Posted on: June 27, 2022
WI 981 | Virtual Auction Deals

 

A common misconception in real estate is that you can only invest in the market you live in. Today’s guest is living proof that that could not be more incorrect. Paul Lizell is an expert wholesaler doing deals without ever having to step foot on his properties. Paul joins Lauren Hardy to discuss how he is able to pull this off, how he’s adapting his system to shifting market conditions, and more. As you’ll learn in this episode, being able to find deals even in markets you’re not in, is a crucial skill for any investor – especially today. If you want to learn exactly how pros like Paul and Lauren pull it off, apply for our Virtual Investing Mastery program today.

How this Expert Buys Auction Deals Virtually – The Exact System He Uses

In this episode, I’ve got Paul Lizell, who blows my mind with the type of virtual investing he does. Paul buys properties off of online auctions. This is the most next-level virtual technique of real estate acquisition that I could think of. Me being the virtual obsessed real estate investor, I was so excited to pick your brain on how you are doing this, Paul. Paul, welcome to the show.

Thank you for having me. I appreciate it.

It is great to have you. Paul, tell us a little bit about your business model. What are you doing? Are you flipping? Are you wholesaling? Tell me everything.

Generally, we do wholesale by 80% of what we do in a normal market, but we have not been in a normal market for years. It has been totally different. We flipped it on its head. We are doing about 20% wholesaling and the rest, the 80%, is a combination of fix and flipping, wholetailing, buying and holding, and some owner finance stuff. We are in a transition going back, getting closer to that 50% wholesaling. Eventually, I think we will get back to that 80% wholesale model, but that may take longer as inventory comes up. The market changes because we are in a market shift, for sure.

You had to become more creative because it was getting harder and harder to find deals?

It is getting harder and harder to find deals. We are trying to maximize what we did have. If we had a property, we can make $10,000 on a wholesale, but if we wholetailed, we could make $40,000. We were pushing that envelope and trying to get a little bit more out of it.

I totally feel you on that. I think that that is what all of the best investors are doing. It is squeezing the fruit out of every single deal. Who knows what is going to come about with the market shifting? I would love to take a minute to talk about that at the end, but how are you finding your deals?

Almost all of our deals now are on online auctions, whether it be Auction.com, Hubzu, Hudson & Marshall, RealtyBid, Auction Network, and HUD Home Store. All these different platforms are what we have used. We have used all these over the years. It ebbs and flows. HUD Home Store used to be our primary source way back in the day. Everything shifted off HUD Home Store to the online auctions. What that did was bring us mostly to the online auctions. When COVID hit, it shrunk things down a little bit. We started buying more from wholesalers and local people in different markets.

What blows my mind is you are buying properties in markets you have never been in at all, have no connection to, no ties, nothing. You will just go into Bananaville, Pennsylvania and buy a property there.

WI 981 | Virtual Auction Deals

Virtual Auction Deals: Rates are going to go up. Rates are going to go down. Inventory is going to go up. Inventory is going to go down. These are cyclical items. They’re going to move and they’re going to change with the economy.

 

We are not afraid to dive into these markets. We have been in a bunch of small and tertiary markets. The better you get at selling in those markets when you are in a big market like Philadelphia or St. Louis, it gets much easier selling these markets.

How are you buying these properties and evaluating them, knowing that you are getting them at a price where you are not going to lose money?

We do our first-level due diligence ourselves. We go look at it. We comp it using things like Zillow and RealtyTrac. From there, if it looks like it could be a deal, we are contacting the listing agent. If there is a listing agent on it. Not all these have listing agents, but usually, the bank REOs do. We ask them, “What is the condition? What is the as-is value? What do you think is worth fixed up? What kind of repairs does it need?” They have been our greatest resource.

They have been the greatest resource for contractors for us well, too. We try to get them to evolve on a buy side and then the resale side. What happens is they end up being our project manager because they want the listing on the backside too. They manage the rehab for us and tell us how we should do it to maximize that particular market. We relist it and resell it.

