Using Your Real Estate License to Flip Houses in a Highly Competitive Market

Using your real estate license to Flip houses in a highly competitive market

The story of a Peru Immigrant who spoke no english, but now runs a profitable business with his wife; here are his methods and techniques

Today’s Interview is with a high performing flipper and listing agent, Michael Nugent. Michael is a source of inspiration and motivation due to the fact that he is an immigrant who spoke no English when he first got here. Today he and his wife run their successful real estate business AND and agency doing multiple deals a year in Southern California, a highly competitive area for both agents and Flippers

Michael is prepared to spill all of his flipping secrets. If you think you’ve heard a real estate agent/flipper talk before, we guarantee you’ll want to hang around for Nugent’s unique stories and expert tips which are the culmination of 17 years experience - you’ll be glad you did!

You'll Also Hear . . .

• The exact numbers of Michael’s first flip, how he did it, how much money he had to his name

• How to deal with contractors, crews and handymen as well as what to look for in a contractor

• What formula he uses now for flips

• What Michael’s primary means of funds are

• A walkthrough for a typical deal

• How he uses direct mail

• How he uses wholesalers to his benefit

• If his real estate license hinders or benefits him

• What companies and software he prefers

• What type of asset he prefers to invest in and why

• Why it makes sense for him to hire a property manager vs. self-managing properties

• What Michael would do differently 10 years ago and what his biggest regrets are

• The only area he would ever consider investing in and why

• His best advice for those just starting out & amazing door knocking tips

• And much more

Get ready for Michael’s special blend of warmth, professionalism and know-how as he dives deep into the two universes of listing real estate and flipping.

Let’s get to it...

Transcription

Paul doCampo (PC): All right, so this is Michael Nugent, a good friend of mine. He sold my house back in 2010, was it?

Michael Nugent (MN): Yeah, 2010.

PC: Yeah and he did a great job of it and we’ve kept in touch since then. Michael’s also in the real estate investing world, buying rentals and flips, I believe but we’ll get into those questions. So Mike, how’d you get started in real estate?

MN: Well, I first got started in 2002. But the idea was planted in my head in 2001. I used to have this ex-girlfriend whose dad would always invite us to different places like Havasu where he would take us out on his boat and Big Bear where he had this really nice cabin. Then one day he took us out for breakfast.This is back when I used to live in Corona. He took us to the Corona Hangar where little jets and planes were parked. It turns out that he had just purchased a King 4000 which is an 8-person jet or small plane and took us to Santa Barbara for breakfast so that was pretty cool. We were freaked out because this is a small plane so you could feel every bump in the sky but we were drinking champagne and you know, I just had to nerve to ask him,

"Hey man, what is it that you do for a living? You have all this freedom and these things and you seem like a pretty happy guy” and he told me “Well, I’m in real estate, I’m a real estate broker, I own an office” so that’s when the seed was planted and I knew that I had to somehow listen to this guy more and sort of follow his path so we became really good friends. So a year after that I got my license. Right after I graduated from college with a degree in international marketing and an emphasis on finance and actually real estate too. So that’s what opened it up.

PC: You’re from Peru, right? You came out here when you were a teenager?

MN: Yeah, yeah, I came here when I was seventeen years old. So I didn’t speak a lick of English so I had to go to school to learn it and I would go to night school with my mom to learn even faster.

PC: So you did start investing right after you got your license?

MN: No it wasn’t right after. It was actually a year after I got my license. A friend of mine gave me the phone number of a lead and she told me, “You need to call this guy. He has a house in Riverside. He just inherited it and doesn’t know what to do with it. He can’t afford to pay the taxes on it. This could be an investment for you.” I called the guy, set an appointment and then I purchased the house. I asked him what he wanted, he said $80,000. I did my comps really quick and I said, “Sure, I’ll buy it.” So that’s the first time I purchased something. Of course, I didn’t have the money. I only had a couple thousand dollars to my name being that I just started in real estate. I hadn’t been saving that much money so I ended up having to do a HELOC on one of my mom’s properties to pay for the property that way.

PC: Would you ever do that again or recommend that for someone, using a HELOC to flip a property?

