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18 Aug Ep. 18: Than Merrill of A&E’s Flip This House and Fortune Builders
In this episode, Adam talks to Than Merrill of A&E’s Flip This House and Fortune Builders. They talk about how realtors can better work with investors, keeping contractors on a payment schedule, seminars, private money lending, how to make money in any market, and the value of partners.
Email questions to Podcast@HermannLondon.com
WHAT’S INSIDE
1:07-Wizah.com is Hermann London’s new property search website
1:55-Than Merril calls in 2:21-Than asks Adam about the benefits of doing a podcast
3:07-Than’s background in real estate
4:00-How Adam came to know about Than
4:30-How can a realtor structure their business so that they can work with more investors
8:31-Why it is good to know what kind of deals an investor likes to be a part of
11:30-What are the Fortune Builders Find And Flip events
13:30-What is Than’s business model for running his office
18:10-Does Than do mostly buy-and-flip or buy-and-hold deals and which one is better
21:10-Than talks about being a private and hard money lender and making money in any market
22:56-Adding payment schedules to vendor contracts to ensure high quality work that’s done on time
28:34-The value of having partners versus doing it all alone
32:14-Being an investor and an agent
33:45-What blogs, podcasts, or books does Than recommend
37:17-Who is Than’s mentor and how has he thanked them
TRANSCRIPTION
Adam-Welcome everyone to podcast 18. Today is August 17th, 2015. We are sitting here live from the rooftop of the Hermann London Real Estate studios in beautiful downtown Maplewood, Missouri. We are really excited for the show today. We’ve got a great special guest coming on. Than Merrill, who you probably know from A&E’s Flip This House. Before that, I want to give a couple updates. We’ve got some great information on HermannLondon.com. We’ve had some awesome new realtors join the company. We finally have our new property search website up and running. Of course I’m biased, but it’s my favorite website to search properties on. It is Wizah.com. We are still working on the make-an-offer section. We’d love it if you would subscribe to our podcast. We’re on iTunes and Youtube. Look up the St. Louis Realtor Podcast. You can always find our past shows too. We are going to jump in right now to the interview. We’ve got Than calling right now.
Than-Hey, Adam, it’s Than Merrill calling.
Adam-How are you doing?
Than-I’m doing great.
Adam-I appreciate you taking my call.
Than-No problem.
Adam-You have probably done a lot of these podcasts.
Than-I would say I’ve done a handful over the years but I’m more than happy to do this. Is this podcast one of the ways you generate business?
Adam-For me it is a few different things. It is an outlet to talk about real estate. It gives me an opportunity to meet people. It’s helped me get some business. I think it’s helped strengthen my relationships. It also helps me learn about all the different ways people are doing real estate.
Than-Perfect. I own a brokerage out here. I’ve been a licensed agent myself although primarily over the years my focus has been as an investor. Obviously we work hand in hand with great agents over the past 12 years. I assume the majority of people listening are agents, thinking about becoming agents, have been agents, or are agents and investors. I’m more than happy to talk real estate with you.
Adam-I heard about you when I started watching your show Flip This House on A&E, and I’ve heard of you more recently through your Find-And-Flip events. Actually, one of our realtors is a teacher for you guys. He travels every weekend to teach classes for Fortune Builders.
Than-Awesome. Are you talking about Darren?
Adam-Darren Hoefgen. Exactly. We also have 3 realtors here who are Fortune Builders members. How can realtors that are interested in working with investors structure their business to show their best value?
