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Tuesday Case StudyApril 21, 2015

Anthony: Good afternoon, everybody, Professor Moore here. Welcome to the Tuesday Case Study Call. I’ve been looking forward to this one for a while; I’ve got my buddy, Sean Katona, on the call with us for Simplified Properties here today. These Tuesday case studies, we could utilize them in a lot of different ways, we really can. I think this is one way we can help grow and shape our own personal business.

We’re going to learn different design ideas, see different design techniques, everything from paint colors to curb appeal, what did Sean do or not do. Why did he choose that color, why did he not put in additional landscaping, all those different factors. Some people may want to convert this garage into living space. There are a lot of different things you could do here, a lot of different options.

So what I’m really looking forward to the most is understanding these hurdles that maybe Sean went through on this one, how he got the deal and then, of course, we all love the before and afters. When you see the before and afters, I want you to really pay attention to them and think if it were me and this were in my backyard what would I do differently, what would I do the same, what ideas can I steal from Sean and utilize and implement on my own rehabs. Think through all of that.

If you’re relative new in the program, I know you’re going to get fixated on the numbers and that’s an okay thing. Understand how the property was analyzed. Take a moment to understand what your holding costs are going to be and how Sean came about them. Start to put yourself in the shoes of a real estate flipper and say if I come across this type of deal and I know it’s going to take X amount of work, will I be able to do what Sean did in my backyard.

The answer is always yes, but seeing these week in and week out will help get you familiar with it and make you feel more comfortable, that’s why we do them every single week. The beauty of this is Sean is one of our Mastery coaches, so if you have an opportunity to connect with him I highly recommend it. There’s just a wealth of knowledge there that can definitely put you on the right path to being very, very successful in your business.

So I’m going to mute myself here, hand the controls over to Sean, Sean is going to take it away and we’re going to go through this presentation. At the end of the call, we’re going to go through some live Q&A and I’m also going to be answering questions periodically that you type in on the Go-To Webinar control panel if something confuses you, you don’t understand, you didn’t hear it, there was a glitch. Listen, technology sometimes is our friend and sometimes it is not. We tested the audio as best we could, but it may go in and out. That’s part of doing this live.

Just know that everything is fully functioning right now, so make sure your crank up your volume to the max. If the screen isn’t moving along, then you may need to log out or log back in. We have several folks on our end logged on to this call just to make sure that it’s seen correctly for you. We do post these within 48 hours on the Mastery site, so if you can’t see it live or you could only see half of it or maybe you’re just listening to this as an audio, just know this is will be recorded. It’s being recorded right now and you’ll be able to see it live on the Mastery site within 48 hours.

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All right, Sean, I’m going to let you run with it from here. I’m going to mute myself and I’ll see you again at the end of the call.

Sean: Terrific! Thank you, Professor Moore, for that awesome introduction. Hello and greetings to all those that could join us today, I’m coming to you live from Seattle. It’s almost as blue and beautiful here today as that picture makes it look like, that’s not always the case.

For those of you who don’t know me or haven’t had a chance to do a coaching session with me before, as Anthony mentioned, my name is Sean Katona. I’m the managing partner and founder of Simplified Properties, that’s the name of my house-flipping company. I’ve also been a coach with Fortune Builders since early 2014, so I’ve had the pleasure of doing well over 100 coaching calls with folks just like you. That’s been a joy and a fun thing for me to do and be able to give back a little bit and share some of the wins and some of learning experience, as well. So that’s what we’re hoping to do here today.

If you guys are interested either throughout this presentation or afterwards, you can definitely check me out there online. You can see SimplifiedProperties.com and, of course, the business Facebook page where we do a good job of sharing a lot of the before and after photos of any current projects going on in my portfolio.

Now that you guys are done seeing my Blue Steel Zoolander photo there, I’m going to dive right in to the content. I would like to invite you to pepper me and Professor Moore with a steady stream of questions. If I’m cranking through this too quickly or there’s something you guys want to dig in to and know a little bit more about, please lob it over and we’ll get to it either during the course of the presentation or at the end.

Before I dig in to this deal, I thought it might be helpful to give you a little bit of my background so you know where I’m coming from. I’m born and raised in Seattle, I went to UDub and studied business, marketing sales and technology, which ended up being really helpful for this business because so many of the things I learned at kind of a fundamental level carried over into what we do on a day-to-day basis now.

I ended up down in Southern California for almost eight years doing advertising sales for Microsoft, EA Sports and a Mobile startup. I got to know the Southern California market, I already knew the Seattle market and today I’m actually active in both areas.

My real estate story really began back in late 2009-2010. I had gotten a couple bonus checks from Microsoft and I was trying to figure out how do I put this money to work and make my money make money for me? So I did my first fix and flip, made a decent amount of money on that and kind of realized, boy, this might be an interesting business. If I did a few of these a year, I could potentially displace a six-figure income.

So the seed was planted, but it really wasn’t until 2012 when I joined Fortune Builders that things started to take off and this became more of a full-time endeavor than a night and weekend project. I did both my day job and real estate investing for

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http://www.SimplifiedProperties.com/


probably nine months before I was able to pull the ripcord and go full time and that was about mid 2013. I had two, maybe three deals under my belt at that point, I had three rental properties in my portfolio before I quit my job, two that were, in fact, through the Passive Income Club and Memphis Invest.

Since then, almost two years later, we’ve got 40 deals that have been done or are in progress. In fact, six of those are in progress right now up in the Seattle market. Those are either construction that’s ongoing or completed jobs that are listed and ready for sale. In fact, we have six more deals that are scheduled to close in April, so literally in the next 10 days. It’s busier right now in my business than it’s ever been and we’re seeing a lot of growth, so that’s really exciting.

For those of you just getting started in this business, it’s almost hard to fathom that I could have done this many deals in that period of time with what I knew two or three years ago. It seemed outside of the realm of reason and today it’s very real and the checks are coming in steadily. We’re approaching a pace of doing almost a deal a week, if we can continue this momentum. So that’s what’s going on in residential for me today.

I’ve also gotten really excited about commercial real estate, both in my backyard and even throughout the country. Those of you that are interested in that and maybe for a coaching session, that’s a big passion point of mine now and I’ll probably spend at least 50% of my time focusing on that part of the business going forward.

Now that you guys know a little bit more about me, let’s talk about this deal.

The Deal

The main differentiator that I see with investors and folks being able to steadily bring in deals, generate revenue and be successful in this business is deal flow or what I call lead generation. For those of you who have done coaching calls with me, you’ve probably heard me say something along the lines of spending at least 75% of your time focusing on lead generation, getting the phone ringing. Revenue-generating activities and networking is a big part of that. Most of our deals today come through the MLS, direct marketing and then networking with folks in our community, so that could be other real estate investors, folks in our sphere of influence or our personal circle.

This particular deal is a fun one because it actually came in through word of mouth. In fact, another investor who is just beginning his career had reached out to me. I believe he found one of my websites and said hey, I’m interested in learning this business. How do I get started? What is this? How are you doing it? So we had lunch and I gave him some direction and some coaching on what it is we do at Simplified Properties, the types of properties we look for and really helped to articulate what he should be looking for out there in the field. So a clear set of buying criteria.

I think an awesome takeaway for folks that are just getting started is really trying to have that nailed down. We get so specific that we’re telling people built in 1980 or newer, it’s three-bedroom, two-bath, it’s in these three cites, it’s in a good school

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district. We like to see stuff that has high equity positions, so we really nail it down so not just folks in our network, but also real estate agents, even other wholesalers, all know what is in our wheelhouse and we don’t as much time looking for deals or reviewing deals that don’t make as much sense for us.

