Gary is an active real estate investor in the Bay Area and founder of RealEstateInvestor.com, a website that helps real estate investors build, grow and scale a profitable business with innovative tools and marketing packages. In this episode, Gary will be talking about the cyclical nature of the real estate market and how his platform helps investors find more deals.
Growing up in an entrepreneurial family with a real estate business called Boomershine Realtors, Gary was already a licensed agent by the time he was 18. He went down a different path by taking up computer engineering in UC Davis. He got into consulting during the dotcom era then went into selling software products. Having spent so much time working and not being able to spend time with his family, he and his wife decided to jump into real estate.
His first deal was a house in Bakersfield, California. The seller was in distress and owed $165,000 on his property. Gary knew that the property was worth $205,000. Being $20,000 behind his mortgage, the seller was willing to give Gary $10,000 and let Gary put up another $10,000 to cure the mortgage. Then he would deed the property to Gary.
Not wanting to take advantage of someone in a vulnerable position, Gary instead offered to pay $100 to purchase the house. Back then, short sales weren’t popular. But he managed to negotiate the debt down to $31,000.
Six months later and after renovations, he sold the house and made $181,000.
Unfortunately, the deal didn’t affect the credit of the seller since Form 1099-C for the cancellation of debt did not apply to the purchase of a money loan in California.
From 2004-2007, short sales were very lucrative for Gary. It was easier talking to banks back then. Right now, banks are no longer incentivized to negotiate as they make more money in foreclosures.
When it comes to real estate, it’s important to find what works in this market, duplicate it, and then improve on it. Regardless of the market cycle, if you do it right, you could make a ton of money.
Gary had invested more than $1M in a direct mail company. But direct mail stopped working in 2008. The deal flow from 2009-2012 involved foreclosure auctions and bank-owned or real estate owned (REO) properties. As long as you had cash, you could buy properties very cheaply at auction. Gary had 1,700 clients but because direct mail was no longer viable, he had to stop the business. So he moved to rehab lending and built a company around that.
Real estate follows a seven-year cycle. Depending on wherever you are in the cycle, different opportunities come up. Right now, off-market deals and wholesaling are hot.
The only thing that is not affected by the cycle is a real real estate investor who buys a property and holds it for the long term. This real estate investor takes all the advantages of the asset such as appreciation, depreciation for their taxes, and positive cash flow. Down the road, the investor would do a 1031 Exchange.
A lot of people who call themselves real estate investors are actually business owners. Doing things like fix and flips and rehabbing involves having an operation. They need resources and have to continuously work to make money. So they tend to be more cyclical.
Business owners tend to be transaction-based. But Gary regrets selling every property he bought. He bought a property before in Palo Alto, California, close to where Google HQ is now. He closed on it then for $622,000 and sold it quickly for $790,000. That property today would be worth $2.5M.
Everyone in the industry should never forget passive income and the three buckets for money which are cash now, cash flow, and cash later. Most focus on cash now, but all three are important.
Gary loves being in first-position notes. They give him a nice cash flow. He’s investing in deals in Palo Alto and Menlo Park. Whatever happens, he gets a 9% return.
It is also easier than finding deals as it takes him only an hour to do the work from start to finish. By working through brokers, he gets connected to a deal. The broker services the loan and takes half a percent for their service.
While he doesn’t get the appreciation, he’s looking for cash flow and principal conservation. In today’s climate, he’s not investing for the long haul.
Gary’s involvement in four different markets: Salt Lake City, south of the Santa Cruz area, Central Valley, and south of Portland. He does direct mail to find deals and wholesaling.
He loves making creative deals. Less experienced investors make low-ball offers and get a low conversion rate. But Gary follows a multiple offer strategy, so sellers get a range that fits their needs. An example would be making two offers of either an all-cash deal of $200,000 or a $250,000 deal with flexible payments. This gets the seller interested as they may not need the cash and just want to get rid of the property.
Some sellers want the cash flow, but don’t want to pay the capital gains tax. Gary may offer fixed payments for the long haul. Since the IRS labels the deal as an incomplete sale, sellers can defer their taxes. One of twelve properties they pick up involves a deal like that.
Gary’s about to release a new course on advanced sales training and compression selling. The number one rule of sales is to never make an offer to a seller if you don’t know that the seller is going to accept it. Most don’t know how to negotiate and end up with low conversion rates. So you need to sharpen your sales skills. Eighty percent of deals happen between the fifth and twelfth interaction with the seller. Multiple follow-up interactions are what makes the money.
Not all sellers are motivated or ready yet. Getting your foot in the door could mean that when they’re ready, they might come back to you with your offer. By understanding the psychology of the sale, investors can slow down the sales process and make multiple offers to the seller. Gary calls his sales to process the R.A.P.I.D. model, and he teaches it to those he coaches.
At RealEstateInvestor.com, there is a SaaS platform called Revolutionize Your Business, Reinvent Your Life. There are three components real estate entrepreneurs have to juggle while in this business: wealth building, health, and relationships. This platform helps investors achieve that through software that performs lead generation, lead mining and refining.
They also have an expert team that can do the direct mailing, cold calling, text follow-up, and property research. Most people don’t know that direct mail should be followed by phone calls which can be done by a dedicated inside sales agent (ISA) to convert those leads.
Most investors try to do everything, but prospecting should always be outsourced. Direct mails, cold calls or anything related to lead generation takes a lot of time. Investors should be spending their time dealing with vetted leads. For $10-14 an hour, you could have a dedicated team doing direct mail and phone work.
Marketing is a return on investment. You spend a dollar and you make four dollars. Depending upon the market, it’s a cost per deal. You could spend $1,100 on direct mail and $800 on cold calling to produce a deal with $12,000 in wholesale profits.
Regardless of the market, the return on investment (ROI) is four times. Typically, 45 leads should generate a deal.
Starting February 1, 2020, they will rebrand from REIvault to RealEstateInvestor.com. They’ve recently acquired two software companies that they’ve integrated into what they do. The changes include moving their people from using Podio into their SaaS platform.
Gary also has a podcast where he interviews unique people in the business to learn what’s working and shares it with the community.
Make sure you know where you want to head. Get clarity of your vision and the lifestyle you want, and how you are going to achieve those.
It’s not about getting a hundred deals a year, but it’s about how much free time you have, how much vacation you’re getting, and what’s ending up in your bank account.
Gary prefers passive income. You don’t need $1M or $10M in your bank account. You only need $10,000-20,000 a month in passive income to get absolute freedom to do whatever you want. Think about how you can build passive income to get there and not work anymore.
Know your numbers: your revenue target, cost per deal, profit per deal, and conversion rate.
For those not ready to use their platform, they have a free definitive guide to direct mail marketing on their site. It includes helpful tips such as don’t put a website on a direct mail piece as it cuts down your response rate by almost 50%. Pretty stuff with pictures, branding, and colors don’t work. They’ve done a massive amount of split testing, so they already know what works.
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