Posted on: July 11, 2022
WI 991 | Flipping Houses Virtually

 

Are you stuck in an expensive market that makes flipping or wholesaling nearly impossible? That’s the exact problem today’s guest, Greg Helbeck, faced living in New York. Greg joins Lauren Hardy on today’s episode to discuss how he learned to successfully enter new markets virtually and the system he uses to manage construction crews from the opposite side of the country. They also talk about shifting market conditions and how you should be preparing.

 

Are you like Greg and want to enter lucrative markets virtually? Learn how with Lauren’s Virtual Investing Mastery program.

The System This Investor Uses To Manage Flips Virtually With Greg Helbeck

Episode Transcription

I’m excited because we have got two virtual investors on this show, yours truly, myself and my good friend and virtual real estate investor Greg Helbeck from San Diego. Welcome to the show.

How are you? It’s nice to be on the show again. It was a lot of fun when we did the first one a couple of years ago. I’m excited to be back.

He has been on the show. If you want to learn more about him, make sure you look up his show. The last time, we talked about elephant hunting versus squirrel hunting. It was a whole debate as to which model was better. The wholesaling in the lower price markets where your assignment fees are maybe $10,000 or even less, but there are more of them. It’s more of a volume game versus your model, which is more elephant hunting. You are going for the big checks, but they are a little bit less frequent. That was a fun episode.

It’s funny you say that. A lot has changed since that episode. I’m excited right now. It has been fun.

First things first, for those who do not know you or have never read the first episode, tell us a little bit about yourself, how you got started in real estate investing, and all of that.

I got started when I was twenty years old in 2015. That was a long time ago. I was in college. I had no money. I had like $2,000 in the bank from working as a lifeguard. I got into the business and I went crazy. I started putting out signs and writing letters. I was so determined to make this successful. It took me a year to get some reasonable traction. It started every few months doing deals. That went on for another six months after that. About eighteen months into the business, I was consistently making some reasonable money.

I started to go virtual in 2018 when I was living in New York at the time. We started buying properties in Dallas, Texas. I was JV-ing with someone. Once we cracked the code on my cold calling and going after vacant houses, the business blew up. We started doing 3, 4, 5 or 6 houses a month. I was never seeing them. It took a couple of years. It didn’t happen overnight, but a lot of the skills and the habits that I had been doing for years compounded. I started to gain some momentum and built a reasonably sized business over the last few years. I used to be a solo operator with an assistant. I was going after these big deals and I still do those.

I have hired a full-time acquisition person. I still have a full-time assistant. We are doing a lot more volume now and we are keeping our profits. Our average profit is $30,000, but I have more overhead now. Now we got to do, 5, 6 to 7 deals a month to stay relevant. Over the course of that time, I have done a lot of rehabs. I have done wholetails. I have a rental portfolio. That’s my story in a nutshell. I have been doing this full-time since I ever got started in a career. This is the only thing I have ever done. This is the only thing I have ever known. I’m like an old man in the real estate age, but not really.

I am similar too. You started when you were twenty years old. This is all you’ve ever known.

All I have ever known. I have no idea what else is going on in the world.

You are incredibly successful right now, but I do like that you stopped and let us all know that it was not overnight. It sounds like you took about a year and a half to start getting regular deal flow and traction.

It took me nine months to get my first deal. I’m working like a pack mule every single day. After that, it was very sporadic, like I had no idea of marketing and systems. That was over my head. It took me about eighteen months to get some reasonable consistency, and then another year and a half after that to be doing deals every single month predictably and having a pipeline in my numbers.

Doing deals takes time but not as much as you think if you do the right work every single day.

I said this to someone, “It takes time but not as much time as you think.” It’s all relative. Three to five years to start making good money is pretty good compared to 25 to 30 years to retire with a pension. It takes time but not as much as you think if you do the right work every single day. You were smarter than I was because I did a lot of stupid stuff. You’ll do it a lot faster than I did. I am not a genius at all. I have done things the wrong way for a long time, like doing stupid stuff.

I love that you give this perspective that it took you nine months to get your first deal. When I first got started, I would listen to these podcasts and it seemed to always be like the person being interviewed got their first deal in five minutes. Six months later, they were closing ten deals a month, then making $200,000 a month. It was like, “Why is that not happening for me?” That’s because it’s not realistic.

