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Ep. 8 – The Cash Buyer’s Playbook for Buying Off-Market Housing

Dalton (Speaker 1)

Welcome to The Real Estate of things podcast. I'm your host, Dalton Eliot. Dan, thank you for joining.

Dan (Speaker 2)

Yeah, it's great to be here.

Speaker 1

for sure. So you run unit partner you run say sub properties, which is really a nice cash Home Buying company based in Ohio. really eager you and I got on a call a couple weeks ago. And you know, you're effectively kind of wrote the pre interview outline for me, you very succinctly walked through your business model, really unique a great approach. You all have really Ohio and I think a little bit of Florida as well, your company is based in Ohio, you are in Florida yourself, right?

Speaker 2

Yeah. So Florida down here, we don't do too much in terms of the actual company in the Florida market, myself in terms of a personal portfolio with my wife as well. But we're mainly focused on the Cleveland Ohio and the secondary markets kind of around that area.

Speaker 1

Beautiful. And if I if I throw it out, and Oh, ah, Ohio, nice, beautiful. So let's, let's jump right into it. He wants you to describe your company and what you do. And that's gonna tee our conversation up for something I always find really interesting, which is where someone goes off the beaten path. So you think, just through the lens of investing a lot of people get, if you looked at the top of funnel for investing, you're talking about money that isn't just sitting in a checking savings, money market account, people will Chuck money into a 401k and then IRA and then overflow goes into a brokerage account. It's probably a normal step, then you have real estate investors, right real estate is, is and has been one of the biggest generators of wealth in the history of the world. If you want to become a millionaire, the real estate, statistically speaking, purely statistically speaking, that's going to be the best way to generate true wealth. Now within the confines of my day job, right when I work on a nationwide lender, we finance, fix and flips rental properties, multifamily new construction, kind of a wide stat, chiefly that wonderful product, wonderful unit product. Now your firm is really a niche within a niche. I think so walk me through, say some properties. How long have y'all been around? What's your real competitive advantage?

Speaker 2

Yeah, so just a little bit about the company itself. So say some properties was founded by myself and my partner, Vincent Macias, which is actually local to are born and raised within the Cleveland market. So I actually, I started out as a personal one of those, those top level investors. So I had a portfolio. I think I bought my first house when I was 26, with my wife, and we did a couple live in flips. So for three properties, and then I really started, you know, going out there and doing a lot of real estate investing. So traditional real estate investing on the MLS market, bought a portfolio and specifically looked in the Cleveland market just because of the economics coming from at that time, I was in the Boston area where prices of houses were so expensive, and essentially, you know, built up a portfolio of, you know, single family and small multifamily properties within the Cleveland area. And the one individual that I kind of work with a lot and in that, in that space was my partner, Vince, when we started working together in terms of investment, and then we came up with the idea that we were going to start a wholesaling properties just to make some quick cash flow. And essentially, we started out the company, we founded it, and I think 2018, about mid 2018, so still relatively a pretty young company. We started out 100% as a wholesale company, right? So we were doing wholesaling direct marketing, mainly at that time through postcards, actually 100% exclusively through postcards direct to seller, and we picked up a lot of properties and that's how we kind of started our company over the year or two after that we kind of merged into change the strategy of the company to actually still do a lot of that the direct to market direct to seller marketing that we were doing. So that's how we get all of our properties. We're not buying anything on the MLS and essentially we're going out we're finding sellers, you know, talking to them, negotiating with them and actually purchasing properties directly through them with no realtors involved. And then we now today we are actually closing on the property's doing light rehabs on them and selling them on market so we'll buy everything off market for cash or like cash you know funds and then we will actually do light rehab enough rehab that it's going to add value to it so we're very strategic about what we do to the properties we're not doing you know full blown down to the studs we're doing you know, renovations and repairs and updates that we think are going to add the most value to those properties and then we are quickly turning them in listing them through Vince who is also a realtor which is very good for the company and we're selling those properties back on market as well for quite a hefty profit so that's kind of the business model now off market acquisition light you know retail, not retail, but light rehab and renovations and then we're selling it on Market to Market buyers so it's kind of the full cycle of the market and how we acquire and actually sell those properties.

