Who is Phill Grove. Interview Series. REISecrets.com. An Interview With Phill Grove. 12 Ways To Buy and Sell Real Estate

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1 Who is Phill Grove Phill Grove is the Founder and President of Love American Homes, and Hippie Hollow Homes, LP of Austin, Texas. These companies provide real estate services to investors and real estate agents nationally. Services include short sale transaction processing, partnering, training and mentoring, marketing services, mortgage assignment (sub-to and owner financing) assistance, and more. Since 2003, these companies have managed over 1000 short sales, and bought, sold, and/or renovated over 100 foreclosures, renovations, and construction projects working with over 100 partners and clients. In addition to running these companies, Mr. Grove is an active member of the Texas real estate investing community. Mr. Grove helped establish the Texas Association of Real Estate Investors (TxREIA), a statewide association created to promote ethical standards in real estate investing. Locally, Mr. Grove is active in the Austin real estate clubs as a board member of the Austin Investment Club (REICAustin) and the President of the Austin Networking Club (Austin RENC) - the largest investment club in Central Texas. Mr. Grove has also personally trained and coached hundreds of Investors on the 12 Ways to Buy and Sell, as well as marketing and lead processing strategies that work, and business planning strategies needed to build a successful real estate company. Phill is currently mentoring numerous students through the Love American Homes Mentoring Program. He graduated from George Washington University with degrees in both Electrical Engineering and Computer Science. Born of western Kansas roots, and raised in the North East, he got to Texas as quick as he could, and became a full-time real estate investor in 2003 after retiring from a successful 16 year high-tech career, where he worked as an electrical engineer, field applications engineer, sales person, sales manager, national sales manager, marketing executive, and ultimately as a director or vice president of marketing for a Fortune 500 company and several start-up companies. Mr. Grove began real-estate investing part-time in the mid 90 s and now owns many properties throughout central Texas. Phill has been living in central Texas since He loves spending time with his wife, Shenoah and their new son, Zilker Moon Grove. They reside in a 10,000 foot estate (they got through a short sale) on 2.5 acres in Barton Creek of Austin, TX. Phill is an avid techie and loves working on his home automation projects. Their home was featured on KXAN News as Austin s Most High Tech Home REISecrets.com

2 Welcome, ladies and gentlemen. This is Stacy Kellams and welcome to another one of my world famous Interview of the Month series. This is my What s Working Now series where every month I interview an underground real estate investor that you ve probably never heard of before but who is quietly doing deals right in your own backyard in most cases. I get them on the phone and I put them in the hot seat and I grill them for an hour. In this month s interview, I m going to be talking to a friend of mine. His name s Phill Grove. Coincidentally, he s in my own backyard. He s been quietly doing deals here in Austin, Texas for the last seven or eight years. Phill is literally one of the largest real estate investors that I know. We ve become pretty good friends here recently. I ve picked his brain a lot and I said, You know what? I need to get you on a call. I need to let my listeners hear about all these cool deals that you ve done and how many you ve done. I ll let him tell you more about how many he s done. It s a phenomenal amount of deals that he s done in such a short period of time. We ve got a super great call lined up. If you re driving in your car right now you don t want to take notes. But if you re not driving in your car, I would grab a pen and paper and get ready to take lots of notes, because Phill is going to set your mind on fire for the next hour or so. Phill, thanks so much for being here. Stacy, glad to be here. 2

3 All right. Cool. I told them just a little bit about you, not a whole lot. They know you re here in Austin. You ve been in the business about seven or eight years. Why don t you tell us how you got started in real estate investing? What were you doing right before you got into real estate investing? What was going through your mind when you decided to make the leap from corporate America, I m assuming you were in I think you told me before you were in corporate America, over to real estate investing? What was going on back then? Well, I had worked in corporate America for many years. As things will happen, I just kind of fell out of love with my career and industry and everything else. I just wanted something else to do. It was getting hard to get up in the morning and look forward to what I was doing. I didn t want anybody telling me how much money I could make and where I had to do, and I didn t want a boss. I just wanted to do something different. So, I kind of started a journey, didn t know right away, Stacy, that I wanted to be a real estate investor. I had no idea. In fact, I didn t know what I wanted to do. I just needed to do something. Oh, interesting. I thought you knew, I m going straight into real estate. So, you looked around a little bit. No. I bought Entrepreneur magazine, 100 businesses you can start. I looked at maybe joining a start-up. I looked at buying a business or starting an Internet business or I even looked at opening a 3

4 restaurant. I just looked at all sorts of things. Wow. And not knowing what I wanted to do, I decided to write a little list of what I wanted to accomplish, and I knew what I wanted to accomplish. I wanted something that was interesting. I wanted to be able to make as much money as I was willing to work for. In other words, I don t mind working, but I don t want anybody telling me you can only make this much money. I want to make as money as I m willing to go out and make. And then, I also wanted something that would not just build, generate income, I wanted something that would generate wealth. I wanted to just build a business and eventually I wouldn t even have to work in anymore. In other words, I would just get my check every month whether I showed up for work or not and that s a tall order. But after studying a bazillion things, I m sorry, go ahead. I was just going to say, so at that point the restaurant idea went out the window. Yeah, right. After I came up with my criteria then I started crossing things off of what wouldn t work and kind of the last man standing was real estate. I figured out real estate I could flip houses I could do as many as I wanted and I could generate income that way. I could build a portfolio of rental properties to generate passive income for me. 4

