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Geremy Heath is the owner and founder of Texas All Cash Home Buyers. Texas all Cash is a residential redevelopment that turns around distressed properties for profit in the both the San Antonio and Austin areas. Since starting the company in 2009 Geremy has successfully completed over 150 rehab projects. Prior to this Geremy worked as a management consultant for over 12 years with Accenture who is one of the leading providers of management consulting services in the world. Geremy holds a Bachelor of Civil Engineering with Honors from the University of New South Wales in Sydney Australia, and currently lives and works with his wife and business partner Melanie Heath in San Antonio, TX.
Geremy came to the US from Australia in 2006 and met his wife a couple months later. While at the airport to leave for their honeymoon, he purchased a book about real estate investing. Much to his bride’s dislike he burned through the book during their trip.
The fire was lit and he became passionate about leaving the rat race and working his way to financial freedom through real estate investing.
In this episode, Geremy tells us how he developed the right mindset to be able to become a success with house flipping.
You have to expect to achieve the outcome you want. You have to believe you are going to make it.
He shares the story of how he put a house under contract to buy (and close within 14 days) without knowing how he was going to fund the deal. His incredible determination allowed him to find funding within about 3 days and he shares how he did it.
Basically, he beat the streets and made contact with as many investors as he could asking for recommendations for lenders. There is a lot of power in having a specific deal in hand when looking for lenders. They will definitely take notice and be willing to talk to you. Try that without having even ever received a lead…
Geremy also shares his philosophy about what flipping houses all boils down to….in as simple terms as is possible…
I can’t agree more.
Jeremy gives us the numbers for his first flip. He bought for about $47k, put in about $16 in repairs and sold for about $105k. This netted him roughly $24k in profits. Not bad for a first flip!
Geremy has a rough rule of thumb for how much he is willing to spend on marketing for each deal he receives. His target is to be at or less than $1,000 spent on marketing for each deal he does. Not bad when you consider he is likely profiting over $20k on each deal.
For those that aren’t sure of what some typical private and hard money lenders charge for loans on flip houses, he shares the terms from his first loan (the one he got for the property he already had under contract without knowing who was going to lend on it). Basically, that loan cost 3 points, some administrative fees totally about $800 and 12% interest only with a loan term of 12 months.
The discussion turned to dealing with contractors and Geremy shared what he felt like is the biggest mistake that rehabbers make. He mentioned that you have to control the flow of money. What this means is that contracts should only be paid for work they’ve already performed. A detailed scope of work and draw schedule that is based on which repairs have to be done before each check is paid is paramount.
Geremy discusses a lot about how he has developed systems to make sure his rehabs are consistent and run in a highly efficient manner. There’s a lot to be learned hear about what to shoot for if you plan on or are already rehabbing one or multiple deals at a time.
There are tons of other great information shared in this episode and I highly recommend you give it a listen.
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Danny Johnson: This is Flipping Junkie Podcast, episode 3. 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.
Today I’ve got a good friend of mine doing awesome things in San Antonio and Austin. He’s completed over 150 rehabs and has been flipping houses since 2009. Geremy’s from Australia and is just amazing what he’s been able to accomplish since he moved here.
In today’s episode you’re going to find out the exact mindset needed to succeed in this business. And you’re going to learn how having that mindset had allowed Geremy to put his first house under contract with a two week closing without having any idea where he was going to get the money to close, and he still was able to make it happen.
Geremy also shares the numbers on some of the deals he’s done and even shares what he’s willing to spend on marketing on average for each deal that he does. We also get a great laugh about his pronunciation of the show Pawn Stars when he draws some great correlations between the two businesses. Geremy is just an all-around awesome guy so enjoy the show.
Danny Johnson: Hello. Welcome to the Flipping Junkie Podcast. I’m your host, Danny Johnson. And I’m super pumped today to have a good friend of mine here in San Antonio on the podcast. It’s not somebody that’s been around the circuit talking a lot about flipping houses where a lot of people know about him.
He’s done really well in this business. In fact, he came to the US not too long ago and started. So even new to the country and new to the business, and really has done very well. So I’m super glad that he’s agreed to be on the show.
His name is Geremy Heath. He’s the owner and founder of Texas All Cash Home Buyers. Texas All Cash Home Buyers is residential redevelopment company that turns around distressed properties for profit in San Antonio in Austin. He started the company in 2009 and he successfully completed over 150 rehabs. And so I’m super glad to have Geremy on. Hey Geremy, thanks for being on the show.
Geremy Heath: Hey Danny, thanks for having me. I really appreciate it.
Danny Johnson: Great. I’ve got a ton of questions for you, mainly because I want to find out what you’re doing that I can copy since we’re in the same city here. I’m really interested in the story about you coming to the US. When you did and what got you interested in starting in real estate investing?
Geremy Heath: Yeah, no worries. I’ll be happy to share. I guess my story’s probably a little different to some of the other people that you have interviewed in that as I’m sure everybody can tell I’m not originally from the US. I’m originally from Sydney, Australia. I came across to the US in July 2006.
