Episode 60: [Deal Analysis] Analyzing Deals Like a Pro with Bill Allen

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Show Notes

Bill Allen has been flipping for over 3 years now and has done an incredible amount of growing in that short amount of time. He’s a full-time flight instructor for the Navy and has managed to grow a house flipping business from himself to a team running like a well-oiled machine.

I highly respect Bill and how he thinks. He’s the type of guy that loves to think through all types of situations and coming up with solutions. I think we’re wired the same.

In this episode, Bill shares with us how he got started. We then go into how he analyzes deals. His method of analysis is very similar to mine.

He uses the 70% rule of deal analysis for a quick idea of whether a deal is feasible or not and then goes into more detail.

A very important thing he mentioned was that the 70% rule works well for houses in the over $100k to about $180k range but not so much for anything outside of that. I tend to agree.

His quick method for repair cost estimation is to use $20 per sqft of the house and then add costs for major items on top of that. Now, if a house needs major repair, this number will be low. This is more for typical updating, not relocating walls and re-sheetrocking, etc.

Bill became a father again recently. His son, James was born with a heart defect. Though he’s been through a lot, James is doing well.

You can read the story here on Bill’s blog: http://blackjackre.com/james/

Bill is an awesome father and person as he decided to set up donation page for the Children’s Heart Foundation and has pledged to match all donations.

This is incredible and I highly encourage everyone to make a donation. There’s nothing more important than our kids and I can’t think of a better cause.

Please pledge a donation here: Bill’s Children’s Heart Foundation Donation Page: http://www.childrensheartfoundation.org/donate-now

Please be sure to leave a mention of your donation on Bill’s Facebook page so that he can match your donation: http://facebook.com/blackjackestate


Bill’s We Buy Houses In Pensacola Website
Bill’s Pensacola Wholesale Deals Website

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Episode Transcription

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 interview, strategies, stories and motivations 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.

Danny Johnson: Hey Bill, thanks for being on the show.

Bill Allen: Yeah Danny, thanks for having me.

Danny Johnson: Yeah. Today I’ve got Bill Allen. This is Bill, he’s on. This is the first time I think I’ve have done the video from the start, so it’s kind of awkward. I’m not sure what the how to how to approach the whole intro here, so it’ll be interesting. But being that I didn’t do a beginning thing about your background, how about you share with people how you got started, what you do, all that kind of good stuff.

Bill Allen: Okay. I have a full time job as a Navy pilot. So I’ve been in the Navy for about 14 years. I’m just getting ready to transition out the military and go part time as a reservist here in April. I’ve been flying helicopters and airplanes for the last 14 years. But I got into real estate a few years ago. I moved from town to town with the Navy, so I’ve been buying houses and renting them around, so I was a landlord since about 2006. And then probably three years ago, I I started running out of money for rentals, so I started to get interested in flipping houses. I found some money, flipped a couple of houses and then just kind of fell in love with that. So I’ve been creating a business this year to help me transition out of the military – last year actually I should say, 2016 I started this business kind of full time flipping, wholesaling, and I still have a bunch of ___ myself. I kind of fell in love with real estate, a great way to build wealth, so I just continued down that path and I really enjoyed it. So get out of the Navy, fly part time and do this the rest of the time.

Danny Johnson: Yeah and Bill is a little bit too humble. He’s really kicking butt and he’s doing a lot and growing really quick and I think he’s kind of crazy for wanting to get out of flying, when he gets to fly and all that, and that’s part of my selfish thing is getting him on here is trying to talk him into flying down here and allow a mee to go up in the air with him.

Bill Allen: Well, going in the reserves, I still get to fly when I want to, so I still get keep flying. I just won’t have to do a lot of the – well, my next job is going to be a desk job, so I said, “Well, the only way that I can keep flying is to actually get out and do it part time and go in reserves and keep flying for as long as I can. I love to fly so if I can keep that part of the job, I’ll do it.

Danny Johnson: Sounds awesome. What’s your favorite thing to fly in the past or future or at present?

Bill Allen: Well, I got a chance to fly a T38. So a twin engine jet trainer and that was pretty awesome, although it was less than hour of flight time, but we ___ sound on that flight got to a bunch of acrobatics. But there little turbo props, single engines that we fly, the T34 and now the T6. I really enjoy flying those too. I was test pilot ___ so when I was at school in England, I got to fly a lot of different helicopters and airplanes and I really enjoyed flying the Apache and Chinook so probably two of my favorites there. I did get to fly a bunch of different things and I never had a problem. I’ll fly anything ___ and I’ll have fun.

Danny Johnson: That’s awesome. Alright. I wanted to talk with you today about analyzing deals. So we’ve gone through this whole series of mindset, marketing, funding and all that kind of stuff, and now we’re at the point where people are getting calls, getting some leads and they need to figure out how to analyze these deals so that they know what they can offer for them to make out and I know that depends on exit strategy and stuff like that. But just to give this some sort of direction, maybe we can start with how you analyze deals. When you get calls, what do you do to figure out whether you can make an offer on them and what kind of offer you can make.

Bill Allen: Sure. I can give you a couple different answers. We can talk about how I used to do it like when it was just me I was a one-man show, so probably a lot of your listeners are doing that and then maybe how we do it now from a business that we’ve grown that has a wholesale side and a flipping side. So when I was just starting out, I didn’t even know that I could do all this marketing and things like that. I was looking on MLS and analyzing deals and even when I was doing some of my own marketing, same thing, but I know a lot of people probably use the 70% rule minus repairs. So that’s kind of where I started running those numbers, But then I would dig in a little bit more on the numbers. But if it was close to that rule, then I would look at it a little deeper. So it was way off and I knew that they weren’t moving in price, then I would move on to the next deal. So my recommendation is to have some sort of ___ envelope math that you do just to kind of see if it’s worth spending more time on. And then if it is, then now that’s what I’ll dig in a little bit more and kind of break out the costs. You have to repair costs based on scope, so as I walk through I can kind of see, I could do this and it will add that much value or I could do this and it will add this much value.