5 It looked very, very interesting. Certainly, we all know people who ve made a lot of money in real estate. So, I figured out, this is clearly a business you can make a lot of money in, you know, I just have to figure out how I can do that. Right. How long do you think that whole process took from the time when you really started getting dissatisfied with corporate America and then you started this whole journey on what am I going to do next? How long did that take? Honestly, it took me about three years. Oh, okay. It wasn t like I m going to quit and try and do nothing for three years. But for three years, I was kind of like not in love with my job. I actually switched jobs and did something else to kind of bide my time as I kind of figured out what I wanted to do. It wasn t until 2003 that I figured out, yeah, real estate is it and I started studying real estate. Okay. All right. I m assuming you started like most people, you didn t just run out and put a deal under contract. You didn t on a Monday say, I m going to be a real estate investor, and then go put a property under contract on Tuesday. Right, yeah. No. That d be nice. I probably did, my guess, is exactly what everybody did. I went to the bookstore and I bought a bunch of books. I have to tell you, I don t learn that way. 5

6 I kind of read through the books, I got to page 5 and fell asleep. And then what I started to do is started to go to real estate clubs. That was very helpful. I met other investors that were doing this. I actually found two guys just kind of on that journey that had been there and done it before me. That s kind of how most people, I think, get into this business. They find somebody who s successful and they say, Teach me what you do. Right. I actually had two guys that ended up becoming mentors to me that were giving me advice. I always like to tell this story. I bought my house on December 15, On December 14, 2003, I called both of my mentors up, because I was scared. One guy, I m not going to give their whole name, but one guy s name is Bob. Bob walked through the numbers with me and says, Yeah, don t worry. This is a good deal. It makes sense. You did your due diligence. You ll be okay. Go get them, kid. And my other mentor, a guy named Rudy, Rudy had a little different style. He basically said, Damn it, if you don t get your butt down to that title company, I m going down there and taking the deal from you. If you knew this guy, you knew he was telling the truth. I actually do know who you re talking about, I actually talked about that, but I do know Rudy. 6

7 So, yeah. That was very inspirational to me. With two guys kind of giving me a little advice and encouragement, I went off and did that first deal. Awesome. That s exactly how it went down for me too. I had two mentors. I remember I was shaking in my boots the day before closing thinking, Oh, my God. I m about to make the biggest mistake of my life. But I did my due diligence, just like you did. I wasn t looking at it just through my eyes. I had two other very experienced real estate investors by my side saying, Yeah, go for it, kid. This is a deal. Like you said, If you don t do this deal I m going to. I ll take it from you. You break through the fear and you do it and then you get on the other side of the fear and you re like, Oh, hey, cool. There wasn t anything to be afraid of after all. Yeah. Once you get over that threshold, once you get the first deal under your belt it s all downhill from there, then you re hooked. Exactly. Well, let s talk about that first deal for just a few minutes. How d you find that first deal way back then? Yeah, I spent a number of months looking for that deal and doing a variety of different things. I actually subscribed to a service online, a lead service, so anybody that would go to this website they d divvy up the leads by county. I subscribed to this service and they were sending me leads. 7

8 And then, I called the person on the phone, didn t know, it was not my very first lead. I had had some other leads, just like everything else. The first time you start talking to people that want to sell their house you don t know exactly what to say and you re a little clunky at it. But I had talked to a number of people just responding to a number of leads. And then, by the time I talked to this woman I had a certain level of comfort, not total, never bought a house before. But I had a series of questions I went through and I got the information, and then I actually went over to her house and talked to her some more. It was a very dilapidated house. She had had some dogs in the house that had really just ripped the place up. Her husband had died several years before. She was in pretty significant financial distress, hadn t been able to take care of the house. The house needed like $25,000 of work. My first reaction was, Oh, my God. Look at this place. It s a mess. We as investors, we walk into these houses that are just totally destroyed. Now, I m totally used to it. When I smell dog poop it s like the smell of money almost. Yep, yep. But when you re a brand new investor you re like oh my God. If anybody s listening and watches that TV show Hoarders Yeah. 8

9 Yeah, that s what a lot of these houses are like and you just can t believe people even live like this. I was a little shocked, but I tried to keep my demeanor. I put together some repair estimates. I got some contractors out there and I made an offer. I paid a little bit too much for the house, because I wasn t very good at negotiating, frankly, but it was a good enough deal. It was a solid deal. Okay. It s funny that you mention the smell of money and cat urine does that. Yeah, yeah. If you walk and you smell cat urine. I remember the first time I walked into an ugly stinky house like that with my mentors, before she took me in to see the house or houses like this, she was telling me on the phone, So, here s what I do, because I ve done what you did I found a successful real estate investor and I started picking her brain. Tell me what it is you do. She said, I buy houses for basically 50 on the dollar, this is way back when. She s like, So, if I m buying a house that s worth $60,000 and I 9

