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Learning More About Auction Properties with Paul Lizell

SHOW SUMMARY:

In today's show, Larry interviewed Paul Lizell, a fellow mastermind member and a real estate entrepreneurial mogul. Paul has done deals in 38 different states.

He is also the founder of JP Homes Inc. and HouseDealsAmerica.com and has been a successful real estate investor since the late 1990s.

In this episode, they discussed auction properties and many more.

SHOW HIGHLIGHTS:

  • Paul's background
  • How he got started with real estate investing
  • The auction properties he is bidding on
  • Auction sites and how they work
  • Funding the deals
  • Good rate to pay someone for short-term deals
  • Analysing deals
  • Finding local wholesalers
  • Average profit on their auction deals
  • Average hold time on their properties
  • What his team looks like
  • What his VAs does
  • Site he got most of his deals from
  • Finding his boots on the ground and what they do
  • On marketing the properties
  • His typical day
  • His typical deal
  • His advice for those who are starting out

Quotes:

  • “The longer you do this, the better you get it.”
  • “Wherever the deals are, we'll go.”
  • “You bid. You win. You buy.”
  • “You can go deep or you can go wide."

RESOURCES AND LINKS FROM THIS SHOW:

SHOW TRANSCRIPT:

Larry: Welcome to the Brain Pick-A-Pro Show live from Lake Wylie, South Carolina and all the way up to east coast right now, from New Jersey today is my good friend, fellow Mastermind member and fellow investor of real estate entrepreneurial mogul, Paul Lizell. What’s going on buddy?

Paul: Not so much Larry. How’s it going with you?

Larry: Man, it’s going good. It’s going good. You said you’re over at some of the families over on the east coast of north, right?

Paul: Yup. Yup. We’re in Bayhead, New Jersey which is Central Beach, New Jersey. It got a mixed of New Yorkers field out with people that come down to this area. For me it’s great, about 15 minutes from my house in the Suburbs Philadelphia where South Jersey, they got it 2-1/2 to 3-hour ride. So, I like this spot better.

Larry: That’s awesome, man! That is great.

Now, man I am really, really excited about this because you are a mover, you are a shaker, you are doing a lot of stuff and I’m really excited because I’m going to learn a lot in the next 30 minutes or so. So, why don’t you start out and tell our listeners a little bit about yourself?

Paul: So, I’ll give you my background when I started in real estate back in 2002.

Larry: Uh-huh.

Paul: Basically when I started back then I was doing just fix and flips at that point and I was buying all HUD houses and you know a lot about that houses, right?

Larry: Yeah!

Paul: And there is plenty of that…

Larry: A thing or two.

Paul: Yeah, yeah, it still look like. And at that point, like I said, I was just fixing and flipping. I didn’t really get into the wholesaling side. I think I wholesale my first property at around 2005 or 2006. I was doing a ton of fix and flips.

Larry: Right.

Paul: When that market heated up, it was great, but then we had that crash course in 2008. Then I switched my model up, because I got hit with quite a few big losses on the flips just to get rid of them.

Larry: Right.

Paul: Some I kept as rentals and then I just switched to wholesale model with some fix and flips. I went basically 85% wholesale and around 15% or 20% in fix and flips and occasional buy and hold. And then I also got into the owner finance model around 2012 and started to do a lot of the owner financing. I love the owner finance model, it’s great, but of course Dodd-Frank through a monkey wrench I noticed…

Larry: Yeah, yeah, I know. Trust me I know.

Paul: Which is about great, I think they are still working things out with that and we will see where it goes but I’m doing some rentals occasionally now but basic virtual wholesale and buying all over the country. Started my market in Philadelphia area like I said back in 2002, started to grow out around 2008, 2009 timeframe. We started buying in Ohio, Indiana, Carolinas, New Jersey. Then started buying in Florida, Texas. I started just buying all over the place.

Larry: Right, right.

Paul: And the new markets which made a fun.

Larry: That’s awesome. So, you are doing primarily auction properties, right?

Paul: Yeah. All bank-owned properties. Occasionally I got, you know, one that is not a bank-owned property from referrals from somebody. I’d say about 90% are bank-owned properties that I’m getting.

Larry: If I’m not mistaken, you’ve done deals in 38 different states.

Paul: 38 states including Rural Alaska, Delta Junction, Alaska, Eskimo Country.

Larry: Rural Alaska, that’s awesome. That is great. You should keep that one for yourself.

Paul: I should have. I should have gone to visit. It is actually a pretty nice area.

Larry: Oh, I bet so. So, tell us a little bit about the auction properties that you are bidding on, the different kind of auction sites and how that whole process works.

Paul: Sure! Yeah, it’s a totally different process other than a direct mail for sure. You can see Auction.com that of course everybody knows about, you got Xome, you got Hudson & Marshall, you got RealtyBid and of course you got stuff that is not really auction itself like HUDHomestore, HomePath and then HomeSteps for Fannie Mae and Freddie Mac. Some smaller guys out there too but the big guys obviously Auction.com, Xome and Hudson & Marshall, you are buying them, you are taking them down and then resell them. You are hoping to do a back-to-back closing on them. If not, you hold it for, you know, 30, 60, 90 days whatever it takes to move the property. So, additional cost is not quite the same as direct mail. We are hoping it just don’t shrink wholesale but yeah it works, it works well.

