December 21, 2016

First Year in Real Estate

Episode 37:

Bill Young has started and ran small businesses since his 20’s (he’s 65 now), and has studied with many real estate investors during that time.

Bill met Mitch in 2006 or so at the San Antonio Real Estate Investors Association when he was living there. Not long after that, the real estate bubble burst, and he was not positioned to buy properties in the down market that followed.

He returned to his second home in Baja California, Mexico for the next few years and just returned to Texas a couple of years ago. Bill knew It was time for me to get involved in real estate investing, so he contacted Mitch to get involved in his mentoring program.

In February 2016 he sold some assets and bought 4 houses that he began rehabbing. He learned many lessons the hard way as to why Mitch encourages people to buy livable houses at low prices and resell them without doing any, or very little work on them.

He still has three of the original 4 houses that he is trying to sell, but in the meantime he has bought one house with private money and resold it for twice what he paid for it- without doing anything to it! He is now a complete convert to the owner financing way of real estate investing.

Here, Mitch chats with Bill about his first year in real estate

What you’ll learn about in this episode:

  • Bill’s background
  • While Bill is glad he’s spent a lot of money on seminars throughout the years
  • Bill’s early rehab deals and why he’s done into owner financing since then
  • How Bill’s first year in real estate went
  • Why you shouldn’t rehab houses
  • Bill strengths and weaknesses
  • Having a real estate mentor that doesn’t live where you are
  • Why you absolutely need a mentor
  • Advice Bill has for young people wanting to get into real estate

Resources:

Transcript:

Mitch: This is Mitch and welcome to the Real Estate Investor Summit Podcast. This is Mitch Stephen, your all-knowing-and-gracious-host, [LAUGHTER] I have a guest for us today, you know I thought it would be neat to talk to some people who started the journey not so long ago. People who have you know, have not done any deals but they got their eye on the ball on they’re changing their lives and going forward. One of the reasons, why I wanna have this kind of discussion is, to let everyone else know that they are not alone, and that there’s a lot of people that are going through and conquering the same obstacles that they are facing right now. I’ve got some sponsors that I got to pay homage to, so let’s get back out of the way and we’ll come right back to Mr. Bill Young over at Rockford, Texas.

All right this is Mitch and we are back with Bill Young. Hey, Bill how are you doing today?

Bill: Am doing great, Mitch. Glad to talk to you.

Mitch: Well, am very happy that you agreed to do this. Because, I know that you have got some good times and some rough times which is exactly what I wanted to show. Always the truth here, always the truth, don’t play it bigger than you are, don’t play it worse less than it was, and don’t say it better than it was, just say the truth. [LAUGHTER[

So, people can get a grasp on the real life of this business, ‘because it is not easy as it–

Bill: No. It isn’t. There’s a lot of move in parks, there’s a lot of challenges, a lot of things that you run into that you thought you knew and realized, “OH, there’s a couple of missing parts between you and they’re that you can’t figure out”. 

Mitch: [LAUGHTER] so, give us a brief history who is Bill Young, what you’ve been up to all your life? Like, do the book thing, you know we just kind of feel for you are and where you’re from. 

Bill: Okay. Well, you know, I am from Texas. Lived in a lot of different places, but essentially I dealt and run small businesses from most of my life. I only had a few actual job, like jobs. But, I’ve always been kind of entrepreneur and enjoyed working for myself. And so, throughout that process of the last– gosh, I guess, Mitch, it’s been 40 years probably, I always have real estate at the back of my mind. And started studying at way back when Robert Allen first started out and Gary Nicholson and some others. And so, it’s always been something that I wanted to get involved with and so, I studied it for long time. All of the courses, went to the conferences, all those kind of things, but just never pulled the trigger so to speak, until February of this past year. When, after 20 years or so, of sitting on a beach down in Mexico, and trying to do things like that, got bored and decided, “Hey, it’s time to get back to work”. So, I moved from Mexico to California, and back home to Texas and I’d met this guy, Mitch Stephens, back in 2006 and 2007 and I knew he was the guy I wanted to hook up with. And I called you, and here we are. 

