This week, we are continuing our interview with new real estate investors Scott and Jessica Holwick, who are making some very smart moves in the business right off the bat.
The second half of this interview is as good, if not better than the first, so listen closely–these guys are super interesting people and they were gracious enough to stay on the line with me for much longer than expected to answer all of my questions.
Last week, I cut off the interview when Scott and Jessica were talking about what they’ve learned from their first deals. They reiterated that, especially as a new real estate investor, you should never presume. Never leave things up to guesswork, because there is so much you can miss. Go through each house yourself and examine everything. Going forward, Scott and Jessica always assume every roof will require repairs, unless they have concrete proof that it won’t.
Scott said that he’s heard that once you get started, deals start coming to you. They’ve found this to be true in their case: Jessica did a lot of yellow letter mailings initially, but they haven’t gotten solid leads from those. Instead, word-of-mouth gets out and they’ve gotten leads through acquaintances who know about their business and their successful first deals. I applaud them for doing direct marketing though–not a lot of new real estate investors start that right away, but it’s an important step.
Jessica faithfully reminds Scott that they have to turn this from a hobby into a business. She said they want to get to a point eventually where they’re not doing all the work themselves. In fact, knowing how to do rehab as a real estate investor can really be a curse going forward, as Scott’s time won’t be best served swinging a hammer or laying carpeting. You have to think about what your time is worth to run the business instead of nailing hammers into a wall. While doing the work yourself is fine at first, as you scale your business it’s important to shift from project work to project management. Scott definitely needs a pet project he can work on himself to help him get over the pride issue of assuming no one can do the work as well as he can. They certainly have met contractors who they can firmly trust now, and it’s very important to find those. When you’re managing crews, it’s essential to know how much things should cost and how long things should take. I didn’t know any of this when I was starting out so it was easy for contractors to trick me, but Scott doesn’t run that risk.
In her initial research, Jessica found the proper documents you should give to a contractor to make sure everything is done as it should. Scott and Jessica have had a bit of a struggle deciding how to schedule payments for contractors. Scott tends to be trusting while Jessica is a bit more skeptical and wants to make sure everything is clearly written down. They generally pay for all the materials themselves and have them delivered or go with the contractor, and, for contractors they know and trust, they pay no more than 50% upfront for labor. With new contractors, they pay a third upfront and pay the rest in thirds until the work is done. In any case, do your research on a new contractor: make sure they are licensed, check them out at the Better Business Bureau, do a simple search online. I also used to buy the materials myself when I was starting out, but once you have confidence in your contractor, you can have them quote the material into the job and give them a check for 25% of the total job to purchase the initial material.
Going back to Scott and Jessica’s first sale (which was actually the second property they purchased), they gave us the numbers involved:
Purchase Price (including fixed costs): $133,799.60
Total Investment: $183,639.76
Sold For: $250,000
Closing Costs: $18,200
This is obviously an incredible deal, and Jessica and Scott said that they had underestimated the ARV! Most new real estate investors overestimate the ARV–you have to be conservative about the ARV and still get the property. They say that it took them a while to purchase their first property because they were initially overly conservative about the ARV, but between Jessica’s skepticism and Scott’s optimism, they have been able to achieve a great balance. To calculate the ARV, Scott and Jessica take the realtor’s estimate and then research other recent sales in the area on Zillow, which really helps nail it down. I too have my realtor give me market research, and then get another perspective doing my own research online. I’ve found an app called HomeSnap to be another useful tool in this research–it might not be as reliable as the MLS, but it allows you to estimate how much houses you see as you drive around are worth.
Scott also mentions that he had initially considered getting a realtor’s license, and they’re now thinking that Jessica might still do that in the future. I don’t have my realtor’s license, but it really can allow you to see market trends and access great research. J Scott had talked about this when I interviewed him a while back.
I asked Scott and Jessica what their short-term and long-term goals are for the future. Jessica said that, by the end of this year, they want to acquire about three to four more properties to flip, and then next year aim to work on their systems so they can double that number. They also want to continue networking and building relationships with other realtors, wholesalers, and investors in the area. They always pass out cards and make themselves available, because you never know where the next deal or great contractor is going to come from. As they mentioned last week, they also want to have their business partner work on other means of capital, so they can open up their capital access and continue to grow.
Scott and Jessica keep a detailed binder on each property, which includes photographs, plans, and every record from start to finish. They do this to be accountable to their partner, but it will also really help them as they approach other investors and raise capital in the future.
As successful but still new real estate investors, Scott and Jessica’s advice to people who want to get started in the industry is this:
- Educate yourself: You don’t need to spend a lot of money on education as there is a wealth of information online. Spend some time learning from Just Start Real Estate, Bigger Pockets, and 123Flip.
- Get involved in your local real estate meet up: This is a great way to meet people. People will be more than willing to work with you and coach you if you can add value to them as an apprentice.
- Have a solid game plan: After you do your research, make a specific plan that you can show investors or mentors. Don’t just approach them with a vague idea of wanting to start investing in real estate.
Scott and Jessica shared such valuable information and I know they answered so many questions that people have when they’re just starting out.
You can get in touch with them at email@example.com and firstname.lastname@example.org.
I am super impressed with what they’ve been able to do in a short amount of time, and I look forward to interviewing Scott and Jessica again in the future and seeing how far they go!