“Dominate your real estate market”
“No Money Down”
“Flip your way to wealth and security”
Business #12 was an experiment in following the news and the hype. The collapse of the housing market made waves across the world. Several TV shows popped up showing people scooping up cheap real estate for next to nothing. With foreclosures all around, the business of buying, fixing, and selling homes for a big profit seemed possible. We thought it was a good fit because many of my companies did residential work like electrical, HVAC and gutters. I could give these businesses more volume and save money on hiring outside subcontractors. We also thought our wives could help us with the interior decor like fixtures, paint, kitchens and carpets. So, we tried it.
We started by creating an LLC and funding it with enough money to buy our first house. Then we pursued our real estate licenses in order to save the commissions when we sold the homes. It is not hard to get your real estate license, you just need to buckle down and study for the test. There was some useful information, but it was mainly a “cram and exam” process. We signed up under a broker in southern California that would allow us the freedom to do our deals the way we wanted. The broker charged a fixed fee (very reasonable) per transaction for assisting with the paper work and providing errors and omissions insurance. It was a great deal and his office was very helpful.
We started by tracking foreclosures in neighborhoods we knew well. We tried to purchase foreclosures from the banks, but found most of them were very hard to work with and they did not price their homes properly. We then went to the court house steps and find out what buying homes at auction was like. For those that don’t know, the courthouse steps is where daily auctions are held to quickly sell foreclosed properties. There did not seem to be a rhyme or reason why some houses found there way to the court house steps. It seemed like the banks had foreclosure reduction quotas and if they could not sell enough houses the traditional way, they would auction off some of their inventory.
Everyday we would do drive-by reviews of the houses coming to auction. The rule of law is you should not trespass or cause damage to the home as you inspect it. We mostly looked for cosmetic fixes: carpets, paint and some drywall issues. We did not want major structural problems or serious plumbing or electrical work. Sometimes we would come across other bidders doing inspections in a very aggressive way. If the house was empty they would break in to get a close look.
The experience on the courthouse steps was a trip. When we showed up there was a whole cast of characters. There was the gangster, baggy pants, cap turned on 45 degrees, Bruce Lee, Danny boy (doing an Irish gig), Lindsey Lohan and Charlie Sheen look-alikes complete with his tiger blood. Here is the deal: all of them were packing a million dollars in cashier’s checks. All of them had a neighborhood they were after and they were very protective against outsiders. When newcomers arrived they would often start telling horror stories to deter would-be buyers. They would say things like “Do you remember when that guy won the bid on a house only to find out it burned down the day before?” Or, “I just saw someone that bid over $100,000 on a 3rd mortgage thinking it was for the first mortgage!” Admittedly, it was a little intimidating. The dishonesty of the bidders carried to the auctions. We saw obvious bid-fixing, secret deals and signal calling from the McDonald’s across the street. Over time, the authorities began catch on to these illegal activities and people across the country began to be charged with fraud.
We stayed focused and did buy some homes, but it was no slam dunk. In the next article we will cover the fix and flip side of the story.
Keys To Success
The everyday players have deep pockets
They regulars are educated on values, liens, judgments, and loans
Know your costs to purchase, fix, and flip.
Come ready to play and when your houses come up, jump on them
Operate with a strategy, i.e. resales, rentals, lease to own