BiggerPockets Podcast 058 with Justin Silverio Transcript
Link to show: BP Podcast 058: Flipping and Wholesaling Homes While Working Full Time with Justin Silverio
Josh: This is the BiggerPockets podcast, show 58.
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Really, really top shelf. Anyway, for those of you guys on the forums who probably remember seeing J. Scott documenting his first spec build over the past year. Well, now he’s put all of that information into one really really good eBook that you could download a 100% free today. This eBook, it’s 157 pages and it follows J. from start to finish as he builds a new construction spec home with no detail left out. It’s got photos, receipts, graphs, charts and lots of stories about the good, the bad, and the ugly of spec building. If you go to the show notes at BiggerPockets.com/Show58 and if you’ve got any questions for Justin after listening, jump on those show notes and be sure to ask him. He’ll be there to answer your questions for you. With that, let’s get to the show, Justin, welcome to the podcast. Nice to have you.
Justin: Thanks Josh and Brandon. I’m pumped to be here.
Brandon: We are pumped to have you and thank you for saying Brandon, you’re good in my book today.
Josh: I want to pump it up.
Brandon: What was that?
Josh: Justin, Brandon isn’t quite of age, can you explain?
Brandon: Was that H`ans and Franz? Was that what that was?
Brandon: It sounded like I don’t know, a dying elephant or something. Moving on.
Josh: Yes, welcome. What’s up, Justin so you’re from Boston right?
Justin: That’s right I am.
Josh: Oh man, you’re my mortal enemy now.
Josh: Well, you know, I’m a die hard Mets fan and the Red Sox are just, you know. We’re not fans.
Justin: Well, I’m not too big of a sports fan so.
Josh: That’s good.
Justin: Yes, you don’t have to be a too concerned.
Josh: Oh, fabulous.
Brandon: No longer mortal enemies.
Josh: We will not box in the middle of this interview.
Justin: We still could.
Josh: It might be fun.
Brandon: That might be fun. I’d pay to see that.
Josh: It might be fun. Alright, so you’re real investor, you been around. You’ve been on BP for awhile. What are you currently doing? What kind of investing are you currently focusing on right now?
Justin: My primary focus right now is on rehabs.
Josh: Fix and flip type of stuff?
Justin: Yes, exactly, single family homes in my county and another county around here.
Josh: Okay and are you in like the city Boston proper or are you out in the burbs.
Justin: I’m north of Boston, Middlesex, Essex county so it’s about 30 miles north of Boston.
Josh: Got you. Okay and is that—would that be considered more rural or is that really suburban.
Justin: It’s more suburban.
Josh: It is, okay.
Josh: Right on, so you’re flipping houses up there, rehabbing, how did you end up getting started, like did your whole real estate career kick off.
Justin: It actually took me three attempts to get—before I got started in real estate. Back in 2006, my wife and I just got married and we were looking for a place to buy. My father always had rental properties as I was growing up so he always instilled in me, come on, buy a rental property, live in one side, rent out the other. I think Brandon started off the same.
Justin: I was looking for a two family, but as everybody knows 2006, market was at its very peak so two families around my area were about $4-$500,000 in a decent area. Numbers just didn’t work out so we kind of passed off on the two family just went to the single family. That kind of ended that, 2008 came around, started getting back in real estate, just because of the HGTV. I think a lot of that kind of inspired me.
Justin: To get back into the game. Went onto BP, was poking around the forums and it never—actually took off. Just because I had so many things going through my head. I didn’t know where to begin so it just kind of fizzled out.
Josh: They have help for that by the way.
Justin: I know I did seek help right after that.
Justin: 2010 rolls around, my father—he’s a general contractor. He knew I was trying to get into real estate investing so we kind of had our conversation. He was asking me whatever happened to that? You can—to real estate investing? I said, “It just didn’t work out.” He was really pushing me to get started back doing that so 2010, end of 2010, I started to kind of lay the groundwork, talked to some real estate agents, did some networking, and 2011, we actually found our first deal through a real estate agent.
Brandon: Nice. Hey, I want—obviously, we’re going to talk about that first deal, but before we do, can we go back to—you know, you tried a couple times to get into it and didn’t. The second time you said it was—you had a lot of things going on in your head and I think that’s a problem that a lot of people face. Like that fear or the I don’t know—analysis paralysis—whatever, do you have any advice? I guess I’m wondering for people that are listening to this show that are in that exact spot right now.