I’m glad that you are realistic, but I agree with you too. I worked in the corporate world for maybe five years. I got into this business at 25 years old. I got my first corporate internship job around twenty years old. In five years, I was only making $50,000 a year. I did more than that my first year flipping houses. It is long as you think to replace your income if you do focus. That’s cool. Why did you go virtual?

The answer is complicated, but I will try to make it as straightforward as possible. That’s what we do up in the Northeast. I’m from New York. Everyone is very direct. I was living in New York, still in college. I still live with my parents like this was a while ago. I was running into all these attorney problems and I didn’t have a lot of money. I had maybe $15,000 to $20,000 in the bank but nothing crazy.

I didn’t have any freedom. The deals in New York were taking so long to close and we had to put these big deposits down. We kept running into attorney problems. I didn’t have that much experience. I kept coming up with excuses like, “If I wasn’t in New York, this would look so much easier.” I kept telling myself that story, and then one day, I woke up in 2018.

I was like, “I’m going to go into Texas and I’m going to do this. I’m going to see if it’s easier here, and if it’s easier here, I have justified my excuse. If it’s not easier here, I need to shut up and figure it out.” I started marketing in Texas and it took 6 to 7 weeks to get some real leads. We started locking deals up over the phone via DocuSign. This was before virtual. It’s 2018. People were doing it but it wasn’t as common as it is now.

I was figuring a lot of stuff out on my own. There weren’t a lot of models and we started locking up deals. I was partnered with someone, so I never saw these houses. Sellers were signing, there were no attorneys, there were small deposits, and it was so easy compared to where I was in New York. I’m like, “This is crazy.” I remember the first deal. I got a wire in my account for $15,000 or something and I was like, “This is so insane. I never saw this house. I did this deal. There was no attorney. What the heck is going on.” We then started blowing it up.

That’s how I went virtual. It was because my market in New York was so ridiculous. I still do a lot of business there now in a different scenario with the experience in our business operation. I honestly had to go virtual to make my main area successful because I needed that capital and that experience and all those swings at the plate to build a solid foundation for myself to grow the business back in the Northeast.

New York has a huge barrier to entry. For you guys that don’t know, maybe you’ve never operated in New York, but you have to have a very high EMD and it has to be cash or whoever is buying it is cash. The EMD amount is a lot. It’s not $1,000. It’s like $10,000 or $15,000.

It depends if you can negotiate it. There are deals where I got to go in hard with $10,000 non-refundable. I walked from a fix and flip and I went hard with about $4,000 soft costs and you can’t get that back. It’s the big leagues up there.

You have to be willing to lose your EMD. That’s not for a newbie.

They all come to me and we JV together. We have had a lot of success doing that. New investors come to me. I got the capital and experience and we make them a lot of money.

WI 991 | Flipping Houses Virtually

Flipping Houses Virtually: Three to five years to start making good money in real estate is pretty good compared to 25 to 30 years to retire with a pension.

 

If you know how to navigate the attorneys, you might be able to negotiate that EMD down a little bit. Whereas a newbie would go in and, “I have to put $10,000 down,” and assume that was it.

Especially, where I live is the New York City suburbs, Long Island, and Hudson Valley. It was extremely expensive there. Houses are $500,000, $600,000, $700,000. Long Island is the same thing. New York City and New Jersey. It’s called the tri-state area. That’s one of the most expensive markets. It’s like Southern California. Upstate New York is a little different if you are in Albany and Buffalo, but that’s the Midwest. I call it the Midwest because it’s nothing like the New York City suburbs. It was very expensive.

Do you still live in San Diego?

I do. I’m in my house.

You moved back. You went back for a second, then you are back. That’s what cracks me up. I still quote you all the time. For those who are from Southern California, it’s arguably one of the hardest markets to wholesale in the country. I remember you saying that the main reason is that people in California are very aware of the value of their homes.

They are very smart. We see this every day. We do marketing in San Diego and it’s pretty funny.

