David & I Discuss:
How to Find Off Market Deals
How to Build Your Best Lead List
How Price & Competition in affects Your R.O.I
How to Find Motivated Sellers-Real Estate Podcast with David Lecko
David Lecko, founder of the Deal Machine app, joins us on the REI Diamond Show to discuss How to Find Motivated Sellers using techniques including driving for dollars, direct marketing to absentee owners and other sellers with distressed property. The Deal Machine is a driving for dollars app that allows users to simply enter a property address while driving through a specific neighborhood, which then processes the public record for the mailing address and triggers a sequence of direct mail to the property owner. In addition to the Deal Machine design and use case, David & I also discuss a few common questions investors have when seeking the best deals in real estate.
How to Find the Best Deals in Real Estate?
The best deals for a real estate investor to buy are distressed homes. In other word, you have to find deals on houses that need renovations. This is the real estate investors function in in society-to find distressed properties, purchase those properties, and complete a renovation. The end result is a renewal of the neighborhood.
We should identify what is meant by a “good deal” for real estate investors. Anyone buying a distressed property needs to know their numbers: What is the repair budget needed to renovate the property, what is the property worth when complete, and how much can I pay the current property owner for this house and still make a profit? The key here is PROFIT.
The best deals in real estate investing are done directly with property owners who are motivated to sell. This means they are motivated to sell for some reason, perhaps the condition of the house is very poor, or they have to sell very quickly to meet a deadline, or maybe their tenant has stopped paying rent and is squatting in the house. Whatever the reason, the motivated seller has decided they absolutely must sell their property.
So how does one find these motivated sellers?
Well, by marketing directly to them, of course. Investors & real estate agents often market directly to sellers they believe may have a motivation to sell. While bulk you can purchase a bulk list of motivated seller leads, such as a delinquent tax list from list providers such as PropStream, David describes the higher value of developing a list of much more specific properties by driving for dollars.
What is driving for dollars and how does it work?
Driving for Dollars is exactly what it sounds like. You’re driving neighborhoods looking for distressed houses that would make a good deal for two reasons: the house needs work and the owner might be interested in selling their home. You can use the Deal Machine to track your route, instantly upload photos along with those specific addresses, as well as trigger your real estate marketing right from the road. Then anytime you need another deal, you simply trigger another round of mail to the leads in your Deal Machine App
What’s the Best Way to Find Motivated Seller Leads for Real Estate?
David’s favorite method of finding motivated seller leads is to hire a team of hourly reps to continuously drive neighborhoods and add leads to his Deal Machine of distressed properties. You can quickly copy this scale strategy of driving for dollars by hiring your own team of drivers. Listen to the full REI Diamonds Show episode on the Deal Machine, Driving for Dollars, & finding motivated sellers here.
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Register for the Deal Machine Free at www.REIDealMachine.com
Dan Breslin: All right. Welcome to The REI Diamonds Show. David, how are you doing today?
David Lecko: I’m doing great. Thank you so much.
Dan: Cool. So we got David Lecko on the show and some listeners probably already know the name or probably know about the DealMachine. But for anyone who does not know about those two topics and or name, would you mind kind of giving the background, a little bit of history about how you got into the business, and then what business and your app looks like today?
David: Yeah, absolutely. So I originally got into real estate back in 2016. I was working as a software developer. And then I read Rich Dad, Poor Dad. I got interested in the fact that rental properties could bring in consistent cash flow more so than the stock market which you know, can be unpredictable. But as long as I bought my rails for cash flow, I was seeing that I could predict what the growth of my investments would be, and then any appreciation that happened would be just the icing on the cake. I didn’t have to expect it but if it happened that’d be great. So essentially, I went looking for houses that would be rental properties. I didn’t see any that were listed online. None of those actually seemed like they were going to cash flow very well. And then I went to my meetup, found out about Driving for Dollars, and started doing that. I spent about three weeks writing down addresses after work, and so I’ve missed out on a deal because I didn’t follow up enough. I spent all my time driving and I continue to do that. I drove by one of these houses, some construction started. I then looked it up and saw it just changed hands and I hadn’t followed up yet.
So then I realized I needed something that was going to let me pin the house quickly, get that owner looked up immediately, send out the mail, so I don’t have to go home and print it or type it and I didn’t have to have any minimum number of mailers to send one and that’s what I built in the next weekend for myself was like a really basic tool that became DealMachine. But, originally, was just for myself. I was really just trying to hack something together that would solve that problem for me.
Dan: Yeah. That’s pretty interesting. It’s funny, you know, you kind of have this Silicon Valley Tech Swagger with the answer. Yeah, I built this tool in a weekend.
David: It didn’t look pretty. It wasn’t easy for someone else to use. But for the first version, it was just for me. It was just all I needed and it was very basic at that time.
Dan: Yeah, I think it’s pretty cool. It’s pretty cool. How much more effort, energy, and mindset? Did you develop the rest of it or did you kind of have to end up bring it on a collection of engineers or outsourced contractors to bring it to the place it’s at today?