Justin: Yes, what I would recommend is one, join your local networking event, a REA because that can really help you out. I just didn’t know where to start with—if I needed a look at find some contractors, if I needed to find money, how I could find these deals. I mean I was just kind of all over the map. Going back to it, I would just really focus on finding a deal first and then after that figuring everything else out, but real estate event—real estate meetings, those have been really helpful and just understanding what I need to do now and I guess what I can wait ‘til the future to start researching.
Brandon: Okay. Yes, that’s cool. I like to hear that—I mean, how people have personally overcome and what they would do if they were going back. I mean I—love that question. It’s one of my favorite questions is what would you do differently if you were going to go back and do things again. That’s a good answer so anyway, going back, your first property you found. What was that like?
Justin: Yes, so my first property—this first off, I would not have pulled the trigger on this deal if it wasn’t for my father and that other real estate agent that introduced me to property. It was a small ranch, about a thousand square feet, needed a complete rehab, complete interior gut. It was a really small house so we figured we needed to build a small addition onto the house and then we needed to completely reconfigure the whole floor plan because it was really wacky with different—with steps going to different rooms. It was just built very strange.
Justin: We got into that deal—we got into at purchase price about $255,000 and that was just about one of the lowest price points you could get into that town because it’s a very desirable town with great school systems. We knew our back end sales price was going to be pretty strong because there were a lot of buyers in that market.
Josh: Got you.
Brandon: How did you find that one? Was that MLS?
Justin: That was the MLS, at the time, the deals were still on the MLS in my area and you could scoop them up pretty easily.
Josh: What made you jump on this? I mean you know you see all these properties, why did you pull the trigger on this particular one?
Justin: The reason why is that the current owner, she had lived there for about 50 years and she needed to move pretty quickly into a retirement home and the real estate agent that was actually the listing broker, I knew her. She was a family friend so she just said, you know, she was giving me insight on my back end sales price, getting me comfortable with that and then my father as well as my real estate agent that was our buyer’s agent. They were just pointing out the things that we could do to the property to really increase the value on this home.
Brandon: How did you fund it then? How did you afford it?
Justin: This property, my father and I funded it with our own cash.
Brandon: Okay, so you funded it with your own cash. You bought it for $255, then what you end up putting into it. Do you remember?
Justin: Yes, we put in about $80,000.
Brandon: Did you do all the work? I mean, did you do that work yourself or did you hire it all out?
Justin: Well, funny thing is is we actually hired everything out even though my father is a general contractor. I wanted to make sure that we weren’t using his guys. We actually went out—get our own crews so as we were going through the rehab, I mean, we had a number of contractor issues that we ran into. We actually had to spend some weekends doing the work ourselves.
Brandon: I’ve been there.
Josh: What kind of issues were those? Just for curiosity sake.
Justin: The contractors not showing up, having issues on.
Josh: No, that didn’t happen. Stop it.
Justin: Still happens to this day, I’m telling you.
Josh: No, those guys are always on time and happy.
Justin: Yes so I mean, one issue after another, some contractors, we didn’t have, and I didn’t have any processes in place so. I didn’t have them sign any contracts so basically if we paid him up front deposit, which was somewhat very minimal, just to buy the materials, there was one contract and he just kind of ran off with the money.
Josh: Oh man.
Justin: It wasn’t big money, but still it was—a tough thing to go through for my first rehab,
Josh: You know what’s messed up? If a homeowner doesn’t pay a contractor, they slap a mechanics lien on your house, but if a contractor runs off with all of your cash, you’re screwed unless you go and sue him. You know, it’s like come on now.
Justin: Yes, there’s really nothing you can do.
Justin: I mean we tried to have our attorney send him a letter, but I mean there was no response at all.
Brandon: What was your mistake then? I mean your mistake was not getting it in writing I’m assuming. Do you have any other kind of thoughts on that? What you could have done differently?
Justin: Sure, so we have them sign—I would have them sign independent contractor agreements, a scope of work, some other documents that I always get from my contractors now are W9s, a copy of their—any licenses they have, their actual driver’s license so I know where they are, they live and they say—who they say they are. They actually are and I have a story about that later on.
Josh: Oh, want to hear that.
Justin: Yes, that’s the type of thing. Those are the things that we do right now so if I had known this earlier, I would have implemented that.
Josh: Well that’s good advice. I mean, you know, I do that with babysitters, if a babysitter comes in, I don’t get W9, but we’ll take photos of their driver’s license so that we know who they are, where they live, you know. It’s just one of those things I think. That’s kind of a cool piece of advice somebody had given me. I’m curious now, I want to hear the story about what happened here with the identity frauder, whatever the hell that was.
Justin: Alright, so it’s a long winded story, but I’ll keep it short. A project that we’re actually still working on, very big rehab, we’re going over about a $120,000 right now on the rehab.