10 buy it for $25,000 or $30,000. And I m thinking to myself, What is there like a rift in the space time continuum? How are you going back in time and buying these houses? And then, she took me in one and I was like, Oh, I get it now. Yeah, yeah. Yeah, there s definitely that first shock that most of us had some experience in the retail world of buying on the MLS and working with realtors and just kind of what normal houses look like. And so, there s definitely a shock when you start looking at the kinds of houses investors buy. Your first reaction s going to be, Oh, my gosh. Who would want to buy that? But that s what money looks like. Yeah, then we make them pretty again. Actually, what did you do with that deal? Did you wholesale it or did you fix it up? No, I did a full-blown remodel on the house. Oh. So, I bought it for, I think, the numbers were $80,000 and I fixed it for like $45,000. I over fixed it to be honest, which is a common also new investor mistake. Yep. 10

11 I hired some more expensive than necessary contractors and made it really nice, because I was making it a house that I would live in. You have to remember as you re an investor it s not your house. You re just holding it for the next guy. But it didn t matter. The numbers were good. If you buy these things right even if you pay a little too much or over improve a little you re still going to do just fine. Ultimately, sold it and made about a $15,000 profit, net profit after all expenses. Awesome, awesome. And then, you did the happy dance. Then I did the happy dance, yeah. So, I was hooked. At that point, it was like, wow, this really works. New investors are very skeptical. It s just hard to get them to believe any of this works until they actually finally get that check. It s like, Okay, it works. I agree. Awesome. I know you were very good with the money that you made off your first deal. I see a lot of new investors that they get that $15,000 and then they blow it immediately and they don t put any back into marketing or anything like that, which obviously is very important to your business. With that very first money that you took in, that $15,000, did you allocate a certain percentage back into marketing? What was going through your mind? Now I d proved to myself this thing works. Once I proved it works, 11

12 now it s just a question of I want to do this over and over again as many times as possible. If this works once, then it should certainly work 10 or 100 or 1,000 times. The next immediate goal I had was let s do the next 10. I love it, not let s do the next one, but let s do the next 10. You got it. I love it. I forgot to mention at the start of the call, how many deals have you done since that, that was the end of 2003, so maybe we say You ve done thousands of deals now. Yeah, I ve done somewhere in the vicinity of 1,200 deals. I m not keeping detailed records on it. I have a business that does a lot of short sales. I was doing a lot of marketing and finding, surprise, surprise, a lot of people that were motivated sellers that needed to sell a house. They didn t have any equity. So, I realized I could make money on those deals with short sales. See, my philosophy is I want to make money every time somebody calls me and wants to sell a house. I use many different, basically 12 different strategies, to make money on anything that I find through my marketing. Whether they have equity, I ve got many strategies for that. If they have no equity, I ve got strategies for that. One of those strategies was a short sale. I started to kind of systematize that business. You know me enough to know I ve actually systematized all of my businesses. I started doing a lot of short sales. That business just ramped up 12

13 and took off. I ve actually done over 1,000 short sales. We don t even keep track of exactly how many we do each month, but we ve done over 1,000 of them. Awesome, awesome. How long had you been investing, then, before you did your first short sale? Do you remember when it was? Yeah, it was, gosh, one of my very first deals. I kept talking to people that wanted to sell their homes. Like everybody, I watched that stupid TV show Flip That House, and I believed that the only way you could be a real estate investor was to come up with money and buy a house and fix it up and sell it. Turns out, that s actually probably the riskiest of all the strategies. Yep. But that s what I knew and that s the first deal I did. That is speculating. Yeah. If you buy it right and manage it well it s very profitable. I still do a lot of those projects. I ve actually got eight renovations I m working on right now, so I do plenty of those. But it is. It s really not the best new investor strategy. It s a higher risk, takes a higher level of expertise. I don t really recommend it 13

14 for new investors as much as some of the other strategies. But I had all these people calling me and they all wanted to sell their house. They all owned a house and the house was worth $150,000 and they owed $150,000 and they needed to sell it, because they had lost their job or they were getting a divorce of whatever it was. I was just throwing away all those leads. I was like, Well, I can t help you. Sorry. I can t help, sorry. Well, I can t It kind of felt like the deals that had a lot of equity in them were kind of a needle in a haystack. I had to go through a lot of leads to find a deal that had a lot of equity in it. So, I ended up talking to another investor at a real estate club. I was telling him, Gosh, I m finding all these things. I can t seem to make money on them. He says, You can make money on those. It s like, How? He says, You can do a short sale on them. I was like, What s a short sale? And he says, Just offer the bank less than what they owe. I said, Why would the bank take less than what they owe? 14