Danny Johnson: When do you things though? If you get a call from somebody or even if you’re looking on the MLS, when do you determine when to do the comps and figure out what the ARV, the after repaired value is, and how much do you determined before you go out and look at a property?

Bill Allen: Well, I would say, what they say on the phone is going to be different than what they say in person. So you probably are talking about the marketing and how to talk to people, but I would say if I feel that they’re motivated and their numbers don’t work for me, I’m still going to go out to the property and view them. Especially when you’re just getting started, you just meet with as many people as you can. You’re just going to build the experience, you’re going to see houses, you’re going to get an idea of repair cost, you’re going to see motivated and non-motivated sellers. If there’s any motivation the numbers look like they’re pretty good, I always do my research before I go out and talk to the people, ___ comps and look and see what I think the repair value is going to be and you’re going to have to come up that after repair value, even those basic analysis tools or 70% minus repairs. So did an idea of the repairs based on square footage before I go out there and then I do have ARV and see kind of where I need to be. I would say go on ___. Initially when I was getting started, I have a full time job so I couldn’t go on a lot of appointments, so I was just screening out the non-motivated or people that were asking close to retail and I probably lost a lot of deals because of that. So when I started hiring people to do that job for me to go out in the appointments, I was able to probably get a lot more deals because of it. If you had the time and you could make the time, go on to appointments even if there is just ___ motivation.

Danny Johnson: I agree completely. I try to tell my guys always that it’s never about what they ask for and whether they seem motivated or not, it’s about what they owe and whether that equity is there to build, make a deal or there is a situation for a short sale. But I don’t remember the last time I even tried to do a short sale.

Bill Allen: Well, I’ve got some people who even bring money to the table. They were so motivated to get rid of the house. Sometimes it’s hard to get out what they owe on the house and sometimes it comes up on the title search, there’s a lot of things that we’ve seen. But I would say just go out there and go on to the appointment as many as you can.

Danny Johnson: And new people, sometimes it’s even easier when you know there’s no possibility of a deal. I mean, you don’t want to waste a bunch of people’s time. If they’re pretty limited on time and they’re in a hurry don’t do that. But if you know there’s no possibility of dealing and you’re really nervous as heck about, and that’s usually what creates the anxiety. It’s like going to the house when you knew and wondering if this is a deal when you’re going to lose it because you don’t know what to do. But if you go then you’re like this is very slim to none chance of this being a deal, so I can just go there and fumble through and it doesn’t matter.

Bill Allen: Okay, I’ll tell them a really quick story. The second house that I flipped when I first moved down to ___ Pensacola, we did one in Maryland and then this frist one in Florida. I was getting so frustrated. I was marketing, I was doing everything. I couldn’t find a deal. There was nothing on the MLS. I was so frustrated I almost quit at that time and as I was driving home from work I saw a sign that said “estate sale” and I did listen into a podcast, I was still kind of learning, and I said, “Oh, people buy houses at estate sales all the time.” And so I went to this estate sale, I was in flight suit, I was walking around the house and I was there because I wanted to talk to them about their house. I wasn’t buying their old furniture. So the widow was there and so was the son, and I just talked to them. ___ and said, “Hey, this is what I do. If you guys have any interest.” I left my business card, they called a couple of days later, I ended up being able to walk through the deal, finding a number that work for both of us. We made great money on that house. You never know when you’re going to come across a property, but don’t be scared just to kind of go in there and tell them what you do even if you don’t know what you’re talking about because that’s pretty much where I was. I had done one ___ MLS, never bought one off the MLS, didn’t know what kind of contract ___ so you never when you’re going to find something.

Danny Johnson: How long did it take you from when you got interested and decided you’re going to do this to get the first deal that you got?

Bill Allen: Well, not long. I said I’m going to do this. I need some money and I started making some offers. At that time, I didn’t know anything about marketing. I was using a real estate agent and buying off the MLS for foreclosure. That was only three years ago that we got our first deal. That one worked out so I tried to look for more on the MLS and then I realized I got to find a better way to buy houses.

Danny Johnson: Yeah. So who would you say all of your deals now are off market or do you still by some listed properties?

Bill Allen: No. I haven’t bought a house off MLS in about a year and half. It’s not that I won’t do it. I just spend more time on direct mail and online advertising and marketing. I think that I may still be able to get deals on the MLS, but we lost money in the last MLS house that we’ve tried to flip so it’s a little bit too competitive for me and I think it’s a time waster.

Danny Johnson: Yeah. I think I quit after several days in a row of spending eight or nine hours going to look at 15 properties and calling in and making the offer right after looking at it and having all the realtors tell me this one’s either gone or it’s multiple offer and it’s just a pain in the butt. I know you can still get some of those. But I just wasn’t— I’m not interested in competing with everybody for the same stuff.

Bill Allen: Yeah, I agree. There are people in my market at Pensacola Florida that are buying off MLS and doing pretty well. You know what, I take that back. We have one going on right now that I’m JVing on that came off the MLS, someone brought it to me though. I didn’t find it.