This gentleman ended up attending a Mastermind of mine just kind of honing those skills and refining the deal criteria we’re looking for and also trying to figure out how do I actually find these deals. He really gravitated to the door-knocking side of the business, so he’s running around neighborhoods seeing places with overgrown yards, boarded up windows, places that look like they’re in disrepair and maybe could use the service of someone who does renovations and remodeling on houses.

One of the other best practices he was doing is every time someone didn’t answer the door, he actually would drop a sticky note and say something as simple as please call my local phone number. Not a whole lot of detail there, but enough to peak someone’s curiosity and say wow! Someone came by my porch and left a sticky note. What would happen is the homeowners would call back and say hey, saw your note. What’s the deal here? What we’ve trained them to do is to just let them know yeah, we’re looking for a property in this neighborhood, wanted to see if you would consider selling.

So that’s how we had this deal showed up on our radar. That individual really did a great handoff. After making an initial introduction to the homeowners, he recognized they had a situation that would probably be well suited to do an all cash sale to an investor, as opposed to going through a more conventional route. So he prepared them to have us, basically, come into the mix and say hey, these are my partners. They’ve got a lot of experience doing this, they’re BBB accredited. They have five or six projects going on right now in the area, I’d love for you guys to sit down and really make sure that this is going to be a win-win for all parties.

At this point, I have a Director of Acquisitions in the Seattle market who really helps me review, approve, walk and do due diligence on every property that comes into our pipeline. It’s his responsibility to work with that individual and the homeowners, so he got them on the phone to do kind of a preliminary screening and just say hey, are these guys meeting some of the criteria that we like to see before we spend time driving out to a property.

He recognized there was definitely some financial hardship going on, they’d just gotten into a situation where this house was kind of eating them alive and so the motivation was there. The family was also saying things like yeah, we do not need to get top dollar for this house. What’s more important to us at this point is selling it quickly. So within 24 hours, Tony, my Director of Acquisitions, was able to make it to the house, we did our inspection, had a chance to meet with them, establish some credibility, rapport, some trust and the negotiations got going.

They started with a number that was a lot higher than what made sense for us, initially, so through some smart questioning and asking how much money they really needed to be able to complete this transaction and reemphasizing that we can kind of put this pain point behind them if we can reach a number that makes sense for them, but is also profitable for us he was able to get them down significantly.

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I think that was close to a $20,000 savings from where we opened up to where we actually ended up buying the property, so you guys think about that when you’re negotiating with sellers. Two questions can be a $5, $10, $20,000 an hour activity, this probably happened over the course of 20 minutes. That’s powerful. That’s where you’re really making money in this business -- the negotiations on the buy.

Closing

The closing was pretty straightforward. They needed it done quickly; fortunately, escrow was able to crank through the paperwork. I had a private lender lined up ready to go so the funding was fast and we ended up acquiring this property for $151,000.

Funding

Moving on to the funding, I mentioned briefly that it was done through a private lender. At this point in my business, I’ve got a pretty decent-size private lender pool of folks that I have longstanding relationships with, they’ve typically done a deal or two with me before. This particular private lender got my packet to review about this project and felt comfortable covering the purchase price of the property and a lot of the renovation cost, so he was given a Trust Deed and Promissory Note. That was all we needed for this whole project.

One of my best practices that we’ve adopted, really just this year, is to invite our private lenders to follow the progress of their flip they lend on via Facebook. So we do weekly updates of the construction project and they kind of see the house going from crappy to happy along the way as the contractor completes the job.

One other nugget, for those of you who are doing private lending right now, even hard money for that matter, is taking the payment process and getting that off of your to-do list. I just put that on autopilot with Bank of America where every month on the 15th a check arrives in their mailbox, they cash it, they get that warm fuzzy feeling. They know we’re cranking right along on their project between that and seeing the Facebook updates.

The relationships with those private lenders, again for those of you kind of getting started raising money, for me was grown organically through my friend and family, initially. My very first project, a good friend of mine who was a co-worker had money in her retirement account. We worked on converting that over to self-directed, she referred me then to a brother-in-law of hers, another friend referred me to his friend. Over the course of two years, that network has really grown to the point a lot of times we have more money sitting on the sidelines now than we have deals to put people into.

You guys might be thinking that’s a fun problem to have. It certainly is, but keeping those two things in balance becomes something that you’ll spend time on down the road when you reach the point where you do have a lot of private lenders that are excited to get into your next project.

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Before Photos

So let’s take a look at the before, what this place looked like when we found it. Obviously, you can see the yard is a little bit overgrown. Frankly, this isn’t that bad compared to a lot of the deals we’ve done. I would say this property didn’t have that many problems. It was more about the people who needed help, in this case.

That being said, we did spend close to $50,000 really making this thing shine. It received a new roof right away. That was one of the first things we did on the project. It also had original kitchen flooring, so a lot of the cosmetic updates. Beyond the roof, there really wasn’t much structurally we had to do to this. You can see some unique and personal paint tones. I’m using a palette now that’s a little cooler, grayer than maybe what you’ve seen in a lot of the other Fortune Builders or CT Homes renovations.

One of the other things I really like to do and we look at this every time we’re getting a property under contract is how do we create a floor plan that’s really going to be desirable by a lot of the buying pool. So think about that, the great room concept and feel is something that’s highly sought after today. In this case, we had a non load-bearing wall here that we could pretty quickly, easily and affordably open up to achieve something that’s a lot more popular today. That’s what you can see here in this photo. We’ve removed that load-bearing wall and that creates a really nice surface and space for us to be able to do one of the islands with the overhang where you can put the stools in.

Also notice that the original cabinets are still in on this property. They were in good enough condition that we felt that wouldn’t take away from the resale value of the home. So when our painter came through here, he went ahead and blasted the cabinets, as well. That probably saved us, depending on your cabinet prices, somewhere between $2,000 and $4,000 if you think about both labor and materials. That basically goes right to your bottom line, as long as you’re getting the same price that you’d anticipated.

Here’s one more shot. At this point, the quartz countertops have gone in. You can see the sink is in here, we’re waiting for appliances. It looks like the hardwood floor is down at this point and obviously protected. The walls have been painted. We’ve got new light switch fixtures on to kind of brighten that up. New baseboard has gone in throughout the property. You can see new light fixtures up above. We’re using what I guess you might call more of a minimalist kind of design, so not a whole lot of clutter and really trying to create a blank slate and a canvas for the homeowners to be able to envision themselves living in this property.

Finished Product

So here’s what our finished product looked like, we get it professionally staged and photographed when we’re done. We actually do put in stainless steel appliances into, in fact, every house we’re doing right now. I think that’s something that separates us, potentially, from some of the other flippers. This is maybe a median price-point home, we didn’t go too crazy with really high-end appliances, but it’s the

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right price point for the house. It’s at or above what competing listings were in the neighborhood.

I think that’s another interesting takeaway, make sure as you guys are going through and picking your materials and finishes that you see what the guys down the street have done and where the folks around the corner are. What does the new construction look like and how is your house going to compete with that at the price point you’re planning to list at or that you’re shooting for. Maybe you need to push the materials and go a little bit nicer because you’re really trying to blow out the comps.

All right, a couple more shots here. You can see this is where that false wall was, right on the island there. That really opened up nicely to create, in this case, almost two living areas. There’s kind of a family room, what would be behind you on this picture with the couch and a fireplace. Then off to the right there another couch and sitting area where family could stay as mom or dad were cooking.

Here’s a look at that living room. The fireplace was already in there and that mantel, kind of the white framing you see was in there, as well. That’s something if we don’t see in rehabs now or the houses we’re buying, we’re actually going ahead and adding it. I think that adds a little bit of class, character, it makes the house feel higher end and my contractor can get that done for about $350.

