10: Competition, Smompetition. Buy Houses on the MLS Anyway

Mark Ferguson

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Show Notes

Mark Ferguson fixes and flips 10 to 15 houses a year and owns 15 long-term rentals. His grand plan is to purchase 100 rental properties by January 2023.

Mark tells us about how he got started working with his dad, who is a Realtor and house flipper.

In this episode, Mark shares his strategies for competing for properties on the MLS. Key points include:

• checking for new listings multiple times a day
• getting out to see each house and make an offer within hours
• have assistant in his office draw up the offer contract and send it to him to docusign and then forward to the listing agent

He was also gracious enough to share his strategies on making his offers stand out by making them stronger. Some of them include, increasing the amount of earnest money, remove any contingencies (including the inspection contingency) and offering to close quickly.

Mark is smart because, even though his market is crazy hot right now as it is in many other places around the country, he has kept to his buying criteria. Others stray from their buying criteria and start to offer more for houses in order to get more deals. These are the same people that end up going broke when the market changes.

A super interesting part of the episode is when Mark shares about a couple deals he lost money on. One was because he decided to try and do the rehab work himself and the other was a situation I had never heard of before. Listen to the episode to hear about that one. It’s definitely worth it!

Read more about Mark’s plan to purchase 100 rental properties by January 2023 by clicking on the link in the links section below.

Recommended Books

Third Circle Theory: Purpose Through Observation

links

InvestFourMore.com

Mark's plan to purchase 100 rental properties

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Episode Transcription

Danny Johnson: This is Flipping Junkie podcast episode 10. [music] Welcome to the Flipping Junkie podcast. My name is Danny Johnson; former software developer turned house flipper, flipping hundreds of houses. Each week, we bring you interviews, strategies, stories, and motivation to help you get started flipping houses and on your way to becoming your own boss and achieving financial freedom. Thanks for spending time with me today. Now, let’s get to it.
Before we get started on today’s episode, I wanted to take a minute to personally thank you for listening to this podcast. I’ve been blown away with the comments I’ve been receiving about the podcast. I just wanted to make sure that you all know that I greatly appreciate it. Thank you so much for leaving ratings and reviews on iTunes. That really helps to make this podcast a success, so thank you very much.
Now, for today’s show, I’ve got my good friend, Mark Ferguson. Mark fixes and flips 10 to 15 houses a year and owns 15 long-term rentals. And he’s got a grand plan, and that plan is to purchase 100 rental properties by January 2023. So I love it when people have these goals, very specific goals that have a deadline to achieve them. So that’s really cool of Mark. Mark also has a very popular blog and podcast at investfourmore.com, and that’s spelled out with a #4, F-O-U-R, so investfourmore.com. And Mark tells us about how he got started working with his dad in this episode. His dad is a realtor and a house flipper.
In this episode, Mark also shares his strategies for competing for properties on the MLS. Now, if you’ve tried to get some properties like I have on the MLS and found that it’s actually pretty difficult to do sometimes when there’s a lot of competition. But Mark actually shows us how to just basically ignore that competition and get around them to still get deals. So it’s a very good episode showing how we can compete with everybody and still get deals off the MLS by checking for new listings multiple times a day, getting out to see the house and make an offer within hours of it being listed.
And then another cool tip that he shares is having an assistant in his office actually drop offers for him and sending them to him to sign with DocuSign and then being able to forward that contract to a listing agent so he doesn’t have to go all the way back to his office, fill out a contract, and all that kind of stuff. He can do it while he’s on the go at the house and helps beat the competition that way. So lots of great tips like that in this episode, so enjoy the show.
All right. I’ve got a good friend, Mark Ferguson on the show today. He fixes and flips about 10 to 15 houses a year, owns 15 long-term rentals, and his grand plan is to purchase 100 rental properties by January 2023. Mark also has a very popular blog and podcast at investfourmore.com, and “four” is the number spelled out so F-O-U-R, investfourmore.com. Hey, Mark. Thanks for being on the show.

Mark Ferguson: Hey, Danny. Great to be on the show. Happy to be here.

Danny Johnson: Awesome. Being that you fix and flip properties, I want to talk a lot about that because that’s a lot of what we do and so I want to find out if there’s some great tips I can get from you and share with the audience and everything. But first, can we start a little bit about your story? You know, how you got interested in flipping houses and then how you got started.

Mark Ferguson: Yeah, for sure. So it all started back right after college. I’m in Colorado, and I graduated from the University of Colorado with a finance degree. I wasn’t super-motivated to find a finance job, so I kind of started to work part-time for my father who is a real estate agent and he flipped houses on occasion as well. So I thought, “You know, I’ll just work part-time for him until I find my real job and figure out what I want to do with my life.” And that kind of turned into a full-time career, obviously. I became an agent, flipping houses with them, and then eventually took over the business from him.

Danny Johnson: Awesome. So how much flipping would you say that your father was doing whenever you first got interested in real estate?

Mark Ferguson: It was about 2001-2002, and he did maybe one to three houses a year, he would flip.

