Posted on: July 19, 2022
Wi 997 | Virtual Investing Challenges

 

If you are a new investor living in an expensive market, getting started in real estate may seem impossible. That’s why mastering virtual investing, especially in today’s market, is so important. Lauren Hardy is joined today by Kale Darling to break down why and how he got started in virtual real estate investing and the many challenges both he and Lauren have faced and overcame in virtual investing.

If you live in an expensive market like Lauren and Kale or simply want to enter a more lucrative market, learn how to invest virtually with Lauren’s Virtual Investing Mastery program.

Show notes:

  • (0:53) – Beginning of today’s episode.
  • (3:52) – Kale’s background and his entry into real estate.
  • (5:35) – Why Kale went virtual.
  • (7:50) – The challenges of flipping virtually and how to overcome them.
  • (13:50) – Virtual flipping is nuanced – here are Lauren’s two biggest tips.
  • (21:00) – Can flipping work in a high-priced area?

Resources:

  • Want to learn more? Check out our Virtual Investing Mastery
  • To speak with Lauren or one of our other expert coaches, call (281) 835-4201 or schedule here.

The Challenges In Virtual Investing And How To Overcome Them With Kale Darling

Episode Transcription

What’s up, Rhinos? In this episode, I’m stoked because I’ve got one of my OG friends in the business. His name is Kale Darling. We had known each other for many years when we were total newbs to the real estate investing industry. I met Kale when I was a part of a mastermind. This was my first, maybe 2, 3 years of investing, and Kale, at the time, worked for an investor. He worked for the coach, the leader of this mastermind, and the owner of the mastermind group. He went from employee of a real estate investor to an actual full-blown real estate investor.

One thing that Kayla and I have in common is that we both live in a crazy high-price area, Orange County. We struggle to find deals in our local market. Kale is one of the first people I spoke to and could relate with about going virtual and flipping houses virtually. In this episode, I’m going to pick Kale’s brain about his experience with going virtual. What it’s like to do deals in Orange County, California, and everything about house flipping virtually and the things that might come up. Hopefully, you will get super inspired by it. Without further ado, Kale, welcome to the show.

Thanks for having me. I’m stoked.

Kale is hiding in his closet at the moment from his children. How many kids do you have?

I have five kids.

He literally has five kids, and he is so young. How young are you?

I’m 33.

He’s only 33 years old and has 5 kids. It’s crazy. I don’t even know how you do it. I have 2 kids, and it feels like 10.

It’s insane but I’m making it work. Just keep on going one day at a time.

There are so many nuances to these markets that you just have to learn as you put one foot in front of the other.

At least you are self-employed now. You probably had some good flexibility there.

Sometimes too much flexibility. There are days that have not been the greatest for me. I have been to LA twice for family stuff, kids for the summer, and non-stop family stuff going on.

You are about to lie to your family that you got a job.

I joke about that all the time. I’m like, “I’m going to get a 9:00 to 5:00. This family stuff isn’t working, and I need the 9:00 to 5:00.”

I feel you on that. There are some major benefits to self-employment because you are flexible. When your kids are out of school for summer or when you are sick, it’s no big deal. You don’t have to ask a boss for time off but then that responsibility always falls on you. You have to be home working around kids.

It eliminates your excuses. You can’t say, “My boss won’t let me. You got to own that. If you don’t want to do something, you got to say it too.

Kale, tell the audience a little bit about your background and how you got into real estate investing.

Before you and I met, I used to work for a construction development company that did low-income housing. I was doing that and going to school. I thought I wanted to be an architect. I always knew I wanted to be in real estate. When I was younger, my parents bought a house right next door to us. My friends were moving, and we shared a backyard in a way with a fence. Their backyard was bigger, so my parents decided to buy their house, make their backyard bigger, and keep the other one as a rental. I remember thinking that it was cool that my parents owned two houses.

They would bring rent checks over to my parents, and I thought, “It doesn’t seem like they are doing a whole lot of work. They are bringing them this money.” I didn’t see all the details or how much their mortgage payment was or anything like that. I only thought it was cool. I knew I wanted to be in real estate, a construction development company, and go to school to be an architect.

Wi 997 | Virtual Investing Challenges

Virtual Investing Challenges: It will protect you a lot to have somebody who has skin in the game.

 

Fast forward a little bit. I was in a job that I didn’t love. I found out that Justin was hiring and said, “I will do whatever it takes, whatever you need me to. I’m all in. Let’s figure this thing out.” I worked for him flipping houses for three years. On my exact three-year date, I quit. I have been doing it on my own for many years now.