Speaker 1

Got it I want to pick your brain on the marketing side of the fence because especially since you're not utilizing MLS it sounds to me that marketing is the lifeblood of the machine. But you said one thing that really intrigued me You said you did three live in flips yes

Speaker 2

yeah so I did those much to the dismay of my wife and we didn't have any kids for the majority of those so they were a little easier I would say though you know those are same type of models same type of mindset we tried to find houses that were undervalued maybe they were on the market for a little too long we got them grossly under what the market value should have been we did a couple of them were heavier but you know some of them were just minor renovations and updates and then the by the time that we sold them within two to three years made significant amounts of profit that we kind of rolled into the next one and we've done that three times and now we're currently living in a live in flip duplex down here in Florida which we've actually done the same thing and the value of that corresponding with the market shift from the COVID has nicely you know increase the equity that we have in this property so definitely it it's almost like a investing side hustle right that we're doing as I'm doing these other real estate investing endeavors so definitely a good thing to do there

Speaker 1

you my friend are you live and breathe real estate investing I think that is a testament to the fact that you just take this to a whole different level I could not imagine when I bought my first current and only house and 2017 January 2017 and add a buddy of mine at the time he and his dad very much kind of hands on handyman type skill set and you know he showed me the house he was getting out under contract and it was very much buy it to then rehab it and improve it and you fast forward today gorgeous house he's kind of just finished the last thing was redoing the master bathroom and they just wrapped that up so now finished product Few Years Later absolutely gorgeous in love it at the time and even today I like your absolute lunatic when I was looking to get a house I was like I want to sign get the money wired over and move stuff in so you I it blows my mind the what was the most frustrating thing I guess what is the most frustrating thing about that process? Is there something that just doesn't get any better every time you do it

Speaker 2

um it's tough when you're living in it right because if you're doing major components of the house the bathrooms especially on the first one I think it was a one bathroom REITs we were trying to live there and taking showers at work and stuff like that so that was fun but yeah it's just not you know most people like you just said they want a house that they can kind of sign and move into and have everything ready maybe minor repairs things like that but always looking at as an investment and a way to you know grow the equity in the house so I think that that kind of gets you through it but it is very it's frustrating as you're going through it you don't have a kitchen for maybe a month or so at a time or a bathroom. You're down a bathroom especially now with kids it's a little tougher right but I don't know if we're gonna be doing that too much longer we got two little ones now

Speaker 1

I'm gonna go ahead we're gonna we're gonna get an award man. You are the truest real estate investor in the world. I your humble guy. I could tell you take it to the next level. This is crazy. flipping over to the business side of the fence, you know not using MLS that's another kind of step down in the funnel that is just unique and different. approach different strategies so before we get into the marketing side of the fence like what drives you all to just throw out what is really a primary Lifeline in the real estate industry and say now we're gonna we're gonna do it a different way

Speaker 2

yeah and I think it does take a certain individual or certain companies to kind of go the off road off market route I mean the MLS definitely is a good place to find properties I would say that you know, obviously it's where the majority of people find their properties but the and I should say to back in the day I mean that's where we've always found the houses that we live in personally that's where I've bought a lot of the properties that you know in my personal portfolio before we started doing the space and stuff but my problem with it is number one, I feel like you know, the prices are too high, at least for what I want to pay for it. Number one and then number two, just the number of eyes that you have on a property right you can think I don't know what the statistics are, but how many people look at Zillow how many people have the MLS feeds from realtors so the level of competition that you're going up against for that one specific house or maybe that that handful of houses that you're interested in is significantly higher than when you're you know targeting specific houses that are off market and not listed. So I think that that's kind of where the mindset comes in. You know number one, I think it it's the profit side of it right so we look to purchase houses anywhere from you know 40 to 60% of market value and you're not going to get that in most markets if you know ever on the MLS market right so we see some properties in Cleveland people actually will list properties for you know $20,000 where it's a $60,000 house but it's a full rehab but even in a market like that where it's so investor heavy it is rare to see those houses there right so we take the approach that we want to reach out directly to sellers and there is a lot of benefits that the sellers get out of selling for cash obviously they're selling for less money but there is certain convenience and you know timing and other benefits that they're getting out of it. So we like to hit those sellers directly and kind of cut out the middleman and even though Vince my partner is a realtor he doesn't act in that form or fashion we act as you know say so the cash house buying company versus him going in there and try to buy it as a realtor listed for them as a realtor.