Although these properties are on Auction.com, often they have an agent representing?

Yes, except for the HUD CWCOT program, which has become larger. Everything used to go into HUD Home Store before when they foreclosed, but they would have to wait until they were vacant. What HUD is doing is foreclosing on them and then sticking them on these auctions, selling them whether they are vacant or whether they are occupied. It is a little different style from what they are doing. That is why you are not seeing as much inventory on HUD Home Store.

When you get a property in Bananaville, Pennsylvania and you have no contacts and you live a five-hour flight away. You contact the agent and you are relying on the agent to give you accurate data like what they think it could sell for if it was fixed up.

They are the boots on the ground and hopefully get someone who is experienced. We are hoping to not get a new person in there who does not know the market that well yet, the ebbs and flows, and what people are looking for. Most REO agents are pretty good and experienced. When they tell me the BPO comes in at $17,000, when I go to wholesale on the numbers, all of a sudden, the $17,000 as-is, is what I am selling the thing for.

The experienced agents, their numbers are very good. Not all of them are experienced, but those who have been doing it for 10, 15, or 20 years are spot on with their numbers. They know what it needs. They know what repairs are needed. They have got contractors in those markets and their contractors have been better than the contractors I have gone to try to find on my own. Who is the one that feeds these contractors to work? It is these agents. They do not want to screw up the agents because they are the ones constantly giving a mark. They do not have any marketing costs. They do a better job, usually less expensive and much quicker.

Don’t wait to buy real estate!

I personally have had a hard time in a market that I am very familiar with that. I have wholesaled tons of homes to find a reliable contractor.

Are you talking about Pittsburgh? Pittsburgh is a tough animal, not just from the tractor perspective but from the investor standpoint. They are just different. It is a different area. It is a tough market. You can do well in that market. It is just tougher and harder to find contractors. Sometimes they are good for you, for a rehabber too, and then they fall off the end of the earth.

It is a difficult nut to crack. I still ask myself, “Why am I here?” It is what it is. I feel like we have cracked the nut to a certain point and I am not giving up. It does make me skeptical to ever go to a market I have no idea and do not know anything about because of my experience there. It blows my mind that you are relying on what the agents tell you about value. They are not lying to you.

I think that the key takeaway I am hearing is that REO agents typically have more experience than your random Joe Schmoe agent that just got lucky on some listing and got a listing from his aunt. These are more professional. Is it the fact that you are upfront telling them, “I do not have an agent there? Our intention is to buy it, fix it up, and resell it. I am going to need somebody to relist it. That could be you. What do you think this could resell?” Is that your pitch to them?

That is our pitch generally. They are going to get both the commission on the buy side and the sell side. They are double incentivized. They are going to, hopefully, give me good numbers, but my numbers are what I trust the most. I want them to verify my numbers or tell me, “You are wrong. Here is why you are wrong.” “Trust, but verify.” That was from President Reagan.

Use your numbers and then look at their numbers. A lot of times, we are too conservative. We come in too low. A good example, we did one at East Freedom, PA, which is Central Pennsylvania, not too far from the Pittsburgh area there. Mike and I were both coming up with $190,000 as the number on his property.

That was fixed up value. An agent is like, “Your $215,000 as is. It is6 $250,000 fixed up.” She sends us comps and we are looking, “You are right.” There were not a ton of cops in that area, but there was not much inventory in that market. There was not much of a show in the last 6 to 12 months. That is what we were running into. We turned it around, sold it at that $215,000 full asking price in a couple of days, and we closed on it. We picked it up for just under $150,000.

Do you get a deal out of the agent? When they resell it, do you negotiate their commission down a little bit?