Danny Johnson: Cool. So we’ve got pretty similar stories. I’m not a realtor. My father is not a realtor, but he started flipping houses and that’s what got me into the business. And a lot of people think that it was sort of a… you know, he showed me to do this, this, and this. “And then when you’re done, come back to me. I’ll tell you what to do next.” And that’s definitely not how it was. How was your training with your father with that? Did you sort of see what he was doing and sort of learned your own strategies? Or how did that work out?

Mark Ferguson: Yeah. You know, it was nice to be able to work with him, especially on the flipping side because, as you know, it’s tough to get started with money and funding properties. And so basically, we were partners. He got a higher percentage obviously than me, but I worked with him to find deals, to work on repairs, things like that. And it was actually really helpful because he taught me, you know, how he found the properties, how he’s financing them, and then kind of what repairs he did. And what I brought into it was I kind of expanded what properties we looked for to try to ramp up the business, buy more properties. And then, I really changed our repair process and how we repaired the houses.

Danny Johnson: All right. And so, what were some of those changes, the funding, and fixing up with the houses that you brought to the business?

Mark Ferguson: The biggest thing and one reason why I ended up buying him out later on was that he’s very conservative in the properties he would buy. So, you know, he’s only doing one to three a year, and pretty much they had to be slam-dunk deals – you know, newer houses, minor rehabs. Very little chance of losing money unless something just, you know, unbelievable happens that we can’t see. So, what I tried to do is kind of bring in, you know, we’d buy some older houses and larger rehabs. Kind of they’re a little riskier, but they also brought in a lot more rewards. And as far as repairs go, I remember one of the first houses I saw him do. He would buy them at the trustee sale. And one of them could use paint, carpet, and some work, and he put it right back on the market without doing anything to it. And I thought that’s a little surprising. Like, you know, if we just put $10,000 into this house, we’re probably going to make $20,000 more than it costs us to put into it. So I kind of ramped up our contractors, different paint colors, kind of more modern and more trendy things into the houses.

Danny Johnson: Wow! So you increased the profit per property by doing a little bit more in the rehab. So you were maybe making it stand out more and making a nice rehab so that you can ask more for the properties?

Mark Ferguson: For sure, yeah. Instead of, you know, on some properties, he’s almost wholesaling them a little bit where he’s just getting such a great deal, he can make 20 grand on it just selling it real fast. Or I could say, “Hey, you know, we could put $10,000 into it and we can make $40,000 or $30,000 and it won’t take us that much longer to sell the house.” And we’re only doing one to three a year. It’s not like it’s really hindering us by buying more properties either.

Danny Johnson: All right. Now, that’s an awesome idea. So what do you think were some of the things that you started doing to the properties that brought the highest return for the cost of the improvements?

Mark Ferguson: You know, it wasn’t anything fancy, nothing major. You know, he’s pretty old school. You know, basic off-white paint in every room and, you know, real basic fixtures and appliances. And so, we just did simple things. We made, you know, every house had stainless appliances, doesn’t cost that much more but it makes it look so much nicer. We started putting, you know, two-toned paint whether it’s beige or sometimes grayish paints just to kind of change things up a little bit. Once in a while if we had a nice house, we’d put granite counters in. All the fixtures we made sure, you know, in the beginning, it was kind of brushed nickel then it moved to the oil-rubbed bronze when styles changed. And made the yards look real nice. Sometimes, he would just kind of assume the house would sell without the yard being there, and we tried to implement new sod sprinkler systems, really make everything look great.

Danny Johnson: Yeah. I tried to do some of the landscaping, too. But here in South Texas, most of the time we’re in a drought so it’s… you know, Melissa fights me on it. She wants to do some of the stuff with the landscaping and I’m just thinking, “Man! Who’s going to be over there all the time watering that?” Like I used to do that and I don’t want to ever do that again but definitely delegate, right?

Mark Ferguson: Oh, for sure.

Danny Johnson: Yeah. I don’t know how many times I used to go to properties and stood there with a hose, you know, like trying to keep the grass from dying and it seemed like it always did, like the sod always would die in the heat in the summertime but… so you made the rehabs better. Now, have you ever gone and sort of looked at the competition, see what other people are doing and, you know, maybe copied some of those things or just found some improvements that you liked and started to add to your rehabs?

Mark Ferguson: For sure. Actually, what really ramped up things and made them even better was I got married around 2007 or 2008. And at that point, my wife was also a real estate agent. And she was much more into trends and what was happening than I was, so she came in and started, you know, doing glass tiles or backsplashes. But she’s very frugal when she’s doing it at the same time, so she’s not going to those designer stores and spending $2000 on a backsplash and you go to Home Depot, Lowe’s. But there’s a lot of things you can do very affordable and make it look a little nicer than the other houses. But yeah, for sure we went to other houses. We went to more expensive houses to see what they were doing and seeing if we could copy some of their ideas into less expensive houses with less expensive materials, that sort of thing.