MN: Well, the numbers need to make sense. It all depends on how much you’re going to get in return. Back then, I didn’t know anything about real estate investing so I just went with the flow. I knew the property was worth about somewhere in the mid-200’s so I knew I had some room so I felt comfortable doing that. So I told my mom what I was doing, that I needed $80,000 from the

HELOC on her house and that I would pay for the interest and that I would give her a percentage of what I get when I sold the house. And she agreed.

PC: Obviously, that deal profited well for you.

MN: Oh yeah. At the end of the day, I ended up selling it for $310,000 and remember I purchased it for $80,000. It cost me about $60-$65,000 to rehabilitate it. I got ripped off by this contractor that I would only pay in cash and one day, he decided not to show up anymore so I had to find someone else.

PC: Speaking of contractors, I’ve always had issues with contractors. How do you deal with them? How do you find contractors? How do you manage them?

MN: I’ve gone through so many handymen, licensed contractors, unlicensed contractors, it’s a joke. I think that just like in real estate sales, hiring a good match with a contractor is a contact game. I would recycle so many of them through word of mouth, trying them out. That’s how I find this guy that I’m working with now. I do have two crews that I work with now but I can honestly tell you that I work with about 15 or 16 different contractors. Some good qualities of a contractors that I’ve come to understand is that they’ll show up first before you get there, they’ll take notes when you’re explaining the project, they won’t ask for money up front. Once they start the demo, you go ahead and pay their week.

PC: That’s amazing advice right there. Do you have a team in place today?

MC: Yeah, I have two teams in place today. I was forced to do this because I also deal with a full time real estate sales office so I couldn’t play foreman and sub-contract everyone which is what I’d been doing for a long time because I couldn’t find someone to do all that for me. Additionally, I’d have to do all the shopping myself. Going to Home Depot, Lowe’s, getting the lumber, appliances, OfferUp, Craigslist to find deals on materials. And now by having these two contractors I’ve eliminated having to do all of that so that I can focus on what I do best, which is finding deals and negotiating deals.

PC: You don’t give any money up front to them?

MN: No, everything is pretty systemized. They go to Home Depot. I have two credit cards that I use. They’re both business credit cards. One of them is a Home Depot Pro member credit card and one is a Chase Ink credit card that I use for the points. They’re great, my family and I fly now everywhere for free because you know, we charge so much through it. And once you place those credit cards on file with Home Depot, you just have to give your project a name and then you give authorization to text when the contractor goes in to pick up the materials.

PC: Do you own rentals today still?

MN: No, right now I sold them all in 2017 because my wife and I were doing the math and we realized that we were making a lot more money doing the flips rather than holding the rentals. We have become really good at it, we know what people like. So we do the flips in a certain way where I know we will sell it at a 100 plus percent profit from the listing price in a very short window. So that’s what encouraged us to sell the rentals and use that cash to add them to the capital for the flips.

PC: Is there a formula that you use for buying these? You always hear online, “70% rule, 75% rule.” In Southern California, what have you found works for numbers?

MN: Before it used to be almost a 50% spread that you were looking for. Right now, you’re looking at least 30%. It’s just easy math. If I go and see a potential flip, I need to see that there’s at least a $100,000 cushion. That may not sound like a lot because of the competition out there and the fact that I don’t like my money sitting in the bank for very long. I just go after that because I know on an average flip if there is a $100,000 spread from purchase to sales price, I know that I’m going to have to pay my contractor in materials on average about $50,000. In resale price, escrow and all that, I’m going to spend another $12,000 to $15,000 so the remainder there is what I keep which is usually around $35,000. On average. Sometimes I make a little less. Sometimes I make a lot more. Right now, I have a flip that I’m working on and the numbers are showing a return of about $55,000. It’s one that I picked up for $292,000. After it’s done, it’s going to be worth $410,000.

PC: And you’re doing listings as well?

MN: Oh yeah. We are listing machines. I’ve been in the business since 2002. When I first started, I was a buyer’s agent, mostly. Eventually those buyers that I helped became sellers and then we became listing specialists that way. So right now we average about 40 deals per year and most of them are listings.

PC: Finding your flips, you’ve mentioned the MLS to me in the past, is that a solid method for you for finding deals?

