With The Horsey House now sold, The Leak House and The Wrong House under contract to sell in the next two weeks and The Haggle House listed for sale, we’ve essentially run out of work to do on our own properties.
We’ve made quite a few offers over the past couple weeks, but haven’t gotten anything under contract. We’re not surprised — over the past several years, we’ve noticed that this time of year there tends to be a lot of competition for REOs, and most are being bid up higher than what we’re willing to pay. That said, many of our offers have been on short sales, which take several weeks to get a response from the lender, so we have several potential deals in the pipeline should those offers get accepted.
In the meantime, we’ve been keeping busy providing support to other investors in our area. Over the years, we’ve had several investors ask if we’d help them with their rehabs — everything from helping to analyze the deal to putting together a Scope Of Work to picking out rehab materials to getting contractor bids to managing the project to completion. We finally agreed to do this for a local investor who had three projects in our area and have completed those projects over the past two months.
I’m happy to say that the investor seems to be very happy with our help, as he’s asked us to do three more projects of his over the summer. In addition, we’ve talked to other investors about doing the same for them, and will likely have a couple additional projects this summer. I like this business model, as not only does this allow us to keep busy (which is especially important for my project manager, as much of his salary is based on commission), but it also allows us to keep our contractors busy, as we generally retain them to do the work on these projects.
If there is enough interest, we may decide to expand this part of our business in the future…
Also, my wife agreed to list and market a house for an investor friend of ours who just finished a rehab in our area. She was planning to stage his property for him anyway, and he asked if she’d be willing to do the listing as well, as his agent is on the other side of town. She gets this request all the time, and has always said no, as she has very little interest in selling other investor’s properties; but, this is an investor who has done a lot for us recently, and she was happy to do this for him.
The best part is that, after making several phone calls and sending some marketing emails to local agents we typically work with, she was able to get a full-price offer after about 3 days on the market. I don’t expect she’ll be doing much of this in the future (she spends a lot more time listing/marketing than I’m guessing most agents out there do, and she just doesn’t make enough money doing it that it’s worth it for her to take time away from other things), but we’re always glad when we can help other investors who have helped us.
Lastly, I’ve been working part-time on getting my real estate license for about a year now, and will probably take the state exam this week. I don’t know if having my license will change anything about our business, but I’m one of those people who likes to try different things, and I like the idea of being able to consider other aspects of investing without having to ask my wife to do a bunch of random work as the only licensed agent in the family.
I’d be willing to bet that investor with the house under contract in three days is very appreciative!
Great post. It seem like you all have a couple of profitable divisions developing in your biz. Keep up the great work you rarely find fellow investors that are willing to help and share resources in their local markets.
Hey J,
Do you have a plan in place if the REO’s start to dry up and it becomes much more difficult to find deals even during the slow times of the year? Have you thought about doing your own marketing to pre-foreclosures, absentee owners, vacant properties, bandit signs etc, or do you plan to start?
Also, if you get your licence, do you think it will affect your ability to talk with these motivated sellers should you start doing your own marketing to find them?
Having different streams of income is always great and comforting. Adding them on slowly once you have one stream setup and functioning well and efficiently is also smart, great job and the blog is STILL awesome after 2+ years. Thanks!
We’re facing the same issue here in South Florida….people are just spending more money than we’re willing to spend right now on the MLS properties….we’re going to have to fire up the marketing to private sellers again.
Rather interesting development..some quick thoughts….
Have you considered getting back into “Lonnie” deals? They seemed profitable, obviously at a much smaller scale than houses, but if you could string together a couple of those a month, they seem to provide a nice return.
Your idea of running rehabs for other investors sounds pretty lucrative. Would you just get paid essentially like a general contractor with room for markup, profit, etc? Seeing that you have gained a tremendous amount of experience with construction including contacts with great subs, have you considered opening up a general contracting division?
Is your wife close to qualifying for her broker’s license? Is adding agents and running a brokerage something that you two would look into?
Best of luck!
Hey Sean –
I really didn’t like Lonnie Deals. The low profits (high margins, but low absolute profits per deal) and having to deal with not-so-conscientious buyers makes for a hard way to make a living. I’d still consider deals if they were dumped into my lap (and I’d consider funding deals if someone else did the work), but dealing with the typical type of low-end MH buyers and sellers really doesn’t interest me.
As for running the rehabs, it’s very similar to getting paid like a GC. The differences being that I’m not a licensed GC, so they are getting less of the raw construction experience, but since I have the investing side pretty well covered, they are getting someone who can help analyze the deals, make rehab decisions, get cheap materials, and all the general consulting stuff that less experienced investors really like.
I don’t have enough construction experience where I would consider opening up a separate business doing construction work, but I have started thinking about various scenarios for hiring out my subs and getting a cut, even for smaller jobs where I don’t do any management. As it is, my subs probably do about 40-50 jobs per year for other people that I refer them to — including both other investors and random homeowners (like people in my neighborhood that are looking for a good painter).
As for my wife, I don’t think she wants the headache associated with opening a brokerage. She considered it for a while, and probably will consider it again, but I’m not sure the benefits outweigh the extra overhead and frustration that would come with having to manage other agents and deal with training and liability. But, she hasn’t ruled it out…and I think the idea of officially being my boss is attractive to her… 🙂
Your last sentence is funny. You may as well make it official.
Mark
J, are you saying it’s hard to make a living as a full time investor???…say it ain’t so!
“But they make it look so easy on TV…” 🙂
All kidding aside, as you know I have learned a lot from you and like you I have been a full time investor and discovered the hard reality that it is a tough way to make a living. A very good way nonetheless but very tough.
I don’t know if this is why you are exploring the agent side of the business but I just wonder if you are looking for other streams of income other than flipping (hope you don’t mind me asking, either).
One of my biggest intrigues over the last two years is wondering what is going to happen when the market stabilizes again and foreclosures go back to “normal” levels? Basically, what is going to happen when the deals are not as abundant as they are now?
Hey Luis,
We’re always looking for additional streams of income besides flipping. But, in general, these other streams revolve around building scalable businesses that we can franchise out or sell (some real estate related and some not). Given the time that both my wife and I spent in corporate management, it’s just natural for us to think about how we can take our ideas and create scalable businesses that can run without our everyday involvement.
I’m certainly not ever planning on becoming a real estate agent (we’d both quit this business and take an extended vacation before we did that :).
Basically, I got my license for two reasons:
1. Now that I’m doing some consulting to other investors, having my license allows me to help on the purchase/sale sides as well (without getting my wife involved);
2. I have a business idea that would require me (and any partners) to have their real estate licenses…getting my license lets me start to work on this business plan. This goes back to the idea of building businesses, but this one would be real estate related.
As for what we’ll do when the market turns, if we’re still flipping houses, we’ll start flipping bigger and more expensive houses. Remember, when the market turns, it will be more difficult to find great deals to purchase, but it will be easier to sell them. With some minor adjustments, I think the model works just as well (if not better) in a seller’s market.
True, there will always be a wholesale and a retail market regardless of the economy. One just has to adjust their business model to go with the flow.
We look forward to hearing more about the contracting and other business opportunities. You’ve got me thinking outside the box as well.
Wanna spot an amateur investor? They get excited when everyone else is buying and want to get out of the business when every one else is fleeing the market.
Sometimes they get lucky in their timing and look like a genius but the market eventually does them in.
Great job J! I wouldn’t mind having your input on some rehabs! lol… I believe we have a good 2 more years of upcoming ARM adjustments! that should keep the foreclosures at a higher rate than normal….l don’t think its quite over yet. just my 2 cents. Keep up the good work!