At the time, it was actually interesting, I came just with one suitcase that I bought from Australia. My original plan was to be out here for maybe a year or two. I’d come over here to take a job in the management consulting space. After being here probably about six months I met my wife to be, Melanie. In mid-2008 we actually got married.
And I guess that was probably the time when I’d first realized it looks like the US is going to be my home forever. And it was also that time I was still working in my old corporate job, and I started to have thoughts of my family back in Australia.
As time goes on one of my fears I guess was that I would be a slave to my job and a slave to the corporate world. And the thought of having to ask to have some time off so that I could go back to see my family especially, I used to think a lot about my mother. She’s not too old now but I thought in the future she’s getting older. I don’t want to be in a situation where I have to ask permission to go and where my corporate job may limit me from doing that.
It was actually on the day that my wife and I were leaving for our honeymoon to Mexico that I was at the airport in San Antonio. I was just looking through the books in one of the bookstores there and I picked up a book on real estate investing. And that was probably the beginning of my interest in the topic.
On that honeymoon, much to my wife’s disappointment I sort of burned through that whole book. And then I got back and I probably read another three or four books really quickly. And then there was a book in particular that spoke about getting a mentor.
And so I kind of realized at that point if I really want to take this thing seriously I need to go find myself a mentor. Somebody who’s done this before that can show me the way and lead me to where I need to be. So I did, I engaged a mentor. The guy’s name is Tim Taylor. I’m still working with Tim today as a mentor. Tim really helped me to get started and helped me to continue to grow.
I finished Tim’s basic training program in late 2008, and then it was 2009 while still working in my corporate job that I did my first flip. That’s how it all started, all up from there.
Danny Johnson: Wow. How was that first flip? What did you first to start finding and looking for deals?
Geremy Heath: I guess back then I had a limited budget for marketing, but I was doing some marketing at the time and the lead was from some of the paid marketing that I had going on. I think it may have letter or something like that. Probably one of the biggest things if I think back to that first flip and advised anyone out there that maybe is looking to get started, and that is don’t worry about how all the pieces are going to fall together.
I think a lot of people hold back from taking action because they’re worried about every single thing being in place. And probably one of the biggest things for most people is private money. A lot of people have a hard time asking people to lend money.
And so that’s probably one of the biggest roadblocks that people have to getting started to actually purchasing, rehabbing, and selling a home. I know a lot of people when they get started may do some wholesaling and stuff like that. But to actually flip one yourself you’re going to need that money.
Danny Johnson: How did you find the money in the beginning to do a flip?
Geremy Heath: For me I guess I knew it was an area I needed to shore up but it didn’t stop me from moving forward. When I first got that house under contract I think I had like a 14-day close on the property. And at that point I didn’t know how I was going to get the money. But as soon as I got that contract I knew that I was going to do everything I could to find that money.
The way I found it really was just by calling around and asking people in the business what lending sources are there that I could potentially tap into. Within probably the first three or four days I’d found my lender to lend on that deal.
Danny Johnson: I want to ask, so that brings up a lot of good points. And that just sort of confirms what you had just said to as far as not being so worried about every single step. Obviously you should have some education, but not to the point where you feel like you have every single step that could possibly happen or come up, be accounted for because you never will.
And you went out and got that house under contract with a 14-day close and didn’t even know where you were going to get the money for it but you knew you would be able to do something with the deal is why you still have the confidence to go ahead and put it under contract, correct?
Geremy Heath: Yeah, that’s correct. And probably the biggest lesson that I’ve learned through this whole journey of real estate and building my business is that the most important thing is you have to expect the outcome that you’re looking for. And it could be as simple as that first house that I started on where I was just looking for a lender. Or it could be growing the business to whatever size you want it to grow to.
And for me as I’ve grown over the years I’ve always been really clear on the outcomes that I want to achieve. I’ve been big on visualizing that. And then within my subconscious training myself to expect those outcomes to happen. And that’s some of the training that I’ve actually received from my mentor.
I guess it sounds very simple but it is the magic formula. And for most people it’s not expecting to achieve the outcome that holds them back. But what I have learned is if with that faith and expectation, and if you take consistent action it’s certain that you’ll get to that end point. It’s just a matter of time.
Danny Johnson: Absolutely. I believe that 100%. If I have a low or I’m not getting many leads, just the fact that I stop and think about some other ideas to generate more leads or do something, even before I implement any of those new ideas I start to get called. It’s crazy. I think there’s a huge benefit and truth to the law of attraction is what it’s called where you have in your subconscious mind you sort of expect these things to happen, and things do start to happen.
But to get back to the first deal and you’re finding the money, you had the house under contract. And some people would say, “Wow, that’s crazy. He didn’t know where he was going to get the money but he told somebody he would buy their house and close it in 14 days.” Did you know that you had that at such a good price that if you had to you would be able to wholesale to another investor if you did not find the money to close on it?
