Top 9 Takeaways - Podcast 428 with Rodney Ross

BiggerPockets Podcast 428: Using Simple Conversations to Get Deals Others Can’t with hosts Brandon Turner and David Green & guest Rodney Ross

1. How to get back up after a frustrating investment

Because I couldn’t qualify for one, I put down $8,000 and took over this guy’s mortgage, which I had read about in a book. And then everything went horribly after that. The Section 8 payments stopped a month after I bought it. The tenant actually ended up dying in the house a couple of months afterwards. And then the son who was there started threatening to sue me because he tripped or something. So I just let it go. I gave it back to the guy and I got 1,000 bucks. So I pretty much lost everything. For those who don’t know, Section 8 is this program where the government pays the rent or at least a portion of it. So all investors tend to think, oh, amazing. This is going to be free money from the government, there is no risk. But if, for instance, a tenant refuses to allow inspectors into the house, they won’t renew their voucher and you may end up having to do an eviction. So Section 8 doesn’t guarantee money for sure, there are conditions. The only way I could have made it work is to have had a little bit more money to start with. If I had that extra money it would have been salvageable, but the mortgage balance was 50,000 and the house was probably worth 50,000. So not the best deal ever. So I still had a couple of years of school left. I thought, okay, I clearly know how to NOT do it, right? I am going to get my license and join the same office my buddies work at and learn how to sell houses with other people’s money and make some commissions and then hopefully I can have savings and start investing with that.

2. How knowing about construction timelines and projects can help you get comfortable enough to do your first rehab

I didn't really know much about construction, so I left the Keller Williams office and went and joined a construction company developer in the area. So I was pretty much just a lone realtor in the middle of the construction office. I figured I would get a double whammy because they had a couple sales that they gave to me, which helped with a little bit income, but also I was just sitting around in a bunch of construction meetings trying to learn about the rehab process so I could actually feel comfortable buying something.

3. Why mixed use properties are often an overlooked real estate class

I don’t even know what kind of store it used to be, maybe an old seafood store, but I didn’t even really care what they were. I just realized that all the properties had a bunch of liens on them and there was another investor involved. I knew that the other investor was going to clear the liens off and these were the same liens on mine. So once he paid them off, then I was able to sell mine a couple months later and make $40,000 off of it.

4. The importance of defining your role with your partner

So we are 50/50 partners. So I manage the construction a little bit more closely and cut the checks and do a lot of communication. She’s really good with the finishes. There are certain things that I don’t like to do like colors and kitchen designs, that more abstract stuff. I love numbers and I have more time than she does generally and that’s how our partnership started. She had much more savings than I did, I had more time. And so that’s how it’s split and that’s one thing we’re actually working on right now. We have to more closely define what our roles are. Just one of our resolutions, if you call it that.

5. How to talk to buyers so they’ll choose you over other offers

I think that my superpower is probably being able to build rapport with people and ask the right questions and then get into a meaningful conversation really quickly. And as simple as it sounds, just doing that X amount of times every week, deals just come around once every so often. And a lot of stuff we buy is on the MLS too, by the way. We probably got eight or nine that are on the MLS and the rest off-market, but it’s the same. I was thinking about a house that we flipped and it sold a month or so ago. It was listed at 110,000. I knew it was worth 50 to 60 and called day one, “Hey, my name’s Rodney, I’d buy this place in the area. We don’t know each other yet, but I’m just letting you know this is exactly what we buy, I’ll pay you 55 for it.” “No, no, whatever, we’re going to get more for it.” Hang up. Call them two weeks later, same conversation. “How’re you doing? Have you sold it?” “No, no, no, no, no.” And then hang up. And then that one evolved into a month. Then they had gotten another offer finally for 75 from a 203K buyer, which I knew was probably going to fall through– it always does because the buyer walks in and they think that it’s going to need 30 grand and it needs really $100. So it’s a lot of waiting people out and just being really upfront. I come in with my real number usually, right off the bat. And then if it doesn’t work, I’m not changing anything. I say this all the time, people like to sell to people they like. And the more you can get people to like you, the more chance you have with people wanting to work with you. Now, there is a number and they are not going to sell you that property for a dollar. They are not going to give you 20, but there’s a discount that everyone offers called the likeability discount. So the more you can build into that, the more you can build that rapport the better. I try and not judge anybody off the bat, regardless of some of the crazy things that you see or people you run into. And I think just asking probing questions. And that says a lot more than trying to tell someone how cool you are. Once you have figured out this is how I’m going to get leads and this is how I’m going to follow up with people, just keep asking the probing questions, it does wonders.

