This week Bruce Norris is joined by Bill Shipp. Bill has been one of the largest wholesale buyers of real estate in Riverside for many years. He has a unique system that can even be done from a distance, which he proves every day by living in another state.
Bruce interviewed Bill on the show last year, and he was one of the bigger hits. On the show there were a lot of knowledgeable investors who were very enthralled with his system. When you can impress the people who work every day in the field, then that is pretty good. Bill has been buying real estate full-time since 1986, but he has been dabbling in it since the early ‘70s. He bought a five-unit apartment in Long beach as a rental, and he found it he could sell it and make more money than if he had kept it as a rental. Before that, the first property he ever bought was a little lot in Quail Valley outside of Canyon Lake, which he bought from a family member. He had it for a few years when he saw he could sell it and make more money than what he paid for it.
Bruce wondered why there was a gap between the ‘70s and 1986. Bill said during this time he had gone to work for the corporate world where he worked for U.S. Suzuki for about six years. He worked his way up to be distribution manager. He then quit this and went to work for a logistics company down in Long Beach, which was millions of square feet of warehouse and inventory. He was in charge of distribution and trucking. It was at this time his friend told him about real estate. This was in 1986. He took vacation for a week and used this time to attend a real estate boot camp with a gentleman named Alla Peter. He was very heavy into buying the VA repose and the HUD repose back when the VAs were up to 7% commission. At this time you could buy them as an investor with 10% down. After the commission and after buying them, you are in it for a whole 3%. This was what started him in the rental business, which he bought quite a few. At his peak he had 42 rentals; now he has one.
It took him a long time to sell rentals in the 90s when it was really hurting everybody, so he did not like rentals in the 90s. He went through the boot camp for a week, and he was convinced to quit the corporate world. He was not even making six figures at this time, but he was responsible for a lot of people and inventory. He really did not know what the status of his job would be as he could be fired any day, or the company could be bought out and transferred. With the real estate, he really liked the idea of being his own boss and having all the inventory in Southern California that he could get a hold of. Inventory cost was nothing until you owned it.
Bruce wondered if anyone in Bill’s tight circle looked at his decision and wondered if he had made the wrong decision. Bill said yes that indeed people were thinking this, especially the people he worked for. He literally went through the boot camp, went back into his company, and gave his two-week notice. He quit and started selling.
Bruce said it is always interesting to him when people get into the business because it gives them a certain bend on the way you think things work. 1986-1989 was a heck of a run. If you touched a property, it would be tough to make a mistake. The prices were quickly escalating, and interest rates were not reasonable although they were more reasonable than in ’80 and ’81. At this time they were 8%. When Bruce got into the business in 1981, he refinanced his house at 17 ½%. This tainted how he looked at real estate because it was not something where you could cash flow. You had to touch it and let it go. There was no way to finance things like this and make it work.
In 1986 when Bill was getting a 7% commission and only having to put 10% down, he was able to buy a lot of houses. The same thing happened from 2005-2007 when everybody thought the answer was to buy rentals or flip. Back in 1986, people were buying houses, and money was pretty available. This was what Bill did, and he was very excited about it. He was seeing his net worth go up and was having some positive cash flow off of it. Then, when 1990 hit, he had a negative cash flow, and his houses were down $30,000 a house, he lost about $1 million. Fortunately, he had friends who thought this was still a good time to buy. They went in50% as partners with him to take care of his houses, and this was able to keep him alive. They infused him with some liquidity, which helped with the negative cash flow since now instead of the $300-$400 a month; he was down to $150 a month.
This impresses Bruce because this is creative. Not many people would ask how they would extricate themselves and still have properties. Bill Shipp found a way to do this. He probably found money partners who did not exactly have the same skills and used them. Bill found good things. The people who helped Bill out were his corporate friends, people who were accountants of financial planners who say you should buy real estate now since it is down. It was an easy win-win for them. Bill now had good money behind him. His other option was to walk from them, which a lot of people at that time did. Bill didn’t and was glad because he has a great credit score to this day where he can go out and get financing anytime he wants. If he had let them go, he probably still would have received financing but would have been charged a lot.
Bill did hard money loans when he first started flipping. It was back in 1988 and 1989 when he was into full-time flipping. He paid 13% and 3 to 5 points, maybe even 15%; which is still normal. At the time he thought he was high, but it worked. If you have access to money and the profit is there, then it really doesn’t matter what your interest rate is or your points. It is when you look at it and you’re done with it; if you have made money on it, it’s okay.