Geremy Heath: I think back at that stage since I was so new, wholesaling was also something that was new to me. I guess the prospect of wholesaling it versus the prospect of finding the lender was probably just as difficult in my mind because I hadn’t done either before. And so I guess I’d kind of burnt the boat with the decision that I was just going to take it down no matter what.
Danny Johnson: How did you end up finding funding for that first deal?
Geremy Heath: It was just really through calling around. And I remember the time I created a list of people that I thought may be lenders or other investors that I’ve met that would know other lenders. And I just pounded the phone. I spoke to several lenders.
And I guess for me it was interesting because of the time I wasn’t a citizen of the US I am now. But I was just here on a green card working for my company and decided to find somebody who was okay with that. But I just kind of made a decision that I was going to keep calling on that phone until I found that person even if it took up to the 14th day.
Danny Johnson: Do you remember how many days it took until you found someone willing to lend on it?
Geremy Heath: Yeah, probably within three or four days I’d found a lender on it.
Danny Johnson: Wow, that was pretty quick. You must have really been after it.
Geremy Heath: Yeah. And going back to what we were originally saying, a lot of the time people worry too much about all the details but really you just need to have the intention and a clear expectation of the outcome and just go for it. And if you do that and don’t worry about how it’s going to happen it will happen.
And that’s kind of one of the magical things that I’ve learned about life through this process. If you put your head down and take the action, and know what you want to get everything will fall into place so don’t worry about it.
Danny Johnson: I hear that a lot too. I think there’s this statement that engineers have a hard time getting into flipping because it’s like they need to have everything thought about, figured out, and planned out before they do anything. And that can be kind of hard because it’s like you said, we sort of jump in and find out what we need to know as we do it. The people that do that tend to do a lot better I think.
And so you probably even on some of those first calls in the first day and second day, before you found somebody to lend on it, probably learned a whole lot from some of the people that you talk to about what to expect on the next calls, right? Like maybe you called and didn’t have all the information that they requested from the first people that you talked to. But after that experience and the next person you called you knew that you should have that ready. Do you remember any kind of situations like that?
Geremy Heath: Just as a general point I think it’s a point around failure being a good thing. I can’t remember exactly how many calls I’d made until I found the right guy. But every call that didn’t work out I did learn something that I could take on to the next call.
I guess a way to look at it was that if it took me 10 calls to find my guy it was 10 calls of education that got me to the point that I needed to be so I could talk the talk and get this deal done. And every call that I made I was one step closer to finding that guy.
Danny Johnson: I think that the fact that you had a specific house, the numbers and everything probably helped as well. Because if you just were saying, “Look, I’m getting into this,” maybe a lot of people don’t want to take the time to talk through it because there’s nothing specific to talk about. Is that time going to be wasted time for them if you’re never able to find a deal and put something under contract. There was no discussion of that because you had something. It’s like, I need lending on this deal on this house.
Geremy Heath: Absolutely. And I think that’s probably a common mistake that a lot of people do make where they’ll try to line up these lenders before. And I’m not saying that’s a bad thing because it’s better than not doing anything. But they’ll speak to these lenders and say, “Hey, I’m going to be buying two or three houses a month. I’ve got these big plans to do X and Y but they haven’t really done anything yet.
At the end of the day it’s all about results. And so the way that you’re going to engage a lender and then prove yourself to a lender is through action and results. Talk is cheap at the end of the day, but having real contracts with good numbers is what it all comes down to.
Danny Johnson: Absolutely. I usually say the same thing for people getting started even in wholesaling where the question is should I build my buyer’s list first. And a buyer’s list being a list of other investors that could potentially buy any deals that you get, where you can assign your contracts with them. The question is should they build that buyer’s list first, or start marketing and try to find deals first.
And I firmly believe that you should find the deals first because then people are going to take the time to listen to you because you’re already ready to send them a deal, and they know that you’re going to have more. And they’re going to take time to talk to you.
So many of us, I’m sure you get a lot of calls even from people asking for what criteria you’re looking for in houses and stuff like that. What is your initial thought when you get calls like that?
Geremy Heath: Typically, to be perfectly honest it’s kind of noise in some ways. Like when the business is going on and I’m looking for leads that are coming in. And when I get called for people trying to build me on their list I’m definitely interested in getting added to the list but I’m not that interested in spending a lot of time talking about my requirements and all this sort of stuff. That’s really because I want to spend my time on buying houses. That’s what my business is about.
Danny Johnson: So many called. Instead of asking for your criteria and called and said, “Hey, I’ve got this house under contract, with these numbers I bet you’d be willing to spend the time to talk through all the details, right?
Geremy Heath: Yeah, absolutely. If you give us something to look at we’ll check it out. And if it works we’ll buy it.
Danny Johnson: And I got to the point I don’t want to come across as rude to anybody. Because I, like you, also want to be added to the list, but I don’t like spending the time talking through all of the different areas I buy in, the type properties I look for.
I’ve really gotten to the point where I just tell people, “I’m interested in anything and everything within San Antonio and close proximity to San Antonio. So if you get something give me a call. I’ll help you analyze it if you have trouble analyzing the deal.” And I’ll leave at that. I don’t want to go into all the 30-minute conversation because 90% of the time I never hear back from the people anyway.
