Lessons from a Flipper
Being part of HiREI has many benefits, and one of them is being part of the women’s group, Hawaii Women Real Estate Investors (HiWIRE for short).
The October HiWIRE meeting was sparsely attended with Gary DeBose as the featured speaker. Gary has done hundreds, if not thousands of deals, most of them using other people’s money and other people’s talents to find/purchase/fix great real estate buys, and sell at large profit margins.
Gary’s style of presentation borders on insulting, and he admits that from the very start. You may decide to bolt out the door, but Aunty sat her butt down and stayed put. It was a good decision even though Aunty’s strategy and long term goal is buy and hold, cash flow rental income from real estate.
Aunty’s notes were very sparse because he talked a mile a minute and his figures, calculations, and projections were presented in rapid fire. The gist of it all was that you could make excellent money buying low, fixing and/or repurposing, and then selling high.
Cash flowing rental real estate is not his goal
His goal is to buy, fix, sell – quickly, cheaply, for as much profit as possible.
One current deal that Gary is working on is a hotel complex – Holiday Inn in a semi rural area on the mainland near a freeway. This Holiday Inn was losing money because of poor occupancy. Using $3,000,000 of investors’ money, Gary secured the title wrapping around the seller’s mortgage (strategy that Aunty has never done), is in the process of renovating the entire complex into a resident care facility (senior citizen home), renting out units until fully occupied and cash flowing at $64,000 per month, and then selling it for $23,000,000. This will net his investors more than double of their money, and a very tidy profit for himself.
This was Wowza. Very Wowza.
Gary has the vision, know how, and fortitude to max out profit, and he does it with a set of formulas and street smarts to get it done.
However, this was NOT a case of, “if he can do it, anybody can do it.”
No, because Gary lives, breathes, and consumes real estate. He puts in a lot of time, talk, and non stop thinking, planning, negotiating, implementing, teaching, growing, presenting, traveling, and juggling. He has a team of hundreds working with him. He is a bulldozer. A very admirable, somewhat abrasive, brilliant bulldozer.
Two ways to join
One of the ways to join Gary’s team is to be a finder of deals. This means you are doing a lot of research, knocking on doors, finding distressed situations, running numbers. If it turns out to be an acceptable property that turns a profit, you get paid a nice fat fee after the property is sold.
Another way is to put money in Gary’s hands (via escrow) and ride behind the bulldozer with him. Results are not guaranteed, but you do get to pick your deal. In some cases, you get paid your portion back plus a tidy return in weeks. In some cases, it may take a couple of years (the Holiday Inn example).
Aunty in the wrong strategy?
After hearing Gary’s presentation, Aunty’s world felt a little knocked over. It seemed to make so much more sense to flip real estate rather than rent and hold. The ROI (return on investment) can be SO much higher doing flips rather than rentals. Why buy and hold for returns of 8%, when you could buy and flip and get returns of 20%, 50%, 200% or more?!
Aunty found herself in a quandary – a state of uncertainty. Not a good feeling for Aunty. Should we be flipping instead of going for cash flow? Aiyaayaa (pronounced eye – yah – yah) – aiyaayaa!
The very next day, as if the sound of angels’ harps strummed through the air, a calmness came over Aunty, and her world was righted back to square. It came after reading a quote in one of the many (many) newsletters that come into my email inbox last night:
“Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth.” – Marcus Aurelius
Aunty can buy/hold/rent and be okay. Gary can buy/fix/flip and be awesome. That was a very nice A-ha moment.
Stick to your guns, even if they are slow
There are several pros and cons for flipping or renting for real estate. [note to Aunty (and please remind Aunty if she forgets..) – write a more detailed post on those pros and cons.]
Most of the speakers that have programs or a call to action for you to join are flippers. Flipping is a rush. It is exciting to buy low and sell high. It is fast money – you get a return of you money PLUS a nice sized profit in a short period of time. It works beautifully, until it doesn’t. Robert Kiyosaki (Rich Dad, Poor Dad fame) calls it linear income – you do a deal, make money, and in order to make money again, you have to do another deal.