A few other things you might notice here. I’m using wide board darker hardwood here. I think this is probably a lament or bamboo, given the price point, a higher-end house, certainly would go up to engineered hardwood. We did end up replacing all the windows in this house, so when someone walks through it almost feels like new construction.

We were able to salvage the bathroom cabinets in this case, as well. You’ll see there that we actually just replaced the hardware on it so it feels like a new cabinet, even though it’s not. It’s got the new quartz countertop, a nice faucet and new flooring. The bathroom came a long way from when we bought the house.

Another shot of the living room there, master bedroom. Ironically, this bed is just an air mattress. My stager got really smart. They don’t carry heavy beds in and out, now it’s just the framed air mattress and throwing some nice bedding over the top of it.

Approaching Pay Day

This is the fun part, approaching pay day. It had been probably 85-90 days from when we bought the house to the point where it was getting ready to hit the market, so we staged it. I like offering full commission wherever possible, which maybe is different than things you guys have done or seen from other investors. I know a lot of investors that offer a deeply discounted commission, four to five percent total. My philosophy is if I reward my brokers and agents, they’re going to want to do more business with us and, hopefully, has them bringing fixers to us in the future.

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That keeps the agents on the buy side motivated to really want to incentivize the retail buyers, the future homeowners to go with our house maybe versus a different house down the street that’s quite comparable but that they’re only earning two percent commission on. If you guys get into a really competitive situation and we do this on a number of deals because we’re really trying to blow out the comps is actually offering four percent commission to the buyer’s agent.

Think about that same scenario. Homeowners are looking at about four or five houses, they like them all, then all of a sudden the agent with an extra $2,000 or $3,000 in commission coming their way starts going to bat for us because they’re going to make that additional money, the house looks great, the product is nice, we’re completely professional. All else equal, they have every reason to go with our house in this instance versus the one down the street.

We listed this house at roughly 3:00 p.m. for $265,000. We felt that was the right price. It wasn’t priced below the market value and we really weren’t going above it. We wanted to make sure we attracted a lot of attention and thought a lot about is this housing going to appraise, so that’s about where we thought we needed to come in at. Within five hours that evening, we’d already received four offers at and above that $265k list price and one of the offers, at least, was written with an Escalation Clause in there.

For those of you not familiar with that, that means if I offer $266,000 and someone else has already come in at $270,000 I can have that escalate, let’s say in $5,000 increments, up to a dollar amount that I feel is kind of my max. Almost think about eBay and bidding. It’s a way to do bidding built-in to your offer price, but if no one comes in at $270,000 I could go ahead and win that property at $266,000. So it provides great flexibility and the lowest possible purchase price, but we’re willing to flex higher if need be.

That Escalation Clause with a number of offers very quickly brought us up to that $281k number we ended up coming in at, so we went back to all the buyers at that point and said hey, we have an offer in at $281,000. Would you guys like to meet or beat that? Two buyers were actually at that price point, so the folks we ended up going with were the ones that had the ability to close the deal and come up with the extra cash if the house didn’t appraise.

Let’s say the appraisal comes in at $265,000. The bank is willing to lend 80% on that purchase to the end buyer. They’re coming up with 20% down. In this case, since we sold for $281,000, had the appraisal come in at $265,000 they would have had to close that gap – the difference between $265,000 and $280,000 -- with their own funds.

We wanted to make sure the deal didn’t fall apart just because we were blowing up the comps, which is a great problem to have. Fortunately, the appraisal did come in at $281k. We do a very specific job of making sure our appraisers see the full value of the house, they’ve got the comps in there to support it and that that’s not going to be something that negatively impacts our deal.

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When it came to closing escrow and getting this thing to the finish line it was really quite straightforward. A couple of minor fixes, kind of quality control issues with the construction work. We needed to get earthquake straps attached to the water heater, carbon detectors in there is something that was passed over and this thing closed quickly and clean in 30 days.

Review

In review, this is where we netted out. The sale price at $281,000, again that purchase price was $151,000, the total renovation cost is $48k and, actually, included in that number is some of my soft cost. I put the staging cost in there, the photography cost and kind of all the incidentals. Utilities and interest payments to my lender are really the only other sub items on there and that was probably less than $5,000. So all said and done, the total net profit on this project was over $50,000. So exactly $51,000 and we were able to do it in exactly 100 days, which was fun.

If you take a look at the cash invested -- that $151,000 plus $48,000 and the net profit produced – that ends up being a 24% ROI. We have some of the other fees built in there with the deal analyzer, but that’s a number that I really like to see, especially in Seattle where it’s pretty competitive right now. If you were to take those returns and annualize them from that 100 day flip that would be over 101% return on your money.

It gets even more exciting thinking about the fact that we’re using our private lenders’ money. Really, we had next to none of our own capital tied up in this deal to be able to produce that level of returns and at the same time agents, brokers, private lenders, all were able to get paid out of this, as well. I feel like we’re boosting the economy a little bit.

Lessons Learned

So a couple of learning lessons here as we were going through this project. One thing we hadn’t done before is a deal in Federal Way, Washington. For those of you who aren’t familiar, that’s just south of Seattle, probably 30 minutes or so, nice little suburb. It’s not a high, high-end neighborhood, unless you’re right on the water, but it’s not necessarily a war zone either. We found that it’s kind of a sweet spot. The houses are about the right age, the buying demographics are there, the income is there, so we’ve actually bought three more properties in this area since we acquired this property. It’s working out really well for us. So local guys, stay out of my backyard there, if you wouldn’t mind.

A couple other learning lessons, we were able to save that money on the cabinets. When we’re going through a house at the time we’re getting ready to acquire it, we’re looking around saying hum, what in here could be salvaged that we might be able to save on our renovation cost. In this case, it was certainly the cabinets. In some of the houses we’ve done, they actually had beautiful stainless steel appliances and good countertops.

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We try and salvage what we can, as long as it doesn’t negatively impact our resale price. We can do some smart things like replacing the hardware on the doors or the handles or fixing up a broken cabinet door and being a little bit more frugal and every dime we can save on that rehab, typically, flows straight to that bottom line.

I talked about this in the picture walkthrough, but the open floor plan with flow. The great room concept I think is here to stay for some time to come. That’s something I think is exciting our buyers. Every time someone walks through the house, we get a ton of positive feedback about the quality of our finishes, the way it’s set up, the professionalism, the quality of our contractors, that’s something that really makes a big difference in what we’re doing.

A Couple Other Learning Nuggets

This was a deal I didn’t think was going to sell for $281k going into it, so it was a little bit thinner than what you saw there on the financial financials. We were looking at it trying to figure out how can we squeeze this thing and make as much as possible, so we started going down the route of subcontractors and hiring out the trades individually where we would do some of the project management internally.

It turns out that is definitely not the highest and best use of my time. It ended up being a project management, many, many hours spent dealing with little details, scheduling back and forth, teaching a new painter what our paint swatches are, opposed to a GC who’s done maybe a couple jobs with us and is familiar. So, for us, after this project we switched to a model that’s strictly general contractors. Rather than dealing with hiring out all the individual work functions, we let them take care of it.

I know that I’m going to pay a little bit more in construction costs and that he’s got to be able to make money on this, but I’m okay with that. Paying him to do that, he’s relieving a lot of the headaches and some of the minutia and details that go along with renovating a house so we can focus on finding more deals and raising more money, which is really the highest and best use of our time.