You were working for a family-owned business, and he was flipping where we live because I remember he was local to the Orange County area. At what point did you guys start taking your model virtually? I remember it was all local for a while, and then it was like, “Deals are getting hard to find. Let’s start looking out elsewhere.”

If I remember correctly, it was about a year and a half in because before I got hired, he was flipping 100 houses a year, and that seemed to get harder and harder as we kept going. We were thinking, “How do we do this? Do we increase marketing or what do we do?” At that time, he was in a mastermind group. I would go with him, and there were people doing deals all over the country wholesaling. It was like, “We know all these wholesalers across the country. Why don’t we buy from some of these wholesalers and test out some of these other markets?” When I worked for him, we flipped houses in thirteen different states. It was insane.

I remember that time. I want to guess it was around 2015.

That’s pretty accurate.

I was in the same mastermind. This person that he worked for had the coaching. He was my coach. I love him. We were going through it together. We were equally saying, “It’s getting tight here, and it’s hard to find deals in California now in the Orange County area. We weren’t just Orange County. I would drive two and a half hours to a deal. It was Northern LA County, San Bernardino, and Riverside. We were going everywhere. You bought stuff from me. I remember that. We also use the same contractor.

There is a lot of overlap in this business but it started getting hard. I remember hearing about you guys going virtually because you used to do 100 deals a year, and then I started thinking, “If they are having a hard time, then it makes sense that I should probably consider going virtual as well.” I followed your guys’ lead and decided to go virtual. I started flipping. My first virtual venture was building houses in Nashville. You weren’t wholesaling. You were house flippers. What were some of the challenges of flipping a house virtually?

In the beginning, we had a lot of advantages because the way that we structured it was we said, “If we buy a deal from you, we will buy it if you have referrals for us.” If you know of a good contractor that you’ve used before, if you have a good local agent, ask them what title, escrow, stuff like that or attorney, depending on the state. We said, “We will buy it if you hold our hand a little bit,” which is a really good way to go that’s hard at scale. We bought in all these different areas and new people. There were many different contractors and agents. Everything was new, and so much of it was new.

It was like flipping 100 houses in your area that you have all these relationships established with is one thing but then when you have all these different relationships across the country, people do business a different way. There are different expectations. There are so many different ways I can head with that answer but the biggest issue that we had was contractors. That’s probably an obvious one because we would set up these expectations. We would say, “This is what we want. This is what we are thinking. These are the materials we want to use.”

If we’re not making money, we’re not going to buy deals.

People would do things differently or try to cut corners. It’s really easy virtually. I’m sure you’ve had experience with it. When you look at a picture on your phone, especially in 2015, the cameras are a lot better now, but still, even now, they take a picture of the corner and kitchen. You can see the cabinets are installed, the countertops, and the backsplash. Everything looks good in that picture but obviously, you can’t turn around and see all the rest of it or that they tied new electrical into an old knob and tube or what they covered up. It’s hard.

I posted it on my Instagram. It was a little post of this exact thing where we are doing a huge full guide on a house that was a duplex. I live in California, and this house is in Pennsylvania. This house was a duplex but the single-families go for more than a duplex would go in that neighborhood, so we are turning it back to a high-end single-family. It’s a very gentrifying area and a $200,000 construction budget type job. We had to gut out the house and tear down walls. We then had a framer come in to reframe the whole house and frame out the rooms. In one area, the hallway is so skinny.

I was like, “When you guys were framing this, what were you thinking? Did you not think to let us know, ‘You can only sell this house to skinny people because the hallway is 2 feet long?’” I’m like, “Are you kidding me?” I’ve had some experience flipping virtually by now. I have been virtual since 2016. I have experience with this thing, so I know better than not to flip in thirteen markets.

Instead, I took the approach of one market, so I could build out that team that I built in California. Luckily, I have a project manager full-time that goes and looks for those things. He goes and, after the place was framed, was like, “This hallway is not going to work. We got to do something.” We have to now reframe that part of the house.

At least you caught it early enough because some of the issues that we have are people that are like, “They knew that their hallway was going to be 2 feet wide.” The next person comes in, the guy who does the drywall. They are like, “This is it.” You then get so far down the line that some of these things just because you are not there local, you can’t drive down the street and check on these projects, things get so far that they get exponentially more expensive.

That could have been a $10,000 problem because if they would have dry-walled, built out closets, and built the bathrooms that were on the other side of those walls, and then our realtor came in and was like, “What’s going on with that?” That would be more than a $10,000 problem. That could have been a serious problem. Flipping virtually is not for the faint of heart. It’s not a beginner strategy at all.

