The big challenge is this: How are investors like us who are not backed by a billion hedge fund who are investing money from our own pockets? How do we buy, sell, and invest in the properties we believe in, yet still make a profit without risking all of our own money? That is the challenge. In this podcast, we'll give you the answers. My name is Nate Armstrong and welcome to the social media blueprint.
Okay. Okay, here we go. Alright, so Bianco and I are alive right now. Hey guys, today we're talking about something that's kind of, it's near and dear to my heart at least, and it's simply for this reason we're going to be talking about how you can avoid the hard knocks school, avoid the school of hard knocks when it comes to real estate investing. Now, how many have actually gone through the school of hard knocks by show of comments, hands, whatever you want to call it, who's gone through a hard knock lesson in the world of real estate investing?
(01:05): And it's almost everyone that I know that is a real estate investor right now. They've gone through some kind of hard knock before, myself included and Bianco and I, we want to share some tips to help you avoid the school of hard knocks. Okay, so first and foremost, there's three big things that we're going to cover right now. The three things are simplicity in the business that the right folks, the right mentor, so to speak. We'll bring, the next thing is knowing your numbers. And then the last thing is how to spot problems. Okay? So let's get into these. So the first thing now, if you want to avoid the school of hard knocks, then the very first thing that you want to do is you want to have somebody show you the ropes, a mentor, so to speak, that helps you keep the business simple.
(01:52): Now it's so easy for us, especially as real estate investors, when we start to see all these shiny objects like, Oh, there's direct mail. Oh, there's cold calling. Oh there's REO, are there short sales? And we get so pulled in so many different directions because they all sound like the coolest thing in the world. And the reality is that if we just stick with one swim lane, we can usually make it happen. If we stay there and we stay focused, we've got the right mentor that's guiding us along the path. Now, I had a mentor, fortunately at some point in my path, show me that this business is really simple. If you let it be simple and there's three things to focus on, there's not 16 there's not 60 there's three things and if you'd like to know what those are, then hang with me.
(02:34): They are this, it's leaves, calls and offers, leads, calls and offers. The lead bucket we need to generate leads that come to us asking for help. Any other lead like folks that may be like direct mail or calling off for sale by owners or Zillow leads and things like that. Those leads are not coming to you asking for help, so those are not the leads that we're talking about here. We're talking about leads that call you and ask you for help. That's the kind of leads that we want. The calls. That sounds like a basic thing, but there's a little more complexity to it than that. We want to make sellers feel very, very comfortable, very reassured, like we talked about in one of the last shows. We also want to show them that we have confidence, competence in walking them through the entire process and giving them that reassurance.
(03:22): Okay. Leads, calls and offers. I remember when I first started in this business, I was doing those crazy bandit science. I had some other real estate investor telling me that they were the greatest thing on earth. I didn't have super good guidance at the time for many mentors, so I said, you know what, I'm going to do these bandit signs and I was putting up the signs with mom and the big yellow signs with the black letters. Just say we buy houses and I was putting them all over the place. Mom was kind of the getaway driver, so to speak. She was driving the car and then I was the guy that would run out in the intersections.
(03:54): Why would mom,
(03:56): because she didn't want to be the one running around putting out signs. She wanted me to do that.
(04:00): I went,
(04:03): well, I saw I had to go and put the signs at each of the quarters. So I put one sign at one corner of the intersection, the other at the other quarter. So all four corners had a sign and one night when we were doing it, I got done with the first time that I ran to the other corner of the intersection and I just about put the sign down. And lo and behold, a police officer walks up to me, didn't drive up to me. It's like he was hiding in the bushes almost. You walks up to me and he says, what are you doing? And I'm like, well, I couldn't say anything else but the truth. I mean, I'm holding a sign in my hand. I'm staking into the ground. What are you going to say? So I said, I'm putting up my sign.