The second sub takeaway on that is you get what you pay for. Every time I’ve found a affordable GC things tend to fall apart in terms of the communication with them, I get hit right and left with change orders or they’re falling behind on timelines and the quality of the work can suffer. So two, three, four contractors later up here in Seattle, I’ve finally found someone we are working really well with. I’m happy to pay him a little bit more than what some of the other guys might come in at on the bids, knowing he’s going to be part of our team and help us get a rehab done successfully, smoothly, with a quality we’re happy to attach our name to and get it done on time. So that’s huge.

One other thing we needed to do a better job of on this project was a quality control check. That really should have happened one more time before the stager came in and certainly before the photographer did. The stager got a little frustrated that the furniture going into the house was going into kind of a dusty environment. It wasn’t a construction work zone necessarily, but she really likes that thing broom swept and maybe mopped. That’s just her personality type.

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So that’s something we’re going to start doing before we get the stager in there. The same thing goes for the photographer. You can see in our final photos a little bit of dust on the floor, that’s just an easy thing that could have been corrected. So quality control checks along the way. I have our listing agent do that. Often times, that’s one of my in-house partners, Tony, my Director of Acquisitions, but that’s part of our operations manual and checklist we go through before a house ever hits the market.

You guys probably recognized a lot of the systems that were used throughout the process of this rehab and some of the best practices. Simplified, we’ve tried to adopt and utilize as many of the tools that Fortune Builders has provided us as possible. I’m a huge proponent of the weekly marketing routine. We do a lot of direct mail. I do a lot of online advertising, as you know, and we’re networking with other folks in the community that can help us find properties.

That assures us a steady deal flow. After a good solid year grinding up in Seattle, that’s gotten us to the point where there’re six deals closing in April and another five already in the pipeline for May.

As I mentioned in the beginning, that is probably one of the biggest differentiators between folks who become wildly successful in this business and those who are constantly struggling to find deals. In this market where it’s super competitive, that is the key to really unlocking success. Certainly, I’ve used a lot of the best practices from raising private money to the credibility packet, the way I communicate with our lenders, setting their expectations from the get go, understanding what their goals and objectives are.

The format I’m using now is when we get a deal under contract, each of my prequalified private lenders gets to review it simultaneously and so we create a little bit of a frenzy when it comes time to fund a deal. They actually have to raise their hand first and say hey, Sean, we want in on this project. It looks good to us, we’re able to fund in seven days. In many cases, some of the other private lenders who are a little bit slower actually get turned away. Think about how fun that becomes when you have folks flocking to give you money and they start to compete to see who can fund that deal first. What made that possible is standardizing our rates across the board and the way we’re handling that process.

I think one of the other biggest takeaways for this project and even my business as a whole is really adopting that E-Myth mentality and model, doing as much as we can through that operations manual, making sure that everything is documented. It was definitely the Wild West in the beginning, all the information was in head and I was kind of brut-forcing my way through so many deals. Now with three staff members up here, things really have to be documented a lot better and everyone is jumping in at their part of the transaction doing what they do best.

We use the deal analyzer on every single deal we do, whether we buy it or don’t, that translates into the repair estimator which stays with us throughout the process. From there we can create our six critical documents. We utilize Google Drive to keep that kind of live throughout the whole course of the rehab.

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That same model E-Myth and hiring has allowed me to bring in a rockstar team to help me do a lot of the day-to-day executional and operational things so that as the entrepreneur I can stay focused on ways to grow the business by two, three, four, five, X, how do we go from a deal a month to five deals a month, how do we go from $1 million in private money raised to $5 million. You really start to solve some of those bigger problems.

That is the formal part of the presentation. I want to definitely thank all you for joining me today. Big thanks to the Fortune Builders family, the systems they’ve taught and we’ve adopted to be able to make this business grow as quickly as it has. Huge thanks to my internal team. All the property finders out there, whether you call yourself a bird dog, a wholesaler, an investor or a flipper, whatever it is, we really appreciate you.

The investors or private lenders that participate in my business, you really make it possible to do multiple deals at the same time. Huge thanks to local agents and brokers. We really do value those relationships, they make it possible. Of course, my rockstar GC and my beautiful fiancé, Britney, who puts up with all sorts of excitement, drama, highs and lows throughout the course of doing these deals and building this business.

Anthony: Awesome. Thank you, Sean, I appreciate all the information you’ve shared with us here. I’m going to go over a few items that I kind of pulled aside and then we’ll get into some of the good Q&A questions we had come through.

Number one, you mentioned something and it sounds like you mention this in all your coaching calls. I really want everybody on this call to take this away and anyone who has ever been on my webinars know that I really preach this and believe in it heavily, that the key core component is we basically run a marketing business and it’s all about lead generation and deal flow.

I think that’s how you put it and it’s absolutely imperative to understand that. We can spend the next six to eight to 12 months trying to learn the business, but until we actually start implementing and generating leads we don’t have a business. So I really wanted to stress that point very much. Get the marketing out there and you’re going to learn this business so much quicker.

You mentioned that you have clear buying criteria, as well. Especially in the beginning stages I did this, I was guilty of this. I don’t want buying criteria, I just want a deal. Well, a deal is different for everybody. A deal for me may not be a deal for you, so you definitely need to define what it is for you, what your area is, what your comfort levels are, what your pricing parameters will be, those sort of things. Without that, you’re not going to know where to put your strategic marketing or where to hyper focus, if you will, your marketing campaigns. So that’s a very important component and I’m glad you brought that up.

The last thing I wanted to touch on is the lead you took here. There’s always a motivation and you guys have to figure it out. If there’s not a motivation, then that’s not a quality lead and you don’t go out and meet that person, period. If there’s not motivation there, you move on and go to the next. We do not want to waste our time

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in this business because it becomes very frustrating and what will happen is you’ll just develop a series of loses versus wins and then eventually you say this doesn’t work and that’s not the case.

A lot of times it is two things: The motivation is going to be time or it’s going to be money. Time or money, I’ve said it time and time again. No pun intended. The reality is in your situation you said it was time. It was less about the money and more about the time, they needed to act quickly. You uncovered that, you knew that, so now we have a reason why they want to use us.

Okay, that’s the reason. Now we truly are the solution provider. We can always provide the money, the funds, close quickly, cash, those sort of things. Now, time, when that’s a real motivator that’s when you really have somebody. There are very few people in every market that can go out there and say yes, I can close in two to three weeks and hold firm to that.

That’s a rare thing, a very big differentiating factor from the rest of the bunch out there. That rules out listing the property, it rules out so many different things and you become the perfect person. You’ve got to figure out what that motivation is, time or money, so good job clarifying that.

Let’s jump into some of these questions we had here. Sean, is your Director of Acquisitions an employee or independent contractor?

Sean: Yes, great question. It was an evolution, if you will. He actually started out as my number one real estate agent, so when I was still living in Southern California he saw what we were doing down there and said dude, why aren’t you doing this in Seattle? I can help find you stuff and we can get this going, even if you have to work remotely.

So he started out in that capacity and his income was really based off of what he produced in terms of getting properties under contract and then I would often give him back the relisting. In the beginning of this year, we recognized that so many of our deals were coming in through off-market channels that we needed to find a way to incentivize and compensate him to really take on more of that acquisition director capacity and so I started cutting him in on the profit of each of those deals.

I think, technically, he’s an independent contractor, but he now gets a percentage of each deal and has taken that entire process off of my workload from evaluating the deal, running the deal analyzer, going out to the property to walk it, to setting up an appointment with the GC to really determine what the repair costs are going to be. Then it’s his responsibility from the day we close until the day we sell to make sure all the things that need to happen along the way do. So he not only acquires, but he helps to liquidate and make sure we’re maximizing the profit because that’s how he’s getting paid.