It’s a cultural thing in California to go, “I own a house here in California,” and they know how much it’s worth. We follow our house prices in California. It’s a very common thing. Even if you are not thinking of selling, you know how much equity you have in your home. A lot of people borrow against their equity and they retire off their homes.

We live in the Bay Area. You could be a multimillionaire because you bought a house in ‘78 in San Jose and now you are living on 5% interest and you are set.

I always use that saying. I quote you all the time on that. It was hilarious. I am always fascinated. I watch you on social media. You started posting deals in Wilmington, Delaware. Me being virtual, when I go on vacation or it happened to be that I had a wedding. I had three weddings in one week and we are all on the East Coast. We went from Philly and it was crazy.

One of the stops was Wilmington, Delaware. I remember looking around and when you are virtual, you’ve got this virtual mindset like you always think, “Could I flip houses here? Could I wholesale houses here? Would this be a good rental market?” It’s an actual possibility. You are there and you are like, “This would be cool.”

I remember going to Wilmington going, “I bet there’s no competition here. I bet there’s no one here that does direct to seller marketing. I bet this would be a pretty easy market to dominate,” but then the last thing I need is another market. I don’t need the distraction. I saw that you started posting that you were doing some deals there. How did that come about?

I will tell you how that happened. It’s very simple. My acquisitions manager is one of my good friends from high school. We went to community college together and he was working for another investor. They worked for a while. We went pretty well and then he wanted to work for someone else. We had a conversation and we decided that it would make sense for him to join the team. I saw a lot of value in what he could provide, and I knew that I had a good opportunity. After thinking, I didn’t hire him for a second. I processed it out. I brought them on board and I was like, “We are virtual. I hate appointments.”

Work well and do what you say you are going to do.

I will go on if I have to go out here. It is what it is. For the most part, we are doing 95% of it virtual. He started doing deals virtually from his house in Monroe, which is where we are both from, and then he said, “I’m going to move to Delaware.” His girlfriend lives in Delaware. He was going back a lot. We sat down for a steak dinner over Christmas. He’s like, “My goal is to move to Delaware,” and I was happy as a clam for him. I said, “How can we make that a reality for you?” We mapped out a road plan. Where does it need to be?

He moved to Delaware and it didn’t matter because we are virtual anyway. We are doing deals in New York and Cali either way. That’s regardless. If you are living in Delaware, you need an attorney but it’s just a close. You don’t need an attorney like in New York with all the BS. I’m like, “Why don’t we just shop around and look for some deals here.”

We turned out some internet marketing, some direct mail, and a little texting. We didn’t go like hog wild crazy. We started getting leads coming in and I was like, “This is crazy.” It’s competitive in Northern Delaware, but it’s not like San Diego or New York. People here are a little slower and friendlier, to say the least. I closed on a fix and flip, which that one is probably not going to be the greatest deal. We can get into that later.

Another flip, we have in escrow. We have four accepted offers on a bunch of deals that we got, and we did an assignment on the worst street in Wilmington like dangerous area. We pumped out a decent amount of deals so far there in the last few months. We are starting to learn that area now. We know the ins and outs of that law. He moved there. We renovate and we do all the other things. He’s getting his license. I’m like, “If he’s boots on the ground, it’s a logical thing to provide massive income for him.” Also, why not do what we are doing now? We are still buying over the phone. Our process is via the phone.

If we are in negotiating with someone in Delaware or San Diego, it’s over the phone anyway. It doesn’t matter. The infrastructure and the systems, it’s easier to close in Delaware now because I know he’s there. He’s got boots on the ground. He watches the contractors. That’s the reason I did it. I didn’t just drop Wilmington on a map.

I have a good friend who’s in San Diego with me and he found out that Mr. Helbeck was coming to Delaware. He goes like, “We are going to compete.” I was like, “We are not going to compete. Just sell me your deals.” We did our first wholesale deal. He gave me one of his buyers and I gave him a cut of the deal. He jumped in there and we already made some money together. That’s how we got into that market. I’m learning the hard way. There is a 4% transfer tax in Delaware which is disgusting. There are some other craps there that I don’t like. All in all, it’s a good area and I’m starting to know it better every day.

Going into a new market, we don’t want to underestimate how hard it is. I bought a deal and I did not know the transfer tax was 5%. I was like, “What is this?”