15 He says, The bank doesn t want the house back. I was like, Oh. Okay, how do you that? And I ended up talking to one of these people that had a house under water. I called their bank and I told them what I wanted to do. The bank practically didn t even know what I was talking about. To this day when you say short sale to a bank they pretend like they ve never done one before. But I stumbled through it. I said, Do you have any procedure or paperwork? And they sent me some paperwork and we filled it out with the homeowner. Lo and behold, the bank came back, and sure enough, they agreed to take less than what was owed. I was like, Oh. That s really cool, and then I started systematizing that business and started basically saying, Gosh, if I can just get all the paperwork together every time we get one of these people that calls me I can have them fill out this paperwork and we can do this short sale thing. Yeah. Well, now, I know just because I live here in Texas, we have a very fast foreclosure process. Short sales can take a while. You had a pretty steep learning curve on those short sales I would imagine in the beginning. Yeah. Correct. 15

16 I don t want to necessarily turn this into a short sale call, but let s talk about that, because there are a lot of short sales out there right now. What did you do, especially here in Texas where we have such a fast foreclosure process? How are you able to do so many of these short sales and make money? I tell you, the best short sales I was getting before they were on the foreclosure list, because I was doing marketing and people were calling me just when they wanted to sell a home. They had maybe started falling behind on their payments, but they weren t so far behind that they were going to get foreclosed in the next 21 days. Okay. So, most of these people had fallen behind on their payments. They had probably called two or three realtors to say, I need to sell my home. And as soon as the realtors looked at the numbers, the realtor said, I can t help you. And then, out of desperation, they re calling any number or bandit sign or whatever they saw. Somewhere along the line they stumbled upon me. I was the first guy that said, I can help you. And doing short sales, I ll tell you it s the easiest thing in the world. You don t have to negotiate anything or tell the seller you re going to do this or that or whatever. As soon as you tell the seller you can help them, they re like, Oh, wow, gosh, that s the first time anybody told them that. 16

17 It s very, very easy to get people signed up for short sales. They just wanted to avoid a foreclosure, the bank just didn t want the house back, and I was willing to negotiate and put all the paperwork necessary to make both people happy. It wasn t that hard to find them and it wasn t that hard to do them, although it does take a long time to your point. Yeah, I was going to ask you, what s the average, have you ever calculated what the average length of time it takes for you to do your short sales? Yeah. It s gotten worse in the last couple of years, by the way. It used to be between two and four months. And now, it s relatively uncommon to get it done in two or four months. It s closer to five or six months. But some of these things, we had one a few weeks back that we closed after 17 months. It just goes on and on and on. Wow. That doesn t mean that you re like buying a house or putting money into it or whatever. It s just a big long waiting game. It doesn t cost you anything, but you get the paperwork started and you kind of just go back and forth with paperwork forever waiting for the lender to get their act together and respond to you. The lender is just so overwhelmed that it takes them a long time to respond. We get these deals started and we get more of them started and we get more them started. We just kind of work them along, and then many months later, money comes out the other end. 17

18 Would it be fair to say then the key to short sales is having enough deals in the pipeline? Yes, exactly. You re not going to make quick money in short sales, not a chance. It s why we use all these other strategy. There are much faster ways to make money than short sales. But you re going to find short sales whether you look for them or not. They re all around us, kind of a low hanging fruit on the tree. By having a little business where you can kind of get these things started you can create another revenue stream out of that business. I created a little business. Now I have a whole staff. I ve got a short sales processing company. A lot of investors just outsource their short sales to me when they find a short sale. They just have me do all the work and we split the profits with them. For new investors, especially, it s like, Gosh I can do all this work myself or I can just throw it over to these guys. These guys will work it for the next five, six, ten, whatever months, and then at some point down the line I get a check. It s just another way to get some money out of the marketing you re doing anyway. Right. Well, speaking of the marketing now, we re back, it s a perfect segue way, because I wanted to talk a little bit more about marketing. I know you do a ton of marketing and lots of different kinds of marketing, which is so brilliant and key to your success, because I see so many new real estate investors just focus on one type of marketing. Maybe they re just doing bandit signs or they just stick an ad in the newspaper. 18

19 Right. Or something like that. Can we spend a few minutes talking about all the different types of marketing that you do. Sure. And maybe even which ones are your favorite and my favorite maybe, which ones do you get the most bang for your buck on. Sure, yeah, absolutely. One thing I ll say about marketing is I use and I actually teach marketing. I teach and use 30 different methods for finding deals. There is nothing more important than marketing. You need to be doing marketing all the time. Finding the next deal is actually more important than working the deal you have. Let me make a point for your audience. There s nothing more important than marketing. The guys who are doing the most marketing are making the most money in this business. It s as simple as that. More marketing is more deals, more leads, more dollars. So, marketing is key. A lot of new investors, they do a bunch of marketing. They find a 19

