Bruce and Aaron Norris are joined this week by Doug Van Soest. He and his wife Andrea have been property buyers since about 2008. They have done about 400 deals as well as have gotten into wholesaling, property management, and keeping properties. He has been one of the success stories of the business.
Episode Highlights
- How does he handle phone calls that come in from prospective clients?
- What percentage of his leads has he dealt with personally and not over the phone?
- How has easy access to information changed his business?
- How hard is it for sellers to go on their computers to see the worth of their house?
- What is Doug’s idea of the perfect rental property?
- How is the market right now for reselling properties in California?
- How has he managed to succeed at a business in which few people do?
Episode Notes
They had just started talking about the mailers; and Bruce asked about when a call comes in and how it is handled. He asked Doug if he answers the phone himself or if it is delegated elsewhere. Doug said it is very different from 6 years ago when it was just he and Andrea doing everything. When that call came in, he would answer as best he could and use scratch pads and different things to keep track of everything. After a while he realized it was not working because it was overwhelming and he was losing people’s folders since they were ending up on the bottom of a stack. If they wanted it to work as a business, they had to think of it more as a business in terms of mailing and marketing directly to an owner. They now have a team that helps them out with all of this. It is usually answered by a lead manager who will then vet the lead and ask questions to see whether it will be a good lead or not.
The lead manager works for their company, so it is very different from a call center. He had tried it before, it was not for them. He called in to test it, and they were not getting the information they needed. Information was limited, and it was not for their business. They wanted to take everything live that they could. They found they could delegate this away from themselves, which helped a lot in terms of his time and sanity.
Bruce asked what percentage of the leads were people he dealt with personally. Bruce wondered what percentage of the calls go away since they know the deal is not going to happen, whether it’s because the people won’t cooperate or the equity is not there. Doug said there is a big percentage. Initially, when calls came in and he was handling everything and trying to juggle everything, he would focus on the ones he thought were good. Everyone else would get pushed to the side, delayed, or forgotten. It was not they were not good, they just did not seem the best lead at the time. Some deals in there were just lost because he was trying to handle too much. Even today, they only buy the house from 1 out of every 40 calls that comes in.
Bruce asked how this translates to the number of mailers, which Doug said more than it used to take. Mailing is very competitive, especially right now. People are teaching it more, and there is more competition in terms of the noise. The percentage is about a ½% response, and out of that 1 of 40 results in a buy. It is very expensive with mailing just to get that phone to ring.
Bruce asked if there is any alternative method to finding deals. Doug said there is internet, specifically Google Ads. This is its own beast and very expensive. You can burn through a lot money really fast if you do not know what you are doing with this. It is also highly competitive. Aaron asked if you can convert it. A marketer can drive all the traffic, but if you do not have somebody on the other call it wouldn’t work. Every single time the phone rings, it costs them money in marketing. These marketing channels is how they get their leads, so you have to treat it like that. It’s gold; and when that phone is ringing, it may be the wrong number but they have to handle it with care and answer at all costs. With conversion, getting the phone to ring is one half while knowing what to do with the phone call is the other half.
Bruce asked about the other 39 and if they have a path where that can be profitable. Doug said they do and refer a lot of people to listing agents. They try to decipher through their situation, the house itself, and the urgency to sell. They tell them straight up to wait a little bit if they need to and don’t mind people coming through their house. They will probably net more money if they list their house since it does not need repair. They refer way more out than they end up buying.
Bruce asked if this creates cashflow that pays for the advertising. This helps offset some of the marketing costs. Plus, they have a great relationship with the agents they refer to who think of them whenever they come across a property.
Aaron asked why they have not brought somebody in to do this in house. Doug said he has thought about it, but this is another business. At the moment, they are not interested in running a brokerage. Bruce read a book that gave an illustration to determine what you are good at, and it is so tempting to go off that and add on another layer. Before long, you discover you are leaving the business in which you are the best. Doug said he always looks for shiny objects, but you have to pick and choose.
Everybody has a preference, and Bruce wondered if Doug likes to meet with the people who are selling. Doug said he prefers to meet in person, although they probably do about 50/50. A lot of negotiating is still over the phone, or even through text. More and more people prefer texting over calling sometimes, and this has been more important lately. Aaron jokingly asked if they use customized emojis, to which Doug said this might actually be a good idea. Bruce has even surprised Aaron with some of his mad emoji skills.
