Bruce Norris is joined again this week by Rick Solis. Rick is a fellow investor, property manager, property finder, and a good teacher.
Regarding the investor side of real estate, Bruce and Rick met at a seminar he was giving at the time Rick started buying and holding. Andrea Esplin was at this same seminar and had a blockbuster business in Rick’s same city where she rented out books on tape. Rick first heard Bruce speak at Nick Manfredi’s group in Corona in the early 2000s. Bruce said when he hears about partnerships they usually do not work out, but Rick’s has. Bruce wondered what the mix was that made this work, whether it was a high level of skill in different areas that was brought to the table. Rick and Andrea complement each other really well since there are a lot of things he cannot do but she does an amazing job, especially in her knowledge and experience of appraisals. He took quite a beating in the 90s with his first batch of properties, so he had all this experience. At the time they met he was still buying, fixing, and selling a couple houses a year. She did not have any of this knowledge, so they both helped each other out a lot.
At the time Rick was not involved as much in his business as he is now. He was an appraiser who did part-time deals that fell in his lap as well as a lot of note-investing. He heard Bruce speak at Nick Manfredi’s group back when he was selling tapes of his seminars. He had four seminars all together, two of which Rick bought at this speaking engagement. He liked them so much he drove to his office the next day and bought the other two. This was around 2001/2002 when they were about to have a crank in price.
Bruce asked Rick how he ended up buying properties since there were no REOs. Rick said there was a mailer they started with which they would send out about 1,000 a month. A few months in they were getting nothing from it after spending a lot of time and money. He was not ready to tap out even though most of the time he is ready to jump out fairly quickly. Andrea convinced him to keep going, and eventually they started buying properties. They kept going from here and started increasing the mailing volume. There was a time they would send out 2,000 a week and were buying four houses a month at the peak. Regarding who took the phone calls, both of their names were on the mailers. This meant she would get half and Rick would get half. There were usually half the people who did not want to deal with women, which calls Rick got; and Andrea got the calls from people who did not want to deal with men. They did not plan it this way, but it worked.
Because Rick told Bruce about this, one of the things he did was have about 20 letters in a boot camp. You pick up little things from some of them, like people who speak a different language. Rick never would have thought this would be the case, especially men not wanting to deal with women in this business. He always heard that and thought they were exaggerating, but he saw it take place time and again. If the customer called her by mistake, they would not deal with her and instead gave her the message to call Rick. She makes things happen a lot faster and better than Rick does, but they would not deal with her and go straight to Rick. To him it really felt like being back in the 1950s.
What is interesting about all this is that if only one of them was doing the work, this may have cut their response by half since it would have been something they decided before they even attempted a call. Half the time they would have just not called. Bruce asked Rick when he is dealing with people who sell something, why do they end up selling at a discount. Rick said most of their properties sold because of a problem involving a person living in the property, were out of the area, of were having problems with the city or code violations. Most of them were purchased because of some deadbeat relative in the house who had not paid their rent in years. Some of them it seemed had been there for decades. Bruce asked Mike Cantu what the common thing he has noticed from most of his purchases, and he said the same thing as Rick Solis. They could completely make a mailer out of this: “Do you have a Deadbeat Relative Living In Your House?”
In that era, since prices were increasing, most people were making money on this sale. Everybody was making money, including the people selling the property. If they made a bad buy, they could sit on the house for six months and the market would save them every time. They bought some gross things they should not have bought but actually worked out really well. Bruce said these markets are very forgiving. Rick was buying and holding most of it until he realized how hard it was to get a deal. They would sell it and make $20 grand, while others would be sold and fall out of escrow. After a while they found it was more profitable if they could get them with a paying tenant to sit on it for twelve months and a day before selling it. They did not on it too long, but they tried to get to long-term capital gains tax rates or 1031 exchange. For most of them they stayed a year.
Bruce wondered if he would normally exit at the right point. They sold 80% of their inventory, and they were done with all of their worst problems by 2006. They sold a lot of their inventory in Barstow, where you can make a fortune in the right market. He had a couple he loaned on and had to foreclose on and got them back a year or two late. Rick buys existing notes at a discount, something which is an ongoing thing and there are websites for this. Rick does not do it anymore, however, since they have changed the law so much with Dodd-Frank making it difficult. He has not purchases as many recently, but there is a huge learning curve now and paperwork you have to cover on it. Rick said he is considering biting the bullet, learning about it, and doing the necessary regulations to do it again. The website he uses is fciexchange.com, where list tons of mortgages, some performing and others not. There are better deals to be found out there, but with this one they are all in one place. Otherwise, notes are pretty hard to find and it is not easy to find discounted notes for sale.
There is a term “scratch and dent” where you think something is wrong with the note that is hard to determine. Usually the problem with buying a note is if you put down a $200,000 loan and get it for $100, once you put down the $100 grand in there it is stuck. You cannot take it to a bank and borrow on it since you cannot take this asset anywhere and get your money back. A lot of times they have to sell it because they need the money, but other times they are selling it because they do not want to foreclose and take the property back. Bruce asked if most of the notes he deals with are from institutional or private owners. Rick said that of all his loans he has purchased over the last 15 years, 99% all came from institutions at one point. A lot of them were seconds and equity lines of credit type loans. These were sold off to an individual who would then resell them to Rick.
Bruce asked who the most influential educator is outside of the real estate world. Rick said he has known so many, but the one who motivates him the most was Zig Ziglar. Bruce called him up the first time he heard one of his seminars, and he said one of his favorite stories was that he was not raised wealthy. He was dirt poor and was even kicked out of his own friend’s country club. When he got some money to build his own home, he built a pool with an arrow that had a straight mark one foot longer than the pool at the country club. This concept is valuable and involves getting everything you want if you can help other people get what they want. For Bruce, the difference between him and Jim Roane is the pace. Ziglar was plugged into 240 volt, and Bruce remembers thinking that he could never be a teacher if this is the prototype. When he heard Roane, he thought he was more sedate and the door-to-door salesperson.