David: Yes. I did the first version myself. When I realized some friends wanted to use that, I put it on the App Store, and from that point on, it started to get some organic traffic. I invited my best friend to be my business partner. So he actually owns the business 50% and then he took over all the development and then I started going to conferences. The first one I went to is Sean Terry’s in 2017, October and started to see if anybody else wanted to use DealMachine after a few local people wanted to and started paying for it. From there, today, we’ve got a team of about 40, this year alone, actually, it went from 15 to 40 employees. And that’s really just continuing to invest in the product and making sure it’s the best that it can possibly be going really deep to solve that problem of driving for dollars and then starting to expand out slightly to provide a great free CRM and also list engine which is for pulling lead lists.
Dan: Nice. So one of the things that, you know, congratulations to the listener who made it this far. Sure, they saw a driving for dollars in the description and they’re like a lot of people turn their nose up at that, right? But I had Zach Booth on the show maybe a couple of weeks back and I don’t think I’ve published the episode yet. But Zach and I were talking about how the driving for dollars list is basically the mailing list that is the least amount of competition and the highest ROI on dollars invested in the advertising spend. Is that the case for you and maybe you want to touch on that a little bit?
David: Oh, yeah. Driving for dollars is definitely the highest ROI, whether you’re trying to get your first deal and you don’t have a huge budget or if you’re a big operator, your cost per deal may be fairly high. It’s a great way to scale a driving team to get your cost per deal down significantly oftentimes cut in half. So for one example that I love to share a simple wholesaling in Indianapolis here. They did like 324 deals in 2019. They started DealMachine at that time too and hired one driver to start covering the city and ended up doing 21 deals from DealMachine so they could compare like what does it cost per deal for marketing and the driver for driving for dollars list and pulling lists. Normally, there’s been like five grand and the DealMachine deals average up to like 2,400. So that was about cut in half at a decent size scale and I like to share that story for that reason.
Dan: Yeah, and it’s interesting and I congratulated the listener right now who was listening for actually tuning into the show in spite of that because I think that driving for dollar, certainly for me. I got it in 2006 and you know, I tried doing the driving for dollars thing and I’ve got these, like, I’ve got like legal pads, full of addresses, and I’m putting them into the tax record and it was a very clunky and broken down system and I’m sure my experience was like a lot of investors and you, kind of, laugh at it, right? “Oh, man, driving for dollars, what the hell is that?” And then here’s this guy in Indianapolis who’s doing, you know, 21 deals at an average deal cost of 2,500 per deal and it’s like there’s a combination I guess of labor and time or paying for it, right? You are, kind of, like short on cash and you have a lot of time, and driving for dollars works for a lot of people who would get into the business and going to do it. But if you have, let’s say, a rehab or somebody’s got like 78 rental properties and they’re flipping maybe 15, 20 houses per year, that ladder investors not really going to have the time to develop their own little driving for dollars platform and the DealMachine plugs in and allow someone like that to throw money at hiring the driver team as you called it and getting to the next level. Could you touch on maybe what the driving team does or looks like and how that fits in and works on your system?
David: Yeah. So, first of all, if you haven’t done five, ten deals, I would highly suggest doing that. But once you do a couple of deals per month your time becomes worth more than $15 an hour if you just take what your total earning is for that month and divide it by 40 hours. And when that becomes the case, the really only way to scale is to start buying back your time. And one of the things quickly that you can do is hire a driver for $15 an hour or if you’re on the coast, you may pay 20, 25. It’s still way better than pulling the list from what we’ve seen and so the way that that works is, you know, I have several drivers. The way I found them was I posted an Indeed job posting for a real estate driver. I got like a hundred applicants within the first couple of days. I messaged all of them because that’s way too many resumes to look through and really tell who’s going to be a good fit is like even a quick test project and it should represent like a hoop they need to jump through that represents something that they’re going to have to do on the job. And so I say, “Go sign up for my team on DealMachine. I can give them a link to sign up as a driver under my account and then as soon as I do that, I’d say, “Add 20 properties that looked rundown.” That link actually has some videos they can watch to learn about what types of properties to add. And then once they do that, I say, “Text me, I’ll Venmo you 20 bucks, and then we’ll set up an interview.”
So that way, it cuts the pool down from like 200 people to four very quickly because only a few people will do that. So for those of your drivers though because if they’re interested enough to do it and they completed the task and you get them excited by giving them a quick payment and they know you’re serious and then I’ll set up the interview and go over, “Hey, I want you to drive at least 20 hours. You can pick your own hours out here when you drive, but I just want you to do at least 20 hours a week for me adding these types of houses.” And then we have a weekly meeting on Friday and I just give them feedback every Friday. I verify their hours and I pay them. That’s actually worked really well for me because then if they’re adding the wrong types of houses, or if they’re taking the pictures sideways, they may not know the pictures are important because we’re putting it on our marketing and so that gives me the routine to just continue to give them that feedback and they’ll learn along the way without it being some daunting task of like, “Oh, man. I have to do this training.” It’s just kind of like a system that operates and that’s worked really well for me and we teach all our enterprise clients to do that too.