Larry: So, you mentioned you have to take down the house. People don’t understand, I mean, you literally have to physically buy it, pay for it, closed it and you own it. Now, you try to do back to back where you buy it at 10 o’clock and sell it at 10:30, but we all know that sometimes you have to hold these things for a week or a month or two, right?

Paul: Yup. Got me additional holding clause there. You know, you got insurance on the property. Utilities if you turn them on because sometimes people wanted them turn on and then this market has been pretty good for us to do some wholetailing for basically a week. To turn it until this on maybe put some new carpet, new flooring in there, some fresh paint to brighten up and then hope to get an FHA buyer or hope to get conventional buyer in there.

Larry: Right, that’s good. Now, you don’t do any work to the property if it’s a wholesale do you?

Paul: Correct. We didn’t work on those. We just basically just turn them, retail this on as is where is.

Larry: That’s good. That’s good. Now, how are you funding these deals since you have to take them down?

Paul: A lot of private money.

Larry: Mm-hmm.

Paul: I recently started to use company called LendingHome as well, which so far so good with them. Their rates are decent. The points aren’t too bad and they do a lot of my particular area here in north east but mostly private money.

Larry: Now, what do you think, because a lot of people, you know, watching the podcast like this, they need to use private money. What’s a good rate to be paying somebody for a short-term type deal like that?

Paul: Rates that go from 7.5% to anywhere as high as 12%. I used to pay as high as 15%, but now they’re able to cut down recently with just having different private lenders there and compete against each other. I don’t mind paying 12%. Honestly, I don’t know points, short-term, it’s not causing a whole lot. I do make minimum guarantees because sometimes it can get $150 and not really going to do the deal, so the minimum, let’s say $500 on a particular deal and if it’s a bigger one they’d be $1,000 on a particular deal just so it’s worthwhile for them and then I will return the money. You got insurance policy name and then the loan was mortgage A, just protect it because it was going to protect your private lender and make sure everything is good there. And then just giving updates, you know, this is what’s going on to property, and have a contract that were expected it settle on such, such a day.

Larry: That’s really good. That sounds like the deal I have with my wife. My wife is my private money lender.

Paul: That’s the best private lender.

Larry: Well, I don’t know about that sometimes.

Paul: That still works, right?

Larry: That’s funny. Yeah, we do a lot of hard money lending and if she has money on the sidelines that’s not doing anything, if I have a deal coming up, you know, a HUD house or MLS house or whatever, I’ll just take it down and she will loan us the money. Which works.

Paul: That’s good.

Larry: Yeah, yeah.

Paul: Absolutely works. Makes sense.

Larry: Exactly. Exactly. So, we talked about you funding the deal, tell us about, I mean you’ve done deals in 38 different states, man that’s huge. That’s awesome, right? All virtual investing.

So, tell us how you analyze those deals… most of them are in the big MSA as I would assume. It’s kind of like me in the Carolinas. They are in the smaller towns in between the MSAs, so tell us a little bit about analyzing those deals, how you do that long distance and then we are going to talk about how you sell them, two or three states away.

Paul: That’s a fun part, you know, and obviously the biggest resource for me besides other wholesales out there… Most of these are listed by a bank REO agent. So, he tried to get a basic idea what they feel the properties were, try to get BPO. They don’t like to give you the BPO because that’s bank’s information but they will ask you a little differently and say “What do you think its worth as is?” You know, “What do you think its worth after repair?” “What type of repair is needed?” So, I speak to them about that through email, through phone calls, text messages, all those. Get an idea there. I also used Zillow. Zillow has improved a ton for being able to get good comps on properties. You can really… Again being in rural areas as you know with Carolinas you really sometimes have to zoom out and get some these things and then you are going to try and compare if it’s a double wide, 3-bedroom, 2-bedroom, 1500 square foot. Double wide you got to compare to those, you don’t want to compare it to a 4-bedroom, you know, 2-bedroom so you can really pull those comps, tie them in and get a pretty decent understanding what the value of the property is.

Larry: Right.

Paul: Also wholesalers and local market, so if I get something outside of St. Louis let’s say and most of these guys in St. Louis knew the suburbs right in and around it that can give you values. They are pretty good resources. Sometimes we will do joint ventures with other wholesalers out there who have buyers in those market which has been a great way if they got more buyers and you know they get referral fees, so it’s a win-win for everybody and it’s usually solve quicker and a lot of times they handle a lot of the process for us on the backend side which helps as well.

Larry: That’s awesome. They also know like the local attorney or title company and all that good stuff too.

Paul: Yes! And all those markets that’s when big things to us. I have been doing this picking different attorneys and closing attorneys absolutely some states are attorney closing states, some are title companies. So, picking different companies out there, the ones that have been good, add them to my list and then I have occasional students too that work with me and refer them over to that list so they get somebody that could help them out with closing.

Larry: That’s awesome. That’s really good. Now, how do you find those local wholesalers? You know, if you are up in where you live and you find a deal outside of St. Louis, how are you finding these local wholesalers?