20 deal, and then once they get the deal they basically work on the deal, because they re only putting in five hours a week or whatever it happens to be. So, they spend the five hours working on their deal rather than working on the marketing. When you find a deal, you have to increase the amount of the time that you re spending on your business. You have to keep that marketing machine, whatever marketing you re doing, you have to keep doing that always. Otherwise, you spend some time looking for a deal, you find the deal, and then at the end of that deal you get your check, and then you have to start your business all over again. That s a terrible, terrible model. Your income goes up and down and up and down. You have to continuously look for a deal. Like Shenoah, my wife and partner and I, sometimes because finding that next deal is so important, sometimes like right now we ve got like eight remodels going. We haven t spent as much time on the remodels as we maybe could ve and maybe should have. In other words, we ve been a little slow getting some of the contractors signed up and some of these projects started. And because we ve been a little slow managing some of these projects, some of these projects are going to take a little bit longer and that s going to maybe cost us a few thousand dollars in carrying costs and what not. But the reason we ve been a little slow getting some of these projects managed and going is because we ve been spending that time and effort getting new deals going, because every time we get a new deal going that s going to make us a $15,000. It s more important to get the new deals going than to work on the deals you 20

21 have, because making another $15,000, getting another deal, is going to make you $15,000 is more important than maybe spending a few thousand on a deal you already have, a few thousand more. Is that pretty clear? Yeah. That s great, great advice. We do a lot of different marketing. The marketing I use, I always tell people there are 30 different fundamental strategies for finding deals. About half of them take no money at all but they take time. You have to roll up your sleeves and do the work yourself. About the other half, take no time at all, but they take money. As you get more successful at this business, you re going to outsource that. You re going to just pay people to do your marketing, so you don t have to spend any of your own time on it any more. But a lot of new investors, they spend time. They don t have a lot of money when they re getting started, so they do the marketing activities that take time. Right. You mind running through some of those? You don t have to list all 30, but just give an example of which ones you mean take time versus ones that cost money. Okay. Things that take time. Driving for dollars, this is driving around in specific neighborhoods looking for specific things. Things like deferred maintenance, what we call see-through houses when you can see in the front window and see right out the back. Why can you see through it, right? It s empty. 21

22 Right. Abandoned houses. Deferred maintenance, you see a tarp on a roof. It might as well be a red flag saying I don t have any money even to fix my roof, which is leaking. Those are the kinds of things we see and we drive around in these neighborhoods, we carry around a little black book when we find these houses. We put the address in the book and then we go and market to that house. I ve got a friend of mine in Houston. He s actually got a list over the last five years, he s built a list of 3,000 houses that he s found just driving for dollars. Didn t cost him anything, well, a little gas I guess. But he picks up about a house a month just going after the 3,000 houses in his list, because it s just a matter of time for most of those houses before those people sell those houses. That s a great free marketing method. Just putting a sign on the side of your car, like a magnetic sign on the side of your car, I guess it s not free. It costs $20 to put a magnetic sign on the side of your car. You re not going to rich from that sign on the side of your car. But about once a month somebody will call you that is a motivated seller, and about once every year and a half you ll get a deal that ll make you $15,000 or more. Twenty bucks will make you $15,000 every 18 months just for putting a sign on your car. That s a pretty good return on investment. In fact, I am working on a deal right now in north 22

23 Austin. It wasn t actually the sign on my car. I met with one of my student, because I teach some of this stuff, to look at a deal. We were looking at a house, as we were walking back to her car, one of the neighbors came out and he saw the sign on her car. He goes, You guys buy houses? We re like, Yeah. He s like, I have a house over here, and we literally walk across the street. It was a probate deal. You ll appreciate this, Stacy, it was a probate deal. Nice, nice. These guys had inherited this house. It was three siblings. They had inherited the house like 11 months earlier. They intended to fix it up and clean it up and sell it. They just had all these ideas about what they wanted to do. Month after month after month they just never got around to doing anything with it. When the guys sees us driving around in front of his house with this sign he s like come take a look at it. We looked at the house. We made him a cash offer. It was actually a really easy negotiation. It was a probate deal, so it was like kind of found money for the guy who had the title on the property. He was only getting a third of the money anyway, because he was splitting it with siblings. So, we offered him $55,000 on the house. He took the deal. Another little thing we did, we actually said, We ll give you $54,000 as is or $55,000 if you leave it broom swept clean, because it was totally 23

24 filled with trash and belongings of the old owners. It s funny. Sellers will do anything for an extra $1,000. It would ve cost me $2,000 or $3,000 to get this thing cleaned out. So sure enough, for that extra $1,000 they totally cleaned it up, which was amazing to me. They had a year to clean it up and they never did. And then, finally, when they had it under contract they cleaned it up. Sometimes they don t, and then we have to take that out of the price. But they did, and we got this house for $55,000. We just got it under contract, literally last week, somebody trying to get the $8,000 tax thing. Anyway, we just got this thing under contract and I think the offer we have is $110,000. There you go. And that is how you get rich, is do that over and over and over and over again. Yeah, yeah. You mentioned something a little while ago about, I think it was when you were talking about driving for dollars in the right neighborhood. I know you and your wife, Shenoah, spend a lot of time and are actually experts in targeting the right types of neighborhoods. I know a lot of it comes from experience, because you ve probably done a lot of deals in neighborhoods you wish you hadn t done deals in. And you ve built up a list of rules about where to buy property, where you like to buy property, areas that actually appreciate faster than other areas. 24