Speaker 1

Yeah, so that makes sense and the trade off on your end right the person who's selling the home the trade off is take a little less cash, more convenience and quicker right. on your end you are able to hunt for more advantageous deals but the trade off is you have to do more of the legwork. So you mentioned direct mail earlier and you know I've been in this space close to seven years and direct mail is still a thing and it sounds like it is still a successful thing on your end right?

Speaker 2

yeah so direct mail is an interesting one we used to do primarily drove direct mail when we started the thing I'll say about direct mail the hit rate is relatively low on it so we see anywhere from like one to 2% would be a good return depending on the list and everything else that we're trying to do but essentially you have you know you have people that get these things in the mail right and you think of most people they get junk mail in the mail what's the first thing you do if you even look at it and nevermind read it it's in the trash right so you have someone who is actually looking at these things nevermind taking and making the effort to actually pick up the phone and give us a call most of the time leaving a message that takes a lot of effort right so what that shows you is that the people that we actually get as leads from the postcards are actually high quality leads people that are actually motivated to sell their homes you know if it makes sense for them if it makes sense for us then I think it's a good opportunity for us to move forward but definitely a high quality lead that's coming in. We've seen in the past we've tried you know testing and tried we do a lot of like a lot of hypothesis testing and testing for different marketing strategies and things of that nature. The two highest quality lead sources that we have number one is our website so a lot of organic and digital marketing that we do and the other one is the postcards in the postcards we've kind of you know advanced that so obviously we use the typical or traditional sense of getting lists and we make those lists or we purchase those lists or have someone else do it and then we send those out to you know that's kind of like the shotgun approach right you're hoping you're get getting a couple leads out of that. The other one is it's really around like the driving for dollars or scouting, right? So my partner Vince, he's a realtor, he is always around the market driving around. We have other individuals on our team that we work with all Driving around the market as well looking for houses that that might be a fit. So it's the whole driving for dollar things, we'll note those addresses down, and then actually send postcards to those houses. So we've got quite a few leads and opportunities that way as well. So those are the two main channels or the direct mail that we're doing. But you know, they the website, one is a it's a big one. And that's obviously we have content out there, we create content and people searching for very specific terms and have very specific questions, we'll find that content, learn about the company and kind of go through the buyers journey and actually reach out to us. So most of the leads that we're getting now are from those two sources, definitely the two highest quality sources of leads that we have. And we've done quite a good job with our website lately and organic leads coming in as well. So anytime that you can kind of sit back and let the website do the work for you is definitely a good thing for sure.

Speaker 1

Absolutely. And a lot of the business or most of the business really is in Ohio, I was just in Ohio for the first time ever last week, I was up there for a conference for three or four days. And it was in Cleveland. beautiful city, we were at the Huntington Convention Center, I think, which is they opened up the blinds in the ballroom, like floor to ceiling and you just have the brown stadium right there. Which is also a unique thing. Usually my sister's in Dallas, I'm a Cowboys fan. But to get to the stadium, it's like a half hour 45 minute track West outside. So it was pretty cool to see, you know, Cleveland Browns Stadium in Cleveland. So pretty cool. But how's the Cleveland market doing? It sounds like, at least through the lens of what you all are doing. It's on fire.