Paul: Craigslist usually.

Larry: Good.

Paul: Yeah. Craigslist is where we find most of them. Some of them are through the direct mail, so we are direct mailing people, other investors, some of these other investors do fix and flip as well as wholesale, so some will respond to us and they tell us “Yeah, we do wholesaling this market.” Then we start talking to them and they’ll give some pretty good deal. Usually we get great information from wholesalers, fellow wholesalers out there. That’s for sure.

Larry: That’s really good. That’s really, really good.

Paul: Yeah, sometimes the worst probably.

Larry: What do you see is your average profit on your auction deals?

Paul: It’s going up, I’d say from about 3 years ago it is around 1700 and within the past year so we’ve got to close to 11:12 range.

Larry: Sweet.

Paul: Which is pretty good. For a bank-owned property that’s really pretty good.

Larry: That’s awesome. That’s awesome.

Paul: We have some smaller ones, you know, sometimes you only get 3 or 4 grand on, you get somebody get 30 or 40 grand on. So, it averages out.

Larry: Right, right, right. That is awesome. That’s really good. That’s really good. I like that. What do you think is your average hold time on your properties?

Paul: I’d say anywhere between 30 and 90 is a longer hold time, but 30 and 90 days on average.

Larry: Really?

Paul: Sometimes a lot. You know, a lot less. Some of the times we run into where it meant to be 30 days because we are buying it. We used our title company, the investor wants to use a different title company so then we got time in between, right? We tried to get them to use ours but it does not always work out that way, so we have 2, 3, 4 weeks sometimes before depending on what areas that quickly that each recorded. If there is a recording in that area they deal quicker, if there is not, you know it takes time.

Larry: Right.

Paul: If it’s referral, you know, go into the court house and everything takes a little longer.

Larry: Man this is good stuff. This is good stuff man. You are just firing stuff one after the other. That’s awesome. I love it.

Paul, tell us what your team looks like.

Paul: So, it’s myself, I have 2 VAs and I also have disposition guy. My disposition guy who is a full-time actuary, so he does full time and he does his part-time and loves it. Makes pretty good money doing it and he is extremely well versed on the tech side. So, he is really good with the marketing, with advertising and he really could negotiate which is a big-big plus. He pays for how I was averaging before when I was doing this on the sale side. He is earning what I pay him that difference because he is just the better negotiator than I am. So, he is paying for himself essentially plus he is really good. Really talented and he has helped me on the educational side so we started education company last year.

Larry: Right.

Paul: He helped me with that tremendously.

Larry: That’s really good. That is good. I love that. Now, what are your VAs do?

Paul: So, they do a lot on the scrub work for me on these auctions. I’ll send them their certain auction, look for states in the northeast or southeast auction, send them the info, they go through, they do the initial test of contacting realtor, getting that initial scrub of information back. I have the generic email that they send out there that they ask them a few questions if these… If the responses come back and it’s decent, looks like it could be a decent deal then it goes to the next level or I really look at it, I’m going in and scrubbing in myself and then we bid the property.

So, they will just wipe right off the list right from jump, so let’s say there are 50 properties in particular auction, we could probably wipe say 35 off there, some are newer properties, right? Some are just train wrecks and try not to get things under train wrecks anymore because they are harder to wholesale.

Larry: Right.

Paul: And so we are trying to get ones that just fit our criteria, so we could be bidding on just 5, 10, 15 on it at a given auction.

Larry: Right. So, do they determine like if an auction has 50 properties, do they go through all 50 and then you will get down to the 15?

Paul: Yes, they do. Yeah, they do that, the heavy lifting for me in the beginning. They whittled down and get me the say 10 or 15 that are on there then I look at those 10 or 15, I do a further scrub and I might like 5 or 7 of them off.

Larry: Right.

Paul: Or maybe they are all good. It depends on the auction and some circumstances but yeah they do a heavy lifting for me, which saves me a lot of time. They have been a God sent.

Larry: So, what’s the part of what they do to scrub the deals?

Paul: Contacting the listing agent. They speak to them either on a phone or by email. I think we got RingCentral for them so they can actually make calls as they are from the Philippines.

Larry: Right.

Paul: So, they can make calls, text message and also there are no issues with email, so they’ll get the initial, they’ll forward me the email conversation that happened and if it looks like it’s something that’s decent, we go. If it’s a waste of our time, we just push it off there.

Larry: Right. So, they are pulling comps and everyone in the repairs and all that stuff too?

Paul: Yes. So, we have a nice little spreadsheet that we’ve created on excel where they’ll do the after repair value for us, the comps, they’ll put all the realtors contact information in there in that way if it comes back to me and it’s really easy for me to contact the area, this property looks good, email is right here, phone number is right there, so I can just contact them pretty easily.

Larry: Man, that’s really good. You got this down.

Paul: Yeah. Try excel. You know, the longer you do this, the better you get it, right? You create the systems that just make it easier and easier on it and trying to save time because that’s the only thing that really matters.

Larry: That’s sweet. That’s sweet. I love that idea with the spreadsheet. That’s what we do with our HUD houses. We have a spreadsheet that has links to Zillow and Trulia and HUDHomeValue and all that. And a spreadsheet like that, really, really helps.