6. Why it’s so important to look for the other real estate parties in a deal

Imagine this picture where there are 20 people in a room. There are 10 wholesalers out there looking for good deals. And then there are 10 real estate investors who want to buy from those wholesalers. The problem is there are only two real buyers out of those 10, let’s say 20% of them are actual buyers. And out of those 10 wholesalers, there are only two actual wholesalers. So out of the 20 people, there are only four actually doing business, two and two, let’s just say. People who want to be buyers are probably wishing they had wholesalers who brought them deals. First of all, you need to ask yourself if you are one of the two out of ten that can actually close. And the way you know that is largely because either you have done it before or you are asking the right questions. And then secondly, if you are on the wholesaling side, you’ve got to talk to a lot of them and ask lots of questions. The reason I bring up the 10 people and 10 peoples is because it is a picture of what you have to do to find the right people. This applies to contractors and probably to anything. There’s just terrible people all over the place. But the more you mingle and talk to more and more people, the more you provide your own skill, your own vocabulary, your own desires and wants and what you need and how you portray yourself. And then the more you meet these other people, the greater chance of getting that connection with the top guy over there. And you’re the top guy over here, you work together and boom, now you’ve got magic and now you can do 100 times more deals. But when people are like, well, I can’t find any good wholesalers, I say it’s because you have only talked to a couple and the odds are nine out of 10 or eight out of 10 are going to be terrible. Which means you have to talk to 20 or 30 or 40 different wholesalers to find the one or two that makes sense.

7. The importance of business coaching and mentorship

I have had both coaching and mentoring. I’ve had a business coach since late 2013. KW invested in real estate too. He helped me in the sales end and pulled me back to reality with investing because I was crazy and I was like, let’s go do this. And would be like, no. So that’s really helped. But mentoring wise, there’s just been a couple people who have really helped first joining the development from 2013. There were only five of us and so I could ask all the questions in the world that I wanted to put about the guys I was working with who were doing all this construction. That really helped in the construction end. And one of my lenders, he’s been a big investment for himself and he’s been a really good resource for us. He’s in between hard money and private money rates, but he is a guy who has done tons of development and rehabs. And I just have a few key people like that. I think a few of those people have made huge differences in what we have done and places that I bought and not bought. But I think having a couple of key people makes all the difference because there’ve been some moves. Definitely there could have been some places that would have been really bad investments that I was going to buy. And I’m glad that we didn’t. Like this 10-unit in Camden, we almost bought that. I think I would have had all these structural problems, we’d have lost a bunch of money on it. Being taught out of some of those things is that we’ve dodged some bullets. I love performance coaches or business coaches. I think they are fantastic. I think the ideal use of a mentor is, I have tried everything and I’m stuck on this one point. Can you help me out here? And then, a little question like, I have talked to 10 banks, I can’t get one to finance this? That’s a good question for a mentor. But not what bank I go to. When it comes to looking for partners or looking for help, the more general your question, the more onus you put on the other person to figure out how to solve your problem, which gives them less incentive t o do it. The more specific of a question you’re bringing, the easier it is for them to help you. And so the more likely they are. And I say this because a lot of very well-intentioned people probably have no idea how that question comes across to the person that you’re asking it of.

8. Why you should cultivate authentic relationships relationships with sellers, vendors, and mentor

People trying to get into real estate right now should be focusing on authentic relationships with sellers, with vendors, with potential mentors. Just be authentic, build friendships and relationships with people, and they’ll want to help you. They want to root for you as long as you’re not weird about it. I just actually care about these people’s stories. People know when people genuinely care or when they’re being a transaction. And so anybody listening to this just, genuinely care. I’m not saying pretend to care and do a better job acting, but genuinely care, be in the moment, be present when you’re having conversations with motivated sellers or attorneys or wholesalers or mentors and stop thinking, what’s in it for me, how do I get more out of this? But just genuinely say, hey, I’m really interested in this person and I want to know what’s going on in their life. They will remember it. And those people will come back to you when it’s time. There are so many people that called me about selling their house and I talked them out of it or that wanted to buy the wrong type of property and I talked about that and had to buy a different one where they knew I made a lot less money, but it was better for them. And it always comes back ten-fold with referrals that get sent your way or they bring in other people to you. I mean, one really good investment deal could be five to 10 transactions in a normal thing. If you have faith and you put other people first, it always ends up coming back to you.

9. The value of looking at the big picture in real estate investing

Real estate investing is meant to build wealth over time. So it’s somewhat foolish to look at your year one numbers and assume that’s what it’s going to be forever. They could go up, they could go down, but you should maintain a long term view. In areas that I bought in higher appreciating markets both rent and value, they performed really, really well over time. And it’s okay if I didn’t make an incredible high ROI in year one, because by year five or six, I definitely was. And conversely, some of the markets where I had a stronger ROI going in year one, they flat-lined, they didn’t really do a whole lot. And then when I did get capital expenditures, they crushed me. I got one right now that has not appreciated at all. And the sewage line has to be fixed. It’s about 3,500 bucks. And that’s probably two years of profit, completely gone by one thing. And rents over a two to three year period have gone up $25, hardly anything. So it’s definitely wise to consider the big picture.