Not always. It depends. If they are going to do the full-scale rehab or get involved in rehab, I will pay them the 5% or 6%. I am okay with that. Depending on the price point, too, the higher the price point, I want to negotiate them down. If it is an inexpensive one, I usually do not try to beat them up too much because they are not making a ton on it anyway. They are going to help me out on the rehab side. If I have to relist it, I try to get them to bump the number down if they can, especially if they are getting some on the front side.

WI 981 | Virtual Auction Deals

Virtual Auction Deals: It is hard to find a good deal right now, but just because it’s hard to find a good deal doesn’t mean they’re not out there.

 

 

If you are not doing any construction, do you say something, maybe a flat fee or something?

We do that flat fee sometimes too. Sometimes we will just end up doing a flat fee listing ourselves.

I just learned about TheBrokerList.com. You can list your property for $150 on the MLS and it works. It is good for you. Say, I have a property in an area where I have boots on the ground and I am good. I do not need an agent. You just list it on The Broker List. I am thinking of doing that because I bought one that I know I am going to regret. Have you ever done that, Paul?

We have all been there, done that.

For some reason, I saw something in this thing. Immediately, when we were all the way down the road, I was like, “What did I see in this house? Why did I buy this thing?” I know I am going to regret it.

It might surprise you. You might get some more than you think.

I was thinking of doing a wholetail and then listing it on TheBrokerList.com instead of getting an agent.

Do that. That is a good one to test it on. That is why I recommend it. Especially if you think it might be a tighter margin one, then you save yourself that 2.5% or 3% on the sales side.

Do you put the property on a lockbox and just send buyers over there on their own with an agent?

Anything that people want – anything that has any value – is going to take a lot of effort. So start now, stop sitting on the sidelines, saying, “Oh, it’s not a good time.” It is a great time.

They will bring an agent and we will bring the buyer. You are going to pay that whether you offer the buyer agent’s 2.5% or 3%, and then you just will not pay anything on the other side. You will pay the $500 flat fee listing. We send them, the agent goes, it is all lockbox. They take a look at it and they let you know. They give you feedback. A lot of times, they are really bad about giving feedback, just to give you a heads up on that. Sometimes you have to chase them down for that.

That is a good strategy. Let’s talk virtual wholetailing. I am, admittedly, the worst wholetailer ever. I do not know how to do it. This is what I do. It is a slippery slope. The next thing you know, I redid the kitchen and redid the bathrooms. It is not a wholetail anymore. How do you wholetail houses and how do you just get yourself to stop?

We just had one of them where we thought we were going to wholetail it. We found out there were foundation issues and other issues. It needed a new kitchen. Our $20,000 wholetail turned into a $56,000 fix and flip, which we are selling. We are going to be a couple of bucks on, but not nearly as much as we planned on. Generally though, when I am going in for the ones that you know you are going to wholetail, for sure. Let’s say it is an ‘80s or ‘90s build. You are not going to run into structural issues, usually, in those because they are newer. You are going to need probably an updated kitchen or bathroom.

The kitchen, sometimes the cabinets are fine, but you put new countertops in there, maybe a new faucet, and things like that. In the bathroom, the vanities are so cheap at Home Depot, as low as $250. You can get a great one, $100 for the toilet, spruce it up, make it look good, and paint, carpet. That’s about it. You can have paint or vinyl flooring and carpet in the bedrooms. I can get away with around $15,000 to $20,000 on a wholetail.

We have done them as little as $3,000 to $5,000, depending on how good the condition was with the property. Those are our favorite ones. They usually are done so quickly. In this market, they have been very profitable. It is going to change as we go into the next phase of this market but we will see what happens there.

I do want to talk to you about that because you are closing on these properties. You are not like a lot of wholesalers. They have the mentality of, “I am not closing on it, so who cares?” I close on properties. You close on properties. What are you doing to protect yourself from what could possibly come?