MN: Yeah, MLS, the Multiple Listing Service, what every agent uses to upload their new listings. We found those deals through that service. When I first started in 2003 but then in 2004 and 2005 it was too crazy to buy anything because prices were going up weekly so you couldn’t buy anything. So after the crash in 2008, I restarted on flips in 2010 so most of these flip opportunities we found on the MLS because there were a lot of short sales and REOs which means foreclosures, houses that were repossessed by the bank. So we would come across some juicy deals that we were forced to buy because the spread was crazy. So yes, the MLS is the number one. Not so much these days but I still manage to find some good deals like for example the one that I just picked up for $292,000. I found it on the MLS listed for $350,000. The first time it came on the market I sent the agent an offer for $292,000 just to net the seller more money because obviously I’m low-balling them by $58,000. I credited my commission back. They were offering 2.5% commission. So I’m able to do that because I’m representing myself as the buyer and that made the deal sweeter for the seller. Not only that but on the description on the MLS for only agents, there is an agent’s remarks area and on there it read, the seller would be removing a huge tree in front of the property which had messed up the driveway and would replace the concrete. I know the price would have been at least $20,000. But my price is probably going to be around $7,000 or $8,000. So I tell them, “Do not worry about that. I”ll take care of all that.” On top of that, I also offered to pay for the seller’s closing costs and escrow and title because I have a special relationship with my escrow office so they reduce my fees because I give them a lot of volume. That just made an irresistible offer for the sellers. And I was all cash. And I told them that I would close whenever they wanted. And at that time, when I offered, they had a tenant who had been living there for like 20 years, I think. And they needed a long escrow to facilitate the transition out for the tenant. I was able to say, “yeah, no problem.”

PC: So is cash your primary means of funds?

MN: Yeah, cash is my primary means of funds. Sometimes if the deal has a good enough profit margin, I’ll bring other investors in. These other investors are just a circle of three other people that I know. They’re friends and they trust me with their money. If I run out of funds, then I go to my hard money guy. But I try not to use him because hard money’s kind of expensive. You know, you’re paying 2-3 points and you have an APR of 10% fixed for 12 months.

PC: So MLS right now, people are talking about SoCal and any other hot markets and not being able to find deals but you’re obviously still able to find some today?

MN: Yeah, MLS and I also do direct mail. Direct mail works. Word of mouth is huge. I know other agents that know to call me whenever they get a pocket listing and they know it’s going to be a headache to deal with because they have tenants or it’s occupied or the property has a bunch of stuff in it and they can’t even take pictures of it. So they call me and we put a deal together and lately I’ve been using wholesalers. Wholesalers are everywhere. Sometimes, about 1 out of every 30 deals or so they’ll have something that is worth giving a shot.

PC: And do you think that your license has benefited you?

MN: Definitely because as a licensed realtor, I have access to the MLS, I have access to pocket listings. I get to tap into what comes into the market as soon hits. I have the knowledge to comp it. So yeah, I would say it’s an advantage to be a licensed realtor. It only makes sense.

PC: You are finding some deals with direct mail. What are you doing with direct mail that works for you?

MN: Well, we have this full-time real estate office. Everytime we list a property or sell a property, I contact my title rep through Lawyers Title and she introduced me to the idea of promoting my “just-listed, just-sold” to the most likely to sell a house owners within an area that I just sold. They have some sort of formula that is a combination of how many years those people have been living there and how much equity they have on their property and they come up with

Copyright © Paul doCampo VPI Group LLC 2019 whatever numbers I ask of them, either 50, 250 or 1,000. It just depends on the listing. So I get that list and then I go through a company called Corfax and then I modify a flyer that sends “just-listed, just-sold” postcards to this intentional list that I just got from my title rep, promoting my listing and letting them know that not only are we a real estate listing service but we buy houses for cash, can close in 10 days, as is. So sometimes that motivates people to pick up the phone and call us. Another program that I use is ReboGateway. I have my antenna on a certain geographical area or farm, a farm would be considered a group of around 1,000 houses that I’m carefully watching because I know that resale turnover is above 7%. So meaning that if 7% out of 100 houses are selling, I’m able to put those into the system and this software is able to notify me anytime someone gets a notice of default, a tax lien, a divorce, a notice of death. As soon as that happens, it alerts my email. When that happens, I go and drop off something. A notice, a postcard, a letter that tells them, “I buy houses cash.”