So the enterprise client is like the bigger DealMachine plan that lets you have 300 drivers. It comes with a landing page and the training videos and all that stuff, but we developed that just from my process of hiring drivers and making that process smooth.
Dan: Nice. Yeah, we do like the jumping through hoops task. So when I’m hiring for my team, it’s very basic. I love when people are listening to my podcast and then raised her hand to come to want to work for Diamond Equity Investments. Some of my partners, some of my best real partners in my real estate business today have been audience members in the podcast who then raised her hand and they got to know who I was or the podcast and sort of like understand who our company was and why we were the kind of people that maybe resonated with what they were about and why they wanted to be a part of our team, right? They figured our culture from that. So I don’t mind sharing the key to jumping through my hoop, for us was like I’ll have them fax a resume, and like, you know, a 25 or 27 and a 28-year-old guy or gal out there is like man, “What? Are these people behind the times? How am I supposed to find a Fax machine, I don’t even know what that is.” But you’re going to have to solve problems if you’re working for a company. How are you going to sign up a deal from somebody if they don’t know how to use DocuSign, right? They don’t have an email address.
David: I love that. Yeah.
Dan: Do you know what I mean?
David: Yeah. I love that hoop testing for solving problems because most people haven’t faxed something in a long time and them being able to figure that out is great. I’ve experienced the same thing in another test project for another job. It’s been like, “Send me a two-minute video.” And it’s crazy. A lot of people will be like, “Well, how do I send it to you? How do I record it?” And it’s crazy. Then other people will literally just send me an email with a video they upload to Google Drive. I want to hire that person. I don’t want to interview the person that’s asking all the questions. Questions are good, but some questions are just, you know, as demonstrated by the various levels of submissions, I’d prefer to get the person that is really good at solving their own problems.
Dan: Yeah, and it’s like it’s so elementary and to your point, right? Indeed is like such a powerful job attraction platform and there are many out there too but then all of a sudden, you’re overwhelmed by the volume of leads. And so I found that when we’re hiring, you know, there’s cold, ruthless cutting of many candidates there to not even take the time to read the resume they put together and I can disqualify it by they send me an email with the resume. It doesn’t matter if I emailed out my position and say, “Go here that’s where you need to see–” they have to pay attention to the detail in the ad that says to fax it in the first place. So if you missed the details, not only where you’re not inventive and able to figure it out, but you missed the detail, fax in the resume in the first place. That’s a problem. I want you to be able to read a contract and figure out a detail like a closing date or as-is clause or am I paying the closing costs or not, or is there a post-closing possession? You know, there are so many details in our business that that’s kind of critical, and if you miss one on the job posting then disqualified on to the next one, but cool. Let’s talk about your business a little bit. So are you still running driver teams and still doing deals in real estate or is it mostly a software thing for you personally now, David? Talk about that.
David: Yeah. I actually have four drivers to drive 20 to 40 hours a week currently and, yes, they’re acting up the hours and the miles and I like that because you know, even though DealMachine has grown so much there was like a period of time where I’ve stopped doing real estate deals to focus on DealMachine because I felt like it was necessary. I needed to level myself up to keep up with DealMachine, but I’ve gotten back to it because and I love that because that’s the whole reason why I made DealMachine in the first place. And then also I get to be a lot closer to what the experience is like because I’m using it myself. In this case, you know, I’m hiring drivers, but that’s still a user of DealMachine, right? We’ve got 300 plus, you know, those enterprise clients that are hiring large driving teams. So now I get to use it from that level, which I’ve started doing again too to drive leads. So I primarily try to take down rental properties and do as many first strategy deals. So that way I don’t have any money in it by the time we’re done. Does that make sense?
Dan: It does. How’s that working out? Are you in this post-Covid environment that we’re in here in November 2020 for time’s sake? We have tenants digging their heels in and we have banks not wanting to lend money. Have you had the pleasure or displeasure of doing a refi and buying during the last six or eight months?
David: Yeah. So, it’s funny. I was taking down this property or I was actually trying to get a refinance when Covid happened and then they backed out at the very last minute. And so the next deal I did, I actually got two lenders like going all the way to the end at the same time. Usually, you would only do one because then like the title company would have to work with multiple lenders at the same time and I really convinced my title company to like, we’re doing it this way, but they kept complaining and then sure enough the primary lender went dead silent and we had a lock-up ready to go with all the underwriting done. So, that’s how I’ve been handling it. I’ll tell you what? It was frustrating on that first deal. I mean, it could make you lose a deal if you’re not ready to put down the cash for it or if your buyer is not or it could just be really frustrating. So, yeah, I mean the rates are good. So as long as you have a lender that’s going to close you can get a great rate.
Dan: Yeah, true enough, a good time to be buying property lock in these Sub-3 percent rates on owner-occupied and maybe Sub-4 for an investor. Do you strictly do Buy and Hold or do you also do some like fixing and flipping or some wholesaling? I mean, four drivers seem like they would produce more leads than just a rental could handle, or am I wrong?