Geremy Heath: I agree 100%. And I guess one of my aha moments back in the beginning was in the beginning I did tend to focus on certain areas of the city. But as I got more experienced I guess I dumbed down what real estate was all about in my own mind. And what I realized was it’s just about being able to secure a piece of property for less than what it’s worth. And you can do that in the worst part of town or the best part of town. But as long as you’re getting it for under market value you have the potential to make a profit on it.
And as soon as I realized that… I can remember a house I picked up on the east side I think for 10 grand. That was probably one of my first low-end wholesale deals. I think I sold that to somebody for 15. I made five grand on it. But in my first probably a year or a year in a half or even two years I would’ve thought, “That’s a war zone house. I don’t deal with those. But once I realized everything has a value and you get it for under value you can make a profit. It kind of simplified it and also opened up the whole market to me.
Danny Johnson: Absolutely. That’s incredible piece of advice for a lot of people because you’re absolutely right, you can dumb it down to that simple of a thing where as long as you buy it for less than what it’s worth you know you can hardly go wrong.
My father always told me if I called and I had questions about certain property I just wasn’t sure about, and I would say things like I’m not even sure I want to make an offer because this is just weird. It’s got this weird addition. It’s got a cracked slab and all this kind of stuff. He would always say, ‘You went out there and you looked at it. You have to make an offer.” Whether you want it or not make an offer. And so that just means make an offer as low as it has to be for you to be okay with getting the deal.
So that opens up a whole lot of things. Most of the time when I would’ve just driven away and it would’ve been a waste of time, I would’ve never got some of the deals that I got for crazy amounts because I would’ve never made those super low ball offers because I didn’t want the deal in the first place. And when you’re negotiating the person that’s in the position that’s more willing to walk away is always in the better negotiating position.
Geremy Heath: There’s no doubt about that. And probably a good analogy that I’ll add to that is, and excuse my accent because I might pronounce this incorrectly. The TV show Pawn Stars on the History Channel, that show where they are in the pawn shop and it’s just about buying and selling items that are brought into the shop.
Actually in the beginning I learned a lot from watching that show and just seeing, number one, how everything has a value. And their business is about getting things for undervalue and then reselling. So it’s no different for us in real estate.
Number two, I learned a lot from seeing especially Rick the owner, just seeing the way that he would negotiate and deal with people, and his certainty in those interactions. He would always have a price that he knew was the most he could pay for it in order for him to make a profit. If he couldn’t get it for that price he would move on. For us it’s exactly the same in real estate.
Danny Johnson: Absolutely. There’s a lot to be learned from watching those interactions on there because that is pretty much exactly the way it is for us where we make offers directly to sellers. That’s a great point. The other part of that that I also wanted to mention, if you look at things in that way where you’re just looking at the fact that there’s a right price for any property is that there’s so many people out there wanting to learn all the different creative strategies for buying properties.
They look at it in a way that, I can’t make this deal work on a normal flip because it doesn’t fit the numbers. What can I do to make this work in another way? And that really has always bothered me because I felt like people were willing to pay more than they should for a property just in trying to find a way to justify that in their mind when they really shouldn’t.
I like to have all kinds of options. So if you always buy a property at something where you could fix and flip it or wholesale it then you can do all those other things too it as well because you got it for cheap. But if you bought it to where the only thing you can do is X, Y, Z, if that doesn’t work out what are you going to do?
Geremy Heath: I would agree with that for sure because I think if you’re breaking your formula to get the deal then you’re probably overpaying for houses that you may have got at the cheaper price and you don’t even realize it. Because as you know a lot of the time when you put your offer out there it may not be accepted the first time and it may be accepted in the follow-up. But if you kind of bend your rules to try get it you then offer them something more, and maybe two weeks later they would’ve taken that original offer that was lower.
Danny Johnson: Yeah, follow-up is huge. I don’t know how many times I drove away from a negotiation, wanting to turn the car around and go back and offer more to try to make the deal work because we were so close. And back in the day my wife Melissa always was with me. She’d always be telling me, “No, don’t. Just go on. Call them tomorrow. Or wait until they call you.” And almost every time they would call me and accept the price that I offered. Had I turned around and gone back I would’ve given up an extra five grand or something.
It’s kind of hard to do that sometimes when you’re so close but you do just have to walk away sometimes. Can we talk more about that first day as far some of the details. If you remember numbers that’s great. If not maybe we could talk about how you handled the rehab. Did you do some of the work yourself or hire somebody?
Geremy Heath: Thinking back, the numbers on the deal, I got it for $47,000. My rehab estimate on it was $16,000. And I think I had an ARV or $100,000 or $105,000 on it. That was the first deal. And this is from memory from five years ago. There’s been a lot of deals since but it’s funny how you remember the first one. And then I did to find my first contractor. It was kind of a similar approach to what I’d done with the lending, I just thought of people that would deal with contractors. And I called around and asked them.