Danny Johnson: Yes, so they did the work in finding it. So back to the analysis of the deal, so you’ll figure out whether there’s potential you do as much as you can to determine where you’re going to need to be on it, then you go to the house and walk through and determine the level of repairs based on what? You can do different things for different properties. But what you’re—

Bill Allen: Yeah. I think the biggest thing point to me is look for the big expenses. The little stuff you can kind of put in a box typically. But the big things have gotten me in the past – so HVAC units, plumbing, roof, electrical panels that you don’t know are copper versus aluminum, things like that. Now you don’t have to be a full home inspector but as you get more experience, I think walking through a property and seeing kind of low level of what is going on and what needs to be done is important. Typically, if I’m looking at a house, I typically say it’s about $20 is what I use before I go into the house and that’s kind of based on the level of repairs without major expenses. So any of these units, I’ll typically tack that on the top and then we’ll go to the property and see what can be reused and what can’t and also when I’m looking at those kinds of things, I’m also looking at the variables in the neighborhood to make sure that I’m not over renovating the property. You really have to look at your competition and what sold and a lot of times we’ll buy stuff and just put it right back up on the MLS almost as is or just fix a few things because the biggest thing for me is if I put a dollar in it, I need to get more than a dollar out. A lot of times, I see people put a dollar in and get 0.75 cents out.

Danny Johnson: Yeah. You go in and do too much. I think that is something for newer people that typically do is want to make it nice enough to live in themselves or they’re used to a certain level of house and feel like anything else is nobody wound want it. But it’s really more about what other houses people are looking at in that neighborhood when they’re looking for a house to buy. That’s what you’re being compared against, so if yours stands out that’s all that matters.

Bill Allen: Yeah. If you could make your house a little bit better than all the other houses in the neighborhood and price it the same or a little bit less, that’s always our goal because you want to move these properties. You don’t want to sit on it too long. That will eat it you up. Over renovating is something that I probably did when I was getting started. It’s easy to do when you watch TV and you see all these things that you want to do and you just realize also you’re probably putting a lot of your sweat equity and time into it too. The other thing that got in the beginning was when I was analyzing these properties and getting a deal, I would get the deal, I would buy it, and start renovating it and I stop doing all the other things. And so once that house is done, I was working on house I was managing the project, I was doing more things to try to save money. So when you run your numbers and you’re trying to save money, if you don’t spend your time marketing and looking for other deals, it’ll be three or four months before you get another one just like that. Run the numbers, pay the money to hire someone to do the work, and you focus on finding properties. That’s where the money is.

Danny Johnson: Yeah. So being that repair costs estimation is one of the biggest parts of deal analysis, probably one of the most important ones other than – well, any part of it really is because you lose money. But how did you— did you know much about construction or anything like that? How did you learn?

Bill Allen: I’m not a construction guy, I’m not a general contractor but I had renovated a bunch of my own houses in the past. I would watch YouTube and do a bathroom by myself, so I knew what it cost for materials. Now, labor was always the question mark when I went to a new market because I was moving around so much that labor really change a lot. But as far as materials go and quality of work and what I expect and I have a walkthrough and make it still work and kind of have a rough estimate of how much it would cost. I was fortunate that I had walked through Home Depot and Lowe’s enough to know that this is what I ___ cost and this is what a tile costs. And so if you haven’t done that stuff, one way to do it is just have a walkthrough or try to get a price list from some of these websites that offer them. I think you do get a rough estimation of what the prices are so when you walk through this property, people that don’t know anything just make a check mark and say “this needs to be replaced, this needs to be replaced.” Before I flipped that first house, I read the book from Bigger Pockets that Chase Scott did and really I followed his spreadsheet on his book and I think that helped me a lot. I think it’s called the book on flipping houses and then there was an add-on to that, it’s like add estimate repair cost and that helped me a lot. There were like 20 chapters in there on different—like roofs, plumbing, electrical and how much you should pay for it. It’s a little bit dated and the prices are higher now, but that really really helped me. I use that as a flipper. I really do.

Danny Johnson: Yeah. Melissa accuse me of I think it was just last night even using dated pricing. She’s doing a lot more of the flipping management stuff and we were going over some repair cost because one of the contractors ended up having a problem and couldn’t finish it so we’ve got one of our other guys going to finish up and so we’re trying to figure out okay where was that guy. These guys want a lot more than what we owe the other guy and so we’re trying to figure all that stuff out and I out some numbers for some of those repairs and she’s like, “Are you kidding me?” I had a contractor before actually say something about 1965 prices. But there’s a big difference in contractors. Some contractors can do it quicker and more efficiently in a lower price is perfectly fine because they have such a machine and they’ve got it down to a nice science to get it down to where they can profit.

Bill Allen: The others level of oversight that you’re going to have for each person. You could start everything out yourself and pay a little bit less or you can have a guy that you hand the key to and ___ it’s done. You might absolutely take one wall and a little bunch of lists, but overall ___. That’s where I’ve moved to now is really getting myself out of the management of subcontractors and getting people in like that, but realize you’re going to pay more when you do that, so you got to find a better deal.

Danny Johnson: And we’ve got a basic repair cost estimate worksheet, that’s just like a one page simple thing, but you can get a general idea and I’ll put that on the show notes page at flippingjunkie.com/60, you can download that. But one thing that I was thinking of just now though when you were talking about that was the fact that there’s different levels in different parts of the country different cities, it’s just it’s going to be different. There’s going to be slight price differences in probably one of the best things to do even if you have to pay for it is find somebody that’s doing a lot of rehabs and then even offer to pay them. It would probably worth at least $500 bucks to be able to walk through a property with them and have them tell you what they pay for everything. Even if the house that you walk doesn’t need everything just go through as if it did and write down everything, labor materials for every single thing that would need to be replaced and then you know what you should be paying for it and then whenever you go out and hire a contractor you can figure out what the number should be.