Mitch: Wow. So, 20 years on a beach in Mexico. I wanna do that. 

Bill: [LAUGHTER] Yeah. It is all cracked up today. 

Mitch: I hear it all the time, that people are hurt or bruised or even being pushed out because, they spend some money on some seminars and then they lost their money or they it didn’t proved out or they didn’t take action, and they get discouraged. Are you willing to say how much money you think you spent on seminars in your career?

Bill: Well, I tell you what, all together including this past year, I guess a couple of hundred thousand dollars.

Mitch: Okay, and how do you look at that, in your mind?

Bill: Well, I think my entire life, has been a learning ground that prepared me for this moment, so to speak. You know, this time in my life. And I don’t feel badly about it all, because I learn something from everybody, not all of them were great, but everybody has something good to say. And so, I cataloged that, in my experiences in my mind and I think that anytime you invest yourself, is a money well spent. 

Mitch: Yeah. Yeah. I wasn’t surprised to hear you put it that way, because I’ve known you for quite a long time. We haven’t been close but, we kept in touch for a long time since you said, its 2006, you think? 

Bill: Six or Seven, yeah. Something like that year. I attend your Real Estate Investors Association back then. 

Mitch: Yeah. That was good time. It was really like then, it was a nice time in my life back then, and then that recession hit. [LAUGHTER]. I think I went from my 800 members down to like, 4. 

Bill: Yeah. And they scattered—

Mitch: When did you start really buying houses? You dabble on it all or you just studied and didn’t do anything, I guess we got together about, a couple of years ago, or has it been long yet? I don’t remember. 

Bill: Actually, you and I got back together about October-November of last year, whenever I contacted you, and I wanted to start your online program, and [INAUDIBLE] and what not have you, I didn’t had the money at that time to you know, to have you as a mentor, you know, where I could call you up and that sort of thing. And so, I started that way back in October of last year, but then in January or February of this year, I decided that the time was right, and so, I liquidated about the last valuable asset that I got left. And put the money together and but– to kind of backtrack a moment, I’ve always bought our houses and usually, just a way how I do things, and usually fixing them up, you know. And so, I bought houses that we lived in, sold on– made a profit every time, built some pretty much ground up, a house down in Mexico that turned out to be a beautiful home and so, you know, I had some experience over the years just in my personal find, but in February, after I liquidated the assets, I had some money, I thought I needed money to work with, now I really understand that I didn’t necessarily need to do that. But, I bought 4 houses, at one time. And they were all rehabs, and that is where I got started. 

Mitch: You know, I know the story from here, because you just didn’t buy regular houses that needed a little rehab, didn’t you? You bought some– you bought some houses that need some [INAUDIBLE] rehabs, right? Big stuff. 

Bill: I did it.

Mitch: Have you done any quick flips?

Bill: I have. Actually, after the rehab experiences, I really learned firsthand what you are talking about in the owner finance model. And you know, I heard you talk for a long time about just buying a house, and putting a sign in front, while you’re getting all the information together about what’s it gonna cost to fix and up. And also, going into a little bit different view point, in buying something that [INAUDIBLE] that people could move into if they wanted to, and they could do the cosmetic repairs themselves. And so, I decided to try that model, after the rehabs and bought a little house for $40,000. I brought a financing partner, you know, in that deal, and we bought it for 40 grand, and I went down to Home Depot and got a little sign, and some markers and put up a sign up front, and 4 days I sold it for twice what I paid for and didn’t do one thing to it. So, I became a really–

Mitch: So– but you offer to owner finance that house? That’s why you sold it so fast or what happened?

Bill: That’s correct. What I did was put up a sign out there and just said something like, “Owner financing, no banks needed. Call so and so”. And so, I started getting calls right away, a guy came up who had a 10% put down on the house, and checked out good, and so, we put him in the house with 10% down, and financed it to him, and he’s been making his payments ever since. It’s been a good experience. 