PC: So you’re focusing on one area then?

MN: No, I focus on a bunch of little neighborhoods here in Riverside and usually they’re older neighborhoods because I’m interested in mostly flips and of course listings too if I’m not able to get the flip, just advertising my services and just letting people know that if they do not want to deal with the hassle of paying a broker’s commission or listing their home and have to deal with the anxiety of having people come inside their house and having to spend money to have their house look great for people, then they have another option. My option is a cash offer which obviously will not be market value. It will be under market value reflecting whatever repairs are needed.

PC: So you go up to the seller and they know you’re an agent. You give them a cash offer. How low are we talking about here?

MN: For example, I’ll go to a house… someone will call me and give me an address and I’ll run the comparables on the house. I’ll run the comparable on a rehabilitated home. That’s a value that I’m paying attention to. So if I’m going to this house and I run the comps and realize that after I’m done with it, I can sell it for $410,000. Then when I go to the property, I know that the most I’m going to be able to pay the seller is about $310,000. Obviously, sometimes I end up paying less because some houses are worse than others but I need to have at least that

Copyright © Paul doCampo VPI Group LLC 2019 spread. My contractors, on average, charge me $20,000 a house. An average home is a 3 bedroom, 2 bathroom, 1,400 square feet. That’s in labor. Everything else goes out in materials.

PC: About double for materials, you think?

MN: We spend about the same amount for materials, maybe another $20,000 - $25,000 and then the remaining goes into the yard.

PC: So you’re looking at about $40,000 to $50,000 in rehab costs?

MN: Oh yeah. On average, it’s $50,000. Only because the material costs just went up so much. A lot of these contractors are knowledgeable about it. They’re charging me what I think is fair because they’re making $20,000 in 3 weeks, maybe 4 but I’m feeding them one flip after the other, after the other. And on top of that, I’ve got clients who need new roofs, new windows, new driveways. I always have people hitting me up on Facebook and Instagram… “Hey, who do you know who can do this?” So I can keep them busy so that when it’s time to take care of my stuff, they’re available when we close.

PC: Let’s talk about the market. It’s 2019 right now and you’re doing a whole lot of flips. A lot of people are talking about a dip or recession. So what do you think the market’s going to do and how does that affect your strategy?

MN: Well, everybody asks that question. It’s a loaded question and as you know, we live in SoCal and the real estate is so volatile. It’s just crazy. One day, it’s one thing and the next day, it’s a whole different thing. Just to give you an example, in December 2018, not that long ago, properties just stopped selling. Buyers just stopped looking. For the month of December, we went from a seller’s market to a buyer’s marker in a matter of days and it lasted a whole month. And this is in SoCal, Orange, Los Angeles, Riverside and San Bernardino County where we across the board experienced a bump down, a reduction of $20,000 on any given home, because they are people that just have to sell due to a job relocation or someone’s sick. And for some reason, houses were just not selling.

PC: Did that pick up at all?

MN: Yeah, after New Year’s was over… as soon as it was January, it was like the market just woke up from a 30 day coma and then it was back to normal. So it was smooth sailing all over again. But I think it will remain strong until at least January 2020 just due to the drop of the mortgage rates. The rates have dropped. If you have great credit, you can hook up with a 3.5 mortgage rate on your loan. Not only that, obviously, a big amount of qualified buyers that want to replace the high rents with the mortgages now and overall it seems like the economy is doing well. Unemployment is low and consumers are spending. Here in California, it changes by the quarter, almost by the month. That’s what I understand. That’s why I don’t freak out if one month is worse than the last one. I know it’s most likely going to pick up. If we go through a recession again, it will not source from real estate. If we get a natural disaster or something, an earthquake, that may change or something would have to go crazy with the stock market or banks not being able to liquidate people’s assets.

PC: Any plans for cash flow?

MN: Yes, the plan right now is just to capitalize on these flips. Although the returns are not as good as they used to be. I remember when we were doing flips in 2010 and my average return on any flip was about $60,000. Now I have to close like 10 of them. I’m averaging about $30,000 each. It’s still pretty good, I think. It keeps the money flowing and we keep on making contact with more people. Right now, we are just looking at capitalizing, just continue growing that piggy bank. It’s just a matter of time until we can position ourselves so that we can acquire income property but not just yet.