Paul: It really, really does. It makes so much easier. How are the Carolinas for the HUD properties? They sell pretty good there?

Larry: You know what between North and South Carolina, right now today when we are recording this, there is a little over 60 properties. Like 20 in one state and 40 in the other. So, there is not a whole lot, but of the about 13 or 14 deals we have on the board right now, I think 6 or 7 of them were HUD. So, we are still buying a lot of HUD houses.

Paul: Yes.

Larry: But we make an offer on every HUD house unless like you said, you know, we scrub it, we don’t want that deal, right?

Paul: Correct.

Larry: Yes. So, otherwise, we make an offer of all the houses. So, there is still HUD houses out there. You just got to show in on a lot of them.

Paul: I’m still bidding as well in Pennsylvania and New Jersey, I really don’t utilize them in other states yet just because I don’t have other agents available to do that for me. I still scrub in my local markets because they are great for rentals. You can really pick some pretty easy rentals from this and some wholesale and fix and flips. I mean, all day long you can still find those deals out there. Like you said, you just got to go a little more rural, a little more out of the cities.

Larry: You do. You know it’s kind of funny, I’m sure it’s this way with auction too although you are probably focusing outside the MSAs but we bid on everything, on HUD and it has been over 4 years since I had a house in Charlotte, right?

Paul: Yes.

Larry: And I am in the Charlotte MSA, right?

Paul: Right.

Larry: But literally just a couple of weeks ago, we picked up a house that was listed for 295, they dropped it to 270 something, they dropped it to 262, we got it from HUD for 133 and wholesale it for 150.

Paul: That’s huge.

Larry: Yeah! Yeah! I was really surprised. It’s about an hour outside of Charlotte but we wholesale it to a fix and flip guy.

Paul: They are out there, they are looking for deals outside of Charlotte right now because the Charlotte market is on fire, right?

Larry: Yeah! Just all the MSAs.

Paul: They’ll travel. They’ll do the fix and flips out there. They don’t mind traveling 45 minutes or an hour.

Larry: Yeah, because they want a deal, right?

Paul: Yes!

Larry: So, you mentioned Auction.com, Xome, Hudson & Marshall, RealtyBid, HomeSteps, HomePath, where do you get most of your deals from? What’s your biggest bang for your buck?

Paul: So, the most we are getting from is Xome and Auction.com and it varies from year to year honestly. Two years ago, I gotten probably about 35 to 40 deals from Hudson & Marshall and only about say 15 through Xome and maybe 10 through Auction.com. Well, split this year, it has been more Xome, some from Hudson & Marshall and some from Auction.com but it really depends on their inventory and who the sellers are too. Whether it’s Wells Fargo Bank or Murphy Chase, they have different thresholds. They all have different thresholds what they are willing to take and of course Fannie Mae and Freddie Mac as well and now a lot of the HUD properties. I don’t know when they do this but they take them off the HUD homes several times forward them into Auction.com or Hudson & Marshal or Xome and sometimes they will go back to the HUD HomeStore too if they will get their numbers. I think they are testing stuff on the HUD Homestore with that too.

Larry: I think you are right.

Paul: They might want to get rid of that. I’ve been told they want to get rid of HUD HomeStore but I don’t know why they want to do that, but I think everything to the auctions it could work.

Larry: Yeah. I don’t know why they would either. And Xome used to be Homesearch, right?

Paul: Correct. Yes.

Larry: Yeah, we used to buy a lot off of Homesearch, but I have not bought very much off the Xome since they switched over, last year maybe.

Paul: Yes, last year.

Larry: Yeah.

Paul: Their inventory isn’t huge in the Carolinas right now, not huge.

Larry: Now, is Xome… Don’t they own all of their properties, isn’t they a part of, what’s that?

Paul: Nationstar Mortgage.

Larry: Nationstar.

Paul: They used to give everything to Auction.com back in the day and they decided why don’t we keep it in-house, create our own auction company which was Homesearch.

Larry: Right.

Paul: They did everything to Homesearch and then for whatever reason they rebrand it, they went from Homesearch to the Xome.

Larry: Right.

Paul: Where they do multi different things, they have general stock on a real estate too and then agents that could be listening and connect them and create additional ad news from there but Nationstar Mortgage is the ultimate holder of its own.

Larry: Yeah, yeah. They have a lot of properties on there don’t they?

Paul: They sure do. They sure do all over and they still have a lot in North East Pennsylvania and New Jersey especially slow foreclosures. It takes a while for them to foreclose on themselves. There is still good bit of inventory in our area.

Larry: Right.

Paul: Which is helpful to me just being in the local market, so we are still doing quite a bit our own market even though in years past we have done probably 75% out of our market and only about 20% to 25% in our market. Now, switching a little bit just because that’s where the inventory is. We will go where the inventory is. The deals were basically what drive us as to where we are going to be. Wherever the deals are, we will go.

Larry: I hear you. I hear you.

Paul: Same with your model, right? You go wherever the deals are.