Danny Johnson: Yeah. That’s a great idea. It’s crazy, isn’t it? Some of those designer stores. You know, just the cost of a fixture. You know, even just like a plumbing fixture or a light fixture or the tile. You know, some of the first times. It took me several years before I even went inside one of those places, and I was just blown away. I never went back.

Mark Ferguson: Yeah. No. I forget which one of those flipping shows on TV. They’re in California, and they go to the designer store when they want to… I have a fancy house. I’m like, “Why are you paying 10 times what you need to pay for that?” It looks exactly the same at a different store. It’s insane. I can’t believe it.

Danny Johnson: Yeah, it’s crazy. Yeah, because you can get the same look. Yeah, I think one of the ones that we did. I was wanting to do subway tile in this historic house. And you know, at the design store, they had the subway tile and it had like the little cracks, like the… I don’t know what you call it, but it looked authentic, you know. But the stuff was like, I think it was like $30 or $40 a square foot.

Mark Ferguson: Wow!

Danny Johnson: Yeah. And I ended up going to some other place that had it that looked pretty similar. It wasn’t exactly the same, but it was like $2 a foot, you know.

Mark Ferguson: Great. And it’s not like someone’s going to look, take a piece of tile off and see who the brand is when they’re looking at the house to buy it either.

Danny Johnson: Right. Yeah. And you get the same look for like much less, so yeah. I would never. You find the discount stores, like we have one for flooring that we go to that’s different than Home Depot or Lowe’s. So I think most places usually have discount sort of flooring stores, and it’s just a matter of finding them.

Mark Ferguson: Yeah, we did the same thing as well. Like I said, Lowe’s or Home Depot has some great prices on maybe fixtures and different things. But then, we go to a different store for a carpet, a local store, and we might go to a different store for appliances, it’s local. They can, you know, give us little better prices and we always know they’re going to give us the best service at those stores, too.

Danny Johnson: Yeah, that’s a great idea. You guys ever use Scratch & Dent?

Mark Ferguson: Once in a while, we do. There’s a local appliance store. They’ll have some pretty good deals for us. And since we do so much business with them, they’ll always tell us about kind of, “Hey, we got a few in the back. Do you want to look at? Maybe they’ll work for your next property.”

Danny Johnson: Yeah. What I like about those places is they carry new ones. You know, they’ll carry also new appliances. And then, you know, a lot of times the scratches and dents are sort of out of sight anyway. So if it’s like a Rainjet slides-in like in between cabinets and the scratch or something is still on the side that’s within the cabinet, you would never see it anyway. So for brand new appliances, it’s not bad. So with your father being a real estate agent and then you being one as well, do you guys get most of your deals off of the MLS? Or how are you finding your deals?

Mark Ferguson: It really morphed over the years. So when I first started with my father, he got, I’d say, 95% from the trustee sales or foreclosure sales. Every Wednesday morning at 10:00 a.m., they’d have the sale. It used to be in the courthouse and it moved to another building. And we’d have, you know, one day basically to scout out the properties before the sale and then you’d have to pay cash within two hours after the sale if you are the winning bidder on a property. So it’s kind of a mad scramble the start of every week. So we’re doing that. And then, when I started too, I kind of started saying, “Hey, why aren’t we looking at MLS?” And he’s kind of answer was, “Well, there’s never any good deals at MLS.” I’m like, “Well, have you looked recently?” And he had it, and I started looking. And there were deals on MLS you could find. Maybe properties weren’t listed right. Maybe they needed more repairs or something. Then, we started to add more deals from MLS and that’s when we started to get more inventory to really ramp up the flipping process.

Danny Johnson: Awesome. You know, I’ve always shied away from the MLS just because I got tired of running around to calculate offers. And then whenever I call at the same day, it was listed a lot of times and there’s multiple offers. And I just got so sick of that, you know. So what are some strategies you use to get deals off the MLS?

Mark Ferguson: Right now, I would say I’ve actually got nine flips in my inventory, and every single one of them I bought from the MLS. Well, one of the biggest things that helps is I’m an agent so I can, you know, if a house comes up, first thing is I can see on MLS. I check my MLS about three times a day. And when it comes in and if I see a good deal, I’m showing the house as soon as I can. If I like the house usually while I’m at the house or driving back, I’ll text my assistant and say, “Hey, write up a contract for this much.” He writes up the contract, sends it to me, and DocuSign on my phone. I can usually have that contract signed before I get back to the office. So we can get a contract submitted a couple hours or less after a house is listed. That’s one way that really helps get in there. Sometimes, we’ll get deals before multiple offers come in. And then just looking for houses that need a lot of work where you can’t get financing on them or we can pay cash, houses that come back on the market. So you know, a lot of those multiple-offer houses, we’ll get beat on, we won’t pay as much as other investors, but then they’ll have their inspection come up where they’ll realize, you know, “We really can’t pay this much for the house.” They’ll come back on the market. And we’ll say, “Hey, we’re still interested. Here’s our offer. We know what work is involved. We don’t need an inspection. We’ll buy it right now.” And we get a lot of properties that way. And then once in a while from the auction sites, there’ll be some good deals that aren’t listed right on MLS or they may be occupied when they’re selling them to the auctions.