David: Oh, yeah. So I’m taking it down. It’s got to be a good enough deal to where it’s an amazing BRRRR deal. So I gotta find the good deals. And you’re right four drivers are more than I can handle right now and takedown because I don’t have five general contractors. So I’ve chosen to kind of push the brakes on that but I’ve got all the deals ready to continue marketing once I’m ready to get the next deal. Does that make sense?
Dan: Nice. Yep. So it’s strictly – buy it, take it down, and that’s kind of your strict model then, right?
David: Yeah, but everyone needs a full renovation. That’s the business model of doing like the BRRRR Strategy.
Dan: Yeah. And I asked I’m kind of, like, looking to peel back the onion on that business strategy because there are a lot of people who fit into certain types of boxes. A lot of times somebody who maybe was credit challenged like myself and income challenged like myself, I gravitated toward like my goal was to buy fix and sell houses and I remember thinking, “Man, if I could just like sell house, fix it up, and make $20,000 on that thing that would just be heaven. I probably would never have to work again.” And that kind of happen, I made that much on my first one. I did a lot of the work myself and to me, it wasn’t actually doing work once it happened. It was like, “Wow, I found my thing that I really enjoy and it’s like night and day,” but the business models that a lot of times I gravitated toward flipping houses. And then I figured out how to wholesale a deal to someone else and make a little money on deals that didn’t fit for me or didn’t fit my timing or didn’t fit my budget, it helped to fund the marketing. So like putting wholesaling on there and a lot of people in today’s market are gravitating strictly toward wholesaling property. They just want to buy and sell they don’t want anything to do with construction. They don’t want to hold rentals. None of that. Maybe they’re building cashed up and then you kind of have the BRRRR model and I have a lot of friends actually like Silicon Valley guys and stuff that have really decent jobs. They’re not interested in flipping houses, they are not interested in wholesale and they’re interested in doing what you’re talking about, which is, you know buy them, probably do some work. Maybe not do work and then refi to get out all of the cash or most of the cash and I’m surprised that you’re able to kind of keep this off-market strategy if you will of driving for dollars and having multiple drivers there, cooking with leads coming in and then doing follow-up and all of that to feed the buy, rent, renovation, rent, refinance. I forget the order of it. The BRRRR Strategy. It’s pretty cool that you’re able to kind of keep that consistently going while running the other company.
David: Thank you. Yeah. Well, I mean, I have so many leads like you pointed out. I don’t even have to wait to repeat the mailers to get a deal. It’s just like, “All right. I’m ready for the next one. Let me reach out to everybody,” and then because there are thousands of driving for dollars lead, somebody’s going to call. It’s just a numbers game, you know, and it’s good to repeat your mailers unless you’ve got thousands and thousands of people on your list. But that way you catch people because their house has been run down for so long. They’re not going to just probably be ready to sell it the first time you send him a postcard. That’s why we always tell everybody you’ve got a repeat your postcard just like any good sales advice would say 7 to 10 touchpoints. In my case, because I got the four drivers, there are just so many on the list. It’s a number space, I’ll get a deal if I send everybody one postcard question and out. It’s every once in a while.
Dan: So in a sense, right? This is a little shift in mindset. So like most of the time for me, I’d buy the list, I did this mass marketing and then someone calls in and now there’s a lead in my CRM, but it sounds like the way that you think about your business in the DealMachine is it’s more like the drivers put this in there and that’s a lead in my CRM. And then my touch of all the leads is I push a button and five thousand postcards go out to all the “leads” in your mindset. And now 4, 5, 10, 15 people call at the time when you’re ready to acquire again, but you’re not having to waste the money chasing these deals and marketing if you’re not quite ready for whatever reason – contractors, funding, refis, busy with DealMachine. So you’re able to have your leads on a shelf and then push a button when you’re ready to do business. Interesting.
David: Right. Yeah.
David: So, you’re doing strictly wholesaling yourself now?
Dan: No, I buy rentals. I buy apartment buildings. We do some wholesaling and we do Fix and Flip and we’ve done 231 deals this year so far, obviously, we do a good chunk of deals at wholesale prices. It’s our best year so far. We probably did, you know an equal third in each of Chicago, Atlanta, and Philadelphia, but we’re fixing them up and we’re flipping a good chunk of them. Like, you know, we’re making 20 to 30,000 on a deal because we’re bringing them all the way through to the finish line and we’re selling them retail too.
David: Oh, yeah. Yeah. You said you only keep the ones that meet your buy box and then you wholesale the ones that don’t fit your exact criteria. That actually resonated with me because what I found is if you stick to your buy box, let’s say like my favorite here in Indianapolis is a 1,500 square foot ranch built in the 60s that’s probably going to perfect condition to be worth a little under 200,000 and it’s just so fast. If every deal is that because like, you know exactly what it costs to redo the whole thing because you just did it, you know and your contractors just did it. So there’s just like it really minimizes error and increases speed and so I’ve tried to do that too, not take something down unless it’s just very close to that type of deal.