It’s funny because when you were local with that investor, we had the same contractor. It was awesome. I have never found a contractor that good anymore. We used to call that guy up. When we had the property under contract, he would come in and give me a bid. That bid number would stay the same. He would never give you a change order unless it were something you did that is very obvious. He would make that number work.

When I closed on the property, I would meet him again. I would hand him the keys, and he would let me know when it was done. It was always done on time. I would come back six weeks later, and the house was done. It’s remodeled, and I would put it on the market. It was amazing. We were so spoiled, Kale. You then go to other parts of the country and are like, “That was rare. We just got lucky.”

It’s very difficult to find a contractor that will do what you are talking about, and that doesn’t cost you an arm and a leg. You could find somebody who’s double the price that would do that but you are not going to make any money anyways. Another thing that I wanted to say that was maybe not as obvious is you know your market and what will fly and what won’t fly.

Wi 997 | Virtual Investing Challenges

Virtual Investing Challenges: To do enough volume, you have to not be limited to where you can drive within 30 minutes.

 

Sometimes you buy a house and you are like, “I don’t need to do landscaping or I don’t need to replace the cabinets. I can just paint them.” There are little things here and there like, “I don’t have a garage. It’s not a big deal. We are in Southern California. We will be fine as long as the comp support it.” It’s stuff like that. You then go out of state and assume that some of those things are the same and they are different like not having a garage in certain areas. You can price the house way lower but people still don’t want it.

That is another very difficult thing because there are so many nuances to these markets that you must learn as you put one foot in front of the other unless you have somebody. In your post, you said, “This is why you like to have somebody, boots on the ground type of thing.” Unless you have somebody there holding your hand that can see these things and points them out, that’s a huge thing. That was a very big thing for us.

It’s funny that you said the word nuances. That’s the exact word I use in my coaching program all the time when going virtual. If you aren’t aware, I coached Virtual Investing Mastery with Wholesaling Inc. It is a six-month coaching program that takes you from beginner to closing your first ten deals virtually. I always say that word that is going virtual and picking a territory. There are so many nuances about every single territory there’s no way you would know.

You need a coach to coach you on how to go virtual. I had a coach that coached me on how to go virtual. You need it. You absolutely need boots on the ground. You need somebody there. If you are going to flip houses, these are my two solutions for you. Number one is a joint venture with a local house flipper. Make a deal like, “We can split this 50/50. You got to have some skin in the game.”

I would make sure that they have some skin in the game. I wouldn’t just hand them a deal and pay for everything. There is no way. I would make sure that they are as vested to get this project done as their other projects. I would say partner up with a local house flipper and do several deals with that person until you are in that next stage, which is you could afford to hire a project manager.

You could have a full-time project manager if you have that budget but if you don’t, you could, on a deal-by-deal basis, have somebody that does project management for you. I’ve done it both ways. I’ve had a guy that charged a flat $3,000 to $5,000 depending on the project, and they are not the general contractor. They are managing the general contractor for you. They are your eyes in the sky. Those are my two solutions to overcoming those nuances and learn them.

One thing I was going to add to that is that people having skin in the game is a huge part of it because it’s easy. One thing that maybe wasn’t the best way to go about it is we are like, “We will find a local wholesaler.” We thought the skin in the game was that they would want to continue to sell us deals. If we are not making money, we are not going to buy a deal. If you partner with somebody local, they are going to be putting in the time, money, and effort. It might look like a deal to you but if you are looking at a bad deal and they have skin in the game, they are not going to buy a bad deal if they are smart. What will protect you a lot is if you have somebody who has skin in the game.

You have to think these things through. You have to make calculated risks here. By buying a property virtually, you got to think of all the ways that it could go wrong and how you protect yourself. It’s huge that you got to see that your joint venture partner is equally as motivated as you to get this thing done and get it done on time. The other thing that I did help me out a lot, and I made this decision in 2022 because I took a break from flipping and did wholesaling. I dominated virtual wholesaling but a piece of my soul was missing because I love the flipping business. That’s why I got into this. I love projects and design. That brings me a ton of joy.

I was like, “I got to get the virtual flipping process mastered.” I reached out to other people that do it a ton and have been doing it for years. They gave me that, “You need to have a project manager,” advice. The other thing that I have on my team is my boyfriend. On top of having somebody, I have a guy with my boots on the ground who was my construction manager. He goes to the house every three days, making sure that there’s movement in the home. He’s checking the hallways. He’s the one that’s catching the, “You have a skinny hallway kind of stuff.”

There are a million ways to make a million dollars. But if you focus on too many of them, you won’t make anything at all.