Anthony: Awesome. That’s typically what we see, somebody gets paid a small percentage either of the profit or up front, but it’s hard to do up front because the money hasn’t come in yet. If all of a sudden your acquisition goes out and locks up 10 properties

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for you that could be an issue if you’re paying up front, so that’s why most of it is tied into the back end. This property, how old was it? What was the age of the property?

Sean: I would have to look that up. I’m going to guess mid ‘70s, early ’80, just looking at where it was when we started and that’s really our sweet spot. In Washington it’s really nice because anything built in 1978 or newer you don’t have to worry about a lot of the lead paint things and the asbestos, so that becomes a really fun set of properties for us to go after because it’s just easier. We have eliminated so many of the headaches from the get go because we’re targeting properties that we really like.

Anthony: Yeah, that’s a really good point. You know what your buying criteria is that you talked about, which is excellent. That’s going to expedite your decision-making process at the end of the day. We had a few questions about the quartz countertops. Is it more expensive than granite? In fact, there are a couple local students on here that asked do you have a good source?

Sean: I think quartz is typically a little bit more expensive, (I’ll flash back to those pictures so everyone can see), but not a ton. We’re buying this through a company called Pias, in Seattle and I want to say that slab there is probably $300 give or take. They give us a decent discount. Where they get you is the labor more so, but that supplier of the materials also does the installation. My more generic and general contractor isn’t a super expert at installing quartz countertops, so they do that for him.

The reason we’ve gone that route is it’s just a little bit more resilient, so it doesn’t have the porousness of either marble or granite and I think the end buyers recognize that. It’s becoming more popular and that’s helping us to really push those comps and get deals sold quickly with very few days on market.

Anthony: That’s such an excellent price. It’s completely different on the east coast, so it’s cool to hear those numbers. If you can get quartz at that price, that’s a no-brainer. In comparison to granite, it’s going to be $100 difference or a few hundred. Yeah, you’re definitely going to do that, it’s more popular. Granite, typically, isn’t eco friendly either. I don’t know if quartz is or not, frankly, but I know granite is not. It’s not on the eco-friendly list. It lets off some vapors and gases that don’t meet the criteria. Is it the end of the world as a deal killer? No, it’s not, but it’s just another thing to add to the list.

Talk to us about the paint color, this is a very important one. If you guys haven’t been on the up and up with design and trends that are going on right now, I urge everybody to go onto Houzz.com and just start thumbing through a lot of design ideas, different schemes, paint colors, styles and what’s trending right now.

The Builder Beige is long gone. It’s over. That period has ended. If you’re doing that, by the end of today’s call we’re all going to stop doing that, what’s in are these gray and blue tones, very, very popular. We had a few students ask about the paint color. Do you happen to know what it’s called, where you’d buy it, that sort of thing?

Sean: Yes, we’re using Sherwin-Williams pretty much exclusively. I should probably be getting paid for that. I think this is in the 7,000 series, I want to say it’s called Repost

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http://www.Houzz.com/


Gray, something along those lines, for the wall color and then we did the lids in white just to give it that nice dimension. Obviously, the baseboard trim is in white. Then we do a slightly darker gray on the exterior of the house. If you guys go to my Facebook page you can see the before and after video that does have some of the exterior shots, but that’s a slightly darker gray. I think I’d read on a couple blogs or articles that gray was just super, super hot right now so we adopted it and the feedback has been consistent, people seem to like it. It’s a little bit cooler, but I feel like the staging in the house can kind of warm up some of the character a little bit. If you see this un-staged it does feel a little cold and stark, so something to consider.

We’re doing a house right now that really has more of a natural tone to so we’re going to go back to Builder Beige for that particular one, but for the most part every one of my rehabs you’ll see will look almost identical to this. We use the exact same quartz. We use white Shaker cabinets whenever we buy them new. We use the same faucets. We use stainless steel or the brush nickel hardware throughout and kind out update that from the old gold look. So that’s really what our go-to palette is at this point.

Anthony: Absolutely. You nailed it, too, with the staging. First of all, you look at a gray color scheme and if you go in when it’s just finished, empty and bare it can look a little gloomy. It really can if it’s empty and sort of cold, but the beauty of that is white walls, gray walls, it’s kind of one in the same I think, white cabinet and whatnot. It’s the same thing I do. Man, when you add staging you can any color to that and it will look good. That’s the power of staging at that point. It really just makes it pop at the end of the day.

I know I’ve listed a few without the staging because I knew I didn’t have to and we were upset at ourselves. Even though we sold it when we thought we would and didn’t have any issues, our after pictures were terrible. They were just awful. It didn’t do it justice, frankly, so definitely stage your properties if you’re going to be using this color palette.

Sean: And be sure to get those professional-quality photos. I don’t care if your agent has a great camera, they are not a professionally-trained photographer who goes into post production and cleans these up and corrects the lighting. As much as I like staging to help sell the property, it’s about remarketing this on the back end so the agents in my community know that we put out a great product. I would happily pay $2,000 between staging and photography, just to have that to repurpose and take back out to people as a credibility piece.

Anthony: Yes, no question. We just got a question here about the buyer’s agent commission. I think I remember you saying you offer four percent instead of the traditional three. When do you communicate that in the process? Is that actually on your listing or do you do this as sort of a whisper campaign?

Sean: Great question. This is actually a technique I learned from a fellow Mastery student who is a phenomenal real estate agent down in Orange County and he positioned this as the “Nordstrom”, if you will, of transactions. So we’re going to do everything,

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including staging, photos and blow out the comps because we’re going to offer that higher commission.

Just the frenzy that creates is sometimes hard to believe. In fact, just to go back to another deal, I had it listed for over 100 days with no activity. We boosted it to the four percent buyer’s commission, staged the property, professionally shot it and within two to three weeks we had two offers that were $30,000 higher than any of the comps in that community in the last year.

The value on the home kind of went away from okay, what was the last one that sold. Obviously, for an appraisal that’s important, but these were two cash buyers and so they just began competing because they emotionally got so attached to that house. That’s getting a little bit away from the four percent, but getting back to the value of the staging, the commission, he combines that with the four percent commission. The whole dynamic of that selling agent, the agent who brings in the buyer for that property changes and they almost start working for us, just because of the nature of the transaction.

We do that when we list the house on the MLS, so your listing broker will ask what you want to offer for the buyer commission and the seller. Traditionally, it’s three and three, but you can say hey, Tony, you make a lot of money with me and we’ve done a lot of deals together. You’re going to go ahead and take two percent on this deal and we’re going to offer the buyer’s agent four. In many cases, I’ve given him a full three and I actually offer four, so I pay seven percent commission.

My estimate, my gut, and I don’t have any hard numbers to back this up, is that I make significantly more than that extra $2,000 or $3,000 in commission on the back end by blowing out the comps. I mean, look at the jump from $265,000 to $280,000. I don’t know if that would have been possible at four percent commission or five if we’re doing a more traditional listing, maybe, maybe not.

Anthony: When the market is good you can do this and it always works because inventory is low and agents need to make money. So they may have a lot of buyers, but they can’t sell them anything because inventory is so low. A lot of areas in the market right now are kind of like this, so you tend to add-in little bonuses and things like this. Upfront fees definitely can help.

Kelly has a question about the Escalation Clause and, frankly, I couldn’t answer it. I didn’t fully understand how you were utilizing that. So if you could, one more time, just explain that scenario to us.

Sean: I’m not a true expert on this, I really just learned about it over the course of the last 12 months. In Washington and I imagine many other states, you can write an offer up on a place and come in with your opening bid, let’s call that $265,000, but you can tell your agent to include an Escalation Clause that goes up by a certain increment.

Really, my max bid or my limit is $281,000, so as the agents are going back and forth with each other and a $270,000 offer comes in my offer can automatically escalate to meet and beat that price. So it will jump by $5,000 or it can jump by

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$500 or $1,000, you decide the increments when you write up that Escalation Clause.