It’s interesting how you have so many successful people who handle things differently. Mike Cantu never wants to meet anyone, while Tony Alvarez would meet 100% of the world if he could. Doug falls somewhere in between. Bruce always thought his biggest strength was meeting people and getting them to like and trust him. However, everybody has their niche. Bruce asked Doug if he ever thought about building from scratch. Doug said he has thrown it around a little bit, although it is a different animal. They are looking into it a little more now; but every time they go down that road in California his head sinks a little lower and he slides down in his chair as he hears all the fees and school fees and time frame.
In the building niche, there are two things that happen simultaneously. You can sell anything you have, and it is much harder to find the next one. When he bought the lots in Rosamond, this was 3-4 years before he built them. This was intentional since he was not going to try and find 100 houses that year, but he could present 100 houses. This is how he thinks when he gets into Quadrant 4. He thinks about how someday it will be very expensive to get a lead that pans out, but he can get dirt and weight. He never has a house a week after they’re done because of Quadrant 4.
Doug likes the idea of it, and he and Andrea are planning in their heads being ready for the next cycle. Bruce is not passionate about real estate as much as he is stats and the end result as well as figuring out what is next. Bruce asked Doug if he and Andrea would still do it if they were financially set. Doug said this was a good question. What attracted them to real estate initially was the financial opportunity through it as well as their long-term retirement. This is what got them into it. As they have been in real estate, fixing and flipping houses primarily, they do enjoy it. Doug likes the transformation and enjoys the process and improving this product and seeing people excited about it and enjoying what it has become. They may not work as hard to try to get as many as possible, but they may be more selective and do it for the joy of what you get to do in the process.
Bruce asked how the access to information has changed the business. Doug said when he and Andrea got in back in 2008, access was there. Before that, it was very difficult to get the public records and data that you needed. ForeclosureRadar changed the game and made participants go from 5 bidders to 100. In the same way in the world of direct seller, more information has been coming out in the last 5-6 years from different teacher, educators, and podcasts on the skills necessary and resources needed to get the information for lists and mailing. In that sense, their competitors are out there in droves since there is access to information.
Bruce asked how hard it would be for the seller to go on their computer and see how much their house is worth. Doug said everyone knows their Zillow number, and this could be a good or bad thing. Aaron said one of the reasons he wanted to have Zillow on the technology panel is they will know before anybody else that somebody is going to list. Now that they are buying houses, they are a direct competitor to real estate investors. He has talked to several of the companies, and their model is not the heavy-fixers. They want the Car Max model. They are not going to take a Junker and try to resell it. Doug is watching them and Redfin to see how this all plays out since they are in the homebuying business now.
They will definitely take a piece of the pie, and the biggest piece for Aaron is the marketing piece. They are definitely going to know, especially Zillow since they control a large part of the search traffic, addresses and how likely they are to want to sell. Doug said there is still going to be a segment of the population selling a home who wants to trust the person across the table from them and sell to that person. If you have the skill of being able to talk to people and relate as well as build trust, there is still going to be business for you. You just have to find the right person. This is why Aaron thinks it is interesting that Doug went the branding route since it will help him in the future. Doug wanted to have a little bit more of a branding name that was repetitive and can be recognized aside from the other competition.
Bruce asked Doug if he bought ten houses in the next few months, what percentage of them would be fixed and flipped, wholesaled, or rented? Doug said 8 of them will be wholesaled, and likely two of them will be fixed and flipped. If one of them is really good they might keep it as a rental. This is getting fewer these days due to the prices. He did the right business model in 2012, although it would have been different the year prior since he would have been renting a lot. At least 50% of the properties would have been kept as rentals, and the other would have been fix and flipped.
Doug and Andrea started wholesaling in bigger numbers in the last 3-4 years. Bruce asked Doug how he decides who he will wholesale to, which he said would mostly be repetitive people. These days, there is a variety of ways but he tries to think who would want the property and would be the right buyer. He tries to call them first or see who has been blowing up his phone lately saying it’s their turn. It’s interesting how this actually does work, and Doug said he needs to do more of this. Sometimes you have to be the squeaky wheel. Bruce used to have good relationships with the REO agents. Sometimes he would go back decades, say he was doing something again and would wonder if they were still in business. One guy would call Bruce all the time until he finally gave him one.
Bruce next asked Doug about managing properties and commented how he was gradually forced into that world. Bruce asked him if he did it himself for a while and how he enjoyed it. Doug said he did, but he didn’t enjoy it too much. It was fine when there was just a handful and didn’t take up too much time. However, as their portfolios grew they brought in somebody to help them with this. They got to a point where they knew they weren’t very good at it and needed to outsource it to professionals. About a year ago they hired a professional management company, and life is much better.