Mitch: But, the lesson you said, “Am a big guy advocate of the, which I consider to be the best real strategy on the planet, which is the buy-it-don’t-fix-it owner finance for about double and watch the person who’s making payments to you go over budget, re-modelling or re-fixing your collateral. 

Bill: [LAUGHTER]

Mitch: That’s what you did, right?

Bill: That’s exactly what I did. And am smiling and laughing about it, as we are talking. Because, it was so much easier and–

Mitch: No, go ahead. No. No. Go head, it is so much easier, that’s what I’m gonna say, it’s just easier, right? Because–

Bill: Yeah. 

Mitch: And that rehab, it’s just you know– plus that’s where the risks is, you go over budget, everyone’s go over budget. Have you ever been under budget in a rehab?

Bill: No. 

Mitch: [INAUDIBLE]

Bill: Every single one of them. 

Mitch: So, did I. So, that’s where our pants down, and show everybody on high knees, you know, that’s supposed to [INAUDIBLE]. You know, it’s just– I don’t what it is, it is like the law of rehab, you know, pick a number, it’s gonna go over it. I don’t get. And so, that’s why I love the buy-it-don’t-fix-it-owner-finance-it-for-double and watch your buyer go over budget fixing up your collateral. Everybody thinks they can fix the house for a 5,000 bucks. And I bought and tell people, that “This house gonna take $10,000 to fix all this”. “No, no, no. I can do it for 5”. I quit arguing with them. One of the reasons, I quit arguing with them is because, I forget or I had not been noticing that they are just talking about materials, they are not charging labor for their work, because they are doing the work themselves, so they are leaving out the labor figure, and you know what, I don’t have the choice to fix houses with free labor, right?

So, that’s one of the reasons, yeah, that’s one of the reasons and finding quality contractors isn’t easy, is it though?

Bill: No. It is not. You know, just my personal story here. I moved into an area that I never lived before, my real market is, 45 minutes away in a larger city. And so, I didn’t know one single person in that town. And so, through trial and error which is an anchor’s way to do things, I found all the people I didn’t want to continue working with. 

Mitch: [LAUGHTER] you found them all, you found them all. 

Bill: Yeah, there was an x out of the curve or something, you know. And I don’t know what it was. 

Mitch: [LAUGHTER] and okay, so, but you did get through your rehabs and you did your rehabs, now your challenge is to sell some of these houses and you, you chose to pick some more expensive houses because they had some pretty good margins on them. Of course, some of those margins got ate up in over dues and rehabs and stuff but you still not in a horrible positions in those 4 houses, but are you rethinking the larger house section of doing business department?

Bill: Yeah. Yeah. Let me just back track just a second, and say, that the key lesson I learned in the model that you’ve been trying to beat in my head for some time now, is that the amount of profit [INAUDIBLE] that I did nothing to, was more than what I will likely most make on at least 2-3 houses, that 2-4 houses that I rehabbed.

Mitch: Have you spend all the time on it?

Bill: Yeah. 

Mitch: Just proposing it out yet, that don’t do the rehabs, you know, you buy something for a low x and you sell it for a low x times 2 or a right about there. But, if you buy and fix up, you might buy something for low x and you put 20,000 into it, now you’re at x plus 20,000 and then you got to sell it for x plus 40,000. X times 2 plus 40,000. So, in the time, the time value, I mean, how much time did you spend per house, you think on the rehabs, because you got some pretty major rehabs. 