Bill Allen: Yeah I like that. My general contractor does a lot of projects for us and I put him on a monthly citement to just look at houses for us. So I mean I pay him to do our projects but I also realize his time is valuable too. So I pay him every month like clockwork, he gets a direct deposit and he’s on the hook to go look at properties for me if I’m not sure they’re validated. Maybe it’s a maybe on a wholesale deal or a flip, he’ll go look at it and give me an estimated budget real quick. The other thing, we just moved from Pensacola national and I’m doing some work in my house. So if your house is a little bit dated, why don’t you call up a couple of general contractors and have them come over to your place and say, “How much would it be to do this bathroom?” Get some quotes like you’re doing some work and shop around. If you don’t have a deal and you want to get some pricing, then you’re wasting some people’s time, but who knows maybe you can find a general contractor that you could use on all these other projects. I also leverage that a lot of times. This might be your first time negotiating on price, but how would the price be if I brought you 12 more of these houses this year. I’m not promising that I’ll do it but this is what I want to do.

Danny Johnson: That’s a great point. You’ve got to let them know that you’re not just a one job sort of deal, you’re going to be bringing in more properties. That almost always will give you a better price. It’s even better if you’ve got two or three to prove that you really do have lots of property. As you scale up, it becomes easier.

Bill Allen: Yeah sure.

Danny Johnson: Alright so for the analysis, so you were talking about simple use of the 70% rule where 70% of ARV minus repairs and you figure out repairs. Are there any other situations where you don’t use that rule and you just go off with something else?

Bill Allen: Yeah. Well, I talked about the 70% rule and I would say go with that if you’re new and if you’ve never done it and getting started. But be careful because a lot of times in that 30% that you’re coming off is all your holding cost, all your expenses and all your profit. I’ll back up a little bit because if I got a $100,000 and I use the 70% rule, I got a holding cost and profit in there, I’m cutting my profit so small. If I do $600,000 house and I use the 70%, now I got 30%, it’s huge profit and a huge holding cost. So realize that 70% rule is probably built for some median home price in the $150-$250-$300 range and if you’re below that or above that, I never use that rule. That’s when I really start digging to focus on my numbers. I think a lot of you in the luxury market for—you’re flipping $80-$90,000 houses maybe don’t use that at all and really just look at the profit that you need to have. The holding cost will be less, but you still want a decent profit if you’re going to take the risk of buying that house because if your repair budget is $10,000 and your profit is only $15,000, you’ll make $5,000 but if anything else happens you’ll probably lose money. Also on rental properties, if I’m buying rental properties, I’m not doing that but this is a flipping show and everybody wants to flip houses.

Danny Johnson: Well, they also want to know what do you do with a property that’s below median value or even in a price range or location where nobody’s getting new loans and you want to do something with those deals, how do you analyze—it might be a very subjective thing and if it is just how do you ___ to make that decision.

Bill Allen: Once you do more than one or two or so as you start getting some experience and you start seeing like we have a guy in our mastermind group that I sat down with and he had done three or four houses and his holding cost is outrageous. So we sat down and we looked to see— look at your numbers and create some data and then see what rule that you have in your market. So when I sat in my market, I said, “Okay, if I use the 70% rule on these repairs I’m not going to get any deals because everybody’s going to overpay, pay more than me. I shouldn’t say overpay but they’ll pay more than me because they’re running their numbers higher and so what I did was I sat down and said, “What are my holding costs, what expenses do I need and I can create my own calculation of my ___ envelope number now to what’s better because I have actual data to back that up with 10, 15, 20 houses. In his case, if he was using the 70% rule, he would never buy a house, so we were able to look at his numbers and dig in. I think he was at 78 or 80% minus repairs because his resale price is so high. He was making offers that were way too low and all investors were paying more because, I mean, he’s got $150,000 or $200,000 profit built in there based on the 70%. So now what I do is I know that it costs me about 8% to sell a house, so that’s realtor fees, holding costs, everything else. So I take my 8% percent off and that’s based on about six months hold time, I take my 8% off and I subtract my profit and I subtract my repairs and that’s when I get my offer price of where I need to be about and I want to make about 15% on the cash that we have invested in a house or more. So if I can get that number then it works, so I’m $100,000 invested, I want to at least make $15,000 to $20,000 on the house. Now a lot of people will say, “Well, I don’t want to ever make less than $30,000 or $35,000 and do we have kind of a bottom line where about $25,000 is the happy place at a minimum. We might take a a little tighter margin if, let’s say, if it’s a guarantee –we don’t have to do a lot of work, there’s not a lot of questions marks that are going to come in and I’ll take a little bit at our margin because that. So I think when you have more numbers you can actually be more specific and tighten up your ship a little bit.

Danny Johnson: Yeah and I think it’s important to point out when you were seeing that that 15% on a deal, you say $100,000 be $15,000 and the way you’re looking at that is typically what four to six months time of buying and being done with the deal right. So annualize that’s what 30%.

Bill Allen: Yeah. A lot of times I’m also factoring end months costs, so a lot of times that’s not my money. My return is a lot higher than that on my money. So let’s say I only have $10,000 to $15,000 of the deal, that’s a 200% return. I would just be careful on the smaller deals just because if anything happens $10,000 and now you’re making $5,000 and that can easily be gone with some ___ they want some concessions or something. Depending on your market, you know what people are paying. I’m not in the market where we have five offers on a house the first day it comes no the market.