25 Do you mind talking about that, some of what you ve learned, real briefly over the next few minutes? Sure. I ll give you guys, your audience, some great tips. All right. For flipping houses, if I m just going to flip it, I ll pretty much flip anywhere. What I really care about is months of inventory. In other words, how long is it going to take me to do this deal? By the way, months of inventory is different than days on market. If you ask a realtor how long something s going to take to sell, they ll say the average days on market for homes that have sold is 60 days. That means they looked at all the houses that sold and on average the ones that did sell sold in 60 days. But that s not what you need to know. In fact, investing based on average days on market is actually dangerous. What you need to know is months of inventory. When they tell you average days on market for sold they re just saying for the lucky ones that sold they sold in 60 days. But what they re not telling you is that there might be a hundred others that didn t sell that have been on the market for a year or more. Right. So, you want to see how many houses in the last six months have sold and how many houses are on the market. So for example, if in 25

26 the last six months 10 houses sold but there are 20 houses actively on the market today that means there is one year of inventory. What that means to me is that if I buy and fix up and whatever, a seller tried to flip a house in this neighborhood, it might take me on average a year to get that property sold, because one house sells per month. That s going to be scary for me. I m looking for flipping houses in areas where I can flip them relatively quickly. Now for holding, it s a whole different thing. I won t hold anywhere for when I m buying a rental property. I ll give you one great tip. Google satellite view. That s how you figure out where to hold property. Google satellite view. What do I mean by Google satellite view? When I buy a rental property, more than anything else I want appreciation. There are two things you get out of a rental property long-term. You may or may not get cash flow and you may or may not get appreciation. But because of leverage, appreciation s the big number and cash flow is the little number. In other words, would you rather make $100 a month on a property and keep it for 10 years, so you make $100 a month, that s a little over $1,000 a year, in 10 years you make $10,000, $12,000. I look at a deal like that and I yawn. Or, would you rather own a property that doesn t make anything each month but in 10 years is worth $100,000 more? These are the trade-offs as landlords that we make. It s appreciation versus cash flow. 26

27 Now everybody wants high appreciation. Everybody wants cash flow, but people in hell want iced tea, right? They don t get it, because you can t always get everything you want. So, you have to look at your investment properties that you re going to hold, they re long-term investments, you have to say what is the total return on this investment over whatever time horizon, 10 years or whatever, I m going to have. You want to make sure that you re investing in things that make sense over the whole time horizon. I found from my own experience that appreciation is such a much bigger deal over time than cash flow that that s really the biggest consideration I make. Let me go back to my tip. Google satellite view. Why do I care about Google satellite view? If somebody says, This would make a great rental property, I look at the house from space. What I m looking for is land. If there s land, a lot of land, near my property I don t want it, because what is that land going to be in another two years or three years or five years or 10 years? More houses? Yeah. That land is going to be a new sub-development, right? Yep. 27

28 What that means is that my house will never appreciate more than whatever it costs to build a new house. I m always going to be competing with new construction for as long as there is land to build on. I don t want to compete with new construction. I don t want my house to never go up in value any more than whatever it costs to build a new house plus a little profit. I want my house to go up in value at an outrageous amount, because people want to live near downtown and there s just no other land available or no other properties available, and so it s a supply and demand. So, I m going to invest in places where you ve got what s called good migration, in other words the city has more people moving into it than moving out of it, so that means demand is building and fixed supply. You want to buy property where there is no more land near there to build on. When you have growing demand and fixed supply, it s supply and demand, prices go up and sometimes they go up dramatically. Great, great tips. Yeah. That right there is advanced, ladies and gentlemen. You would have to pay lots of money normally to get those kinds of advanced tips. That s good stuff though. I appreciate it. I ll be honest with you, Stacy, when I started doing this I didn t know that. It took me couple years. Oh, yeah. I know exactly what you re talking about, because when you re just starting out and you re so anxious and so hungry for 28

29 that first deal you re what I tell my students not to be, you don t want to become a motivated buyer. Right. But you re so motivated to find your first deal that you re willing to do any deal, just give me a deal anywhere. I ve done those deals too. We get people here in Austin who call from the little towns, the little satellite towns that are miles outside of Austin and they ve got their property for sale, but we re just happy the phone rings. Yeah, I ll do that deal, going to rush out there out in the middle of nowhere, because we re obviously in Texas, and you buy that house out in the middle of a cotton field or whatever the case may be. And then, you sit on it and you sit on it and you can t sell it. Yeah. I still own some rental properties that are out in the more suburban areas. Those rental properties, I mean, they make me $100 a month or whatever, but they just don t go up in value very much. Right. Some of the other property that I have bought in these better neighborhoods, some of them, many of them, have doubled or more than doubled in value. My net worth today is pretty substantial because of buying properties in the right location and then letting them double in value. That s how you rack up the big net worth. 29