Larry: Yeah. I mean I do focus on the Carolinas. We’ve done deals in 12 different states. I mean, you have deals in more than 3 times as many states as I have. But we have done deals in 12 different states but we do focus on the Carolinas and most of our deals are HUD, MLS, and now we are doing some direct mail and Facebook marketing, right?

Paul: Okay. Facebook has been effective. We have sold some properties through Facebook as well now. We started out this year and so far so good.

Larry: You know what, it blew me away how many leads were generating from Facebook marketplace. We just throw our properties up on Facebook marketplace and we will get like 3, 4, 5, 6,000 views.

Paul: Yeah, it’s crazy.

Larry: Yeah.

Paul: So many people using this. It’s great.

Larry: It’s amazing. It’s amazing. So, tell us, number 1 how do you find your boots on the ground and then number 2 what do they do once you get a property under contract. Are they going out to take pictures? Are they showing the house where they let people inside? So, how do you find your boots on the ground and then let’s talk about what they do for you.

Paul: Gotcha! So, the big company we use is called WeGoLook.com.

Larry: Yeah.

Paul: You probably used that in the past, right?

Larry: Yeah, yeah.

Paul: So, it’s like 69 bucks for 10 pictures like $84 for 20 pictures. You can give them specific directions like take pictures of the foundation, take pictures of the basement, utilities, make sure no plumbing is missing, take pictures obviously in the kitchen and bathrooms to get good idea. We can even pay them individually if we wanted to have a video for view as well.

Larry: Right. Right.

Paul: They will give you short little write up for what they get and that’s basically like an insurance policy. So, let’s say you bid on house and everything looks good, pictures look great but then they go in there then you realized where the plumbing is all missing, a light electrical has been cut out and there is water in the basement, standing water in the basement. You can use that to renegotiate back with bucks. I just did this on one with Xome in New Jersey this past week, so somebody got broken in through the basement windows taken all the plumbing, all the copper and they have taken even ductwork believe it or not. It’s a rancher so it’s easy to work on. Thank goodness it’s a rancher.

Larry: Right, right.

Paul: So, it’s much easier to work with the basement and they cut some electrical and all that which you can just now tie in new juncture boxes and it is easy not to repair but they took $7500 off that deal for us which helps.

Larry: That’s awesome.

Paul: Helping in wholesale.

Larry: That is really good. That’s really good. And it is tough to renegotiate a deal at auction because you bid, you win, you buy, right?

Paul: Yes! Absolutely. Yeah and they don’t like to do that to all. But if you have pictures and they approved, they’ll do it.

Larry: Yeah. Especially proof that something happened to the house or someone broke in and stole something after the fact.

Paul: Correct. Right. It can’t be before that’s for sure.

Larry: Right. Right. That’s good. I tell you another one that might save you some money. Have you ever used BPO Photo Flow?

Paul: No. BPO Photo Flow, I’m going to write this down.

Larry: Yeah. BPO Photo P-H-O-T-O F-L-O-W. They are actually a field service rep that works for asset managers. Their job is to go out and take pictures of houses and winterize houses and stuff.

Paul: That’s huge, lawn services and all that kind of thing?

Larry: Yeah. They’ve got it all. BPO Photo Flow.

Paul: I’m going to utilize them. I really appreciate that.

Larry: Yeah, yeah, that’s cool and I’ve found them when I was strolling Craigslist one day just looking for people to go out and do that and they had an ad to recruit people, to go out and take pictures and they pay this people like $10 or $15 to go out and take pictures of a house and then they charge us like $25 or $35.

Paul: This is small.

Larry: Yeah, yeah. So, I was thinking how are this people making any money and the guy said, “You know, they are not making much money at 10 bucks or 15 bucks but I’m giving them 10 or 15 houses a day to go look at.” Right? So, they are making up in volume.

Paul: [Inaudible] [23:06]

Larry: That’s exactly right. So besides we go look going out and taken pictures, what does your boots on the ground do or do you have any boots on the ground that shows the property, let people in or anything like that?

Paul: So, we do 2 things. If there is a local wholesale we are working with, we will get them to let the people in and then we always, being a bank-owned properties, we always have a lock box on the property whether we put it there or the previous bank or your listing agent did. So, if they want to go take a look at the property sometimes we ask for proof of funds to show they are legit and then give them the lock box, have them go in there and you know take a look at it. It’s a little bit easier that way. It’s better sometimes than a direct mail where if you saw somebody living in there it’s really a pain in the butt to get your investors through the property. It is one of the things I kind of like too about the bank owned taken properties, it is much easier to let people in and out of them. So, always give a lock box there.

Larry: Right.

Paul: Get them in.

Larry: Right.

Paul: You have to be careful because some of these guys will be scammers, seeing your property advertised in Craigslist, wanting to get in there and now go steal all that stuff. That’s why the proof of funds is kind of an important thing to ask them.

Larry: Exactly. That’s really good. That’s really good. Now, do you start marketing these properties right away?

Paul: Yup. Right away as soon as we get them under contract we will market them. Hoping to do the back to back close if not shortly thereafter.

Larry: Good. Now, if you find a local wholesale with this, you are going to let people in the house or whatever and kind of sharing the deal, how do you pay them?

