All Forum Posts by: Michael Hayworth

I think you're likely to be disappointed. (NOTE: In addition to my remodeling company and investment properties, I also own a direct mail advertising company that also does some digital work. Also have a background in ad agency work.)

Digital was the hot new thing a few years ago, but it hasn't delivered, with the exception of very targeted digital. (For example, Angie's List works great for my remodeling company.) Huge companies like Pepsi, P&G, JC Penney and others pulled money from direct mail and TV ads to put it into digital, and are now slashing their digital budget and putting money back into traditional channels.

Industry experts were predicting the death of direct mail a few years ago, but the numbers actually show direct mail growing year over year for the last several years.

You're right that direct mail to absentee landlords is a pretty crowded space. That's because, frankly, there are too many people who want to be real estate investors chasing too few real deals. I've been successful, though, with targeted direct mail to other categories, like probate and pre-foreclosure leads. And since I own a franchise of the Money Mailer coupon envelope, I've used that very successfully in reaching owner-occupants who want to sell, who are folks I'd never reach targeting absentee landlords. Response rate is really low on something like that, but cost is so low I can reach a big audience.

Hopefully I'm wrong and your digital campaign will pay off, but overall, digital has been pretty disappointing across a wide variety of industries.

My son co-invested with me on his first deal last year. Bought from an old-timey wholesaler who apparently had no idea the house they were selling was in a neighborhood undergoing fast gentrification. We got our money down before anyone else, and paid $55K for a house that, even in terrible shape, should've gone for twice that. We renovated it and make $90K on the deal in a short period of time, had it sold before it was even ready to go on the market.

I told him, "Son, this isn't how this really works. It will never be this easy again."

That's the experience you've just had. 

Where is an appraiser fitting into your process? It seems he's in before you do renovations, so are you doing a loan with construction costs baked in, or what?

I often pay cash for houses, then refinance them, or I'll buy a house and include construction costs in the loan. The bank will ask the appraiser to appraise it "as repaired" - to value what it will be after renovations. Is that your scenario?

I typically do try to meet the appraiser at my properties and walk them through what we'll be doing to it. And I've used the time to ask them all kinds of questions. But offering to take them out to lunch might seem weird - first, because (at least in my area) there's a shortage of appraisers and they're all really swamped, and second because it might come across as trying to influence the appraisal (I only do that when I'm selling!).

Since my bank picks from a pool of 8-10 appraisers, I see the same people over and over, and a couple of them have become pretty good friends, but I always have to be clear that I'm not trying to influence their objectivity. 

Baby, the fridge gone out! We gotta drink all the beer before it spoils!

The first things you need to do to become an effective wholesaler, not in any particular order, are:

1. Get a thorough understanding of how to assess the value of a property. Ability to run proper comps is hugely important.

2. Get a thorough understand of the renovation process, and how to accurately assess renovation costs. You need to be able to spend 30 minutes in a property and be able to then calculate reno costs within a rough +/- 10% factor.

3. Learn to negotiate with sellers so you can negotiate terms that the seller feels good about, that allow the person who buys it from you to make a profit, and also makes you a profit.

4. Save up enough cash so that you can close on the properties yourself if you don't find a buyer, so you're not leaving the seller hanging if you don't find a buyer. Because that seller is counting on you to keep his house from foreclosure, or close in time for him to pay some pressing bills, or remove the emotional pain of dealing with a dead parent's house. And if you're falsely raising hopes and have a termination clause that lets you out with no penalty, and just leave that seller hanging, then you're really kinda low.

You may gather from the above list that this would take some time. Yeah, it does. Despite what the real estate seminars say, wholesaling is not an entry level job. After 8 years as a GC and 7 years as a real estate investor, I think I'm finally to the point where I'd make a good wholesaler. 

Of course, that's not what most people do. There are probably 500 "wholesalers" in my market sending me "deals." Maybe ten of them are worth a damn. Most of the rest are marketing shaky deals that leave newbie real estate investors full of hope, then bring that crashing down when they realize the wholesaler's ARV and reno-cost figures were both significantly off, and that deal that was going to generate $20K profit is actually going to be lucky to break even. And they're leaving both sellers and buyers with a bad impression of real estate investment in general.