Aaron has also divested of his property management. Bruce is the most susceptible to stories. Doug had to learn himself to know when it is a business, and this was why he needed a neutral third party to handle it. It may cost a little more, although he thinks he makes more when he runs the numbers. They are raising rates regularly; which Doug rarely did. Financially, it is playing out better for them. This is not just time you spend. There is something about residual brain space being taken and emotional equity. Bruce does not like having this in his world.
Bruce said when it came to the California rentals he sold and 1031 exchanged, he could have never found one of them just driving around. He had been in that spot for 6-7 years and had no desire to be. One thing they did that was kind of a test was they fixed the properties as if they were going to sell them. They were perfect when the people moved into them. Bruce never raised rents, which was part of what someone did for him when he was starting. This was the reason he did this. He worked with a guy in Orange County who never raised rents, which allowed him to save money to buy a house. He was there for 2-3 years and put in carpet.
However, when they sold those homes, the repair bill was so small because people took care of them. It was like the best place they had ever lived. This was why he got attracted to building the new homes; there was not a lot of competition. Bruce next asked about all the different properties he had rented. He wondered what he sees as the perfect rental property. Doug said he heard Mike Cantu answer this question 50 times through his different interviews and agreed with him. If you have a good neighborhood with a good school district and is a smaller house, not a huge McMansion. He prefers 1300-1800 square feet, single-story, at least 3 bedrooms. You will have a family dig their heals into here and send their kids to the schools and stay there for 10-15 years.
Doug said he would also prefer a newer house. This way you are going to be there a while and not have to deal with replacing the roof or hot water heater. Doug said initially when they bought in 2011 and 2012, this was not their focused inventory. Bruce said what is neat about California is we get this explosion of equity. The things he bought went up by 400% when he was buying them in 2009. This type of price range increase is not available all over the country. However, you can exchange the place, and this is where you land on the inventory you now get to pick. Doug said if he were picking today, he is looking for more of a newer inventory that is still in the good area. The numbers on paper may not look as good as they did in 2009; but in reality, with a good tenant in a good area it should play out better in the long term.
Bruce asked about reselling properties in California right now and if it is still great. Doug said you would think it would be a little better with the low inventory, low interest rates, and it being summer time. He said properties still move really fast, and they do a little extra with the rehabs to make sure this happens. If they did not do this little extra with the rehabs, it could take longer. You are not necessarily getting multiple offers in the first weekend anymore. Aaron has been getting this feedback a lot from people in Orange County and San Diego. Doug said the higher price range people will experience this a little more. The lower-end price, if fixed well, will have more buyers. Once you get above that median price, it better be special or it will sit longer.
Bruce asked if he had any concerns about where we will be a year from now in the market. Doug had this same question for Bruce, and it depends on his answer. Bruce said we are already at a higher price than he thought they would get. He thought we would peak at $550, and we are already at $600. He is referring to stayed median price, and Doug said there are certain areas in the Inland Empire that are still way behind by 30-35%. San Francisco is kind of messing things up since things are getting skewed by the high dollar areas. This city went from $950 to $1 million and six. Now it is $1,550,000. It is the same in San Jose. Bruce figures 20% of everything sold in California is $1 million.
Doug said in the more Northern places it is driven by a different reason. Sometimes, foreign money, big paychecks, jobs, and stock options is a whole different world. Doug is more interested in areas like Hemet and Hesperia and what will happen here in the next couple years. In the last minute, Bruce asked how Doug has succeeded in a business in which few people do. He said he and Andrea have been very blessed and grateful for the successes they have had. When they made the decision early on that they were going to do this, they did not really think about failure. They knew there would be challenges, and there was and always is. They were determined and knew they were going to make it work. They just had to decide what it was going to take, and they were going to do whatever it took to make it work.
It did not happen overnight. It took years of learning. There is just something interesting about the word “decide.” In the movie Apollo 13, Tom Hanks told his wife that it was not a miracle they ended up on the moon. He just decided to go. There are different levels to the world “decide,” but the point is that you made the decision and made it happen. It was not like they put a limit on it, they just did it until it worked.
If you would like more information, you can visit his website www.socalhomebuyers.com. If you would like his design site for Andrea’s interior design business, you can visit www.vantagedesignstudio.com.
More on Hard Money Loans
- Florida hard money loans or call (407) 706-9700
- California hard money loans or call (951) 780-5856
Information on Note Investing
- Florida mortgage investing or call (407) 706-9700
- California trust deed investing call (951) 780-5856
Real Estate Investor Education & Resources
- Upcoming real estate investor speaking engagements and training
- Real Estate radio show and podcast
- Weekly news and videos
- Free Investor Roadmap – How to get started in real estate investing
- Free access to our web portal for real estate investors