The person who won this property, I imagine, started quite a bit lower than the $281k, but they were willing to go that high. That insured that they got this property because they said hey, we’ll go up to $285,000 and the second highest person was really only willing to go up to $280,000. So with their $1,000 escalation increment, they won the deal at $281,000.

Anthony: Was this on an auction site?

Sean: It’s not. This is something that happens through the traditional MLS. It’s just a matter of how you’re filling out your Purchase and Sale Agreement when you’re the buyer. You basically write into the terms that this is how we want the offer to be delivered, it’s going to open at this amount, but there is an Escalation Clause in there. It’s basically saying before we get dropped out of the running and we’re not the highest and best, we’re willing to go higher.

Anthony: Wow, that’s really cool. I’ve actually never heard that. I don’t know if it’s something unique to your area, but really cool, a neat idea. I always love hearing new things like this and it makes a lot of sense, but I know my local contracts definitely don’t have anything like that. I wish they did, though. That’s pretty neat.

Sean: It’s certainly something for us to think about on the buy side, too. In this case, we were the seller enjoying that Escalation Clause, but as a buyer let’s come in at $130,000. If we have to escalate up to $150,000 so be it, but we might win this at $140,000.

Anthony: Question here about financing from the end buyer. Was this FHA funding? Was there a 90-day ceasing rule, did that come into play?

Sean: I don’t recall if this deal had that. Some of the deals we have do, but honestly, 90 days is about as fast as I can get a flip completed, shot and listed. This one at 100 would have been really sweet. I can’t recall right off the top of my head. I know this was a conventional buyer. They had a typical bank loan and probably came in with at least 20% down. That was about as much detail as I concerned myself with on it.

Anthony: Got it. You’ve got a question here about choosing your GCs. Do you handle that and, if you do, how? Any objections about paying retail price versus wholesale pricing and things like that.

Sean: Great question. When I establish a new relationship with a general contractor, like Fortune Builders teaches us, from the onset I want to talk to them about doing multiple deals throughout the course of the year. In my guy’s case, he’s doing multiple per month for me simultaneously and so the whole value proposition changes.

Think about how many trades there are out there, professionals that are constantly struggling to find business. For a general contractor, a huge burden and time suck for them is going out and bidding on properties that they don’t ultimately end up getting the work for. So when we can go to them and say look, you’re going to take

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slightly lower margins, maybe a lot lower margins, but you’re never going to have to look for work again when you’re working in my business.

It did take us some time to get there. In the beginning, I didn’t have that much volume coming through where I could hand him two or three jobs. Now it’s reached the point where I’ve actually exceeded his capacity, so I have to go out and find kind of a second and third string contractor to be able to flex up as we close five-six deals in a month.

Anthony: Yeah, that’s going to happen. In the beginning, you might not think you have as much ammo, but the reality is if you print off your contractor credibility packet you have immediate ammo and your power position is much stronger at that point. When you say I work in volume, I don’t do retail pricing, but I love to pay contractors when work gets done and you learn to develop that elevator pitch it definitely works.

Sean: We were actually able to standardize on the Fortune Builders repair estimator, so we sat down and went through that whole list together. He identified two or three things on there and said I can’t do that work at this price. We’re going to have to bump paint to $2 a foot. Labor costs more here or whatever it is. So we adjusted that a little bit.

Now he looks at all those line items. I know what they’re going to cost. He knows what they’re going to cost. He can make money at that, he’s signed off on that ahead of time, so now we know that every deal going forward is profitable for him and predictable pricing for us.

Anthony: That’s a good strategy. Once you develop a relationship with a general contractor, you can adjust some of those numbers for your area and I’d highly recommend that. Question here from Doc. Do you use the deal analyzer in Fortune Builders or do you use the Realeflow deal analyzer?

Sean: We’re using the spreadsheet version of it and I’ve done a little bit of customization, just to make it really tailored to our business. We put in our rate for our private money lenders, we don’t pay points. We put in the Washington State sales tax for the property. We put in our escrow costs because we get builder pricing now that we’re doing enough volume. The deal analyzer really reflects what our specific situation is and almost every deal that comes in within probably $1,000 to $2,000 of what I actually cross check it with in QuickBooks.

Anthony: That’s perfect. So it’s all about using systems in your own business, guys. Mary has a question here. How do you standardize private money lenders’ rates and what rates do you typically pay them? Any tips on handling the posturing of that relationship?

Sean: Great question. I think I started out matching hard money at 12% and over time I dropped it down to 11 and 10, which is basically where we’re at right now. As I go for a second tier or layer of funding, if you’re in the capital space, I might actually try and get that even lower. I’m in a place now where often we have money sitting on the sidelines, so I could probably go to a certain set of private lenders and offer

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eight percent maybe. If you compare that to some of the alternative investments out there, this is really is an amazing vehicle.

The way I onboard, if you will, a private lender into my business is they always have a preexisting relationship with me or they’re an accredited investor. We’ve got to make sure we’re being compliant. I explain to them the overview of my business. We’re finding properties at a deep discount through a lot of marketing and grinding. We renovate the property with a licensed, bonded, insured contractor. We do six critical box. We get fire and flip insurance. We go out and borrow from hard money lenders, from banks and we pay them a pretty healthy amount of interest.

What we started to recognize is that my friends and family wanted in on that action. They saw how much money we were making in real estate, were frustrated making .2% in their CDs or checking accounts and wanted to know how to get involved. So I said well, I can either borrow from the bank or this institutional hard money lender and we can get involved on this project.

Basically, you become the bank. You loan the money on either the purchase price or a portion of that or the renovation cost or a portion of that and you get a lien against the property to secure your position. I can make monthly payments to you or, if you don’t need that cash flow, I can give you a little bit better interest at the end of the transaction.

The way I create kind of that urgency is by doing it in the first come, first serve model, which works well because it’s fair to everyone. I’m not playing favorites with people who may be at the back of the pack. My job now is to keep the amount of deals and capital we need in balance with the amount of people who have committed private money or, frankly, are relying on me as a source of income or a source of growing their retirement. I feel like I have a responsibility now to keep their money rolling into the next deal, so as this deal closed my private lender said we cannot wait to do the next deal. Please shoot it out to us as soon as it’s ready.

Anthony: That’s really how it works, honestly. I know a lot of us are just starting out, so we want to… frankly, we always develop more private money lenders. We always need private money, additional lending, I don’t care how seasoned you are.

Heck, I even look for private money still. You’re always going to be continually doing that as you grow and evolve your business, but the reality is I always use my five top lenders. Maybe I pick up the phone and call them and leave messages and get a hold of a couple of other ones. Don’t you think it’s pretty powerful if all of a sudden I had to call them back and say hey, listen, I wanted to let you know that I’ve already secured funding on that one, but we’ll get the next one?

Sean: I love that.

Anthony: What a takeaway. Man, that sits with you.

Sean: That would sit with me. Kind of scarcity, but what I’m making sure to tell them is like look, we’ve got a healthy pipeline. You’re in line and we want to get your money placed. They’re itching to lend money in that instance. That, of course, comes with

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trust and credibility. It helps now that we’ve done as many deals as we have and we’ve never missed a payment and we never come in late. Sometimes projects might run a little lower, but we communicate that back to our lender. So they understand this one is actually going to go another month or two, but you’re continuing to receive your interest payments throughout the course of the transaction.