Danny Johnson: I’m taking notes. You know, the big thing is like the following up. You know, like when you said that with multiple-offer situations, a lot of times people do back out. And see, that’s one place where I would sort of slip because I would just say, “Oh, multiple offer whatever. I don’t feel like competing,” and then let it go. You know, I’d already done the work. You know, I’ve gone out there and looked at it and came up with my numbers and called to make an offer and then just kind of gave up which is crazy. So yeah, your point about following up even on ones where there’s multiple offers on MLS and just stay in touch with that agent so that before they have a chance to put it back on the market, you’re talking to them and they say, “Hey, it’s coming back on the market. I haven’t had the chance to change the status of it yet.” Then so you’re able to put an offer in already before other people even know that it’s back on the market, right?

Mark Ferguson: Oh yeah, for sure. That’s a great way to do it. If there’s multiple offers, you know there is highest and best. I always submit an offer even if it’s lower than list price because it gets my name. They know I’m serious, and I’ve kind of built up a reputation. If I make an offer, I’m going to buy it. I don’t back out from inspections or any other issues. And I’ve even gotten properties I’d never thought I would get in a million years on multiple offers because it was a low offer. I had one, an REO, that I bought. I think the list price was 99.9. I saw it. I’m like, “Ninety-two is the absolute most I can go.” They had multiple offers the first day. I’m like, “Well, I’ll submit it and see what happens.” And I got it. So it does surprise you sometimes in those multiple-offer situations. And like you said, if your offer is in the system, that agent sees you made an offer already, they might come back to you and say, “Hey, our buyer is backing out. They found something wrong with the roof or something like this. Are you still interested?” I’m like, “Yes. You know, if they want it this price, I’ll sign it today right away. Your buyer or seller won’t have to worry about it falling out of contract again.”

Danny Johnson: And how often do you feel like right now you run into multiple-offer situations?

Mark Ferguson: Just about every single good deal there is. I mean, Colorado is crazy right now. And I would say that 90% of the houses I’m making offers on, there’s probably a multiple offer situation. In some of those cases, I’m getting a counter or I’m getting my offer accepted before they ask for highest and best. But later on, they’ll say, “Oh, we got two offers after we entered you,” or “We got three offers, but yours was so strong with no contingencies. We just decided to accept yours,” and I’ve been asked for highest and best.

Danny Johnson: Right. So there’s a good point there, right? So how do you make stronger offers than other people?

Mark Ferguson: For one thing, if a house comes on the market, let’s say it’s worth $150,000 and, you know, you can get it for $100,000. So obviously, an amazing deal doesn’t come along very often. I’m not going to go into $80,000 off the bat and try and get it even lower. I will come in $105,000 if I know I can still make money with that price or $102,000. No inspection. No contingencies. Basically saying, “Hey, as long as the title is good, I will buy it. You don’t have to worry about any other offers.” And many times, that will work even they get another offer because they can see how serious I am, see it’s going to close, and they don’t want to kind of go back and forth for maybe a couple thousand more dollars.

Danny Johnson: Right. And sooner closing times usually doesn’t matter with the bank, right? So I mean, they usually want 30 days, don’t they?

Mark Ferguson: Yeah. And honestly, most of my deals lately have not been REOs or even short sales. They’ve been fair market. Sales where maybe it’s in estate or a house that just needs a lot of work or it’s tenant occupied. And in those cases, the quicker sale usually makes a difference. But yeah, with the banks, sometimes it makes a difference. But usually, they can’t get their title working everything together that fast anyway. So it’s going to take 20 to 25 days to close.

Danny Johnson: And what about earnest money? Do you ever offer more earnest money to make a stronger offer?

Mark Ferguson: I do in some cases. You know, sometimes, I’ll just leave it the same. Sometimes, I’ll increase it. It just depends on kind of how much interest there is. Really, I should increase my earnest money now that you say that because I don’t think I’ve backed out of a contract in the last two years for any reason. So it really wouldn’t hurt me to increase my earnest money.

Danny Johnson: Yeah. It probably varies between a bank and a homeowner, but what do you typically offer for earnest money?

Mark Ferguson: Usually, you know, in our state, it’s pretty typical for the seller to ask for about 1% of the purchase price in earnest money. Sometimes a little more on some of these houses that need more work. A lot of times, you’ll see that increase to like 3%, maybe even 5% because they know they’re going to get a lot of investors who may not be that serious. So usually, it’s in that 2% to 3% range. Once in a while with some REO properties if you’re doing a cash deal, they’ll want 10% earnest money down, but I haven’t run into that for a year or two.

Danny Johnson: All right. So the market is pretty hot up there, right? I mean, you’ve got a lot of people fighting for these properties on the MLS.

Mark Ferguson: Yeah. Colorado is one of the highest, if not the highest appreciating marketing in the country. So in 2010-2011, our average price was around 120. And now, it is up over 230.

Danny Johnson: Wow!

Mark Ferguson: Yeah. It’s just gone crazy. And we’re in Northern Colorado which is in Greeley, north or Denver. Denver is even worse than we are. They’re increasing even more. I mean, their average price is close to $400,000, I believe, now.