Dan: Yeah, I remember, you know, I’ve been in the business like 15 years, give or take. But I remember thinking like when I got in the business that I had to try everything and so like I would kick, I kicked myself for 12 or 13 years, David. Like, “Oh, when are you going to build a house from the ground up? When are you going to do that?” In the back of my mind, “When do you build a skyscraper? Like what’s going on here?” Wait a minute. There’s a certain niche. And I get good at it and I build efficiency and like even second-story additions or you know until we got to a point we lost some money on some deals and we didn’t really have a strategy and some of the renovations were really big. We’re in the middle of some big fat losses as we speak right now because we really didn’t have a codified deal strategy. So the way you just said 1,500 square foot ranch built in the 60s and it’s probably worth $200,000 after it’s done, you know what you’re getting into, you know the style of housing, they were all built in the same era and you understand the buy box. And for us, our buy box used to be like, you know, all right, we’re going to make this like spread and like we’ll evaluate each deal and we still do evaluate each deal.
But we’ve discovered our buy box and our sweet spot is – we don’t want to do architectural drawings. We don’t want to be moving walls. It’s one thing to open up the kitchen wall. It’s another to completely reconfigure the first floor of a house and do a gut renovation like in Philadelphia, you have to gut renovation a lot of these very old properties and open the floor plan up, the same with Chicago. Now in Atlanta, a slightly newer build of houses. The era of development was probably post-1950s for almost all the product and even post-1990 for a good chunk of the product. And so a lot of those renovations in Atlanta consists of painting the cabinets and painting the walls and maybe putting some new flooring down and it’s like very basic versus to Philadelphia and Chicago stuff, that’s kind of like cutting the kitchens and bathrooms to the walls, new kitchen, new bath and then kind of upgrading the rest of it, but the housing stocks there both probably 50 years older in Chicago and Philadelphia or more. There are older sections in both of the city’s there just because of their age than you have in the Atlanta market.
And now that we figured out that box and we don’t get into these like long term architectural 18-month renovations, that works for us and it’s the same thing. It’s about speed. I want to be in and out of the project every project I can as fast as possible to mitigate my risk, right?
David: Right. Now you said something I haven’t heard before – architectural drilling.
Dan: Oh, architectural plans, drawings.
David: Oh, drawing. Okay.
Dan: It’s my draw. My Philadelphia draw and the accent so I push it up.
David: I like it.
Dan: Yeah. And as we speak, right? Just because that’s my buy box. I have a 10-unit building where two of the units were illegal and I kind of knew it going in but I thought well, you know a lot of these units in the city, they don’t get picked off. Well, mine got picked off eight months after I buy the building and now I’ve been in a zoning change and I’m getting plans drawn and I’m doing all that stuff that I swore off and said I would never do to try to maximize the value of the deal that I’m already committed to and I own, and I’m going to stay the course and build it out. It probably will be another year and a half before tenants moved back into those two basement units, but I’m in trouble because I got outside of my buy box and so the discipline really goes to show if you write your rules on what you’re investing, what you’re buying, and where, and why you’re buying that stuff from the beginning and you can stick to that. You’ll have a much better time over the long haul for sure.
David: Completely agree. Absolutely.
Dan: Cool. So you have an app that I assume has given you some insight to markets throughout the US and so I’d be curious if that assumption is true, David. Do you have any unique insights, favorite markets, up-and-coming areas, or just like markets around the US that operate weird as a result of your kind of view into those markets vicariously through maybe some of your enterprise clients?
David: Yeah. Well, I mean, you can do wholesaling and find real estate deals anywhere I’ve learned and it’s like when you’re going direct to the seller, it’s just like a pawnshop business model where they needed to get rid of the house. They need speed and convenience and they give you a good price for providing that. So that’s been a point of clarity that I’ve had. I mean, I love Indianapolis. I love Midwest markets like where I’m at. You are in bigger cities, which is pretty interesting. The observation I’ve made about doing deals is actually associated with the price of the market. So in the midwest Indianapolis, there are homes here for like 20 grand. I’m sure you’re not seeing that in Chicago and Atlanta. But there’s kind of a magic number that goes with these like lower price markets. It’s like 300 rundown houses and then you mail them three times each. You’re probably going to get a deal. That’s what we’ve seen. But in Atlanta, it’s probably 600. If you’re in Orange County or Portland, it’s like 1,500, right? But if you compare buying a list to pulling a lead list, which so many investors do successfully as well, it’s going to take like ten thousand leads in Portland, Oregon for you to get a deal. So that just elevates the cost because you’re mailing that many more times.
So basically driving for dollars is like always the lower-cost version. But if you’re in a higher-priced market, you’re going to have to invest more to get your first deal. Luckily, though, you’ll get a good profit from that higher price property and it’ll pay off, but you should just have your expectations right about where you’re at and how much you’re going to need to invest to get that first deal and then deals thereafter. Would you agree with that?