Danny Johnson: And here we’ve got so many problems with foundations and a lot times we’ll budget for foundation and lately, I don’t know what’s happened, but lately I mean we’ve even made it to where we’ve changed it to where if it needs foundation work, we’re wholesaling. We’re not even touching it. We’re not going to rehab it. And what was happening is we’d level them and then doing the static test to make all the plumbing lines are still connected and not leaking. There were disconnects everywhere in breaks everywhere. And that’s very expensive when they’ve got a tunnel and all this other stuff to fix, all this plumbing underneath the house and you can easily spend $5,000, $6,000 or $7,000 more than you thought you would. And so that’s where that goes and you’re saying like if there is not much profit built in, and you’re cutting it close and something comes up, you could find yourself in a hole pretty quick.

Bill Allen: Yeah. We got the same thing with roofs, HVAC units and stuff like that and our plumbing is all in concrete on slabs, so if I got a plumbing problem, you’re talking thousands of dollars of fixing. You might not even know it until you buy house the house. One thing we didn’t talk about was home inspection. So if you are having somebody come through and you’re making an offer on a house and estimating repairs. I have partnered up with home inspectors in different markets that were just trying to give me a list of what needs to be done, the big tickets items, so if you don’t know a lot about construction just ___ in there see if you can find any guy that will do it for like $150. He doesn’t have to write a report and he doesn’t have to take pictures and doesn’t have to do any of that stuff. So I’ve been able to partner up with guys that they’re willing to take a lot less because it doesn’t take them time. They walk through it with me. No pictures, no report, no nothing, just point out the things that need to be done, but they’ve taken items and that saved our butt a lot in the past.

Danny Johnson: No, it’s alright. So do you ever climb up in the attics and crawl underneath houses or anything.

Bill Allen: I have, I have done that yeah. I don’t do it anymore but I was— I’ll tell you I like it doing it ___ in the summer in Florida, but I would do it when I first was looking at houses but that’s just because it’s my personality. I would not recommend that you guys do that if you don’t know what you’re doing because I went through a house by myself and I had an inspector go through on that house that I bought through the estate sale. There was a missing – joist up in the ceiling that needed to replaced that weren’t done properly. He found—

Danny Johnson: That’s not typical though.

Bill Allen: No it’s not, but I think what happened was I think a tree fell on the house during one of the hurricanes and they fixed it but they just didn’t fix it right. It wasn’t done properly. So I mean, that was actually a thousand bucks that he found for me that I probably wouldn’t have fixed and they have come up with a home inspection and had we not fixed it when the ceiling was open and there was no drywall up there, I would have to rip out everything in a brand new house and try to put in a new ceiling joist. But yeah, I think, I’m the kind of guy—I want to do it and then I’ll ask somebody else to do it, so I have a little bit of a problem with that.

Danny Johnson: I didn’t have too much of a problem with that. I’m not handy at all. I’m not handy. We fixed up a 100 year old house that we bought as an investment. Well, we were going to live in it too and we didn’t. It’s close to downtown and it took about a year and I didn’t do any of the work. The only thing I did on that house was I sanded the floor in the pantry which was only like 4 x 4, 4 ft x 4 ft and that took me like two weeks and 20 trips to Home Depot. It’s just ridiculous, so it was very easy for me to avoid doing all that kind of stuff because I’m not good at it.

Bill Allen: If I still do that stuff, it still takes 20 trips to Home Depot. I went to Lowe’s the other day for my personal house like six times getting the wrong item.

Danny Johnson: It drives you crazy.

Bill Allen: It did. But yeah, find contractors if you can right away. So back to analysis. Let’s get into some mistakes that people make and I think we’ve talked about a lot of ways that people can avoid mistakes. But do you have anything in mind as far as mistakes that you’ve made or you’ve seen other people make?

Bill Allen: Yeah. We started talking about over renovation, so I’ve done that in the past. Trying to make the numbers work when they don’t, that’s one of the biggest things for me. When I just getting started I kind of say, “Well maybe I could sell it for this. If we did this maybe I can increase the after repair value by $20,000.” And it didn’t work. We tried it and that’s one of the biggest things. Also, holding costs – not properly estimating the holding cost and how long you’re actually going to keep this property. You think it might be finished in a month and it takes the contractor three months and then it sits on the market for a few more.

Danny Johnson: You’ve got to know because I’ve been shocked several times. If you don’t know what your holding costs are per month , even down to the per day maybe, you’re going to freak out sometimes if something’s going overrun and before you know it you’ve had a property for eight or nine months and you calculate your interest and all this other holding cost and you’re blown away by what that adds up to. It can be a shocking thing. So having that in mind knowing that every month this thing is going to cost $2,5000, you’ve got to make sure that you’re not having time just sit there and wasting time.

Bill Allen: You brought up interest and I know you’ve talked about finding money and sometimes that’s the biggest thing you have. But a lot other times you are overlooking things like when I have a house with a pool, my water bill is typically like $150-$200 and my electrical in the summer is really high. I had reached $100 electrical a month and people just forget that stuff. I got to mow the grass in the summer, so I got a guy out there every week to mow the grass. So there’s things that drop and those little things just start adding up and it will just eat into your profit especially if you have a really low profit margin and you calculated the numbers really tight on the house. I think also sitting on the market and price drops and seller’s concessions—so in our area, it’s very typical that people ask for closing cost. We have a lot of DA borrowers and they don’t want to come out of pocket a single thing, so I end up paying $3,000 – $4,000 – $5,000 on their seller’s concession for closing cost. All of those things add up and just eat up your profit margin.

Danny Johnson: Right. And one thing that has come up recently a couple of times here with our acquisitions people in determining ARV, they were doing analysis to determine what to offer. But when there’s not that many comps where you have trouble comping a property just not too many or the only ones are kind of old, always err on being conservative like, on the side of conservative. Don’t ever take whatever limited amount if you only got one comp and you’re saying, “I got to base the ARV on this one comp,” you’re going to have to be more conservative and be really conservative on the repairs and then also like— you just got to build in a little bit more cushion because you’re not exactly sure as you would be with a house that’s got a ton of comps.