Speaker 2

Yeah, you know, I think similar to a lot of other markets from the COVID, the lack of inventory, you know, the markets kind of caught fire in the last year plus, you know, according to everything that we've seen, it's kind of cooled down a little bit or level down a little bit compared to you know, the heart of the COVID kind of pandemic. But surely, I mean, the market there is still rather hot the value of prices of the houses have grown, I think that the stat that I saw last week was about 25% year over year, and really where it kind of speaks volume is five year mark, I think it's a barrel 91% value growth for the home values there. So I, when I started investing in Cleveland, it was about five years ago. And I mean, the prices of the properties were dirt cheap. And I think I mentioned this before, but I was up in the in the Boston northeast area, you know, looking at houses there, single families duplexes, you know, 400 $500,000 plus. And it was absolutely ridiculous even though I was making really good money at that point, still, I mean, to put my entire savings into one property was kind of hard to swallow, or looking at, you know, in other markets and doing the whole remote thing. And Cleveland really stood out there because of the price of the property number one. Number two, the strong rental demand there, I think the numbers around 50 51% of the population or the housing units are actually rentals. So a very, very strong rental market for investors there. And then the other thing is just the price and the value, right? So I was buying houses anywhere from like 40 to $50,000, you know, five years ago, or four years ago, wherever it was, the rents were around like 900 to 1100 12 $100. So I mean the return that you're actually getting for the properties there at that time was astronomical right now. It's changed a little bit the values of the houses have obviously gone up quite a bit in that time period. But the rental market, and the rental rates have also gone up as well. So we look at Cleveland, and I've always looked at it as one of those strong markets, undervalued markets, even with the recent growth that it's seen, still very affordable. And that's why we're actually seeing a lot of investors from the two coasts. So you have the northeast coast coming over from New York, in the Boston area, and then obviously from the west coast as well, as well as a lot of international investment. Israel, Russia, I mean, there's a lot of different investors from a lot of different places that have, you know, kind of come awake to the Cleveland market because of the economics and the returns that you're seeing there. And I think you know, coupled with a lot of other things, the economy is growing strong. There's a lot of kind of the one knock on Cleveland is the population decline, but I think it's actually a top 10 market in terms of growth of millennials actually coming in so educated millennials. So you know, couple that with the economy and the growing cost They're the influx of highly educated you know wealthy further age millennials and I think the future of Cleveland is very strong a lot of strong industries there are a lot of strong things going for it and it just seems like you know over the next five years that that growth should continue and I would assume eventually the prices are going to get up you know a little bit more normal for what they were post Great Recession but still a very you know, greatly valued market that I think a lot of people could play in for sure.

Speaker 1

Yeah, you mentioned millennials they're in the headline as it relates to our industry and millennials is always here they want to rent they don't want to buy which I think is overblown a little bit but nonetheless there definitely is a trend towards that so do you think that the millennial percentage increase in Cleveland is going to bring that you know 50 51% rental rate materially up or do you think it's not going to have a material shift on it?

Speaker 2

Um, I mean to that I really don't know But yeah, if that if that trend is correct, and the millennials I think the thing is the affordability right the thing that might throw it off a little bit is that the market there is more affordable but still it seems like there is a tendency for millennials to rent versus buy so especially if the prices keep coming up I think that will hold true Cleveland has been traditionally a high you know percentage of rental for the housing units there so I think that will it will stay the same at the very least if not grow with the millennials kind of influx there

Speaker 1

yeah the note about value makes a lot of sense how that can help kind of skew the norm or the kind of headline there of millennials equal rent if there just continues to be you know better than average value when you compare it to other MSA is that could move people out of renting and into to ownership and you know your strategy very hands on very yeah just very hands on so you're able to find value you know, is there are there a lot of ways outside of what you're doing in the direct marketing world to really find value I mean I feel like MLS you know if you're scouting there like you said you're fighting against countless people on every single property right now. It just seems like the ability to get solid yield continues to be hampered by the ultra competitive nature any insight or thoughts around you know how you as an investor can get value in this crazy market