Dan: Yeah, I mean, I think it’s spot-on. It is the metric that you just described. So, you know 300 versus 600 versus 1,500 in Portland. Like, I mean, I guess it’s proprietary information for the people who you kind of already have so I don’t know that that’s like a metric that’s available publicly. But man these are pretty cool views there.
David: Thanks. Yeah, it’s not like a statistic. But what it is is like it’s just an observation to help set expectations correctly based on my experience, which is interviewing all these people who have been successful with our product and looking at their numbers and realizing there’s a correlation there. So I say it not as like, you know, there’s never a guarantee, right? But it’s like expectations are helpful. So, you know what to expect.
Dan: Yeah. And it’s an interesting market that we’re in, too. So like you mentioned with Atlanta and I was on my podcast and one of the guys that came on and he was talking about trend-following and it was a book by Michael Hovel or something like that. But trend-following you could check it out on Amazon. It talks about this guy’s trading strategy on Wall Street and what he’s doing is looking for price action to movement starts, or maybe he’s following the trend of 5G wireless that’s coming online now and you get like a passkey to stocks and you follow that trend up and then you ride it long and hold it longer. A lot of people want to get out too soon. But like you’re actually buying in as it’s rising. So a lot of people see oil or stock or real estate, you know, it starts to rise and they’re like, “Ah, man great take my profit, get out of here,” and then they mentally want to sit on the sidelines and not buy-in because they have this recent memory of the stock was trading at $200 less or the real estate was selling for 38,000 and now it’s 75,000. There is no way they could buy-in.
And so sometimes the newcomer can come in and capitalize on the trend and pay the higher price without the recency bias. And then the 75 goes up to 150 or 200 and so like that’s one of the challenges I think an investor, a trader, an operator in a market should be aware of as that’s taking place to not stop the buying even as the dollar amounts get high and that advice can be like jumping off a cliff and they could get their self slaughtered if they’re not careful. So you have to take it with a grain of salt. I’m not advocating that you just pay the highest price for every asset and keep going and trust that the wind will be at your back. But when I heard about Atlanta in 2016, that was the moral, right? The guy who’s on my podcast. I’ll make a note in the show notes with the link to the episode where trend-following was mentioned. I, unfortunately, don’t recall the name off the top of my mind, but he was talking about Atlanta and he’s like, “Man, these lots, they were going for 50 grand, now they’re going for 70 and we bought them at 15. We’re hanging on and we know they’re going to keep going up,” and I’m like, “Man, I need to be in the Atlanta market.” And there were houses all over the place, you can get them for 20, 25 and the beltline is coming in and you know, it was amazing because now all those same houses are a hundred thousand cash, you fix them up and they’re worth 200, 250. They need a full renovation. You can’t touch any inventory anywhere in there, but you could buy it all for 20 to 25,000 all day long even less and no one would even touch them and that was only four years ago.
And we’re seeing that same kind of thing happened in like the West Philly, South Philly area in the south side of Chicago where the Fix and Flip investor is able to go into neighborhoods, right? A lot of them are more mature, exclusive, better School District neighborhoods. All that stuff. People are flipping houses from 2012 to 2017 and those like a little bit more premium kind of neighborhoods, you know, lower crime, higher desirability and it was product there and they can find it on the MLS. But as the inventory is tightened, we’re seeing this new rebirth of the real estate investor adding value by doing the investing in neighborhoods that they still had investment happening back then, but now we have values where ARVs were a hundred, a hundred and ten in West Philly and we’re seeing them in, you know, a hundred eighty, a hundred ninety thousand in the same neighborhood just like four, five years later. And it’s a really good thing because it’s allowing a great high-quality product to be put out by the investors and really make an impact on the neighborhood as people are buying those homes and it’s just, kind of, overall improvement of the area.
I call those markets like sleeper markets and I think a lot of investors have since picked up on that and they’re not as much of a secret as they used to be like two or three years ago as those trends were just starting to take off and I don’t know how much higher it will go but here we are in Covid and you have all this tight inventory.
You look at any of these charts in most markets around the country and the needles are pegged all the way up for things like medium price and price per square foot. And the days on market is 12 and it should be 38. So, yeah, what are the deals looking like in Indianapolis? Are you guys seeing the same superheated trend here in the last six months like I kind of just described?
David: Yeah. Absolutely. We are. You just don’t think it can go any higher and then it goes higher.
Dan: How do you grab at higher prices? I mean, do you end up, finding yourself paying a little more than you paid like a year ago for a property and being okay with that, or is that hard for you to overcome like it is for me a lot of times?
David: Well, I can’t really buy any deals from wholesalers because there are institutional buyers that are willing to pay almost retail for houses that are run down. And so that’s fine, that pushes the prices up of the properties that I own but the way I deal with it as I have four drivers out there so I can find my own vehicle. There was a time where I think a lot of wholesalers would shoot out deals I’d be interested in and I certainly don’t blame them at all. They should be maximizing their profit and selling it for as much as possible. There are just buyers out there that are willing to pay a lot more than me and I think it is because they are institutional and they’re looking at their long-term analysis, some graph that I don’t have, that I’m not paying attention to. I think that really fits in with what I heard you saying previously.