Anthony: I’m sure a lot of you out there are thinking I don’t have any lenders, so I can’t really do that. Here’s one strategy I use to help develop lenders in the beginning. I’ll give you one of my key tips, if you will, or tricks when I first started in the business and I don’t think I really even fully understood I was doing it until later one, but one of the things I would do is when I sat down with somebody and had that lender meeting I immediately said okay, I just explained the business. Basically, when’s the best time to sell. As soon as I’m done explaining everything to them, so I immediately have to go get a deal.

One of the things that I’d often do is go out there and I would pull something off the MLS that is kind of an okay deal. It was a potential deal. Everything is a potential deal, right? I would put together some preliminary numbers and I would shoot it over to whomever I met with and say hey, listen. We’ve just met, it’s a little too soon, but this one just came across my desk. I don’t know if it’s going to pan out yet, but I’m here to at least get it in front of you so you can take a look at what our typical scenario looks like.

So I’m assuming the sale, I’m assuming it. I’m getting them familiar with it and then immediately, within a day or two later, I would go ahead and write an email back and say hey, Cindy, listen. I appreciate you meeting with me the other day, but I wanted to let you know the property I just sent you, unfortunately, we couldn’t get that one under contract, only because we’re really conservative in our valuation. We want to make sure that there’s ample spread and some profit in it. We just couldn’t get it low enough, but I’ll definitely keep you posted on the next one.

So what I did there is I’m basically feeding to them that I’m super conservative. I’m very risk adverse. I’m going to look after not only my best interest, but theirs. I’m going to protect their money. These are all the signals that I’m sending. In addition to that, they’re familiar with getting deals sent to them. It’s not the first time they’ve seen something come into their inbox from me.

It’s very hard to convert somebody the very first time, isn’t it? Of course it is. This is one of the strategies that I’ve used, pretty much it always worked. I would say 75% of the time, I believe, it’s worked for me or at least helped.

Sean: I’ll share a couple other nuggets with regards to private lending that have been helpful for me. When I’m sending out a package, I actually put in the loan-to-value they’re at so every time they know purchase price plus rehab cost is less than 75% LTD. That gives you a lot of equity or protection if, for whatever reason, something catastrophic happens and you have to take the house back.

One other thing that has really worked well from an on-boarding standpoint is for me not to try and do a hard close on them at the initial meet and greet, but to gage their

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level of interest, the amount of capital they’re interested in deploying and how quickly they’d like to do that.

So my soft close when I do my preliminary phone call with them is okay, you like the sound of this, you understand the fundamentals of how private lending works in my business. That being said, how much capital were you interested in deploying and earning, potentially, a double-digit return on?

I stop and let them digest that and almost every single time they give me a concrete number or certainly a pretty good range. So I know if I’ve got a $50,000 guy or a $300,000 guy on the end of this line, which might change the dynamic a little bit.

The second thing I talk about is, great, are you looking to deploy that within this month, sometime next quarter or is there some sort of situation coming down the pipeline that you need to wait for and then at that point you’ll be ready to come out of the gate guns blazing. I’ll put you on my calendar for June, but up until then I’m going to go ahead and send you a few deals since I know you’re prequalified and ready to go, just so you can kind of get familiar and see the quality of the product coming through here and when the time comes you’re ready to go and very familiar with the process.

Anthony: Awesome. I love it. I’m out here in sunny San Diego, by the way, so my audio might be a little glitchy and I apologize for that. I’ve dozens of people on the same Internet line here. Nevertheless, I’ve got to go to the next question here. How did you build your team, aka, who was your first hire?

Sean: Great question. That’s probably been one of my biggest areas of opportunity or learning curve challenges. In my corporate career, I worked with one person who was kind of my right-hand gal and every time I closed a deal she fulfilled it. My first employee was, essentially, an assistant that I met through a local real estate club. We ended up going to the same Gold Dinner week after week and through casual conversation mentioned that he hasn’t made a buck doing this yet and was going to get a job at Subway for $8 an hour.

As soon as I heard that I said, I’ll tell you what. I’ll pay you $8 plus a little bonus every time we can get a deal, if you want to come learn this business from me and start to take some of the more repeatable tasks off my plate. So he sat with me for six months listening to how we talk to agents, how we talk to motivated sellers, going out on meetings together, negotiating contracts and he evolved from more of an Administrative Assistant into my Acquisition Manager down in Southern California.

So if you guys go to my website, you’ll see Troy on there to this day. He’s reached the point now where he can do probably almost everything that I can in this business. What we’ve set up is you focus on bringing in deals, closing those deals and getting them at the best possible price that you can. What I’ll focus on is growing the business and making sure that we always have enough capital to take down every project that comes across our desk.

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Up in Seattle recently, I not only have Tony, our Director of Acquisitions who’s worked with me for over a year, but I just hired an Acquisition Manager to work underneath him and an operations manager. The way the workload is kind of distributed is similar to that five-person model that you guys have seen probably in the mind map that Fortune Builders put together.

The Acquisition Manager takes all of the inbound calls from direct mail, online advertising, wholesalers, you name it. Anything that comes in through our channels, he’s processing that. He’s vetting their motivation. He’s familiar with scripts. He’s got 20 years sales experience. He’s awesome on the phone. I’m just teaching him and Tony the real estate part of the business.

He then bubbles those leads up to Tony who’s seen a ton of transactions. He’s been a broker for over 10 years, so he can really help our newer Acquisition Manager with the valuation of the project, accurately estimating the repair cost and then Tony puts together that package and basically brings it to me for kind of a green light.

On the other side, our Operations Manager is basically helping to keep all the trains running on time. We looked at what Tony and the Acquisition Manager were doing and said all right, what are all the other pieces that are still happening in this business that I was touching. It was kind of a utility/player type role. There were lots of little things, but for the most part it was the fulfillment of the deal. So once we close it, what are all the things that have to happen in between here?

We’ve written an exhaustive operations manual that documents that, but those basically become a do-to list and checklist items that we go through at each stage of that renovation. She’ll do everything from turning on the utilities to calling the insurance company to working with our private lenders to produce documents to communicating to escrow and title to answering the calls to the main inbound line. Screening as much as she can from my plate so I can be thinking about raising more money and, again, doubling business.

Anthony: Typically, your first hire is either going to be an Admin or an acquisitions person, kind of a runner who’s going to go do all those odds and ends for you, put lockboxes in, signs in, picks up random things that you guys need. Those are the two that we typically see coming first.

We’ve got a lot of questions here Sean, so let’s try to go through a little bit quicker, kind of rapid fire, man. We got this one a couple of times. Talk to us a little bit about your Mastermind group. How is it put together, how do you set it up and all that fun stuff? We all want to create amazing Mastermind groups, they are very powerful.

Sean: Cool. It’s a great question. For those of you who don’t know, that’s basically just likeminded folks getting together to try and solve problems. In this case it’s very real estate investor centric and we have really focused this group in on lead generation and deal flow. Again, that is what I have identified as the number one thing that’s challenging folks. That’s how we get paid in this business, so let’s spend, like I say, at least 75% of our time focused on that.

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Kind of the origins of it were a lot of people, like this gentleman, coming in doing one-off lunches. Hey, I need help with this, I need help with that. I thought, if I can do this one-to-many and have some people in this group supporting one another, we’re probably going to be a lot more effective.

It takes a little bit of the burden off me from a time standpoint, just to help some of these folks who are brand new get up and off the ground. Not everyone out there has gone through Fortune Builders, so they don’t even have the same baseline education and knowledge that most of us do and there’s a huge learning curve to get going.

Anthony: Good answer, I did the same thing in my own backyard and it definitely works. There’s no question at all whatsoever. It works for you, it helps them. Everybody wins. So if you can do it, definitely do it. You can start off with a simple meetup group at MeetUp.com, if you want.