Bill: I did. One of them that I thought was gonna take me 2 months, ended up taking me more like 6 or 7 months, and you can just imagine, time is money. And something that goes on that long, gets– eats up all the profit that you thought you’ll gonna make and you know, I bought them like, I think I got an idea, because you hold something it takes that long, it will eat up all your profits and–

Mitch: So, let’s do the comparison. You buy something for 40 and you sell it for 80 in 4 days with 10% down, or you buy something with a 100,000 margin, you spend months on it, and it’s no longer a 100 margin anymore but, it’s a 30,000 margin, by the time you finally get there. And you spend 6 months on it. So, what is your time mark, how much aggravation is that, how long your money is tied up? So, yeah, that’s the kind of the points, I was really happy when you did that buy don’t anything hardly to it, sell it owner financed model. I was even smiling when you get it, and called me about it, because, I thought, “Now, i’m just gonna have a comparison between the big massive rehab chasing that $100,000 profit, and just a little bit of nothing to do with it, that doesn’t take too long. That was gonna have both of these experiences right in your shirt pocket. And I know, which one of these gonna gravitate to. 

Bill: Yeah. You know, I mean. I am kind of hard headed and I learn all by experience you know, so. As soon as I did that, I was like, “Oh my gosh, how many of those could I have done, messing with all these rehabs and you know, I could have done a lot of them”. But, you ask the question moment ago about price points. And what I found is that, I am lowering the price point of the houses that I am buying, because it is so much easier to resell and that model works better, I believe with owner financing. Because, the more expensive it gets, the faster it breaks down. You know, the equation breaks down on your monthly cash flow and your utility to get enough down payment, and all that kind of thing.

Mitch: And heaven forbid, we’ll have recession, because in the recession, expensive houses lose a lot of value, and the less expensive houses, all of them were at the bottoms, getting so big, everyone is filtering down the bottom. The basic house seem to hold its value, if not go out with the rents, so, I’ll be glad to see when you flip all those four, and pull that over. I am not nearly as worried as the recession as I was before the election, but you know, even so, if the new president-elect has to take us a couple of step backwards to get us to go forwards, we may still have a little bit of deep bit, it doesn’t feel that way or something like to right now, but who knows?

And so, tell us what you really are good at and tell us where you really are bad at. So let’s start with the bad news first. What you really are not good at?

Bill: [LAUGHTER] Hiring contractors.

Mitch: Well, but then there’s easy way around that one, right? We just figured out. And so, if you are not good in finding contractors, let’s quit doing rehabs, you know what I mean. What you are good at? What you are good at?

Bill: I seem to see the big picture, and putting all the pieces together and seem to be working. You know, I really wanted to build and automated business, that I don’t have to work in as much as I have this past year, and so, part of my time, a lot of times spend on back office kind of stuff, trying to get hold of that set up so that this coming year, I can buy a whole lot of the little houses, which we just talked about, put it on automatic. And run it that way. And so, that I guess is my strength, is being able to see concepts, the big picture, and hold of fits together. And I am not so sure if my skill set is making that happen, am working on it, so, we’ll see about that. 

Mitch: No— I’ve been coaching up and we were talking, and I’m sure you’ll get it, just don’t give up on a sticky point, because I understand now that you are trying to hire some VAs and now you are having a tough time, I’m gonna help you with that, see if I can get a turnaround, because, that makes a lot of difference, ‘cause it’s all about consistency. You know, doing those mailings, having those VA’s, having those people do something every single day, every week, day in day out, week end week out, month after month, every year. That’s what the difference is, and we’ll get there. You know, you are not the first person to get stuck in that point either, ’cause finding the right contact now, just finally finding the right contact, you finally found the right contact, didn’t you? 

Bill: I did, yeah. Finally found the guy. 

Mitch: Because, that is one thing that you don’t want to worry about now, right? And hope it will be for long. And then, we’ll go figure out the VA thing out or you know, that will be one thing you won’t have to worry about for one. And pretty soon, you’ll look at this 4-5 of this pieces together, as painful as it is sometimes, and then you are humming down the road, so, have you had persona mentor before?

Bill: Not before this year. Nobody that I can pick up a phone and ask questions up, and that could be as a personal mentor, even though, in this case it is not in person. But, it’s the next big thing.

Mitch: Well, let’s talk about this, I mean, I know everyone likes to get in a car at the same town or someone to drive around with it endlessly and talk real estate, or looking at real thing, that’s not really reasonable for the mentor guy, you know what I mean. ‘Cause how many people he takes on, you know, at that point, but has it been frustrating that you have to do this with someone over the phone or it is just still rewarding?