We do deals in Pennsylvania too. It’s insane.

It was crazy. You learn by making these mistakes. You learn by buying and then going, “I can’t find a contractor here.”

I will go foaming at the mouth. I’m going through that right now.

No joke. We started buying in Pennsylvania. I bought this crazy fixer. That was a lot of work. A big job like a $200,000 rental. The numbers were beautiful.

The rehab scared me. Even now, I still do.

WI 991 | Flipping Houses Virtually

Flipping Houses Virtually: You got to go in with your eyes open. If you are brand-new, partner with someone who knows what they are doing and learn from them.

 

The numbers were beautiful. It was a duplex in a very trendy up-and-coming area near Whole Foods. It’s a real hotspot and reconverting it back to single-family. It was a single-family home originally. They converted it to a janky duplex. I’m reconverting it back to a single-family and making it nice. In an upper-scale rehab. We bought it for $180,000. We are trying to keep rehab under $200,000. Ideally, $185,000 and we think the market doesn’t shift. We think it should close for about $599,000.

It’s a home run like a six-figure flip as long as the market doesn’t shift, which we are going to get into that. I’m thinking, “This is great and I will find a contractor. I’m good. I can do this. No big deal. We’ll find a contractor.” My realtor had some recommendations. We close on it. Two months go by and I cannot find a contractor. I talked to 65 people. We even had someone like our boots on the ground go drive around and take photos of every single work truck they can find. We called everyone you could think of. We could not find a contractor for the life of us.

I now have my boyfriend handle project management for me because I cannot be spread so thin. If I’m going to link project management, it won’t get done. That house will sit. Drew got that construction background. He knows how to speak the language. He knows pricing well. He went off to work on this. For two months, this house sat. I could not find a contractor. We decided, “We are going to have to sub it out ourselves and do it ourselves. We have to GC it.”

We started the demo. The first demo guy ripped me off. He didn’t finish the job. He had my credit card number because, in the first installment, I made a mistake. It was a credit card payment. He billed my credit card for the full job even though he did not finish it. He didn’t even do half of it. He ripped us off and committed credit card fraud. This is a virtual flipping horror story.

At this point, I am on the other side of the country. We finally said, “I have to hire somebody full-time to manage the subs. If we are going to sub everything out, I need to carve out a budget and hire someone full-time to manage these subs.” If I’m going to hire this person, I better have other projects. I better keep this person busy.

Now I’m trying to buy other projects to keep this person busy. Seamlessly, once we had the right person, boots on the ground, we found the right subs. Everything started coming together, but we had to go to a low place first. It starts coming together, and now it’s right on schedule. We are doing well. Everything was humming, and then we ended up finding a contractor.

He started out as a framing sub-contractor, but then he was like, “I do other stuff.” They always say that but he’s so far, Drew is on him like crazy. He’s performing and it’s fine. We are like, “We might be in a good place.” I’m hearing this is a very common thing. Contractors are so hard to come by right now that a lot of people are subbing out their own jobs and running their own rehabs. They are a general contractor like owner-builder. Do you hear the same?

I do that. In New York, we have a pretty good system. San Diego, I do basic rehabs. I did one for $15,000. It was a small condo. I had two contractors do the job. It’s nothing crazy. Three if you count the stager. In Delaware, for example, you got to hear some of these conversations with contractors. I’m very direct with people.

I’m not a jerk. I can maybe sound like a jerk. I get the point across to them. I’m like, “If you work well and do what you say you are going to do, I’m going to be your favorite customer. I’m going to pay you right away.” Here’s the big thing with contractors. I made a bunch of videos that are going to be released soon on this. I will not pay a contractor until he justifies why I should pay him.

I get that in writing and I’m so upfront with them. I’m like, “The second my guy sees this and the work is done, you will get paid immediately. I am not giving you 50%. I’m not even giving you 20%. I’m giving you a little teaspoon of payment. When you show me you are doing what you say you are going to do, I will pay you instantly.”