Bill Allen: Yeah. I agree with that. I also think that you get sucked in a third opinion too. If you have the contract and— I have a network of people locally that they ask me of what I think. ___ in MLS and just see what you think about this house. They know I’m not going to steal their deal or anything like that. You’ll be surprised what— if you sought five different people, you’re probably going to get five different valuations. Now if you call your favorite two realtors, they might say, “I’m going to give this guy a really high valuation because I want to get this listing from them.” And he doesn’t care if they drop the price five times, but as far as ARV goes, one of the best ways that I do is just talk to your network, with one person, and try ___ the business with you. maybe some guys at REIA that you trust that aren’t going around the back and try to take the deal or anything and just asking what they think about it. Let the numbers ___ especially if you’re just getting started. That helps ___ day long in my market if they had a deal and they need a second opinion. ___.

Danny Johnson: Yeah, that’s a good point. I think when we were starting out and we were sort of like lone wolves for so long. It was always competition and not wanting other people to know things. I think it was the wrong way. If we were to redo things, I think we would be more networking, more talking with people. Stop worrying about losing deals and that kind of stuff because the friendships and the things that you learn from other people and the help that you get from other people is priceless.

Bill Allen: Yeah. If you go to some of these REIA meetings and you see a circle of people they’re all talking and they’re doing deals and making it happen. I guarantee those five or six people that are standing in that circle have either done deals together, are lending money to each other, or working together and finding a way to make it work. I mean, I just wrote a note this morning for some guys that I’m working with that are friends of mine that are flipping houses ___. Seriously, the mindset is horrible. It’s not competition, it’s collaboration ___, so if you’re out there meeting people, that’s the best way to go. Don’t be in your little hole by yourself. That’s not the way. That’s another good way to get in trouble.

Danny Johnson: So with that wholesaling, so you’re doing more wholesaling as you’re scaling up.

Bill Allen: So we’re marketing so much that so many deals come to us that we’re not interested in or we just have too much going on, so just saying the exit strategy has given me the ability to wholesale some property to sell to people. Probably about 75% of what we do is wholesaling now.

Danny Johnson: That’s where we’re looking at being this year too if things work out that way and more of our focus. My question has always been the bigger you build your buyers list the better buyers that you have on your list, the more typical you get some properties. Does it change the way you look at what you can offer for properties?

Bill Allen: Yeah, it does. When we talk about how you run your numbers now, I kind of buy off my list now. If the deal comes through, we put it under contract. We try to get them get it as low as we can get it for. It still has to be a good deal and I give my acquisitions people full reign to go out and run the numbers and if you think it’s hype, then talk to me about it. If you think it’s good, sign the contract and let’s see what happens.

Danny Johnson: How are you determining whether it’s good just based on the same way as if you were to keep the property and fix it up and sell it or—

Bill Allen: Well, what I find that when you are wholesaling deals, you have so much different stuff that comes across your desk. You have cheap rental properties, you have renovations, you have rental properties, you have some luxury stuff that comes across on the beach or on the water. That’s what I call a really weird market, you have a few thousand dollar houses and you’ve got a couple million dollar house. So I think if you know your list and you know what people are looking for and you know your buyers and you’re networking and talking to them and if I know who’s active and who wants what, you start to get an idea of what will move and ___ you get more experience. What I found was if it was a deal for me, I was being so conservative that if it was a deal for me and all these other people were buying off MLS and paying more than me then there is margin in there for me to sell it to them and there’ll still be money for them to make. I price is everything. So if you can get the deal low enough, then you could do something with it. Whether it’s keep it or can’t find the money and you want to wholesale it. But yeah, analyzing the deals, it does change a lot. If I’m going to keep it as a flip, it still needs to meet my criteria. If we’re going to sell it as a wholesale deal, it has to be better because my numbers have changed over time where my margins are a little bit tighter and maybe I’m paying a little bit more than I used to than a year to two ago. Send it out to your list and see if somebody wants it. Maybe somebody’s going to do all the hard work or maybe somebody is going to see something else. Maybe they’re going subdivide the land in half and sell a lot for $10,000 and fix the house and renovate it. If find people are sometimes more creative or they have cheaper labor or they are a one-man show, they’re only doing two houses a year and they’re going to do all the work themselves. The number work for them, so don’t be afraid to see if anybody’s interested in it.

Danny Johnson: Do ever do that before you put the property in a contract?

Bill Allen: No we don’t. Sometimes if there’s one that I’m just really not sure of and they push it to me and they say, “Hey check this out” and I know one or two guys that might be interested just to give kind of ___ that it’s good enough and I’ll give them a thumbs up, but it’s very rare that we do that just because we run a business, we want to make money. I’d rather have 900 people on my list than one or two guys. I want to send everything out and try to maximize our profit for everybody that works for me.

Danny Johnson: Yeah. Now that’s a good way to do it. Any other mistakes that you can come up with for analysis of properties? I think maybe we should touch on a little bit more from when people— it’s not even new people, it’s experienced people do this when they don’t have many deals come in like they’ve got a dry spell for a month or two and the numbers start to look a little bit different, calculations start to get adjusted because you’re feeling pinched.