Paul: So, we will give them a referral fee anywhere depending on how much you are doing, what level, 500 to 2,000 or a percentage of the spread.

Larry: Mm-hmm. I’m assuming a lot of times it might be for lack of a better word, a newbie or a wannabe wholesaler or something and they’re like your boots on the ground, I just want to be involved and get a little piece of the deal.

Paul: And they are learning, they’ll get a little piece and they are happy to do it. We have several people who will take $500 per deal, some for a $1,000, someone a little bit more depending on their level of expertise, how good they are and how big their buyer’s list is. Look, if they are helping us move it, I’m fine with paying. I’m happy with it.

Larry: That’s awesome man. That’s really good. Now, what about your disposition guy. How does he… I’m sure he is on commission, right?

Paul: Yeah. And he is actually paid probably better than most deal I ever see out there. He gets 25% of the net profits spread which is pretty big. Most people out there are 12.5, let’s say 15%, but he does so much more and he pays for a lot of the marketing. So, he pays for the direct mail. He pays for the website that we have, housedealsamerica.com. He pays for a lot of this backend things, so he is well working at 25%.

Larry: Man, that’s huge. And for as many deals as you are doing, if I’m not mistaken, you are doing about 5 to 10 deals a month, is that right?

Paul: Yes.

Larry: 60 to 120 deals a year.

Paul: Exactly.

Larry: Man, that’s awesome and you have a very small team to be doing that big deals.

Paul: We do. So keep it tight, keep busy. Not much downtime.

Larry: I love it. So, it’s you and your 2 VAs, right?

Paul: Yup.

Larry: And then you have your disposition guy that does your marketing and sells the properties. Right?

Paul: Yes. That’s right. They work for the occasional stuff for me but not too much.

Larry: Right, right. So, what’s a typical day look like for Paul?

Paul: I roll out of bed, get kid walk to school. And then start getting on the computer anywhere around 8 to 9 o’clock and I’m working a lot, doing a lot of the phone calls and do get rid of the emails and a lot of these things, these auctions that end let’s say nearly afternoon, I will start checking them, following up on them around 11 or 12 and seeing how everything is going. Then bid up to the end. Almost every day, is bidding.

Larry: So, you are the sole acquisition guy. You are bidding on every property yourself.

Paul: Yes. And I do have my disposition guy like I said he will do hubzu.com.

Larry: Right.

Paul: To help in with some of those. I’m setting up, I got a newer VA working for me. She is pretty good. I’m going to set her up to start bidding for me as well especially on days when I’m not going to be there. I goes a lot of travel with baseball and sometimes the auction will end at baseball practice, right?

Larry: Right.

Paul: We are getting in there, so I can have her pickup where I left off. Just give her log in info, just manage all the bidding online. So, I’m going to set her up to be able to do that. The objective is to be able to do that this summer, so she is in good shape to roll that. And eventually, maybe replace me totally and I just oversee. You see, looking every deals that come across say no, yeah no, but that’s eventually why I like to catch up.

Larry: Right. So right now the goal is to move her forward to you pick the number and you tell her to bid up to X, right?

Paul: Yes. Give her the maximum level offer and let her bid up to it.

Larry: That’s good. That’s really good. But how many hours a day that this take off your time?

Paul: For me, you know, it can be anywhere from just 3 to 8 or 10 depending on how much I’m doing. A lot of what we have been doing is paid work trip with these following up with the rentals, right? Following up with the rental contracts, following up with the A to B side contracts, the B to C side contracts. I’m kind of want that off my plate too because I don’t enjoy doing those things too much, so that’s just might be an additional VA or another task for the current VA, one of the 2 current VAs I have. But I don’t want to over burden them either. I got to watch their task load.

Larry: Well, as a business owner, we don’t like the details anyway.

Paul: That’s exactly right we don’t. We like the deals.

Larry: I hate the details myself.

Paul: Me too.

Larry: I just create the mess and I want other people to come along and clean it up.

Paul: Clean my forest. I like it. My mother too.

Larry: That’s good. And you are doing some sell or finance stuff too, right?

Paul: I am. So, that’s actually one of my pride and joy more too. Recently, we just did one and this was a HUD property we picked up in Rural Pennsylvania. We are into it for say twelve five, the buyer came in 6 grand down and we are holding it I think 24,000 was the sale price it’s basically down below what we paid for there and we are into it for about 6 grand still. She pays five sixty four a month in principal and interest so it will be paid, will be made whole in about a year and then we will have 3 additional years of just collecting at that point profits.

Larry: So, you financed $18,000, right?

Paul: Yes. 18 out of the 24.

Larry: And what was your interest rate on that and the term?

Paul: On that one, it’s 9.5%, payable I believe over 36 or 48 months on that one right off the top of my head because we’ve done a few recently here.

Larry: Oh wow! Okay, 48 months is four fifty two a month, 36 is five seventy six.

Paul: That is some 36 months. So, it’s a 1 year and…

Larry: And you are all-in cost on this deal is $6,000?

Paul: Yes, that’s right.

Larry: Watch this now. Let’s see. Your rate to return is 110% if you could see that.

Paul: Gotta love that.