And actually I believe that one of the good sources of contractors is often people that are lenders, especially the bigger lenders who, the professional lenders that are lending to all sorts of investors. Because some of you may or may not know but when dealing with these professional lenders in order for them to release the drawers for the rehab work, the work has to be inspected.
And so there are more people in their team are putting their eyes across a lot of different rehabs and getting to see the work of a lot of different contractors. So in the past I found them to be a good source of referrals for good contractors. And so that’s actually what I had done to find this first guy that I had worked with. And it all went pretty smoothly.
We ended up selling the property for, I think it was 105, and I think there were some seller concessions in there but I probably made about 24,000 or 25,000 on it, which is a nice little kick start to the career.
Danny Johnson: Did you do dump most of that back into marketing?
Geremy Heath: At the time I was still working my full-time job so some of it did go back into growing the business. But one thing that I did do, which I don’t know whether this is compliant with the Rich Dad, Poor Dad philosophy or some of the other guys out there, but I did buy myself a nice watch. Because I wanted to kind of have a memento of that first deal that I could keep with me forever. And I still have that watch today. And it just reminds me of how I got started and that first deal.
Danny Johnson: That’s cool. I didn’t know that that was the story of that. I hate to kind of go backwards a little bit but I wanted to ask, do you remember what the numbers that you got for that first loan were? Because I think a lot of people hear stories about finding lenders but they’re not sure exactly what the typical fees and cost, what kind of interest are charged on those loans. Do you remember what the terms were for that first loan, for that first deal?
Geremy Heath: Yeah. I’m pretty sure it was three points upfront. And it was 12%. There was some upfront processing fees, probably around $800 or $900 which include like an appraisal, and the document fees and stuff like that.
Danny Johnson: That was probably interest-only loan, right?
Geremy Heath: That was an interest-only loan.
Danny Johnson: How much time did they give you, 12 months?
Geremy Heath: It was on a 12-month balloon.
Danny Johnson: Okay. Did you have anything in there to extend it? Because I know some people do get into trouble. Sometimes getting a loan where they only get maybe six months and there’s nothing in the paperwork to extend a loan. And then what ends up happening is they fix up the house and then the lender takes the property because they don’t sell it before the six months is up.
Geremy Heath: Yeah, in my case I believe there was the ability to extend but you’d have to pay a point or something like that.
Danny Johnson: Yeah, I think that’s pretty typical. So that’s something for everybody to always look out for. If you’re getting a loan like that and it’s one of your first ones, it’s always read into all of that and make sure that you have ways to extend if you have to so that you don’t lose the property.
That’s the first deal. It sounds like you hit a home run on that first one. You got some really good numbers and I’m sure you learned a lot. Did you have any trouble with the contractor? Did you have construction experience or did you trust them and they did a great job?
Geremy Heath: My first contractor actually did a good job. One of the things that happened at the end, and I think this is pretty typical, it was my first deal and my expectations of some of the small things that maybe wasn’t clearly described in the scope I was expecting it to be done.
And so I kind of was really riding him hard at the very end. He’d done a good job but it was kind of like the last 1% and I was riding him hard to get that done. I probably ended up running him off because I was being maybe overly strict with him at the time.
And I think also this is a big area that I’ve shored up now that we’re doing so many rehabs. I spend a lot of time clearly documenting the scope so that there’s absolutely no gray areas. And just to put into perspective our scope of work are normally seven or eight pages long and very, very detailed. We do that off a standard template so it doesn’t really take us that long to build it. But that’s kind of one area that I’ve shored up because I know in the past most fights with contractors are about scope.
Danny Johnson: Yeah, where they said we never agreed to that and you say we did. Unless it’s written down you can’t really prove who’s right, or unless you’ve recorded all our conversations, but who’s going to do that? So you include things like skew numbers for materials so they know exactly which item you want, like which light fixture you want to use, and all those kind of things.
Geremy Heath: It’s definitely taken some time to build up that system. But over the years we’ve built that up, and that’s the level of detail we now have.
Danny Johnson: You probably get a lot of more accurate bids too because there’s not any guess work. They know exactly what materials you want, what it’s going to cost. I don’t know. I made that mistake also in some of our first ones where I just assumed that the contractor would read my mind and know what kind of fixtures I wanted.
And so after they put up the light fixtures you go in the house and they’re all like $5 brass light fixtures, and I’m thinking, “Oh man, that’s not at all what I wanted.” But then I realized I never told them exactly what I wanted.
Geremy Heath: I definitely had that experience as well. And I guess probably what’s forced me to get more rigor around the documentation and the skew list is as we’ve grown, like at the moment I think we’re about 14 rehabs actively being worked on, where there’s crews on them. And so I think there’s four different GC’s that we’re working with now. And I guess building system I was forced into it because what I’d realized was that without it it was hard to bring on new contractors.
For people that have done some flipping or if people were just about to get started what you’ll realize is that contractors do come and go. You do have some contractors that may stick with you for a lifetime and that’s great. But even the ones that are best, where you feel you have the best relationship, you’re always just one house away from that relationship going south. And that’s what I’ve kind of learned over the years.