Bill: No. Not at all frustrating. I think that it is as good, even in cases, it is much better than in person. You know, my idea is not too having an in person mentor where I could do what you said, and use it all the time, but sometimes it is nice to just sit down, knee to knee and talk some things over but, you know in our case, we got to do that, every Tuesday night and then anytime I want to pick up the phone, and call, I can do it. So, it’s not like frustrating at all. I find that probably, the more frustrating things that I haven’t taken advantages of that, like I could have and should have, but yeah, I haven’t seen any disadvantages to it at all.

Mitch: People think you know, that because technology is so great these days, I mean, we can get to computers, we can do things, and we can get values and the main thing, mostly what I try to do for you or whoever I am trying to help, ’cause I try just give them confidence, and if their goal is to get free from a job or in case you didn’t had a job, but you had a certain number to meet for sure, it wasn’t a tremendous behind number which I was relieved to hear, I am always relieved to hear when people have low overhead when they wanna go into this business, because it is not a business that you particularly wanna bank on, shoot out of a canon, like a rocket or cannon ball first, you wanna plan kind of a lean year, it’s not a lean– a year and a half  for 2 years, you know, just because if it’s not that way great, but if it’s not that way, at least you are prepared. And like, this is not even your first complete year. But, you are going to make pretty substantial more than what your freedom number was, even in your first year? 

Bill: Oh yeah, way more than I expected and yeah. I mean–

Mitch: So, while I heard you sometimes beat yourself up, a little bit, because you are not getting all the pieces, you exceeded your goals already for the first year, and I am done with first year, I don’t even think we even really– several months ago. You are learning a whole new market that you’ve never been in, that you said you don’t know anybody. You didn’t know anything about those markets. I mean, you really had to start from zero. So, that’s one of the reasons, I chose to call you, because one, you have fantastic nerve because you just got right off and two, I hear you beat yourself up a little bit sometimes, but you really haven’t done bad for the first year. Imagine, if it’s 5 years from now, would you think it will be a little bit better? Things will be easier, do you think?

Bill: Yeah. I am really looking forward to this, well, finishing up the first year, and going into the second year, I think it’s gonna be just phenomenal.

Mitch: And so, and I am not trying to bs my own work, and what I wanna do is like,  take me out of the equation, but how important it is have the right mentor, no it’s not me if you don’t know, get someone else, if you are trying to get a mentor, how important it is to have a mentor, you know, whether you pick Mitch Stephen or not, that’s not the issue, has it been, do you think it was a good decision on your part or would you kind of done different or what?

Bill: Well, yeah. So, let me just say first of all, whether it is you or anyone else that a person feels good about, I think that’s the first thing. You know, you need to trust whoever you are going to use as a mentor, and feel that they have the integrity and they’ll gonna do what you are trying to accomplish together. I believe that it is absolutely essential that you have a mentor. If you want to progress, a little more quickly. You can do it by yourself. Oh my gosh, there is so much to know, and so with the experiences that you’ll gonna go through, that I just think that the trial and error of doing a business is a very dangerous way to go on business, and why do it, whenever you can simulate that, by listening to other people and hearing that they already gone through. One of the reasons I wanted to use you in particular, Mitch, and I will take you on, if you don’t mind, is first of all, I thought of you as a person that has complete honesty and integrity and that is everything to me. The rest of it, is pretty much up to me, but you know, you have 20 years or more experience, so why would I want to go out there, start a business, built over through 20 years of time to try to figure it out, when I could pay you a little bit of money and shortcut that process by you know, say 18 years, let’s just say it took me 2 years to really ramp up and get those things on the way that I want, well, that’s a wonderful investment, don’t you think?

