Creating a Well-Oiled Real Estate Machine

Lee Kearney started back in 2003. He was living in Ireland at the time, where he bought a condo, got broken into. It was a penthouse, moved out. No one wants to live in a place after they get broken into. Thank goodness he was able to move back in with my parents at the time. Put the property in the market and sold it and made 35,000 Euro profit approximately. What struck him about that is he made more money on that deal than the job he was working at the time, and that’s when the light bulb went off for him. So he decided to move to California in 2004, he was finishing his masters at the time, he found a coach, someone who he gone to church with. He was able to drive him around, look at properties. As he followed him around and watched what he did and asked lots of questions. Helped him cart materials from Home Depot, just whatever he could do to assist. What he realized was he just need to buy in this area, at this price point, with this amount of money and to sell at this price. He said, “Okay. I can do that.” So he had the information at hand. Was guns blazing. Went out to the market. Super hard market in San Bernardino. It took him 4 months to find his first deal, for anybody out there, if you think that you’re striking out in day one or day two, he did this for four months to find his first intentional flip. Finally took it down through an agent, a probate deal on the market. He was able to buy it with hard money. So he borrowed that.

He had some cash of his own, which he used for the renovations. Hobbled the property together, somehow even doing exactly what he was told to be putting out the signs and waiting for all the buyers to come. 50 people came. Made 30,000, 35,000. The deal sits right outside his office, which is a reminder to him every day of where he started, and decided to repeat the process. He did his second property, made his first and second mistake on that second property, he moved back to Florida. So he tried to remotely rehab it, and he had a friend do the rehab. Complete disaster on both front, somehow stumbled through that rehab, got out the backdoor, because California was actually starting to slide at the end of 2004. So he made by the end of the middle of 2005, when he finally sold it, made 10, 12 grand, but it wasn’t a loss. So he was delighted to get out of that house, decided to learn about foreclosures. So he asked everybody I knew, “Do you know about foreclosures? He heard that that’s where you get deals.” Didn’t really know what a foreclosure was, which is funny to me now that that was only 14 years ago. But he was asking the questions that he is telling you about, his point for everybody out there, there is no dumb question when you don’t know. So found a friend’s father who is buying at the courthouse steps, and he asked questions like, “What is the courthouse steps?” “What is a foreclosure?” “Why are numbers being auctioned?” There were case numbers. The case number represented a house. Found a person selling the book that turned the numbers into addresses, and the rest is really history there, because he bought his first and second and third and he used everything from bootstrapping credit card debt, to instant line of credit from Bank of America as soon as he got title. He was able to grow a multimillion dollar portfolio in about 18 minutes. Then along came 2007, he got off his honeymoon with his wife at the time when he said, “We’re done. We’re broke.” The market had turned. He was still buying and selling and rehabbing into a downward market, which you couldn’t have told him that back then.

He just didn’t know what he didn’t know. He didn’t have a mentor, if he had a mentor, he probably could have pulled out of the fire. But the reality was he would have needed and pulled out of that fire a year and a half previous to when he actually crashed. So he had all these rentals, they were overleveraged, not cash flowing. Rehabs, he was selling at a loss. Ended having to stop pay on all of my debt and renegotiate everything, short sales, write off uncollateralized debt, it was terrible. So most of 2008, he was cleaning up his credit through 2009, but he had to make money. So what he realized is two important lessons, and he is sharing these with everybody, because he lived these firsthand. So a lot of people now are in real estate as we’re doing this show. They’ve been experiencing an upward market, extremely low rates and everyone thinks they’re amazing. They’re buying deals, and he just closed in 100 doors, in 200 doors, and 500 doors, and he is amazing. The reality is there is a lot of things operating in people’s favorite today. That has not always been the case. 2008 he realized two things. One, there is always money in real estate. Two, you got to be on the right side of the trade. He immediately flipped from being a rehabber to being a wholesaler. That completely took the market risk off of him. Put it on his buyers, who actually were getting good deals at the time. He was making 5, 10 grand assignment fees. As he was digging his way out of the hole from 2006 and 2007, he made about a million bucks his first year wholesaling. So the rest of history after that. The opportunity was wholesaling, wholesaling, a little bit of rehab. Transitioned into a lot of rehab. Sold a lot of turnkey properties to overseas buyers, and then several thousand deals later here where he is today with a mature company. He got systems and processes. He got people in some cases that have worked for him now for 10 years. So it’s a well-oiled machine. We put a widget one end and comes out the other, and we make profit, and it’s pretty straightforward. So he likes single family because he understands it. He bought and sold multifamily, but right now, he looks across the board and the only thing that attracts him today is the cheap long-term debt. Everything else scares him to death, because he sees prices, sees assets trading for two and three and four times what he sold them for back in 2008. That’s why everyone has to look through this through their own lens. His lens is that he made and lost $2 million in two years 12 years ago, and he just don’t want to do that again. He would say that probably more risk adverse than the investor coming into the market in the last couple of years, but there is always money in real estate.

Listen to full episode: https://lifebridgecapital.com/2019/10/ws367-creating-a-well-oiled-real-estate-machine-with-lee-kearney/