Rehabbing is a rite of passage for real estate investors. Nearly everyone tries it at some point. Some people like it. A few even get really good at it!
As big shot radio talk show hosts, we get to hob nob with nationally known pundits, best-selling authors, and a whole host of industry honchos and thought leaders. It’s very cool. If we weren’t us, we’d wish we were.
We also get to spend time with real life practitioners and unsung heroes. These are the guys and gals who get up every day and go out into Main Street USA and make it happen in the real world. In the trenches, it’s not about theories and ideas, it’s about managing a myriad of minute details in a practical, tactical way. It’s not glamorous, but it’s where the rubber meets the road and the money gets made.
So after many weeks of flitting above the clouds looking down on the macro-economic factors real estate investors need to be aware of, we bring The Real Estate Guys™ radio helicopter down to street level and talk turkey (after all, it’s nearly Thanksgiving) with a thriving turnkey real estate practitioner.
In the cockpit for this flight into broadcast brilliance:
- Your pilot and host, Robert Helms
- His jerk wing man and co-host, Russell Gray
- Returning guest and rehabbing veteran, Terry Kerr
Rehabbers and property managers are the GI Joes of real estate. They deal with real estate at its messiest. They do all the grunt work most people can’t stomach. And finding people that are good at it for the long haul are rare. Some guys just do it for awhile until they make enough money to get out, or until they get a TV show.
But in spite of it’s messy nature, we still like real estate because it’s real. It serves a fundamental, enduring human need. And making it more usable and available is a noble profession.
But making money at it is as much an art as a science. And learning to do it right takes time in the trenches. It’s why our friend (and 2013 and 2014 Investor Summit at Sea™ faculty member) Peter Schiff says the hedge fund guys will get ultimately get killed in real estate. They’re used to trading nice, sterile pieces of paper. Time will tell how the Wall Street ivory tower guys will fare in the foxholes of Main Street rental property.
So while Peter looks at it from the top, we ask Terry about the ground level impact of hedge fund investing in his market, Memphis, Tennessee. Memphis just happens to have been ranked by RealtyTrac as the #1 single family cash flow market in the USA last year. Obviously, this would attract the attention of hedge fund managers.
No shock to find out that the funds tend to overpay and have problems managing. Once again, we have to say, Peter Schiff was right.
But Terry also corroborates what we’ve heard from other contacts in different markets: hedge fund activity has slowed. This explains another phenomenon we’ve noticed – people are contacting us with large “tapes” (pools of distressed properties) they are trying to move. And the discounts are pretty attractive! It used to be the funds were gobbling that up.
So all that is good news for Mom & Pop investors. More inventory for the little guy.
But back to the street level…
In spite of the slowing of hedge fund activity, it’s still competitive to get a property. And you can’t worry about rehabbing a property you don’t own, so acquisition is important. Terry reminds us of the age old truth: real estate is a relationship business. So he continues to get deals because he’s established himself in the market as a reputable operator. That means he has credit lines, deal flow, and loyal sub-contractors. All good things to have.
Terry shares a very practical offering technique he uses to enhance his odds of getting the deal when working through a real estate agent. We won’t disclose it here, you’ll just have to listen to the conversation (below). When you hear it, it’s obvious. But if you don’t know it, it’s easy to miss out.
Now, once you have the house, you need to decide how to attack the task of getting it ready to sell or rent. Of course, how you re-had will depend on who your target customer is. A house you plan to sell for an owner-occupant, is different than a house you’re prepping for a tenant or a landlord. But once you’ve figured that out, it’s time to get to work on the re-hab.
Terry tells us, “Just because you can, doesn’t mean you should.” THAT is a golden nugget of wisdom! Listen to any personal productivity expert like Brian Tracy, Les Brown or Tom Hopkins (another Summit at Sea faculty member), and you’ll hear them talk about the importance of investing your time in high paying activities.
In this context, Terry cautions us to be aware of “lost opportunity”. That is, if you’re busy painting a property, you’re not negotiating the purchase or sale of another, or working with your team to manage your re-had costs.. The point is you can hire a painter for a fraction of the money you can make cultivating relationships and making profitable deals.
The solution, Terry says, is to build a team.
Now this doesn’t mean you need to have a payroll and a high overhead. But you do need to have access to technical experts in all the key trades.
But where do you find those people? Terry uses a technique he calls “The Saturday Pow-Wow”. The great news is, it’s so SIMPLE that anyone (even us) can do it! So be sure to listen for this next golden nugget of street smart wisdom. He tells you exactly when and where to go to find the best guys and gals for your project. And it’s free!
Once you have your team, you need to decide how to lead them. You might think, “Oh, I can do that.” Okay. But what did Terry say? “Just because you can, doesn’t mean you should.”
How many job sites can YOU be at at one time? Only one? That’s a little limiting, don’t you think? Think BIG! Terry rehabs over 100 houses a year. That’s 2 a week. With that kind of volume (isn’t that what you want?) you can’t be on every job site supervising your teams.
So Terry’s golden nugget number 3 is to develop crew leaders. And he tell us how he goes about that. Good stuff.
Next (yes, there’s more), for gold nugget #4, Terry tells us how he gets great pricing from his contractors without having to beat them up. This is important, but because if you haggle your contractors too hard, you an adversarial relationship. That’s like cussing out the waiter before he brings your soup. You never know what you’re going to get.
Terry tells us that the key to getting good pricing simply comes down to being educated about the trade and knowing how to talk the lingo. It doesn’t mean you know how to do the work. But you know how to sound experienced.
When you talk like someone who knows what they’re doing, your contractors will give you better pricing because they think your savvy. Sure, they’re your team. But they’re like mercenaries (aren’t we all?). They work on your job to make a buck. And they want all they can get. Your job is to pay them fairly, get good quality work, and still make a profit.
Remember, next to the purchase of the property, your rehab expense is your biggest component of cost. In fact, in some cases, the rehab will cost MORE than the property!
So, getting the right people to do quality work at a reasonable price is one of the most important skill sets you develop as a re-habber.
It’s tempting to buy a work belt and start swinging a hammer. It’s fun to shoot a nailgun and slather on taper’s mud. You might think it’s cool to sweat pipe, run a table saw, or set tile. You might even get a charge out of installing an electrical outlet or light fixture (sorry, we couldn’t help it).
But, that’s not what being a rehabber is all about. If you want to do it and make money, you’ll want to build a team and master the art of controlling costs without alienating your contractors. Because if you get it wrong, the market won’t let you raise the price to cover your mistakes (or theirs). You can’t control the takeout price. The market dictates that. But you can manage your purchase price and rehab expenses, and when you get good at that, you can make real money as a rehabber, just like Terry Kerr!
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