Mitch: Well, first of all, I wanna thank you for the kudos and I told you before the show that you didn’t— I wasn’t looking for that, I was just trying to get your take on life, but thank you, ’cause I know it is heartfelt. And I know that kind of question that you probably wanna ask me, and you know, I have a pretty good sense, I say, you know, it is more than just how much money do you make, because, it is not easy to measure a mentor, by how much money you make where they helped you make. But the one thing that you’ll never be able to calculate is how much money that keep you from losing. Because, you didn’t make a mistake, you’ll never have the number to plug into the equation. And so, I think some of the things that you were thinking about doing, and we said, let’s sit down and re do this, “I don’t think… there is not enough margin, Bill”. And you know what, you are right. You were eager to make deals, and so many new-people just starting out their career, they wanna make deals because they wanna hurry up what they are doing, but it doesn’t do any good to make bad deals, you know, what I mean. You can’t just make deals for a deal’s sake. And so, sometimes, it is kind of hard for the new investors to say, to pass on something, because they really wanna make it work, you know. But, there are some deals that’s just like, “Don’t try to force a round peg when there’s a square peg around holes, just let it be, make an offer and walk away. And if it comes back, great, we’ll take it, but don’t take it like this”.

We’ll gonna wrap it right up here. Bill, but I just wanna let people hear your experience, how many about houses you have on your belt right now, so people got what kind of level you are right, 6,8–10?

Bill: Six houses, I believe. Yeah.

Mitch: Started about a year ago, already exceeded his freedom number by a long shot one of his experiences gonna be certainly gonna be easier on your two right Bills [LAUGHTER]

Bill: Yeah. Yeah. 

Mitch: And you know, struggling to find people on a new market that he never been into his life, and get on to every contractor in the world, until he found the right guy. He even had to go out of town, to pick a great contractor that lives in Austin, and just imported, didn’t you?

Bill: Yes, I did. 

Mitch: Drastic times require drastic measures. I mean you really got bamboozled by one contractor, right? In one of your big rehabs and had to start completely and took a big hit, right?

Bill: That’s true. More than one of them. 

Mitch: Yeah. I just bring it out, because, if man you are out there, brothers and sisters, you are not the only one. I don’t even wanna tell you how much money I lost to contractors my life. I bet if I lost diamond, I lost 8 million dollars, I don’t know, but it’s gotta be a huge freaking number. 

So, thanks for sharing with us, man. If there’s any one last small comment you wanna leave before we go, now it is your time. And—

Bill: All right. I wanna say 2 things, first of all, I’d like to encourage young people who are thinking about getting into real estate, if that’s the thing you really wanna do, I wanna encourage you to do it. And I just wanted to say that, get a mentor, whoever it is, find somebody and learn to bring people around you who can help you out and short cut things for you and keep you from making the mistakes that will be made without a mentor. And secondly, I think that the thing that maybe I learned this year, above everything else is, and it doesn’t have to be the sprint, you don’t have to do everything immediately, and that’s always been my weakest point, I think. I want everything to be done, now. And I think, you could just relax a little bit, take it a little easier, let the deals that are good come, take advantage of them when they do, let the bad ones passed and don’t worry about it, ‘cause there’s plenty of houses out there, plenty of opportunity that will come your way and just take advantage that you can along, learn what you could learn and take advantage of the knowledge of the people who’ve been there before you. And I appreciate everything that you have done for me, Mitch.

Mitch: Bill, thank you very much for taking this time out and come on and show us your heart and soul, being so transparent, for those of you, who are out there, if you knew or just thinking right about it, you can go to 1000houses.com and check out all of the free stuff that I have there. I gave away a ton of stuff. Also, you can tune in for the iTunes podcast, 3 times a week for the next year, it’s the Real Estate Investor Summit Podcast, reinvestorsummit.com/podcasts, it has an S at the podcast, and all lower case, please. And then we’ll get you there. Bill, thanks again, and I hope you have a great rest of the year, don’t bounce on the eggnog, but have a good time, okay?

Bill: [LAUGHTER] will do and happy holidays to you and your family, Mitch.

Mitch: All right, thank you very much. Bye now. 

Bill: Bye bye.