You have to be prepared and set-up in a way that you can bring on new contractors at any time because you may lose them very quickly for a number of reasons. And that’s why I kind of set out this system mainly so I can bring these new guys on quickly and they knew exactly what our expectations were on the scope and the materials.
Danny Johnson: Whenever you have a new contractor or even your existing contractors and you have a new job for them to bid out do you have them bid the job or do you give them a price and the scope of work and say, “If you can do it for this price you’re hired.”
Geremy Heath: We actually get real prescriptive on the process. We have a work order request that would have the specific skews. And then also labor costs for install. And that ties back to the scope of work. And we’ll say, “Here’s our pricing that we use. So if you can hit this price the job’s yours.”
Danny Johnson: That’s good, because you don’t deal with all the negotiations. Basically I know this will work for me. If it works for you great. And there’s usually some asshole. That’s great. The problems that you’ve had with contractors. Like you said, it could happen where it just kind of goes south within one job. What are the typical problems that you’ve had where something has gone south one job to where you decided to stop using a contractor?
Geremy Heath: I think the biggest problem, and I’ve lost money a couple of times somewhat the hard way on this. This biggest problem is controlling the flow of money. The times when I’ve got caught out on that has been when I’ve been growing quickly and I’ve had a lot of houses come on. And the biggest lesson that I’ve learned out of that is even with your best contractor that you have, the best relationship with… it may even be a personal relationship where you guys are friends. You never know what’s happening in that person’s life.
And so if you’re not controlling the flow of money to them, and when I say controlling the flow of money that means make sure that they’ve completed the work for the draw before they’re given the check, and never give them money that’s forward of that. If you’re not doing that then that’s when you’re going to lose and the relationships go south.
And I believe for most contract it’s not because they’re trying to rip you off, it’s just because you may have overloaded them with houses and maybe they got in over their head as well and they weren’t good at managing their cash flow as you gave them the checks. And now we’re maybe mixing checks from one house to another.
And then once the houses stop coming and the checks stop coming they suddenly realize, “Wow, I’m actually behind on these houses.” And if you haven’t controlled that flow of money the investor’s going to be one left holding the bag on that.
Danny Johnson: Absolutely, and that’s a great point for everybody to make note of. I know some new investors that they’ll give a little bit too much upfront on that first job. But if you are smart about it and you really make sure that the amount of work they’ve done is… the work’s done before you’re getting paid, and you handle things that way. But the problem like you said is after you do several jobs with somebody and you start to let your guard down, and when they’re starting to fall behind and then you pay them too much, it almost never gets better. It just gets worst and worst.
That’s exactly how I lost $2,000 on one rehab, where I gave the contractor the money even though I knew the work wasn’t done yet just to help him out, but then he never showed back up ever again. And he had already done four, five, or six rehabs for me. I haven’t made that mistake again since then.
Geremy Heath: I think the challenge of it, and I’m sure this is what happened in your situation, the human nature is that you feel sorry for them. You feel like you’ve built a relationship with these guys and you want to trust them. And you can see that they’re struggling to get the job done because they’ve run out of money.
The good side of you feels like, “Man, I’ve just given this check and I know that they’ll get it through. But when it’s starting to get to that point the alarm bells should start ringing that you got a potential issue here with this guy being able to finish.
Danny Johnson: Right, and it’s exactly like you said, it’s not that they’re intentionally most of the time wanting to rip you off, it’s just that they got into a bind. You gave them the money and that helped them in the bind immediately. But I’m sure they realized that I’m still going to be in a bind, or I’m still going to get further into it if I stayed so I have to go and do some work somewhere else or something. And I think that’s what happens.
A lot of great stuff with dealing with contractors and getting rehabs done. What do you do to sell the properties? Do you guys sell yourselves or you have a realtor that you use?
Geremy Heath: My wife, Melanie, is a realtor. She operates under her own brokerage which is MCH Realty. And so she’s responsible for listing and selling all of our properties. And I guess what I found is that at the end of the day the MLS is the place to sell your property. I know there’s other marketing that you could do to try and find buyers but when you’re selling to retail bank qualified buyers, the MLS is where the houses get sold.
Danny Johnson: Did you guys do that from the beginning?
Geremy Heath: At the beginning, on that first house actually I had a realtor that we were working with that we had known previously. And probably after about the third or fourth house my wife had got her realtor’s license and started listing our properties. And there were two reasons, one is obviously to save on the commission, because nobody wants to pay a 3% or even a 1% commission, something maybe to get a good deal with a realtor with a 1% listing, but we didn’t really want to give that money up.
The second reason which is more important I think is to cut out the middle man in the negotiations. And so, one thing in the early days that I used to find frustrating was I’d have a realtor that was kind of in between me and the buyer. And so you never knew if what you were asking them to communicate was being communicated. But when it’s your wife you’re kind of pretty close to them so you know what’s going on.