PC: Income property out here in Southern California?

MN: Yes because this is where we plan on living. I personally wouldn’t feel comfortable investing outside of Southern California because I’m not able to be around in case something happens.

PC: What would be your asset that you prefer, single family, multi-family?

MN: I like both. I would probably prefer multi-family, 1 to 4 units, duplexes and triplexes because

PC: Definitely. So, you’ve self-managed those rentals back in the day?

MN: Yeah, I always managed all of them.

PC: Was that tough.

MN: No, it’s actually very simple. The only tough part… it’s not tough, I think it’s annoying when you start getting all these phone calls over little things like people calling to say their lights don’t work when it’s just that the bulb is out or that there’s a leak but there isn’t, they just haven’t shut it off properly… stuff like that. Getting those calls at midnight sucks.

PC: In the future, would you hire a property manager or just keep doing it yourself?

MN: No. Property manager for sure.

PC: Okay, very good. Is there anything you’d do differently back when you first started?

MN: Yeah, looking back, 10 years ago, I really wish I had the vision to consider keeping a lot of those flips because a lot of those flips I bought them for pennies to the dollar. I remember I bought this house in Highland in Moreno County. I picked it up. It was an ugly house on a big lot, a big acre lot. I picked it up for $10,000. But it was 2010, just 2 years since the big crash. People were selling everything. I had to recapitalize. I just needed money, you know? So I wasn’t really thinking long-term. I was just thinking right now which was my biggest downfall. I wish I would have had a big brother or a mentor tell me, “Michael, no, you need to hold on to that house” because that house is going to exponentially increase in price. I bought it on Tuesday and I sold it on a Thursday for $22,000. Now the same house is worth about $300,000. So if I could have known back then… find another investor to help me rehabilitate it and clean it. Put a good tenant in it and split the profits later on.

PC: What do you think the rents are right now for that area?

MN: Well, this house was a 2 bedroom and 1.5 bathroom and rents are around $1,695 to $1,750 so it could have easily rented for about $1,700.

PC: Today, you would have been getting $1,600 a month on a $10,000 maybe $20,000 investment if you had rehabbed it.

MN: Correct. Talking about 9 years ago. 9 times 24 is a lot. 9 times 24 is 216 months. They say an average rent from the end to now with appreciation is about $1,400. I would have made about $302,000 just in rent. And if I decided to sell it right now, I would have made another $300,000 on top of that. I didn’t know that back then. When you’re desperate and you need money, somehow you block your own brain. I probably wouldn’t even need to work if I had just saved 10 of those houses. So if I could have done something different, I would have held on to those houses.

PC: You had at least 10 of them, you said?

MN: Yeah, I had at least 10 of them that ranged from $10,000 to $72,000. I bought a triplex for $72,000 once. That triplex is now worth about $400,000.

PC: The rent would be what… per door? Today?

MN: Well, the main house rents for $1,800 and the two little units in the back rent for $1,000 each so $3,800. You know what I learned, all of the properties that I’ve ever bought were all in neighborhoods. Never near a highway or a busy street. Because it’s just not desirable. I’ve had a few rentals before and I learned that whenever you have a house that is close to a school, that’s where you are going to find forever tenants. Most are going to have young kids. They’re going to set themselves up to take them to that school. It’s just a convenience factor.

PC: There’s a lot of people struggling with finding deals, closing deals out here in Southern California. Do you have any advice for them? What would you say to the young guy starting out?

MN: I would say that consistency is key. Just one thing - you’re young, you don’t have any money to spend on marketing dollars. But you have a car. You can go ahead and drive around your neighborhood. Or just park your car and walk. Print a flyer, black and white. “I buy houses.” Knock on the ugliest houses. If no one answers, leave your flyer and take a picture of the house. And then do a follow up letter. Then knock on the house again. Try to get the phone number or email address of the seller. Just do that every day. Monday through Saturday. We live in a society where everyone wants everything now. People want to get paid now but they’re not willing to do the work. You really have to put those soldier boots on the ground and go knocking. Go do it consistently.

PC: You do a lot of door knocking, right?