Danny Johnson: That’s crazy. Yeah. We have areas in town here where I look at values and I’m just blown away at the change just in the last year or two. I mean, our market is not crazy like that. You’re talking about doubling prices pretty much.

Mark Ferguson: Yeah.

Danny Johnson: I forgot what I was going to ask you now. Yeah. So basically, you’re buying everything MLS. Or you do any motivated seller marketing as well?

Mark Ferguson: You know, we do, do some direct marketing. I’ve bought a couple houses that way. I don’t have any I’m working on right now, but we have sent out postcards, some letters to out-of-state sellers and some inherited properties list. So not only have we bought a couple of properties that way, but we’ve listed some as well. So since I’m an agent, I really hate talking to motivated sellers and be on the phone with them. So I just kind of pass that duty off to one of the agents in my team. And so, they’ll talk to them. They’ll kind of get an idea of the properties, a good candidate for us to buy; or if it’s a good candidate, to possibly list. I’m like, “Hey, if they want to list it, go ahead. It’s your listing. If they want to sell it, send them to me. I’ll talk to them. And if I end up buying it from them, I’ll give you a little commission back on the purchase of it.” So that’s worked out really well.

Danny Johnson: Yeah. It’s awesome to be able to have that other option for people. You probably even use that to help them accept your cash offers. You know what I mean? By saying, “Look, it would probably take this long to sell. You can have this much in commissions.” But I did remember actually though what I was going to ask you when I was talking about the market getting pretty hot, and then your talk about the doubling prices just made me completely forget what I was going to ask you. It was really with it being hot, do you find yourself adjusting your analysis numbers, you know. Do you adjust? What do you go on to determine what you can offer for a property?

Mark Ferguson: You know, obviously, we’re changing the price points we’re paying because the market is going up so much. But I have not changed the percentages or the profit potential we want to see. I think that’s probably one of the biggest ways to get yourself in trouble, is if you’re lowering your profit with an increasing market or if you’re hoping that the market will keep increasing in the future to make your money. I think that’s how so many people got in trouble during the last housing crisis when—they weren’t even flipping. They were speculating. They’re buying houses, just assuming they keep going up in value. But no, I mean, if I buy a house, I am making sure it’s got the same profit potential as before at today’s price, not in what I think it’ll be in two months. I want to make sure that there’s a profit there. If the market goes down, I’ll still make, you know, some money, but I’ve not changed that. I have increased the type of property I’ve looked at and the distance I will go to find flips. But yeah, I have not changed the price I’ll pay on a percentage basis.

Danny Johnson: And what percentage do you typically go off of?

Mark Ferguson: You know, it’s really close to the 70% rule. Because you know, ARV or after repaired value times 70% minus the repairs needed. Since I’m an agent, that is nice because I can save some commission on the buying side. And when I sell it, I also save half the commission. So 72% to 74% is usually about the range I’ll go up to. But if I wasn’t an agent, it would be right around that 70% rule.

Danny Johnson: Okay. Well, that makes sense. So, the next step in that is, you know, when you’re determining the cost of repairs to be able to determine what you can offer, how did you learn how to determine the cost of repairs in these houses that need work?

Mark Ferguson: That was a huge advantage working with my father, learning that part of it, because it’s basically, you know, he had been doing it for a while. He did repair some of the houses. It wasn’t like he just flipped all of them without doing work. So I learned kind of from him and then also from my sister as well who had a property management business, what it costs to paint things, what carpet costs. And one of my first jobs when I would help him work on these flips was I would go pick out carpet, I would get the bids from the contractors. I would, you know, go to the stores and pick out fixtures. So I was out there talking to the carpet guy, so I knew how much a carpet was. I was talking to the contractor going through the house when we’re doing the bids, and I would see the bids myself. So it’s really just, I mean, you can get an idea of what repairs will cost without doing those types of things. But really the hands-on experience and talking to the people who are going to be doing the work is the best way to figure out what it’s going to cost repair a house. And then, my rule of thumb was always add $5000 to whatever I thought it would take to repair it because we would find something behind the walls or under the floors or just something would cost more than we thought it would on every deal. I mean, I don’t think there is anything we ever came in under budget on.

Danny Johnson: Yeah, it will always happen. Yeah, that’s why. You know, my wife, Melissa, she does the numbers after the flips. And honestly, I don’t want to see them because she always gets on to me. She’ll ask me, “So how much did you budget for repairs?” And I know that’s going to lead into, “You were way off,” you know. So I just avoid all of it now. Like I just accept the fact that I’m going to.

Mark Ferguson: Yeah. That’s my strategy, too. So it’s a good point.

Danny Johnson: But that’s also the reason why you never want to go off of your numbers whenever you calculate what you can offer, right? Because if you start fudging the numbers to try to make stuff work or by speculating saying, “In two months from now, it’s going to be worth this much.” And then, you’re over budget and the market turns like what happens, right?