Bluntly, people get into wholesaling because they don't have any money. If you don't have any money, real estate investing is not for you. Work a job (or two), get promotions and raises, live below your means (that means doing without), and build savings. It doesn't have to be huge - I started with $20K savings 7 years ago, and am sitting on $2.5MM in my portfolio today. You start slow, and it snowballs as you go. If you don't have any money, don't jump into wholesaling - find a way to build some savings.

There are lots of agents who'll work for investors for 1-1.5% on the sell side. Just ask around in your market. When you're newer, having an agent involved can be really helpful. But let's be honest....there are a ton of idiot real estate agents out there. It's a super-easy license to get, and it's been a hot market for awhile, so it attracts a lot of people looking for easy money. (When I was a software development manager in the tech boom, the same thing happened with recruiters. It looked like easy money, so suddenly there were all these brand new headhunters out there over-promising and under-delivering. Happens in any hot market.) The whole point of paying an agent when you're new is to help you handle situations you don't know how to handle yourself...if you get one who doesn't know how to do that, what's the point? So if you're going to pay a listing agent, make sure you're getting a good one.

As you get more seasoned, you can easily do it yourself, particularly in a hot market. I use a $500 flat fee broker. I get practically no service from her. That's fine. I do my own photos, handle my own staging, and negotiate my own deals. It's not particularly time consuming. (In fact, I'm scratching my head a little at the responses saying as you get busy, you'll need a team to handle all this for you. I run three multi-million-dollar businesses and have 40 people working for me, so I can delegate a little bit to my full-time employees, but my girlfriend and I do most of the work to handle selling 10-15 houses/year and it's not particularly time consuming.)

No, having a listing agent doesn't make your houses sell faster in our current market. That's rah-rah stuff agents tell themselves when they compare their work to the worst FSBO listings out there. There's a shortage of housing in most markets right now. If you make it desirable, price it right and get it on MLS, it'll sell. In our market, despite a little slowing, everything is still multiple offer situations. (Your market may vary. Real estate is very, very local.)

Yes, technology will eventually change real estate dramatically. RE agents are telling themselves it won't. That's the same thing insurance agents and financial advisers said. There's still a market for those people for consumers who want high service, but listing a house is pretty simple, and the agents who don't add much to the process will get disintermediated over the next few years. That'll be good for investors, but it's not here yet.

I wouldn't recommend the flat-fee broker to someone just starting out, but after you've got plenty of experience, it's a great way to go. Most of my sales go between $150-200K, so 10 sales a year where I'd pay 1.5% vs. $500 is a difference of $20K or more.

This should go without saying, but never, ever cut buyer's agent commission. It frankly ticks me off when I see listing agents doing 2 or 2.5% commission for the buyer's agent and keeping more for themselves, when I know the BA works a hell of a lot harder than the LA. I wouldn't wanna schlep buyers around to house after house, waiting until they find one they like, then try to convince them to make a competitive offer, knowing that they may have to write offers on 5 or 10 houses before they finally get one accepted. Those guys deserve every penny they get, and I want them to want to bring buyers to my properties.

Same thing I still do wrong on my flips: treat it like a house I'm gonna live in.

I love houses, and I love renovating houses. I tend to get into one and think, "Ooh, it'd be really cool if we did this. And that. Oh, and let's do that, too." And it makes the house truly amazing, but it adds cost and time, and often doesn't add to the sales price. 

8 years into this and I'm finally making myself resist the urge to treat houses like one I'm going to live in, and try to only add "extras" if they're going to make the house sell faster or bring more money on the sales price. I'm going to be doing 2-3 houses a month this coming year. Some of them have to be just "a nice house", not a work of art.

We're Texas, not California or New Jersey. We mostly don't care about previous unpermitted work here. If you sent me a reduced offer based on previous unpermitted work, I'd just laugh while I review the other six offers on my property.