Speaker 2

Yeah, so I think there's kind of a I don't know if you want to call it kind of a layered approach right so at the very top it's high convenience maybe lower effort and don't take me wrong I think even if you're buying on the MLS, you still have to do the proper analysis and there's a lot of work that goes into the due diligence etc in buying a property regardless of where you're buying it. Say at the top there is the MLS buyers and then at the bottom it's companies like ours that are doing a lot of that it is very hands on agree with you it's a lot of marketing it's a lot of effort to get those deals and yes we get them for a good discount and yes, we're making a lot of profit off them but there is a lot of effort and marketing dollars that go into getting those deals as well so the MLS cash buyers and then in between you have the wholesalers right so if you're looking to buy off market but you're not looking to essentially do that nitty gritty marketing and the full hands on marketing approach to it, there are plenty of off market sellers out there, most likely wholesalers that are actually doing a lot of that work to get those properties and then assigning contracts so if you're looking for you know you want to get away from the MLS but you don't want to do the marketing yourself I think the off market wholesalers and actually getting on the list and finding those wholesalers that you trust is a good way to get properties you know under market value, maybe a little bit more than you would if you were doing the direct marketing yourself obviously because they need to make some money as well but definitely you're going to be getting properties for less money than you would be getting them on the MLS so that that's a good place to look. The only caveat I put out there so if you're looking for a house that needs you know, very minimal repairs or no repairs at all, I think you're probably going to be up in that MLS range. But if you're willing to put a little bit of work into it to get a good deal and build a little bit more equity than if you were buying it on the MLS and trying to time it correctly. Then you know looking for those off market wholesalers getting on the list. That's a good place to find some deals as well. And nowadays with you know, Facebook and all the other groups out there i think it's pretty easy to find the holes sailors and get on their list so you don't really have to do anything. And it almost becomes the point where you know like from a realtor you're getting the MLS feeds right in your email. It's almost the same thing with wholesale properties as well. The other caveat that I'll put out there for off market properties is its cash world right? So cash is king and off market. These sellers are willing to sell their properties for you know, a big discount, right, but they're looking for they're not looking for someone to go through the application process, they're not looking for someone to take months going through like a conventional or FHA mortgage application process. And that's one of the reasons why we get these deals so good. But I would say if you're looking to buy off market, you're gonna have to buy in cash, you're gonna have to buy in private money or you're going to have to buy like you guys do a perfect example to kind of lead into Lima is the hard money right? So a lot of our buyers when we were doing wholesaling, were either using cash or hard money loans, some of them were using, you know, funds and other things of that nature. But, I mean, you have to have some way to get money quickly, which is why hard money loans and you know, even cash in a market like Cleveland, you could theoretically do it all in cash, if you had enough cash in your bank account, to have some way to actually purchase those properties quickly. in cash, we're past like equivalents, essentially.

Speaker 1

Yeah, there has to be some benefit. There's a new world where you just reap all the benefits yourself and you can't bring anything unique to the table. And it makes complete sense. This you know, the market we've talked about Cleveland, you're in Southwest Florida, I'm in South Carolina, throw a stone you're gonna hit a red hot, iron clad real estate market. To my happiness and joy. You know, you referenced Lima one, I'm the director of sales and customer experience here. And so I look at stuff through the lending side of the fence credit risk, that's my kind of default mode in this space. And to my happiness, we haven't had, you know, a lot of craziness going on, at least that I've seen just through the lending side of the fence, we don't see a lot of folks doing 100% LTV, those types of wild west things that were definitely more pre Great Recession. A lot of that got cold. Yep. Thankfully, for the health of the American housing industry and really the global economy as a whole. So good position there but is there anything going on right now in this space that you kind of wag your finger at like guys just doesn't seem right or it seems too aggressive or just an off the wall approach anything, anything quirky going on?

Speaker 2

I'm not so much Corki I just I guess the major caution that I have is to step back and look at the market prices I think everything's just kind of going a little haywire right now obviously some markets worse than others you know, it really just look at it obviously if you're going to be holding a property for a while you can kind of ride out the cycle buying high then you can sell it high when the next cycle comes if you're willing to hold on to it but I think that's the biggest thing right like around the bubble the last kind of big bubble that happened or 2005 2006 I think a lot of people were buying really high and then kind of the market crashed so especially if you were in the in the short term you know it strategies with the the fix and flips like right now we're gonna have to start you know, eventually we're gonna have to pay a lot more attention to the market and make sure that the market isn't going to go down. Thankfully we kind of play in the the four to six, maybe eight month time period, so it is quick but if you're doing a lot of the larger renovations and rehabs things like that where you might be in it for a year maybe a little bit more luck and change especially with a market that's gone up so high and I think just being careful that and being cautious of it that would be the Vegas you know one thing that I would say not that it's happened yet but just to keep an eye out on that as the market starts to shift I think some markets are starting to level out a little bit now. inventory is still you know, relatively across the board pretty low. So I think the it's not going to crash like some people are, are convinced it is so maybe that adds a little bit of safety there but just a little bit of extra caution around you know, some longer term projects as you're as you're looking at them.