I am thinking I am going to flip and wholesale as many of these properties as I can take. Instead of shooting for that $40,000 on that wholetail, maybe take that $10,000 or $12,000 or $15,000 wholesale fee. Take it and move on to the next one because as the market shifts and turns, there is going to be more and more inventory coming for us, more and more opportunities for us. Now, it is not squeezing the juice out of every single fruit right now. You are trying to do transactions and get a little bit on each one.

The longer the rehab goes on, the more risky are of interest rates increasing, the economy going downward, and people losing jobs and not qualifying for mortgages. We already lost 9 million buyers from January 2022, with the interest rates increasing from 2.75% to 6% a quarter. I do not want to risk too much more of that. We are almost to our national average of mortgages at 8%. This is a historical number. It is still good numbers. We are at 6% a quarter, but not as good as the 2.75% that we had in January.

Are you saying you are not going to close on anything anymore?

WI 981 | Virtual Auction Deals

Virtual Auction Deals: For ome sellers, the convenience they’re looking for might be cash. For others, it might be speed.

 

I am closing on all if I have to. What I am doing initially, besides deciding to wholesale more, is when you are looking at your ARVs on these properties, instead of going 75%, maybe go down to 70%. When you are looking at the ARV, use all the low comps. Do not use any of the higher comps. Assume a 10% correction with what we are going to have in a marked year. Go a little bit lower just to protect yourself.

Let’s clarify. First, you said, “I am just going to wholesale,” but you are closing on them.

It is not a real wholesale that way.

Remember, he buys them off online auctions. He has to close on them. To Paul’s definition of when he says wholesale, what he means is, “Close on them, but sell them to another investor immediately.” The reason you are doing that is you are still closing. It is still risky, but you are not risking the whole time that the unit values could go down even more in the next 4 or 5 months. You are just getting rid of the property faster.

I am always closing on them. It is not like we are not going to close them. We are trying to do back-to-back closing if we can if we are going to wholesale. If we know we are going to be able to put this thing on the MLS and move it to another investor anyway, I am okay if we do not have it back-to-back, as long as I know where the numbers are. Be more conservative in this market. We are not doing the assignment of contract. We cannot just walk away from it. If we do that, the auctions will black wall us and I will not be buying anymore at auctions. I will lose my whole marketing source right there.

Are there still properties that you are going to buy to fix up and resell if they look good? What you are doing is you are going to take your ARV and you are going to minus 10%, pretend the market corrects 10%. That is your new ARV. Are you still expecting a profit at that 10% adjustment or is it just, “I did not lose any money?”

I should still get a profit. I will not do it if I do not think I could be profitable. I will just have to drop the numbers more. Dropping down from 75% of that ARV to 70%, there are times when a market, like in 2008, 2009, and 2010, that time period, I was doing it 65%. You had to adjust up and up as the market got hotter and hotter. We are going to be doing the opposite, shifting it down.

We are bringing those numbers backward just to protect ourselves a little bit, maybe up the cost of the rehab too, just in case material costs and labor costs go up. Protect yourself in every which way, which hopefully gives you a bigger spread in the end. At the very least, it will protect you from a downward action in the market.

Let’s talk about how you come up with ARV. I am not taking the lowest comp. I am giving an ARV that I would think it would sell for. When you said the lowest comp, for a second, I am going, “Are you taking a non-remodeled house and calling that ARV?” Apples to apples, this is a remodeled house. It is sold for $350,000. There is also one that may be sold for $365,000 and they look the same.

If the inventory is low or rates are going up, people are still having distress situations in their lives. People still own properties that they can’t afford to keep up.

I am going to pick the one that went for $350,000 and then what I am doing is I am comping and analyzing. I do not do 70% rules or anything like that. I have a calculator and I put in all the expenses. I have a profit margin requirement I need to be at. I make sure I have a healthy $30,000, at least, profit, but there is also a 12% profit margin that it needs to be at as well.