30 Right, right. Let me give you one other fun tip for figuring out. If you ve got somebody out, because I said part of it is supply, part of it is demand. If you re trying to figure out whether or not the city you re investing in has good migration or if you re looking at two cities to invest in and you want to figure out which way the migration is, in other words are people moving into this city or moving out of the city, the best way to figure that out is to call U-Haul. Interesting tip. I never thought about that. Let me explain for the folks out there. What you ask is you ask for their U-Haul truck rates. For example, if you want to rent a U-Haul from Austin to Detroit, if you want to rent a truck to move from Detroit to Austin they ll charge you about $3,000. If you want to rent a truck from Austin to Detroit they ll charge you about $100. They ll practically pay you to take the truck back to Detroit, because everybody s moving out of Detroit and everybody s moving into Austin. So, if you ever want to just really rapidly, because U-Haul has the numbers in real time, the Census Bureau and people like that have data that s years old, but if you want to figure out in real time where people are moving into and out of just ask U-Haul. That is funny. I ve never heard you mention that. I ve never thought about that. That s some real time data right there. 30

31 That s right. Well, you ve got to figure out where to get their trucks, right? That s awesome. Great tip. Let s change gears here for just a second, because I know over the 1,200 some odd deals that you ve done you have done and like to do some funky deals. Sometimes the more hair on the deal the better. Yeah. Let s talk about some of the funky deals that you ve done and what you ve learned from doing funky deal over the years. Sure, you just want me to rattle off some examples? Yeah. Let s start with the one, I looked at one not too long ago about a house that I might possibly move into. I know you re going to make, what $75,000 off that deal? $75,000, baby. That s a really good one. That s not a typical deal. That s a really good deal. Yeah, let s talk about that. That was a funky deal. Yeah, a little bit. A short sale. What was unique about the property, it was a model home. As a model home, many people in the area 31

32 were familiar with the home, all the realtors in the area had seen the home. It showed really well. It s just an ultra pretty home. Nobody had actually ever lived in it. What happened was I found the owner of the property who had purchased the property, leased it back to the builder, and that s what builders do with their model homes, they sell it and then they lease it back. During this two-year lease back, the owner had gone through a divorce and by the time he was supposed to move into the home he couldn t afford it. He was divorced and he needed to get rid of it. The home had gone underwater a little bit. It was in other words worth a little less than it was owned on it at this point. The homeowner basically came to me and said, I need to do a short sale, and we did a short sale on it. When we did the short sale, as luck would have it, we got a very favorable BPO. Part of the reason we got a favorable BPO, BPO is broker price opinion, that s the bank s appraisal essentially, they did on the house, is all of the beautiful upgrades and additions and the really spectacular features of the house really couldn t be factored in to the BPO, because BPOs measure the size of the house times the dollar per foot in the neighborhood. All of the upgrades were essentially not counted in. We had a house with literally several hundred thousand dollars worth of upgrades that weren t factored in. What that meant was that the lender was willing to sell it at a very inexpensive price. I went back to the realtors that had been buying and selling properties in the area and I said, I ve got a smoking deal on the model home in this area. Do you have anybody looking at homes that might be interested in this home? 32

33 And several of the realtors said, Yeah, actually I know that home. I ve even showed people that home as an example of the model home. I d love to get that home. And then, also, I called some of my friends, right, including you, Stacy. Yeah, you called me. Yeah, because that s what we do as investors. When we get a deal we offer it to our friends, we offer it to our network. My goal is to wholesale this house. Sure enough, I actually offered it to somebody I used to work with. He looked at it and really thought hard about it. He lives in Dallas and he decided he was thinking about moving but he decided he wasn t going to move. But two people took me up on the deal and one person made an offer. There we go. We re supposed to close on this deal literally this week. Yeah, it really was a smoking deal. I went and looked at it as a potential primary residence for me to move into. Once my wife and I decided to pass on the deal, I told a couple of my friends, one of whom was a realtor that I sent over there. He couldn t believe, he was a realtor and he knew the area. He knew the home. Right, right. 33

34 I had too. I had looked at it four or five years earlier as well, everybody had seen the house, looked in this particular area. The guy that I sent over there was amazed. His jaw dropped. He said, What! How in the world could Phill get it at that price? What is he doing? Part of it is luck and part of it is skill. I do a lot of these. It is a numbers game. Some of the deals we get are better than other deals. We just do a lot of deals and some of them end up being really great deals. And then, part of it is skill. We certainly know what to say and how to say it and how to get these deals done. Sure, sure. Now on that particular deal that was a short sale, did the owner of the house just call you off of one of your marketing pieces? Did you know him? How did the deal actually come to you? Isn t that interesting as well. We actually sold him his prior home. Here s a really interesting story. He was looking for a deal several years earlier and we found him a deal, another smoking deal, on another short sale. He bought a really nice home from us that we found him in a short sale. He knew the story of the house that we found for him. He lived in that house for a while. When he sold that house my wife actually sold the house for him, because among other things she is also a real estate broker. And then, when he needed to sell this house he knew that we were experts in short sales so he called us. It s all about networking and just growing your business and word of mouth and all that good stuff. 34