My boyfriend Drew has been in the construction industry his whole life, since he was fourteen. He’s managing virtually the contractors and everything. He thinks of things that I don’t even think of because I don’t have that construction background. Maybe you do because you have a construction background but a lot of real estate investors don’t have construction backgrounds. We don’t think of how to issue payment, for example. If a contractor gave me an invoice, I would just pay it. I wouldn’t even question it. I would go, “They must’ve done that work.” Drew’s like, “No. You submit an invoice and prove to me you did the work.”

He will negotiate their invoices. He’s like, “Nope, I’m not paying you that. I’m going to pay you half of that because you did not do that much work.” It’s funny how he knows how to push back, and I don’t. If it were like me, I would keep getting totally taken advantage of. Luckily, I have him. I highly recommend working with an experienced house flipper who’s doing it locally and a project manager who seriously knows what they are doing. Don’t do a project manager who’s never worked construction.

I made that mistake. I got a project manager who had rentals. He was an investor but didn’t speak the construction language. He got me robbed by a contractor. He told me, “The first deposit is $13,000. He’s going to buy all the materials with that and start the work.” If it were Drew, he would have been like, “Are you out of your mind? I will buy the materials and pay you when you are done doing your work. How about that?” This was virtual. That contractor took my $13,000. He paid something off, another debt he had. He robbed Peter to pay Paul and disappeared.

This happens way too often. It’s horrible. It’s way too common. It’s tragic.

It’s crazy. Aside from all the horror stories, I hope we provided some value in helping you because there are workarounds but there’s a reason we keep doing it. Try to find a deal in our backyard.

You can probably do some stuff in your backyard, but to do enough volume, you have not to be limited to where you can drive within 30 minutes. It’s unrealistic.

We live in SoCal. A reminder, we are living in a very high-priced area. Our average purchase price in our area is $1 million at this point. Anyone in the Bay Area, New York, Miami or anywhere where real estate is super-hot, you could probably flip in your backyard. Everyone is like, “I know someone who’s killing it here and flips here.” There’s always that one person that’s figured out a niche but more often than not, people are leaving those areas and flipping outside of those areas.

Also, niche down. There’s always some competitive advantage that you can find in some way that you can make it work but you can’t make it easy and be like, “I want to flip in my neighborhood.”

I was at a party and this guy was like, “There are people flipping in my neighborhood.” I was like, “What do you mean? What’s the play there?” He lives in Newport Beach. He’s like, “Here’s the deal, Lauren. On houses that sell for $5 million, you don’t have to have the margin you think. All it has to do is go up a little bit, and you are still making $100,000. Even if the property, you only had a 5% profit margin. That could be $100,000, $200,000 or $300,000 on that price point.”

WI 999 | Closing Real Estate Deals

Closing Real Estate Deals: If you’re just starting in this business, do your research and go for it.

 

He’s like, “You find a fixer-upper for $2.5 million. You put $1 million in it.” These homes look crazy good. You have to know how to do high-end construction and know what finishes to pick and all that. “You then you sell it for $5.5 million.” I’m like, “That’s the flipping that happens in these markets, and that is not a beginner strategy. That’s a fifteen-year veteran doing those things.”

It’s not somebody who’s doing it, maybe they are but it’s pretty rare that those people are doing a pretty high volume. A lot of people have those three deals they did that year or something, which is fine. That’s a great strategy if you know it but to each his own. The mastermind we were part of, Justin, would always say, “There are a million ways to make a million dollars but if you focus on too many of them, you won’t make anything at all.” You got to know what you are doing and narrow down and focus on that.

I decided to go virtual, and you did too. I took that approach. What I love about this business is that you can change your mind. You could do that mid-range or low-end, even flip and do that for 4 or 5 years and then you might go, “I’m bougie, and I want to do like some high-end stuff. I want to do projects that I’m excited about.” Who’s to say that in three years, I’m not doing high-end beach houses? Who knows? As you said, you got to focus on one thing. Kale, thank you so much for sharing your stories and advice. Do you have a social media handle if anybody ever wanted to reach out and say hi?

I’m not out there too much but it’s @KaleDarling on Instagram. It’s the only thing I look at. I never look at Facebook. Follow me there.

Give Kale a follow, and thank you so much for being on the show. If you are interested in taking your business virtually, if anything I said resonated with you, I’ve got the place for you to go. Go to www.VirtualInvestingMastery.com. I’ve got an amazing tribe there. You get weekly coaching calls with yours truly. You’ve got a forum where I’m answering questions every single day, so you’ve got that daily support. We do once-a-month meetups at my office, so you get to hang out with me. Thank you for reading, and I will see you next time.

 

Important Links

 

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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