Bruce asked Rick who the most influential has been as far as real estate educators. Rick said he actually listens a lot to Bruce, especially when it comes to timing. He studied a lot of real estate in the 80s and 90s, and he does not really read any real estate books anymore. There is not much to it, and once you learn it you learn it. Everybody else is repackaging all the same things. Back in the early 90s the person he like the most, Wayne Cooke, ended up going to jail. He also liked Robert Allen, although he is more about selling you the next thing.
The Norris Group has been offered four tv shows for their fix and flips, although he does not like the model. If there was anything he had to do for drama he would not be able to do it. The numbers are so skewed that they can make it look like you made $50 grand on one deal when you really made $10-$15. What this does is make the education people provide very expensive. This is the one thing that makes it difficult to watch when you are willing to share what you know and then somebody else is charging $50 grand. At $50 grand, these people are trying to upsell you to the next $50 grand, which damages the industry.
Bruce noticed when he got Tony Alvarez involved in speaking, this was a big deal for the industry for a while. When a survey is taken, Rick is the number one section everybody loves. Bruce’s business seems to be very accepting of people who have never spoken before but have really good material. At the end of the day, they are getting somebody who has gone through this for real. Bruce’s brother used to listen to everything on tapes and on television and give them to him. In the middle of doing the business, every time Bruce touches a house there is a personal story where there are characters living in the house but the story comes out like it is pristine and there are no problems. Bruce remembered telling his brother those people had never bought a house in their whole life.
Bruce heard a speaker on television who had never bought a property in his life. Bruce was up north at the time doing a seminar, and he got picked up by a limo. The speaker happened to be in the limo with the lady who was promoting Bruce. Bruce asked him what his background was and how he got into real estate. He said they attended a seminar and wanted to know how to buy houses. Everybody started buying, and he ended up buying the speaker out. They really just bought the seminar business and didn’t really know any more about it. One guy was a framer, and the other was a drywall person. Rick also bought a seminar from a speaker in Hawaii who he did not think purchased any houses himself.
Another speaker Rick said he really likes hearing speak and is knowledgeable in the field is John Schaub. He is about no nonsense and low cost. If you are not going to take massive action but still get into the business, you can just follow his formulas and the way he does things. It does not cost much to buy his books or take his classes, and you can make a nice chunk of money and be very well off. He is very methodical in the sense of one house at a time, and this is what he does for a living. Rick likes the guys who do what they say and are not just selling seminars but have not experienced it. There are a pack of them in Florida who taught for a long time, including Peter Fortunato, Jimmy Napier, and the late Jack Miller.
Another influential speaker, Jack Fullerton, was given the first Roaney Award at the recent I Survived Real Estate event. He had quiet influences on a lot of people, always kept up his investment club, and he never had any agenda. It was never for profit; he just wanted everybody to do well. They actually asked the Roane Foundation to prove that award so they could use Roaney, Jack’s biggest influence.
Bruce and Rick next discussed property management lessons. He asked about some of the big lessons he learned over the years, which Rick said are several. The biggest thing he learned is you will have people show up who need to move in immediately. They have cash in their pocket and two months of security deposits. 100% of the time that person will be a mistake. If you take that tenant, you are going to lose your shirt and regret it. Rick has rented out to this tenant many times, and it has never worked out well. The last tenant he took like that turned his house into a marijuana growing house. He ripped out the toilet and was flushing dirt down the septic tank. This cost Rick thousands of dollars to fix and he had to evict him. It was just one thing after another. These are always the worst tenants.
Another factor is if they are telling you a lot of stories coming in and giving reasons for their problems in life, those are also the wrong tenants to get. You then have to make sure you can talk to their current and former landlord. You do not want the current one as much as you want the former one since he may want to get rid of them right away. A lot of times the tenant’s landlord is a relative of theirs, so you have to make sure the person they put down as the owner of the house is actually the owner. If you are in the lower-end rental properties, those tenants are pretty sharp. A lot of them are professional tenants out there to stick it to you if they can. A lot of times you have to be on top of your game.
A lot of times they will deal with 20 people who call about the house, 10 who see it, and they have to pick the best out of the 10. You have to do a lot of digging; they will rarely pick the first one. Rick is involved in the process himself and not delegating it to a property-management company. He does some things with property managers and is not opposed to this, but if there is not enough cash flow in the property to warrant this, then you have to get involved yourself. Bruce asked about when he delegates it to a company and if this happens after he has done the rental himself or if they instigate the whole process. Rick said he has done both, although if he does not want to use property managers then they will deal with the whole process. This works really well, but they are going to take longer to get a tenant and they are not as motivated. However, this is the price you pay for delegating.
Bruce wondered if Rick asks them about their process about their decision. Rick said they always bring the tenants to you. They weed them out, make sure they qualify with them, and bring the tenant to you. Ultimately as the owner you get to choose who moves in to the property. With the process, if someone shows up with $2500 in cash they won’t take him. They will check your credit and verify rentals, so you want to make sure you get a property manager who does not rent to the first person with a wad of cash.
Bruce asked Rick if there were any property types he knew were a problem from the start. Rick said he does not like a property that is not typical for the area. He was talking to one investor with an A-frame house in an area where there are no A-frames. This is an undesirable inventory, so he does not buy anything weird or unusual for the area unless it is good. He also does not buy anything with location problems unless the market is exploding.