Dan: Yeah, and it’s, you know, the interest rates are low and they’re watching these Rising rents and they’re tracking population trends and there’s certainly a higher level of market data that are becoming more and more evolved for people to make buying decisions on overtime here. One of the coolest metrics and then we’ll kind of touch back on our driving for dollars topic, but a cool metric that I heard recently to figure out where migration trends were going or coming was the price of a U-Haul then if it was a one-way trip–
David: Right. Which direction?
Dan: Yeah, exactly. And it was very telling like anything in the south. I mean, the Midwest was like, okay. But people are leaving Chicago right now. I can assure you that.
David: Oh, yeah. Yeah, it’s so funny. You can almost make money by driving that U-Haul back or taking it. If you took a U-Haul from Phoenix to San Diego, they’ll about pay you to take it there. Right? Or from Dallas, Texas to Los Angeles, they’ll take it because people are moving the other direction.
Dan: Yeah, it’s wild and it’s weird. I mean, I don’t know how long and how far back the trends go, and obviously population in our country has been going up, you know, over time, you know, births happen. And even though the millennials weren’t having kids, they are starting to have them a little later than the previous generations. There is still a case to be made for the inner city. So like I joke about Chicago and people leaving, the taxes are high, and they’re like that in California, they’re like that in New York City and a lot of cities around the country, but there’s also the talent density that supports the high-paying jobs and keeps a lot of spendable dollars and innovation in these larger cities and in cities in general, whether it is Indianapolis or Chicago or Los Angeles or San Francisco. I mean, there’s definitely this, I mean, we’re not in the greatest of moments with Covid, right? But that’s going to pass and I think that that talent density will still maintain favor for cities around the country and I think that’s a big reason why you’ll still see these large institutional investors coming in and buying the single-family kind of nationalizing real estate, if you will.
David: Right. Yeah, I agree.
Dan: So I like your edge of– go ahead.
David: I was going to ask next like how do you find your deals? You said you did 200, 260 this year so far, right?
Dan: Yeah, we do marketing advertising. So we have our brand and we just spend, we spend money to do it. I mean we’re continuously investing in marketing, whatever it is – radio, TV, letters, postcards. The whole list of usual suspects, except we don’t actually do bandit signs, I don’t think I’ve done that in a long long time.
David: Okay. What’s your reason for not doing the bandit signs?
Dan: I don’t know. I mean it’s blowback. It’s kind of clutter, you know, in the neighborhood. I feel like it kind of gives a bad rap to real estate investors to kind of nail up these signs and that that just doesn’t really match with us. I’m more of like the corporate brand, my brand is more of corporate. You’re never going to catch me doing a yellow letter or anything like that. People call and they know they’re dealing with a big company who’s going to stand behind it. We care about our brand. We care about the way we treat people. We want five-star reviews from everybody whether it’s a buyer or a real estate agent on the buy-side, sell-side. It doesn’t matter. We want to make sure that we left everyone with a really top-notch experience for doing business with our company.
David: Yep, totally get that and respect that.
Dan: Yeah, so you mentioned getting an edge kind of your own personal investing edge and I’m going to add on, it wasn’t your exact words, but you got it from doing off-market deals. And a lot of buyers like on my list, you know, everybody wants an off-market deal and sometimes we send them an off-market deal. It’s just for whatever circumstances but the only surefire way to build yourself a consistent flow of off-market deals is to put together the marketing like we did or like you do on a consistent basis and I think that that’s really cool. I think the DealMachine allows people to do that and that’s part of why I was so excited to get you to come on to show here on, finally make time to make it happen is because I think that the app is really special for someone who’s just starting up and has the time and it is also special for somebody who’s at the enterprise level to be able to kind of like level up again if you will by developing this system. Are there any questions that I forgot to ask you about that or that you would button on to the off-market deal strategy for any investor at any level?
David: Great question. Yeah, I would just say a phrase that really resonates with especially the enterprise size is like scaling to get better not just bigger and I feel really proud of like when somebody comes to us for that purpose. That’s what we’re helping them do is get that cost per deal down, put it in a system in place. So that drivers going to be performing at the peak was that, you know, you have to worry about them following your process. Instead of scaling to maybe another market before they’re ready and that just amplifying their problems. We helped them kind of improve their business that way. A couple of updates you might be interested in is we have route tracking. It tells you how long ago your driver drove, it tells you how long they’ve driven, how many miles. So that way there’s like a lot of accountability for them to report their hours accurately and how you’re paying them.
But a new thing that we are about to launch is actually like a route planner. So you can guide your drivers towards certain zip codes. The system will guide them like a GPS down like every street that would fall under your criteria. And that’s really just like the next level because your driver wants to know, “Oh, where do I drive?” And typically, you know, you’ll tell them what to look for, general area, but I’m really really excited about just adding a systematic way of just organizing your team in that way. So that’s coming out on November 30th.