(04:38): And he said, no, you're not. And I'm like, what do you mean? He's like, no, you're not. You're not putting those signs out around here. And then quickly, like I had a reflex and I noticed that there was a garage sale sign and like a youth soccer sign. And I'm like, well what about the garage sale sign and what about the kids' soccer sign and what about that sign? And he's like, those signs are fine but not yours. And you just looked at me with a totally straight face. So I didn't say another word. I literally just pulled back up my side and said, okay. And I just walked across the street, grabbed my other sign, and then I ran and found, found my wife, your mom, and got in the car and that was it. And I drove away. So those signs, nobody likes them.
(05:16): They're a pain in the butt. But eventually I got a mentor that got me on the track of doing social media marketing and that's what changed everything for me in my business. That's a subject for a different day. But I'd done crazy different ways in the past too. Okay, next mentors that help you avoid the school of hard knocks. Know your numbers. Okay. We talked about the three big things, the leads, the calls, the offers, et cetera, but what other kinds of things do you have to know inside your business? Well, in the real estate investing business, the very first thing that a good mentor taught me is that I didn't have to spend a lot of money on earnest money. You know the deposits that we have to put out, the deposits that basically they, the seller wants you to hold hostage in some escrow accounts.
(05:59): Well, when I was first started in this business, I had realtors giving me guidance and I didn't have like true real estate investor mentors. And so I was listening to the realtors and there's some good realtors out there, but there are some that don't really know the investment game or they don't know the volume game. And guess what? Every realtor that I worked with, they always want to be to put in like 10% five or 10% and it was like draining on the bank account. Majorly, you get one deal under contract and there's a huge check that goes out of your bank account that sits in escrow for three or four weeks waiting for closing. So you couldn't do more than one deal at a time. At least that's the position that I got stuck into. And then I had a mentor come along that said, you know what?
(06:37): Why are you doing that? You don't have to do that. Instead you could just do $1 earnest money and I'm like $1 like that's not possible. No way. And he said, well, if you don't believe me at least switch it to a hundred dollars. Humor me, bring it to a hundred dollars. And I'm like, no way. Everyone's going to reject it that we're not going to get a bunch of deals accepted. And he's like, humor me, just try it. Try, try a hundred bucks. And so I went back and I implemented it. I put it in the a hundred dollar earnest money technique. And then guess what? We kept getting acceptances. We had a couple here and there that would ask like, why only a hundred dollars and we would just explain, we don't want our money tied up in escrow for three or four weeks.
(07:12): We're going to close on the deal, but we're not going to waste a bunch of money tied up in escrow. And with the exception of REO properties, it worked. It worked almost every single time. So bam, just like that. So a good mentor taught us that one. The other thing that a good mentor teaches is the deal per offer ratio. What does that mean, Nate? What does that mean? It means this. How many offers do you have to put out to get one deal? Like when I first started, I was just firing offers and I was hoping, hoping, hoping, and I had no idea what measurement in which I should have expectations of getting a deal in. Some people they think like, well, every lead's going to be a deal and then their heart's broken. If they call two sellers and they get rejected and that's it, they're done.
(07:55): And that's not the way the business works. There's a certain number of offers that all of us have to put out and a lot of it comes into practice skill. How well did we listen to the seller to really meet their needs and the better that we get at those things, the better our numbers look. But in the beginning we at least need to have a baseline answer. For me, when my mentor taught me that the deal to offer ratio, like it just clicked, I used to run a painting business back in college to pay for college and I figured out during that painting business that I had to knock on 30 doors to get one person to say, Hey, we'll let you give a free estimate on painting our house. So I was going door to door knocking on doors saying, Hey, we paint houses during the summertime, can I give you a free estimate for giving you a paint job?
(08:38): And so it took one other 30 for them to say yes, that included the people that weren't home but included also the houses that the dogs have barked rough, rough, rough. I got smart after a while, I started carrying dog biscuits in my pocket, so whenever I'd hear that dog started to bark, I'd throw the dog biscuit down in there and then they would stop barking and then the homeowner would be like, okay, that's impressive. What are you selling? And then I'd say, well, I'm here to give a paint estimate. Can I give you a paid estimate? So this clicked for me when my mentor said, Hey, you gotta put out a certain number of offers to get one deal. Now I don't want to misguide anyone and give the wrong quote because everyone's different. If you're really, really good talking to people and you exhibit confidence, then you might need less leads to get a deal or less offers to get a deal.