Sean: Logistically, I host that once a month in the evening for about two hours and then we have social hour afterwards at the bar. I could certainly be doing that via a webinar and maybe that makes more sense because I’m working in both markets now to be able to stay close with those folks, so piece a cake.

Anthony: Awesome. Richard says, do you think you underpriced the property when first listed since you had so many offers and whatnot?

Sean: I liked the amount of offers that came in. I liked getting that much attention. I liked seeing the four people compete. I think there is a potential that we actually sold it for more listing at $265,000 than we would have at $275,000. Maybe only one offer comes in at that price, there’s no competition and the Escalation Clause never gets activated.

Anthony: So you caused a little bit of a feeding frenzy, basically.

Sean: I like that.

Anthony: Yeah, I do, too. It gives you power, it gives you that control. Hector has a question here. How come you don’t you use crown molding? Talk to us a little bit about your online marketing.

Sean: You can see what the original molding was in there, nice thin 1980’s style. The stuff we end up putting in now what is that, like three-inch MBF. I think it’s really cheap, it looks sharp, it’s clean, modern. Frankly, I don’t even concern myself too much with that level of detail. We’ve kind of landed on this palette, until enough people tell me wow, I need crown molding. Excuse me. Crown molding is up on the ceiling.

This house probably isn’t in that price point. If we were going to sell this for over $500,000 and all the competition was doing crown molding, then we would have done it. That’s probably something you don’t see in this neighborhood very often.

Anthony: Yeah, just price base. In the low to mid price range, you’re probably going to use what you have there for baseboards. It’s called speed base and it’s your basic

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baseboard, but you’re not going to get a return on putting anything more in. I tend to agree with you, I probably would have that out here, too. If you’re paining the cabinets, you probably don’t need to put in crown molding, right?

Sean: Exactly.

Anthony: It’s a good rule of thumb. What about your online marketing, what do you do for that?

Sean: If you guys want to see that live in real time, SeanBuys.com is probably my main generator of leads right now. That’s a site that’s not really designed to search engine optimize. I drive a lot of traffic to that site through AdWords and pay-per-click advertising. I’m going after folks who are typing into Google ‘sell my house fast’ or ‘quick house sale, Seattle’.

I’m geo-targeting those to areas that I like and that page is a true squeeze page so it’s really designed to do one thing, get the phone ringing, get an email from them to us or get them to submit a form with all the info on it that we need to be able to follow up with them and set an appointment to buy that property.

So this is what that looks like. I’ve done a couple different variations of that, there’s one at SimplifiedProperties.com/webuyhouses almost identical to this. Basically, I’m doing a split test to see what domain resonates better and, potentially, what copy resonates better. You can see here I’ve got ‘Sell your house fast for cash’. I’ve almost got these identical now, just a little bit of copy changes on here. You’ve got my Acquisition Director on there, Tony, you got me. There’s basically one thing you do, you submit your information on here to work with us or set an appointment.

Anthony: Got a question about the flooring. What was the type? What exactly is it? We’ve got a couple questions on that.

Sean: I’m asking the contractor to put in wider boards, so think four and a half, five inches wide and then a darker color, so either espresso or mocha, something in that vein. The material choice is just determined by the price point of the house. So at sub $300,000, certainly sub $250,000, we can get away with laminate or bamboo and not get a lot of pushback from the buyers.

As you get up into the median to higher median price point, you need to definitely get engineered hardwood in there, which is probably closer to $6 a foot. In a higher-end house, you’d certainly want to do something awesome and exotic to match up with that price point and, of course, what the competition is doing.

I think the big rule of thumb that you guys want to refer back to is okay, what are the neighbors doing in here? The house down the street, the three houses they’re going to look at compared to mine, are the significantly higher end or have I gone and over rehabbed this house. That’s going to be lost profit because it just doesn’t need it in this neighborhood.

Anthony: When you originally analyzed this, what did you figure your ARV to be, roughly?

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Sean: $65,000.

Anthony: Right where you listed it. Okay, awesome. Got to love it when that happens, right? Did your general contractor provide the materials for the job? I’m guessing, since you outsource as much as you do, you’re not going to Home Depot of Lowes and picking up materials.

Sean: I’m proud to say that those days are behind me now. Like Paul Esajian shares, when I’m rehabbing a house it’s just a matter of cutting a check now and reviewing the pictures in Google Drive that he automatically sends to me every Friday morning. Tony, my Director of Acquisitions, will do a weekly or biweekly check-in on the property to see how it’s going. As he cuts checks to them, we just make sure the job is on pace with the amount of cash that we’ve given him.

Anthony: Sweet. You might know the answer to this, whether or not family members can participate in their 401(k) in terms of lending. Guys, I’m going to tell you that this is going to be a case-by-case scenario, whether or not they’re owners in the business, lenders could be cousins, brothers, sisters, moms, dads, so I’m sure all of that varies. The number one rule of thumb is to reach out to a real expert that focuses specifically 1:24:10. Do you have anything to add?

Sean: Definitely double-check with whoever the IRA custodian is. The equity trust or the provident trusts of the world will know that really quickly. They probably have it up on their website. I believe the folks who cannot lend are parents or children. I believe brothers and sisters might be okay, but don’t hold me to that. Then, of course, you can’t lend to any of your own active entities.

Anthony: Right. Of course, Jason Bible is chipping in here. He says it depends on how they’re set up. I believe that makes sense, but the moral of the story is check with the experts. What is an accredited investor and how do they become one?

Sean: An accredited investor makes more than $200,000 a year or has over $1 million in net worth, not including their personal residence.

Anthony: Perfect. Have you ever utilized FlipComp, Realeflow and/or bandit signs?

Sean: I did a lot of bandit signs in my day and I’ve paid a lot of tickets for them, too, but I’ve made a ton of money off of them. I did have a brief stint with FlipComp, but at this point we’re using more custom-tailored tools. We have a ton of MLS access now, so we’re just going straight to the source for those at this point.

Anthony: Excellent. Now, do you charge for the Mastermind group? We got that question. I’m guessing no, this is part of our job.

Sean: I should and there’s kind of a mental thought process behind that. The folks who are paying money to be in a group like that are going to work harder, take it more seriously and grind more. Personally, I paid an exorbitant amount of money to be part of a commercial Mastermind group and guess what? I take that really seriously.

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I travel around the country four times a year and network with a room that’s almost exclusively millionaires and up and I get ton of about that.

You think about the time I’ve probably shaved off of my learning curve just surrounding myself with those types of folks, having access to those resources, the ability to joint venture on those deals. Maybe I would get more production out of folks if I charged for it, but at this point it was kind of a pilot and the first go at it. Ironically, two people that I hired came through that Mastermind group and some of the deals coming in. The impetus and strategy was to give back to a degree, but also to help give us more deal flow.

Anthony: Excellent. Yeah, that’s a good point. Frankly, I didn’t really think about it that way, but I can tell you the masterminds I hold locally can be time consuming. You’re going to leave and get asked tons of questions and you’re going to feel obligated to answer a lot of them. It can take away a little bit of your time, so making them commit something to it is not a half-bad idea.All right, that looks like it for the questions. Guys, if I missed any I didn’t do it on purpose, so I apologize for that if I did. Just type it into to Support at FortuneBuildersMastery.com and we will get that answered. I’ll shoot it over to Sean and make sure you get the correct answer.

Otherwise, Sean, thank you for taking the time with us today, man. This was an excellent case study. I think we learned a ton. You went over a ton of information, some really unique things, as well, such as the Mastermind. So, again, I do appreciate it. Guys, if you have an opportunity, definitely book a coaching call with Sean.

Sean: Awesome. Thank you, Professor. Thank you guys for joining and get out there and crush it.

Anthony: That’s right, crush it. We’ll see you again on Friday. Take care.

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