. I forget who wrote that one, actually.
Brandon: Michael Gerber, I think his name is.
Sam: Yes. The E-Myth, I thought was incredible.
Brandon: Me too.
Josh: Nice. Yes. You talk about it almost every show.
Brandon: It's that good. People need to read it.
Sam: People need to read it, absolutely.
Josh: There you go. There you go. What about hobbies? I see in a picture behind you a tire of a racing car. Are you a car-racing guy or...?
Sam: Yes, I am. So all through college, I worked as a professional mechanic on Ferrari Challenge and Star Monster race teams, and that was really my first passion. Also I think through college, I raced professionally and raced for Formula SAE. Actually I didn't race professionally, I raced kind of amateur. But yeah, that's absolutely my first -- first passion is racing, second is travel. My wife and I just got back from a two-week long camping trip all through the South West, based off of our truck. So that was a lot of fun. Really enjoy travel.
Josh: Well, that's great. That's great.
Brandon: Cool. All right. Final question. What do you believe sets apart the investors who succeed from those who do not?
Sam: Planning and execution and confidence in that execution. There's a lot of investors that do onesey, twoseys and then there are investors who build the big business. We hope to be investor that builds the big business. We've done, like I said, over $2 million this year. Next year, we want to be at $4 million and then the year after that we want to be at $8 million. And that's just our single-family homes. That doesn't count what we want to do with commercial and everything else. I think having the plan, having the vision and having the wherewithal, or at least the people around you to coach you towards that end-goal, is pretty important.
Josh: Great. Great, great, great advice. Good advice. All right guys. Well, this has been a lot of fun. It's Sam Craven. Show 33 of the BiggerPockets podcast. You can find the show notes at BiggerPockets.com/show33. Sam, thanks so much for being with us and of course we'll see you around the site.
Sam: Yeah, absolutely. Thanks for having me guys.
Brandon: Yeah. Thank you.
Josh: All right guys. That was Sam Craven with some awesome, awesome stuff. I thought the interview was fantastic. I think Sam might have done more deals in his first year than most of us have done thus far. What do you think Brandon?
Brandon: Yeah, I'm pretty sure he's done more than me. And hey, also real quick. If people want to reach out to Sam, they should definitely check out his website at www.sennahomes.com. But yeah, I just realized we didn't say it in the podcast. Yeah, sennahomes.com and he's also on BiggerPockets of course.
Josh: Yeah, that's awesome. It's awesome. Well congrats to him and his success and obviously we want more of you guys to be successful just like Sam. So keep listening to these shows. Make sure you're paying attention and interacting and asking questions. Jump on these show notes at BiggerPockets.com/show33 and let Sam know what's going on. Hit him up with questions. You know, tell him what you think. Otherwise, of course, you want to be interacting on BiggerPockets like Sam did. It's just an incredible place to learn. We've got these free podcasts. We've got thousands and thousands of really high-level blog posts and hundreds and hundreds of thousands of forum discussions. The site is incredible. The content is insane and guess what it's all free.
Josh: That's right. Now we do have paid memberships, as we talked about in the Quick Tip, but...
Brandon: Quick Tip.
Josh: What'd you say?
Josh: Yep, yep. So we've got these paid accounts and they've got a lot of value. you should check them out. If there's any interest, go to BiggerPockets.com/pro and you could find out all the benefits of upgrading. That's pretty much it. Remember to follow us on our networks: Facebook, Twitter, G+. We're everywhere. Make sure to interact with us on our various social networks outside of the one and only BiggerPockets. Definitely, definitely, definitely also make sure... I'm actually forgetting what I was supposed to say which is why I'm trying to extend it out here. Hold on, it's going to come to me. Brandon, say something so I could come up with what I was going to say. Because I can't think and talk at the same time.
Brandon: By the light of the silvery moon... I don't remember the rest of the words. That's all I got.
Josh: Oh! If you haven't already, make sure to leave us a review or a rating on iTunes. Why would I forget that Brandon?
Brandon: You say it every week, I don't know.
Josh: I say it every week, but I forgot it this time. Anyway, guys make sure to leave us a rating and a review on iTunes. It helps us get more visibility. Makes us feel good.
Brandon: All right for BiggerPockets, this is...
Josh: Ehem, ehem. Is this thing still on? This is Josh Dorkin, signing off.
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