(09:22): Okay. The best that I've seen out there, we've got a gentleman that's working inside of our program right now. He's one out of three. One of the mentors in our program, when he goes and meets two sellers, he almost gets one out of two now that's the best. Okay. I've also seen people on the opposite end of the spectrum where they've literally have to put up 30 offers, 30 offers to get a deal. But my point with this one is this, that you've got to have a mentor that helps guide you, a mentor that puts you in perspective with your numbers. So then you know what to expect and how to improve yourself with measurements. Okay. The third biggest thing that a mentor did for me on the number side is this. I used to make roughly between four and five grand per deal per wholesale deal, and that was just it forever and ever and ever.
(10:05): And after a while, that's just what I got used to. I just kind of expected it and I had a mentor come in and look at my business and he's like, Nate, you're doing so much work. You're generating these off market deals, you're spending money on marketing, you've got a team, like your margins have to be bigger. And I said, well, I don't think it's going to allow it. And I pushed back and pushed back and then my mentor just said, no, you're going to do it and you're going to double. And I'm like, really? And I would have been between four and five grand for a couple of years on my fee, my average fee. And then this mentor just pushed and said, no, you're going to double it. And then guess what happened? Within a few years, our average wholesale became, and we track this for 391 the last 391 wholesale deals that we did.
(10:46): We tracked it to be $13,122 profit, 13,000 plus profit per deal on average. And that was all because my mentor challenged me. The mentor pushed me to double and then after that, after the double we pushed a little bit more and we started increasing our wholesale margins. Now and if you're out there doing properties, you know this business like it's a lot of work and you spend a lot of money on advertising so you should get paid to bring deals like that to your buyers. Now I had made a mistake before. I found that mentor like very, very beginning back in 2007 I went 11 months before I got my first deal and I'm embarrassed to this day to kind of admit that, but it's true. I struggled to figure this stuff out. Part of the reason that I went 11 months to get my first deal is because I didn't have someone guiding me.
(11:33): I didn't have someone pushing me, telling me what's okay, what's not okay, and giving me that encouragement and things like that. So I went through the school of hard knocks for 11 months. I got rejected. I almost gave up. I almost quit this business altogether. I had a realtor fire me. I actually had two realtors fire me in that time period. Everything told me to give up. Even my parents said, are you crazy? Like we're going through a housing market crash, and thankfully I eventually found a mentor and was able to push through and get a bunch of deals done and then kept going from there. All right. If you find yourself in a spot where you want board members, so to speak, advisors or mentors to help push you along, then I encourage you to do this. I put together the training that encompasses what we're doing right now to make this business work in today's market.
(12:20): Not like pre craziness I'm talking about right now, right here during this craziness and you can get that training right now by going to social media blueprint.com/podcasts that's social media blueprint.com/podcast okay. Now the next thing that a mentor is exceptional at that the untrained eye or the unlearned students, so to speak, is not as good at is this, and that's hottest spot problems, especially when you're making offers or when you're buying houses, how to spot problems, how to keep you out of harm's way. This is where stuff monetarily gets really, really expensive, so you're gonna want to pay attention to this section. The other stuff, it costs money to like if you lose 11 months of your time and almost quit the business and almost quit your dreams. The cost of that is huge. Probably more than what we're about to cover, but some people, they don't look at that.
(13:10): Some people, they're like, Oh, I lost 11 months. No big deal. Time isn't important to me. Time is super important to me, so important, but if that wasn't the spot that kind of moved the needle for you, then listen to this spot, the school of hard knocks. It has these problems in real estate that you need to watch out for. Number one, there are problems with different types of houses. I'm going to give you some, you probably heard of some crazy things like sinkholes or foundation problems and things like that. Well, here's one for you. I bought this house 2176 Tiara in St Louis, Missouri. Really good pocket, exceptional looking property from the outside. Everything was great. I did this without a mentor, without a mentor reviewing this deal and what I learned the hard way. It had a slight foundation problem, but I bought it at a big discount, like literally part of the house had a little bit of a drop to it and it looked like other houses that I had done that had foundation problems and we just went in and we would beam them or peer them and we would fix the problem.