I am looking at it and going, “That is if everything stays the same,” and then I am going, “What if we have a correction?” I would think it could not go 20% in six months, but it could go 10%. I am assuming, “What if market prices decrease 10%? What is that ARV in? Am I losing money?” To be a competitive buyer, I will take it if I break even or maybe even a tiny loss. My thought process is you cannot time the market. Other buyers are still buying. I got to be competitive. There is an element of like, “I have to be competitive to stay in business.” If it goes down 10%, am I losing any money?

If it is $1,000, I am not going to cry. I will be okay. Marketing costs, it is like, “We have other deals.” By then, I had bought better deals. You cannot time the market. At that point, I am going to be buying better deals. There are going to be some great deals out there. That is how I am doing it. Not saying that that is how everybody would do it, but that is my thought process of where we are at and how I am going to handle it.

That makes total sense because you are making your customers happy. They were selling to you. You are keeping a good name out there, which you want to have. Also, you never know. Some of these deals that you think are tighter turn into better deals than you think. Sometimes they lean the opposite way, but sometimes they are better than you think and you surprise yourself. That is a great model of that. You want to be smart like you are doing here in the market shift. I do not think we are shifting anything crazy. This is not the 2008 financial crisis where we had no income, no asset mortgages. We had people with no jobs qualifying for it.

We have well-qualified buyers. The only worries we have are increased cost of living, inflation, all this thing, which may knock some buyers’ qualifications down. There is that worry there and losing jobs. The tech sector is getting destroyed. How many tech jobs go away? They are usually pretty good buyers. The tech industry is good money.

It is going to be super interesting to see what happens. I am glad we got to talk about it because you are a super smart guy. You were so generous in letting me take a peek at the online coaching program that you put together on online auctions. You even have a segment in there about buying off MLS, which I watched the whole thing and was like, “I am going to put this in how I acquire properties.” I think there is going to be a lot more hitting the MLS. I think it is going to go back to being able to buy off the MLS again, like it was in 2009, 2010, 2011 and 2012.

I think we are going to go back there. Your course was so detailed and thorough. You are clearly a very intelligent person. It was the most thorough and detailed coaching program I have ever watched and I have watched so many. Paul, if anybody that is reading is interested, where can they go to find out more?

They can go to REOAuctionAcademy.com. On that site, they can navigate through and see a little bit about the program. If they want to see sample deals that we have going on, it is HouseDealsAmerica.com. They can look at what we have there, where we have listed the types of properties that we usually pick up and sell. REOAuctionAcademy.com is the main link to catch us at.

Paul, it was good to have you. Make sure you check out Paul’s site and I wish you the best. Hopefully, the market does not correct too quickly. In a way, I am looking forward to a slight correction, let’s be honest. We need some deals, and it has been a seller’s market for way too long. I am not going to lie. I am a little excited about it, but I hope that neither of us gets a situation where we have too many properties and it corrects too much. Let’s hope for the best.

Paul, thank you so much for being on. Guys, if you are reading this and you are interested in incorporating a virtual model in your wholesaling or your real estate investing, make sure you check out VirtualInvestingMastery.com, where I teach you how to do just that. Thanks so much for reading. I will see you next time.

 

Important Links

Paul Lizell

Auction.com

Hubzu

Hudson & Marshall

RealtyBid

Auction Network

HUD Home Store

Zillow

RealtyTrac

TheBrokerList.com

HouseDealsAmerica.com

REOAuctionAcademy.com

VirtualInvestingMastery.com

https://www.Facebook.com/wholesalinginc

Be sure to join the Wholesaling Inc Facebook group

 

About Lauren Hardy

Lauren Hardy is Virtual Investing expert and Real Estate influencer who owns multiple companies in the real estate industry including real estate investment, coaching, and software companies. She is also a Wholesaling Inc coach and co-host of the Wholesaling Inc Podcast.

Her experience in the last decade has been focused on real estate investing and creating products and services to serve the real estate investing community. If you are interested in investing in real estate virtually, house flipping, or virtual landlording, Lauren’s your girl.

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