MN: Yeah, myself and my wife do door knocking. We’ve found that when it’s her and i people are more willing to talk to us because they see me and I’ve got a beard and they might be scared of me but then they see my wife and she’s so cute and little. So they open up. And what we’ve found that works magic is that we show up and we always have something to give them. We have chocolates or fruit or a bottle of balsamic vinegar that we just bought around 1.000 bottles wholesale. We show up with something. It’s within our community and we love where we live and we take pride in the work that we do. By showing up with a little present, even if they’re not interested, it’s something of value.

PC: That’s listing new clients or are you talking about showing up to cold door knocking with a gift?

MN: Yeah, showing up, cold door knocking. Asking the question, “For the right price, would you list your house or have you considered selling your house to an investor who can pay you cash and close in 10 days, as is, no broker fees?” So we’re showing up as both, realtors and investors.

PC: Are you doing that still today, door knocking?

MN: Yeah, we just haven’t lately because it’s been so hot. But now that the weather is changing, it’s time to get out there and go door knocking.

PC: And door to door. That’s what you would recommend for somebody?

MN: Yeah, I do both. I do door to door with my wife around listings that we just sold that we like and we door knock, hoping to get a listing and to get to know the neighbors and get the word out about the Nugent Group. Or when it’s just me, I’ll go and I have my ugly black and white flyer that says, “I buy houses cash” and I still take the picture of the house and I still take the information and give it to my title rep so she can get the lowdown on it to find out if I want to pursue it because a lot of these houses are tenant-occupied so they’ll never going to contact me. If I get information from my title rep, I’ll find information on the owner. I’ll know where he lives and I can even get his phone number so I can go to his house and introduce myself if they’re local or just send them a nice letter or card.

PC: That’s great so just a lot of boots-on-the-ground, grassroots, getting out there...

MN: It’s a lot of repetitive, boring work but it’s all good when you’re chillin’ in Hawaii for a couple of weeks. Or maybe for a month with your family.

PC: Very good. Great story. And where can people find you, Mike?

MN: On Instagram under Nugent Group Real Estate. We have a nice following there and you will see our new listings, pocket listings and flips. You can also find me on Facebook at Nugent Group Real Estate. If you want to send me an email, you can find me at [email protected]

PC: Mike, you work with investors?

MN: Yeah *laughs* myself. I personally don’t. Working with other investors is not the best use of my time because thankfully I’m at a level now where I can focus on what is producing the most money for my pocket. I think it’s a great idea to work with investors, you just need to be very careful about who you’re working with because a lot of investors and “wanting to be investors” and they’re relying on loans, 100% financing. They don’t know what they’re getting themselves into.

No part of this publication may be reproduced or transmitted in any form, or by any means, electronic or mechanical, including photocopying, and recording, or by any information storage and retrieval without permission in writing from the Publisher. Request for permission can be addressed at:

Paul do Campo 909-614-9473 Office 6939 Schaefer ave SteD. #254 [email protected]

Earnings Disclaimer

Although we make every effort to accurately represent the services and/or products presented on this website, we make no assurance, representation or promise regarding future earnings or income, or that you will make any specific amount of money, or any money at all, or that you will not lose money.

2. Earnings or income statements, or examples of earnings or income, represent estimates of what you may earn; however, there is no promise or guarantee that you my experience the same level of earnings or income.

3. There is no assurance that any prior success or past results regarding earnings or income may be an indication of your future success or results.

4. Statements or examples of actual earnings on this website that are attributed to a specified individual or business are true and correct, and we will verify them upon request and also provide statements of expected typical results; however, these statements or examples should not be viewed as promises or guarantees of earnings or income. Earnings and income potential are affected by a number of factors over which we have no control, including but not limited to your financial condition, talent, skills, level of effort, motivation, past experience and education, your competition, and changes within the market.

5. Operating a business involves unknown risks. You should make decisions based on information provided through services and/or products presented on this website with the understanding that an Internet business may not be suitable for you, and that you could experience significant losses or fail to generate any earnings or income at all.

6. You should undertake your own due diligence regarding your evaluation of any services and/or products presented on this website, and this includes relying on qualified professional advisors to assist you with your evaluation.

7. For the foregoing reasons, you agree that we are not responsible for any decision you may make regarding any information presented on this website or any of the services and/or products presented on this website.