Bill Allen: Yeah, I’ve done that a bit. I think it goes both ways. I think you have a lot of people that are just so conservative, so when you’re conservative on your ARV and you’re conservative on your repair cost and you’re conservative on holding cost, your offer is just way too low. So at some point you have to say, “Let’s get serious. If I want to be conservative on one of those three numbers maybe that’s fine.” But as you just start, if you throw $5,000 extra dollar, maybe you drop your ARV ___ you’re not sure and then you increase your holding cost by $5,000 because you think you’re going to hold it for a year and then you change your repair costs, just unsure of what happens if I pull up the drywall, you just get so conservative that you never find anything. And that’s kind of where I was probably two years and why I wasn’t finding deals because I was just so scared to lose money. But the bottom line is, if that profit disappears and I did a house, I got experience, I didn’t lose money, I didn’t make money, but I got the experience, I saw what I was doing right and wrong, and you learn that way. So I see a lot of people who are a little bit scared to just jump in and kind of do it, and then also with your being, like you said, if you haven’t had a deal for a long time, you’re just like, “I just need something” something in the pipeline and you start making offers without your head. I think they can go both ways. So you’re never going to be perfect. I think the biggest take away from running numbers is what I can tell you now, two years ago, three years ago, I was sitting at my desk putting everything in the spreadsheet, running the numbers, getting the exact cost and now that I have more experience and you build that experience, you see what’s a good deal and what’s not a good deal, you can kind of get an idea of “Okay, this is going to be good. Let’s give it a shot. Let’s see how we do. I don’t run the numbers as tight as I used to, but you just had to know. If that margin is good or I saw house in that neighborhood last year or— I didn’t think we talk about the running comps that are really old. I think that’s a big mistake too.. So people that are using Zillow and Trulia and Realtor.com and can’t see—not looking at— you have a household down the street but it was two years ago or a year and a half now. Appraisers are not going to use that and neither is the real estate or anybody else. So at least in my market, street by street is a little bit different so you kind have to know and get the take of a realtor that ___ if you don’t have your license or find a way to get on the MLS or the comps.

Danny Johnson: Are Florida and Tennessee non-disclosure states?

Bill Allen: No. Tennessee, I don’t think so, but it’s not like Texas. Everything is photographed here, but this stuff gets outdated pretty quick and I also see a lot of people using these estimates and stuff like that, even flippers that and guys starting out, just be really really careful with that because when I put a house on the market, if there are estimates that was $200 and I put it on the market of $400, ___ estimate goes to $390 or $395 the next day, so it is really really ___.

Danny Johnson: You got to be careful because even with MLS listings, if you’re not careful, you don’t what you’re doing, you’re looking at comps, it’ll say it’s sold for 170. But in our system, you scroll down the bottom, you look that the seller gave closing cost assistance of $10,000. So really what they sold it for was $160.

Bill Allen: Exactly. We did the same thing and you don’t see that on Zillow or Trulia or any of that stuff. I know this isn’t about running comps, but if I have stuff in the neighborhood, I stay in that neighborhood, like, what does that neighborhood sell and a lot of times I see people that are trying to be appraisers and running comps from within a half mile or one mile of the property and just don’t know the area well enough. They’re in the wrong neighborhood pulling something that is not even close.

Danny Johnson: Yeah. A couple hundred square feet within plus or minus of the subject property, age, pretty similar because some neighborhoods will have newer properties. You get one that’s like 30 years old and you’re trying to compare it to something that was built five years ago, people going to pay more for the five year old property.

Bill Allen: The same with land. I don’t know if you guys have a lot of land there, but I did one with four acres and I comped it as if it was a house. I probably ___ $30,000 or $40,000 worth for this house. We sold it too low. It moved and we had a couple offer in a day, that’s when I realized I probably did it wrong. I looked at acre comps in that same area and I probably could’ve gotten another $30,000 or $40,000 for the house. It was a good problem to have because we made plenty of money on it, but some of things, sizes of lots, square footage, type of construction, all that stuff is important.

Danny Johnson: It’s tricky. Sometimes it’s just I guess. It’s a subjective guess is what it all boils down to. You never know.

Bill Allen: It is. An educated guess, but the biggest thing is if you just sit here and analyze hundreds of properties and never actually make offers or go out there and do it, then you’re never going to make any money. You’ll never lose money, but you’re never going to make any money either. It’s just a waste of time.

Danny Johnson: Yes. Calculated risk.

Bill Allen: If you get one thing out of this, I say don’t be afraid to take a little bit of risk, run the numbers, you’re going to be wrong and sometimes you’re wrong in the right direction and sometimes you’re wrong in the wrong direction. So I’ve lost money on houses and we’ve made money on houses. If you’re right one in the wrong you’ll do okay.

Danny Johnson: Yeah. One thing I’ve been meaning to bring up too is a common mistake is the using the price per square foot for a property that is way bigger than the ones that you got to determine that price per square foot and I see it all the time. It doesn’t scale like that most of the time.

Bill Allen: Yup. I totally agree. You’ll see the smaller houses that have a higher price per square foot and really large houses that have a lower price per square foot. If you keep that in Pensacola, I think we’re around $100 per square foot, is on average what we sell that, but I’ve got some in really nice neighborhoods and we fixed up really nice, then I thought I wasn’t get that we ended up getting like $85 and it’s just because I was going by price per square foot when I was putting my thumb in there ___ how much this would sell for because there wasn’t another good comp at that size in the area. The other things are like pools and garages and things like that, so there’s a lot of what if’s that the appraisers will take into account and so will the buyers.

Danny Johnson: Two-storey versus one-storey. If you’re looking at comps for one-storey but your house is a two-storey at the same square footage, a lot of times it won’t be worth the same amount because cost to build was a lot more for that single storey larger slab and all that. But let’s get into the nitpicky stuff a little bit. It’s just things to watch out for when your comping. Don’t try to use a bunch of higher cost per square foot from smaller houses to a house that’s twice the size. It just won’t typically scale up unless you see comps that have sold at that larger size.

Bill Allen: Yeah. If I had one to one comparison, it’s gold. And I want to make my house a little bit nicer and price it a little bit less if I can or the same and if I do that ___.