A lot of the contractors that I hire see that, and then it gives them a good feedback loop and then I got to pay their guys, so then we generally get it done. I’m very wary of people. I say this in this video I made. It’s like setting the bar and setting your expectations here. When their performance is here, you are not disappointed. A lot of new investors, especially if they are flipping remotely, they have these lofty ambitions of a contractor, then they come down here and they are pissed off.

I already anticipate that they might suck. If they do suck, I’m not disappointed. That’s exactly what I expected. I have gotten burned so many times. I have had crazy projects. You got to go in with your eyes open. I would advise if you are brand-new, partner with someone who knows what they are doing and learn from them. If you got to give up half the equity, you got to give half the equity. That value you are going to get is going to be 1,000 times more valuable than keeping 100% of the deal and getting banged by a contractor and getting nailed by it.

Having a partner with their own crew will make your life so much easier.

I have a coaching program, the Virtual Investing Mastery. I talk a lot about JV partners, and most of the people that come to me aspire to wholesale. We are Wholesaling Inc. Most of these deals, they want to wholesale. They don’t realize that I flip houses as well. I’m going to start filming a 2.0 version to drill in house flipping, buying rentals and whatnot virtually and how you do it.

It’s a cardinal rule. You have to partner at first. Going through my horror story and your horror story, I have been in this for ten years. I can absorb this crappy experience I dealt with. You can absorb it, but someone who has never flipped a house cannot absorb it and they will never want to go back to this industry again. They will never want to do it again.

If you had a partner like my end-buyers that have been doing it for a long time, a lot of them have their own guys or their own crew. That’s how they are able to fulfill these flips with the construction situation being the way it is. You need to partner with someone that has their own crew. That’s the person you are going to want to partner with.

It’s going to make your life so much easier. I almost look at contractors as a bench in baseball. I put the first guy or girl out in the field. When they miss the pop fly, when there was no sun and they had their glasses on and they dropped the ball on the field, they get thrown out. The next person comes in, they drop the ball, and they come out.

Eventually, even a blind squirrel finds a nut. I get someone in there to do the job. I put them out in the outfield, when they drop the ball, we pull them out, and so you always want to load your bench. I have a status set in my systems. I got a list of contractors, who they are, their names and emails. I always get a couple of bids. I let them show me that they can’t do the job, and then when they show me they can’t do the job, I just move to the next one. If they prove me wrong and they do the job, I’m happy and we continue to do business together.

Especially when you are virtual because when you are virtual, the contractors know when the cat’s away, the mice will play. They know and they figured it out. Accept that because that’s the way it is. I don’t care if your contractor goes to church and is a good guy. I had a contractor that’s known in the community and known for volunteer work. I was new and I gave him $13,000 as a deposit to buy some materials. I will never do that again.

He took my money and he robbed Peter to pay Paul. He paid a debt on a previous job he had. He did not buy any materials. He did not do my job and ran off with my money. I found out that this guy had a trail of people that he had been robbing Peter to pay Paul. I was like the last Peter that gave money that other people got paid. Paul got paid. I did it.

I decided to sue him because it felt like he was not going to stop. He’s going to keep taking jobs and using them to keep going. At least, maybe I will do like the universe saw anyone else that might encounter this man. It might maybe put him at a stop. I don’t know, but it might. It turns out he had several judgments on him already. I don’t know if he’s totally out of the contracting business. I sued him. The lawsuit went nowhere because they never do. They never go anywhere. They fall for bankruptcy. It’s a big waste of money.

You have to know when you are suing the person that it’s not going to go anywhere, which is what I put in my head. It’s not going to go anywhere, but it might stop him from harming more people. I had people call me like, “I heard he screwed you too. Thank you for suing him. We didn’t do it. Thank you. Maybe you are putting a stop to his behavior.”

This is a very common and prevalent thing with contractors. You have to have your systems so tight. I know a lot of high-volume flippers that do a crazy amount of homes. They have a dedicated project manager. I have Drew now. Thankfully, my boyfriend is so smart and so good at that. He builds 50-unit apartments. This is nothing for him.

Residential rehabs are nothing. He worked in new house developments and stuff in his past. This is nothing for him. Every single thing is like line items to his own budget. How much everything should cost, and then he compares it to what they say. He writes contracts and puts the exact dates. Framing should be done from this date to this date, and then every single trade is with dates of when they should be done on the schedule. If they are not done, he’s on them, and then he will fire them if they are even a week late. He’s like, “You are done. You are fired.” I couldn’t do that. I wouldn’t even know how to do that.