Dan: Nice. Which will probably be just a few days after this one goes live.
David: Oh, cool, cool.
Dan: Yes, sir. Cool. I know that the time is getting short here. So I have a couple of questions here as we wrap up. What would be one or two books that you would recommend? One book may be a newer real estate investor maybe you wish you read in 2016 when you were getting in and then one book that you might make to somebody who was an enterprise client, you know, doing a lot of business and trying to scale better versus just getting started. Like what would those books be?
David: Yeah, okay. Great question. The Go-Giver, a great one to start out with as you’re learning, try to teach somebody. That really encourages you to make sure you’ve mastered the subject. A piece of advice if I had to go back to my 18-year-old self would be like do one thing at a time. I see it time and time again, every real estate investor is trying to do, you know, let’s say they’re just starting out. They’re trying cold calling, they’re trying emailing, they’re trying yellow letters, they’re trying driving for dollars and trying to pull lead list. But even if the like mastery level like in collective genius, you got to be doing 50 deals a year to get in that Mastermind and it’s frequent like a newcomer will say, “Oh, I learned so much from my first meeting. I try to do everything and then forgot to see what stuck to the wall and now I’m out of money.” So I think just like a solid piece of advice there would be just one thing at a time, master that, and then go on to the next.
But, yeah, a book for enterprise clients. It’s for technology. This is by a technology CEO coach, but it’s called the Great CEO Within. It’s such a beautiful prescriptive book for somebody that is, you know, going from the entrepreneur to like a full-fledged CEO operating a business that’s scaling. So the stuff we’ve learned from that and implemented from that is meeting cadence, leadership team meeting, all-hands meeting. Like what’s the agenda for those? Precision scorecard, so like every one of my direct reports, you know, they’ve got five key metrics. We measure it weekly. Make sure that people are staying on track and that feedback has been amazing. It’s been life-changing. This book tells you how to do it and then like every month, our entire leadership team gives each other like round-robin feedback and you have to give something like tough. It’s got to be real, and the structure is really simple. I can show you if you’re interested.
Dan: All right.
David: Yeah. Basically, you say like, “Hey, I really like that you send these emails out but I wish that–” I like and then I wish. “I wish that you wouldn’t throw me under the bus like you did in last week’s email.” And then they can choose to either accept it or reject it. That’s the beautiful part too, is it just provides a structure so everybody feels comfortable on giving feedback frequently without offending people. And so that little structure there is just like unlocked communication for me and I feel like the rest of our team.
Dan: So is it actually using the terminology? It’s kind of like a template of, “Hey, I like that you sent the emails out, but I wish you wouldn’t have kind of mentioned me that way,” so the I like and I wish template that sort of psychologically, I don’t know, makes it less of an attack if I have it right?
David: Totally. Right. It’s the most simple thing but without it, I myself and then people in general, I’ve noticed on our team that would really struggle because they don’t want to offend them. So then they don’t say anything at all. Or the first thing they say is like, “You suck,” or like that’s how it is received because they didn’t start with like smoothing it over with what they liked. And so it results, you know, before nobody was giving feedback in the first place and then when they did it was like, you know offensive because they weren’t doing it because they were scared to be offending somebody but yeah, the structure just gives somebody like a good framework and then we do it so frequently now, you know, you’re not worried about the person hating you because literally, everyone’s giving this feedback in front of everyone else.
Dan: Nice. I like it. So if you had another crown jewel of wisdom, maybe it was the do one thing at a time. But if you would share with yourself, it could be real estate-related, life-related any type of crown jewel of wisdom that you would share with yourself maybe 2016 when you first got in the business, what would that be?
David: Right. Yeah. I saw that is your question and I got excited and I answered it first already. Got you. I think it applies to all levels is like, you know, don’t start something new unless everything else you’ve got on lockdown and mastered.
Dan: I think it’s also relevant too. I mean, for me, I tried to do all that stuff. Like I mentioned, you know, kicking myself wanting to build new construction, do this, you know, pop the top on a house just because I saw other people doing it, kind of, shiny objects syndrome, if you will, instead of going deep on one particular thing such as you know, could be driving for dollars and becoming really good at that and understanding your market. It could be developing direct-mail campaigns and I spend a lot of my life doing advertising stuff at the helm of the company and that probably wouldn’t be most people’s guess as far as what I would do with my time, but good call. So, David, how can listeners get more information about you or maybe even download the DealMachine?
David: You gotta go to reidealmachine.com. And then, for me, my email is email@example.com.
Dan: All right. Well, hey, I appreciate you closing the doors, blocking out the distractions, and giving us your time here, David. I have pages of notes, and I had a great time. Thanks.
David: Yeah, me too. I really really appreciate you having me on. I enjoyed the discussion. I felt like it was like we were sitting down to have drinks.
Dan: Nice. Nice. Yeah, that’s the goal. Nice conversation. Yeah, cool.
David: When am I going to meet you in person someday, Dan?