Than-That’s a great question. Realtors are very valuable to an investor’s team. The majority of houses that are bought and sold in the market happen through agents on the MLS and they have been a very integral part of our team for years. One of the best things an agent can do is understand a real estate developer’s or investor’s model. What are they looking to achieve? Buy-and-hold? What types of properties and returns are they trying to target. The more an agent understands about the business model of the investor, the more assistance they can provide to the investor and that investor can become a repeat client. The difference between a retail buyer or someone who buys a house every five years and an investor is that the retail person comes around once every five years. An investor can be five or six transactions per year and they can generate referrals. There’s definitely frustrations that can occur when working with an investor. Investors typically make a lot of conservative or lower offers but if the agent understands that and knows what kinds of properties that will be a deal for the investor, the better. The investor has to do a good job of explaining their business model to the agent. Every agent and investor starts out as a newbie and may not know exactly what they are looking for and how they want to position their business. Over the years we’ve created many relationships with agents that have sent us a lot of properties and we’ve created a long standing and profitable relationships and it’s become a key part of what we do.
Adam-If an agent understands an investor’s model is that really about wasting less of their time?
Than-If an investor is looking for a certain type of return on a rental property and they only want the monthly cash-flow to be as high as possible, then they may not care about the tenant that comes with a certain type of neighborhood. Some investors only want to deal with a market that has a certain type of tenant that comes with a better neighborhood that will appreciate over time and may not be worried as much about the monthly cash-flow. Another type of investor may only like redeveloping properties. If an agent knows that the investor is comfortable with doing $50,000 worth of construction in certain zip codes, the agent can narrow down the amount of leads they send and it makes it easy for that relationship to work. The more questions the agent asks to understand the investor, the better off they can work.
Adam-Let me ask about Fortune Builders Find-And-Flip events. Our timing is great because you an event coming up in St. Louis that starts August 18th. Everyone can go to FindAndFlipEvent.com if they want to find out more and sign up. Do you call it a seminar?
Than-ThansMOevent.com is a different URL that goes right to the St. Louis events. We are running our free informational events Tuesday through Saturday in the St. Louis area. It is a 2 hour event that gives agents and investors some basic information on how to get started buying-and-selling & buying-and-holding properties. We have students at all different levels. Some buy-and-hold a few different properties a year. Some buy-and-redevelop a few a year. Some are buying-and-flipping a few a month. We have investors on all different scales but where our students always start is at one of these events. At these events we offer a 3 day workshop where we get into more detail and it’s modeled after what I’ve developed over the past 12 years. I’ve developed a business model for running my business that is unique. I’ve got 15 team members all with a specific job. You don’t need a business this big to be successful in real estate by any means. People can do real estate part time as a way to supplement their income. At the workshops we are talking through the basics. We show what the risks are. It is a business and should be treated as such.
Adam-If 200 people come to your classes, are they all going to walk out of there with their exact business model? Do they know what kind of properties they want to buy?
Than-In two hours you are not going to learn a business model. If people are expecting to walk out and have a property in the next week, that is not going to happen. I wish we were that good. The point is to show opportunities. A lot of people don’t know real estate at all. We give a very basic overview. A lot of people may walk out and think that real estate may not be for them at this point in their life. A lot of people may walk out and realize the amount of potential in real estate and want to spend more time understanding the market and business models and for those people we have the 3 day seminars. When I say business model, I don’t want to intimidate anyone. It may only be one or two properties a year. Many of our students also have full time jobs as a chiropractor, engineer, or social worker. I strongly believe that at the very least, if people love what they do, buy a rental property over time because it is one of the best ways to start acquiring assets to supplement your income. You could have a property management company manage or you could self manage. It will provide you will a couple hundred dollars of cash-flow each month to pay a mortgage or pay down a bank loan. We don’t know what will happen in any real estate market and markets go go through cycles, but I truly believe in the long term fundamentals of owning real estate and what that can do. It’s a great way of shorting the dollar, locking in a bank financed debt at today’s rates, and fighting inflation. What we are trying to do is encourage people to do is look at real estate to supplement their income.
Adam-When I was watching the show you were more of a buy-and-flip guy. Are you still a buy-and-flip guy or a buy-and-hold guy?