Justin: This contractor basically defrauded myself and my partner. He was a—he has long history of defrauding people. About—I think he started about two to three years ago, I mean he has about a million dollars worth of fraudulent work that he’s tried to do.
Justin: That he just screwed people out of so there has been a big case against this guy. We actually are just going through the final stages of him going through court and him being in jail and all that stuff. Yes, I mean this guy—the one thing I didn’t get and now I do is a license on everybody.
Josh: He was able to defraud you, why exactly? I mean you know, what is having his license going to do to help you not get screwed over by somebody like this.
Justin: His—the person that he claimed to be, he was not.
Justin: He was using a false name, he was using a false business name, he had references that were basically his relatives saying that he was doing the work and doing a great job. He had a lot of things in place. He actually forged insurance documents.
Brandon: Oh man.
Justin: I mean he went very far to try to cover his steps and make sure he went through, but I mean he was—the way that we found out that he was defrauding is—his work just wasn’t meeting our standards. He was doing a lot of things wrong and we were just talking to his crew and they were basically all hired off of Craigslist and not—this one guy I was talking to he was a painter working on some structural work.
Justin: Structural framing so that kind of threw up the red flag. We fired him and we’re still just trying to wrap up the property now.
Josh: Wow, wow, wow. Well, that, I mean that’s a horrible story, but hopefully for the listeners, you know, a lesson for everybody to learn from. Well, I’m sure anybody who’s been in the business awhile has been screwed some way shape or form by a contractor, which is really sad. It really is, but that’s a really great tip for how to protect yourself. Yet another way to protect yourself so definitely appreciate you sharing that story. The first deal you did—let’s kind of finish that thing up. You’re in it at $255, you put $80K into the project that leaves at $335 and what do we end up getting out at?
Justin: We ended up exiting out at $367,500.
Josh: $367 minus commissions and what not or is that after commissions.
Justin: That’s actually the net sales price that we had so that’s before started gross sales price so that’s before subtracting out your commissions and all of that.
Josh: Okay so.
Justin: Our net profit on that was about $13,000.
Josh: Okay, okay so it was pretty lean, pretty tight, flip. How long did that project take?
Justin: That took about twice as long as we originally anticipated.
Justin: Go figure. I think we actually closed a close. I think it was about five or six months.
Josh: Wow and you know there was. Go ahead Brandon.
Brandon: No, go ahead. You got it.
Josh: Okay, okay, I was going to say because there was a post we saw. I forget who it was who wrote a post this week about—I think it was Mike LaCava, wrote a post on the BiggerPockets blog this week. We’ll point to it on the show notes at BiggerPockets.com. Actually I don’t know the exact URL, never mind, but if you go on the show notes, BiggerPockets.com. The other they can check me out at my blog at JS2Homes.com.
Brandon: We’ll link to all of that on the show notes so.
Josh: We will. We will.
Josh: Well, listen, it’s been a pleasure. You know, for those listening, this show has been interrupted about 600 times so a highly edited version of the podcast.
Brandon: I’ll be editing for the next like 48 hours. It’ll be fun.
Josh: Thank you Skype for your kick ass flow, your streaming abilities.
Justin: Brandon, feel free to give me a deeper voice.
Brandon: I will. It’ll be.
Josh: Hey listen man, thanks so much and we’ll see you around the site.
Justin: Alright thanks guys.
Brandon: Yes, thank you Justin.
Josh: Alright everybody, that was Justin Silverio. Really, really cool guy with lots of fantastic, fantastic feedback. Hopefully you guys enjoyed the show as much as Brandon did.
Brandon: It really makes me want to do like one of those 80 or a $100,000. You know, like high end, lots of money, complete gut job. That would be fun.
Josh: Yes, maybe you can accidentally buy one of those.
Brandon: Yes. Maybe I will accidentally buy one of those. I’m tired of flipping them, man. I—it’s so much easier just to like buy a rental property that cash flows from day one. You know, it’s easier.
Brandon: I’m lazy.
Josh: Yes, I can attest to Brandon’s laziness.
Brandon: Yes, all day, sit around, watching my soaps, my stories. You know.
Josh: My stories.
Brandon: I do. Awesome man.
Josh: Well, yes, no listen, again that was—it was really good show. Lots of cool stuff. Alright guys so as we always, you know, actually, I’m going to tell you something. First of all, I definitely want to remind you guys to check out the free eBook. We’re going to have a link to it. It’s a diary of a new construction project.
You can get this thing for free by going to the show notes at BiggerPockets.com, your home for real estate investing online.