Mark Ferguson: Right. Exactly. That’s probably the biggest mistake most first-time flippers make – is they try and force a deal to work for them by like you said, “You know, it’s worth $220,000 now, but maybe in three months it’ll be worth $230,000 so there’s $10,000 more there. My contractor says it’s $15,000 in work, but I bet we can cut back here and make it $10,000. And you know, maybe they’ll take us two months to sell it, but I bet we’ve got an awesome agent so it will only take two weeks to sell it.” And all of a sudden, you know, you’re $20,000 under what the real estate costs are going to be. You wonder why you lose money on a flip in the end.

Danny Johnson: Yeah. And losing money on a flip is never fun, doing all of that work and all the hassles and then like paying to do it. But has that ever happen to you?

Mark Ferguson: Yeah. We’ve had a couple, not too often. I think we’ve had three we lost money on and we’ve done over 100 deals. One of them was a flip—this is a good lesson. I’ve been doing it for four or five years, and I decided to try and make some extra money. I would do the work on the house myself: the manual labor, the painting, almost everything. Chose a $1900 ranch house that we didn’t realize until after we bought it had had a fire in the attic. So I put in a new kitchen, new windows, new doors, redid the baths, repainted everything, carpet, put in some laminate hardwood flooring – all this and it took me like six months to get everything done. And after that, I had to bring in a contractor to fix a few other things that I wasn’t quite capable of doing. And because it took us so long to do those repairs, the market has started to turn a little bit at that time and the price had decreased and the house just. you know, the fire in the attic we didn’t know about. We couldn’t really fix that without replacing the entire roof structure, so we just kind of had to disclose that. Yeah, we lost about $10,000 on that house after spending six months of my life working on it. So that was fun.

Danny Johnson: I bet you never did that again.

Mark Ferguson: No. Oh, no. I learned real fast, never do the work myself anymore.

Danny Johnson: Yeah.

Mark Ferguson: And another one we lost money on was completely out of our control. We bought it from the trustee sale. And when we would do that, we’d always get an O&E from the tile company that shows ownership and encumbrance report if there are any liens/judgments, anything filed against the property because there’s no guarantees at the trustee sale that you’re getting a clear property. Nothing showed up. We bought the property. We go to look at it. We hadn’t seen the house before and we opened up the garage, and there’s like a brand new BMW in the garage. The rest of the house is completely vacant. We’re like, “What is going on here? This is not right.” And so we found the previous owners. We ended up looking them up in California, contacted them. We’re like, “Hey, is this your BMW?” They’re like, “Yeah.” We’re like, “We just bought the house. You need to come get it.” They’re like, “No, it’s our house.” I said, “No, it’s our house. We bought it at the trustee sale.” They’re like, “No. They foreclosed wrong. We’re taking that house back. You guys can’t. It’s not your house.” And they had filed a lawsuit like the day before the trustee sale against the bank saying they foreclosed wrong. It’s a completely frivolous lawsuit. It had no ground to stand on, but it took the courts over a year just to look at it and go through the system. And that was after we hired attorneys to try and make it go faster. And so a year later and like $15,000 in attorney’s cost, we lost money on that, but that was just one, I mean, there’s nothing we could’ve done to change that situation except not buy at the trustee sale.

Danny Johnson: Yeah. So there are some risks that people need to know about when buying those foreclosures at the trustee sale. Yeah. That’s pretty painful. I’m glad I haven’t had that happen with me.

Mark Ferguson: Yeah. No, I’ve never heard of that happening to anybody else but it happened to us.

Danny Johnson: But you’ve done some really good ones though I’m sure that have made up for things like that. So do you have one that stands out in your mind that you maybe feel is like one of your best deals that you’ve done?

Mark Ferguson: Yeah. You know, usually the best ones we’ve done have been pretty risky, but we’ve had a lot of luck with country properties, with acreages. And so, the last one that really stood out was a country property just a little shack almost. I remember the MLS description said, “No lockbox. Door is open. Possible squatter in the house.” I’m like, “That is an awesome description for getting people to come look at your house.” So I went out there—

Danny Johnson: Yeah. Come armed, right?

Mark Ferguson: I went out there. It’s actually locked and it had a lockbox on it. And there was nobody in there or any sign of anybody in there, so I had no idea what they’re talking about. But as you know, five-acre property, a thousand-square foot house. But the description in the MLS was, “No well. No septic tank.” Basically they’re like, “You’re paying for the land, and that’s it.” I paid $75,000 for it. That was our asking price. I’m like, “Full price offer. Here you go.” I think everybody on my team and in my office thought I was absolutely crazy for buying the house because it kind of looked like it’s about to fall down. But we went through it, we found the well. It wasn’t working, but we found it. We re-drilled it. It wasn’t too expensive, like $12,000 or $15,000 to get that all done. Found the septic—or no, we didn’t find the septic. There was a second house in the land that they’ve torn down. We found the septic for the second house and tied into it which was still working. Redid all the electrical. Redid all the plumbing. New flooring. New drywall. New kitchen. New bath. There’s a big Quonset hut shop on it. Redid the windows, doors on that. And then, we stuck with the house because it had some really old siding and just peeling paint and rotting. So we just ended up stuccoing it. And I think we ended up selling that for $256,000 after we’re done.