Than-We are both and we’ve always been both. The show just focused on that side of our business because it it more exciting to the viewer. Showing a rental property check from a tenant doesn’t make for that exciting of a show. All the shows tend to focus on the buy-and-flip side. In my opinion it is less sexy and creative, but from a long-term wealth building standpoint, buying-and-holding properties is actually better. Buy-and-flip creates capital that we then turn around and put into buy-and-hold investments. How can you get started if you don’t have a lot of capital? Flipping a deal is a great way of generating a profit. That money should now go back into your bank account and sit at less than 1% interest. A good investor is always looking to put money into something that is going to generate a much higher rate of return than the bank. If you put $20,000 on a $100,000 property and look at the equity buildup, those are attractive returns even on single-family houses in average neighborhood. That’s what large investment banks are doing across the country because they understand those returns. We work on 20-35 flip projects at a time mainly in southern California. We occasionally do joint ventures across the country if it is a really unique investment that makes sense. We turn that money over into two things. One is buying-and-holding properties. The other one that I really like is lending money. There’s a lot of traditional banks that won’t finance a single-family fix-and-flip. We’ve found it to be very profitable to lend money to people who are flipping properties. There is a high rate of return for the lender who is taking most of the risk. There is this whole other world out there of private hard-money lenders. That’s something that we touch on at the workshop. It’s a great way to get your money working for you long-term. It hasn’t changed much over the past 12 years. The price-point may change as the market changes. In a market that has fallen, being in luxury properties may be one of the riskiest niches. I really believe you can make money in any market but you may need to change your business model.
Adam-On an episode a few years ago, those two brothers were negotiating with a vendor and they made him sign your contract. It basically said that if the vendor didn’t finish the job by a certain time then the amount owed will go down. I saw that as this great lesson that I needed to enact on the properties that I’m doing. For some reason I don’t do that. I just trust the plumber. I’m curious if you still use those contracts.
Than-Absolutely. It’s very important when doing a rehab that you structure the paperwork with the contract the right way. The first thing is that you have liability as an investor. If you put $25,000 down and then borrow $75,000 from a hard money lender, you have equity that you put into that project. Then you are trusting other licensed professionals to do what they say. You want to ensure high quality work that is done on a structured scheduled. What you are talking about specifically is called a payment schedule. What we do is put a time frame on that schedule. The golden rule is that you always want to be ahead on work and behind on payments. More work needs to be done on the property than what has been paid out. If we put a contractor on three draws or payments, then if only 40% of the job is done, then we only pay 30-33%.
Adam-Do you pay up front at all?
Than-Rarely. We want to work with contractors that have managed their finances correctly. If a contractor is living paycheck to paycheck, that’s because generally they haven’t figured out or managed their business well yet. What happens is that you are working with a contractor that is not financially stable and then they are apt to do things like walk off the job or take a higher paying job and start taking longer on your job. We always want to have incentives for the contractor to finish and penalties if they drag it out. We always pay our contractors. If they take longer than they say, they should get penalized. This is generally accepted, especially in the commercial world. In the residential world it can be foreign and they want to use their paperwork. We have an independent contractor agreement that shifts the liabilty to the contractor to what they are accountable for. We have a final lien waver. We have a payment schedule that outlines when they get paid and how much needs to be done. On TV we might make it look easy and fun and games. In real life it takes an education to run. These are the small things that matter.
Adam-I wanted to ask you a little bit about the value of having a partner versus doing it all alone. I’ve had a few times where I do a big deal, get a big paycheck, and then I’m high-fiving myself. There is no one to celebrate with. What I can tell from the show, you have always had partners. If you could do it all over again, would you still have partners?