Danny Johnson: Absolutely, and sometimes the communicating, it’s how it’s worded too so you could tell them in a certain way. But then they word it completely different and it can be taken a completely different way. That’s problems that we’ve had in the past too where we’ve said something and it just came across differently.
Especially when you’re kind of negotiating back and forth with the buyer on repairs to do after an inspection where you have to handle that in a certain way and be delicate about it so that you don’t get people mad or changing their minds about buying a house.
Geremy Heath: Yeah, absolutely. That final part of the project is often one of the most frustrating and also the most fragile. I guess what I’ve learned is that people always get stressed out at that stage, and so you kind of have to learn not to get stressed out over the little things.
For example you may have a list of ten amendment repairs that you have to get complete. The buyer goes there. Two aren’t done. And they flip out like it’s the end of the world, but really it’s just a matter of understanding what they’re concerned about and getting out there and fixing it.
And I think always having a service orientated mentality to them that they’re your customers and you want to do whatever you need to do to make them happy, even if it cost you a little bit of extra money at the end you don’t want to sort of fight over the dollars and cents. You want to look at the big picture.
Danny Johnson: I guess that could be the hard thing with a lot of investors. To us it’s sort of our product. And we’re doing a lot of them, so it doesn’t mean the same thing to us. It’s a house but it’s not a home to us. And these people are typically getting 30-year loans so they’re responsible for paying for the house for 30 years. And so making sure that they’re happy after making such a huge commitment is paramount.
How are you finding deals right now? I know there’s a lot of competition in San Antonio and Austin. How are you finding deals right now?
Geremy Heath: I think I’ve always found that at the end of the day you have to be willing to spend some money on marketing. It could be online. It could be letters. It could be newspaper. It could be radio. What I found is that I believe it doesn’t matter so much what the median is but it’s more that you’re doing it. And sometimes a lot of people will overanalyze cost per lead and things like that, and they don’t do anything. You just got to spend money to make money. So that’s kind of the number one rule.
And then the second thing that me and my team are big on is relationships. So connecting with other wholesalers or other sources of… people that may come across houses. And just having that network of people that could bring new deals that may work.
Danny Johnson: That’s a good point because that is a good source of deals for a lot of people. Is there are certain marketing though that you prefer that you like, and you feel like you get better deals from?
Geremy Heath: Personally I’ve found that it’s pretty consistent. I guess what I’ve always found is even when I try something new, I generally get a house out of it. And so the way I kind of look at it is my goal is to spend no more than a thousand a house on marketing. And I know some people might say you can get houses for 500 in marketing.
But for me, if I’m spending a thousand per house, so if I spent 5,000 in a month and I got five deals that would be a good month. And I find that using a variety of marketing channels is a good way to do it because sometimes one channel may not be performing but then another one kind of picks up, and that’s the way that you smooth out the leads that you’re getting.
Danny Johnson: That’s an awesome point to make. Some people don’t realize how much it cost overall on average to bring down a deal. And especially in the beginning because it’s actually higher because you’re not experienced and won’t close as many as you will once you get some experience.
A thousand dollars, that’s a good number. And I think that’s pretty accurate. I think we’ve basically range from anywhere between $500 and $1,000 dollars. Typically n the center of that when I kept a lot better track of it is where we were per deal.
That’s something to kind of shoot for and to know. And I guess when people think, “I’m starting on a shoestring budget. I only have $300. Realize that that’s probably not likely going to be enough, unless you’re spending a lot of time in doing a lot of pavement pounding, getting out there and putting flyers up and Laundromats, and stuff like that. It’s probably not going to bring you much.
Geremy Heath: And probably one of the things when people get started that makes them stop is they do have unrealistic expectations around what they needed to spend. And so they may even spend a thousand and do a letter campaign with a thousand dollars and they may not get a house. And then they give up on that. But the reality is they did a thousand a month every month they would probably consistently be consistently buying a house a month from doing it, if they’re using a good list and things like that.
Danny Johnson: I didn’t even really know that you’re buying in Austin. What’s drawn you to buy in Austin?
Geremy Heath: I guess it’s an interesting story. My sister and brother-in-law, who’s obviously also from Australia, they had visited us probably about two years ago and they took an interest in my business and what was going on. They both had really good corporate jobs back in Australia. And they also just recently had a baby. But they decided to quit their jobs and sell everything, and they moved out here. They’re now working for us in the Austin office.
Just like myself they started from ground zero, a new country, and had to learn about not only real estate but real estate in America which is very different from back in Australia. They came over, I think it’s right around 12 months now, and they really got started in January of this year. Since starting I think they’re up to about 12 deals that they’ve done for us up in Austin. They’ve really come a long way. I think a great example to anyone getting started. If these can quit their jobs and come to a new country with a one-year old and make it happen anyone can.
Danny Johnson: Austin’s pretty competitive with higher priced homes as well. Do you find it’s much different in that market than it is in San Antonio?