Danny Johnson: Awesome Bill. I appreciate you taking the time to talk with everybody about analyzing deals and a lot of great information shared. Is there a way for people to get a hold of you if they want to reach out to you?

Bill Allen: Yeah. You can send me a message on Facebook. I’m trying to follow the company on Facebook a little bit. It’s facebook.com/blackjackestate and my website is blackjackre.com, it’s where you can find my contact details and email stuff on there, read blogs on there about kind of about my life and what we’re doing in real estate.

Danny Johnson: Yeah. Be sure to check it out everybody. Bill really does know what he’s doing. He’s done a lot in three years is it, that you’ve been in the business and it’s incredible. He’s in a higher level mastermind group with me and honestly when we’ve met at the last meeting I think a lot of the great ideas were coming from Bill. Bill’s just full of awesome ideas and really he’s just a great guy.

Bill Allen: Hey you know Danny one thing I didn’t talk about was the first, I still remember—I think hadn’t flipped a house yet but I was, or maybe we did that one off the MLS and then I read your ebook, Flipping Exposed I think it’s called. And so I really had no idea what marketing and stuff like that was and so I read that book and I think that’s really what got me really really excited about it and I think I had not read your ebook, I still remember I was in England at my wife’s parent’s house and it was by Christmas time and we had just gotten our first deal and I was reading that going, “Man, I can do online advertising and send this mail.” And really, I think if your listeners haven’t read that, which they probably all had, but if you read that, you can really see about analyzing deals and when to throw them away and when to keep them. So pretty cool that we’re here talking about analyzing deals. That’s how I started going, “Man, maybe I should analyze these things a little bit differently” or “stop talking to this guy” or “Hey, this is good lead” so it was pretty cool

Danny Johnson: It’s always weird to hear because you put stuff out like that and you don’t know who’s reading and who sees it, like, I still feel like not barely anybody or several had read that—

Bill Allen: Oh man, it’s on Amazon and I think it’s free.

Danny Johnson: Yeah, yeah. It’s free, Flipping Houses Exposed.

Bill Allen: It was on my Kindle and I think I read through that thing in two nights. I was staying up until 2 AM reading it. It’s funny that we’re here talking about the same thing now. But you got me going I think.

Danny Johnson: I think the biggest thing that I like looking back on that thing too was I think it shows people—if you’re not finding deals in the beginning, it’s typically because you don’t have enough leads coming in. People underestimate how many leads it takes to find a good deal and I think that helps show you’re not different, you’re not in a different market that doesn’t work if you talk to 10 people and you can buy their house or they’re not good enough deals after talking to 10 people.

Bill Allen: Yeah. You’ve got to have the leads coming in. If I stop marketing, I won’t do any business. Somebody told me one like, I don’t know where I heard it, but Budweiser doesn’t pay for Super Bowl commercials just send money. If the biggest person is marketing, then you should market. I had this conversation last night at a REIA meeting. I said if you’re not marketing, you’re going to die. You won’t make any money. You won’t have any leads. Once you stop doing that and stop bringing in leads, somehow it can be anywhere, but you have to do it. I mean we send out a lot of mail, we spend a lot of money on marketing and even with all of that, we’ll still only get a very very small number of deals.

Danny Johnson: And you’re probably consistent more than maybe in the beginning.

Bill Allen: The mail goes out every Friday and it never stops.

Danny Johnson: Yes. See, that was a big problem with those for a long time for many years. It’s like what you said when you’re working on the properties and then you stop marketing, your deals dry up and it takes longer to get the next one. But yeah this is a vicious thing that people— the quicker you learn to keep doing the important things, which is almost always just marketing the easier it becomes.

Bill Allen: Can I say something about my son?

Danny Johnson: Yeah, sure.

Bill Allen: Okay. Well, I just recently wrote a blog and if you go into site blackackre.com/james, my son James has a heart defect, so in this year of 2017, my wife and I sat down when we were goals, we really wanted to kind of give back this year. We were successful last year we did some giving, but this year is really focused on us giving. He has a congenital heart defect and there’s this charity called The Childrens Heart Foundation and so he was in the hospital for a long time after he was born for his surgery. So I wrote about that, kind of poured my heart out and if any of you guys are interested to read it, what I’d like to say is if any of you guys donate to that charity, you can come to my Facebook page, put it on the website, and I’ll match any donation that anybody gives to the charity.

Danny Johnson: That’s awesome.

Bill Allen: We’ll really going to focus this year on trying to give back ___ some of our success to different charities.

Danny Johnson: Very cool and I’ll put a link to that and he said it was blackjackre.com/james, and I’ll put a link on the show notes page at flippingjunkie.com/60 if you’re driving or something and you don’t have a way to write that down, just remember the number 60 and do slash 60 at flippingjunkie.com/60. I’ll have a link there so that you can check that out.

Bill Allen: Thanks Danny.

Danny Johnson: Yeah, thank you. And the Facebook page, because you said make the donation and then mention it on Facebook.

Bill Allen: Yeah. If they send it to me on Facebook on that page blackjackestate or just email it to me or put a comment on the blog post or whatever, anyway you can get a hold of me, text message, phone call, email, that’s fine. I’ll make the list and we’re matching this year.

Danny Johnson: Very cool.

Bill Allen: Alright.

Danny Johnson: Alright. Thanks Bill. Well, have a great day and I’m sure we’ll have you on the show again.

Bill Allen: Alright. Thanks Danny. I look forward to it.

Danny Johnson: Maybe next week. Just kidding. Alright, I’ll see you soon.

Bill Allen: Alright man.

Danny Johnson: Bye.

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