When he started in 1986, the name Bill Shipp was not the household name that it is now. When he first started in real estate, he went to work for an office in Riverside since this was where the houses were. At the time he was living down in Newport Beach and commuting out to Riverside. He thought he needed to move to Riverside, which he did. He started in real estate by selling to investors. He sold houses to some of his corporate friends, who were buy and hold people rather than buy and sell. He had flipped a couple houses before; then he saw the money they were making and said he was not going to work with clients anymore and started buying full-time for himself. His name got out when he was in Riverside as an agent. He was buying the HUD and VA repose as well as talked to different agents. He started talking to the agents who if they found something, he would buy from them and let them represent him. This was where he started. He started really promoting himself by actually going into real estate offices and giving talks to them.
Bruce said he remembered sending a flyer back in the ‘90s when he was buying a fair amount of properties; he had calculated how much agents had made on commission. It was not an organized plot, but rather had just happened. He decided he needed to do the same kind of thing and sent out a flyer which said how much realtors had made the previous year, and it was ridiculous. It was around $300,000 on his transactions, and he wanted to do more of this. Therefore, 1200 of these flyers went into everybody’s slot. He got no phone calls from any of this. What was interesting about all this was this was not necessarily where realtors were excited to go with their time to work with investors. This may have been because they had an experience with a particular investor who did not do what they said they were going to do. Or the managers of the offices said they should not work with investors. When Bill was an agent, his whole career was only with investors. He never worked with a homeowner. How you get started sometimes really colors what you think is wise to do.
One thing about investors is a multiple transaction is possible with each one of them. On the other hand, if somebody buys a house and we don’t see them until five years from now, then that is a big difference. Also, once a real estate agent has worked with a successful investor, they will probably not work with a regular customer. He does not want to deal with them, but rather with someone who makes decisions immediately and makes them for different reasons. You don’t have to look at a house and wish it had a nine-foot ceiling; you just want to know if the numbers make sense. When an agent is working with Bill, he does not have to go get all his family members to look at the property. A decision is made, they like it, and they will not have to have an open house. This was the way Bill created his business by working with real estate agents and passing out the flyers. He then followed up with meetings and talked to the real estate agents in their office meetings and would find one agent out of the forty-fifty there who was interested in talking to him. You can then show them your history, and this gets them excited. You then go into training them.
Bill has trained every agent that he has worked with on how to work with an investor. They already know how to work with a customer as a homeowner, but they don’t know how to work with an investor. Bruce wondered what the difference was between the two between agents who deal with the investors and those who don’t. Bill said for one there really isn’t any emotion, especially for him. He spends more time buying a hat for himself than a house, so there is really not much emotion to it. A lot of the agents probably would not even walk in some of the houses that Bruce and Bill buy. A typical agent who is out there doing their farms, working in a nice neighborhood, dealing with the family, listing the house, and doing their flyers would be afraid to walk in certain houses. It takes a special person to look at a type of house and be able to figure the numbers out with the investor and tell them whether it’s good or not.
Since Bill does his kind of work from a distance in Park City, Bruce wondered if this puts a dent in his buying ability. However, he said his best buying year was 2010 when he was living in Park City full-time. Most people are absolutely enthralled with this because they are trying to do their work really well locally, and Bill is doing the work from a distance with a team. Bill works with the team and is really specific about his areas. He had a call at a house in San Bernardino, and he said it was really not his area because he has to ask a lot of questions such as what it is worth and how the neighborhood is. He does not want to spend the time to do this, and he cannot do it from Park City. He has agents in Park City who he plays tennis with who want him to flip in Salt Lake. He responded saying he has no clue about Salt Lake because when they tell him about a house on the street, he has no idea what the value is or what it is going to cost to fix it. However, when an agent calls and tells him about a house in Riverside, he knows exactly what the value is going to be and how much it is going to cost since he has been dealing with the same contractor for ten years.
Somebody hearing the story may think he is really delegating a lot, but the truth is you really have an awful lot of personal knowledge that gets you 90% there before you have to rely on someone on your team to fill in the gap. With the team and agent that Bill works with, when he calls and tells him a house is worth $185,000, he knows that it is worth $185,000. He never will deal with an agent or somebody who says they think they could get around $190-$200. As soon as they start talking like that, you really need to sit them down and say you don’t need this spread and show them what you think you can sell it for. If you are making $20,000 on a house and they tell you the spread is $10,000, then that is 50% of your profit. You cannot do this. Bill said most of his sales prices are literally within a few thousand of what he thought. It is not $10, $20, or $30,000 off. What is so important about that is this is a competitive market, so your spread cannot be that big because you would have somebody else competitively bidding against you that knew exactly what it was worth and would have a tighter bid than yours. Either this or your profit would disappear completely, which gets old pretty fast.
Bill hears all the time about competition, and he has never worried about it. He has also talked about in the past what people think about the future, about what Fannie Mae or Freddie Mac is going to do, or about Greece. He really does not care. Also, when an agent tells him to hold onto something for a year it should be worth $20,000 more, he really doesn’t care what a year is. His whole time in 2010 was 89 days, so he cared what was happening in the next 90 days. In 2011 he was a little nervous since it went up to about 104 days. It really doesn’t matter six months to a year from now; he just wants to know what the price is today.