(14:10): We would move forward costs between 2000 bucks and $15,000 and life is good. Move forward while in this particular house, life wasn't that good. I had the foundation guys go in there and they started giving estimates and they started coming back with, first off, I won't do it. I won't touch it, and I'm like, what does that mean? They're like, no, I won't do it, won't touch it and try to get them on the phone. Just wasn't interested. And then I had another one go in there and he gave a quote. He wanted 60 grand, but he said it could cost more. Once they dug into it, I'm like, how is this possible? Like this is insane. Well, what I come to find out from the second guy is that this house was actually built on a landfill. Literally, it was documented in the city records.
(14:49): I didn't know enough to dig this deep and figure this stuff out, but it was built on a landfill in that the landfill was starting to basically collapse in the product that was underneath the dirt was decomposing and then collapsing in, and then this house was starting to collapse in with it. So that's why none of the foundation guys wanted to touch it. They had nothing to anchor to. They said, basically, we're going to have to keep pumping concrete down there and we have no idea when it's going to stop. Well, I then said, well, let's just try to sell it as it is, and I disclose the problem and guess what? Nobody wanted it. Nobody wanted it. Nobody wanted it. Buyer after buyer came through, couldn't sell it, couldn't sell it, couldn't sell it. Meanwhile, I had renovated the interior of the house. The only thing I had left was this foundation problem to fix and nobody wanted it because I had disclosed the truth.
(15:34): The person that sold it to me, he didn't disclose it. It was a bank and the bank sold it as is, no disclosures, foreclosure property. And so I got my butt kicked and the property loss over $70,000 on that property on one house. Could you imagine that 70 grand? That was the school of hard knocks. Now mentors since then, they taught me how to look things up like that. They taught me that you can actually do due diligence on a property, dig around and figure out if it's built on a landfill or not. And now I do, and now I check on every single property to see if it's got any potential issues with the foundation or sagging or landfill type activity. But that school of hard knocks is what took me there. Without that school hard knocks, I would much rather pay to mentor five grand, 10 grand, whatever, a good mentor costs to avoid having a problem like that any day of the week.
(16:24): Okay. So that's one good thing that a mentor does to avoid the school of hard knocks. The second thing is this. Good areas versus bad areas. Man, before I had good mentors, like I bought some houses that they were interesting. I bought one on seven 51 Maryland Avenue in Saint Paul, Minnesota. And this particular property, like I thought I was getting such a good deal on, I bought dirt cheap under 50 grand, rented it out. And guess what? I had a tenant move into the property and then a little while after owning it, her ex boyfriend broke into the house and stab somebody. Can you imagine that phone call that was not a nice phone call? Like it just didn't feel good. It didn't sit well like I sure you might say, well that could happen to anybody, but there are certain areas that you buy properties in that have more crime than other areas.
(17:12): And it wasn't until I got a mentor that said, Hey Nate. Yeah, the numbers on those properties. So I got a mentor that really taught me the cash flow side of the business and he showed me, he said, Nate, you know my properties. He actually showed me his whole portfolio. His portfolio of houses was near Lake Calhoun, which is a really nice Lake in Minneapolis, Minnesota and it's in the city and he paid a lot of money for the properties and his cashflow was much skinnier, but he paid a lot for the properties. And what he showed me is that over the last 15 years, his properties pretty much not quite, but almost doubled in value. In some cases they did double in value and when you're talking about like to see a $3,000 house and it goes up to $600,000 in value, that money is so much more than any cash flow that you're going to make.