For example, we had the framer say he was pretty much done and we were going to pay $8,000 for the framing of the home because we redo the home. We emptied it out and rebuilt the walls. We had our boots on the ground. Go take a video. Drew looked at it. Drew is in California. Drew looked at the video and said, “That’s not all the way done. That’s not 90%.” Drew said, “I’m going to pay you $5,400 and you are going to finish the rest.” That’s the level of detail you need to not get screwed right now house flipping, which is pretty crazy.

WI 991 | Flipping Houses Virtually

Flipping Houses Virtually: Don’t be greedy. Instead, be realistic and make sure you are pivoting with the market.

 

You got to get eyeballs on it. I will give everyone a quick tip too with contractors. You don’t want to hire the big GC firms unless you are doing big development deals. It’s not going to make sense. I like to hire what I call Chuck in a truck. Here’s the deal with Chuck and a truck. I will give you the skinny on Chuck in the truck. He doesn’t need to drive a pickup truck.

Here’s where the red flags go. If fake Chuck is not driving a pickup truck, but he’s maybe driving a Subaru hatchback and he’s got the tools in the back, we are good. If Chuck shows up to the job in a sedan car, I know he’s going to rip me off. I need him in a pickup truck and I need him maybe in a hatchback, but those people are the ones you have to sift through.

You’ll find a good Chuck eventually, and when he shows up in his truck and he’s got a good crew of subs that work with him, usually labors, you are going to be good. You got to look for those Chuck in a truck because the big contracting companies, you can’t make those numbers make any sense because they have overhead. They have real businesses. I get it, but you can’t be flipping single-family homes with big GCs unless you are either getting a crazy price which is rare. You got to go with the small guys. That’s my point.

It’s funny that you say that because my boyfriend and I make little nicknames for everybody. The first demo guy that ended up stealing my credit card, we call him Demo Dave. We have all these little names. Chuck in a truck is so funny. I love that. I’m using that. I’m so excited to use that. That’s hilarious.

I will be honest. A few years ago, it wasn’t like this. You could find a GC that you could trust and you could hand over the keys and they were motivated to keep your business and do a good job. I had the easiest time flipping houses back then. Even virtually, I built houses back then and it was way easier because of the demand for housing.

There are so many demands right now for these contractors, and they are so busy. They don’t have to be loyal and they don’t have to do the right thing. They can get away with screwing people. This is a perfect segue to let’s talk about what’s going on in the market. There are so many chatters. I hear the market is softening. We are shifting every single day, five times a day right now. What’s going on? What’s your opinion on what’s happening right now with our real estate market and what are you doing to adjust your business?

I was not around in 2007 and 2008. I was in middle school. I can’t say I have been through the downturn because I haven’t. My medium prices are expensive, but in general, I will use an analogy. Two people back when interest rates were 2% to 3% could go to Ruth’s Chris Steak House. They could get a heck of a steak and it wouldn’t cost them that much money because the money they are borrowing to pay for the steak isn’t that much. Now, they still need to go to dinner but because their money costs a lot more, 5%, 6% maybe 7% soon, they are still going to eat, but they are going to have to go to Outback.

I learned that from my friend. I didn’t make that up. I’m not smart enough to make analogies like that on my own. They are still going to be getting steak, but they are not going to be getting the quality steak. What I’m trying to say is a house in San Diego that would trade at $850,000 when interest rates were 2 or 3 points are now going to trade at $800,000. It’s going to trade at maybe $825,000 if you are lucky.

I’m taking the ARVs that were 2% to 3% ARVs on the MLS and I’m taking off 10%. We are still buying deals. The stuff that’s cheaper, in my opinion, it’s not going to do much. You may have higher days on market, which means your home might sit for longer, which will ultimately make less money because you’ve got carrying costs. With the median house price, there are still going to be people who need the buy houses. They are going to be people who need to sell houses. The median stuff, I don’t think we’ll get beat up that bad. The stuff above the median, I believe, will drop maybe 10% or 15%.