35 Um-hmm. Yeah and this really is a people business when you come right down it. You re going to be doing business with the same people over and over and over again. You ve really got to pay attention to that and think about that from the get go. Yeah. The bigger your network the easier this business gets. I always hear people say the bigger your network, the bigger your net worth. Right? Right. The business gets easier as you know more and more people and you just kind of have this universe of haves and wants that s rotating around you. You put the haves and the wants together and you can make money on those. You can make money. Let s talk about another funky deal that was the previous house that you lived in. Actually, let s talk about your last two residences. My last two residences. Yeah, they were both funky deals. Which one do you want to start with first? Okay. My philosophy is I buy and sell. I flip for income, and we all obviously need income to live off of. I buy and hold for building my wealth, and I have lots of properties. Sometimes I take some of the best deals and I keep them and I just take my profit in the form of equity. In other words, if I can get $150,000 house for $100,000 instead of flipping it and taking the 35

36 $50,000, if I don t need the $50,000 that s just additional income I don t need, because I have other deals that are generating the income I need. I just keep that $50,000 in the form of equity, and that goes on to my portfolio of rental properties. The perfect year for me, Stacy, might be like a million dollars worth of income, a million dollars worth of expenses, and a million dollars worth of capital gains. For anybody out there doing the math, how much money did I make that year? Zero. Yeah, I made nothing, but I got some capital gains. I do pay some taxes on capital gains, but the tax rate on capital gains is only 15%. So, you don t want to make more money than you actually need to live on or to offset your expenses. You might want to take the additional money in the form of capital gains. Real estate has all kinds of neat ways to do that. I keep the better deals as my rental properties, but the best deals of all, those smoking one in a hundred, one in five hundred, whatever, those smoking, smoking, smoking deals, I move into them. The reason that I move into them is because the government has told me that if I live in a house for two years, then when my wife and I sell the house the first $500,000 of profit is tax free. I don t know about you, but an extra $250,000 a year tax free is a pretty nice little bonus to get on top of everything else that we do. That s a great bonus. 36

37 That s a great bonus. Yeah. It s a great bonus. Yeah. Now you can t always guarantee that when you buy a house and hold it that it s going to be worth $500,000 more. So, what do you do? You make sure you get that huge discount on the buy. Right? Right. If you can buy a house for way less than what it s worth and then all you have to do is live in it, just live in it for a couple years, it s like getting paid to live in a really nice house. And then, when you go to sell it, you get all that profit and you get to keep it tax free. It s really the greatest gift in the tax code. Let s back up and let s talk about your previous residence first, then we ll talk about the one you just moved in, because they re both cool stories. The previous one was a short sale again. The owner had a house. He owed, I don t even remember, it was a very nice house. He owed $550,000. I don t remember the exact amount. The house was worth probably more than he owed except for a lot of the house was a construction project that had never been finished. So, the finished part of the house was worth less than what he owed. He needed to sell the house, because he was going bankrupt. In fact, he had already declared bankruptcy. All these people had been suing him, so he had all these judgments against him. He owed government taxes, so he had tax liens against him. 37

38 The whole situation was quite a bit of a mess. At first glance, there was a $600,000-$700,000 house that the guy had two million dollars worth of liens and judgments against him. Every investor that looked at this deal said, Gosh, this guy owes people two million bucks and this property s worth $500,000-$600,000, whatever. There s no way there s a deal here. The other part of the story I love to tell is I was actually the eighth guy to look at the deal. The guy had called several other investors and realtors and all kinds of people saying, Can you help me? And everybody walked in and walked out without a contract, because they just couldn t figure out how to help him. And then, what I said is, We ve got a lot of things going on here. You ve got these liens. You ve got this bankruptcy. You ve got this construction project that s not finished, and we need to do a short sale. So, we started to put together a plan. The plan was complicated, but it was like I figured out what I would offer for the house. I figured out how much it would cost me to finish the construction project. I started the short sale, and then we timed the bankruptcy, he worked with me to time the bankruptcy so that we could begin a short sale, push the button on the bankruptcy, wipe out all of the judgments with the bankruptcy, and then basically when the house got cleared from the short sale we could buy it at the prenegotiated price with the bank. We finished the renovation project and then re-sold it and made about $300,000. It was kind of a complicated deal, but it was very, very profitable. That s a perfect example of knowledge is power. If you have the knowledge and you put together a plan to kind of solve all those problems, it was a very, very profitable deal. 38