(17:58): I'm one of those cheaper properties in the rough area and on those nicer properties, there's less headache, there's less turnover. There's a whole bunch of things that my mentor taught me on this, but it wasn't until he actually laid out his portfolio for me and I compared mine to his that I w it really sunk in for me. It's like, okay, these nicer houses, there's more than just the cash flow. There's the upside on them. The values typically sustain even in downturns, and the values go up higher during the good times. So when I saw that, I'm like, wow, this is powerful. But it was a mentor that taught me that. The last thing that I want to hit on about mentors for the segment is this. If you've ever had a realtor giving you advice, I'm not trying to knock realtors, but I am going to knock realtors a little bit.
(18:40): If you ever had a realtor kind of being your first mentor, which happened to me my first 11 months in the business, my realtor was my mentor. Really? And when tough decisions have to get made on whether to take a property or not take a property, I've noticed that people that get paid to help make the decision, like there's a financial incentive for you to say yes and for that deal to go forward. I've noticed that sometimes those are some of the worst deals that I've taken. I'm not blaming Mike, I'm responsible for everything that I do. Even that property that I just mentioned with the huge foundation problem, I'm responsible at the end of the day, I needed to do more due diligence and it was on me to discover that the property that I got in the rough area, same thing like it's on me to do that.
(19:23): So I'm not passing any blame to anybody, but I am saying this, that each of those bad decisions that I made, I did have, my advisor at the time wasn't necessarily an unbiased advisor. They were commissioned, they got paid to sell me that property. Okay, so what does all that mean? I'm not saying that every realtor out there is a scumbag, nothing like that. So please don't take that the wrong way. I'm just saying that when it comes to this real estate investing business, it's really good to have an advisor on your, in your lineup, a seven figure advisor, someone that's done this a lot and cranked out a lot of deals and they've seen the good, the bad, the everything to go through your deals with you because they're not commissioned. Whether you buy that property or not, they're not afraid to say, that deal stinks.
(20:08): I actually got to chance to listen in on one of our mentor phone calls earlier today from one of the mentors in our program. He was walking a student through a deal and the student really wanted this deal. It was $12,000. Imagine $12,000 for a property and he told the student to run essentially. He said, no, wouldn't touch it, but renovation is going to be too much. City might already have that one condemned. He gave the students flat out advice and said, no, if it were me and this gentleman bought hundreds of homes and he said if it were me, I just wouldn't touch it. I wouldn't get involved. There's just not enough there for me to really even get excited about the deal. And that's what a good mentor can do. The good mentor can help you avoid the school of knocks. They can spot stuff a mile away because they've already lived it and they're not getting a commission to tell you yes or no.
(20:54): They want you to get deals done. Obviously it makes them look good when you get deals done and you're excited and you brag to other people, but at the end of the day they don't want you to do a bad deal because that bad deal could take you out of the game completely. So good mentors will help you avoid the school of hard knocks. Okay, so we've covered a lot here. We've covered how mentors, they basically demystify this stuff. They help you stop chasing all the shiny objects so you can focus on the core part of the business, which is leads, calls and offers. Okay? The second thing is that good mentors help you with your numbers. They help you reduce your earnest money. They help you increase your profits, they help you know your numbers backwards and forwards so that you're not lost in this game of real estate. Okay? The third thing that a mentor does is helps you avoid some of the problems like buying a house on a landfill, like giving unbiased advice because there's no commissions involved with the advice that they give you on properties. So for all of these reasons, mentors can really help you avoid the school of hard knocks. On the next episode, you want to know what the next one is? Yeah, I see I got a sticker from you now.
(22:01): I got a pig sticker from Bianco here. Okay, so on our next episode, here's what we're covering. We are covering, this is a fun topic for me because it's one of my favorites. It's passive income. How do you start buying houses at a discount it, and I'm talking like not average rental houses, but how do you start buying discounted rental houses? The kind that landlords need to sell right now, and because of everything that's is going on in the world right now, a lot of landlords are in the position where they need to sell, but there's a very specific way to approach them and when we've mastered this way on social media, so join us for the next episode. If you want passive income and you want to start buying discounted rentals from landlords that need to sell, then join us for the next episode. Until then, I look forward to serving you. I'll see you out there on the field. Cool guys. Bye bye. Hang up.
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