I don’t think there’s going to be a big blowout like in 2007 because that was backed upon bad mortgages where people didn’t have the money to buy them. People now have money to pay for these mortgages. Underwriting is still difficult to get a loan. You ask me how I know. It’s a pain in the neck to get a loan. That’s ridiculous, but it’s good because that means qualified borrowers get the money. That’s the first thing. The second thing I’m seeing on the wholesale side is that because of all the people talking about it, I’m seeing my buyers are a little more conservative.

We used to have these crazy carousels with 40, 50 buyers, the highest and best. That still works a little bit, but I’m seeing now that we want to move product at good prices. We understand as wholesalers now that a lot of the buyers who were unicorns were buying a deal and thinking they were going to sell it for $500,000. They sell for $575,000 and now I’m a genius for wholesaling the house. They are not thinking that anymore. They are being a little bit more conservative with the numbers.

We are trying to back our numbers up to maybe buy it a little bit cheaper to ultimately still sell it for a reasonable profit, but I’m relying on buyers now to who I have sold product to, who are going to close and who are still involved. I may take a little bit less right now to make sure the deal gets done because we don’t want to be greedy. We want to be realistic. That’s what we are doing in our company to make sure we are pivoting with that market.

I agree with you 100%, but I don’t even need to share my thoughts because like we’ll blab them all. I have been thinking about that. We are in a similar market or whatever. I see you live in San Diego. I’m seeing the exact same thing. I think the markets, in general, the affordability is way low compared to a nationwide affordability rate. I think our nationwide affordability was 55% on average. OC, the last time I checked, it got down to 13% or 12%. The last report was a small percent. That means that 12% of the average income earner can buy the average house.

Think about it. Look at all ten of your friends that are average income earners. Only 12% can buy that home. That doesn’t make sense. Who else is buying these homes? It’s driving all the prices up. It’s not a normal supply and demand situation. They can’t keep going on. It’s not sustainable. I agree. I think that California, like our markets, is going to have to adjust.

The perfect examples are my two neighbors. They are right next to each other and one is next to me. One was a grandma’s house that was not remodeled. Before interest rates and adjustment, they bought this home. Super nice, cool young couple bought it for $1.5 million. It might’ve been $1.55. The house next door has the same layout, but it’s rehabbed top to bottom all the way and interest rates adjusted, and then they decided to list their house and they listed it for $1.6 million. They added $100,000 for the fact that the house was remodeled or whatever.

It’s a different price point now. That house now is more expensive. That mortgage went up several thousand dollars a month. That’s a different person. That’s a different avatar that you are going after as a seller. Those sellers don’t want that home. They are having a hard time. They wanted the $2.5 million home. That house has been sitting on the market. They have now officially dropped it to the same price as the non-remodeled home. It is the same price. Grandma’s special was sold a few months ago.

I noticed a new avatar of people that are looking at this home. Avatar is a marketing term meaning the type of person. Maybe income level is what I’m referring to. All of a sudden, flashy cars start pulling up to this house. It’s a nice neighborhood. I know $1.5 million sounds like an expensive neighborhood but for SoCal, it’s not your very flashy people.

It’s like, “We did well. My parents did well and bought us this beach house.” We still drive normal cars. Maybe the nicest car is a Volvo or something. Now it’s like a Maserati pulls up but you can see their disappointment. They are like, “This is not the house I wanted. I wanted the $2.5 million beach house, but now I can’t afford that because of the interest rate.”

It seems that there’s this buyer and seller stalemate. I do agree with you. Our market, like the oversaturated, high-price markets and overinflated markets, is going to see a bigger correction. I started asking everybody this question. I have all these friends in the business and started asking these questions. I was asking my buyers. Some of these buyers work for hedge funds and I heard different opinions. You can tell that a lot of it are opinions or gut feelings. It’s not based on data. If it was me, I’m wouldn’t buy anything because I could correct 20% and now you’ve lost all this money.

I started thinking, “Instead of using our gut feelings, why don’t we look at actual data of the past to see what was the worst correction in two quarters?” A flipper would typically go to own it for two quarters, maybe three at most. Let’s see what happened in history. I can’t take all the credit. My dad is big into statistics and the economy and stuff. He told me exactly where to go to find the data that I’m looking for. It was the National Home Price Index.