I'd wager that over 70% of garage conversions weren't done with permits. That in no way means they're poor quality work, it means we don't think government needs to be involved in every aspect of our lives. If building inspectors were actually any good at what they do, they'd make a ton more money as construction project managers. The industry mainly tends to attract guys who failed in construction, but like to tell other people what to do and like to have people suck up to them all day. I honestly can't think of a single time a building inspector pointed something out on one of my projects that actually made a difference to the consumer.

It can be very difficult to find good contractors. A huge part of that is that, for the last 30 years or so, we've told any high school kid with half a brain that they should go get a 4-year college degree. So they do, whether they have any clue what they want to do or not. So when I need a new admin for the advertising business I own, I place an ad for a $10/hour entry level position and I get 100 resumes from kids who just graduated with a degree in speech communications, or marketing & PR, or some other BS degree (says the guy with a philosophy degree), and they're $100K in debt and no idea how they'll ever get out of it. 

Meanwhile, my remodeling business gets either Mexican immigrants (because the building trades are still honored there) or the American kids that high schools thought were too dumb to go to college. I have 25 really excellent full-time field employees now, but I've hired over 300 people to get there in the 8 years since I started the company.

But the other side of things is, investors tend to want things cheap. "Good, fast, cheap - pick 2" is pretty true. Investors will tend to pick the cheap contractor over the good contractor, because with so many wannabe investors chasing deals, the margins get slimmer and slimmer. If you have a really tight deal, you honestly can't afford a top-notch contractor, so you may go with the Craiglist guy. Sometimes, you even get lucky and he turns out to know what he's doing. Other times, not so much.

From a reputable contractor perspective, I stopped taking investor work a couple of years ago. Investors are always looking for the lowest price, and unfortunately, a lot of new investors really don't have a realistic idea of what things cost or what's possible. I have 8 crews booked out for a month on homeowner jobs, which pay better and are less hassle, and two more crews dedicated just to my own investment properties. Investor work just doesn't make sense.

So what's an investor to do? Either you have to look harder to find real deals - where you can afford what it costs to do it right - or you need to find that needle in the haystack of good contractors who aren't already overbooked with work. That might be someone who's just gone out on his own and is building his book of business. If you develop a mutually beneficial relationship with someone like that, it may be good for both of you for years.

I see a lot of suggestions on here about buying materials yourself, not paying a deposit, things like that. Those are generally bad suggestions and will get you only bad contractors. No good contractor wants clients supplying their own materials - clients don't do this every day, and there's a huge change that they will have the wrong items, or not have everything you need. That slows down jobs and makes them unprofitable. And no good contractor will front a client the money (on a big job, not handyman stuff) for materials and pay their guys' weekly paychecks out of their own pocket until the client - hopefully - pays. That's what deposits are for. The contractors who'll work without one are largely going to be the more desperate ones.

I strongly suggest when trying out a new contractor, that you limit the scope. Don't hire them for a full-house gut & remodel. Give them a bathroom to do, or flooring, or paint, or something small. If they totally screw it up, you may lose a little money, but you won't be one of the horror stories on here where a contractor has an entire house torn apart and isn't getting anything done. You can cut your losses when it's just on a small part of the scope. It does slow a job down, but it protects you financially. Once you've developed a good working relationship, you can increase the amount of work you give someone. 

Sorry this got long, but I hope these thoughts are useful to someone. Good luck out there!

 "Too big" on your first deal is really a question of how much can you afford to lose, or have tied up unprofitably, if something goes wrong. It sounds like you're in a good financial situation, so this doesn't sound too big to me. If the $200K was all your savings in the world, and you didn't have a job that was generating enough for you to save more, I might feel differently.

So a few thoughts:

1) There are going to be things you don't know, and expenses you haven't counted on.

2) It won't go as well as your initial projections. But it may still go very well.

3) RV parks are cash cows, from what I understand. But there are far fewer investors for those than for SFR. So you may have less competition.

4) Can you get financed for it? Have you talked to a bank already?

5) As you noted, this is very tied to the success of oil & gas. If that dries up again as it did a few years ago, your occupancy may go way down.

I have a friend in Big Spring who built one RV Park, ran it for awhile, sold it, and is now building another one. If you'd like, you can DM me your contact info and I'll see if he'd be willing to have a conversation about it, help you look at the numbers with an experienced eye. 

Good luck!