Larry: 110.4% return on you 6 grand, that’s huge man. I love it.

Paul: They are, they are our biggest profit makers, the owner financed deals with rent to own, right? With rent to own is a little different model depending on how many, we could do say what 5 deals per year to an owner occupied person through Dodd-Frank, so if I start getting above that, that’s we start to do the rent to own model or that lease option model. You’ve done both of those in the past as well.

Larry: Right.

Paul: But we have actually done believe it or not in the last 2 years we got ton of owner financed to investors.

Larry: That’s great. That’s great. Now, they put a lot more down too, right?

Paul: They do. They put a lot more down. They want to manage their cash flows that they can be paying us over 5 years instead of 2 or 3 or 4 years which is totally fine. They put in a nice chunk of change down and they are always… We never had one that go bad, knock-knock on wood. It’s always been good. They are all buying, all guys, with a nice class inventory just looking to put less down and they want to put more instead of rehab so they can turn around right it and make some cash flow.

Larry: So, what’s the typical one of those deals look like. What do you pay for? Where do you sell it for? That sort of thing.

Paul: Most of them are finance deals that we got we purchased for between say 5,000 and we try to keep it under 30 and let’s just go at high and say word of 30, we try to sell that for double like we will try to sell that for 60, 65. Guys, the comps like, you know, show us that’s why we can’t do that.

Larry: Sure. Sure.

Paul: We try to double it and get paid over time. Did one in North Carolina. This is one of the commercial deals I did. It was that daycare facility so I was all in for 23 and change, she put 30 grand cash down so I’m hold and I am upholding a 5-year note for her and I think she did so much. I only charge her like 6.5% interest payable over 5 years. That just a huge win for me. I would be in one of those nice 100+% retirement fund investment.

Larry: That’s huge man. I’m assuming you are doing some of these in your retirement account too.

Paul: Yup. That’s where you can really plan your retirement account.

Larry: That’s awesome.

Paul: And am I right?

Larry: I love it man. I love it. That’s great. That’s really, really good. And you don’t do anything to the properties or anything do you?

Paul: No. No. Our objective is to do zero. If it’s local and needs a little bit, I don’t mind doing a little bit if it is local. If I have guys that can go do it. But if it is far away, I generally don’t do much of anything.

Larry: Right. Right.

Paul: Let them handle whole part of the rehab. You have given them a deal and people like going there and create some sweat equity.

Larry: That’s cool. Now, I’m assuming that when you do a seller finance or rent to own lease options, you are now paying your disposition guy based on the amount of down payment you get.

Paul: Yeah. So, he is getting down payment and also additionally with him we will do that long term where as I get paid off, he is going to get 25% of that profit long term too. So, it’s double instead of if he loves doing it, he loves getting the finest model too. He has got good long-term envision as well as I do. So, we are doing that that way as well. Even if he and I may split down the road, but he still going to get these deals and continue to get paid over time.

Larry: That’s sweet man. That is awesome. That is a great, great plan and a great, great model that other people should be paying attention to and list them because he is creating his own annuity but you are creating a loyal person that is not going anywhere.

Paul: He is terrific, yeah. I don’t see any reason why we would ever not be partners on this, you know, in these different type of deals. He has been terrific. He has been a God sent. It is a perfect set up, perfect business relationship more or less.

Larry: That’s awesome man. I just love this. This has just been a wealth of information, a lot of great, great stuff. Paul what would you say to somebody out there that has made me thinking about maybe buying on auction and I know auctions are a lot more risky, you got to know what you are doing to do auctions. It’s not a place you want to start and do your first deal, right?

Paul: Right.

Larry: That’s the first thing we got to tell people right? But if somebody, maybe they have done a few deals and they are looking to get into auctions or they are looking to go virtual and start branching out, you know, because I tell people there are 2 days you can do it, “You can go deep or you can go wide.”

Paul: Yes!

Larry: If you go deep, you got to have a lot of marketing challenge.

Paul: You sure do.

Larry: Or you can go like you do and buy 1 or 2 maybe and go wide which is what you’ve done. So, what would you say to somebody either starting out or want the scale, wanting to get into auctions and doing what Paul is doing?

Paul: The first thing you need to find out from them like for students that come to me is “Do you want to do bigger than just market?” Right? “Do you want to be all over the country or do you want to focus on the market? What is your business model? Do you want to have rental? Do want to try that rentals all around you?”

Larry: Right.

Paul: Because generally we don’t want to have rentals probably scattered all throughout the country. Just a little bit harder to manage with those. I do have a couple kind of scattered, but they just made sense. So, find out what their model is and it go from there because we did the direct mail. We can help them with the direct mail marketing. For us personally, we just like this model of the casting the wide net because there is no marketing cost. The only cost are sending copies like WeGoLook or now BPO Photo Flow out there.

Larry: Right.

Paul: And you know whatever other wholesale we utilize in that market or basically that’s our only cost and the VAs, so we had minimal cost out there. If somebody has good chunk of changes spend, it pays to do that deep dive into their market and really spend some marking money because you can really cover some great deals with direct mail. You can get bigger profit margins in general from direct mail. They can do from the banks. But you also have additional cost. They can cost per deal let’s say they are getting 50,000 spread on their average wholesale deal, for me 12.5 I’m probably ahead of them because this is probably costing more $2500 for the cost of each deal.