Than-I always encourage people not to partner if they don’t have to. I’m in a partnership but I draw a tremendous amount of value from it and I wouldn’t do it any other way. The value of a partnership is that you are working with someone you love and brings greater enjoyment to your life than without them. It really depends on who that person is and what skill set they bring to the table. A lot of people partner out of fear or they think that somebody is a contractor because they have the knowledge that they don’t. That knowledge can be acquired. You can hire a great contractor. You can hire great agents and mortgage brokers. You shouldn’t partner with someone just because they have some real estate experience. You should partner with someone because they can help you financially, they have a proven track record of success, their success is in another business, and you both think that you can accomplish more together than by yourself. With an education comes confidence and with confidence you realize that you don’t need to partner. If you need someone then you can hire them. I’ve partnered because I wanted to work with my friends. From a business standpoint, was that a great decision? Absolutely not. However, looking back now, I would do it all over again because they are really good friends. We partnered not because we thought we could make more money, but because we wanted to work together. I’ll never regret that decision and it’s probably been one of the greatest benefits of running a real estate business. Adam-I have two more simple questions but is there anything else you want to say before I go there?
Than-I think you do a great thing because you are providing people with education and I’m the biggest proponent of education out there. If you want to be a tremendous real estate agent or investor, it requires an education. Investing is definitely something you can do as an agent. We have a lot of agents that do both. Obviously we own a brokerage so we do both and the go very well together. A lot of agents that are in a market long term, start to realize that their commission can be scaled and grown and profits can be made from other opportunities that come their way. It doesn’t always have to be a listing commission or something that you are comfortable with. Look outside the box. Buy and own properties yourself. You have a lot of the knowledge that will get you started. If you know how to appraise property, comp property, or know what areas are good, then you start to gain this market knowledge and that is something every investor needs too. You already have something that is required to be successful as an investor.
Adam-For a few years I would have a great deal come across my desk, I’d send it to the investor, and then at the closing table I’m making $3,000 while they are making $40,000, and I’m smiling bigger than they are. It took me a while to realize that I need to be doing some of that too.
Than-Realize that there is more risk and you will need to spend time learning. You could lose money on a deal. The reality that with a little bit more risk comes greater reward.
Adam-Is there a blog, podcast, or book that you can recommend?
Than-I’m a book reader and that’s just how I’ve always learned. I set aside time in the morning and evening to read. The E-Myth is an excellent book written by Micheal Gerber. I actually co-wrote The E-Myth Real Estate Investor with Micheal Gerber. It’s a phenomenal book that talks about how to go from being a technician to a manager to an entrepreneur. How to go from working in your business to working on your business. One other book that’s been excellent is Mindset by Carol Dweck and it’s one of my favorite books that I always recommend. That book really changes the way you think. It’s a personal development book but it’s really a psychology book that can help with parenting, personal relationships, and managing your business. It shows what a successful mindset looks like.
Adam-I read E-Myth on Darren’s recommendation and he’s told me to get Mindset.
Than-Well you heard it twice, so you have to go out and get it now.
Adam-My last question is, who is your mentor and how have you thanked them?
Than-My biggest mentor would probably be my mother and I don’t thank her enough.
Adam-Maybe she is listening and going, “Awwww.”
Than-She ran a small business for years and I learned a lot from her about discipline and the value of education. That’s probably the one gift that she constantly instilled in me. If you want to be successful, there are other people out there that have done it. If people don’t attribute their success to mentors, then they are probably not being truthful. Even Warren Buffet has mentors. I have thanked her and I should continue to thank her more. I learned a lot about what it takes to be successful and how to go out and seek education and social skills. Adam-Perfect. I’ll let you go. I really appreciate you bing ont he show today. go call your mom and tell her thanks. I hope that many of our listeners will come to your event this weekend. Take care.
Than-Thank you, Adam.
Adam-Thanks for listening today and I hope you will subscribe to the show.
Don’t forget to email us as Podcast@HermannLondon.com . If you have anyone that you’d like to get on the show and hear us interview, we’d love to do it. Our producer,Joey Vosevich has been extremely successful in getting great people on here for us to talk to. Go out and buy and sell some real estate. Thanks, guys, and take care.