Danny Johnson: Wow! What was the cost to fix all that up?

Mark Ferguson: It was about $75,000 to $80,000 to do the entire rehab. But for $75,000 of our purchase, that wasn’t too bad.

Danny Johnson: Yeah. So it was close to $100,000, huh?

Mark Ferguson: Right. Yeah, pretty close to it. And then, people didn’t think I was crazy afterwards, but they didn’t have the same vision I did for the property.

Danny Johnson: Yeah. Well, that’s a nice payday, man. That’s like doing four or five other flips.

Mark Ferguson: Right. Yeah. Exactly. So it’s nice to get those. It took a while. It took a long time to do all that work, but yeah, it was worth it.

Danny Johnson: How much time do you think it took you?

Mark Ferguson: I think it was about a year from the time we bought it to the time we sold it. And part of that problem was my contractor didn’t get to work on it for like three months after I bought it because we’re so busy with other flips and rehabs.

Danny Johnson: How many crews do you typically use when you flip 10 to 15 a year? Are you running two crews or –?

Mark Ferguson: No. I mean, that’s the biggest change I’m trying to make this year. In the past, I would always kind of use – I’d have a mix of a general contractor I’d use on some properties. And then, he fell apart and stopped doing good work, so we’d find another contractor. And then, I had a few other guys who were kind of single guys or had a team together who could do most things. So we always hire our own roofer. We have our own roofing company. We have our own plumbing company. We have our own electric company. And we have kind of the contractors do the paint, all the interior – all that stuff.

Danny Johnson: Right.

Mark Ferguson: But I was running into the problem. I had nine properties or ten properties at the time, and four of them would be sitting for months because I didn’t have enough crews, enough contractors. With our hot market, you know, there’s new construction everywhere. There’s just very few people around to do work. So this year, I hired one of my contractors who had management experience at the corporate level to manage all my rehabs. So his job is to find new contractors, to find subcontractors, and just to make sure everything is being done as quickly as possible. And he’s not supposed to do the work. I don’t want him doing manual labor. He’s managing it all, making sure they’re charging right, making sure they’re on time. And then, that has really made my life so much easier.

Danny Johnson: So how did you bring him on and have him? Because, I mean, some people might say, “Well, my job is to go and find some contractors.” And they open up the Yellow Pages or even just get on the internet and do a search for contractor. And obviously, most of those guys are going to be out of the price ranges of a typical house flipper. So how do you coach him? Or how did you coach him to find the right kinds of crews that you were looking for?

Mark Ferguson: Well, it was really a perfect situation because he had worked with us before doing some rehabs, maybe eight years ago when I was working with my father. And he did a really good job, but he wanted a steady job. He had a young family, so he quit and went to work for Vestas which is a wind turbine plant. They build the giant wind turbines. And he’s a corporate manager for them for seven years. He managed like 40 people underneath him. And then, he ended up quitting that last year because he was working 14-hour night shifts and never saw his kids. So he came to me and said, “Hey, before I quit, I want to know if you have any work for me if I become a contractor again.” I’m like, “Yeah. It’s an awesome time. Yes, I need workers.” So I hired him as a contractor first and he did one job for me. I’m like, “Okay. Great.” And I approached him, I had lunch with him. I’m like, “Hey, are you interested in becoming an employee again, getting a salary, and working for me, just me?” And he said, “Yes.” I’m like, “Great.” And to be honest, I have trusted him completely to find the crews because he’s been in the business off and on like 10 or 15 years. He knows how much we pay him for our flips and rehabs, so he kind of knows what we’re looking for and he knows a lot of people in the business. So he’s already hired three or four new contractors, and he’s been here three months. And he’s got three or four new people working on them. Every single house has got a crew working on it right now except for two I just bought like last week. So I kind of just had to trust him. I don’t want to be a micromanager. I’m like, “You know the business better than I do. Go do it.”

Danny Johnson: I bet that completely changed your life whenever that happened because it probably took a lot of the most time-consuming tasks out of your job description, right?

Mark Ferguson: Oh, for sure. You know, I wasn’t driving – because, you know, our houses are 30 or 40 miles away in some cases. So I’m not driving in one direction and driving back the other direction. Because you really have to check up on your contractors. You can’t just let them go on a job for a month or three weeks and just assume they’re doing everything right and working. So you’ve got to check up on them. And not having to do that, not having to call and text them all the time, not having to get on them about getting things done quickly and answering a thousand questions every day – just yeah, it saves me so much time.

Danny Johnson: Yeah. It’s nice. Yeah, because you don’t get those calls at 5 o’clock in the afternoon on Friday asking you to come by to give them a check, right?

Mark Ferguson: Right. Yeah. Exactly.

Danny Johnson: It’s like, “No, it’s Friday. I just want to be home now.” I wanted to also ask about your website, investfourmore.com. I wanted to ask you. So how did you come up with that name?