Larry: Right.

Paul: And it depends on what their model is. There is a lot of people that will reach to me. They love of course the wholesale model, so they want to learn that aspect from and virtual wholesale model makes so much sense from the bank-owned property. It’s really hard to do direct mail all over the country. You need boots on the ground. You need people there. So, for people that want to do that it’s probably best to do pay-per-click, right? Where you just get in computer leads, aggregating your leads online and you’ll just give them a call, contact, that way they figure out how to get boots on the ground from that perspective, so it really depends on what their model is. Like I said I have a lot of new people coming in. They have some cash, so they have the ability to purchase each properties on auction and it makes a lot of sense for them though. There is more risk but if you properly do your due diligence it is no more risk than doing the direct mail.

Larry: Right. It is also important to note that these contracts are not assignable. You have to close on them so they have to have cash or access to cash, right?

Paul: Absolutely. Yeah, that’s huge. It is important. If you don’t have the cash or access to cash this model is not yours at all.

Larry: Right.

Paul: If you don’t know any private lenders, yeah, you don’t want to get into this because even a buddy of mine who does a lot of this he was blackball by Hudson & Marshall because he had 4 deals he did not close on and they are like “boom.” And it appears for a period of time. They have look into this and it is not legit.

Larry: Right.

Paul: So, unless you are legit… Now for me when I close on so many deals with each of these guys here there is some mistake, you know what I found this out or that out. I just can’t close on this, I can’t close on this deal here.

Larry: Right.

Paul: They’ll give me the deposit back unless it is a HUD.

Larry: Right.

Paul: Get the deposit back at all under any circumstances but the other ones they will.

Larry: Now, what’s funny is with HUD I’ve gotten a few deposits back, not many but a few but it is kind of like the auction stuff. If you can show them something has changed from the time you bid on it until you get ready to close on it, you know, you can get your deposit back or I’ve also have them give me credit like the appliances were stolen one time and they gave just like a thousand bucks or something, credit it and close it.

Paul: And that’s huge. That’s actually big and actually HUD has lesser deposits too, 500 or 1000 deposit depending on the price point on HUD. You know, over 50,000 or 1,000 or under 50,000, 500.

Larry: Right.

Paul: Whereas these auctions, Xome is $3,000 minimum, Auction.com and some of the others 2500. There are some like a Fannie Mae and Freddie Mac they don’t require that 2500 so there are some where just 1000 or 1% of the deal, so you do of a few circumstances are different, but on average your 2500 check 3000 down with most of the auction assets out there.

Larry: That’s right. That’s right. Well that’s good. Man, this has been awesome. How can somebody reach out to you if they wanted to connect with you?

Paul: We have website housedealsamerica.com. They can also reach me via email, it’s my first and last name, paullizell@yahoo.com. Feel free to reach out either way. I would be happy to talk to anybody.

Larry: Housedealsamerica.com.

Paul: Yes. You can see all the properties we have there that we’ve sold over the years, that we still have marketed right now.

Larry: That’s awesome and that’s great. I’ve really, really appreciate you being on. This has been very, very informative. I hope you did not feel like I was shooting too many questions at you.

Paul: You can shoot enough questions. I loved it. Your models are somewhat similar, I really appreciate you having me on this podcast still. I have been following you for a while, Larry. Actually I was at your one of our local Philadelphia Real Estate, it was 2004 or 2005, you had the MLS System out there.

Larry: Right. Right.

Paul: Which I purchased then you guarantee, if you got a deal from us show me proof and I will send you money back, well, I did and you send the money back.

Larry: That’s cool man. That’s awesome.

Paul: It’s a great model. MLS is another thing that people don’t utilize enough. Now, it is tough right now because inventory is tight everywhere.

Larry: Right.

Paul: There are still deals to be found on the MLS. There are definitely still deals to be found out there.

Larry: That is awesome, man. That’s really good. You know, I do a lot of these podcast and it is funny how many people knew the end deal side. “Hey, Larry you came to speak at my area group or I saw you on a webinar or back then it was a teleconference and I got your course way back then.”

Paul: Yup, yup. I think I got your HUD course as well. So, they are all good.

Larry: That’s awesome.

Paul: Lots of good information in there. You are in a finance course I did a few years back just to see what else you had in there that I did not have. It is always good to pay for this education.

Larry: Exactly! Yeah, you are talking about the Filthy Riches course, that’s where the random numbers a minute ago, because I knew when you said you are in that at 6 grand and you had 500 and some dollars a month coming in I knew it was triple digit returns.

Paul: They are the Filthy Riches, they are small little deals like that and the payout is just tremendous on them.

Larry: That’s awesome man. Well, thank you so much for being on. I really appreciate. It is really good. Man, I got to tell you I bet this is going to be one of our biggest viewed podcast because it is great stuff that really…

Paul: I really appreciate Larry. It is a lot of fun. A lot of fun.

Larry: Awesome man. Thanks a lot for being on. I really appreciate it.

Paul: Thank you. Anytime Larry. See you soon.