Speaker 1

Yeah, I think that's right. I when I look at the National housing market as a whole, the broad strokes piece for me is that we have really a multi year housing shortage or housing deficit in terms of builds that need to come up to satiate demand. So that's a positive in that, you know, I don't think anybody's expecting the, you know, the floor to bottom out or fall out. But there are definitely going to be markets where when the US housing industry normalizes, you're gonna have some that continue to creep up a little bit, and you're gonna have some that that do drop off a bit. So I think definitely sage advice that we're at a point now, where we have been riding this ultra high for a minute, and you know, that, you know, the proverbial shoe is gonna drop and that may mean just a normalization and no more huge spike ups or in some markets, it's gonna mean a drop. And I think I think the norm is going to be more just calling of that insane HPA that's been going on more so than anything else, I think we just baked in there got slightly ahead of normal market times of appreciation, but which has been good for some markets, the Greenville market that I'm in I think, you know, there's so much growth that's going on that home prices have finally caught up to the city's growth. So I think we're at a good stable spot. But yeah, they got to watch stuff, make sure you're not getting overexposed. That's, that's how you hurt yourself in this space really high. It's just been over exposed over leveraged and then you find yourself in a quandary where you can't keep it all up long enough for the next cycle to come. Right? Yep. Yeah, so Oh, cool. So how much one more question top of mine, you mentioned your time horizon, and most properties is kind of that four to eight month range, personally or through space? Or both? How much rental property exposure do you have? Is that part of the strategy?

Speaker 2

Um, yeah, so I think more on the personal side I hold for rental property and cash flow specifically on the safer side it's more of a short term play we will make a decision on each property what we want to do with it but typically we won't hold a property for more than you know about a year and a day the the biggest benefit of that is the short term capital gains. But most of those the properties that we're getting we are acquiring them you know doing something if they're rental properties specifically with the tenant if we can and that might be keeping them in there if it's good read and might be removing them if they're a problem tenant etc. So we'll go through that process and then we'll start the renovations everything is you know, quick quick we try to get the properties turned over as quickly as possible and then put back on the market and then we also price them aggressively so we're not you know sitting on the market price them enough that we're getting what we want for it but not so high that it's going to sit there and we're just you know holding that property unnecessarily so it really is a it's a strategic play and it's a strategic analysis on every property that we do have but typically we're looking in that that four to six month range from the time that we actually acquire the property take ownership and then actually sell it on market

Speaker 1

got it got it I love it a beautiful business model if anybody's in you know pretty much any primary secondary and even some tertiary markets in Ohio How did they get in touch to say some properties to see what we can wheel and deal

Speaker 2

Yeah, for sure. One of the things I should mention we do we don't do wholesaling ourselves or set out to do wholesaling but we also do a lot of partnerships and JV partnerships with wholesalers within the Cleveland market as well as it would say other markets right so you know, remote wholesalers things like that that have acquired a property and they were looking to get rid of it but they don't have that that cash buyers network there will also do a lot of you know deals with them and helping them move their properties so if you are in that boat we'd love to work with you I just got a pitch ourselves but you know if anyone wants to check us out you can certainly do so our website is Stacey Buys Houses calm so it's s e s a Buys Houses calm. Or you can reach out to its directly it's 216-877-8430. If you want to give us a call. That might be a bad idea, but certainly for me

Speaker 1

now, I love it. I love it. Hey, Dan, thank you so much. Y'all have built an incredibly unique flywheel business and I appreciate you sitting down and chatting with me.

Speaker 2

Oh, no worries. This has been awesome. Thank you.

*Transcript is automatically generated from interview.