Geremy Heath: Yeah, as a rule of thumb I kind of think that the houses are almost double the value of similar houses here. And it’s certainly more competitive. But on the back end when you do get a house and you go to sell it it’s also competitive for people trying to buy your house. Typically we found the houses were selling above what our initial [Unintelligible 00:45:54] were just because the market’s been going up. And so it’s been interesting.
But at the end of the day even though the prices are different the model that we have works in either city. And that’s one of the cool things about real estate, the reality is you could pick any country in America and if you had a skill set in flipping houses you could set-up an operation anywhere that you choose, and I’ve got some friends that have done that. That’s one of the beautiful things of learning the skill set.
Danny Johnson: Do you buy based on a percentage of ARV, after repair value?
Geremy Heath: We stick to the pretty standard formula of between 65%-70% of ARV for the purchase plus repairs. And that’s pretty much what we hold too. We may tick a point or two over the 70% mark on a really clean house that doesn’t need much work. But we stick to those rules.
Danny Johnson: And so you do the same thing Austin, you’re not using a higher percentage for the higher priced properties? You’re still sticking to the 70?
Geremy Heath: Yeah, in Austin we may have gone popped over to 71% to 72% on some of the deals up there. But we wouldn’t go much higher than that. I was going to say, I think one thing that I believe is important, which I’ve coached to my sister and brother-in-law as well is that don’t listen to all the noise of the people that are around you.
If you’re in Austin everyone will say it’s so hard to get a deal. It’s so competitive. In order to get deals in Austin you got to pay 78%. It’s just all noise that’s in your head, and you kind of have to stick to your guns around what parameters work for you and don’t get drawn up in the conversation that’s out there, and just know that with the right focus and the consistent effort you’ll get those deals.
There’s two benefits of that. Number one is you’re going to make more profit on the houses that you do get. And number two is you’re not going to lose on any of these houses. I think the risk for people who start to push those ARV’s up to the 78%-80%. It may be okay on some houses but if you’re doing a lot of them there’ll be a house that they’ll lose money on because they’ve pushed it too hard.
Danny Johnson: What I worry about with that is, and a lot of times they’ll keep doing it because the one that they lost money on they had five that they made money, so they just keep doing it. And where that really becomes a problem is if they’re not careful of what’s happening in the market, if the market does turn and you’re stuck with a bunch of properties that were borderline it sets you up to lose a lot of what you’ve built. I think that ends up being why a lot of investors end up going out of business whenever the market changes.
Geremy Heath: That’s definitely true. And I think that if somebody’s flipping houses for a hobby on the side and they’ve got a full-time job with a W2 coming in, they could push a number and breakeven, or even lose a bit of money on a house and still survive. But if you’re a full-time investor and you have a few houses going at once, and like you said, the market might change, or things didn’t work out on those houses you could suddenly be in a really rough position if you’ve pushed those numbers.
Danny Johnson: Absolutely. You have a book that you’ve enjoyed recently that you think the listeners out there would also enjoy?
Geremy Heath: Probably my favorite book that I’ve read it now maybe seven or eight times, and I know a lot of people are familiar with the Think and Grow Rich Book. This book is actually the one that was written before it. It was written by Napoleon Hill. I think the original version was written in 1925 and it’s called Law of Success.
To me this is one of the best books that I’ve ever come across. It’s why I’ve read it so many times. It talks about the 15 laws for you to follow in order to bring success into your life. If you read Think and Grow Rich you’ll see a lot of the ideas in that book came from this initial book.
But the initial book was really based on I think 25 or 30 years of work that Napoleon Hill had done with successful people of the time. He had kind of grouped 15 main things that was consistent across the group of successful people. It’s a really interesting book, and it has stood the test of time. It’s almost 100 years old and it’s still very relevant today.
Danny Johnson: Awesome. We’ll have a link for that book through as well as part of the show notes so everybody could find that, and then also information about what we’ve talked about here on the show. Is there any way for the listeners out there to find you? Do you have a website or anything you want to share?
Geremy Heath: The best way to get a hold of me would be to go to our company website which is texasallcash.com. I know because of my Australian accent people have thought I’m saying Texas Oil Cash. But it’s not oil cash, although I did buy that domain because people were going there and it redirects you, but it is texasallcash.com.
Danny Johnson: Great. We’ll include links and things like I said on the show notes. And for this episode you can find the show notes at flippingjunkie.com/podcast/geremyheath. That’s correct, right?
Geremy Heath: Yeah, that’s correct. And also my email address, if anyone wants to shoot me an email is my name Geremy@texasallcash.com.
Danny Johnson: Thanks a lot Geremy for being on the show. I know I got a lot out of it and I’m sure the listeners did as well. I really appreciate you taking the time to share with us.
Geremy Heath: No worries. Thanks for having me.
Danny Johnson: Alright, have a great day. Thank you so much for listening to the Flipping Junkie Podcast. I’ve got a lot of awesome interviews with some amazing guests lined up and I can’t wait for you to hear them. So be sure to subscribe to the podcast right now and visit the blog at flippingjunkie.com for more awesome house flipping education.
Alright, it’s time to get out there and flip some houses. I’ll see you next time.