Mark Ferguson: Right. Everybody asked that and nobody knows what it means. So don’t feel too—no, it was actually a play on words for getting four mortgages on rental properties. So I started buying rental properties in 2010. And I realize after you get kind of four mortgages in your name, most of the big banks will just say, “You can’t get any more loans.” So I’m like, “Okay.” And then I found a local lender who would give me more loans, some other ways to get through it. And I said, “Maybe I’ll just start writing about this.” I started to blog in Invest Four More. The #4 is just supposed to meant investing in rental properties and being able to get more than four mortgages while you’re doing it.

Danny Johnson: Okay. Well, that makes sense now. I’ve been going, “Man! What does that mean?” I tried to figure it out, you know. It’s just not coming to my mind. I didn’t know…

Mark Ferguson: There’s really no way to know what it means unless it’s explained to you.

Danny Johnson: Yeah. All right. Are there any good books that you’ve read recently that you would recommend to everybody?

Mark Ferguson: Actually, I’m reading one right now which most people probably have never heard of. I know a lot of people like to throw it out, they can grow rich, but Third Circle Theory which is by—oh, I’m going to get his name—Pejman Ghadimi. He goes by PJ Ghadimi. I think it’s G-H-A-D-M-I. But he has a couple $50 million companies. He’s an amazing entrepreneur who came from Iran to France to the US when he’s like 12. And that book is not really about—it’s not about real estate investing at all, but it’s just about mindset and just about your attitude towards business and life. It’s one of the best books I’ve read in a really long time.

Danny Johnson: Cool. I’ll have to check that out. All right. And then so how can everybody find you?

Mark Ferguson: Yeah. My blog is the best way. So yeah, investfourmore.com. I’ve written close to 400 articles now, I think, on investing rental properties, on fix and flips, and also becoming an agent and how I’ve used being an agent to help me with flips and rental properties. You can sign up on my website. You can also email me, [email protected]. I respond to all my emails. Love to hear from people, love to talk to people about investing and helping them out any way if I can.

Danny Johnson: Awesome. Well, Mark, I really appreciate you being on the show. And everybody can find some of those links that we talked about and everything on the show notes page which is flippingjunkie.com/podcast/markferguson, and you’ll be able to find it there. And I’m also going to include a link over to where you can read more about Mark’s plan to purchase 100 rental properties by January 2023 on that show notes page because I found that really interesting, so I want to include a link to that on there. And just real quick just to get people a little bit of a teaser on that. What drove you to decide to try to get the 100 properties by then? And why 2023?

Mark Ferguson: So I was thinking, when I first started buying rental properties, I bought it at the end of 2010, my first one, and I thought, “Okay. I can probably buy three a year. That’s a number I could do and I’d have 30 rental properties in 10 years. That’d be a pretty good number, pretty good cash flow. If I wanted to retire, I could.” And then, I started doing a lot more reading. I did some coaching and a lot of thinking about goal-setting mindset and I realized, “If I think I can do 30 in 10 years, then I’m not really challenging myself. I’m not helping myself grow. I’m going to make a goal that I don’t know how I’m going to get to.” So I said, “I’m going to do 100 properties in 10 years and then hopefully I’ll figure out how to do it. And then, I’ll be in even better position, be able to do a lot more with my family, more freedom, you know. I love cars, so that’s a big pricey hobby of mine.” So just to challenge myself, I’ve tried to do that in every aspect in my life. If I think I can sell 10 flips next year comfortably, then why not make my goal 15 to push myself and make myself work a little harder and find some new ideas and new ways to do things.

Danny Johnson: That’s awesome. That’s a great way to look at things and to set your goals to. Yeah, it’s funny because I talk to other investors a lot, and we talk about, you know, our goals and what are, you know, a lot of investors have passive income goals. And usually, the other person I’m talking to tell me theirs and then I tell them mine and they’re just like, “What? You know, that’s like a crazy number, you know.” And I said, “Of course. Why aim lower, you know? Why not aim higher?” And then even if you don’t make it, you’re going to probably do better than you would have if you set the goal at a lower scale anyway but—

Mark Ferguson: Yeah. Exactly.

Danny Johnson: Yeah. So that’s always a lot of fun. But I really appreciate you being on the show. I think this was an excellent show with lots of great info.

Mark Ferguson: No, thank you. I really appreciate it, too, Danny. I’m happy to talk with you. Great time. And hopefully, your listeners find it useful.

Danny Johnson: Yeah, I’m sure they will. All right. Thanks a lot, Mark.

Mark Ferguson: All right. Thank you. Have a good one.

Danny Johnson: You, too. [music]
Well, I hope you enjoyed the episode. And thank you very much for listening to the Flipping Junkie podcast and for subscribing and leaving ratings and reviews on iTunes. It helps a lot. Thank you very much. And if there’s something that you’re struggling with or something you want to find out more about with regards to flipping houses, anything at all, simply go to facebook.com/flippingjunkie and leave a message for me there, and I’ll try to help you with that and also tailor a specific episode to answer those questions. And have a wonderful day, and we’ll see you next time.