Buy and hold income, on the other hand, is not fast. It is slow, but steady. Successful rental real estate will continue to pay you with rental income month after month, year after year, whether the value of the property goes up or down. It’s not exciting, but having cash flowing rental real estate in the right places helps you sleep at night.
Aunty learned not to share what she does with flippers
The reason is that experts who do short term flips can poke enormous holes in Aunty’s and Uncle’s portfolio and strategy. They would be absolutely right in their analysis for their own intentions. They would be not right for ours.
Besides Robert Kiyosaki’s sage advice, Aunty also pays attention to Jeff Brown of BawldGuy.com. He builds a blueprint for clients ($3,000) – even for clients that don’t always follow his advice (ahem, perhaps Aunty needs to learn to listen to him better). Please read an article he wrote for Bigger Pockets back in May 2012, “What’s your End Game?” This was an excellent article about investing to grow funds rather quickly in order to be able to slow down later.
Flip to make money
Does Aunty ever do flips herself or with others in joint ventures? Yup, you betcha. The best way Aunty has found to do short term flips is in a checkbook Roth IRA because of $0 taxes, and zero tax filing requirements. Zero!!!
We sometimes flip in joint ventures by forming an LLC in Hawaii (cheap – lucky we live Hawaii). Our Hawaii LLC goes into a contract as a partner, or sometimes just as a lender, the controlling partner does all the wheeling, dealing, arranging, paperwork, etc. and at the escrow closing or other agreed upon time, we get our investment back plus profit or dividend (for which we file on our tax return and pay taxes). Gary DuBose could be someone that we would invest money with – if and when we have enough to do so with. His minimum investment criteria is $100,000 with potentially awesome returns.
What Aunty learned
Gary DuBose is a certifiable and proven expert that knows how to make a ton of money flipping real estate. He flips for his income, we do not. Regardless, Aunty is grateful for the information that he shared with us at the HiWIRE meeting.
Of great value to Aunty are a couple of tools for evaluation that he gave to us:
bestplaces.net is a website that is free and very useful. Enter the zip code of the area that you want info on in order to see tables listing by population overview, statistics, and info galore. For real estate purposes, select the “Housing” link. Make note of the information given for the average household size (HS) and average household income (HI). These numbers are specific to the zip code that you input.
Apply these numbers to Gary’s formula of HI/HS x 1.85 x .31. In human talk, that is Household size, divided by Household income, multiplied by 1.85, and then multiplied by .31. Divide this number by 12 to get a monthly figure. This monthly figure is what you could expect to get as monthly rental for an average 3 bedroom house.
Next, go to rentometer.com. Enter the zip code or address of the property you are researching and input that number (expected monthly rental) into the rent/mo box and the number of bedrooms of the unit. This website will compare your property to others in the same neighborhood and show if it is too low, too high, or just right.
Another great and very simple tool to find out what your mortgage payment will look like for any loan amount at a specific interest rate is Karl’s Mortgage Calculator. This is an easy way to find out what your mortgage principle and interest payment will be – taxes and insurance are not included.
Mahalo to Gary and HiWIRE
Aunty did not go this month’s HiWIRE meeting with any expectations other than meeting up with Martha to give her a book (The Slight Edge by Jeff Olson), and to socialize with the other wonderful ladies. It turned out to be a powerhouse meeting that had me wired (oboy) for hours after because of SO much information from Gary.
Gary does have a website: thedealfunders.com with his contact info and upcoming events.
Aunty is very glad that she set herself down, put on her listening ears, and came away with much more than when she arrived. Gary even sang his latest marketing jingle – what a great voice!
In retrospect, Gary sorta kinda looks like Honolulu Bulls head coach, Phil Neddo. Both are bulldozers, both are fearless, both are sons of preachers. Hmmmm. I wonder if Phil can sing?