You can get it from a government website. I don’t have it off the top of my head, but essentially you can download every major Metro in the country. It gives you a house price index, and it shows you the increase or decrease. You can then do a formula next to it to see the percentage. I created a formula in Excel, and I looked at the percentage increase or decreased all the way dated back from 1975.

I said, “What is the most it ever decreased since the 1970s?” If you guys know much about history. There was a time when inflation was out of control and the government had to raise interest rates significantly, even worse than what they have done so far. That happened around ’75 and ’80. I was looking to see how did that affect our housing market? I also looked back at the 2006 crash from 2006 to 2012. What percentage? I then compared other markets because the decrease in OC is not the same as in Oklahoma City. It’s not the same for Pennsylvania. You have to look at the data in your market and see what happened in history.

From what I saw, Orange County has had a couple of times in history where prices maybe went down like 10% or 12%. I don’t have the spreadsheet in front of me. The most it ever went down in one quarter was 12%. The worst at one quarter, it went down 19%. It was in 1982 and it was like Black Tuesday when the stock market crashed. It was a weird outlier event. The next quarter it went up 13%. It was a weird outlier.

It was a very weird, strange quarter, but that was about it. The rest is moderate. Even in the worst times, in two quarters, maybe 6% or 8% at the most. That was just Orange County. That was the market that had a lot of issues. If you think about it, there are areas that are like that. In other areas, the most were 1% per month or 1% even per quarter.

Your opinion of 10% is exactly what I’m doing. I’m making sure that I have at least a 10% market correction in my ARV. I’m also not taking the highest ARV. If there is an outlier ARV, that is very much an outlier. You know when you get it and it’s like, “There are three sales that are $320,000 range, and then there’s one that’s $360,000.”

That doesn’t make any sense. That would have worked when interest rates were 2% because you would have gotten that all day long.

Now I’m going, “That’s the one outlier and I have to ignore that and go with what the majority was.” I’m making sure that I have got at least a 10% buffer. Aside from that, I still want to be a little profitable. I had to put a 15% cash-on-cash return. That way, if it drops 10%, I still got 5% in the green. That’s what I’m doing to adjust. I imagine that our competition, a good percentage of them are going to use their gut feelings and pull back. I don’t want to try to time the market. You can’t time the market. The worst case is we buy some and end up may be losing some money, but if we use this methodology and we watch it closely, we have good deals behind it.

You’re buying at a discount from day one. You are buying the home at a discount, which is the key there. If you are buying it at 35%, 30% of the market value and the market adjusts, by 10 points, you are still at a 20%, 25% discount. Worst-case scenario, you would probably break even. You might get $5,000.

Even if you lose a little bit, you’ve got other deals. I’m not going to stop buying, is what I’m saying. Maybe I will have a bad month, but we are still going to keep buying. If it keeps getting worse, I’ll adjust my buy criteria at that time. That’s personally my plan. I’m excited. It’s nice to get some validation that you have the same plan. You are smart.

You use common sense. Let’s look at this and see. If it does drop ten points, it drops ten points. It went up ten points a year for the last three years. In some areas, I did put projects where I sold them and made big money, and they went up $100,000 in value after that. It’s crazy. You can have that as a rental for a year.

Greg, thank you so much for giving us your insights. This is a good episode. If anybody wants to find you on social media, where can they go to find you?

It’s my pleasure. I love doing these shows. It’s better being the guest than the host. Don’t tell anyone about that. I don’t know if my team would be too happy about that. My Instagram is Grego_37. I put on a lot of content. We post daily. We got stories, videos, and reels. You name it. It’s on there. That’s the best way to get in touch with me and follow me online.

Thank you so much, Greg. Guys, if you are looking to invest virtually, make sure you check out www.VirtualInvestingMastery.com, where I teach you how to do just that. Thank you, guys, so much for reading. We will see you next time.

 

 Important Links

 

About Lauren Hardy

WI 479 | Wholesaling TipLauren 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.

Leave a Reply

Your email address will not be published.

[class^="wpforms-"]
[class^="wpforms-"]