Bruce wondered if Bill is typically buying something at this point that is owned by a lender, which Bill said he is. Short sales are not a big part of it as he has only bought two or three short sales in his whole career. There are some short sales when there were not a lot of lender-owned things, such as ’85-’89. Bruce wondered if it was privately owned, to which Bill said privately owned was when he used to have some ladies who worked for him who were like bird dogs who followed the notices of defaults and trusteed sales. This was more in the early ‘90s. The late ‘80s were VA and HUD repos. There were a lot especially from ’87-’89, even at the strength of the market. It was at this time people were paying a 7% commission trying to get rid of them. Bill bought his first VA repo in 1986 at the time when Bruce was running ads in the newspaper saying he bought houses. Bill said he never did anything like running an ad or hanging flyers on a telephone pole, although Bruce said by doing this you can understand trends better because your calls change. Bruce was doing very well between ’86 and ’90, then all of a sudden the calls tripled when no one had equity. Bruce was almost in the counseling business. He owed $130,000 when it was only worth $95,000, so he had to figure out what to do.
When Bill worked in the corporate world in a management position, he really delegated a lot. He used this in his real estate business for going out and knocking on doors. This was something he did about two or three times. He then trained other people to do it, and he had a couple people who all they did was knock on doors. These people would set up the appointments, tell Bill what the people owed, and then have the people fill out a form so Bill knew if they had a first or second trust deed. Bill had done his comps on the properties, figured out what they were worth, then went in and tried to put a deal together. He did not really knock on the doors himself but rather had a team that broke the ice. When dealing with VAs, this other method was fairly successful. The VAs died up around ’89, and this was when he started a new system. He was not going to try to keep doing the same thing if there wasn’t any.
Prior to 2006, there were very few REOs, and Bill was buying out of the MLS. Bill said he has always bought out of the MLS as this has always been there. There are some really good deals here; there are just some people who don’t get it yet. For example, Bill had just come from a long vacation; and while he was gone he told his contractor he was going to be gone and was going to let him buy his deals while he was gone. He bought four while Bill was gone, and one of them was in a great neighborhood in Riverside. He bought a house for $70,000 under market value out of the MLS.
This was at the time when there were no REOs, the market was going up drastically every month, and people were saying there was no way you could buy great deals out of the MLS. However, you can always do two errors by agents. This particular error was about 400 square feet on the square footage of the house. They turned in their BPO, and it was 400 square feet off and priced accordingly. This was the case of a typical builder who had a bonus room that could have been finished or not finished. A lot of times it got finished and was never caught in the building permits and updated with the MLS. This was an example of a great deal just because of input error. When the prices were drastically going up starting in 2003, the errors were made by opinion of value by the real estate agent. Therefore, houses were listed way under what they should have been. This was at the time he was buying houses when they were going up $10,000 a month. Therefore, there are always different reasons why you can always buy in the MLS.
Part of the situation is you know this is true and the agent knows it’s true. There is an expectation that things are going to work, and it comes across to whoever has the listing. If there is expectation that an offer is a stupid one and you are embarrassed to present it, this comes across too. Some people just do not want to submit because they get embarrassed. Even nowadays the property is not owned by a person, but by a bank. One of the things with the cycle is you are usually not dealing with a human being who has a loss at stake, but rather it is a lender. In one example, Bruce had a listing that he gave to someone named Dave Cooley who used to be a bog realtor in Grand Terrace. He had an offer from an investment company; but what he did not realize was within about a week of him getting this listing; Bruce had the chance to buy a big 5-bedroom house for $76 grand. If he sold this house and one other house he owned, he could pay in cash. However, he needed to do it quickly. Dave had an offer from a big company, but he was embarrassed to tell Bruce about it. It took him three days to finally apologize for the offer. Bruce told him he would not only take that offer, but would like the same offer on his residence and would do both of them. Dave almost fell off his chair, but he did not realize Bruce’s circumstances had changed. He had a profit motive to say yes to two discounted deals.
Ben Gay III has a great sales book, but one of the questions he asks is if you would own one and would do the process yourself. Bruce said there are times when he would say yes. He would say yes to the offers he is making that are simple and all cash as opposed to doing what normally has to be done to sell a house. One thing that is not a secret to people like Bruce and Bill is they go through the sales process and know it is not a fun journey to go through the normal retail sale. The reason why you did these was because it was opportunity. On one side you are willing to give up $10-$15,000 because you are making $50,000 on the other side. You cannot be stubborn about the $10 grand. What seemed like a big discount was really a big profit center.
Tune in next week for the second part of Bruce’s interview with Bill Shipp.
For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.